Mid-Continent Casualty Company v. Petroleum Solutions, Inc.
MEMORANDUM AND ORDER entered. For the foregoing reasons, the Court concludes that the Fifth Circuits decision in Hollybrook Cottonseed Processing, L.L.C. v. Am. Guarantee & Liab. Ins. Co., 772 F.3d 1031 (5th Cir. 2014), does not affect the Courts pre vious conclusion that fees awarded under Section 82.002(g) of the Texas Civil Practice and Remedies Code are not damages covered by the commercial general liability Policy at issue. The Court also holds that plaintiff Mid-Continent is not collaterall y estopped from seeking segregation of Titeflexs fees attributable to defense against the PSI claims as opposed to the fees attributable to defense against the Head claim. The Amended Memorandum and Order is amended to this extent. (Signed by Judge Nancy F Atlas) Parties notified. (wbostic, 4)
United States District Court
Southern District of Texas
December 30, 2016
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
MID-CONTINENT CASUALTY CO., §
PETROLEUM SOLUTIONS, INC.,
David J. Bradley, Clerk
CIVIL ACTION NO. 4:09-0422
MEMORANDUM AND ORDER
Before the Court in this insurance coverage case are two issues raised by the
parties since the Court issued its Amended Memorandum and Order on September
29, 2016 [Doc. # 109] (“Amended M&O”),1 granting summary judgment on most
issues presented by the parties. Familiarity with the detailed facts set forth in the
Court’s Amended Memorandum and Order are assumed and detail is explained
below only as needed for legal analysis.
By way of overview, this case concerns a commercial general liability
(“CGL”) policy issued by Plaintiff Mid-Continent Casualty Co. (“Mid-Continent”)
to Defendant insured Petroleum Solutions, Inc. (“PSI”) covering the period May 1,
See Mid-Continent Cas. Co. v. Petroleum Sols., Inc., Civil Action No. 4:09-0422,
2016 WL 5539895 (S.D. Tex. Sept. 29, 2016) (“Amended M&O”) [Doc. # 109].
The Court refers to the page numbers of the Amended M&O as they appear in the
slip opinion filed in the Court’s docket.
2001, to May 1, 2002 (the “Policy”).
In the 1990s, PSI sold to Bill Head and installed on his property a fuel
storage system. It was discovered in 2001 that approximately 20,000 gallons of oil
had leaked into the soil.
Head notified PSI of the leak and accused PSI of
violations of various duties including sale of a defective product. PSI reported the
claim to its carrier, Mid-Continent, which agreed to defend PSI under a reservation
of rights. Mid-Continent hired counsel to investigate the matter. PSI and counsel
contended that a defective flex connector manufactured by Titeflex Corporation
(“Titeflex”) had been the cause of the leak. Counsel took possession of the flex
connector from the site and submitted it to a laboratory for testing and storage. At
some point, the flex connector was lost or destroyed.
In February 2006, Head sued PSI in Texas state court (the “State Court
Litigation”). Mid-Continent selected Victor Vicinaiz, Esq., and Jennifer Hogan,
Esq. as trial and appellate defense counsel, respectively, for PSI. Mid-Continent,
defense counsel and PSI agreed that PSI would assert third-party claims against
Titeflex (collectively, PSI’s “Affirmative Claim”) under Section 82.002 of the
Texas Civil Practice and Remedies Code (“Section 82.002”), and filed the thirdparty action in October 2006.2
In January 2007, Head amended his petition to name Titeflex a co-defendant
based on a strict products liability theory similar to that PSI had asserted. Titeflex
actively defended against all claims, asserting inter alia spoliation arguments
because of the loss of the flex connector.
In March 2008, Head non-suited without prejudice his claims against
Titeflex and focused his theories and trial strategy on PSI. In May 2008, Titeflex
PSI pleaded a “strict products liability” claim and a negligence claim.
negligence claim has not been a factor in the parties’ or Court’s analyses.
asserted a counterclaim against PSI for Titeflex’s attorney’s fees, costs and
expenses (collectively, “fees”) incurred after Head dismissed his claims. Titeflex
subsequently amended its counterclaim to assert what was effectively a Section
82.002 claim against PSI, seeking “all past and future costs of court, reasonable
expenses, and reasonable and necessary attorney’s fees which were expended in
defense of this action and in prosecution of this demand for indemnity.”3
On August 12, 2008, in consultation with Mid-Continent, PSI non-suited its
Affirmative Claim, which constituted a dismissal without prejudice.
however, refused to dismiss its counterclaim for indemnity against PSI unless PSI
agreed to dismiss its Affirmative Claim against Titeflex with prejudice.
refused this dismissal with prejudice.
The claims by Head and Titeflex were tried in September and October 2008.
After a trial spread over approximately eight weeks, the jury reached a verdict in
Titeflex’s favor against PSI, which was memorialized in a judgment entered
January 13, 2009. Titeflex was awarded $463,246.97, plus post-judgment interest
(“Titeflex Judgment”).4 The Texas Supreme Court affirmed that judgment in July
Second [sic] Amended Counter Claims of Defendant, Titeflex Corporation,
Against [PSI], Bill Head v. Petroleum Sols., Inc., Cause No. C-416-06-I (398th
Dist. Ct., Hidalgo County, Tex. Sept. 15, 2008), Exh. A42 to Mid-Continent
Motion (“Titeflex Amended Counterclaim”) [Doc. # 68-46]. Titeflex did not
mention Section 82.002 in the pleading but the parties and the state court
understood that the claim asserted was pursued under that statute. See Amended
M&O [Doc. # 109], at nn. 30, 31.
This sum comprised $382,334.00 in attorneys’ fees, $68,519.62 in expenses,
$12,393.35 in costs, and postjudgment interest at 5% from the day of the judgment
until its satisfaction. PSI paid $619,649.53 in satisfaction of the Titeflex
Judgment. See Final Judgment, Head v. Petroleum Sols., Inc., Cause No. C-41606-1 (398th Dist. Ct., Hidalgo County, Tex. Jan. 13, 2009), Exh. 4 to PSI Motion
for Summary Judgment [Doc. # 63-6], at 3-4; Letter of Coverage Denial, dated
November 11, 2016, Exh. D to PSI Motion for Implied Amendment of
2014, as revised in December 2014.5
Meanwhile, in response to PSI’s notice of claim in 2001, Mid-Continent
defended PSI against Head’s and, later, Titeflex’s claims under a reservation of
Mid-Continent has mounted numerous defenses to coverage.
Continent commenced this declaratory judgment action in 2009, while the Titeflex
Judgment was on appeal but before it had become final. PSI paid the Titeflex
Judgment and has counterclaimed for reimbursement from Mid-Continent under
This Court, on July 29, 2016, in an extensive ruling on a wide variety of
issues presented by the parties on cross motions for summary judgment [Doc.
