United States Court of Appeals,
Fifth Circuit.
No. 95-50026.
THORNTON, SUMMERS, BIECHLIN, DUNHAM & BROWN, INC., Plaintiff-
Counter Defendant-Appellee,
v.
COOK PAINT & VARNISH, Defendant-Counter Claimant-Appellant,
v.
Don Dick DUNHAM, Executor of the estate of Thomas D. Dunham,
Deceased, Counter Defendant-Appellee,
Clemens & Spencer, Appellee.
May 8, 1996.
Appeal from the United States District Court for the Western
District of Texas.
Before POLITZ, Chief Judge, and HILL* and DeMOSS, Circuit Judges.
HILL, Circuit Judge:
Thornton, Summers, Biechlin, Dunham & Brown, Inc. and Don Dick
Dunham, Executor of the Estate of Thomas Dunham (Thornton Summers),
Appellees, brought this action in the United States District Court
for the Western District of Texas to recover legal fees and
expenses allegedly incurred in the defense of Curran Paint &
Varnish Company, f/k/a Cook Paint & Varnish Company (Cook Paint),
Appellant, in the matter styled Allied Tank Services, Inc. v. Cook
Paint & Varnish Co. brought in the 166th District Court of Bexar
County, Texas. Cook Paint answered and counterclaimed, asserting
that Thornton Summers and its lead counsel, Thomas Dunham,
*
Circuit Judge of the Eleventh Circuit, sitting by
designation.
1
committed legal malpractice while defending Cook Paint in the
Allied Tank case.
The district court held that the doctrine of election of
remedies bars Cook Paint from recovering any damages from Thornton
Summers and granted Thornton Summers summary judgment. We hold
that summary judgment was entered erroneously, and reverse and
remand.
I. BACKGROUND
On May 8, 1990, a few days before Allied Tank was scheduled
for trial, Cook Paint learned for the first time that its insurance
agent, Alexander & Alexander, had failed to notify all of Cook
Paint's insurers of the Allied Tank suit. On May 12, 1990, Cook
Paint itself notified the insurers and demanded that they defend,
indemnify, and settle the Allied Tank case. The carriers refused,
claiming that they were prejudiced by the late notice. Cook Paint
sought, but was denied, a continuance, and the case proceeded to
trial. Thornton Summers defended Cook Paint. A judgment of
approximately $21,000,000 was entered against Cook Paint.
In June, 1990, Cook Paint filed a declaratory judgment action
in the United States District Court for the Western District of
Missouri against its insurers. Cook Paint asserted that the
insurance companies had been obligated in the Allied Tank case to
provide counsel, a defense, and indemnification, and to make all
reasonable efforts to settle the claims against it, and, that they
failed to do so.
Also in June of 1990, Cook Paint filed suit in Missouri
2
against Alexander & Alexander. Cook Paint alleged that Alexander
& Alexander had been under a duty to notify Cook Paint's insurers
of claims and suits; that the agent represented to Cook Paint that
it had notified all of its insurance carriers of the Allied Tank
suit; but that on May 8, 1990, Cook Paint learned that Alexander
& Alexander had not notified excess and umbrella carriers.
On October 4, 1990, Cook Paint, its insurers, and Allied Tank
settled their differences. The agreement provided that Allied Tank
would receive approximately $7,200,000 from the insurers, and 75%
of any money recovered by Cook Paint in the Alexander & Alexander
lawsuit, in return for a covenant by Allied Tank not to execute on
the remainder of its $21,000,000 judgment. Subsequently, Cook
Paint paid Allied Tank approximately $6.7 million it had previously
received from its insurance carriers. It was required to pay the
remaining $450,000 from its own funds to cover an insurance gap
created by the insolvency of one of its insurers.
Cook Paint contends that in the fall of 1991, during discovery
in the Alexander & Alexander suit, it learned for the first time
from unspecified documents that Thornton Summers was negligent in
failing to advise of a favorable settlement opportunity and in
failing to obtain a settlement for Cook Paint in Allied Tank.
Thereafter, Cook Paint settled the Alexander & Alexander lawsuit
for $100,000. The suit was dismissed without prejudice to Cook
Paint's assertion of any claims it had against Thornton Summers.1
1
Cook Paint had filed a motion to join Thornton Summers and
Dunham as defendants in the Alexander & Alexander lawsuit. The
$100,000 was placed in escrow pending the outcome of this
3
Cook Paint brought a counterclaim against Thornton Summers in
this suit claiming damages for malpractice, including the failure
of Thornton Summers to investigate the availability of insurance
coverage for Cook Paint, and to explore and obtain settlement
within Cook Paint's insurance policy limits.
