Case: 13-20293 Document: 00512705356 Page: 1 Date Filed: 07/21/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 13-20293 FILED
July 21, 2014
Lyle W. Cayce
COASTAL AGRICULTURAL SUPPLY, INCORPORATED, Clerk
Plaintiff - Appellant
v.
JP MORGAN CHASE BANK, N.A.,
Defendant - Appellee
Appeal from the United States District Court
for the Southern District of Texas
Before HIGGINBOTHAM, DAVIS, and HAYNES, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
Coastal Agricultural Supply, Incorporated brings this interlocutory
appeal on two questions of law, namely whether § 3.405 of the UCC can serve
as an affirmative defense to a common law “money had and received” claim,
and whether settlement credits in Texas reduce the nonsettling defendant’s
liability rather than the plaintiff’s total loss. For the reasons stated below, we
AFFIRM and REMAND for proceedings consistent with this opinion.
I
Coastal Agricultural Supply, Incorporated (“Coastal”) sells farm and
ranch equipment and supplies. For more than 20 years, Jimmy Hollaway
worked for Coastal, and, for the time period relevant to this case, he worked
for Coastal as a bookkeeper in its Houston office. As bookkeeper, Hollaway’s
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duties included receiving checks made payable to Coastal from customers,
indorsing those checks on Coastal’s behalf as “for deposit only,” and depositing
those checks into Coastal’s account at Traditions Bank. He did so for many
years.
On June 30, 2000, Hollaway acquired an “Assumed Name Records
Certificate of Ownership for Unincorporated Business or Profession”
identifying him as the owner of a business called “Coastal Agricultural
Limestone Supply.” On July 11, Hollaway opened a checking account with JP
Morgan Chase Bank, N.A. (“Chase Bank”). 1 The name on the account was
“Jimmy Hollaway DBA Coastal Agricultural Limestone Supply.”
Over the next few years, Hollaway deposited at least 964 checks intended
for Coastal into his account at Chase Bank. While most of the checks were
deposited in person, 81 checks were deposited through an automated teller
machine (“ATM”). 2 In all, Hollaway is alleged to have stolen more than $2.5
million and used a significant portion of the money to purchase real estate and
other assets.
On February 14, 2011, Coastal filed a lawsuit against Hollaway in Texas
state court, seeking damages for the money stolen and deposited into his bank
account. Coastal asserted claims based on breach of statutory duty, conversion,
“money had and received,” and breach of fiduciary duty. Coastal sought actual,
statutory, and punitive damages, attorney’s fees, the imposition of a
constructive trust and equitable lien, a temporary restraining order and
1 The record reflects that the account was opened with “Chase Bank of Texas, National
Association.” In its brief, appellee JP Morgan Chase, N.A. represents that it is the same
institution, the account was opened with its branch, and it is a wholly owned subsidiary of
JP Morgan Chase & Co., a separate institution.
2 Chase Bank has images for 962 out of 964 checks. While it does not have images of
the two remaining checks, it was able to establish that one was deposited without an image
taken and the other was deposited as a “cash in ticket” or a cash deposit.
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injunction, the appointment of a receiver, post-judgment interest and costs,
and any other available legal and equitable relief. On March 6, 2012, Coastal
and Hollaway entered into a settlement agreement, under which Hollaway
conveyed three residential properties, mineral interests, monetary assets, and
a portion of his personal property to Coastal. Chase Bank estimates the value
of this settlement to be at least $556,100, while Coastal claims that it is at
most $313,311.
Meanwhile, on May 24, 2011, Coastal filed the present lawsuit against
Chase Bank in the United States District Court for the Southern District of
Texas, asserting claims of conversion and negligence under the Texas Uniform
Commercial Code (“UCC”) 3 and money had and received under the common
law. Coastal sought actual damages, attorney’s fees on its money had and
received claim, pre-judgment and post-judgment interest, court costs, and any
other available legal and equitable relief. The case was referred to the
magistrate judge.
On November 15, 2012, Chase Bank filed two motions for partial
summary judgment. In its first motion, Chase Bank argued that Coastal’s
claims as to some of the checks were barred by the statute of limitations, but
that in any case, under Texas law it was protected from liability as to all the
checks under UCC § 3.405. In its second motion, Chase Bank sought a
settlement credit of $556,100 based upon the settlement agreement between
Coastal and Hollaway. Coastal filed responses to these motions, and Chase
Bank filed a reply in support of its second motion.
