Revised March 15, 2000
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
____________________
No. 98-40831
____________________
MID-CONTINENT CASUALTY COMPANY,
Plaintiff-Counter Defendant-Appellant,
versus
CHEVRON PIPE LINE COMPANY, ET AL.,
Defendants,
CHEVRON PIPE LINE COMPANY,
Defendant-Counter Claimant-Appellee.
_________________________________________________________________
Appeal from the United States District Court
for the Eastern District of Texas
_________________________________________________________________
February 29, 2000
Before DUHÉ, BARKSDALE, and DENNIS, Circuit Judges.
RHESA HAWKINS BARKSDALE, Circuit Judge:
At issue in this Texas diversity action is whether an injury
to an employee of Power Machinery, Inc. (PMI), the named insured
for Mid-Continent Casualty Company, “arose out of” PMI’s
independent contractor work for Chevron Pipe Line Company (CPL),
Mid-Continent’s additional insured, and is, therefore, covered
under PMI’s liability policy; and whether the attorney’s fees and
costs awarded CPL are reasonable, their having been set in the
light of a settlement agreement and following a subsequent bench
trial on the issue. Regarding coverage, we AFFIRM; for fees and
costs, we REVERSE and REMAND.
I.
Earl Fant, a PMI employee working on CPL’s premises pursuant
to a labor services contract between CPL and PMI, was injured on
26 July 1994 while removing a valve in a vessel storage area. As
his employer, PMI was immune, under the Texas Workers’ Compensation
Act, from suit by Fant. In August 1995, Fant and his wife sued CPL
in federal court, claiming that its negligence caused his injury
(Fant action).
The CPL-PMI services contract required PMI to: (1) provide
laborers to perform CPL’s work; (2) indemnify and hold CPL harmless
from claims for injury or death resulting from PMI’s performance
(except those caused by CPL’s wilful or sole fault); (3) insure
PMI’s contractual indemnity obligations; and (4) name CPL (which
PMI did) as an additional insured under PMI’s policy with Mid-
Continent.
Pursuant to the additional insured endorsement, Mid-Continent
provided a defense for CPL for the Fant action. By bench trial,
the district court in late 1996 ruled: (1) when injured, Fant was
an independent contractor, with the PMI foreman controlling the
manner and details of Fant’s work; and (2) the design of the valve
configuration in the area where Fant was injured was faulty,
because it required the PMI crew to manhandle the valve in a
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cramped area. The court rejected CPL’s “borrowed servant” defense;
concluded that its negligence was the proximate cause of Fant’s
injury; and awarded $435,000 to the Fants. Fant v. Chevron USA,
Inc., No. 95-CV-899 (E.D. Tex. 19 Nov. 1996).
Understanding the court to hold that CPL’s liability rested
solely on the negligent design of its facility, and interpreting
the endorsement as covering liability arising only from PMI’s
negligence, Mid-Continent refused either to further defend or to
indemnify CPL. Accordingly, CPL substituted counsel for the appeal
in the Fant action.
Concomitantly, in the light of its coverage-refusal, Mid-
Continent filed this action in December 1996 against Chevron and
the Fants. It sought a declaratory judgment, based on a Texas
intermediate appellate decision which foreclosed coverage for the
additional insured under a similar endorsement: Granite Constr.
Co. v. Bituminous Ins. Cos., 832 S.W.2d 427 (Tex. App. 1992, no
writ).
CPL and the Fants counterclaimed, inter alia, for bad faith
and violation of Article 21.21 of the Texas Insurance Code
(prohibiting unfair or deceptive trade practices in the insurance
business); and sought a declaratory judgment on coverage. In
addition, CPL filed a third-party claim against PMI, based on its
services contract.
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Pursuant to the Fants’ motion, this action was transferred
from the Southern District of Texas, in Houston, to the Eastern
District of Texas, in Beaumont. There, it was assigned to the
district judge who had presided over the underlying Fant action.
Among the motions regarding the parties’ claims, Mid-Continent
and CPL moved for summary judgment on coverage. This was granted
CPL in October 1997, the district court holding that the
endorsement unambiguously covered the judgment in the Fant action.
Noting that the endorsement does not expressly limit coverage only
for when PMI is at fault, the court held that the “arising out of”
clause in the policy “means ‘originate from’ the named insured’s,
PMI, work for the additional insured, CPL”. (Emphasis added.) The
court held, in the alternative, that CPL was also entitled to
coverage on the bases of (1) Mid-Continent’s waiver of its
defenses, due to its failure to issue an effective reservation of
rights; and (2) CPL’s status as a third-party beneficiary under the
policy’s contractual indemnity provision. Mid-Continent Cas. Co.
v. Chevron Pipe Line Co., No. 97-CV-00095, slip op. at 27 (E.D.
Tex. 10 Oct. 1997).
