IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
AMARILLO DIVISION
___________________________________
COLONY NATIONAL INSURANCE
COMPANY,
Plaintiff,
v.
SPECIALTY TRAILER LEASING, INC.,
Defendant.

NO. 2:09-CV-005-J
MEMORANDUM OPINION AND ORDER
Before the Court is Plaintiff Colony National Insurance Company’s (“Colony”) Motion
for Summary Judgment, filed on April 8, 2009. This motion is GRANTED.
BACKGROUND
Colony brought this is action for declaratory judgment to determine whether Colony has
a duty to defend and indemnify Defendant Specialty Trailer Leasing, Inc. (“Specialty”) under a
policy of liability insurance issued by Colony to Specialty against the claims and potential claims
raised in three separate lawsuits. Specialty is in the business of leasing various types of trailers
that are used to transport industrial gases—including liquid oxygen, nitrogen, carbon dioxide,
helium and argon. The underlying lawsuits arise out of an accident aboard a ship known as the
Madeleine. It is alleged that on May 20, 2008, three dock workers, Hayman Sooknanan, James
Cason, and Robert Dutertre, Jr. (the “Underlying Plaintiffs”) were working aboard the
Madeleine. On orders of the port captain, Sooknanan went into the cargo hold to investigate a
“tanktainer” owned by Specialty that was stored there. When Sooknanan did not quickly emerge
from the hold, Cason went in to investigate. Dutertre followed Cason into the cargo hold. It is
FILED
JUNE 2, 2009
KAREN S. MITCHELL
CLERK, U.S. DISTRICT COURT
Case 2:09-cv-00005-J Document 18 Filed 06/02/2009 Page 1 of 6
alleged that argon gas was leaking from the tanktainer, and when Sooknanan, Cason, and
Dutertre each went into the cargo hold, they were fatally asphyxiated as the argon gas displaced
the air in the ship’s hold.
At issue is whether the general liability insurance policy (the “Policy”) issued by Colony
to Specialty provides coverage for these claims. The Policy includes an exclusion for bodily
injuries resulting from the “actual, alleged or threatened discharge, dispersal, seepage, migration,
release or escape of ‘hazardous materials’ at any time.” According to the Policy, “hazardous
materials” are “pollutants, lead, asbestos, silica and materials containing them.” “Pollutants” are
defined to mean “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke,
vapor, soot, fumes, acids, alkalis, chemicals and waste.” The terms “irritant” and “contaminant”
are not defined in the Policy.
Colony moves for summary judgment, arguing that the allegations made by the
Underlying Plaintiffs against Specialty are clearly for damages that would not have occurred
without the involvement of hazardous materials, which includes “pollutants”, as that term is
defined in the Policy. Specialty disputes this, claiming that argon gas, being a naturallyoccurring
element present in the air we breathe, is not a pollutant.
SUMMARY JUDGMENT STANDARD
This Court may grant summary judgment on a claim if the record shows that there is no
genuine issue of material fact and that “the moving party is entitled to judgment as a matter of
law.” FED. R. CIV. P. 56(c). A party who moves for summary judgment has the burden of
identifying the parts of the pleadings and discovery on file that, together with any affidavits,
show the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317,
325 (1986). If the movant carries this burden, then the burden shifts to the nonmovant to show
Case 2:09-cv-00005-J Document 18 Filed 06/02/2009 Page 2 of 6
that the Court should not grant summary judgment. Id. at 324-25. The nonmovant must set forth
specific facts that show a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
256 (1986). The nonmovant cannot rely on conclusory allegations, improbable inferences, and
unsupported speculation. Krim v. BancTexas Group, Inc., 989 F.2d 1435, 1449 (5th Cir. 1993).
The Court must review the facts and draw all inferences most favorable to the nonmovant. Reid
v. State Farm Mut. Auto Ins. Co., 784 F.2d 577, 578 (5th Cir. 1986).
Summary judgment is also appropriate if “adequate time for discovery” has passed and a
party “fails to make a showing sufficient to establish the existence of an element essential to the
party’s case, and on which that party will bear the burden of proof at trial.” Celotex Corp., 477
U.S. at 322. The party moving for summary judgment must “demonstrate the absence of a
genuine issue of material fact, ‘but need not negate the elements of the nonmovant’s case.’”
Little v. Liquid Corp., 37 F.3d 1069, 1075 (5th Cir. 1994), quoting Celotex Corp., 477 U.S. at
323. The nonmovant must then show by affidavits, depositions, answers to interrogatories,
admissions on file, or other evidence that there is a genuine issue of material fact for trial.
Wallace v. Texas Tech Univ., 80 F.3d 1042, 1047 (5th Cir. 1996).
DISCUSSION
When a court interprets an exclusionary clause, it “must adopt the construction of an
exclusionary clause urged by the insured as long as that construction is not unreasonable, even if
the construction urged by the insurer appears to be more reasonable or a more accurate reflection
of the parties’ intent.” Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660, 668
(Tex. 2008). “Exclusions are narrowly construed, and all reasonable inferences must be drawn
in the insured’s favor.” Gore Design Completions, Ltd. v. Hartford Fire Ins. Co., 538 F.3d 365,
370 (5th Cir.2008)
Case 2:09-cv-00005-J Document 18 Filed 06/02/2009 Page 3 of 6
Texas courts construe insurance contracts under the same rules applicable to contracts
generally. Nautilus Ins. Co. v. Country Oaks Apts., Ltd., 2009 WL 1067587 at *2 (5th Cir. April
22, 2009), citing Nat’l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995).
This Court’s “primary goal, therefore, is to give effect to the written expression of the parties’
intent.” Nautilus, 2009 WL 1067587 at *2 citing Balandran v. Safeco Ins. Co. of Am., 972
S.W.2d 738, 741 (Tex. 1998). “[T]he parties’ intent is governed by what they said, not by what
they intended to say but did not.” Nautilus, 2009 WL 1067587 at *2.
Where the complaint does not state facts sufficient to clearly bring the case within or
without the coverage, the general rule is that the insurer is obligated to defend if there is,
potentially, a case under the complaint within the coverage of the Policy. Merchants Fast Motor
Lines, 939 S.W.2d at 141. Stated differently, in case of doubt as to whether or not the allegations
of a complaint against the insured state a cause of action within the coverage of a liability policy
sufficient to compel the insurer to defend the action, such doubt will be resolved in insured’s
favor. Id.
THE POLICY
A strikingly similar case was recently decided by the Fifth Circuit Court of Appeals. In
Nautilus Ins. Co. v. Country Oaks Apts., Ltd., the Fifth Circuit analyzed a comparable
exclusionary policy. Nautilus, 2009 WL 1067587 at *1. There, an apartment complex
(“Country Oaks”) purchased a general liability policy from Nautilus Insurance Company
(“Nautilus”). Some time during the policy period, apartment workers accidentally blocked the
vent to the furnace in several apartments. The underlying plaintiff in that case was a resident of
one of these apartments who was pregnant at the time. Her child was born with a number of
Case 2:09-cv-00005-J Document 18 Filed 06/02/2009 Page 4 of 6
difficulties which were attributed by to the in utero exposure to the carbon monoxide which
accumulated in her apartment due to the blocked furnace vent.
Country Oaks’ policy contained a pollution exclusion nearly identical to the exclusion in
the present case. The question before the Fifth Circuit, much like the question before this Court,
is whether a naturally appearing inert gas is a pollutant for the purposes of an insurance policy
exclusion. There, the underlying plaintiff’s petition alleged that she encountered a strong enough
concentration of carbon monoxide to cause severe and permanent injuries to her child. Id. at *4.
The Court decided the allegations involved a “pollutant” as defined by the policy. Id. The
Circuit Court “explicitly rejected the argument that a substance must generally or usually act as
an irritant or contaminant to constitute a ‘pollutant’ under the pollution exclusion.” Id. at *3.