3 Texas has adopted various articles of the UCC. See generally Uniform Commercial
Code, Tex. Bus. & Com. Code Ann. §§ 1.101 to 11.108; id. §§ 10-101 to 10-105. As relevant to
this appeal, Revised Article 3 dealing with negotiable instruments was adopted in 1996. See
Uniform Commercial Code—Negotiable Instruments, Tex. Bus. & Com. Code Ann. §§ 3.101
to 3.805; Ross v. Bank of Am. N.A., 693 F. Supp. 2d 692, 693 (S.D. Tex. 2010).
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The magistrate judge issued a memorandum and recommendation on the
two motions for partial summary judgment. Addressing the first motion, the
magistrate judge found that the statute of limitations defense was waived by
Chase Bank. For the UCC conversion and negligence claims, the magistrate
judge found that UCC § 3.405 provided a defense for Chase Bank, and that,
based on this defense, Chase Bank was entitled to summary judgment for all
but 82 checks—the 81 checks deposited via an ATM, worth $116,454.75, and
the one check marked as a cash deposit, worth $1,980, for a grand total of
$118,434.75. For the money had and received claim, the magistrate judge
found that Chase Bank had presented no argument for summary judgment
and therefore denied summary judgment on this claim. Addressing the second
motion, the magistrate judge found that under the Texas “one satisfaction rule”
a settlement credit should be applied against whatever liability Chase Bank
might eventually have, but did not address the valuation of the settlement
between Coastal and Hollaway.
Both Coastal and Chase Bank filed objections to the magistrate judge’s
memorandum and recommendation. In an April 3, 2013 order, the district
court conducted a de novo review of the magistrate judge’s recommendations
to which objections were raised, and decided to adopt the memorandum and
recommendation in part. For the UCC conversion and negligence claims, the
district court agreed with the magistrate judge and granted summary
judgment on the 882 checks that were deposited in person at the bank, leaving
for trial the 81 checks deposited via ATM and the one check deposited as a cash
deposit. For the money had and received claim, the district court disagreed
with the magistrate judge, and held that Chase Bank had moved for summary
judgment on this claim as well. Finding that § 3.405 was applicable to the
money had and received claim, the district court granted Chase Bank summary
judgment on this claim as to the 882 checks deposited in person. The district
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court denied summary judgment on the money had and received claim as to
the 81 checks deposited via ATM and the one check deposited as a cash deposit.
For the settlement credit issue, the district court adopted the magistrate
judge’s recommendation that Chase Bank was entitled to the value of the
settlement. The district court found that there was still an issue about the
value of the settlement, but held that whatever that value, it should be applied
against Chase Bank’s liability rather than to lessen Coastal’s total loss. The
district court noted that based on its grant of summary judgment on the 882
checks on the conversion, negligence, and money had and received claims,
Chase Bank’s potential liability was only $118,434.75. The district court
opined that the application of the settlement credit would likely extinguish
Coastal’s claims against Chase Bank.
Coastal then made an oral motion for an interlocutory appeal under
28 U.S.C. § 1292(b), and the district court granted the motion because its ruling
involved controlling questions of law as to which there were substantial
grounds for difference of opinion. Thereafter, while Coastal was petitioning
this Court for leave to appeal, there was a dispute between Coastal and Chase
Bank on the scope of the interlocutory appeal. The district court entered a
clarification order on May 1, 2013 stating that only two issues were certified
for appeal:
(1) the [district court’s] determination that the
defendant could oppose a common law claim for money
had and received by asserting the affirmative defenses
supplied in section 3.405 of the UCC and (2) the
[district court’s] determination that Texas requires
that settlement credits be applied such that the credit
reduces the non-settling defendant’s liability rather
than reducing the amount of Plaintiff’s total loss.
We then granted Coastal leave to appeal from the April 3rd interlocutory order,
but specified that leave was granted only as to those issues articulated in the
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May 1st clarification order and denied as to all other issues. We now turn to
those two issues.
II
We review a district court’s order granting summary judgment de novo
applying “the same legal standards that the district court applied to determine
whether summary judgment was appropriate.” 4 A party is entitled to summary
judgment “if the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” 5
“Where the record taken as a whole could not lead a rational trier of fact to find
for the non-moving party, there is no genuine issue for trial.” 6
The movant bears the initial burden and must identify “those portions of
the pleadings, depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, which it believes demonstrate the absence
of a genuine issue of material fact.” 7 But the movant “need not negate the
elements of the nonmovant’s case.” 8 “If the moving party fails to meet this
initial burden, the motion must be denied, regardless of the nonmovant’s
response.” 9
The burden then shifts to the nonmovant to demonstrate a genuine issue
of material fact, but the nonmovant cannot rely on the allegations in the
pleadings alone. 10 Instead, the nonmovant “must go beyond the pleadings and
4 Harvill v. Westward Commc’ns, L.L.C., 433 F.3d 428, 433–34 (5th Cir. 2005).
5 Fed. R. Civ. P. 56(a).
6 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (internal
quotation marks omitted).