Following the partial summary judgment, CPL’s third-party
claim against PMI was dismissed. And, with the appeal in the Fant
action pending, settlement was reached between CPL, Mid-Continent,
and the Fants. In that regard, and for the action at hand, CPL and
Mid-Continent settled all issues except coverage and attorney’s
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fees and costs; the latter issue was reserved for a bench trial.
Following same, approximately $560,000 was awarded CPL in mid-1998.
Chevron Pipe Line Co. v. Mid-Continent Cas. Co., No. 97-CV-00095
(E.D. Tex. 2 June 1998).
II.
Mid-Continent contests several rulings concerning coverage.
In the alternative, although it does not challenge CPL being
entitled to fees and costs, it does challenge the amount awarded.
A.
Coverage was decided by summary judgment. The application of
Texas law in interpreting the “additional insured” endorsement and
the coverage holding are reviewed de novo. Sharp v. State Farm
Fire & Cas. Ins. Co., 115 F.3d 1258, 1260 (5th Cir. 1997); see
Liberty Mutual Ins. Co. v. Pine Bluff Sand & Gravel Co., 89 F.3d
243, 246 (5th Cir. 1996) (on summary judgment, questions of law,
including interpretation of agreements, are reviewed de novo).
The endorsement states: “WHO IS AN INSURED ... is amended to
include [CPL], but only with respect to liability arising out of
‘your [PMI’s] work’ for [CPL] by or for you [PMI]”. (Emphasis
added.) “Your [PMI’s] work” is defined in the policy as “[w]ork or
operations performed by you [PMI] or on your behalf; and
[m]aterials, parts or equipment furnished in connection with such
work or operations”.
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The dispute turns on interpreting “arising out of”. Mid-
Continent would limit coverage to CPL’s vicarious liability for
PMI’s negligence, and contends, therefore, that the phrase should
be narrowly interpreted to have a meaning akin to “caused by”. CPL
counters that its negligence, as well as PMI’s, is covered; and
that the injury or accident need only “originate from” or be
“related to” the named insured’s (PMI’s) work for the additional
insured (CPL). CPL urges that, if the endorsement is ambiguous,
then, under Texas law, we must apply the construction favoring it,
the insured. See National Union Fire Ins. Co. v. Kasler Corp., 906
F.2d 196, 198 (5th Cir. 1990).
When summary judgment was rendered, only one reported Texas
appellate decision, noted supra, addressed the scope of coverage
under a similar endorsement: Granite, 832 S.W.2d 427. Mid-
Continent principally relies on it, while CPL seeks to distinguish
it. The Texas Supreme Court has not ruled on this issue.
As here, Granite concerned a services contract by which an
independent contractor agreed to include the other party as an
additional insured. Pursuant to its contract to remove asphalt
from Granite’s construction site, Joe Brown Company so named
Granite under its policy with Bituminous, “but only with respect to
liability arising out of operations performed for such insured
[Granite] by or on behalf of the named insured [Brown]”. Id. at
428. A Brown employee, injured when his truck overturned, sued
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Granite, claiming that its negligence in loading his truck caused
his injury. Id.
Granite contended that coverage was available under the
endorsement, because the claim arose out of operations performed
under the services contract; Bituminous, that the endorsement
covered liability only for activities performed by its named
insured, Brown. Id. at 429. After examining both the services
contract and the endorsement, the Granite court ruled against
coverage. Id. at 430. It acknowledged that the parties presented
“contradictory interpretations” of the endorsement; and that, if
both were reasonable, Granite’s had to be adopted. Id. It
reasoned, however, that, in this instance, limiting coverage would
best effect the parties’ intentions because, under the services
contract, the loading operation was delineated as Granite’s sole
responsibility. Id. The court noted that the allegations in the
employee’s action made it “obvious” that the claim “arose out of
the loading operations performed by Granite ...”, during which
Brown had no role. Id.
Northern Ins. Co. of New York v. Austin Commercial, Inc., 908
F. Supp. 436, 437 (N.D. Tex. 1994), applying Texas law, interpreted
Granite to require a claim of direct negligence against the named
insured in order to trigger coverage. Noting that the named
insured was not a defendant, and that there were no allegations of
negligence against it, the court concluded that, under Granite,
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there was no coverage for the additional insured. Id. Mid-
Continent urges that this Austin-holding is the correct
interpretation of Texas law; CPL, that Granite was misinterpreted.
The parties’ clearly demarcated legal positions regarding the
policy language are only a piece of this puzzle; in district court,
the findings of fact in the underlying Fant action played a central
role. At the summary judgment hearing for this action, Mid-
Continent asserted that liability in the Fant action rested solely
on CPL’s negligent design of its facility; and that, because PMI
did not participate in such design, its work was not causally
connected to the event which prompted liability. Mid-Continent
noted that the Fants did not claim that PMI was negligent, and
asserted that the district court found no negligence by PMI.