# 93], held that there was coverage under the Policy for the fees in the Titeflex
Judgment awarded pursuant to Section 82.002(a) incurred in defense against
Head’s claims, but no coverage for fees attributable to Titeflex’s defense against
PSI claims or awarded pursuant to Section 82.002(g). The Court also concluded
that fact issues existed for trial regarding whether PSI satisfied its duty to
cooperate under the Policy. Upon motions for reconsideration, the Court issued an
Counterclaim and Request for Supplemental Ruling on its Motion for Summary
Judgment [Doc. # 121-4], at ECF 2.
The jury also awarded Head $1,131,321.26 in damages and prejudgment interest
and $91,500.00 in attorney’s fees. This award was vacated by the Texas Supreme
Court. On remand, Head’s claims were dismissed by the trial court for reasons
unrelated to the matters before this Court.
See Petroleum Sols., Inc. v. Head, 454 S.W.3d 482, 493 (Tex. 2014).
In November 2016, PSI filed a motion for leave to amend its counterclaim to
additionally seek coverage rulings on a CGL insurance policy issued by MidContinent in 2008. The Court will address PSI’s motion to amend in a separate
Memorandum and Order.
Amended Memorandum and Order [Doc. # 109] altering several of its rulings in
limited part, but did not alter its fundamental conclusions. Significantly for present
purposes, the Court concluded that a trial also was necessary on the issue of
whether Mid-Continent was collaterally estopped from arguing that the Titeflex
fees should be segregated into components attributable to Section 82.002(a) as
opposed to Section 82.002(g).
Thereafter, the Court determined the issue of
whether Mid-Continent waived the right to enforce the cooperation clause in the
The parties continue to contest certain aspects of this Court’s rulings. There
are several issues before the Court for decision, two of which are addressed below.
First, PSI argues that the Fifth Circuit’s case of Hollybrook Cottonseed
Processing, L.L.C. v. American Guarantee & Liability Insurance Co., 772 F.3d
1031 (5th Cir. 2014), not previously cited in the parties’ briefing, establishes that
there is coverage for both the Section 82.002(a) fees in the Titeflex Judgment and
the Section 82.002(g) fees, as both types of fees are “damages” under the Policy’s
insuring clause. PSI asks the Court to alter its conclusion that Section 82.002(g)
fees are not “damages because of … property damage” under the Policy. MidContinent contends the Hollybrook case is not probative.
Second, the parties seek a ruling regarding whether collateral estoppel
prevents Mid-Continent from contesting coverage under the Policy for fees
Titeflex incurred in defense of PSI’s Affirmative Claim while Head’s claim was
not pending against Titeflex. The parties have stipulated to facts pertaining to this
issue and to the sums potentially owed if Mid-Continent is collaterally estopped
and if it is not.7
See infra notes 36 and 42.
The Court addresses these issues in turn.
APPLICABILITY OF FIFTH CIRCUIT’S HOLLYBROOK DECISION
A. Court’s Analysis of Coverage for Section 82.002(g) Award
As interpreted by the Texas Supreme Court on appeal in the underlying suit,
Head’s allegations of property damage caused in part by a Titeflex product, which
claim was dismissed, were sufficient under Section 82.002 to sustain the judgment
in favor of Titeflex, as an innocent component part seller-indemnitee, against PSI,
which the Supreme Court characterized as a manufacturer-indemnitor. Titeflex’s
claimed losses were solely its attorney’s fees, costs, and expenses (collectively,
“fees”) incurred in the State Court Litigation. The state trial and appellate courts
did not differentiate between fees incurred by Titeflex in defending against Head’s
product liability allegations, that is, Section 82.002(a) fees,8 and fees Titeflex, an
innocent “seller”, incurred pursuant to Section 82.002(g)9 in enforcing the Section
82.002(a) indemnity rights against “manufacturer” PSI.10
Section 82.002(a) provides: “A manufacturer shall indemnify and hold harmless a
seller against loss arising out of a products liability action except for
[circumstances not here relevant].”
Section 82.002(g) provides: “A seller is entitled to recover from the manufacturer
court costs and other reasonable expenses, reasonable attorney fees, and any
reasonable damages incurred by the seller to enforce the seller’s right to
indemnification under this section.”
See Petroleum Sols., Inc. v. Head, 454 S.W.3d at 493; Titeflex Amended
Counterclaim [Doc. # 68-46], at 4; Final Judgment [Doc. # 63-6], at 3 (awarding
Titeflex “attorney fees for services rendered through the trial of this case”
This Court has concluded that fees awarded to Titeflex pursuant to 82.002(g)
do not constitute “damages” under the Policy Insuring Agreement.11 In summary,
the Court reasons that, because the Policy does not define “damages,” the Court
must look to Texas law for the definition of “damages” to ascertain if attorney’s
fees and costs are within the Policy’s Insuring Agreement. Under Texas law,
attorney’s fees incurred in the prosecution or defense of a claim generally are not
compensatory damages. Following PSI’s original suggestion, the Court relied on
the Texas Supreme Court’s analysis in In Re Nalle Plastics Family Limited
Partnership,12 which discussed Section 38.001 of the Texas Civil Practice and
Remedies Code, a fee-shifting provision that permits recovery of attorney’s fees in
certain actions “in addition to the amount of a valid claim and costs.” The Texas
Supreme Court explained that the drafters’ use of “in addition to” in that statute
evidences that attorney’s fees are a form of recovery separate from compensatory
Amended M&O [Doc. # 109], at 60-61. The scope of coverage for property
damage is established by the Policy’s “Insuring Agreement” at section I(A)(1)(a):
We [Mid-Continent] will pay those sums that the insured [PSI] becomes
legally obligated to pay as damages because of ‘bodily injury’ or ‘property
damage’ to which this insurance applies.
Policy [Doc. # 63-2], at CGL Form page 1 (ECF page 14), § I(A)(1)(a). See
Amended M&O [Doc. # 109], at Appendix, at 94.
406 S.W.3d 168 (Tex. 2013). The question in In re Nalle was whether attorney’s
fees are either compensatory damages or costs for purposes of supersedeas bonds,
which are regulated in part by Texas Civil Practices and Remedies Code Section
52.006. Section 38.001 and cases under that statute “demonstrate the difference
between compensation owed for an underlying harm and fees that may be awarded
for counsel’s services.” Id. at 172-73.
damages.13 The Supreme Court also distinguished fees incurred in the prosecution
or defense of a claim from fees that are a loss recovered through a substantive
cause of action. “If the underlying suit concerns a claim for attorney’s fees as an
element of damages . . . , then those fees may properly be included in a judge or
jury’s compensatory damages award.”14
Applying this reasoning, this Court concluded that the Titeflex Judgment, to
the extent it included fees under Section 82.002(a), was compensation for a “loss
arising out of a products liability action”15 because “loss,” see Section 82.002(b), is
defined to include “court costs and other expenses, reasonable attorney fees, and
any reasonable damages.”