In the present case, the Underlying Plaintiffs allege a concentration of argon case
sufficient to cause death. While argon gas appears naturally in the atmosphere without causing
injury, the concentration allegedly present in the Madeleine was obviously much higher.1 In
both the present case and in Nautilus, the key question is whether high concentrations of inert,
naturally occurring gasses constitute a “pollutant” with regard to an insurance coverage policy.
Nautilus decided this question in the affirmative. In light of the Nautilus decision, this Court
concludes dangerously elevated concentrations of argon are a pollutant as a matter of law in the
context of an insurance policy exclusion.
Accordingly, the hazardous materials exclusion in the Specialty insurance policy
excludes coverage for all damages related to the release of pollutants. Judgment is granted for
the Plaintiff Colony National Insurance Company. Colony has no duty to defend or indemnify
1 According to NASA, argon gas is the third most common gas in dry atmosphere, constituting slightly less than 1%
of air by volume.
Case 2:09-cv-00005-J Document 18 Filed 06/02/2009 Page 5 of 6
Specialty against the claims or potential claims made by the Underlying Plaintiffs arising out of
the incident occurring on the Madeleine on or about May 20, 2008.
IT IS SO ORDERED.
Signed this 2nd day of June, 2009.
/s/ Mary Lou Robinson
MARY LOU ROBINSON
UNITED STATES DISTRICT JUDGE
Case 2:09-cv-00005-J Document 18 Filed 06/02/2009 Page 6 of 6

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

In response, Twin City filed an Opposition to Defendant Key
Energy Services, Inc.’s Motion to Dismiss Plaintiff’s Complaint or,
in the Alternative, to Stay Action and Memorandum in Support
(Docket Entry No. 18). Key Energy then filed a Reply Brief in
Support of Motion to Dismiss Plaintiff’s Complaint or, in the
Alternative, to Stay Action (Docket Entry No. 19).
2See Complaint, Docket Entry No. 1, at ¶ 4.
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
TWIN CITY INSURANCE COMPANY, §
§
Plaintiff, §
§
v. § CIVIL ACTION NO. H-09-0352
§
KEY ENERGY SERVICES, INC., §
§
Defendant. §
MEMORANDUM OPINION AND ORDER
Pending before the court is Defendant Key Energy Services,
Inc.’s (“Key Energy”) Motion to Dismiss Plaintiff’s Complaint or,
in the Alternative, to Stay Action, and Brief in Support (Docket
Entry No. 9).1 For the reasons stated below, Key Energy’s motion
to dismiss will be granted, and this action will be transferred to
the Western District of Texas.
I. Background
This dispute arises out of an excess financial products
insurance policy (“the Excess Policy”) issued by Twin City to Key
Energy.2 The Excess Policy provided up to $10 million in coverage
3Id. See also Excess Policy, Declarations, Items B-C
(included in Plaintiff Twin City Fire Insurance Company’s
Opposition to Defendant Key Energy Services, Inc.’s Motion to
Dismiss Plaintiff’s Complaint or, in the Alternative, to Stay
Action and Memorandum in Support, Docket Entry No. 18, at Exhibit C
to Exhibit 1).
4See Excess Policy, ¶ I.
5See Excess Policy, Declarations, Item D. See also Primary
Policy, Declarations, Items 3-4 (included in Plaintiff Twin City
Fire Insurance Company’s Opposition to Defendant Key Energy
Services, Inc.’s Motion to Dismiss Plaintiff’s Complaint or, in the
Alternative, to Stay Action and Memorandum in Support, Docket Entry
No. 18, at Exhibit A to Exhibit 1).
6See Excess Policy, Endorsement No. 1. See also Secondary
Policy, Declarations, Items 3-4 (included in Plaintiff Twin City
Fire Insurance Company’s Opposition to Defendant Key Energy
Services, Inc.’s Motion to Dismiss Plaintiff’s Complaint or, in the
Alternative, to Stay Action and Memorandum in Support, Docket Entry
No. 18, at Exhibit B to Exhibit 1).
-2-
for the period beginning at 12:01 a.m. on August 23, 2003, and
ending at 12:01 a.m. on August 23, 2004.3 The Excess Policy
provided coverage for losses incurred above and beyond the policy
limits of two other underlying insurance policies.4 The primary
underlying policy (“the Primary Policy”) was issued by National
Union Fire Insurance Company (“National Union”), and provided
coverage in the amount of $10 million with a $1 million
deductible.5 The secondary underlying policy (“the Secondary
Policy”) was issued by RLI Insurance Company (“RLI”), and provided
coverage in the amount of $10 million in excess to the coverage
provided by the Primary Policy.6 All three policies insured Key
Energy and its directors and officers against, among other things,
7Defendant Key Energy Services, Inc.’s Motion to Dismiss
Plaintiff’s Complaint or, in the Alternative, to Stay Action, and
Brief in Support, Docket Entry No. 9, at 2. See also Primary
Policy, ¶ 1.
8Excess Policy, ¶ II.A.
9Id.
10Complaint, Docket Entry No. 1, ¶ 8; Defendant Key Energy
Services, Inc.’s Motion to Dismiss Plaintiff’s Complaint or, in the
Alternative, to Stay Action, and Brief in Support, Docket Entry
No. 9, at 3.
11Complaint, Docket Entry No. 1, ¶ 9; Defendant Key Energy
Services, Inc.’s Motion to Dismiss Plaintiff’s Complaint or, in the
(continued…)
-3-
liability and defense costs arising from certain types of lawsuits,
including securities and shareholder derivative suits.7
Paragraph II.A of the Excess Policy provided that “liability
for any loss shall attach to the Underwriters only after the
Primary and Underlying Excess Insurers shall have duly admitted
liability and shall have paid the full amount of their respective
liability . . . .”8 Upon satisfaction of those conditions, “the
Underwriters shall then be liable to pay only such additional
amounts up to the [$10 million policy limit] . . . .”9
In 2004 Key Energy was sued in multiple securities class
action and shareholder derivative suits in several forums,
including federal court in the Western District of Texas, and in
Texas state court in Midland County, Texas, and Harris County,
Texas.10 In November of 2007 Key Energy entered into settlement
agreements to conclude the securities class action and shareholder
derivative suits.11 Under the settlement agreements, Key Energy
11(…continued)
Alternative, to Stay Action, and Brief in Support, Docket Entry
No. 9, at 3.
12Defendant Key Energy Services, Inc.’s Motion to Dismiss
Plaintiff’s Complaint or, in the Alternative, to Stay Action, and
Brief in Support, Docket Entry No. 9, at 3.
13Id. at 4.
14Complaint, Docket Entry No. 1, ¶ 10; Defendant Key Energy
Services, Inc.’s Motion to Dismiss Plaintiff’s Complaint or, in the
Alternative, to Stay Action, and Brief in Support, Docket Entry
No. 9, at 3-4.
15Complaint, Docket Entry No. 1, ¶ 11; Defendant Key Energy
Services, Inc.’s Motion to Dismiss Plaintiff’s Complaint or, in the
Alternative, to Stay Action, and Brief in Support, Docket Entry
No. 9, at 4.
16Id.
-4-
agreed to pay a combined sum of $16,625,000.12 Key Energy alleges
that it incurred an additional $5,289,424.56 in defense and
settlement costs, resulting in total expenses of $21,914,424.56.13
Key Energy made a claim on the Primary Policy, and National
Union paid the full $10 million limit on the policy.14 Key Energy
also made a claim on the Secondary Policy, but RLI did not pay the
full $10 million limit on that policy.15 Instead, Key Energy and
RLI entered into a settlement agreement under which RLI agreed to
pay $9 million in exchange for Key Energy’s release of RLI’s
obligation to pay under the Secondary Policy.16
Key Energy also filed a claim on the Excess Policy. Key
Energy alleged that Twin City owed it $914,424.56 — an amount
calculated by subtracting the $1 million deductible and the $20
million maximum coverage provided by the Primary and Secondary
17Complaint, Docket Entry No. 1, ¶ 12; Defendant Key Energy
Services, Inc.’s Motion to Dismiss Plaintiff’s Complaint or, in the
Alternative, to Stay Action, and Brief in Support, Docket Entry
No. 9, at 4.
