NATIONWIDE PUBLIC INSURANCE ADJUSTERS INC v. EDCOUCH-ELSA I.S.D.
Filing
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OPINION AND ORDER granting 8 Motion to Dismiss to the extent stated. Amended Complaint due by 1/22/13, Amended Answer and Counterclaims due by 2/21/13.(Signed by Judge Micaela Alvarez) Parties notified.(bgarces, )
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
MCALLEN DIVISION
NATIONWIDE PUBLIC INSURANCE
ADJUSTERS INC,
Plaintiff,
v.
EDCOUCH-ELSA I.S.D., et al,
Defendants.
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§
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§ CIVIL ACTION NO. M-12-96
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§
OPINION AND ORDER
Pending before the Court is Defendant Edcouch-Elsa I.S.D.’s (“EEISD”) motion to
dismiss.1 After considering the motion, response,2 reply,3 and supplemental response,4 record,
and relevant authorities, the Court GRANTS the motion to dismiss Nationwide Public Insurance
Adjusters, Inc.’s (“Nationwide”) claims to the extent stated below. But, with one exception,
this dismissal does not apply to the counterclaims originally asserted by Nationwide and
Jeff Greene (“Greene”) in 7:12-cv-137 which has now been consolidated with this case.
I.
Background
According to Nationwide, Nationwide and EEISD entered into a contract under which
Nationwide would provide public adjusting services to EEISD to help with its property damage
claim related to Hurricane Dolly and its claim for FEMA disaster relief funds.5 Eventually, the
relationship between Nationwide and EEISD broke down6 and Nationwide sued EEISD.7 In its
1
Dkt. No. 8.
Dkt. No. 15.
3
Dkt. No. 17.
4
Dkt. No. 22.
5
Dkt. No. 5 at ¶ 4.
6
Dkt. No. 5 at ¶¶ 10-20.
7
Dkt. No. 1.
2
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first amended complaint, Nationwide claims it is entitled to relief under one federal law theory
(Racketeering Influenced Corrupt Organizations Act) and eight state law theories (civil
conspiracy; breach of contract; equitable estoppel; fraud; negligent misrepresentation; intentional
misrepresentation; quantum meruit; and waiver and/or ratification).8 Finally, Nationwide seeks
declaratory relief, but does not specify whether the basis for the declaratory relief is state or
federal law.9 EEISD moved to dismiss all Nationwide’s claims.10
On August 5, 2009, EEISD filed a lawsuit in state court.11 In its self-styled “Plaintiff’s
Ninth Amended Petition, Answer to Intervention and Suit for Declaratory Relief,” EEISD sued
Nationwide and Greene.12
Nationwide and Greene filed an answer and asserted eight
counterclaims in state court.13 Then, Nationwide and Greene removed the case to federal court
under case number 7:12-cv-137.14 While EEISD’s motion to dismiss was pending in this case,
7:12-cv-96, the Court consolidated the two cases.15
Because the motion to dismiss was filed prior to the consolidation, the Court will
consider the motion to dismiss as if the two cases had not been consolidated. The Court will
then explain the implications of the dismissal and the consolidation going forward.
II.
Motion to Dismiss Analysis
In its first amended petition, Nationwide alleges that EEISD committed violations of the
Racketeering Influenced and Corrupt Organizations Act as well as several violations of Texas
law.16 The Court will address the federal law claims and the state law claims separately.
8
Dkt. No. 5 at ¶¶ 21-33.
Dkt. No. 5 at ¶ 33.
10
Dkt. No. 8.
11
5:12-cv-137 at Dkt. No. 1-7.
12
5:12-cv-137 at Dkt. No. 1-2 at pp. 3-6.
13
5:12-cv-137 at Dkt. No. 1-1 at pp. 19-32.
14
5:12-cv-137 at Dkt. No. 1.
15
Dkt. No. 11.
16
Dkt. No. 5 at ¶¶ 21-33.
9
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A.
Federal Law Claims
Nationwide accuses EEISD of violating Racketeering and Influenced Corrupt
Organizations Act (“RICO Act”) by engaging in the racketeering activities of mail fraud and
wire fraud.17
EEISD responds that the RICO Act claims should be dismissed because
governmental entities, including EEISD, may not be held liable under the RICO Act.18
Nationwide did not respond to EEISD’s argument that the RICO Act claims should be dismissed.