The Court held that an award of fees under
Id. at 173 (“[S]uits cannot be maintained solely for the attorney’s fees; a client
must gain something before attorney’s fees can be awarded.” (quoting MBM Fin.
Corp. v. Woodlands Operating Co., 292 S.W.3d 660, 666 (Tex. 2009))).
Id. at 175 (interpreting “compensatory damages” in Texas supersedeas bond
statute); see also Richardson v. Wells Fargo Bank, N.A., 740 F.3d 1035, 1038 (5th
Cir. 2014) (“For example, attorney’s fees are considered damages if the fees are
incurred in litigation with a third party, or if the fees are unpaid legal bills sought
in a breach of contract action against a client, or if the fees are expended before
litigation to obtain title from a third party to whom defendants had wrongfully
transferred title.”); Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. Nat’l Dev. &
Research Corp., 299 S.W.3d 106, 111 (Tex. 2009) (“We also agree with NDR that
it may recover damages [in legal malpractice action] for attorney’s fees it paid to
its attorneys in the underlying suit to the extent the fees were proximately caused
by the defendant attorneys’ negligence.” (footnote omitted)).
Amended M&O [Doc. # 109], at 60. “Products liability action” is defined in
Section 82.001(b) to “mean any action against a manufacturer or seller for
recovery of damages arising out of personal injury, death, or property damage
allegedly caused by a defective product whether the action is based in strict tort
liability, strict products liability, negligence, misrepresentation, breach of express
or implied warranty, or any other theory or combination of theories.” (emphasis
Section 82.002(a) is an award of compensatory damages, and thus is covered by
the Policy as “damages.”16
The Court concluded, however, that because Section 82.002(g) grants
recovery of fees incurred “to enforce” an innocent seller’s Section 82.002(a)
indemnification rights, Section 82.002(g) fees do not meet the definition of
compensatory “damages” under Texas law or the Policy.17
These fees are
statutorily distinct from the “loss” covered by Section 82.002(a) as defined in
Section 82.002(b). Rather, Section 82.002(g) fees are analogous to recovery under
Section 38.001, a fee-shifting provision.
Under the theory of In re Nalle, a
Section 82.002(g) award is ancillary to the substantive indemnification cause of
action created by Section 82.002(a), and is not compensatory damage under Texas
law. Had the Section 82.002 drafters intended fees under subsection (g) simply to
be compensable as “loss” under the statute, they could have so stated in subsection
(a) and there would have been no need for subsection (g). The Court will not
render Section 82.002(g) superfluous by construing it as encompassed within
Moreover, because Section 82.002(g) fees focus on
enforcement of Section 82.002(a) indemnification rights, Section 82.002(g) fees
See Amended M&O [Doc. # 109], at 60.
See id. at 60-61.
See TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001) (“It is ‘a cardinal principle of
statutory construction’ that ‘a statute ought, upon the whole, to be so construed
that, if it can be prevented, no clause, sentence or word shall be superfluous, void,
or insignificant.’” (quoting Duncan v. Walker, 533 U.S. 167, 174 (2001))).
are not a recovery “because of” “property damage” and thus are not covered by the
Policy as “damages.”19
B. Hollybrook’s Holding and Its Application to a Section 82.002(g)
PSI contends the Fifth Circuit’s decision in Hollybrook Cottonseed
Processing, L.L.C. v. Am. Guarantee & Liab. Ins. Co., 772 F.3d 1031 (5th Cir.
2014), is grounds for reconsideration of the Court’s ruling that fees awarded
pursuant to Section 82.002(g) are not “damages” covered by the Policy. The Court
Hollybrook is a case addressing the Louisiana redhibition statute, Louisiana
Civil Code article 2545 (“article 2545”).
Plaintiff Hollybrook Cottonseed
Processing, L.L.C. (“Hollybrook”) purchased and used equipment manufactured
by Carver, Inc. (“Carver”) in its processing facility.20 Hollybrook alleged that the
equipment was defective and unreliable, which caused significant production
problems and economic injury.21 Hollybrook obtained a multi-million dollar jury
verdict for violation of article 2545 against Carver’s excess insurer (“American”)
Amended M&O, at 60-61; see id., at nn. 94 & 102. The Policy’s “Insuring
Agreement” provides: “We will pay those sums that the insured becomes legally
obligated to pay as damages because of “bodily injury” or “property damage” to
which this insurance applies. …” See Policy, § I(A)(1)(a), quoted at Amended
M&O [Doc. # 109], at Appendix, at 94.
Hollybrook Cottonseed Processing, L.L.C. v. Am. Guarantee & Liab. Ins. Co., 772
F.3d 1031, 1033 (5th Cir. 2014).
Id. at 1033. Hollybrook sued Carver, Carver’s primary insurer, Sentry Insurance
Company, and Carver’s excess insurer, American Guarantee & Liability, for
violation of article 2545 and breach of contract. Hollybrook settled with Carver
and Sentry prior to trial. Id.
under Louisiana’s direct action statute.22 In post-trial briefing, Hollybrook sought
to recover its attorney’s fees as “damages” allowed by article 2545 and thus
covered by the excess insurance policy.23 On appeal, the Fifth Circuit agreed,
holding that the attorney’s fees awarded under article 2545 constituted damages
covered by the policy.24
In Hollybrook, the insurance policy, like the Policy at bar, obligates the
insurer to “pay as damages because of … ‘property damage’ … .”25 The question
in Hollybrook was, as here, whether attorney’s fees are “‘damages’ caused by
property damage.”26 The Fifth Circuit stated that, because the American “policy
does not define the word ‘damages’, it is given its ordinary meaning, and any
ambiguity must be resolved against the insurer in favor of coverage.”27
Both the Hollybrook insured and PSI’s claims for coverage arise out of
product liability actions. Both cases are brought for fees awarded under statutes
Id. at 1037.
See Hollybrook, 772 F.3d at 1036; Policy [Doc. # 63-2], at CGL Form page 1
(ECF page 14), § I(A)(1)(a), quoted at Amended M&O, Appendix, at 94.
Id. at 1036.