18Complaint, Docket Entry No. 1, ¶ 13; Defendant Key Energy
Services, Inc.’s Motion to Dismiss Plaintiff’s Complaint or, in the
Alternative, to Stay Action, and Brief in Support, Docket Entry
No. 9, at 4.
19Id.
20See Excess Policy, ¶ III.A.
21Primary Policy, ¶ 17.
22Id.
23Complaint, Docket Entry No. 1, ¶ 14; Defendant Key Energy
Services, Inc.’s Motion to Dismiss Plaintiff’s Complaint or, in the
Alternative, to Stay Action, and Brief in Support, Docket Entry
No. 9, at 5.
24Defendant Key Energy Services, Inc.’s Motion to Dismiss
Plaintiff’s Complaint or, in the Alternative, to Stay Action, and
(continued…)
-5-
Policies from Key Energy’s total expenses of $21,914,424.56.17 Twin
City, however, refused to pay.18 Twin City asserted, and still
maintains, that coverage was not available under the Excess Policy
because RLI neither admitted liability nor paid the full amount of
its liability under the Secondary Policy.19
The Excess Policy incorporated by reference the Primary
Policy,20 which included an alternative dispute resolution (“ADR”)
provision.21 Under the ADR provision, the parties were required to
attempt to settle any disputes arising from the policy through
either mediation or arbitration before resorting to traditional
litigation.22 Accordingly, Key Energy requested mediation in August
of 2008.23 The mediation took place in December of 2008, but the
parties were unable to reach a settlement.24
24(…continued)
Brief in Support, Docket Entry No. 9, at 5; Plaintiff Twin City
Fire Insurance Company’s Opposition to Defendant Key Energy
Services, Inc.’s Motion to Dismiss Plaintiff’s Complaint or, in the
Alternative, to Stay Action and Memorandum in Support, Docket Entry
No. 18, at 3.
25Primary Policy, ¶ 17.
26Plaintiff Twin City Fire Insurance Company’s Opposition to
Defendant Key Energy Services, Inc.’s Motion to Dismiss Plaintiff’s
Complaint or, in the Alternative, to Stay Action and Memorandum in
Support, Docket Entry No. 18, at 3 n.1; Letter from John M.
Sylvester to Richard R. Johnson (Jan. 5, 2009) (documenting “the
parties’ agreement to shorten the waiting period . . . to 62 days
from 120 days from termination of the mediation,” and stating that
“the first day that a party can file suit against the other is
February 9, 2009″) (included in Plaintiff Twin City Fire Insurance
Company’s Opposition to Defendant Key Energy Services, Inc.’s
Motion to Dismiss Plaintiff’s Complaint or, in the Alternative, to
Stay Action and Memorandum in Support, Docket Entry No. 18, at
Exhibit H to Exhibit 1).
27Id.
28Defendant Key Energy Services, Inc.’s Motion to Dismiss
Plaintiff’s Complaint or, in the Alternative, to Stay Action, and
Brief in Support, Docket Entry No. 9, at 5; Plaintiff Twin City
(continued…)
-6-
The ADR provision provided that if mediation was unsuccessful,
either party could commence a judicial proceeding after 120 days
had elapsed from the termination of the mediation.25 Twin City and
Key Energy, however, agreed to shorten the 120-day waiting period
to sixty-two days.26 Under the shortened waiting period, the first
day that a suit could be filed was February 9, 2009.27
At 12:03 a.m. on February 9, 2009, Key Energy filed a petition
in the District Court of Midland County, Texas (“the Midland
Action”).28 In its petition, Key Energy asserted a breach of
28(…continued)
Fire Insurance Company’s Opposition to Defendant Key Energy
Services, Inc.’s Motion to Dismiss Plaintiff’s Complaint or, in the
Alternative, to Stay Action and Memorandum in Support, Docket Entry
No. 18, at 3 n.2; Petition, Key Energy Servs., Inc. v. Twin City
Fire Ins. Co., No. CV46816 (D. Ct. Midland County, Tex. Feb. 9,
2009) (time stamped as filed at 12:03 a.m. on February 9, 2009)
(included in Defendant Key Energy Services, Inc.’s Motion to
Dismiss Plaintiff’s Complaint or, in the Alternative, to Stay
Action, and Brief in Support, Docket Entry No. 9, at Exhibit D).
29Petition, Key Energy Servs., Inc. v. Twin City Fire Ins. Co.,
No. CV46816, ¶¶ 32-35 (D. Ct. Midland County, Tex. Feb. 9, 2009).
30Id. ¶¶ 23-31.
31Defendant Key Energy Services, Inc.’s Motion to Dismiss
Plaintiff’s Complaint or, in the Alternative, to Stay Action, and
Brief in Support, Docket Entry No. 9, at 5; Plaintiff Twin City
Fire Insurance Company’s Opposition to Defendant Key Energy
Services, Inc.’s Motion to Dismiss Plaintiff’s Complaint or, in the
Alternative, to Stay Action and Memorandum in Support, Docket Entry
No. 18, at 3 n.2; Notice of Electronic Filing, Twin City Ins. Co.
v. Key Energy Servs., Inc., No. 4:09-CV-352 (S.D. Tex. Mar. 12,
2009) (indicating that Twin City’s Complaint (Docket Entry No. 1)
was filed at 8:16 a.m. on February 9, 2009) (included in Defendant
Key Energy Services, Inc.’s Motion to Dismiss Plaintiff’s Complaint
or, in the Alternative, to Stay Action, and Brief in Support,
Docket Entry No. 9, at Exhibit E).
-7-
contract claim, alleging that it was entitled to recover at least
$914,424.56 in unpaid settlement and defense costs arising from the
class action and shareholder derivative actions under the Excess
Policy.29 Key Energy also sought a declaratory judgment declaring,
among other things, that Twin City was obligated to pay under the
Excess Policy.30
Just over eight hours later — at 8:16 a.m. on the same day,
February 9, 2009 — Twin City filed this action in federal court in
the Southern District of Texas, Houston Division.31 In this action,
32Complaint, Docket Entry No. 1, ¶¶ 18-22.
33Id. ¶¶ 15-17.
34Plaintiff Twin City Fire Insurance Company’s Opposition to
Defendant Key Energy Services, Inc.’s Motion to Dismiss Plaintiff’s
Complaint or, in the Alternative, to Stay Action and Memorandum in
Support, Docket Entry No. 18, at 3 n.2, 8; Affidavit of Jennifer
Hornback (Apr. 1, 2009) (included in Plaintiff Twin City Fire
Insurance Company’s Opposition to Defendant Key Energy Services,
Inc.’s Motion to Dismiss Plaintiff’s Complaint or, in the
Alternative, to Stay Action and Memorandum in Support, Docket Entry
No. 18, at Exhibit 2).
35The Anti-Injunction Act, 28 U.S.C. § 2283, provides that “[a]
court of the United States may not grant an injunction to stay
proceedings in a State court except as expressly authorized by Act
(continued…)
-8-
Twin City seeks a declaratory judgment that it is not liable to Key
Energy for any amount under the Excess Policy.32 Twin City also
asserts a claim for breach of contract, alleging that Key Energy
breached several provisions of the Excess Policy and thereby caused
Twin City to incur damages in the form of attorney’s fees and other
expenses in responding to Key Energy’s claim and request for ADR.33
Twin City alleges that it attempted to file its federal complaint
soon after midnight on February 9, but because of difficulties with
the court’s electronic filing system, it was unable to file the
complaint until 8:16 a.m.34
On March 12, 2009, Key Energy filed the pending Motion to
Dismiss Plaintiff’s Complaint, or in the Alternative, to Stay
Action, and Brief in Support (Docket Entry No. 9). Because of the
similarity of the issues presented in the Midland Action, Key
Energy asserted that the court was required to dismiss or stay this
action pursuant to the Anti-Injunction Act, 28 U.S.C. § 2283.35
35(…continued)
of Congress, or where necessary in aid of its jurisdiction, or to
protect or effectuate its judgments.”