Although the Court found no Fifth Circuit authority directly on point, another court in this
district just issued a relevant opinion. In Dale v. Missouri Governor Jay Nixon's Office,19 Judge
Janis Graham Jack stated:
There is strong authority that governmental entities, such as counties or
government agencies, cannot be proper RICO defendants. See Pedrina v. Chun,
97 F.3d 1296, 1300 (9th Cir.1996) (“We summarily reject the tenants’ RICO
claims against the city . . . . [W]e held that government entities are incapable of
forming the malicious intent necessary to support a RICO action.”); Genty v.
Resolution Trust Corp., 937 F.2d 899, 915 (3d Cir.1991) (“We thus hold that a
civil claim brought under section 1964(c) of the RICO Act . . . cannot be
maintained against a municipal corporation.”); Nammari v. Town of Winfield,
2009 WL 4757334, at *6 (N.D. Ind. Oct. 29, 2008) (“While a municipal entity
may be a RICO enterprise . . . it is not subject to RICO liability .”).20
This Court has reviewed the authorities cited by Judge Jack and finds that EEISD, a school
district, may not be held liable under the RICO Act.21 The Court DISMISSES the RICO Act
claims against EEISD.
B.
State Law Claims
EEISD asserts Nationwide’s state law claims should be dismissed because EEISD is
immune to all of Nationwide’s state law claims.22 In its response, Nationwide argued that
17
Dkt. No. 5 at ¶ 22.
Dkt. No. 8 at ¶¶ 34-37.
19
CIV. A. C-11-114, 2011 WL 1810321 (S.D. Tex. May 10, 2011).
20
Id. at *3.
21
See Dammon v. Folse, 846 F. Supp. 36 (E.D. La. 1994) (reconciling the approaches of the Third and Ninth
Circuits in finding that a school board could not be held liable for a RICO violation.).
18
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EEISD does not have Eleventh Amendment immunity.23 In EEISD’s reply, it clarified that it is
not asserting Eleventh Amendment immunity, but is instead “rel[ying] on the common law
doctrine of governmental immunity.”24 Accordingly, the Court will focus its analysis on whether
EEISD is shielded from Nationwide’s state law claims by governmental immunity.
The Supreme Court of Texas has provided significant guidance on issues of immunity.
“A unit of state government is immune from suit and liability unless the state consents.”25
“Sovereign immunity protects the state and its various divisions, such as agencies and boards,
from suit and liability, whereas governmental immunity provides similar protection to the
political subdivisions of the state, such as counties, cities, and school districts.”26
Because this suit deals with a school district, the Court is concerned with governmental
immunity. “In Texas, governmental immunity has two components: immunity from liability,
which bars enforcement of a judgment against a governmental entity, and immunity from suit,
which bars suit against the entity altogether.”27 “Governmental immunity from suit defeats a
court’s subject matter jurisdiction. In a suit against a governmental unit, the plaintiff must
affirmatively demonstrate the court’s jurisdiction by alleging a valid waiver of immunity.”28
There are specific requirements for waiving immunity.
Sovereign immunity and governmental immunity are common law doctrines, but
we have traditionally deferred their waiver to the Legislature, assuming it to be
‘better suited to balance the conflicting policy issues associated with waving
immunity.’ When dealing with these immunities, we have further required the
Legislature to express its intent clearly and unambiguously.29
22
Dkt. No. 8 at p. 5.
Dkt. No. 15 at pp. 3-5.
24
Dkt. No. 17. at ¶ 1.
25
Dallas Area Rapid Transit v. Whitley, 104 S.W.3d 540, 542 (Tex. 2003) (citations omitted).
26
Travis Cent. Appraisal Dist. v. Norman, 342 S.W.3d 54, 57-58 (Tex. 2011) (citation omitted) (emphasis added).
27
Tooke v. City of Mexia, 197 S.W.3d 325, 332 (Tex. 2006).
28
Whitley, 104 S.W.3d at 542 (citations omitted).
29
Norman, 342 S.W.3d at 58 (citations omitted).
23
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Because “[a political subdivision] is not immune from suit for torts committed in the
performance of its proprietary functions, as it is for torts committed in the performance of its
governmental functions[,]”30 the Court will first determine whether this suit arises from EEISD’s
performance of proprietary or governmental functions. If the Court finds that the suit arises from
EEISD’s performance of a governmental function, the Court will then determine whether it has
waived governmental immunity to any of the state law claims.