Id. Likewise, under Texas law, the meaning of an insurance contract is
determined under the standards applicable to contracts generally, see One Beacon
Ins. Co. v. Crowley Marine Servs., 648 F.3d 258, 271 (5th Cir. 2011), and, if the
contract is subject to more than one reasonable interpretation, it will be deemed
ambiguous and interpreted in favor of coverage for the insured. Lambrecht &
Assocs., Inc. v. State Farm Lloyds, 119 S.W.3d 16, 20 (Tex. App.—Tyler 2003, no
pet.) (citing Grain Dealers Mut. Ins. Co. v. McKee, 943 S.W.2d 455, 458 (Tex.
that expressly provide for awards of attorney’s fees as an element of damages
available to a plaintiff. Nevertheless, the reach of Hollybrook does not extend as
far as PSI advocates. First, Hollybrook’s holding is grounded in specific Louisiana
precedent. The Fifth Circuit’s statutory interpretation of article 2545 relies heavily
on Louisiana case law that “specifically stated about redhibition actions that ‘[t]he
buyer’s reasonable attorney fees are nothing more than an element of the buyer’s
Second, structurally, article 2545 provides recovery for the buyer of a
defective good, much like Section 82.002(a).29 Article 2545 makes attorney’s fees
part of the substantive cause of action for redhibition, as does Section 82.002(a)
through the definition of “loss” in Section 82.002(b), i.e., “court costs and other
expenses, reasonable attorney fees, and any reasonable damages.” In contrast,
Hollybrook, 772 F.3d at 1036 (quoting Borne v. Mike Persia Chevrolet Co., 396
So.2d 326, 330 (La. Ct. App. 1981). The Fifth Circuit’s analysis defines
“damages” in the context of redhibition by reference to Louisiana precedent and
the legislative history of article 2545. See Hollybrook, 772 F.3d at 1036
(“Louisiana courts have specifically stated about redhibition actions that ‘[t]he
buyer’s reasonable attorney fees are nothing more than an element of the buyer’s
damage.’” (quoting Borne v. Mike Persia Chevrolet Co.,396 vSo.2d 326, 330 (La.
Ct. App. 1981))); id. (“[O]ne commentator on Louisiana law has correctly
explained that the legislative history of the redhibition article ‘clearly stated that
its purpose was to include attorney fees in the liability for damages of … a
seller.’” (quoting Ronald J. Scalise, Jr., 6 La. Civ. L. Treatise, Law of Obligations
§ 12.22 (2d ed. 2014))).
Article 2545 provides, in relevant part, that “[a] seller who knows that the thing he
sells has a defect but omits to declare it, or a seller who declares that the thing has
a quality that he knows it does not have, is liable to the buyer for … damages and
reasonable attorney fees.” LA. CIV. CODE art. 2545. Section 82.002(a) provides:
“A manufacturer shall indemnify and hold harmless a seller against loss arising
out of a products liability action except for [circumstances not here relevant].”
“Loss” includes “reasonable attorney fees, and any reasonable damages.” TEX.
CIV. PRAC. & REM. CODE § 82.002(b).
Section 82.002(g) is a fee-shifting provision for fees and damages incurred “to
enforce the seller’s right to indemnification” under [Section 82.002(a)].30 Sections
38.00131 and 82.002(g) each are auxiliary to a substantive cause of action, while
fees under article 2545 and Section 82.002(a) constitute compensatory damages.
The Policy provides coverage for “damages because of … ‘property
damage’ … .”32 Section 82.002(g) fees do not constitute such “damages” under
prevailing Texas law. Hollybrook’s analysis of Louisiana law on redhibition does
not support a holding to the contrary.
COLLATERAL ESTOPPEL ON SEGREGATION OF FEES ISSUE
During the course of the State Court Litigation, Titeflex proved it suffered
“losses” cognizable under Section 82.002 consisting of attorney’s fees, expenses
and costs (collectively, “fees”) incurred defending against Head’s products liability
claims and PSI’s Affirmative Claim under Section 82.002. As noted earlier, PSI
asserted its third-party claim for indemnity against Titeflex on October 5, 2006,
and Head asserted his direct claim on January 30, 2007.
PSI non-suited its
Affirmative Claim in mid-August 2008, more than five months after Head
dismissed his action against Titeflex in March 2008.
The Titeflex Judgment
comprises fees incurred in (1) defense against Head’s products liability claims; (2)
defense against PSI’s Affirmative Claim under Section 82.002(a); and (3)
prosecution for fees from PSI pursuant to Section 82.002(g) for enforcement of
TEX. CIV. PRAC. & REM. CODE § 82.002(g) (emphasis added). Compare id. with
id. at § 82.002(a) and § 82.002(b).
TEX. CIV. PRAC. & REM. CODE § 38.001 (the party may “recover reasonable
attorney’s fees … in addition to the amount of a valid claim and costs.”).
Policy [Doc. # 63-2], at CGL Form page 1 (ECF page 14), § I(A)(1)(a). See
Amended M&O [Doc. # 109], at Appendix, at 94.
Titeflex’s Section 82.002(a) indemnity claim.
The jury verdict and Titeflex
Judgment did not segregate these components.
This Court concluded on summary judgment that the Policy covers the
Titeflex Judgment for all fees awarded for indemnification due from PSI under
Section 82.002(a), i.e., for Titeflex’s “loss” incurred in defending against Head’s
claims from January 30, 2007 to approximately March 7, 2008. The Court further
concluded that to the extent fees during this period were for work defending
against Head’s claims, which work was also helpful in countering PSI’s claims, the
fees are recoverable under the Policy.33
In light of the Court’s analysis,34 Mid-Continent contends that at most the
Policy should be deemed to cover only fees Titeflex incurred between January 30,
2007 and March 7, 2008, when Head dismissed his claim against Titeflex, which is
the period when Titeflex actually incurred fees for which Section 82.002(a)
provides indemnity. PSI counters that Mid-Continent is collaterally estopped from
contesting the lack of segregation among these components of the Titeflex
Judgment because the segregation issue was litigated in the state court at trial. In
the Amended M&O, this Court held that a trial was necessary on this question.35
The parties have stipulated to the operative facts and seek a ruling as a matter of
See Amended M&O [Doc. # 109], at 78.
Mid-Continent opposes on many grounds the Court’s conclusion that there is
coverage for any fees owed by PSI pursuant to the Titeflex Judgment.
See Amended M&O [Doc. # 109], at 74-75.
See Stipulations of Fact and Agreed Evidence Regarding Collateral Estoppel
(“Stipulations”) [Doc. # 117]. The parties also have stipulated to the total recovery
Factual Record on Segregation Issue in State Court Litigation
The state trial record reveals that PSI’s counsel raised the issue of the
segregation of fees Titeflex incurred in defense of PSI claims as contrasted with
fees in defense of Head’s claims. First, during cross-examination on October 22,
2008, Victor Vicinaiz, Esq., questioned Titeflex’s attorney, George Petersmarck,
Esq., regarding whether Titeflex distinguished between fees in defense of Head’s
claims and fees in defense of PSI’s Affirmative Claim. The witness testified that
Titeflex did not segregate those fees because they were completely intertwined:
Viciniaz: Okay. Now, with respect to the fees you are claiming and
they are somewhat under fees and expenses of – something right
under 400,000, correct?
Petersmarck: Whatever it is, 389, something like that, yeah.
Viciniaz: Now, with respect to that, have you separated or identified
and segregated the fees incurred, that you incurred, both you and
[Titeflex counsel Thomas Cowen], from the lawsuit that [PSI] filed
against you from the lawsuit that [Head] filed against you?
Petersmarck: I was unable to do that.