36In Brillhart the Supreme Court held that where a federal
declaratory judgment suit and a state court suit “present[] the
same issues, not governed by federal law, between the same
parties,” the federal court should decline to hear the declaratory
judgment suit if “the questions in controversy between the parties
to the federal suit . . . can better be settled in the proceeding
pending in state court.” Brillhart, 62 S. Ct. at 1176.
37Declaration of Richard R. Johnson, ¶ 7 (Apr. 1, 2009)
(included in Plaintiff Twin City Fire Insurance Company’s
Opposition to Defendant Key Energy Services, Inc.’s Motion to
Dismiss Plaintiff’s Complaint or, in the Alternative, to Stay
Action and Memorandum in Support, Docket Entry No. 18, at
Exhibit 1). See also Defendant Twin City Fire Insurance Company’s
Notice of Removal of Action Under 28 U.S.C. Section 1441, Key
Energy Servs., Inc. v. Twin City Fire Ins. Co., No. 7:09-CV-24,
Docket Entry No. 1 (W.D. Tex. Mar. 13, 2009) (included in Plaintiff
Twin City Fire Insurance Company’s Opposition to Defendant Key
Energy Services, Inc.’s Motion to Dismiss Plaintiff’s Complaint or,
in the Alternative, to Stay Action and Memorandum in Support,
Docket Entry No. 18, at Exhibit F to Exhibit 1).
38See Docket Sheet, Key Energy Servs., Inc. v. Twin City Fire
Ins. Co., No. 7:09-CV-24 (W.D. Tex. June 1, 2009). The court
(continued…)
-9-
Alternatively, Key Energy asserted that the court should exercise
its discretion under the Declaratory Judgment Act and the Supreme
Court’s decision in Brillhart v. Excess Insurance Company of
America, 62 S. Ct. 1173 (1942),36 to dismiss or stay this action.
The next day, on March 13, 2009, Twin City removed the Midland
Action to the federal district court in the Western District of
Texas, Midland-Odessa Division.37 The Midland Action was designated
as case number 7:09-CV-24, and was assigned to United States
District Judge Robert Junell.38 On March 17, 2009, Twin City filed
38(…continued)
obtained the Docket Sheet from the Midland Action through the
Western District of Texas’ electronic document filing system.
39Defendant Twin City Fire Insurance Company’s Opposed Motion
to Stay or Transfer Venue and Memorandum in Support, Key Energy
Servs., Inc. v. Twin City Fire Ins. Co., No. 7:09-CV-24, Docket
Entry No. 11 (W.D. Tex. Mar. 17, 2009) (included in Plaintiff Twin
City Fire Insurance Company’s Opposition to Defendant Key Energy
Services, Inc.’s Motion to Dismiss Plaintiff’s Complaint or, in the
Alternative, to Stay Action and Memorandum in Support, Docket Entry
No. 18, at Exhibit G to Exhibit 1).
40Id.
41See Docket Sheet, Key Energy Servs., Inc. v. Twin City Fire
Ins. Co., No. 7:09-CV-24 (W.D. Tex. June 1, 2009).
-10-
in the Midland Action an Opposed Motion to Stay or Transfer Venue
and Memorandum in Support.39 Twin City requested that Judge Junell
transfer the Midland Action to the Southern District of Texas,
Houston Division, or, alternatively, that he stay the Midland
Action until this court has ruled on Twin City’s pending motion for
summary judgment.40 Twin City’s motion to stay or transfer is still
pending before Judge Junell.41
II. Motion to Dismiss or Stay
When Key Energy filed its motion to dismiss or stay this
action the Midland Action was pending in state court. Key Energy
therefore invoked the Anti-Injunction Act and the Brillhart
doctrine, which require federal courts to defer to state courts in
certain situations. Now that the Midland Action has been removed
to federal court, the “standard for dismissal due to the pendency
of a parallel federal proceeding rather than the stricter standard
governing abstention due to the pendency of a related state court
42See Plaintiff Twin City Fire Insurance Company’s Opposition
to Defendant Key Energy Services, Inc.’s Motion to Dismiss
Plaintiff’s Complaint or, in the Alternative, to Stay Action and
Memorandum in Support, Docket Entry No. 18, at 7; Defendant Key
Energy Services, Inc.’s Reply Brief in Support of Motion to Dismiss
Plaintiff’s Complaint or, in the Alternative, to Stay Action,
Docket Entry No. 19, at 3-4.
43The Igloo Products court referred to the rule as the “firstfiled
rule,” but the Fifth Circuit usually refers to the rule as
the “first-to-file rule.” See, e.g., Cadle Co. v. Whataburger of
Alice, Inc., 174 F.3d 599, 603 (5th Cir. 1999).
-11-
proceeding” governs the court’s resolution of Key Energy’s motion.42
Igloo Products Corp. v. The Mounties, Inc., 735 F. Supp. 214, 217
(S.D. Tex. 1990). Specifically, the “first-to-file rule” controls
in this situation.43 See id.
A. The First-to-File Rule
The first-to-file rule is based on “principles of comity and
sound judicial administration.” Save Power Ltd. v. Syntek Fin.
Corp., 121 F.3d 947, 950 (5th Cir. 1997). It “requires federal
district courts –- courts of coordinate jurisdiction and equal rank
–- to exercise care to avoid interference with each other’s
affairs.” West Gulf Maritime Ass’n v. ILA Deep Sea Local 24, 751
F.2d 721, 728 (5th Cir. 1985).
“Under the first-to-file rule, when related cases are pending
before two federal courts, the court in which the case was last
filed may refuse to hear it if the issues raised by the cases
substantially overlap.” Cadle Co. v. Whataburger of Alice, Inc.,
174 F.3d 599, 603 (5th Cir. 1999) (citing Save Power, 121 F.3d at
950; West Gulf Maritime, 751 F.2d at 728). The rule vests in the
44See Plaintiff Twin City Fire Insurance Company’s Opposition
to Defendant Key Energy Services, Inc.’s Motion to Dismiss
Plaintiff’s Complaint or, in the Alternative, to Stay Action and
Memorandum in Support, Docket Entry No. 18, at 7-12.
45See Plaintiff Twin City Fire Insurance Company’s Opposition
to Defendant Key Energy Services, Inc.’s Motion to Dismiss
Plaintiff’s Complaint or, in the Alternative, to Stay Action and
Memorandum in Support, Docket Entry No. 18, at 7-8 & n.9.
-12-
court in which the first of the two related actions was filed the
responsibility of “determin[ing] whether subsequently filed cases
involving substantially similar issues should proceed.” Sutter
Corp. v. P & P Indus., Inc., 125 F.3d 914, 920 (5th Cir. 1997).
Therefore, the second-filed court should usually stay, dismiss, or
transfer the action over which it is presiding in deference to the
first-filed court. See West Gulf Maritime, 751 F.2d at 729 & n.1,
730. This enables the court in which the first related action was
filed to “decide whether the second suit filed must be dismissed,
stayed or transferred and consolidated.” Sutter Corp., 125 F.3d at
920.
Twin City does not dispute that the issues presented in this
action “substantially overlap” with the issues presented in the
Midland Action.44 Indeed, both cases ultimately require the
resolution of whether Twin City is liable to Key Energy under the
Excess Policy. Twin City does not contend that this action is the
first-filed action. Twin City concedes that the Midland Action,
although not removed to federal court until after this action was
initiated, is the first-filed action based on the time Key Energy
filed its petition in state court.45 See Igloo Products, 735
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F. Supp. at 217 (holding that for first-to-file rule purposes,
“[t]he Court considers the date of filing in state court to be the
relevant benchmark” for a federal action that has been removed from
state court). Accord Poche v. Geo-Ram, Inc., No. 96-1437, 1996
WL 371679, at *2 (E.D. La. July 2, 1996) (“Since Geo-Ram filed its
suit in the Texas state court before Poche filed his suit here, the
Court finds that the controversy was ‘first-filed’ in the Southern
District of Texas.”) (citing Igloo Products, 735 F. Supp. at 217).
