UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 00-40255
UNITED STATES FIRE INSURANCE COMPANY,
Plaintiff-Appellee,
VERSUS
ALBERT VILLEGAS, doing business as
Law Offices of Albert Villegas,
Defendant-Appellant.
Appeal from the United States District Court
for the Southern District of Texas
February 12, 2001
Before JONES and DeMOSS, Circuit Judges, and BARZILAY*, District
Judge.
DeMOSS, Circuit Judge:
Attorney Albert Villegas (“Villegas”) appeals from the final
judgment entered by the district court which granted judgment in
favor of United States Fire Insurance Company (“USF”) on a
conversion claim arising from Villegas’s negotiation of a
settlement that was in contravention of USF’s subrogation rights.
*
Judge, U.S. Court of International Trade, sitting by
designation.
For the reasons discussed below, we AFFIRM the judgment of the
district court.
I.
The underlying claim giving rise to this indemnification
dispute was an on-the-job injury suffered by Villegas’s client,
Ruben Perez. Pursuant to a worker’s compensation policy with
Perez’s employer, USF paid medical expenses and made indemnity
payments to Perez in the total sum of $71,872.20. Villegas later
filed a third-party complaint on behalf of Perez and his family.
On August 3, 1994, USF notified Villegas of its subrogation rights
and lien on any benefits which might have been recovered in the
third-party claim. That action was ultimately settled at mediation
for a total of $150,000.
Five days prior to the mediation conference, Villegas
represented to the state court hearing the “friendly” third-party
action, that the worker’s compensation carrier had a statutory
right to the first of the settlement proceeds and that he was
obligated to protect the worker’s compensation lien. He further
represented to the court that he represented the lienholder. At
the mediation on September 6, 1995, Villegas entered into a
settlement agreement under which $30,000 was to be awarded Perez,
USF’s parent company, and Villegas, and $120,000 was awarded to
Villegas and Perez family members. USF did not attend the
mediation conference relying instead on Villegas’s statutory duty
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to protect its $71,872.20 lien. In October 1995, Villegas tried to
cash the $30,000 check to make a distribution to USF’s parent
company, Villegas, and Perez, but an agent of the parent company
took the check and locked it in her drawer. The check was given to
Arnold Aguilar, USF’s attorney, in December 1995, and it remained
in his possession until April 1997 when Villegas demanded that it
be placed in the registry of the court.
On April 7, 1997, USF filed suit against Villegas asserting
that his actions constituted conversion and demanding actual
damages for the full amount of the lien as well as for punitive
damages and attorney’s fees. Specifically, USF claimed that
Villegas destroyed, and effectively converted, its right to
reimbursement for $36,263.65 in indemnity benefits and $35,608.55
in medical payments (a combined figure of $71,872.20). As a result
of the settlement awarding only $30,000 to Perez and USF’s parent
as opposed to the full $150,000, USF was unable to recover the
total amount of benefits which it had paid. The settlement also
precluded USF’s ability to receive a credit towards any future
medical payments up to the settlement total of $150,000.
In his own testimony, Villegas conceded that he was aware of
the amount of USF’s lien and the fact that he had a duty to protect
that lien. He also conceded that if one accepts and benefits from
a portion of a third-party settlement with actual notice that the
funds are subject to a worker’s compensation carrier’s subrogation
right, one does so wrongfully and is subject to a cause of action
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for conversion.
In response to USF’s complaint, Villegas filed a motion to
dismiss for lack of jurisdiction because the amount in controversy
did not exceed the $75,000 requirement for diversity cases. He
contended that USF’s actual damages amounted only to $71,872.20.
A magistrate judge recommended that the motion to dismiss be denied
because on the face of its complaint, USF also sought punitive
damages against Villegas for his actions. Villegas contended that
punitive damages could only be recovered upon a showing of malice,
and because malice requires a finding that his actions would have
resulted in the financial ruin of USF, no punitive damages could
ever be recovered by the fully solvent USF, and thus the only form
of available damages, compensatory, were insufficient to establish
jurisdiction. In its order accepting the magistrate judge’s report
and recommendation and denying Villegas’s motion to dismiss, the
district court noted that Villegas’s motion relied on USF’s claim
for malice at trial, but that it ignored evidence in the pretrial
record showing that the conversion alleged in the complaint was
perpetrated by fraud in that Villegas falsely represented to the
state court in the “friendly” proceeding that he represented USF.