1.
Proprietary or Governmental Function
EEISD argues that school districts only perform governmental functions.31 Nationwide
argues that EEISD was performing a proprietary function when it contracted with Nationwide.32
Here, the Court finds that this suit arises out of EEISD performance of a governmental function
for two reasons.
First, the Court is unconvinced that school districts engage in any proprietary functions.
As the Court of Civil Appeals stated in Braun v. Trustees of Victoria Independent School
District:
There is quite a distinction between a school district and a city or town. Cities and
towns exercise a dual function, to wit, governmental and proprietary, while a
school district is purely a governmental agency and exercises only such powers as
are delegated to it by the state. It performs no proprietary functions which are
separate and independent of its governmental powers.33
Although Braun is an old case, it has the same precedential effect as an opinion of the Texas
Supreme Court,34 and it has been cited favorably in the intervening years.35 The Court is
30
Tooke v. City of Mexia, 197 S.W.3d 325, 343 (Tex. 2006).
Dkt. No. 17 at ¶¶ 3-4.
32
Dkt. No. 15 at p. 8.
33
Braun v. Trs. of Victoria Indep. Sch. Dist., 114 S.W.2d 947, 950 (Tex. Civ. App.—San Antonio 1938, writ ref’d).
34
Id.; Galveston Indep. Sch. Dist. v. Clear Lake Rehab. Hosp., L.L.C., 324 S.W.3d 802, 808 (Tex. App.—Hous.
[14th Dist.] 2010, no pet.).
35
Galveston, 324 S.W.3d at 808; Fowler v. Tyler Indep. Sch. Dist., 232 S.W.3d 335, 338-40 (Tex. App.—Tyler
2007, pet. denied).
31
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convinced that Braun is still good law. As a school district, EEISD performs no proprietary
functions.
Second, even if school districts are able to perform proprietary functions, the Court is
persuaded that this suit arises out of a strictly governmental function. Although Nationwide
argues that schools are not required to hire outside insurance adjusters, this is a myopic view of
the underlying facts in this case. Looking at the broader picture, Nationwide was hired to help
the school district maximize its recovery for damages caused to its facilities by a hurricane.
Once again, the Court finds Braun to be instructive:
If we have schools, we must have school buildings and school grounds and it is
nothing but natural that those conducting schools would like to beautify the
school grounds by planting trees and shrubs and we are unwilling to hold that
when they do so they have abandoned their main purpose of furthering education
in the state . . . Education is not of local interest, but is statewide. The state is
interested as much in one child’s education as another’s, and it matters not in
what locality it resides.36
If beautifying the school grounds supports the statewide interest of education, so does a school’s
repair and maintenance of its facilities. Thus, when EEISD was pursuing funds to repair damage
to its facilities, it was performing a governmental function.
governmental function.
This suit arises out of the
Now that the Court has determined that this suit arises out of a
governmental function, governmental immunity applies. Once again, “Governmental immunity
from suit defeats a court’s subject matter jurisdiction. In a suit against a governmental unit, the
plaintiff must affirmatively demonstrate the court’s jurisdiction by alleging a valid waiver of
immunity.”37 The Court now turns to waivers of immunity.
36
37
Braun, 114 S.W.2d at 950.
Dallas Area Rapid Transit v. Whitley, 104 S.W.3d 540, 542 (Tex. 2003).
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2.
Waivers of Governmental Immunity
Because the Court has found that this action arises out of EEISD’s performance of a
governmental function, the Court must now determine whether EEISD has waived its
governmental immunity.
a.
Texas Local Government Code § 271.152
Nationwide advances a single theory for why EEISD has waived its governmental
immunity from suit.