CPL contended that the findings of fact in the Fant action
were not dispositive, because PMI was not a party and its fault was
never before the court; and that the absence of findings regarding
PMI’s fault is not the equivalent of finding no fault. In this
regard, it notes that Mid-Continent’s (and the Austin court’s)
reliance on allegations in the plaintiff’s pleadings ignores the
worker’s compensation bar against suing one’s employer.
In granting CPL summary judgment in this action, the district
court stated that Mid-Continent misunderstood its findings in the
Fant action. Acknowledging that it had found CPL’s facility design
faulty, it explained that CPL’s liability was also based, in part,
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on PMI’s failure to utilize equipment available to perform the job
safely (described by the court as “operations negligence”), noting
that the PMI foreman was in control of Fant’s work. In addition,
it stated that the Fant action was distinguishable from Granite,
because Fant’s injury “was not attributable to events for which
[CPL] was solely responsible”. (Emphasis added.)
Subsequent to the summary judgment, and prior to oral argument
here, another Texas intermediate appellate court, interpreting a
similar endorsement under similar facts, reached a result favoring
coverage for the additional insured; in so doing, it disagreed with
Granite and Austin “[t]o the extent they [were] contrary to [its]
opinion”. Admiral Ins. Co. v. Trident NGL, Inc., 988 S.W.2d 451,
454 n.4 (Tex. App. 1999, writ denied).
In Admiral, K-D Oilfield Services (KD), pursuant to its
services agreement with Trident, included Trident as an additional
insured, “‘but only with respect to liability arising out of the
named insured’s [KD’s] operations’”. Id. at 452, 454 (emphasis in
original). A KD employee, preparing to perform maintenance on one
of Trident’s compressors, was injured when it exploded. Id. at
453.
As does Mid-Continent here, Admiral Insurance contended that
the endorsement provided coverage only if the performance by the
named insured, KD, “caused or contributed to” the injury-causing
event, and asserted that, instead, “liability [for the injury]
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arose [solely] out of Trident’s operations”. Id. at 453. Relying
on similar cases from other jurisdictions, Trident responded that
coverage was intended as long as there was a nexus between the
claim and KD’s operations. Id. at 454. It maintained that this
nexus was present, because KD’s employee was on site to maintain
Trident’s equipment. Id.
Noting that the majority of courts addressing similar
endorsements have found coverage for the additional insured where
“the named insured’s employee was injured ... in connection with
performing the named insured’s business, even if the cause of the
injury was the negligence of the additional insured”, id. at 454,
the Admiral court held that,
because the accident ... occurred to a KD
employee while ... on the premises for the
purpose of performing preventative maintenance
on the compressor that exploded, the alleged
liability for the employee’s injuries “arose
out of KD’s operations,” and, therefore, was
covered by the “additional insured” provision.
Further, we note that, giving Admiral every
benefit of the doubt, the policy is at best
ambiguous and the construction that affords
coverage to Trident must be adopted.
Id. at 455 (citing National Union Fire Ins. Co. v. CBI Indus.,
Inc., 907 S.W.2d 517, 520 (Tex. 1995)).
Shortly before oral argument here, and based on the claimed
conflicting holdings in Granite and Admiral, Mid-Continent moved to
certify to the Texas Supreme Court the question of interpretation
of the endorsement.
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Subsequent to oral argument, another Texas appellate court has
agreed with Admiral’s interpretation of the endorsement: McCarthy
Bros. Co. v. Continental Lloyds Ins. Co., 7 S.W.3d 725 (Tex. App.
1999, reh’g overruled). The court based its decision on the Texas
Supreme Court’s recent “broad construction [of] the phrase
‘arising out of’ in ... an automobile policy”. Id. at 729 (citing
Mid-Century Ins. Co. v. Lindsey, 997 S.W.2d 153, 156 (Tex. 1999)).
It expressly “decline[d] to follow” Granite, noting that, by
considering the services contract in its duty-to-defend analysis,
Granite “violate[d] the ‘eight corners’ rule” requiring the court
to look only to the allegations in the complaint and the terms of
the policy. Id. at 730 n.9. See National Union Fire Ins. Co. v.
Merchants Fast Motor Lines, 939 S.W.2d 139, 141 (Tex. 1997).
As noted, the Texas Supreme Court has not ruled on this issue.
Faced with these Texas intermediate appellate decisions, we are
Erie-bound to determine what the Texas Supreme Court would hold.
See Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). “‘[A] decision
by an intermediate appellate court is a datum for ascertaining
state law which is not to be disregarded by a federal court unless
it is convinced ... that the [Texas Supreme Court] would decide
otherwise.’” First Nat’l Bank of Durant v. Trans Terra Corp.
Int’l, 142 F.3d 802, 809 (5th Cir. 1998) (quoting Texas Dep’t of
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Hous. & Community Dev. v. Verex Assurance, Inc., 68 F.3d 922, 928
(5th Cir. 1995) (citation omitted)).