7 Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal quotation marks omitted).
8 Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th Cir. 2005) (quoting Little v.
Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc)).
9 Kee v. City of Rowlett, Tex., 247 F.3d 206, 210 (5th Cir. 2001) (internal quotation
marks omitted).
10 Lincoln General Ins. Co. v. Reyna, 401 F.3d 347, 349–50 (5th Cir. 2005).
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designate specific facts showing that there is a genuine issue for trial.” 11 “The
evidence of the non-movant is to be believed, and all justifiable inferences are
to be drawn in his favor.” 12
Finally, we “review de novo a district court’s determination of state law,
granting no deference to its interpretation.” 13
III
We turn first to whether the district court erred in determining that
Chase Bank could oppose a common law claim for money had and received by
asserting the affirmative defense supplied under UCC § 3.405. 14
Coastal admits that the issue as certified by the district court can only
be answered in the affirmative. Chase Bank argues that the district court was
correct in holding that § 3.405 is an affirmative defense to a money had and
received claim. We agree. The district court did not err in holding that § 3.405
provides an affirmative defense against a money had and received claim. A
money had and received claim is an equitable doctrine at common law that
holds that a collecting bank which accepts a check on
another bank on a forged indorsement acquires no title
thereto, and holds the proceeds thereof, when collected
from the drawee bank, for the rightful owner, who may
recover from the collecting bank as for money had and
received, even though such bank has fully paid over
and accounted for the same to the forger without
knowledge or suspicion of the forgery. 15
11 Boudreaux, 402 F.3d at 540 (internal quotation marks omitted).
12 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
13 Am. Reliable Ins. Co. v. Navratil, 445 F.3d 402, 404 (5th Cir. 2006).
14 Tex. Bus. & Com. Code Ann. § 3.405 (West 2002 & Supp. 2014).
15 Peerless Ins. Co. v. Tex. Commerce Bank-New Braunfels, N.A., 791 F.2d 1177, 1179
(5th Cir. 1986) (quoting Fidelity & Deposit Co. of Md. v. Fort Worth Nat’l Bank, 65 S.W.2d
276, 278 (Tex. Comm’n App. 1933)).
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At common law, the collecting bank could assert the defenses of laches, fault
by payee, or ratification or authorization of the forged indorsement. 16
In § 3.405, the UCC provides an affirmative defense for a collecting bank
that accepts a check on a forged indorsement. This provision is often called the
“imposter” or the “padded payroll” rule and it “represents a policy decision to
place certain losses on the employer.” 17 As the Texas Supreme Court has noted,
§ 3.405 is one of several comparative negligence provisions in Revised Article
3 of the UCC. 18 Entitled “Employer’s Responsibility for Fraudulent
Indorsement by Employee,” § 3.405 provides in relevant part:
For the purpose of determining the rights and
liabilities of a person who, in good faith, pays an
instrument or takes it for value or for collection, if an
employer entrusted an employee with responsibility
with respect to the instrument and the employee or a
person acting in concert with the employee makes a
fraudulent indorsement of the instrument, the
indorsement is effective as the indorsement of the
person to whom the instrument is payable if it is made
in the name of that person. If the person paying the
instrument or taking it for value or for collection fails
to exercise ordinary care in paying or taking the
instrument and that failure contributes to loss
resulting from the fraud, the person bearing the loss
may recover from the person failing to exercise
ordinary care to the extent the failure to exercise
ordinary care contributed to the loss. 19
16 Id. (citing Fidelity & Deposit Co. of Md., 65 S.W.2d at 278).
17 British Caledonian Airways Ltd. v. First State Bank of Bedford, Tex., 819 F.2d 593,
596 (5th Cir. 1987).
18 Sw. Bank v. Info. Support Concepts, Inc., 149 S.W.3d 104, 107–08 (Tex. 2004) (noting
that provisions like § 3.405 “evince a shift away from strict liability for banks that convert
checks to a fault-based system”).