Specifically, Nationwide argues that EEISD’s governmental immunity is
waived from suit by § 271.152 of the Texas Local Government Code.38 That section states in
relevant part:
A local governmental entity that is authorized by statute or the constitution to
enter into a contract and that enters into a contract subject to this subchapter
waives sovereign immunity to suit for the purpose of adjudicating a claim for
breach of the contract, subject to the terms and conditions of this subchapter.39
If this statute applies, it would waive EEISD’s governmental immunity from suit. But the Court
is unconvinced that this statute applies in this situation because the statute is limited by the other
“terms and conditions” in the subchapter. Critically, § 271.156 states: “This subchapter does not
waive sovereign immunity to suit in federal court.”40
In response to EEISD’s § 271.156 argument, Nationwide makes the bold assertion that
the statute is unconstitutional. In support of this assertion, Nationwide cites a number of cases
which do not persuade the Court that the statute is unconstitutional. For example, Atchison,
Topeka & Santa Fe Railway Co. v. Sowers41 and Texas Pipe Line Co. v. Ware42 dealt with
38
Dkt. No. 15 at p. 9.
Tex. Loc. Gov’t Code Ann. § 271.152 (West Supp. 2011).
40
Tex. Loc. Gov’t Code Ann. § 271.156 (West Supp. 2011)(emphasis added).
41
213 U.S. 55 (1909).
42
15 F.2d 171, 172 (8th Cir. 1926).
39
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limiting normal tort cases to specific courts, but did not deal with the issue of a waiver of
governmental immunity.
Plaintiff also cites a portion of Hobart v. City of Stafford, which in turn cites Lester v.
Terry County, Texas43 for the proposition that § 271.156 is unconstitutional. In Lester, the court
stated that “it is doubtful under the supremacy clause of the United States Constitution, Art. 6, cl.
2, whether a state could constitutionally deprive a federal court of jurisdiction which the
Congress of the United States had otherwise given it.”44 The Court is unpersuaded by Hobart
and Lester because both mention the supremacy clause in passing and neither contains
significant legal analysis on this supremacy clause argument.
Nevertheless, the Court independently considered the implications of the supremacy
clause, and finds that the supremacy clause is not violated merely because the state legislature
enacted a limited waiver of governmental immunity for actions brought in state courts. The
legislature could have chosen not to waive governmental immunity under any circumstances, and
the Court is not persuaded that a waiver must be all-or-nothing. The Court finds that § 271.156
is constitutional. Therefore, § 271.152 does not waive EEISD’s governmental immunity to suit
in federal court.
b.
Waiver by Conduct
The Court will now consider whether EEISD has waived its governmental immunity to
suit by its conduct. In recent years, Texas courts have wrestled with question of whether
governmental immunity from suit may be waived by conduct.45 But, last year, the Texas
Supreme Court “reject[ed] the invitation to recognize a waiver-by-conduct exception in a breach-
43
784 F. Supp. 2d 732, 759 (S.D. Tex. 2011) (quoting 353 F. Supp. 170, 171-72 (N.D. Tex. 1973)) (citations
omitted).
44
Lester, 353 F. Supp. at 171-72.
45
See, e.g., Seureau v. ExxonMobil Corp., 274 S.W.3d 206 (Tex. App.—Hous. [14th Dist.] Oct. 16, 2008, no pet.).
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of-contract suit against a governmental entity.”46 Because this case is essentially a breach-ofcontract suit, the Court finds that EEISD has not waived governmental immunity to suit by its
conduct.
C.
Motion to Dismiss Conclusion
The Court has considered Nationwide’s RICO Act claims against EEISD and is
convinced that RICO Act claims may not be brought against a school district. Accordingly, the
Court DISMISSES Nationwide’s RICO Act claims. As to the state law claims, the Court finds
that EEISD is entitled to governmental immunity and Nationwide has not demonstrated that
EEISD has waived its governmental immunity. Therefore, the Court DISMISSES Nationwide’s
state law claims against EEISD. Finally, the Court WITHHOLDS its ruling on Nationwide’s
requests to declare whether the arbitration clause is valid and enforceable and to compel
arbitration.
III.
What Claims Survive in the Consolidated Case?
The Court will consider what claims survive in the consolidated action. The Court
already dismissed all of Nationwide’s claims it asserted in 7:12-cv-96 prior to consolidation.
But, the Court has now consolidated 7:12-cv-96 and 7:12-cv-137. Therefore, EEISD’s claims
from 7:12-cv-137, and Nationwide and Greene’s counterclaims from 7:12-cv-137 (the
“counterclaims”) are still before the Court. The Court must now consider if any of Nationwide
and Greene’s counterclaims survive.