The Mid-Continent endorsement and those in Granite and Admiral
are not identical. Mid-Continent uses “liability arising out of
‘your (PMI’s) work’”, defined by the policy as the named insured’s
[PMI’s] work or operations, while the Granite and Admiral
endorsements, respectively, used “liability arising out of
operations performed ... by or on behalf of the named insured”,
Granite, 832 S.W.2d at 428, and “liability arising out of the named
insured’s operations”. Admiral, 988 S.W.2d at 454 (emphasis
added). On the other hand, the pertinent language in the two
additional insured endorsements at issue in McCarthy is identical
to that in Mid-Continent’s. See McCarthy, 7 S.W.3d at 727 n.4.
Mid-Continent urges that the proper focus of the inquiry is
the language “liability arising out of” and, concomitantly, the
facts which relate to imposition of liability. It continues to
claim that liability was imposed on CPL because of faulty facility
design, which it contends was solely CPL’s responsibility; and
that, therefore, Fant’s injury did not “arise out of” PMI’s
conduct.
CPL contends that coverage in this action would be consistent
with Granite and Admiral (post-argument, CPL notified us of
McCarthy, which had not then been released for publication),
because Granite’s holding rested on (1) the existence of a
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provision in the parties’ services contract which expressly
delegated the activity at issue – loading the truck – to the
additional insured; and (2) the finding that negligence in such
loading was the sole cause of injury. It states that neither
factor is present here, because there is no division of operations
in the CPL-PMI contract, and the district court based CPL’s
liability on PMI’s control of the operations, in addition to CPL’s
faulty facility design. CPL asserts also that project owners’
efforts to protect themselves from claims by independent
contractors’ employees will be thwarted if plaintiff’s failure to
name the workers-compensation-protected employer as a defendant can
defeat coverage for an additional insured. And, it notes that Mid-
Continent easily could have limited coverage by including in the
endorsement terms such as “vicarious liability” or “negligence of
the named insured”.
To the extent that there is a conflict in the approach taken
by Granite and Admiral in interpreting the endorsement, e.g.,
fault-based versus activity-based, we agree with CPL that our
affirming the coverage-for-CPL-ruling does not require us to
resolve such conflict. We are persuaded that, in the light of
Granite’s focus on the word “operations” in the endorsement, which
it considered in conjunction with the parties’ division of
operations in its services contract, there is no need here to reach
the same non-coverage holding.
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First, the word “operations” does not appear in the Mid-
Continent endorsement; rather, it uses “your work”, which, per its
policy definition as work or operations, may indicate that broader
coverage was intended; second, the underlying services contract
does not divide responsibilities between CPL and PMI vis-a-vis
PMI’s work; and finally, based on the finding in the Fant action
that PMI controlled Fant’s work at CPL, his injury, at least in
part, “arose out of” PMI’s work for CPL. Our holding is also
consistent with Admiral. As was the named insured there, PMI was
in the business of supplying workers, and its employee, Fant, was
injured on CPL’s premises while performing the work for which he
had been hired.
Especially in the light of McCarthy, we are not convinced that
the Texas Supreme Court would decide otherwise. And, because of
our coverage holding, we need not address Mid-Continent’s
challenges to the district court’s alternative rulings that CPL has
coverage because of waiver or contractual liability. (Mid-
Continent’s motion to certify is DENIED.)
B.
In the alternative, Mid-Continent contests the amount of the
attorney’s fees and costs awarded CPL. This challenge focuses, in
part, on the district court’s interpretation of the settlement
agreement.
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As noted, pursuant to that agreement, the fees and costs issue
was reserved for a bench trial. CPL requested $370,000 for this
action and $130,000 for the appeal in the Fant action; Mid-
Continent maintained that, at most, the evidence supported $40,000
and $15,000, respectively.
After the bench trial, which included expert witness
testimony, the district judge held that, pursuant to the settlement
agreement, he was to determine reasonable and necessary fees and
costs pertaining to all of CPL’s claims, not just for coverage. In
finding the work by CPL’s counsel to have been “reasonable and
necessary”, the court considered the well-known Johnson factors.
And, having been persuaded by the testimony of CPL’s expert
witness, it found the “blended rate” charged by CPL’s counsel to be
“reasonable and comparable to the customary fees in both Beaumont
and Houston, Texas”.
In the light of the “complex” settlement reached by the
parties and the uniqueness of the case, the court found the
“‘results obtained’ factor [not] particularly relevant”. CPL was
awarded a total of $529,209.88 for the appeal in the Fant action
and the completed work for this action, as well as $30,000 for the
prospective work for this appeal.
The district court’s legal conclusions are reviewed de novo;
its fact findings, for clear error. See, e.g., Pebble Beach Co. v.