Twin City argues, however, that several “compelling circumstances”
justify a departure from the first-to-file rule.
B. Compelling Circumstances
In Mann Manufacturing, Inc. v. Hortex, Inc., 439 F.2d 403, 407
(5th Cir. 1971), — the Fifth Circuit’s seminal first-to-file rule
decision — the Court of Appeals stated that the first-to-file rule
should be followed “[i]n the absence of compelling circumstances.”
The court, however, did not provide any guidance or examples as to
what sort of circumstances it would consider “compelling.” See id.
Twin City argues that several circumstances satisfy the
“compelling” standard and that this court should not defer to the
Western District of Texas.
1. Twin City’s Technical Difficulties and Minimal Time
Difference in Filing
Twin City first asserts that because the parties had agreed
that they could file suit on February 9, 2009, and that Twin City
46See Affidavit of Jennifer Hornback (Apr. 1, 2009) (included
in Plaintiff Twin City Fire Insurance Company’s Opposition to
Defendant Key Energy Services, Inc.’s Motion to Dismiss Plaintiff’s
Complaint or, in the Alternative, to Stay Action and Memorandum in
Support, Docket Entry No. 18, at Exhibit 2).
47Id.
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only lost the veritable race to the courthouse due to technical
difficulties with this court’s electronic filing system, and even
then that only eight hours separated the parties’ filings, it would
be unfair to force Twin City to proceed in Key Energy’s preferred
forum.
The court is not persuaded by Twin City’s assertion that it
was disadvantaged because it was unable to access the court’s
electronic filing system. Twin City included with its brief in
opposition to Key Energy’s motion to stay or transfer the affidavit
of Jennifer Hornback, the legal secretary who attempted to file
Twin City’s complaint with the court soon after midnight on
February 9, 2009.46 Ms. Hornback stated in her affidavit that she
first attempted to electronically file Twin City’s complaint at
12:10 a.m. — seven minutes after Key Energy’s petition had been
filed in state court.47 Therefore, even if Ms. Hornback had
succeeded in electronically filing Twin City’s complaint on her
first attempt, this would still be the second-filed action.
Nor does the court conclude that the minimal difference in
filing times justifies a deviation from the first-to-file rule.
Other courts to consider such an argument have concluded that the
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first-to-file rule is no less applicable even when parallel suits
are filed “almost simultaneously.” See Eastman Med. Prods., Inc.
v. E.R. Squibb & Sons, Inc., 199 F. Supp. 2d 590, 595 (N.D. Tex.
2002) (rejecting the defendant’s argument that the first-to-file
rule should not be adhered to because the two parallel federal
court actions were filed “almost simultaneously”). Accord Sabre
Inc. v. Northwest Airlines, Inc., No. 4:04-CV-612-Y, 2004
WL 2533867, at *3 (N.D. Tex. Nov. 8, 2004) (same) (citing Eastman
Med. Prods., 199 F. Supp. 2d at 595). As Judge Lynn has explained,
“[a]lthough the ‘first to file’ rule is pedestrian, its simplicity
furthers comity between the courts and should not be casually
ignored.” Eastman Med. Prods., 199 F. Supp. 2d at 595.
2. The Midland Action was Anticipatory
Twin City next argues that Key Energy filed the Midland Action
in anticipation of being sued, and thereby engaged in forum
shopping. As Twin City points out, several courts in the Fifth
Circuit have concluded that an anticipatory suit initiated for the
purpose of obtaining a favored forum constitutes a compelling
circumstance that justifies a deviation from the first-to-file
rule. See, e.g., Frank’s Tong Serv., Inc. v. Grey Wolf Drilling
Co., L.P., No. H-07-637, 2007 WL 5186798, at *4 (S.D. Tex.
Sept. 11, 2007) (“[A]n anticipatory suit is also one of the
compelling circumstances courts cite when declining to apply the
first-filed rule.”); Igloo Products, 735 F. Supp. at 217 (“[O]ne of
48See also, e.g., Geo-Ram, 1996 WL 371679, at *2 (“Courts in
this circuit have consistently found that filing suit in
anticipation of being sued is grounds for setting aside the firstfiled
rule.”); Johnson Bros. Corp. v. Int’l Brotherhood of
Painters, 861 F. Supp. 28, 29 (M.D. La. 1994) (“‘Compelling
circumstances’ exist when a declaratory action is filed in
anticipation of another lawsuit in order to secure a more favorable
forum.”); Merle Norman Cosmetics v. Martin, 705 F. Supp. 296, 298
(E.D. La. 1988) (“[A] complaint filed in anticipation of a
subsequent suit brought by the defendant to the first action can
avoid the operation of the first filed rule.”). Cf. also Mission
Ins. Co. v. Puritan Fashions Corp., 706 F.2d 599, 602 (5th Cir.
1983) (concluding that the district court “acted within its
discretion in considering the anticipatory nature of this [firstfiled
declaratory judgment] suit” in deciding to dismiss it due to
the pendency of a second-filed, parallel suit in California state
court); Amerada Petroleum Corp. v. Marshall, 381 F.2d 661, 663 (5th
Cir. 1967) (“That Amerada’s petition for declaratory judgment
apparently was in anticipation of the New York suit [wa]s an
equitable consideration which the district court was entitled to
take into account” when it decided to stay the first-filed
declaratory judgment suit due to the pendency of the second-filed,
parallel action in the Southern District of New York.).
49See Defendant Key Energy Services, Inc.’s Motion to Dismiss
Plaintiff’s Complaint or, in the Alternative, to Stay Action and
Memorandum in Support, Docket Entry No. 18, at 8, Exhibit 2.
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the special circumstances cited by courts that have declined to
apply the first-filed rule is an indication that the first-filed
suit was initiated in anticipation of the subsequent suit.”).48 The
court concludes, however, that such a compelling circumstance does
not exist in this case.
Twin City admits that it was attempting to file this action
shortly after midnight on February 9, 2009.49 In this case both
parties were literally racing to file in their preferred forum.
Both parties were attempting to file anticipatory suits. Twin City
lost the race, and now argues that because it lost, it should
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receive its choice of forum. The court is not persuaded.
Accepting Twin City’s argument would essentially replace the firstto-
file rule with the second-to-file rule in situations such as
this where both parties have agreed that litigation can be
initiated on a date certain and both file suit on that date in
different forums. That would be an illogical and unworkable rule,
and the court declines to follow it.
Furthermore, the primary reason courts have recognized the
anticipatory suit exception to the first-to-file rule is to avoid
penalizing a party that has attempted to settle a dispute out of
court. See, e.g., Johnson Bros. Corp. v. Int’l Brotherhood of
Painters, 861 F. Supp. 28, 29 (M.D. La. 1994) (invoking the
anticipatory exception to the first-to-file rule because
“[a]pplication of the ‘first-filed’ rule would penalize [the
defendant in the first-filed action] for its efforts to settle this
matter out of court”). An inequity justifying deviation from the
first-to-file rule arises when Party A notifies Party B of a
dispute in an effort to settle the dispute without initiating
litigation only to have Party B rush to the courthouse to secure
its desired forum in the event that settlement discussions fail.
That is not the situation in this case. The parties in this case
had already engaged in ADR and had reached an impasse before either
this action or the Midland Action was initiated. Neither party was
taken by surprise or penalized for engaging in the ADR process.
Both parties knew that suits would be filed after the expiration of
5028 U.S.C. § 1404(a) provides: “For the convenience of
parties and witnesses, in the interest of justice, a district court
may transfer any civil action to any other district or division
where it might have been brought.”