Beginning with the RICO Act counterclaims, the Court finds that they should be
dismissed. As the Court found above, EEISD cannot be held liable under the RICO Act because
it is a school district. Because it would be impossible for Nationwide and Greene to amend their
46
Sharyland Water Supply Corp. v. City of Alton, 354 S.W.3d 407, 413-14 (Tex. 2011).
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counterclaims to state a RICO Act counterclaim against EESID, the Court DISMISSES the
RICO Act counterclaims.
Turning to the state law counterclaims, Nationwide and Greene once again face the
barrier of governmental immunity. Because Nationwide and Greene raised these claims as
counterclaims, the Court must consider a type of waiver not implicated above. Specifically, the
Court must consider whether EEISD waived its governmental immunity by suing Nationwide
and Jeff Greene.
In Reata Construction Corp. v. City of Dallas, the Texas Supreme Court held:
“[t]he decision by the City of Dallas to file suit for damages encompassed a
decision to leave its sphere of immunity from suit for claims against it which are
germane to, connected with and properly defensive to claims the City asserts.
Once it asserts affirmative claims for monetary recovery, the City must participate
in the litigation process as an ordinary litigant, save for the limitation that the City
continues to have immunity from affirmative damage claims against it for
monetary relief exceeding amounts necessary to offset the City's claims.47
Accordingly, the Court must now determine whether EEISD has asserted affirmative claims for
monetary relief. In a section of its petition in 7:12-cv-137 entitled “Suit for Declaratory Relief”
EEISD asserted the following claims:
Plaintiffs [EEISD] allege that Defendant Green was hired by written
contract authored by Green to perform Public Adjuster services for EEISD.
Defendant’s contract was properly and timely terminated upon discovering that
Green’s contract contained numerous illegal and impermissible terms. Green
negligently violated Rules governing public adjusters and attempted to collect
illegal fees. Green’s contract with Plaintiff is void as a matter of law for which
Plaintiff seeks declaratory relief.
Pleading further, Green negligent (sic) performed adjusting services and
failed to collect millions of dollars previously available as FIMA (sic) disaster
relief resulting from Hurricane Dolly. Defendants’ failure to timely and correctly
submit proof has caused Plaintiff EEISD to sustain millions in lost disaster relief
for which Plaintiff now sues.48
47
48
197 S.W.3d 371, 377 (Tex. 2006).
7:12-cv-137, Dkt. No. 1-2 at p. 4.
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Although EEISD labeled this section as a request for declaratory relief, it is clear that EEISD is
asserting an affirmative claim for monetary relief. Therefore, EEISD has waived its immunity
“from suit for claims against it which are germane to, connected with and properly defensive to
claims [EEISD] asserts.”
Here, it appears that all of the state law claims raised by Nationwide and Greene as
counter-claims in 7:12-cv-137, are germane to and connected with the claims asserted by EEISD.
On the other hand, they do not appear to be entirely defensive because Nationwide and Greene
do not specifically limit their counterclaims to the amount necessary to offset EEISD’s claims.
Because the parties apparently failed to contemplate the applicability of this type of
immunity waiver, the Court will permit them to respond in the following manner: First, EEISD
may amend its complaint on or before January 22, 2013. Second, Nationwide and Greene may
amend their answer and counterclaims on or before February 21, 2013. Because EEISD may
completely shield itself from liability for damages by eliminating its own claims for damages,49
the Court will withhold its ruling on the motion to arbitrate until after the parties have been given
an opportunity to amend their pleadings.
49
City of Dallas v. Albert, 354 S.W.3d 368, 374-77 (Tex. 2011).
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IV.
Conclusion
After reviewing the motion, response, reply, supplemental response, record, and relevant
authorities, the Court DISMISSES the RICO Act claims against EESID, and the Court finds that
EEISD has governmental immunity to the state law claims asserted by Nationwide in its
complaint and DISMISSES those state law claims.
Furthermore, the Court DISMISSES
Nationwide and Greene’s counterclaims under the RICO Act. The Court will permit EEISD to
amend its complaint on or before January 22, 2013. Nationwide and Greene may amend their
answer and counterclaims on or before February 21, 2013.
IT IS SO ORDERED.
DONE this 20th day of December, 2012, in McAllen, Texas.
_______________________________
Micaela Alvarez
UNITED STATES DISTRICT JUDGE
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