Petersmarck: Because the – the reason we couldn’t do it is because
it’s all intertwined. ... [Y]our lawsuit against my client was for
complete indemnification based on a product liability theory for all
damages, including attorneys’ fees and costs that you would have
incurred or expended on behalf of the defense of PSI. … 37
depending on whether the Court does or does not find collateral estoppel. See infra
Stipulations, Appendix A, Trial Transcript, Oct. 22, 2008 [Doc. # 117], at 14, at
ECF at 24.
Vicinaiz: PSI sued you, correct?
Vicinaiz: That was for an allegation of a defective product that
Vicinaiz: But plaintiff Bill Head sued you on an allegation that the
product was defective, correct?
Vicinaiz: So there was [sic] two parties suing you alleging that there
was a defective product?
Petersmarck: That’s correct.
Vicinaiz: And those two lawsuits, one by PSI and one by Bill Head,
were pending together for about 14 months if you look at that time
Petersmarck: That’s approximately correct.
Vicinaiz: Okay. So you were defending during those 14 months two
Petersmarck: Well, defending is a relative term. The plaintiff [Head]
never submitted to us any discovery. The only defense costs that we
incurred, actually, as I recall it, was the answer to the complaint.
Petersmarck: And the discovery that we took relative to what
happened and who the witnesses were and so on. That was all
Vicinaiz: Okay. Do [sic] you separate those fees?
Petersmarck: There’s no way to separate them.
Vicinaiz: And did you separate any of the fees from the date of the
dismissal by Bill Head – at that time there was no one suing you – to
Petersmarck: From Bill Head? You were still suing me.
Petersmarck: After Bill Head dismissed their claim, your claim was
Vicinaiz: And PSI dismissed you in August?
Vicinaiz: Did you segregate the fees and identify the fees incurred
from August until, for example, today?
Petersmarck: No. 38
Additionally, during the charge conference, on November 3, 2008, PSI’s
appellate counsel, Jennifer Hogan, Esq., objected to other parties’ proposed jury
charges, arguing that the jury should be instructed “not to award [to Titeflex]
attorneys’ [sic] fees that are not segregated and are not recoverable under Chapter
82 … .”39
Hogan tendered to the state court the following proposed jury
Id. at 15-17, at ECF 25-27.
Stipulations, Appendix A, Trial Transcript, Nov. 3, 2008 [Doc. # 117], at 202-03,
at ECF 35-36. Counsel for PSI argued that the state court was required to instruct
the jury that the fees must be segregated. Counsel’s argument was simply:
instruction regarding how to calculate Titeflex’s attorney’s fees, and a comparable
proposed instruction regarding expenses:
Do not include in your answer any attorney’s fees that were or will be
incurred by Titeflex that are related solely to Titeflex’s defense of the
claims brought against it by Petroleum Solutions, Inc.40
The state trial court simply stated that Hogan’s objections were “overruled” and
“refused” the proposed jury instructions without any explanation or reasoning.41
MS. HOGAN: Okay, Your Honor. We object that the attorneys’ fees and
expenses questions are not recoverable except by statute or contract. There
is no contract, so Titeflex is entitled to attorneys’ fees only submitted by
statute. The only pleaded basis is Chapter 72 [sic] of the Civil Practices and
Remedies Code. Titeflex’s fees and expenses and then both of its questions
15 and 16 are – are not – are – therefore, are recoverable only if they are
authorized by Chapter 82, and the jury’s consideration of fees and expenses
should be limited to those recoverable under Chapter 82. The attorneys’
fees must be segregated. We have tenders, Your Honor. We would ask the
THE COURT: Bring them forward and give copies to Counsel.
MS. HOGAN: Okay. We have -- we have -- there is [sic] four of them.
There are four requested tenders, Your Honor, two for the attorneys’ fees
that should be given in conjunction with the attorneys’ fees question and
two that should be given in conjunction with the expenses question. We
ask that the jury be instructed that -- not to award attorneys’ fees that are
not segregated and are not recoverable under Chapter 82, and that’s what
these tenders are entitled -THE COURT: I just refused it.
Stipulations [Doc. # 117], Exhibit A, at 202-03 (emphasis added).
Id. at ECF 39, 38.
Id. at 202-03, at ECF 38-39.
B. Collateral Estoppel Analysis on Fee Segregation Issue
PSI contends that Mid-Continent is estopped from arguing that the Policy
does not cover the fees Titeflex incurred in defense of PSI’s Affirmative Claim
because that issue was decided in the State Court Litigation by virtue of the quoted
testimony and rulings on the proffered jury instructions. Mid-Continent responds
that the issue was not fully litigated or determined, that it is not in privity with PSI,
and that the brief rulings do not entitle PSI to collateral estoppel. The Court
concludes that Mid-Continent is in privity with PSI but that the issue was not fully
litigated, and thus Mid-Continent is not collaterally estopped from arguing
segregation in this coverage proceeding.42
Collateral estoppel, or issue preclusion, “‘prevents relitigation of particular
issues already resolved in a prior suit.’”43 Texas law governs the preclusive effect
of the Texas court’s rulings in the present case.44 In Texas, collateral estoppel
requires a party to” establish that: ‘(1) the facts sought to be litigated in the second
action were fully and fairly litigated in the first action; (2) those facts were
essential to the judgment in the first action; and (3) the parties were cast as
adversaries in the first action.’”45
The parties stipulate that if collateral estoppel does not apply, damages are
$136,499.97 plus $51,104.40 in post-judgment interest, for a total of $187,604.17.
If estoppel does apply, it is agreed that damages are $278,545.36 plus $104,285.11
in post-judgment interest, for a total of $382,830.47. See Joint Pretrial Order
[Doc. # 126], at 6 ¶¶ 31a, 31b; accord, Advisory [Doc. # 135], at 1.
Primo v. Great Am. Ins. Co., 455 S.W.3d 714, 728 (Tex. App.—Houston [14th
Dist.] 2014, pet. granted) (quoting Barr v. Resolution Trust Corp. ex rel. Sunbelt
Fed. Sav., 837 S.W.2d 627, 628 (Tex. 1992)).
Weaver v. Tex. Capital Bank N.A., 660 F.3d 900, 906 (5th Cir. 2011).