Thornton Summers moved for summary judgment against Cook
Paint's malpractice claim, arguing that Cook Paint had made an
election of remedies when it sued and settled with its insurance
carriers after judgment in the Allied Tank case. The district
court granted Thornton Summers summary judgment, ruling that all of
Cook Paint's claims against Thornton Summers were barred by the
doctrine of election of remedies.2
We review the grant of summary judgment de novo. Burgos v.
Southwestern Bell Telephone Co., 20 F.3d 633, 635 (5th Cir.1994).
We do not affirm a summary judgment unless we conclude, after an
independent review of the record, that "there is no genuine issue
as to any material fact and that the moving party is entitled to a
judgment as a matter of law." Id.; Fed.R.Civ.P. 56(c).
II. ANALYSIS
Under Texas law, the election of remedies doctrine may
constitute a bar to relief when (1) one successfully exercises an
informed choice (2) between two or more remedies, rights or states
litigation.
2
We also reverse the district court's striking of Cook
Paint's affirmative defenses to Thornton Summers' claim for
attorney's fees inasmuch as these defenses were predicated upon
the malpractice claims which were erroneously foreclosed.
4
of fact (3) that are so inconsistent as to (4) constitute manifest
injustice. Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 851
(Tex.1980). The doctrine does not, however, bar the assertion of
inconsistent facts, nor the assertion of concurrent but
inconsistent remedies or distinct causes of action against
different persons arising out of independent transactions. Id. at
852.
The district court found Cook Paint's transactions with its
insurers and with Thornton Summers to be "interconnected," not
separate or independent. The court wrote:
... Cook Paint's suit against its insurers was on the premise
that they owed unqualified duties to provide legal counsel, a
defense, indemnification, and to make all efforts to
reasonably settle the Allied Tank suit, and that their failure
to do so was without cause and resulted in the adverse verdict
and consequent damages. Its suit against its lawyers (and
Alexander & Alexander) is premised on the inconsistent theory
that their omissions allowed or caused the insurers to refuse
to settle, and the failure to settle caused the adverse
verdict and resulting damages.
In the district court's analysis, Cook Paint cannot have it
both ways—either the insurers' failure to settle caused Cook
Paint's damages, or Thornton Summers' negligence caused Cook
Paint's damages. Cook Paint, the court concluded, is barred in
this lawsuit from asserting a second version of how it was damaged
by having previously and successfully asserted an inconsistent
version against the insurers.
The district court further found the remedies claimed against
the insurers and Thornton Summers to be "repugnant," reasoning
that, even if the omissions of Cook Paint's insurers and Thornton
Summers both harmed Cook Paint, it was the same harm—the
5
$21,000,000 verdict which resulted from the lack of a pre-trial
settlement. The court held:
Having successfully settled the carrier suit based on its
allegations that the jury verdict and ensuing damages resulted
from the carriers' failure to settle, it cannot collect again
from Thornton Summers by adopting the inconsistent position
that its legal counsel, rather than its insurers, caused the
same damages by omissions that precluded a settlement. The
election doctrine is used to prevent a double redress for a
single wrong (citation omitted).
The district court concluded that Cook Paint is barred from
asserting its negligence claims against Thornton Summers by the
election of remedies doctrine, the sole purpose of which is "to
prevent double recovery for a single wrong." Slay v. Burnett
Trust, 143 Tex. 621, 187 S.W.2d 377, 393 (1945).
We do not agree. Cook Paint has not asserted a single wrong
for which it seeks double recovery. On the contrary, Cook Paint
has alleged two wrongs. First, the insurance carriers are alleged
to have breached their unqualified duty to Cook Paint to defend,
settle, and indemnify. Second, Thornton Summers is alleged to have
breached its duty of care to Cook Paint in the Allied Tank lawsuit.
Furthermore, in its subsequent action against the insurers, Cook
Paint was required to attempt to overcome the insurers' defense of
late notice—a formidable defense which Cook Paint alleges was
provided to the insurance carriers by Thornton Summers. Had
Thornton Summers timely evaluated and notified the insurers of Cook
Paint's potential exposure in the Allied Tank case, it may well be
that the subsequent actions against the insurers and against
Alexander & Alexander would not have been required, and Cook Paint
would not have been relegated to a claim against an insolvent
6
insurance carrier.