19 Tex. Bus. & Com. Code Ann. § 3.405 (West 2002 & Supp. 2014).
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Thus, where (1) a bank acted in good faith, (2) the embezzler was an employee
entrusted with responsibility for the check, and (3) the check was fraudulently
indorsed, the bank escapes liability, but (4) with the proviso that it remains
liable for any loss to the extent it failed to exercise ordinary care. The bank
must bear the burden of proving the first three elements. 20 Once the bank
meets this burden, the burden shifts to the employer to present evidence
raising a fact issue on whether the bank failed to exercise ordinary care with
respect to the check. 21
The underlying purposes and policies of the UCC are “(1) to simplify,
clarify and modernize the law governing commercial transactions; (2) to permit
the continued expansion of commercial practices through custom, usage and
agreement of the parties; and (3) to make uniform the law among the various
jurisdictions.” 22 To that end, the UCC has to be liberally construed and
applied. 23 But the UCC does not automatically eliminate the common law.
“Unless displaced by the particular provisions of this title, the principles of law
and equity, including the law merchant and the law relative to capacity to
contract, principal and agent, estoppel, fraud, misrepresentation, duress,
coercion, mistake, bankruptcy, or other validating or invalidating cause shall
supplement its provisions.” 24
Both the Texas Supreme Court and our Court have recognized situations
where instead of displacing the common law altogether, the UCC modifies the
20 Venetian Blind & Floor Covering, Ltd. v. Wells Fargo Bank, N.A., Civ. No. H-08-
2451, 2010 WL 547152, at *2 (S.D. Tex. Feb 9, 2010); Hanh H. Duong v. Bank One, N.A., 169
S.W.3d 246, 254 (Tex. App.—Fort Worth 2005, no pet.).
21 Venetian Blind & Floor Covering, Ltd., 2010 WL 547152, at *2; Hanh H. Duong, 169
S.W.3d at 254.
22 Tex. Bus. & Com. Code Ann. § 1.103(a) (West 2009).
23 Id.
24 Id. § 1.103(b).
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common law. In Bryan v. Citizens National Bank in Abilene, 25 a bank paid a
check over a stop-payment order from its customer, the drawer. 26 The customer
had issued the check to the drawee because of a contract between the customer
and the drawee. 27 After the mistaken payment, the bank sued the drawee
under a common law restitution claim. 28 By using the restitution claim, the
bank could recover by showing that the payment was make in mistake, and
the drawee had the burden of showing that he was a holder in due course or
had changed his position in reliance upon the payment in order to defeat the
restitution claim. 29 The drawee claimed that the enactment of the UCC
effectively abolished this common law claim, and that the bank’s only remedy
was § 4.407 of the UCC, which essentially provided a subrogation cause of
action. 30 Under § 4.407, the bank recovered by stepping into the shoes of the
party allegedly entitled to the funds—the drawer. 31 Therefore, if it brought an
action under § 4.407, the bank would have been required to assert in a breach
of contract suit any defenses the drawer might have had against the drawee. 32
The Texas Supreme Court held that the UCC was not the bank’s only remedy,
that the common law restitution claim was not preempted, but that “the bank
[could] recover restitution only to the extent that it allege[d] and prove[d] that
the drawer had a defense to the check.” 33 Thus, the common law can “only
continue in a form that does not conflict with [UCC] provisions.” 34 Similarly,
25 628 S.W.2d 761 (Tex. 1982).
26 Id. at 761–62.
27 Id. at 761.
28 Id. at 762.
29 Id. at 762.
30 Id.; Tex. Bus. & Com. Code Ann. § 4.407 (West 2002).
31 Bryan, 628 S.W.2d at 762.
32 Id.
33 Id.
34 Id. at 764.
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in Peerless Insurance Co. v. Texas Commerce Bank-New Braunfels, N.A., 35 our
Court also recognized that the common law is modified by the UCC. In that
case, an employee indorsed and deposited checks payable to his employer into
his personal bank account. 36 The employer and its insurer sued the bank on
three causes of action, including a money had and received claim. 37 At the time,
the UCC had a cause of action for conversion different from the one currently
in force. 38 The UCC’s conversion provision changed the common law by
providing that a bank could escape liability for conversion or otherwise if it had
acted in good faith and in accordance with reasonable commercial standards. 39
We held that Bryan does not stand for the proposition that any conflict between
the common law and the UCC results in the automatic displacement of the
common law, but rather that “any inconsistencies between the various
elements of the common law action and the particular provisions of the [UCC]
must be resolved in the [UCC’s] favor.” 40 Thus, we held that the money had
and received claim had to accommodate the additional defenses provided by
the UCC conversion provision as it then stood. 41
Here, the conflict between the money had and received claim at common
law and § 3.405 can be resolved without entirely displacing the money had and
received claim. Rather, the money had and received claim as applied in this
situation must simply incorporate the affirmative defense provided by § 3.405.