John G. & Marie Stella Kenedy Mem’l Found. v. Dewhurst, 90 S.W.3d 268, 288
(Tex. 2002); see also State Farm Fire and Cas. Co. v. Fullerton, 118 F.3d 374,
“For collateral estoppel purposes, ‘full and fair litigation’ means actual
litigation in the previous suit of the same fact issues.”46 “[A]n issue was ‘actually
litigated’ when it was properly raised, by the pleadings or otherwise, and it was
submitted for determination, and determined.”47
“[C]ollateral estoppel applies
when the party against whom collateral estoppel is being asserted had a full and
fair opportunity to litigate the issue.”48 The issue in the pending suit must be
377 (5th Cir. 1997) (quoting Sysco Food Servs., Inc. v. Trapnell, 890 S.W.2d 796,
801 (Tex. 1994)); Matter of Garner, 56 F.3d 677, 679 (5th Cir. 1995) (“Under
Texas law, collateral estoppel ‘bars relitigation of any ultimate issue of fact
actually litigated and essential to the judgment in a prior suit, regardless of
whether the second suit is based upon the same cause of action.’” (citing
Bonniwell v. Beech Aircraft Corp., 663 S.W.2d 816, 818 (Tex. 1984))), abrogated
on other grounds by Kawaauhau v. Geiger, 523 U.S. 57 (1998); In re Dang, Civil
Action No. H–15–3342, Adversary Nos. 15–3089, 15–3088, 2016 WL 6208890, at
*3 (S.D. Tex. Oct. 26, 2016) (Rosenthal, C.J.) (reciting collateral estoppel
elements in reviewing an appeal from a bankruptcy court’s judgment).
T.L. Dallas (Special Risks), Ltd. v. Elton Porter Marine Ins. Agency, Inc., Civil
Action No. 4:07–cv–0419, 2008 WL 7627807, at *4 (S.D. Tex. May 22, 2008)
(citing 48 TEX. JUR. 3D JUDGMENTS § 516); see also McDonald v. Houston
Brokerage, Inc., 928 S.W.2d 633, 637 (Tex. App.—Corpus Christi 1996) (citing
Puga v. Donna Fruit Co., 634 S.W.2d 677, 678 (Tex. 1982)).
Rexrode v. Bazar, 937 S.W.2d 614, 617 (Tex. App.—Amarillo 1997, no writ);
accord Tenet Health Sys. Hosps. Dallas, Inc. v. N. Tex. Hosp. Physicians Group,
P.A., 438 S.W.3d 190, 203 (Tex. App.—Dallas 2014) (citing Rexrode, 937 S.W.3d
at 617); Van Dyke v. Boswell, O’Toole, Davis & Pickering, 697 S.W.2d 381, 38485 (Tex. 1985) (adopting and quoting Section 27, comment (d) of the
RESTATEMENT (SECOND) OF JUDGMENTS (1982), which states that actual litigation
occurs “[w]hen an issue is properly raised, by the pleadings or otherwise, and is
submitted for determination, and is determined.”).
Tenet Health Sys. Hosps. Dallas, Inc., at 203 (Tex. App.—Dallas 2014) (citing
Tex. Dep’t of Public Safety v. Petta, 44 S.W.3d 575, 579 (Tex. 2001)).
identical to the issue in the first litigation.49
“Strict mutuality of parties is not required.”50 “It is only necessary that the
party against whom collateral estoppel is being asserted was a party or in privity
with a party in the first action.”51 The party asserting collateral estoppel has the
burden of pleading and proving its elements.52
The issue actually presented and determined in the state court suit was the
total amount of fees and expenses incurred by Titeflex in that suit through the
trial.53 That issue focused on the total amount of counsel’s work and expenses in
the state court case. PSI’s counsel, selected and paid by Mid-Continent, sought for
Id. (citing State & Cnty. Mut. Fire Ins. Co. v. Miller, 52 S.W.3d 693, 696 (Tex.
2001)); SWEPI, L.P. v. Camden Res., Inc., 139 S.W.3d 332, 339 (Tex. App.—San
Antonio 2004, pet. denied).
Id. (citing Petta, 44 S.W.3d at 579); Richards v. Comm’n for Lawyer Discipline,
35 S.W.3d 243, 249 (Tex. App.—Houston [14th Dist.] 2000, no pet.)).
MGA Ins. Co. v. Charles R. Chestnutt, P.C., 358 S.W.3d 808, 817 (Tex. App.—
Calabrian Corp. v. All. Specialty Chems., Inc., 418 S.W.3d 154, 158 (Tex. App.—
Houston [14th Dist.] 2013, no pet.); Scurlock Oil Co. v. Smithwick, 787 S.W.2d
560, 562 (Tex. App.—Corpus Christi 1990) (“The burden is on appellants to
present sufficient evidence to establish that the doctrine of collateral estoppel
should apply.” (citing Traweek v. Larking, 708 S.W.2d 942, 945 (Tex. App.—
Tyler 1986, writ ref'd n.r.e.)).
The questions submitted to the jury in the State Court Litigation regarding the
Titeflex Counterclaim were: (1) “Is Petroleum Solutions, Inc. a manufacturer?”;
(2) “Is Titeflex Corporation a seller?”; (3) “What is a reasonable fee for the
necessary services of the attorneys for Titeflex Corporation in this case, stated in
dollars and cents?”; and (4) “What amount, if any, in expenses were reasonably
incurred by Titeflex Corporation in this lawsuit?” See Court’s Charge to the Jury,
Bill Head v. Petroleum Sols., Inc., Cause No. C-416-06-I (398th Dist. Ct., Hidalgo
County, Tex. Nov. 5, 2008), Exh. A46 to Mid-Continent Motion [Doc. # 68-50], at
32–34 (Questions 13–16).
the first time during trial to raise the issue of the timing and subject matter of the
work for which Titeflex’s fees were sought, but were denied a meaningful hearing
and a reasoned determination on that question.
The jury was not given the
opportunity to assess whether allocation would be proper.
Privity in the State Court Litigation on Segregation Issue
In order to assess whether collateral estoppel should apply, the Court turns
first to the question of whether PSI and Mid-Continent were in privity regarding
this issue before the state court.
There are “dangers of formalism tied up in the word ‘privity’ … .”54
Generally, “[p]arties are in privity for the purposes of collateral estoppel when: (1)
they control an action even if they are not parties to it; (2) their interests are
represented by a party to the action; or (3) they are successors in interest, deriving
their claims through a party to the prior action.”55 The Fifth Circuit opinion in Bay
Rock informs the privity issue in the context of insurance coverage specifically.56
In Bay Rock, privity between the insurer and the insured was held to exist in the
underlying suit even though the insurer, Mid-Continent, defended under a
reservation of rights. The Fifth Circuit stated:
State Farm Fire and Cas. Co. v. Fullerton, 118 F.3d 374, 384 (5th Cir. 1997)
(citing WRIGHT, MILLER & COOPER, 18 FEDERAL PRACTICE & PROCEDURE § 4448
McCoy v. Hernandez, 203 F.3d 371, 374 (5th Cir. 2000) (citing HECI Exploration
Co. v. Neel, 982 S.W.2d 881, 890 (Tex. 1998)) (analyzing whether a § 1983
plaintiff may invoke collateral estoppel against officers following a favorable
ruling in a prior criminal proceeding).
The Fifth Circuit affirmed the district court’s conclusion that the insurer of a
defendant in underlying suit, defending under a reservation of rights, was
collaterally estopped from challenging the standing of underlying suit plaintiff’s
insurer to bring the first action.