51See Defendant Twin City Fire Insurance Company’s Opposed
Motion to Stay or Transfer Venue and Memorandum in Support, Key
Energy Servs., Inc. v. Twin City Fire Ins. Co., No. 7:09-CV-24,
Docket Entry No. 11 (W.D. Tex. Mar. 17, 2009) (included in
Plaintiff Twin City Fire Insurance Company’s Opposition to
Defendant Key Energy Services, Inc.’s Motion to Dismiss Plaintiff’s
Complaint or, in the Alternative, to Stay Action and Memorandum in
Support, Docket Entry No. 18, at Exhibit G to Exhibit 1).
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the sixty-two day waiting period and both had an equal opportunity
to secure their desired forum. Accordingly, the anticipatory
exception to the first-to-file rule is not applicable in this case.
3. Transfer of Venue Factors
Twin City next contends that the court should look “to the
considerations that govern transfer of venue for forum non
conveniens under 28 U.S.C. § 1404(a)” to determine whether
compelling circumstances justifying departure from the first-tofile
rule are present in this case.50 Igloo Products, 735 F. Supp.
at 218 (citing Superior Savings Ass’n v. Bank of Dallas, 705
F. Supp. 326, 330-31 (N.D. Tex. 1989); Merle Norman Cosmetics v.
Martin, 705 F. Supp. 296, 298-301 (E.D. La. 1988)). The court
declines to do so in this case.
Currently pending before the Western District of Texas in the
Midland Action is Twin City’s Opposed Motion to Stay or Transfer
Venue.51 In that motion Twin City asserts that the Midland Action
should be transferred to the Southern District of Texas pursuant to
52See id.
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28 U.S.C. § 1404(a).52 Therefore, in order to rule on that motion,
Judge Junell will have to evaluate the same considerations that
Twin City is asking this court to evaluate. A primary purpose of
the first-to-file rule is “to avoid rulings which may trench upon
the authority of sister courts . . . .” West Gulf Maritime, 751
F.2d at 729. If this court were to evaluate the § 1404(a) factors,
i.e., make a determination as to whether “the convenience of
parties and witnesses” and “the interest of justice” favors venue
in Houston, 28 U.S.C. § 1404(a), this court would find itself doing
exactly what the first-to-file rule is designed to avoid.
Moreover, the Fifth Circuit explained in Sutter Corp. —
decided seven years after Igloo Products — that “the ‘first-tofile
rule’ not only determines which court may decide the merits of
substantially similar cases, but also establishes which court may
decide whether the second suit filed must be dismissed, stayed or
transferred and consolidated.” Sutter Corp., 125 F.3d at 920
(emphasis added). Thus, the Fifth Circuit made clear that it is
the first-filed court, not this court, that should make the
§ 1404(a) determination.
4. Relative Progress in Each Action
Twin City also contends that the court should consider “how
much progress has been made in the two actions” in deciding whether
or not to follow the first-to-file rule. Stewart v. Western
53See Scheduling Order, Key Energy Servs., Inc. v. Twin City
Fire Ins. Co., No. 7:09-CV-24, Docket Entry No. 14 (W.D. Tex.
Mar. 25, 2009) (included in Defendant Key Energy Services, Inc.’s
Reply Brief in Support of Motion to Dismiss Plaintiff’s Complaint
or, in the Alternative, to Stay Action, Docket Entry No. 19, at
Exhibit 7).
54See Docket Sheet, Key Energy Servs., Inc. v. Twin City Fire
Ins. Co., No. 7:09-CV-24 (W.D. Tex. June 1, 2009) (listing Twin
City’s Original Answer as Docket Entry No. 10).
55See Scheduling Order, Key Energy Servs., Inc. v. Twin City
Fire Ins. Co., No. 7:09-CV-24, Docket Entry No. 14 (W.D. Tex.
Mar. 25, 2009) (setting deadline for motions for leave to amend or
supplement pleadings as May 18, 2009) (included in Defendant Key
Energy Services, Inc.’s Reply Brief in Support of Motion to Dismiss
Plaintiff’s Complaint or, in the Alternative, to Stay Action,
Docket Entry No. 19, at Exhibit 7).
-20-
Heritage Ins. Co., 438 F.3d 488, 492 (5th Cir. 2006) (quoting
Murphy v. Uncle Ben’s, Inc., 168 F.3d 734, 738 (5th Cir. 1999)).
The Stewart case relied on by Twin City for this proposition,
however, is not a first-to-file case, but instead involves Colorado
River abstention, which applies when a federal court considers
whether to stay an action in deference to a parallel action in
state court. See Stewart, 438 F.3d at 491. See also Colorado
River Water Conservation Dist. v. United States, 96 S. Ct. 1236,
1244 (1976). Moreover, as Key Energy points out, the Midland
Action has actually progressed further than this action. In the
Midland Action, Judge Junell has entered a scheduling order,53 Twin
City has filed an answer,54 and the pleadings are now closed.55 In
this case, no answer has been filed and no scheduling order has
been entered. Therefore, to the extent that the relative progress
56Plaintiff Twin City Fire Insurance Company’s Opposition to
Defendant Key Energy Services, Inc.’s Motion to Dismiss Plaintiff’s
Complaint or, in the Alternative, to Stay Action and Memorandum in
Support, Docket Entry No. 18, at 11.
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of each action is relevant to the court’s decision to follow the
first-to-file rule, it favors following the rule.
5. Piecemeal Litigation
Lastly, Twin City asserts that “given the presence of Twin
City’s breach of contract action, dismissing Twin City’s
declaratory relief action would actually create the very piecemeal
litigation that the first-to-file rule was designed to avoid.”56
Twin City is correct that one of the purposes of the first-to-file
rule is to “avoid piecemeal resolution of issues that call for a
uniform result.” West Gulf Maritime, 751 F.2d at 729. The
applicability of the first-to-file rule, however, is not limited
only to declaratory judgment claims. See, e.g., Whataburger of
Alice, 174 F.3d at 602-06 (holding that the district court
correctly concluded that the first-to-file rule applied to the
plaintiff’s second-filed RICO and state law tort claims).
Therefore, this court will not dismiss or transfer only Twin City’s
declaratory judgment claim. The court will instead transfer the
entire action to the Western District of Texas.
C. Conclusion
The parties’ dispute has spawned two parallel federal actions.
Because this action was initiated after the Midland Action, the
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first-to-file rule provides that this court should be the one to
defer. Accordingly, the court will transfer this action to the
Western District of Texas. See Whataburger of Alice, 174 F.3d at
606 (“[O]nce the district court found that the issues might
substantially overlap, the proper course of action was for the
court to transfer the case to the [first-filed] court . . . .”).
III. Order
Based on the foregoing analysis, Defendant Key Energy
Services, Inc.’s Motion to Dismiss Plaintiff’s Complaint (Docket
Entry No. 9) is GRANTED. This action is TRANSFERRED to the
Midland-Odessa Division of the United States District Court for the
Western District of Texas.
SIGNED at Houston, Texas, on this the 2nd day of June, 2009.
SIM LAKE
UNITED STATES DISTRICT JUDGE

 

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
ACCEPTANCE INDEMNITY §
INSURANCE COMPANY, §
Plaintiff, §
§
v. § CIVIL ACTION NO. H-04-2222
§
MELVIN ALFREDO MALTEZ §
et al., §
Defendants. §
MEMORANDUM AND ORDER
This is a declaratory judgment action brought by Plaintiff Acceptance
Indemnity Insurance Company (“Indemnity”) seeking resolution of a dispute over the
scope of insurance coverage provided by Indemnity through an insurance policy
listing Defendant Associated Automotive, Inc. (“AAI”) as the named insured.
Indemnity has filed a Second Motion for Summary Judgment (“Motion”) [Doc. # 54].
Defendants AAI, Cal Enderli, Shirley Enderli, Cal Enderli, Jr., and Melvin Maltez
collectively have responded [Doc. # 58], and Indemnity has replied [Doc. # 59]. The
Court has considered these documents, all pertinent matters of record, and applicable
legal authorities, and concludes that Indemnity’s Second Motion for Summary
Judgment should be denied.