The district court did not err in its determination that this affirmative defense
could be so applied.
35 791 F.2d 1177 (5th Cir. 1986).
36 Id. at 1178.
37 Id.
38 Compare Tex. Bus. & Com. Code Ann. § 3.419 (Vernon 1968), with Tex. Bus. & Com.
Code Ann. § 3.420 (West 2002).
39 Peerless Ins. Co., 791 F.2d at 1179.
40 Id. at 1180.
41 Id.
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Even though Coastal admits this proposition, it asks us to reach beyond
and decide another question: namely, whether the money had and received
claim allows for the recovery of attorney’s fees. Chase Bank argues that this
question is outside the scope of the appeal. We agree. This appeal is before us
under 28 U.S.C. § 1292(b), which allows for an interlocutory appeal of an order
in a civil action where the district judge is “of the opinion that such order
involves a controlling question of law as to which there is substantial ground
for difference of opinion and that an immediate appeal from the order may
materially advance the ultimate termination of the litigation.” 42 The district
judge has to state in writing his opinion, and the court of appeals then has
discretion to take the appeal. 43
Here, after its initial order stating the controlling questions of law as to
which there were substantial grounds for difference of opinion, the district
court entered a clarification order explicitly identifying two questions. Not only
that, but in granting leave to appeal from the initial order, we specified that
leave was granted only as to those issues articulated in the May 1st
clarification order and denied as to all other issues. Whether a money had and
received claim supports attorney’s fees is clearly not one of the two questions
that we agreed to hear, and therefore, falls outside the scope of the appeal. We
therefore decline to reach this issue.
IV
We turn next to whether the district court erred in determining that
Texas requires that a settlement credit be applied such that the credit would
reduce Chase Bank’s liability rather than reducing the amount of Coastal’s
total loss.
42 28 U.S.C. § 1292(b).
43 Id.
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“Under the one satisfaction rule, a plaintiff is entitled to only one
recovery for any damages suffered.” 44 The one satisfaction rule applies in both
those situations where several defendants commit the same act and where the
defendants commit technically different acts that result in the same injury. 45
Where there is an indivisible injury caused by the settling and nonsettling
defendant, “[t]here can be but one recovery for one injury, and the fact that
more than one defendant may have caused the injury or that there may be
more than one theory of liability, does not modify this rule.” 46 “[T]he absence
of tort liability does not preclude the application of the one satisfaction rule.” 47
The nonsettling defendant may claim credit based on the damages for which
all the tortfeasors are jointly liable. 48 But the nonsettling defendant “cannot
receive credit for settlement amounts representing punitive damages.” 49
Both Coastal and Chase Bank agree that the one satisfaction rule applies
in this case, and that Chase Bank is eligible for a settlement credit. The two
disagree on how the settlement credit should be applied. Coastal argues that
the settlement credit should be applied to the plaintiff’s total loss ($2.5 million).
Chase Bank argues that the settlement credit should be applied to reduce the
nonsettling defendant’s liability. Additionally, Coastal and Chase Bank
interpret the nonsettling defendant’s liability differently. Costal argues that
the nonsettling defendant’s liability is the amount for which the nonsettling
defendant was originally sued ($1.345 million). Chase Bank argues that the
nonsettling defendant’s liability would be the money still in controversy after
44Crown Life Ins. Co. v. Casteel, 22 S.W.3d 378, 390 (Tex. 2000).
45Id.
46 Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 8 (Tex. 1991).
47 Oyster Creek Fin. Corp. v. Richwood Invs. II, Inc., 176 S.W.3d 307, 327 (Tex. App.—
Houston [1st Dist.] 2004, pet. denied).
48 Crown Life Ins. Co., 22 S.W.3d at 391.
49 Id.
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the application of the § 3.405 defense ($118,434.75). Indeed, the district court’s
ruling makes clear that it would apply the settlement credit to the $118,434.75
figure.
We first turn to whether the one satisfaction rule should be applied here.