The requisite degree of privity between an insurer and its insured can
exist if: (1) the insurer controlled the insured’s defense in the liability
suit; and (2) the insurer and the insured do not hold conflicting
positions with respect to the issue determined in the liability suit.57
Regarding the first factor, the evidence reveals that Mid-Continent in fact
generally controlled and had substantial input into PSI’s defense in the underlying
State Court Litigation.58 As evidence to the contrary, Mid-Continent emphasizes
Mid-Continent Cas. Co. v. Bay Rock Operating Co., 614 F.3d 105, 111 (5th Cir.
2010) (emphasis added).
Though Mid-Continent assumed PSI’s defense subject to a reservation of rights,
there is summary judgment evidence indicating defense counsel, selected and paid
by Mid-Continent, was in contact with Mid-Continent before and throughout the
State Court Litigation and received Mid-Continent’s input with respect to legal
strategy. See, e.g., Letter from Steve Hintze to Elizabeth Neally, dated August 27,
2002, Exh. 13 to PSI Motion [Doc. # 63-15] (Mid-Continent adjuster thanking
Neally, who was retained by Mid-Continent in 2002 to investigate the leak, retain
experts and represent PSI in future litigation, for her legal analysis regarding
Titeflex’s obligations under the Texas Products Liability Act (“TPLA”) and
suggesting “[l]ets [sic] assert the indemnity claim under TPLA, and common law
indemnity, and UCC, etc.”); Letter from Mid-Continent’s Robert Bryant to
defense counsel Victor Vicinaiz, dated September 26, 2006, Exh. 16 to PSI
Motion Letter [Doc. # 63-18] (summarizing Mid-Continent’s phone conversation
with defense counsel held earlier that day, during which, among other things, MidContinent expressed that “we will want to add [Tite Flex as a third party] … You
said you will add them as a responsible third party and also as Third Party
Defendants for contribution.”); Letter from Jennifer Hogan to Robert Bryant,
dated February 29, 2008, Exh. 17 to PSI Motion [Doc. # 63-19] (defense counsel’s
analysis of availability of appellate review, assessment of Head’s claims and PSI’s
defenses, and recommendation for future legal strategy); Letter from Victor
Vicinaiz to Robert Bryant, dated May 14, 2008, Exh. 24 to PSI Motion [Doc.
# 63-26] (defense counsel’s recommendation to dismiss Titeflex and related
rationale, addressed to Mid-Continent); Email Exchange between Robert Bryant
and Victor Vicinaiz, Exh. 25 to PSI Motion [Doc. # 63-27] (Bryant instructs
Vicinaiz to “[p]lease proceed in dismissing our claims to Titeflex as a Third-party
defendant, but keep them designated as a responsible third-party.” Vicinaiz
responds that he has “received [Bryant’s] message and will non-suit Titeflex first
thing in the morning.”); Letter from Victor Vicinaiz to Robert Bryant, dated
PSI’s refusal to settle the Affirmative Claim on the terms Titeflex and MidContinent sought. There is no argument that this divergence of views on strategy
affected the rest of the defense or the trial strategy, however. Thus, this factor
supports imposition of collateral estoppel.
The second factor focuses on whether Mid-Continent and PSI held
“conflicting positions with respect to the issue determined in the liability suit.”
The Court discerns no conflict here. Mid-Continent and PSI were aligned in
seeking to limit Titeflex’s fee award as much as possible. Both Mid-Continent and
PSI would have benefitted from the state trial court’s granting Hogan’s proposed
jury instructions and ruling that the jury could not award Titeflex Section 82.002
fees that were not appropriately segregated.
PSI feared there would be no
insurance coverage and wanted to limit its potential exposure; similarly, MidContinent, if there was coverage under the Policy, sought to pay as little as
possible. Substantively, both wanted to prevent any award to Titeflex of fees
incurred against PSI’s claims (as opposed to fees in defense of Head’s claims) and,
more generally, to prevent an award of all fees that were not segregated as between
the PSI and Head claims. The fact that state trial and appellate counsel were not
focused on how the segregation issue would impact coverage questions, as
presented in the declaratory judgment suit at bar, is immaterial.
Continent’s argument that there was no privity between itself and PSI for collateral
estoppel purposes under Texas law is rejected.
August 12, 2008, Exh. 27 to PSI Motion [Doc. # 63-29] (defense counsel’s
recommendation that PSI non-suit with prejudice Titeflex, addressed to MidContinent); see generally Policy, § IV(2), at Amended M&O [Doc. # 109], at
Appendix, at 95-96.
Full and Fair Litigation of Identical Issue
The Court next addresses whether the issue of segregation of Titeflex fees
attributable to defense against the PSI claims as opposed to the fees attributable to
defense against the Head claim was fully and fairly litigated.59 PSI argues that the
segregation issue was fully litigated based on Vicinaiz’s questions to Titeflex’s
counsel during cross-examination, Hogan’s argument and tender of two proposed
instructions during the jury charge conference, and the state court’s ruling rejecting
Hogan’s argument and tendered jury charges. The Court is not persuaded. First,
PSI points to no evidence that any issue of segregation was pleaded pretrial in the
state court suit or placed in any pretrial submission.60 It is plain that the state trial
court permitted PSI’s counsel to make only the most cursory argument at the jury
PSI invokes the Fifth Circuit’s decision in Bay Rock, 614 F.3d 105, as the standard
for collateral estoppel in insurance coverage cases. Bay Rock is informative and is
consistent with Texas law, which is primarily applicable. In Bay Rock, the Fifth
An insurer in a coverage case will be barred from re-litigating a particular
issue from the underlying liability case if: (1) the issue raised in the
coverage suit was raised and determined in the liability suit; (2) the issue
determined the liability suit was essential to the judgment in the liability
suit; and (3) the necessary requirement of privity exists between the insurer
and the insured.
Id. at 110. The Fifth Circuit’s “raised and determined” in Bay Rock is equivalent
to the “full and fair litigation,” “actually litigated,” and “full and fair opportunity
to litigate” element in the Texas collateral estoppel rubric.
In contrast, in Calabrian Corp. v. All. Specialty Chemicals, Inc., 418 S.W.3d 154,
159-60 (Tex. App.—Houston [14th Dist.] 2013, no pet.), the court found the issue
of personal jurisdiction was “fully and fairly litigated” in the first action where a
party moved to dismiss based on lack of jurisdiction, the parties briefed the
jurisdiction issue, and the court denied motion to dismiss.
charge conference. The legal argument was not raised in the state court until the
charge conference.61 The segregation issue thus was not “properly raised.”62
Furthermore, in making legal rulings, the trial judge simply summarily
“overruled” a vague objection to the absence of segregation and, in one word,
“refused” the requested jury instructions. There was no consideration of the issue,
nor explanation of the reasons for denial of the requests.63 The segregation issue
thus was not “determined” by either the jury or the state trial court.64 “A basic
tenet of collateral estoppel is that an issue must have been actually resolved for it
to have preclusive effect … [w]here the first fact finder did not determine the
ultimate fact question at issue in the second proceeding, but merely denied the
The testimony elicited from Titeflex’s witness was that segregation was not
possible. See supra Section III.A.
