UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 00-50589
In the Matter of DAVID LEE DAVIS,
Debtor.
SAFEWAY MANAGING GENERAL AGENCY, INC. for
STATE AND COUNTY MUTUAL FIRE INSURANCE CO.,
Appellant,
v.
RANDOLPH OSHEROW, Trustee; JAMES BAKER, Individually and as
Temporary Guardian of the ESTATE OF DAVID BAKER,
an Incapacitated Person; and LELE BAKER,
Appellees.
Appeal from the United States District Court
for the Western District of Texas
Austin Division
June 7, 2001
Before GARWOOD, PARKER, and DENNIS, Circuit Judges.
ROBERT M. PARKER, Circuit Judge:
Appellant Safeway Managing General Agency, Inc., appeals the
district court’s judgment affirming the bankruptcy court’s judgment
declaring that a cause of action pursuant to G.A. Stowers Furniture
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Co. v. American Indemnity Co., 15 S.W.2d 544 (Tex. Comm’n App.
1929, holding approved), against Appellant exists in the property
of the bankruptcy estate pursuant to 11 U.S.C. § 541. Because we
conclude that such cause of action does not exist in the property
of the estate, we REVERSE and RENDER.
I.
This action arose out of the following stipulated facts.
David Lee Davis, Debtor, was a driver involved in an automobile
accident on January 21, 1994, that allegedly resulted in injuries
to Appellee David Baker, who was a passenger in Davis’s vehicle.
At the time of the accident, Davis was insured by an automobile
liability policy issued to him by Appellant on August 17, 1993.
The policy provided liability limits of $20,035.00 per person and
aggregate bodily injury limits of $40,035.00 per accident.
On July 8, 1994, Appellee James Baker, as next friend of David
Baker, brought suit against Davis in the State District Court of
Travis County, Texas. The claims in this suit were later amended
to include claims of James Baker, individually and as temporary
guardian of David Baker, as well as claims of Appellee Lele Baker,
individually, and the suit was transferred to the Travis County
Probate Court. Davis was represented by attorney Ken Richey, who
was retained and paid by Appellant. By letter dated April 5, 1994,
Appellant received an offer of settlement from the Bakers, but
never responded.
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On October 20, 1994, Appellant intervened in the State action
and interpleaded the entire bodily injury limits available under
its policy covering Davis. On November 3, 1994, the Bakers
answered Appellant’s intervention and counterclaimed against
Appellant by asserting a cause of action pursuant to Stowers for
negligently failing to settle claims within the policy limits. The
Bakers’ claims against Davis were later transferred to the Probate
Court. In addition to the Bakers, the State action named as
defendants four other claimants who allegedly suffered injuries
arising out of the accident and whose claims exceeded the amount of
insurance proceeds available under Appellant’s policy. All of
these competing claims were resolved before Davis filed his
bankruptcy petition--three by settlement and one by default
judgment.
On July 9, 1996, the trial date for the State action, Davis
filed a Chapter 7 bankruptcy petition and Appellee Randolph Osherow
was appointed as trustee. The Bakers moved the bankruptcy court to
modify the automatic stay to permit the State action to proceed to
a trial and the bankruptcy court modified the stay on October 2,
1996. On November 6, 1996, the bankruptcy court granted Davis his
bankruptcy discharge pursuant to 11 U.S.C. § 727. The Bakers did
not file a complaint or obtain an exception of their claims from
the discharge order. However, on September 8, 1997, the Bakers
filed a proof of claim in the bankruptcy case alleging an
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unsecured, non-priority claim in the amount of $2,300,000.00 for
alleged damages arising as a result of the accident.
The State action was tried on or about January 26, 1998, and
a verdict was rendered in favor of Davis. The trial court granted
a new trial and the action was retried on or about April 26, 1999.
The retrial resulted in a verdict against Davis in the amount of
$550,000.00. The trial court entered judgment against Davis in the
amount of $828,234.42 on July 27, 1999. A motion for new trial was
filed on August 25, 1999, and was denied on October 8, 1999.