As explained in Stewart Title Guaranty Co. v. Sterling, 50 the one satisfaction
rule “developed at common law from the interpretation and application of the
original contribution statute.” 51 It was a damage adjustment mechanism that
prevented a windfall to the plaintiff in the form of a double recovery. 52 But the
prerequisite for the one satisfaction rule is that there has to be a single,
indivisible injury. 53 Given this prerequisite, whether the one satisfaction rule
obtains in a case in which several checks have been fraudulently indorsed and
deposited is not self-evident. The injury can either be viewed as a single injury,
for the whole amount lost, or as a collection of injuries, for each check that was
deposited by Hollaway into his account. This inquiry is necessary because
Coastal’s objection to the application of the settlement credit hinges on the
characterization of the injury. The settlement between Coastal and Hollaway
represents a compromise as to all the money assertedly stolen by Hollaway
($2.5 million). Chase Bank’s liability is for less than that amount: first, Chase
Bank was only sued for a portion of the money stolen ($1.345 million), and
second, after partial summary judgment, Chase Bank is only potentially liable
for 82 checks ($118,434.75).
50 822 S.W.2d 1 (Tex. 1991).
51 Id. at 5. The original contribution statute is still in effect. See Tex. Civ. Prac. & Rem.
Code Ann. §§ 32.001 to 32.003. As discussed in Sterling, in the past, Texas has had a variety
of contribution schemes, including comparative negligence, comparative responsibility, and
common law contribution by comparative causation. 822 S.W.2d at 5. Currently, only the
original contribution statute and the comparative responsibility statute are in force. Id. at 5.
Since the other contribution schemes are not at issue in this appeal, we need not discuss
them further.
52 Id. at 6.
53 Id. at 7.
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The Texas Supreme Court has not considered whether several
fraudulently indorsed and deposited checks constitute a single injury or
multiple injuries. So, “we must determine, to the best of our ability, what it
would decide under the same circumstances.” 54 “In making an Erie guess, we
defer to intermediate state appellate court decisions, unless convinced by other
persuasive data that the highest court of the state would decide otherwise.” 55
In AMX Enterprises, Inc. v. Bank One, N.A., 56 a Texas appellate court
dealt with a similar situation. In that case, homeowners entered into a contract
with AMX for mold remediation services on behalf of themselves and their
mortgage company. 57 After AMX fully performed, the homeowners’ insurance
company issued three checks—each payable to the homeowners, the mortgage
company, and AMX. 58 The checks were supposed to be delivered to AMX. 59 But
after the homeowners indorsed the checks, the mortgage company indorsed the
checks and deposited them into its own bank account, without AMX’s
indorsements. 60 AMX filed suit against the homeowners, the mortgage
company, and the bank. 61 The homeowners settled with AMX for a little more
than the whole amount owed, and the bank successfully moved for summary
judgment. 62 On appeal, the Texas appellate court held that the one satisfaction
rule applied, therefore precluding a second recovery from the bank. 63
54 RSR Corp. v. Int’l Ins. Co., 612 F.3d 851, 857 (5th Cir. 2010).
55 Memorial Hermann Healthcare Sys. Inc. v. Eurocopter Deutschland, GMBH, 524
F.3d 676, 678 (5th Cir. 2008) (internal quotation marks omitted).
56 196 S.W.3d 202 (Tex. App.—Houston [1st Dist.] 2006, no pet.).
57 Id. at 205.
58 Id.
59 Id.
60 Id.
61 Id.
62 Id.
63 Id. at 207.
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With this persuasive ruling, we find that the one satisfaction rule obtains
in this case as well, for while there are multiple checks at issue, there is but a
single injury. Under the one satisfaction rule, Chase Bank is entitled to a
settlement credit. Next, we agree that the method of applying the settlement
credit is well-established in Texas: the settlement credit must be applied
against the nonsettling defendant’s liability, not the plaintiff’s total loss. 64
This does not end our analysis. Coastal rightly argues that the
settlement between Coastal and Hollaway represented a compromise for a
different amount (the total loss) than the amount at issue (the nonsettling
defendant’s liability). The settlement was for both Hollaway’s separate
damages and the damages common to Hollaway and Chase Bank. More
specifically, the settlement was for the entire sum of money assertedly stolen
by Hollaway. Here, only the 82 checks remaining before the district court are
at issue. The settlement credit cannot be applied wholesale to the nonsettling
defendant’s liability, but rather an allocation is necessary.
The Texas Supreme Court has clarified the procedure used where the
settlement represents separate and common damages. In Crown Life
Insurance Company v. Casteel, 65 policyholders sued Crown Life Insurance
Company (“Crown Life”) and its independent sales agent, Casteel. 66 Casteel
cross-claimed against Crown Life. 67 With regard to the policyholders’ claims,
the jury found that both defendants were liable; that Crown Life had
committed the wrongful acts knowingly and bore responsibility for 99% of the
64 See Casteel, 22 S.W.3d 378 at 392; Sterling, 822 S.W.2d at 7–8; see also Nowak v.
Pellis, 248 S.W.3d 736, 741 (Tex. App.—Houston [1st Dist.] 2007, no pet.); Cohen v. Arthur
Andersen, L.L.P., 106 S.W.3d 304, 310–11 (Tex. App.—Houston [1st Dist.] 2003, no pet.);
Vanasek v. Underkofler, 50 S.W.3d 1, 10 (Tex. App.—Dallas 1999, pet. granted), aff’d in part
and rev’d in part on other grounds, 53 S.W.3d 343 (Tex. 2001).