Although they are not unrelated, Thornton Summers and the
insurers owed independent duties to Cook Paint; the breaches
alleged are also independent. Thornton Summers' alleged negligence
may have in part caused the insurers to fail in their duties to
Cook Paint, but the failure of the insurers was an independent
harm. Each tortfeasor owed a separate and independent duty to Cook
Paint which it is alleged to have breached. These are independent
wrongs.
Claims asserted on inconsistent theories, but which arise
from independent wrongs, are not barred by the doctrine of election
of remedies. American Sav. & Loan Ass'n v. Musick, 531 S.W.2d 581
(Tex.1975). For example, the Texas Supreme Court has held that a
suit for trespass to try title against one party is not
inconsistent with a claim against a title insurance company for
failure of title. Id. at 588. The court held that a claim against
a title insurance company invokes the insurer's obligation to pay
the claim or defend title to the property, and this claim is
separate and distinct from the claim of ownership. The loss
covered by the title insurance, the inability to obtain title to
the property, was separate from the loss of title and continued to
exist until title was finally established. Id.
Furthermore, not only do Cook Paint's claims arise from
different wrongs, but the different wrongs produced different
damages. Cook Paint's claim against Thornton Summers is for
damages that have never been wholly or even partially recovered.
7
Its settlement with its insurers resulted in Cook Paint's having to
pay $450,000 out of its own pocket to Allied Tank.3 It also claims
attorneys' fees and expenses which it otherwise would not have
incurred (some of these are the same fees which Thornton Summers
seeks to recover in this suit) as well as those incurred in the
declaratory judgment action and the Alexander & Alexander lawsuit
(approximately $732,898); economic loss from negative publicity
($6,123,311); forced sale of the division involved in the Allied
Tank lawsuit ($12,000,000); and the approximately $13,000,000
balance of the Allied Tank judgment.4
In rejecting these damages as support for Cook Paint's
contention that this is a different lawsuit from that against the
insurers or Alexander & Alexander, the district court held that
"[t]here are no separate and independent damages caused by the
lawyers' failure to investigate, evaluate, and advise," and that
the damages which Cook Paint seeks are equally attributable to the
insurers' omissions.
In the district court's assessment, if the case had settled
prior to judgment, Cook Paint would not have incurred any of these
other damages. Therefore, all of the damages were the result of
the verdict which would not have occurred had it not been for the
breach by the insurers. All these damages were "presumably" sought
by Cook Paint in the lawsuit against the insurers.
3
In addition, Allied Tank received all the settlement
proceeds of approximately $7,200,000.
4
We express no opinion on whether these or any other alleged
damages are recoverable from Thornton Summers.
8
The district court's opinion seems to be based on the
conclusion that the damages represented by the verdict have been
satisfied by Cook Paint's prior settlement with the insurers rather
than upon the election of remedies doctrine:
While the damages Cook Paint seeks may have been attributable
to the lawyers' omissions, they are equally attributable to
the insurers' (and Alexander & Alexander's) omissions and have
been satisfied by settlement.... Having successfully resolved
its claims against the insurers, Cook Paint is barred by the
election of remedies doctrine from seeking to recover the same
damages from the lawyers.
Cook Paint's theory, however, is that the omissions of
Thornton Summers caused its insurers to fail to settle.5 If
Thornton Summers breached its duty to Cook Paint to evaluate Cook
Paint's liability exposure and explore and obtain settlement within
policy limits, it was responsible for the insurers' refusal to
settle prior to trial, and, therefore, for the verdict and
additional elements of damage now claimed by Cook Paint.6 These
are not the same damages, nor have they been satisfied.
For the foregoing reasons, we hold that the remedy pursued by
Cook Paint in this lawsuit is not inconsistent with that pursued by
it in its lawsuit against its insurers. We reverse the summary
judgment and final judgment entered by the district court, the
striking of Cook Paint's affirmative defenses and remand this case
5
We express no opinion on whether the insurers may have a
right to contribution from Thornton Summers, but note that each
owed a separate duty to Cook Paint such that Cook Paint has a
separate cause of action against each.
6
We express no opinion on whether Cook Paint's theory that
it can recover the full amount of the Allied Tank verdict as
damages is well-founded.
9
for further proceedings.
REVERSED and REMANDED.
10