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 1 of 18
1 The state court lawsuit is Maltez v. Associated Automotive, Inc., et al., No. 2004-01878, in
the 80th Judicial District for Harris County, Texas.
P:\ORDERS\a11-2004\2222.2nd MSJ.wpd 071003.0957 2
I. FACTUAL BACKGROUND
The factual record is set out in more detail in the Court’s Memorandum and
Order of August 28, 2007 [Doc. # 57]. Briefly, AAI, the named insured in this case,
operates as an automotive repair business owned by Defendants Cal and Shirley
Enderli. In May 2003, the Enderlis’ son, Cal Enderli, Jr., purchased AAI’s salvage
operations and began operating as Associated Automotive Salvage (“Salvage”),
renting a portion of the AAI premises and sharing various administrative operations
– including payroll services – with AAI.
Although the exact employment relationship between Defendant Maltez and
the two businesses remains unresolved, it is agreed that Maltez was working on the
AAI/Salvage premises in August 2003 when he was injured while operating a torch.
Maltez subsequently sought recovery for his injuries in state court and was awarded
$150,000 plus interest and costs after the state court jury found that Salvage was
negligent.1 The defendants seek indemnification from Indemnity, which had
previously issued to AAI a “Commercial Auto Coverage Part-Garage Policy”
(“Policy”) that was in effect at the time of Maltez’s injury. Throughout this litigation,
Indemnity has offered a variety of arguments as to why it is not obligated to
indemnify AAI under the terms of the Policy and now moves for summary judgment,
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 2 of 18
P:\ORDERS\a11-2004\2222.2nd MSJ.wpd 071003.0957 3
asserting that Maltez did not suffer an “accident,” as the term is used under the Policy
and, alternatively, that Salvage and/or the “single business enterprise” (“SBE”)
allegedly comprised of AAI and Salvage was not a named insured under the Policy.
II. LEGAL STANDARDS
A. Summary Judgment
Rule 56 of the Federal Rules of Civil Procedure mandates the entry of summary
judgment, after adequate time for discovery and upon motion, against a party who
fails to make a sufficient showing of the existence of an element essential to the
party’s case for which that party will bear the burden at trial. Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th
Cir. 1994) (en banc); see also Baton Rouge Oil and Chem. Workers Union v.
ExxonMobil Corp., 289 F.3d 373, 375 (5th Cir. 2002). In deciding a motion for
summary judgment, the Court must determine whether “the pleadings, depositions,
answers to interrogatories, and admissions on file, together with any affidavits filed
in support of the motion, show that there is no genuine issue as to any material fact
and that the moving party is entitled to judgment as a matter of law.” FED. R. CIV. P.
56(c); Celotex Corp., 477 U.S. at 322–23; Hart v. Hairston, 343 F.3d 762, 764 (5th
Cir. 2003).
For summary judgment, the initial burden falls on the movant to identify areas
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 3 of 18
P:\ORDERS\a11-2004\2222.2nd MSJ.wpd 071003.0957 4
essential to the non-movant’s claim in which there is an “absence of a genuine issue
of material fact.” Lincoln Gen. Ins. Co. v. Reyna, 401 F.3d 347, 349 (5th Cir. 2005).
The moving party, however, need not negate the elements of the non-movant’s case.
See Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th Cir. 2005). The moving
party may meet its burden by pointing out “‘the absence of evidence supporting the
non-moving party’s case.’” Duffy v. Leading Edge Products, Inc., 44 F.3d 308, 312
(5th Cir. 1995) (quoting Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 913 (5th Cir.
1992)). However, if the moving party fails to meet its initial burden, the motion for
summary judgment must be denied, regardless of the non-movant’s response.
ExxonMobil Corp., 289 F.3d at 375.
If the moving party meets its initial burden, the non-movant must go beyond
the pleadings and designate specific facts showing that there is a genuine issue of
material fact for trial. Littlefield v. Forney Indep. Sch. Dist., 268 F.3d 275, 282 (5th
Cir. 2001). “An issue is material if its resolution could affect the outcome of the
action. A dispute as to a material fact is genuine if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” DIRECT TV Inc. v.
Robson, 420 F.3d 532, 536 (5th Cir. 2006) (internal citations omitted).
In deciding whether a genuine and material fact issue has been created, the
facts and inferences to be drawn from them must be reviewed in the light most
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 4 of 18
P:\ORDERS\a11-2004\2222.2nd MSJ.wpd 071003.0957 5
favorable to the non-moving party. Reaves Brokerage Co. v. Sunbelt Fruit &
Vegetable Co., 336 F.3d 410, 412 (5th Cir. 2003). However, factual controversies are
resolved in favor of the non-movant “only when there is an actual controversy—that
is, when both parties have submitted evidence of contradictory facts.”
Olabisiomotosho v. City of Houston, 185 F.3d 521, 525 (5th Cir. 1999). The nonmovant’s
burden is not met by mere reliance on the allegations or denials in the nonmovant’s
pleadings. See Diamond Offshore Co. v. A&B Builders, Inc., 302 F.3d 531,
545 n.13 (5th Cir. 2002) (noting that unsworn pleadings do not constitute proper
summary judgment evidence). Likewise, “unsubstantiated or conclusory assertions
that a fact issue exists” do not meet this burden. Morris v. Covan World Wide
Moving, Inc., 144 F.3d 377, 380 (5th Cir. 1998). Instead, the non-moving party must
present specific facts which show “the existence of a ‘genuine’ issue concerning
every essential component of its case.” Id. In the absence of any proof, the court will
not assume that the non-movant could or would prove the necessary facts. Little, 37
F.3d at 1075 (citing Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 888 (1990)).
Finally, “[w]hen evidence exists in the summary judgment record but the nonmovant
fails even to refer to it in the response to the motion for summary judgment,
that evidence is not properly before the district court.” Malacara v. Garber, 353 F.3d
393, 405 (5th Cir. 2003). “Rule 56 does not impose upon the district court a duty to
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 5 of 18
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sift through the record in search of evidence to support a party’s opposition to
summary judgment.” See id. (internal citations and quotations omitted); see also De
la O v. Hous. Auth. of El Paso, 417 F.3d 495, 501 (5th Cir. 2005).
B. Interpretation of Insurance Policies
Interpretation of an insurance policy is a question of law. Data Specialties, Inc.
v. Transcontinental Ins. Co., 125 F.3d 909, 911 (5th Cir. 1997); Guaranty Nat’l Ins.
Co. v. N. River Ins. Co., 909 F.2d 133, 135 (5th Cir. 1990). In a diversity case such
as this, the Court applies Texas law to construe the policy. See American States Ins.
Co. v. Bailey, 133 F.3d 363, 369 (5th Cir. 1998). “Under Texas law, the
interpretation of insurance contracts is governed by the same rules that apply to
contracts in general.” Id. “The terms used in an insurance policy are to be given their
ordinary and generally accepted meaning, unless the policy shows that the words
were meant in a technical or different sense.” Canutillo Indep. Sch. Dist. v. Nat’l
Union Fire Ins. Co., 99 F.3d 695, 700 (5th Cir. 1996). Hence, where a clause is
unambiguous, “a court cannot resort to the various rules of construction” to interpret
its meaning. Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex. 1987).
However, where there is ambiguity, the policy “must be strictly construed in favor of
the insured to avoid . . . exclusion.” Lincoln Gen. Ins. Co. v. Aisha’s Learning Ctr.,
468 F.3d 857, 859 (5th Cir. 2006).
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 6 of 18
2 During the pendency of Maltez’s suit in state court, Texas recodified its insurance law. TEX.
INS. CODE ANN. art. 21.58 (2004), which was in force at the time of the Court’s last
substantive ruling in this case, was repealed by Acts 2003, 78th Leg., ch. 1274, § 26(a)
(effective Apr. 1, 2005). The new statutory language, codified at TEX. INS. CODE ANN. art.