65 22 S.W.3d 378 (Tex. 2000).
66 Id. at 381–82.
67 Id. at 382.
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policyholders’ damages; and that Casteel had not acted knowingly and bore
responsibility for only 1%. 68 With regard to Casteel’s claims against Crown
Life, the jury found Crown Life responsible and awarded various damages. 69
Following trial, Crown Life settled with the policyholders—as part of the
settlement agreement, Crown Life was assigned the policyholders’ rights
against Casteel. 70 The trial court rendered a judgment notwithstanding the
verdict as to Casteel’s claims against Crown Life; dismissed the policyholders’
claims against Crown Life because of the settlement; and rendered judgment
on the verdict with respect to the policyholders’ claims against Casteel. 71
Before the Texas Supreme Court, Crown Life contended that Casteel was
ineligible for a settlement credit under the one satisfaction rule. 72 Rather,
Crown Life argued that when it settled, the jury had already found that Crown
Life had acted knowingly, meaning that had the judgment been rendered, the
policyholders would have been able to recover additional damages as well as
joint and several damages from Crown Life. 73 By contrast, the jury had found
that Casteel had not acted knowingly, meaning that he was responsible for
only the joint and several damages. 74 Thus, Crown Life wanted the settlement
credit to be applied against the total judgment that would have been
rendered—the additional and joint and several damages—rather than the
judgment rendered against Casteel. 75 The Texas Supreme Court disagreed.
“[T]he court should not apply the settlement credit to the judgment that would
have been rendered against the settling defendant in determining the credit
68 Id.
69 Id.
70 Id.
71 Id.
72 Id. at 390.
73 Id. at 391.
74 Id.
75 Id.
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amount. Instead, the court should look to the judgment to be rendered against
the nonsettling defendant and apply established principles governing
settlement credits.” 76
The court clarified that a nonsettling defendant can only receive a
settlement credit based on the damages for which all tortfeasors are jointly
liable, and cannot receive settlement credit for amounts representing punitive
damages. 77 “[T]he nonsettling defendant is entitled to offset any liability for
joint and several damages by the amount of common damages paid by the
settling defendant, but not for any amount of separate or punitive damages
paid by the settling defendant.” 78 The court concluded that Casteel was
entitled to a settlement credit as to any settlement amount representing joint
damages. 79 But once Casteel had offered proof of the settlement amount,
Crown Life bore the burden to offer evidence allocating the settlement between
joint damages and additional damages. 80 In other words, once the nonsettling
defendant offers proof of the settlement amount, he is entitled to the
settlement credit. Then, the plaintiff must bear the burden to demonstrate
allocation of the settlement amount, so that part of that amount represents
damages for which the settling and nonsettling defendant are jointly
responsible and part of that amount represents damages for which the
nonsettling defendant gets no credit.
Casteel’s lesson is squarely applicable here. Coastal is correct that the
settlement amount between it and Hollaway represents the total loss amount.
Chase Bank, on the other hand, is being sued for and is liable for a smaller loss
76 Id.
77 Id.
78 Id. at 391–92.
79 Id. at 392.
80 Id.
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amount than the total loss. 81 But Chase Bank is entitled to have the settlement
credit applied to its potential liability. And it is Coastal’s burden to
demonstrate some sort of allocation in order to reduce that settlement credit.
We also note that the settlement between Coastal and Hollaway not only
represented a higher loss amount, but also different damages. Coastal sued
Hollaway for punitive damages, but not Chase Bank. Therefore, Coastal might
also be able to demonstrate that the settlement amount ought to be properly
allocated otherwise.
As a result, the district court was correct in holding that the settlement
credit should be applied to reduce the nonsettling defendant’s liability, not the
plaintiff’s total loss. On remand, however, the district court must give Coastal
an opportunity to demonstrate that allocation of the settlement amount is
appropriate. 82
V
We AFFIRM and REMAND for proceedings consistent with this opinion.
81 That smaller loss amount is only for the 82 checks still in controversy. We note that
there are 882 checks for which Chase Bank has already been granted summary judgment.