Tour 18 I Ltd., 155 F.3d 526, 537 (5th Cir. 1998). “Under the
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clear error standard, we will reverse ... only if we have a
‘definite and firm conviction that a mistake has been committed.’”
Id. (quoting B.H. Bunn Co. v. AAA Replacement Parts Co., 451 F.2d
1254, 1260 (5th Cir. 1971)). Such findings are not insulated by
this deferential standard of review, however, if they are based on
“an erroneous view” of the law. Id. (quoting Johnson v. Hosp.
Corp. of Am., 95 F.3d 383, 395 (5th Cir. 1996)).
We review de novo an unambiguous settlement agreement, see
Tarrant Distribs. Inc. v. Heublein Inc., 127 F.3d 375, 377 (5th
Cir. 1997), as well as “[t]he determination of whether a settlement
agreement is ambiguous.” Sid Richardson Carbon & Gasoline Co. v.
Interenergy Resources, Ltd., 99 F.3d 746, 753 (5th Cir. 1996).
Along this line, the clear error standard is applicable “‘when a
district court uses extrinsic evidence to interpret an ambiguous’”
agreement, Tarrant, 127 F.3d at 377 (quoting In re Raymark Indus.,
Inc., 831 F.2d 550, 553 (5th Cir. 1987)). Of course, state law
governs construction of the agreement. See Lockette v. Greyhound
Lines, Inc., 817 F.2d 1182, 1185 (5th Cir. 1987).
For diversity cases, attorney’s fees awards, which are
“entrusted to the sound discretion of the trial court”, Texas
Commerce Bank Nat’l Ass’n v. Capital Bancshares, Inc., 907 F.2d
1571, 1575 (5th Cir. 1990), are governed by state law. Id.
1.
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The parties differ on interpretation of their settlement
agreement. The pertinent language is found in three provisions.
In ¶ 5.2, “MID-CONTINENT agrees that attorneys’ fees and costs are
recoverable by CPL subsequent to the appeal of [this action] and
upon final judgment of the coverage decision if such decision is
upheld by [the Fifth Circuit] in favor of CPL”. In ¶ 5.3, “[t]he
parties agree that the total amount of fees and costs are [sic] to
be determined” by the district court. Finally, ¶ 5.5., “The
Release”, states: “CPL AND THE FANTS GENERALLY RELEASE AND FOREVER
DISCHARGE MID-CONTINENT FROM ANY AND ALL EXTRA-CONTRACTUAL CLAIMS
WHICH THEY HAVE BASED ON THE MATTERS ALLEGED IN THE LITIGATION SAVE
AND EXCEPT THE COURT’S FINDING OF COVERAGE AND AMOUNT OF
RECOVERABLE ATTORNEYS’ FEES AND COSTS”.
According to Mid-Continent, the only type fees agreed upon are
those CPL could recover in connection with the coverage
determination; and, therefore, the district court erred in relying
solely on the settlement agreement as the basis for granting fees
and costs for CPL’s other claims as well. It asserts that, because
neither CPL’s pleadings nor the pre-trial order give such effect to
the settlement agreement, fees for the appeal in the Fant action
are “recoverable” only as damages for breach of the insurance
policy; fees for the coverage issue in this action, only under §
38.001(8) of the Texas Civil Practice and Remedies Code
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(“reasonable attorney’s fees” may be recovered for breach of
contract).
Mid-Continent asserts further that there is no basis under
Texas law for CPL’s recovery of fees incurred in pursuit of
unsuccessful claims, and that it failed to segregate them.
Therefore, under Stine v. Marathon Oil Co., 976 F.2d 254, 264 (5th
Cir. 1992) (“Texas law requires that attorney’s fees arising from
multiple claim litigation be allowed only for those claims for
which they are authorized”), it maintains that, as a matter of law,
CPL failed to prove what fees were reasonable and necessary
regarding its successful claims. Mid-Continent acknowledges the
trial testimony of CPL’s lead counsel that all fees after entry of
summary judgment on the coverage issue were incurred in connection
with CPL’s Article 21.21 claims, but it contends that the testimony
did not aid the court in determining the amount of fees incurred
for successful claims prior to that judgment.
CPL maintains that it did segregate the fees; that, for the
approximate $338,000 in fees and $36,000 in costs awarded for this
action, approximately $94,000 in fees and $13,000 in costs are
attributable to its pursuit of the 21.21 claims. (CPL was also
awarded approximately $127,000 in fees and $28,000 in costs for the
appeal in the Fant action.) CPL asserts also that the settlement
agreement expressly contemplated trial concerning all reasonable
attorney’s fees and costs, was properly before the court because it
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was included in the pre-trial order, and was a “major concession”,
as a quid pro quo for CPL’s dropping its 21.21 claims and the
opportunity to recover treble damages, on what was otherwise a
coverage dispute.