The district court found clear evidence that Villegas completely
failed to properly communicate with USF regarding settlement
beforehand, and that he falsely portrayed himself as a
representative of USF, and that as a result of this
misrepresentation, he was able to settle the claim in a manner
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adverse to USF’s interests. The district court concluded that
jurisdiction was proper because USF’s valid punitive damages claim,
if established and coupled with the alleged actual damages, would
satisfy the $75,000 amount in controversy requirement.
The parties agreed that the district court needed to first
make a legal determination as to whether the settlement agreement
would be res judicata against USF’s conversion claim. The parties
further agreed that if the settlement did not constitute res
judicata, Villegas would then be liable for conversion as a matter
of law. The district court received argument from both sides and
then concluded, as a matter of law, that Villegas converted the
medical and indemnity payments made by USF to Perez by not making
certain that USF’s lien was protected through first monies payment
to USF, and that Villegas benefitted from the proceeds of the
settlement. The district court went on to hold that Villegas also
converted some portion of the remaining $78,127.80, that portion
being an amount which a jury would decide should have been awarded
to Perez instead of the four other family members. This issue was
litigated by the parties so that USF could receive a credit for any
future medical payments it may have to make to Mr. Perez. But the
district court declined to submit the issue to the jury, and USF
has waived its challenge to this issue on appeal. The district
court did ask the jury to decide whether USF was entitled to
punitive damages on the basis that Villegas acted with malice. On
this issue, the jury returned with a verdict denying USF any
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punitive damages.
The district court then considered Villegas’s waiver of any
entitlement to the original $30,000 settlement funds, in addition
to approximately $800 interest on those funds. After deducting
expenses, the district court found that the remaining portion of
the original $71,872.20 in damages converted by Villegas was
$29,405.07. Final judgment in that amount plus $5,997.83 in
prejudgment interest was entered in favor of USF. Villegas has
timely appealed.
II.
In Villegas’s first point on appeal, he argues that the
district court never had jurisdiction over this case to begin with
because the amount in controversy never exceeded the $75,000
threshold found in 28 U.S.C. § 1332(a)(1). We review the district
court’s determination as to jurisdiction de novo. See St. Paul
Reinsurance Co. v. Greenberg, 134 F.3d 1250, 1252 (5th Cir. 1998).
The district court’s factual determinations made in the process of
determining jurisdiction are reviewed for clear error. See Harvey
Construction Co. v. Robertson-Ceco Corp., 10 F.3d 300, 303 (5th
Cir. 1994).
The jurisdictional issue presented in this appeal is quite
simple: was USF’s claim for punitive damages sufficient to bring
its claim for $71,872.20 in actual damages over the $75,000
threshold for federal diversity jurisdiction. It is undisputed
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that actual damages claimed for medical and indemnity payments
already made by USF totaled $71,872.20. What is in dispute is the
value, if any, of USF’s remaining claims for which it ultimately
received no relief.
USF contends that in addition to its actual damages, its
complaint asserted a claim for the present value, in the form of a
credit, of any future medical expenses it might have to pay Mr.
Perez, as well as for those additional punitive damages to which it
alleges it is entitled as a result of Villegas’s fraudulent
activities. And despite Villegas’s protestation that USF did not
present its fraud claim to the jury and that the jury did not find
malice, USF properly notes that neither of these facts prevents
those claims from being used to satisfy the amount in controversy
requirement for federal diversity jurisdiction.
As the Supreme Court has made clear, where it appears to a
legal certainty that a plaintiff’s claim is truly for an amount
below the jurisdictional amount required to confer federal
jurisdiction, dismissal may be justified. In making that
determination the district court may look, not only to the face of
the complaint, but to the proofs offered by the parties. See St.
Paul Mercury Indemnity v. Red Cab Co., 58 S. Ct. 586, 590 (1938);
see also Greenberg, 134 F.3d at 1253.
Villegas notes that the applicable Texas statute governing the
reimbursement of worker’s compensation benefits from third-party
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settlements requires that the lien be reduced by a proportionate
share of litigation expenses, as was done in this case. Villegas
contends that after reducing for expenses, USF only pleaded actual
damages in an amount approximating $60,000. Villegas next contends
that to get over the $75,000 hurdle, USF added a claim for punitive
damages, upon which it would never have been able to recover,
simply to get into federal court.