We express no opinion as to the summary judgment on those 882 checks. However, even if
all 964 checks were still in controversy, Coastal should be given an opportunity to
demonstrate some sort of allocation to reduce the settlement credit.
82 The dissent argues that we should not reach the settlement credit issue because
Chase Bank has not yet been found liable on any amount. According to the dissent, upon
remand, the district court will first determine liability as to the 82 checks. If the district court
finds no liability, then there will be no need to discuss the settlement credit.
We note, however, that in Texas the one satisfaction rule can be “a ground for
summary judgment in cases in which (1) the one satisfaction rule applies, (2) the settlement
credit entirely sets-off the maximum amount of liability claimed by the plaintiff, and (3)
punitive damages are not at issue.” Nowak, 248 S.W.3d at 741. Thus, on remand, the district
court might not determine liability as to the 82 checks, but might reward summary judgment
based on the one satisfaction rule. For this reason, we think it proper for us to address this
issue now.
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HAYNES, Circuit Judge, concurring and dissenting:
I concur fully in Sections I-III and the judgment consonant therewith. I
respectfully dissent from the decision to reach the settlement credit issue in
Section IV and the judgment entered with respect to that issue. I conclude,
after full consideration of the issues, that leave to hear an interlocutory appeal
on that question was improvidently granted such that the portion of the prior
order allowing leave to appeal that question should be vacated.
I begin by addressing the procedural issue of whether we can vacate the
order of the prior panel in this case, and I conclude that we can. United States
v. Bear Marine Svcs., 696 F.2d 1117, 1120 (5th Cir. 1983). In our circuit, a
motion for leave to file an interlocutory appeal is initially addressed to a
motions panel. Id. That procedure was followed here, and the motions panel
granted the appeal on the two discrete issues. Our precedent is clear, however,
that the subsequent merits panel (our panel) is not bound by that order: “The
merits panel has the benefit of full briefs and . . . oral argument [and] may
conclude that the initial decision to hear the appeal was . . . improvident.” Id.
If the merits panel so concludes, “it must vacate the earlier order granting
leave to appeal and . . . remand the case to the district court.” Id. Thus, we
have the power to decide that the prior grant of an interlocutory appeal was
improvident.
Turning to the question of the settlement credit, it is understandable
that, on its face, a court could conclude that resolution of the settlement credit
issue could resolve the case because applying a multimillion dollar credit to a
potential liability of less than $200,000 would seem to end the matter. 1 But as
1 Notably, Coastal contends that the orders granting summary judgment on the 882
checks are in error. That question is not before us, but the pendency of additional questions
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the majority opinion shows, it is not always that easy. On its face, then, we
are dealing with a decision about (and the majority opinion now remands for
allocation of) settlement credits when the non-settling defendant has yet to be
found liable for any amount at all. Both sides agree that, even after the
summary judgment regarding 882 checks, Coastal’s claims regarding the 82
checks described in the majority opinion remain to be resolved. If Coastal fails
to prevail on those claims, there will be no need to grant a settlement credit of
any kind. Thus, the decision about settlement credits is premature and
advisory. See id. at 1121. 2
The history of settlement credits and apportioning liability among
defendants has a long and sometimes tortured history in Texas jurisprudence.
While the majority opinion admirably wades through the thicket, I submit we
should be leery of doing so unnecessarily. Cf. Castellanos-Contreras v. Decatur
Hotels, 622 F.3d 393, 399 (5th Cir. 2010)(en banc)(“Interlocutory review . . . is
not mandatory [but] discretionary.”). I would vacate the portion of the order
granting the interlocutory appeal that allowed the question of the settlement
credits to proceed before our court. 3 From the majority opinion’s failure to do
so, I respectfully dissent.
about Chase Bank’s ultimate liability further undermines our ability to be of much assistance
at this point.
2 The majority opinion posits that the “one satisfaction rule” may be a grounds for
summary judgment, listing three factors, one of which is that “punitive damages are not at
issue.” Maj. Op. at n. 82. Although Chase Bank is not alleged to owe punitive damages, the
majority opinion itself notes that Hollaway settled punitive damages claims for which a
settlement credit would not be available, thus complicating any simple application of the “one
satisfaction rule.” Thus, I think the better approach is to await the results of the liability
case before determining the question of settlement credits.
3 While I agree we have the power to limit our consideration of the appeal to particular
questions, the proper procedure, in my view, is to avoid piecemeal analysis by considering
the entire certified order as per Castellanos-Contreras, 622 F.3d at 398 (“[I]t is the order, not
the question, that is appealable.”).