After the first verdict, but before the retrial of the State
action, Appellant on February 1, 1999, filed an adversary action in
the bankruptcy court against the trustee and the Bakers seeking a
declaratory judgment that no Stowers claim exists or will exist in
the bankruptcy estate against Appellant for its conduct relating to
the State action. The adversary action was tried by the bankruptcy
court on stipulated facts and the bankruptcy court on February 22,
2000, issued an opinion and a final judgment declaring that a
Stowers cause of action exists and is owned by the bankruptcy
estate. Appellant appealed this judgment to the district court,
which on June 16, 2000, affirmed the bankruptcy court without any
analysis or reasons. Appellant then timely appealed the district
court’s judgment to this court on July 10, 2000.
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II.
We have jurisdiction over this appeal pursuant to 28 U.S.C. §§
158(d) and 1291. We review the trial court’s findings of fact for
clear error and conclusions of law de novo. Century Indem. Co. v.
Nat’l Gypsum Co. Settlement Trust (In re Nat’l Gypsum Co.), 208
F.3d 498, 504 (5th Cir. 2000). The principal issue raised by this
appeal is whether or not the bankruptcy court correctly declared
that a Stowers cause of action accrued and exists in the bankruptcy
estate. Therefore, our review requires the examination of the
bankruptcy court’s judgment under Texas law. See State Farm Life
Ins. Co. v. Swift (In re Swift), 129 F.3d 792, 795 (5th Cir. 1997).
Appellant contends that the bankruptcy court erred in ruling
that a Stowers claim could exist in favor of the estate. Appellant
specifically argues that under Texas law, a Stowers claim does not
accrue until a judgment is rendered in excess of policy limits, and
that in this action, because such judgment was not rendered until
three years after Davis filed for bankruptcy protection, the estate
has no Stowers claim. Moreover, Appellant argues that Davis’s
bankruptcy discharge nullified any potential for a Stowers claim or
any injury that gave rise to a Stowers claim. Finally, Appellant
argues that the bankruptcy court’s decision was based, at least in
part, on factual findings made outside the stipulated facts and
beyond the scope of judicial notice.
We agree with Appellant that there is no Stowers claim in the
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bankruptcy estate. The Texas Supreme Court has held that “a
Stowers cause of action does not accrue until the judgment in the
underlying case becomes final.” Street v. Hon. Second Ct. of
Apps., 756 S.W.2d 299, 301 (Tex. 1988) (emphasis added);
Linkenhoger v. Am. Fid. & Cas. Co., 260 S.W.2d 884, 887 (Tex. 1953)
(“The [insured] could not have maintained this present suit until
such time as his liability and the extent thereof had been
determined by a final judgment.”), overruled in part on other
grounds, Hernandez v. Great Am. Ins. Co. of New York, 464 S.W.2d
91, 93 (Tex. 1971), Street, 756 S.W.2d at 301. Since there was no
judgment against Davis until July 27, 1999, more than three years
after the commencement of his bankruptcy case, Davis could not have
had a Stowers claim against Appellant before that date because “the
tort was not complete.” Linkenhoger, 260 S.W.2d at 887. Because
Davis had no such claim as of the commencement of his bankruptcy
case, such claim also could not have been included in his estate.
See 11 U.S.C. § 541(a)(1) (“[Property of the estate includes] all
legal or equitable interests of the debtor as of the commencement
of the [debtor’s bankruptcy] case.”).
Moreover, Davis’s bankruptcy discharge more than two years
prior to the judgment in the State action negates the existence of
a Stowers claim. A Stowers claim requires both an insurer’s
negligent failure to settle, and subsequent harm or legal injury to
the insured. Foremost County Mut. Ins. Co. v. Home Indem. Co., 897
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F.2d 754, 757 (5th Cir. 1990). Even assuming facts suggesting that
Appellant negligently failed to settle the Bakers’ claims, Davis
has not suffered any legal injury cognizable under a Stowers cause
of action because he is, due to the discharge, no longer personally
liable to the Bakers for any judgment in excess of the amount
covered by the insurance policy. See 11 U.S.C. § 524; cf.