CPL points to Lefarge Corp. v. Hartford Cas. Ins. Co., 61 F.3d
389 (5th Cir. 1995), in which this court, while acknowledging that
intermediate Texas courts had assumed such fee awards were
recoverable, decided to adhere to our precedent that contracts
issued by insurers subject to Article 21.21 were exempt from
payment of attorney’s fees under § 38.001. See Lefarge, 61 F.3d at
402-03. CPL states that, as a result, it pursued the 21.21 claims
as the only vehicle for recovering its fees in the coverage action.
Finally, CPL contends that, if the settlement agreement is
ambiguous, the district court’s construction is not clearly
erroneous in the light of the entire record and the unrebutted
testimony of CPL’s counsel that all reasonable fees and costs are
“recoverable”.
For contract interpretation under Texas law, our focus, “‘is
to ascertain and to give effect to the intentions of the parties as
expressed in the instrument’”, the settlement agreement. Matador
Petroleum Corp. v. St. Paul Surplus Lines Ins. Co., 174 F.3d 653,
656 (5th Cir. 1999) (quoting R & P Enter. v. LaGuarta, Gavrel &
Kirk, Inc., 596 S.W.2d 517, 518 (Tex. 1980)). A contract, viewed
in its entirety, “is ambiguous only if ‘it is reasonably
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susceptible to more than one meaning’”, id. at 657 (quoting Coker
v. Coker, 650 S.W.2d 391, 393 (Tex. 1983)); and “all of the
surrounding circumstances” must be taken into account. Fender v.
Transamerican Natural Gas Corp., 12 F.3d 480, 485 (5th Cir. 1994).
Although the fees and costs order, which did not have an
express finding of ambiguity, might indicate that the court made
its determination based solely on the plain language of the
settlement agreement, review of the record makes obvious that the
court considered extrinsic evidence in deciphering the parties’
intent. Therefore, we must apply the more deferential standard of
review for findings of fact.
After examining the settlement agreement as a whole, we
conclude that the court’s interpretation was not clearly erroneous.
Mid-Continent is correct that, under the “general rule”, CPL has
the burden of proving its fees are recoverable, see Aetna Cas. &
Sur. v. Wild, 944 S.W.2d 37, 40 (Tex. App. 1997, writ denied)
(citing Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 10 (Tex.
1991)); and that, likewise, fees for claims “not permitted by
statute or contract” must be segregated. Id. at 40-41 (citing
International Sec. Life Ins. Co. v. Finck, 496 S.W.2d 544, 546-47
(Tex. 1973) (emphasis added)). But, because the interpretation of
the agreement was not clearly erroneous, i.e., the agreement
permits recovery of reasonable fees and costs related to all of
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CPL’s claims, we uphold the ruling that CPL had no duty to
segregate the claims.
2.
The amount awarded is an entirely different matter. CPL
conceded that it was entitled only to reasonable fees and costs.
In making the reasonableness determination, the district court
considered the 12 well-known factors outlined in Johnson v. Georgia
Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974).1
Because Texas courts engage in a similar analysis, it has not
been necessary for our court to decide whether the Johnson factors
control in Texas diversity cases. See Atlantic Richfield Co. v.
Manges, 702 F.2d 85, 87 (5th Cir. 1983) (citing Tuthill v.
Southwestern Pub. Servs. Co., 614 S.W.2d 205, 212-13 (Tex. App.
1981, writ ref’d n.r.e.) (citations omitted)); Robinson v. State
Farm Fire & Cas. Co., 13 F.3d 160, 164 (5th Cir. 1994) (noting that
Texas courts use factors similar to those used in federal courts in
awarding attorney’s fees). Nor need we do so now; the parties have
1
Those factors are: (1) time and labor required; (2) novelty
and difficulty of the issues; (3) required skill; (4) whether other
employment is precluded; (5) the customary fee; (6) whether the fee
is fixed or contingent; (7) time limitations; (8) the amount
involved and the results obtained; (9) the attorneys’ experience,
reputation and ability; (10) the “undesirability” of the case; (11)
the nature and length of the professional relationship with the
client; and (12) awards in similar cases. Migis v. Pearle Vision,
Inc., 135 F.3d 1041, 1047 (5th Cir. 1998) (citing Johnson, 488 F.2d
at 717-19).
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used the Johnson analysis, and the Texas Supreme Court has recently
outlined factors comparable to those in Johnson.2
While the clear error standard applies to fact findings on the
Johnson factors separately, “the ultimate award of attorney’s fees
is reviewed for abuse of discretion”, as are determinations
regarding hours and rates. Cobb v. Miller, 818 F.2d 1227, 1231
(5th Cir. 1987) (citations omitted). In determining recoverable
fees, not only must the district court examine “the product of the
hours worked multiplied by the billing rate” (the “lodestar”), it
must also consider, inter alia, “whether the award is excessive in
light of the plaintiff’s overall level of success”. Romaguera v.