Villegas overlooks two important points regarding the amount
in controversy. First, USF pleaded and proved that the settlement
negotiated by Villegas would preclude any credit in its favor for
future medical payments. Those payments would be above and beyond
the $71,872.20 already paid. Thus, USF was indeed justifiably
seeking recovery in excess of $75,000, when the value of the lost
credit for future payments is considered. While the district court
denied the jury the opportunity to apportion the remaining amount
of the settlement up to $150,000 because Mr. Perez was not a party
to the suit before it, we are nonetheless justified in considering
this category of damages when determining whether the amount in
controversy was sufficient to support federal court jurisdiction.
See Greenberg, 134 F.3d at 1253.
Likewise, Villegas overlooks USF’s claim for punitive damages.
As noted above, Villegas claims that no punitive damages were
recoverable. But a closer look reveals that USF’s assertion of the
claim for punitive damages was legitimate in light of Villegas’s
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behavior. The jury’s failure to award such damages, however, does
not preclude our reliance upon such potential damages to establish
the threshold amount in controversy. See Greenberg, 134 F.3d at
1253-54 (“[J]urisdictional facts must be judged as of the time the
complaint is filed; subsequent events cannot serve to deprive the
court of jurisdiction once it has attached.”) Texas law permits
recovery of exemplary or punitive damages upon a showing of fraud
or malice. See Tex. Civ. Prac. & Rem. Code § 41.003(a). As is
discussed above, USF claimed in its complaint that Villegas acted
with malice. Additionally, the evidence presented established that
Villegas knowingly misrepresented himself as a representative of
USF to the state court, and he profited from such representation,
that is to say, his misrepresentation inured to his benefit and to
USF’s detriment. Clearly a fact issue existed as to Villegas’s
malicious or fraudulent actions sufficient to sustain and support
a claim for punitive damages under Texas law. Indeed, the jury was
properly given the issue of punitive damages for its resolution of
the factual issues related thereto. See id. at 1253 (“the court
may rely on ‘summary judgment-type’ evidence to ascertain the
amount in controversy”).
Villegas’s claim that malice can only be established if the
plaintiff establishes that the charged malicious conduct threatened
USF with financial ruin is a strained interpretation of the Texas
Supreme Court’s decision in Transportation Ins. Co. v. Moriel, 879
9
S.W.2d 10, 24 (Tex. 1994) at best. In Moriel, the court, in
stating that a plaintiff must establish “extraordinary harm” and in
using examples of death, physical injury, or financial ruin,
established a standard for delineating between ordinary negligence
and gross negligence by an insurance company against an individual.
Indeed, as USF properly notes, Villegas’s strained interpretation,
if accepted, would lead to a rule that he should be allowed to
violate a statute, convert funds to his own use with full knowledge
that his actions are contrary to law, and completely eliminate
USF’s ability to satisfy its lien, just because USF can afford to
absorb the loss. Such a result would be absurd and we decline to
extend Moriel in the manner suggested by Villegas.
We also note that USF had a colorable claim for punitive
damages based upon Villegas’s admitted fraudulent acts, and that
USF requested a jury instruction to that effect. Under the facts
of this case, to suggest that USF was not justified in adding a
claim for punitive damages for behavior which Villegas himself
admits was suspect, is disingenuous. USF had a good faith basis
for proceeding with its claim for punitive damages, and Villegas
has failed to show that USF would, under no circumstances, have
ever been able to recover for punitive damages. Indeed, we
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conclude that had the jury found in favor of USF on its punitive
damages claim, such a finding would most certainly have been
supported by the record of this case.
Accordingly, we conclude that though USF’s actual damages
tallied less than $75,000, it asserted in good faith additional
claims which when combined with the actual damages, permitted the
district court to accept federal diversity jurisdiction over USF’s
conversion claims.
III.
Villegas argues in the alternative that the district court
erred in holding that, as a matter of law, he had converted USF
funds. We review de novo the district court’s award of judgment as
a matter of law pursuant to Rule 50(a)(1), and we evaluate the
evidence in the light most favorable to the non-moving party. See
Casarez v. Burlington Northern/Santa Fe Co., 193 F.3d 334, 336 (5th
Cir. 1999).