Foremost, 897 F.2d at 758 (holding that a covenant not to execute
releasing the insured from all legal obligations to pay resulted in
no injury to the insured). We agree with Appellees that filing
bankruptcy is costly and burdensome, but we cannot conclude, under
these facts, that a Stowers cause of action exists in the property
of the bankruptcy estate.
Because our conclusion sufficiently disposes of the merits of
this appeal and Appellant’s claim for declaratory judgment, we
express no opinion on Appellant’s argument that the bankruptcy
court clearly erred by finding facts outside the stipulated facts
for trial and beyond the scope of judicial notice. Therefore, the
judgment of the district court is REVERSED and judgment is RENDERED
in favor of Appellant.
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GARWOOD, Circuit Judge, concurring.
I concur, with these additional observations. A Stowers claim
exists to protect the insured against liability on a judgment in
excess of policy limits where that has resulted from the insurer’s
negligent refusal to accept an offer to settle the suit for an
amount within the policy limits. Plainly, the purpose of the
Stowers doctrine is to thus protect the insured——not the plaintiff
in the underlying suit (or the insured’s other creditors) as such.
See Whatley v. City of Dallas, 758 S.W.2d 301, 307 (Tex. App.
Dallas, 1988, writ denied) (plaintiff in underlying suit “has no
standing to assert” Stowers claim). Cf. Hernandez v. Great
American Ins. Co. of N.Y., 464 S.W.2d 91, 94 (Tex. 1971) (“the
Stowers action lies to repair the harm to the insured”). Moreover,
the protection afforded the insured is against real, meaningful——not
simply theoretical——liability. Foremost County Mut. Ins. Co. v.
Home Indem. Co., 897 F.2d 754, 757-58 (5th Cir. 1990). Here, the
insurance company had interpleaded its policy limits into the state
court proceeding over a year before the minor insured filed his
bankruptcy. The insured received his still unobjected to discharge
in bankruptcy well before not only the excess judgment in question
but indeed before any trial in the underlying suit and some ten
months before any claim was even filed in the bankruptcy by the
plaintiff in that suit. Appellee contends, and it is essentially
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undisputed, that the minor insured, at and after his bankruptcy
filing, had total assets——apart from his putative Stowers claim——of
a value of less than $600, consisting entirely of exempt tangible
personal property, had no income and was unemployed. In these
circumstances, it is evident that the insured’s discharge has at
least the same effect as the covenant not to execute in Foremost.1
However, there may be situations where, unlike the present
case, the insured in bankruptcy has, at all relevant times, non-
exempt assets well in excess of the total of all debts other than
that represented by the outstanding judgment in the underlying suit
giving rise to the putative Stowers claim, but the total of that
judgment and all the other debts exceeds the value of the insured’s
assets.2 In such a scenario it is certainly open to reasonable
argument that notwithstanding that the insured receives a discharge
in a bankruptcy commenced before the judgment in the underlying
suit, the insured has in substance used a portion of his non-exempt
assets to pay the excess judgment and should have a Stowers claim
to that extent at least. No such scenario is now before us,
1
And, as the bankruptcy was filed long before the judgment in
the underlying suit there was no Stowers claim when the bankruptcy
commenced and hence such a claim could not be included within the
insured’s bankruptcy estate. 11 U.S.C. § 541 (a)(1).
2
This could conceivably be the case even in an involuntary
bankruptcy commenced before the judgment in the underlying suit.
See 11 U.S.C. §§ 303(b), 541 (a)(1). In that situation, it could
not be reasonably argued that the insured created his own
difficulty by voluntarily filing for bankruptcy before judgment in
the underlying suit.
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however.
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