Gegenheimer, 162 F.3d 893, 896 (5th Cir. 1998) (citing Hensley v.
Eckerhart, 461 U.S. 424, 434 (1983)). Moreover, the requested fees
must bear a “‘reasonable relationship to the amount in controversy
or to the complexity’” of the circumstances of the case. Jerry
2
These factors are “‘(1) the time and labor required, the
novelty and difficulty of the questions involved, and the skill
required to perform the legal service properly; (2) the likelihood
... that the acceptance of the particular employment will preclude
other employment by the lawyer; (3) the fee customarily charged in
the locality for similar legal services; (4) the amount involved
and the results obtained; (5) the time limitations imposed by the
client or by the circumstances; (6) the nature and length of the
professional relationship with the client; (7) the expertise,
reputation, and ability of the lawyer or lawyers performing the
services; and (8) whether the fee is fixed or contingent on results
obtained or uncertainty of the collection before the legal services
have been rendered.’” Arthur Anderson & Co. v. Perry Equip. Corp.,
945 S.W.2d 812, 818 (Tex. 1997) (quoting TEX. DISCIPLINARY R. PROF.
CONDUCT 1.04, reprinted in TEX. GOV’T CODE, tit. 2, subtit. G app.
(STATE BAR RULES, art. X, § 9)).
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Parks Equip. Co. v. Southeast Equip. Co., 817 F.2d 340, 344 (5th
Cir. 1987) (quoting Giles v. Cardenas, 697 S.W.2d 422, 429 (Tex.
App. 1985, writ ref’d n.r.e.)). In deciding whether fees are
excessive, we “[are] entitled to look at the entire record and to
view the matter in the light of the testimony, the amount in
controversy, the nature of the case, and our common knowledge and
experience as lawyers and judges”. Id.
As examples of claimed unreasonable time spent and fees
billed, Mid-Continent cites, inter alia: (1) 32 hours spent on the
argument summary for a pending summary judgment motion, billed at
$5,500; (2) 75 hours on the order awarding CPL summary judgment,
billed at $14,000; (3) $5,500 billed for subpoenas issued to Mid-
Continent’s lead counsel, seeking his files regarding a published
decision in which he acted as counsel; and (4) over 30 hours of
research for a memo on legal malpractice claims CPL did not
initiate, at $2,500. Regarding the appeal in the Fant action, Mid-
Continent contends that it should not be held accountable, for
example, for over $30,000 billed to CPL for work done by its
counsel prior to their assuming the appeal.
Mid-Continent asserts that CPL’s counsel overstaffed their
work, citing to bill summary entries indicating that 11 lawyers and
at least six paralegals, over a period of slightly more than a
year, worked on this action. In addition, it contends that CPL’s
billing 875 hours for the appeal of the Fant two-day bench trial is
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excessive, noting, for example, that three different attorneys and
a paralegal spent a combined 140 hours reviewing the Fant trial
transcript, at a cost of $19,000; and that there are $4,000 in
“double charges”, i.e., where the same entry appears twice in the
same day or on consecutive days.
Mid-Continent contends further that the district judge abused
his discretion by failing to consider all of the Johnson factors,
especially degree of success. It asserts that CPL was unsuccessful
on more than half of its claims; and that, even though CPL had
sought over $10 million in this action, the extent of the benefit
it achieved was simply to avoid paying a $325,000 settlement to the
Fants.
And, Mid-Continent claims that the district judge’s reliance
on the testimony of CPL’s expert — that CPL’s blended hourly rate
of $137 per hour was reasonable — was error, because that method
contradicts the lodestar analysis. It also contests the award of
paralegal fees and costs, as consisting mainly of clerical, non-
recoverable overhead, and the prospective fees awarded for this
appeal ($30,000), because the district judge could not determine
the reasonableness of the prospective work.
CPL responds that its fees and costs were necessitated by Mid-
Continent’s own conduct, citing, inter alia, its motion to
disqualify CPL’s lead counsel and his firm, and its efforts to
limit discovery. In justification of the award, CPL states that it
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had to alter its approach in the appeal in the Fant action to show
that Fant’s supervisor was also a “borrowed servant”; that the
“factual intensity” of this defense required a detailed review of
the record in the Fant action; and that, after summary judgment was
granted on coverage, it began pursuing its Article 21.21 claims,
because Mid-Continent was not amenable to a settlement on
attorney’s fees and costs.
CPL asserts that the research on the legal malpractice issue
(concerning counsel provided by Mid-Continent to CPL in the Fant
action) was legitimate; and that it did not seek reimbursement for
fees prior to taking over the appeal in the Fant action. As for
costs, CPL explained at trial that it sought costs due, inter alia,
to the breach of the insurance contract.