Villegas contends that there is a conflict in the evidence as
to whether USF suffered a loss. He contends that under Texas law,
a conversion action is one for the wrongful exercise of dominion
and control over the personal property of another, and that only
the person whose rights were interfered with has a cause of action.
See Lone Star Beer, Inc. v. Republic Nat. Bank of Dallas, 508
S.W.2d 686 (Tex.Civ.App.–Dallas 1974, no writ). According to
Villegas, the disputed money in this case belonged, not to USF, but
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to the Texas Worker’s Compensation Insurance Facility (“the
Facility”) for whom USF operated as a servicing company. According
to Villegas, Texas law clearly states that an entity functioning as
a conduit for money does not have a conversion cause of action.
See Groves v. Hanks, 546 S.W.2d 638 (Tex.Civ.App.–Corpus Christi
1976, writ ref’d n.r.e.). Villegas argues that the evidence in
this case established only that the Facility was entitled to the
funds and that USF was merely passing money through to another
party.
Villegas fails to acknowledge that the very case he cites also
states that a conversion plaintiff need only prove “that it is the
owner of the property converted or that it had legal possession of
the property so taken or that it is entitled to possession.” Lone
Star Beer, 508 S.W.2d at 687 (emphasis supplied). As the testimony
revealed, when an employee is injured and files a claim through his
employer, the employer files a claim with the servicing carrier (in
this case USF), and the carrier pays the benefits. USF payed
benefits directly to Mr. Perez and USF was later to be reimbursed
by the Facility. Notwithstanding a separate arrangement with the
Facility regarding indemnification, the evidence clearly
established that all funds paid to Mr. Perez and converted by
Villegas belonged to USF. As USF notes, the Groves case would only
be applicable to this case if the Facility was seeking funds from
USF. Here, the only relevant issue is whether Villegas converted
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funds from USF, and the issue of who ultimately should recover
those funds is between USF and the Facility, not USF and Villegas.
We therefore conclude that the district court did not err in
concluding that Villegas converted funds which belonged to USF,
irrespective of the relationship between USF and the Facility, and
no reversible error has been shown.
IV.
Finally, Villegas contends that the district court erred in
holding that USF’s actual damages totaled $29,405.07. Here,
Villegas argues that the insurance carrier is not entitled to any
reimbursement for a settlement to the beneficiary’s spouse or
children. He contends that a trier of fact should have apportioned
the value of each of the claims of the beneficiary, his spouse, and
each of the children. Without such an accounting, Villegas
contends that the district court could not determine what amount he
converted.
Villegas overlooks the fact that this is a conversion action
between himself and USF and that USF was not a party to the
underlying lawsuit resulting in the settlement. USF correctly
notes that as a worker’s compensation carrier, it is entitled to
recoupment of its claims first to the extent of all compensation
paid out. See Watson v. Glenn Falls Ins. Co., 505 S.W.2d 793, 795
(Tex. 1974). Under Texas law, a trial court has no authority to
apportion settlement funds between an injured’s estate, spouse, or
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children, without first giving effect to the wording of the
Worker’s Compensation Act by first reimbursing the carrier. See
Performance Ins. Co. v. Frans, 902 S.W.2d 582, 585 (Tex.App.–
Houston [1st Dist.] 1995, writ denied). And Villegas himself
agrees that, under Texas law, a carrier is not required to
intervene in a third-party action in order to enforce its rights to
subrogation, and that any agreement reached between beneficiaries
and non-beneficiaries is not binding with respect to the recovery
of a workers compensation carrier’s subrogation claim.
We conclude that the district court did not err by refusing to
allow the jury to reapportion the settlement funds due to Perez and
his family members. USF is entitled to have its expenses
reimbursed first, before any benefits are paid to any beneficiary,
spouse, or child. Villegas has repeatedly acknowledged by his own
testimony that all of the elements for conversion have been
satisfied, and he presents no winning argument that the district
court should permit a new accounting of the settlement since,
irrespective of a reapportionment, USF is entitled to first
proceeds from the settlement, before any individual beneficiary or
relative receives their apportioned interest.
V.
Based upon the foregoing, we find that no reversible error was
committed by the district court. Accordingly, we AFFIRM in all
respects the judgment entered by the district court.
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AFFIRMED.
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