See, e.g., Calabrian Corp. v. All. Specialty Chemicals, Inc., 418 S.W.3d 154, 15960 (Tex. App.—Houston [14th Dist.] 2013, no pet.) (finding issue of personal
jurisdiction was “fully and fairly litigated” in first action where party moved to
dismiss based on lack of jurisdiction, parties briefed jurisdiction issue, and court
denied motion to dismiss); Rexrode v. Bazar, 937 S.W.2d 614, 617 (Tex. App.—
Amarillo 1997, no writ) (concluding negligence issue was properly raised because
it was alleged in the original petition).
Indeed, Titeflex did not make any argument in support of the global submission
for its fees. See State Court Litigation Record [Doc. # 117], at 202-203. In
response to Hogan’s arguments, the state court responded “[t]hat’s—that objection
is overruled.” Id. at 202:5-12. After Hogan described PSI’s tendered jury
charges, the state court stated “I just refused it.” Id. at 203:1-7. The Texas Court
of Appeals deemed the issue “waived.” The parties do not argue this ruling has
import for collateral estoppel purposes.
The Court does not adopt Mid-Continent’s position that a necessary element of
collateral estoppel is a jury determination. See United States v. Stauffer Chem.
Co., 464 U.S. 165, 170-71 (1984) (discussing collateral estoppel under federal
requested relief, collateral estoppel does not apply.”65 “The scope of the collateral
estoppel doctrine is circumscribed by [ ] particularized findings … .”66 There are
no particularized findings – or conclusions of law – in the state record with respect
to the segregation issue.
PSI suggests that the state court determined the segregation issue as a matter
of law when it held that the segregation issue was not to go to the jury.67 The
Court is unpersuaded. In addition to the state trial court’s superficial treatment of
the issue, the Texas Court of Appeals summarily ruled the issue was waived.68 The
appellate confusion reinforces this Court’s conclusion that there was not a
“determination” on the merits of the segregation issue.
For all these reasons, PSI has failed to meet its burden to prove that the
segregation issue was actually litigated in the state court case.69
Tenet Health Sys. Hosps. Dallas, Inc. v. N. Tex. Hosp. Physicians Group, P.A.,
438 S.W.3d 190, 204 (Tex. App.—Dallas 2014) (citing SWEPI, L.P. v. Camden
Res., Inc., 139 S.W.3d 332, 339 (Tex. App.—San Antonio 2004, pet. denied).
Matter of Miller, 156 F.3d 598, 602 (5th Cir. 1998) (discussing collateral estoppel
under Texas law in the context of a bankruptcy action) (citing Marine Shale
Processors, Inc. v. U.S. E.P.A., 81 F.3d 1371, 1379 (5th Cir. 1996), subsequent
mandamus proceeding sub nom. In re Marine Shale Processors, Inc., 91 F.3d 16
(5th Cir. 1996)).
See PSI Response to Mid-Continent’s Supplemental Brief [Doc. # 122], at 9
(“[C]ounsel for PSI argued that Titeflex’s attorneys’ [sic] fees should be
segregated, the court made its determination that the tendered instruction should
not be given, and the ruling was final and appealable. As such, the segregation
issue was fully litigated … .”)
Petroleum Sols., Inc. v. Head, 454 S.W.3d 518, 577 (Tex. App.—Corpus Christi
2011), aff’d in part, rev’d in part, 454 S.W.3d 482 (Tex. 2014).
To the extent the Court has discretion regarding application of collateral estoppel,
the Court exercises that discretion to decline to apply the estoppel. Generally,
courts have broad discretion with respect to collateral estoppel invoked in an
concludes Mid-Continent is not collaterally estopped from seeking segregation of
Titeflex’s fees in this coverage action.70
CONCLUSION AND ORDER
For the foregoing reasons, the Court concludes that the Fifth Circuit’s
decision in Hollybrook Cottonseed Processing, L.L.C. v. Am. Guarantee & Liab.
Ins. Co., 772 F.3d 1031 (5th Cir. 2014), does not affect the Court’s previous
conclusion that fees awarded under Section 82.002(g) of the Texas Civil Practice
offensive, as opposed to defensive, manner. Compare Parklane Hosiery Co., Inc.
v. Shore, 439 U.S. 322, 329-31 (1979) (discussing concerns associated with
offensive collateral estoppel that require courts have “broad discretion” in
considering whether to apply offensive collateral estoppel), Scurlock Oil Co. v.
Smithwick, 787 S.W.2d 560, 563 (Tex. App.—Corpus Christi 1990, no writ)
(identifying four “fairness factors” outlined in Parklane) and In re Plunk, 481 F.3d
302, 308 (5th Cir. 2007) (citing Scurlock Oil Co. v. Smithwick, 787 S.W.2d 560,
563 (Tex. App.—Corpus Christi 1990, no writ) (noting courts have discretion in
applying the four factors with respect to offensive collateral estoppel) with Mann
v. Old Republic Nat’l Title Ins. Co., 975 S.W.2d 347, 350 (Tex. App.—Houston
[14th Dist.] 1998, no pet.) (“Defensive use of collateral estoppel does not trigger
application of the Parklane factors”) and Sysco Food Servs., Inc. v. Trapnell, 890
S.W.2d 796, 802 (Tex.1994) (declining to apply defensive collateral estoppel
partly in a narrow holding that partly turned on the case’s unusual procedural
posture and relevant statutory changes). Because of the unusual relationship
between the insured and insurer in the State Court Litigation and the case at bar, it
is unclear whether PSI’s invocation of collateral estoppel should be deemed
offensive or defensive collateral estoppel in the typical sense used by the courts.
The Fifth Circuit’s affirmance in Bay Rock of the district court’s conclusion that
Mid-Continent was collaterally estopped from challenging the standing of a
plaintiff in an underlying state action is not inconsistent with this conclusion. The
Circuit in Bay Rock clarified that all prongs of collateral estoppel were satisfied
because “the underlying state court action shows that the issue of [the first suit
plaintiff’s] insurer’s subrogation right was fully litigated in that action … .” MidContinent Cas. Co. v. Bay Rock Operating Co., 614 F.3d 105, 111 n.4 (5th Cir.
and Remedies Code are not “damages” covered by the commercial general liability
Policy at issue.
The Court also holds that plaintiff Mid-Continent is not collaterally estopped
from seeking segregation of Titeflex’s fees attributable to defense against the PSI
claims as opposed to the fees attributable to defense against the Head claim. The
Amended Memorandum and Order is amended to this extent.
It is SO ORDERED.
SIGNED at Houston, Texas, this 30th day of December, 2016.
NAN Y F. ATLAS
STATES DISTRICT JUDGE
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