CPL maintains that the district court properly considered the
Johnson factors, and that it (CPL) had a high degree of success,
not only in obtaining coverage, but also in reducing the judgment
in the Fant action, valued at approximately $550,000 at time of
settlement, to $325,000; that the district judge did not abuse his
discretion in finding the blended rate reasonable; and, citing to
case law in the Second and Fourth Circuits, that, because Mid-
Continent originally filed suit in Houston, consideration of
Houston rates was proper. See Rum Creek Coal Sales, Inc. v.
Caperton, 31 F.3d 169, 175 (4th Cir. 1994) (stating that if
reasonable, court may consider rates in other communities); Polk v.
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New York State Dep’t of Correctional Servs., 722 F.2d 23, 25 (2d
Cir. 1983) (stating that court may look to prevailing rate in forum
where action filed). Finally, CPL claims that it segregated
clerical work from its paralegal fees, and that the prospective
award of fees for this appeal was proper, because Texas courts have
specifically approved such awards.
Both parties have characterized themselves as victims of
litigational warfare: Mid-Continent accuses CPL of responding to
its “simple request for declaratory relief as if nuclear war had
been declared”; CPL counters that Mid-Continent is responsible for
the “blitzkrieg” of litigation which drove up CPL’s fees and costs.
Needless to say, neither party is a novice to litigation. And, it
also goes without saying that the cost in time and expense to the
parties and the courts because of this fees and costs dispute is
most regrettable and, for the most part, quite unnecessary. No
authority need be cited for the fact that such disputes should not
be a separate, or second, litigation.
Sadly, the “settlement agreement” failed miserably in this
regard. Moreover, while it was proper for the district court to
consider that agreement, it does not, by itself, “provide ... a
meaningful way to determine if the actual amount of attorney fees
was in fact reasonable and necessary”. Dunn v. Southern Farm
Bureau Cas. Ins. Co., 991 S.W.2d 467, 475 (Tex. App. 1999, writ
denied).
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This fees dispute for this action does have some complexity,
in part due to the multiple claims. But, based on our review of
the record, including the billing summaries submitted by CPL, the
award for this action of $338,314 in fees and $36,485.24 in costs
is excessive for what was — or at least should have been — simply
a coverage dispute. See Capital Bancshares, 907 F.2d at 1575.
Along this same line, the award of $126,892.25 in fees and
$27,821.39 in costs for the appeal in the Fant action is
unreasonable. In sum, the amount of the award was an abuse of
discretion.
In this regard, the district court did not abuse its
discretion in accepting CPL’s blended rate for attorney’s fees, or
in awarding fees for this appeal. See Clark Adver. Agency, Inc. v.
Tice, 490 F.2d 834, 840 (5th Cir. 1974) (citing Yellow Freight
Sys., Inc. v. Hydraulic Prods. Co., 482 S.W.2d 659 (Tex. App.
1972)). But, in deciding to use the Johnson factors, the court
should have utilized them more precisely, especially, as noted,
regarding the degree of success. And, at the least, it should have
explained its reasons for rejecting Mid-Continent’s other
objections to CPL’s request. See Atlantic Richfield, 702 F.2d at
88.
As discussed, the district court did not clearly err in
considering CPL’s request for all claims. But, many of Mid-
Continent’s complaints appear legitimate, including, for example,
- 27 -
those about billing record entries regarding clerical work
performed by paralegals. See Allen v. United States Steel Corp.,
665 F.2d 689, 697 (5th Cir. 1982) (noting that paralegal costs may
be recovered “only to the extent that the paralegal performs work
traditionally done by an attorney”); Gill Sav. Ass’n v.
International Supply Co., 759 S.W.2d 697, 703 (Tex. App. 1988, writ
denied) (finding “legal work” properly performed by legal
assistants recoverable) (emphasis added).
Mid-Continent requests that we render judgment on the award,
citing Cobb, 818 F.2d at 1235. The Cobb court, having reversed the
amount of the award, rendered judgment for the lodestar amount.
Id. CPL does not respond specifically to this request; however, it
does assert that the district judge, having presided over both the
underlying Fant action and this one, was “uniquely positioned” to
determine the award. The unusual posture of this issue – a bench
trial in which, in addition to documentary evidence, the district
judge considered the credibility of the parties’ expert witnesses
— persuades us that a remand is the wiser course.
Needless to say, on remand, “the court should exclude all time
[in CPL’s billing records] that is excessive, duplicative, or
inadequately documented”. Watkins v. Fordice, 7 F.3d 453, 457 (5th
Cir. 1993) (emphasis added). And, among other things, the court
can better determine the fee to award for this appeal for this
action.
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III.
For the foregoing reasons, those parts of the judgment as to
coverage and as to CPL being entitled to attorney’s fees and costs
are AFFIRMED; those parts as to the amount of those fees and costs
are REVERSED; and this matter is REMANDED for further proceedings
consistent with this opinion.
AFFIRMED IN PART; REVERSED AND REMANDED IN PART
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