554.002, is not substantively different. See Yorkshire Ins. Co., Ltd. v. Seger, — S.W.3d —,
2007 WL 1771614 (Tex. App.–Amarillo 2007) (“The Legislature expressly indicated that
no substantive change in the law was intended”).
P:\ORDERS\a11-2004\2222.2nd MSJ.wpd 071003.0957 7
“The insured party bears the initial burden of showing that there is coverage,
while the insurer bears the burden of showing that any exclusion in the policy
applies.” United Nat. Ins. Co. v. Hydro Tank, Inc., — F.3d —, 2007 WL 2319109
(5th Cir. Aug. 15, 2007) (citing Lincoln Gen’l Ins. Co. v. Reyna, 401 F.3d 347, 350
(5th Cir. 2005)). Similarly, the insurer bears the burden of showing that a policy
limitation or exclusion constitutes an affirmative defense to or avoidance of coverage.
See TEX. INS. CODE ANN. art. 554.002; Lincoln Gen. Ins. Co., 468 F.3d at 859;
Crocker v. Am. Nat’l Gen. Ins. Co., 211 S.W.3d 928, 931 (Tex. App.–Dallas 2007,
no pet.).2 However, the Court strictly construes exceptions and limitations in an
insurance policy against the insurer. Canutillo Indep. Sch. Dist., 99 F.3d at 701 (5th
Cir. 1996).
III. ANALYSIS
A. Whether Maltez Suffered an “Accident” under the Policy
Defendants AAI, the Enderlis, and Maltez have the burden to prove coverage
exists under the Policy. In the pending Motion, Indemnity argues that for the
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 7 of 18
3 Motion [Doc. # 54], at 11.
4 Conspicuously absent from Plaintiff Indemnity’s filings is a request that this Court apply the
doctrine of collateral estoppel. As noted in the August 28, 2007 Memorandum and Order
[Doc. # 57] (the “August Memorandum”) denying Plaintiff’s (First) Motion for Summary
Judgment [Doc. # 41], Indemnity waived this defense. As a result, the state court findings
are not deemed conclusive in this case on the relationship between AAI and Salvage. See
August Memorandum, at 12–13.
5 Policy, Exhibit A to Plaintiff’s Second Motion for Summary Judgment [Doc. # 54], at 64.
(continued…)
P:\ORDERS\a11-2004\2222.2nd MSJ.wpd 071003.0957 8
purposes of indemnity under the Policy written for AAI, there was no “accident.”
Specifically, Indemnity asserts that because the only finding made by the state court
jury with regard to AAI was that it formed an SBE with Salvage, it is that act which
represents the “accident” for which Defendants are seeking coverage under the
Policy. According to Indemnity, by looking to the “elements submitted to the jury on
the formation of the ‘single business enterprise,’” it is clear that “such a formation did
not come about because of an ‘accident.’”3 Thus, Indemnity argues, the insurance
company is not obligated to indemnify AAI in this case.4
The Court is not persuaded by Indemnity’s position. Putting aside the
uncertainty under Texas law of application of the SBE doctrine in this context, the
issue is whether an event falls within the terms of the Policy. The Policy provides
that Indemnity “will pay all sums an ‘insured’ legally must pay as damages because
of ‘bodily injury’ . . . to which this insurance applies caused by an ‘accident’ and
resulting from ‘garage operations,’”5 excluding from such coverage injuries sustained
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 8 of 18
5 (…continued)
Because the insurance policy is not separately paginated, the Court will cite to the pagination
of the Policy as designated by the heading added by the Court’s electronic filing system.
6 Id. at 66.
7 RANDOM HOUSE WEBSTER’S DICTIONARY 5 (1993).
8 Policy, at 74.
9 Id. at 68.
P:\ORDERS\a11-2004\2222.2nd MSJ.wpd 071003.0957 9
by an “employee.”6
Although “accident” is not defined in detail in the Policy, the word is to be
given its common meaning. See, e.g., Sport Supply Group, Inc. v. Columbia Gas Co.,
335 F.3d 453, 462 n.8 (quoting Sec. Mut. Cas. Co. v. Johnson, 584 S.W.2d 703, 704
(Tex. 1979)) (“[T]he requirement under Texas law [is] that terms in an insurance
policy ‘are to be given their ordinary and generally accepted meaning, unless the
policy shows that the words were meant in a technical or different sense.’”); see also
Canutillo Indep. Sch. Dist., 99 F.3d at 700. The dictionary definition of “accident”
is “an unintentional and unfortunate happening,” or “something that happens
unexpectedly.”7 The Policy provides: An “‘[a]ccident’ includes continuous or
repeated exposure to the same conditions resulting in ‘bodily injury’ or ‘property
damage.’”8 In addition, the Policy states that “[a]ll ‘bodily injury’ . . . resulting from
continuous or repeated exposure to substantially the same conditions will be
considered as resulting from one ‘accident.’”9 The Policy evinces no intention to
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 9 of 18
10 According to the Policy, “‘[g]arage operations’ includes the ownership, maintenance or use
of the ‘autos’ indicated [elsewhere in the Policy documents]” and also “all operations
necessary or incidental to a garage business.” Policy, at 75. There is a fact issue, at a
minimum, as to what constitutes “garage operations” under the Policy.
P:\ORDERS\a11-2004\2222.2nd MSJ.wpd 071003.0957 10
assign “accident” anything other than its common meaning. Thus, an injury resulting
from misuse of, or a defect in, a torch, would constitute an “accident” potentially
subject to coverage under the Policy. See, e.g., Transit Mix Concrete & Materials Co.
v. Johnson, 205 S.W.3d 92, 94 (Tex. App.–Eastland 2006, pet. filed) (describing as
an “accident” injuries suffered by the appellee employee while operating an acetylene
torch); Crown Plumbing, Inc. v. Petrozak, 751 S.W.2d 936, 937 (Tex. App.–Houston
[14th Dist.] 1988, no pet.) (describing an “on-the-job accident” involving a sweating
torch).
Using these definitions, if Maltez was injured while engaged in “garage
operations”10 for a named insured, then he suffered an “accident” potentially subject
to coverage under the Policy. Indemnity’s novel interpretation of the state court
jury’s SBE finding is unpersuasive and unsupported by any authority.
Indemnity alternatively contends that, absent a finding of negligence on the
part of AAI, there can be no assessment of liability against AAI and accordingly, no
coverage under the Policy. Indemnity has pointed out that in his state suit, Maltez
only sought a negligence finding against Salvage, not AAI. Thus, Indemnity argues,
there is no causal connection between the insured—AAI—and the injury suffered by
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 10 of 18
11 Policy, at 64.
12 Id. (emphasis added).
P:\ORDERS\a11-2004\2222.2nd MSJ.wpd 071003.0957 11
Maltez. In response, Defendants argue that coverage under the Policy does not
require a finding of causality or fault, citing the liability coverage language from the
Policy: “We [Indemnity] will pay all sums an ‘insured’ legally must pay as damages
because of ‘bodily injury’ . . . to which this insurance applies caused by an ‘accident’
and resulting from ‘garage operations’ . . . .”11 Although Defendants correctly cite the
language of the Policy, their argument fails to recognize that the Policy provides
indemnity for only those sums that an “‘insured’ legally must pay as damages.”12
Thus, “the duty to indemnify is generally not ascertainable until after the insured has
been held liable.” Lincoln Gen. Ins. Co., 468 F.3d at 858.
To date, AAI has not been found liable for the injury to Maltez and
Indemnity’s duty to indemnify has not been established. Because there remain factual
and legal issues concerning Maltez’s relationship to AAI and the relationship between
AAI and Salvage, the burden remains on Defendants to demonstrate that Maltez
suffered an “accident” covered by AAI’s Policy. If they are successful, then
Indemnity bears the burden to show that Maltez was an employee of an entity insured
by the Policy, or that some other exclusion applies.
B. Application of the Single Business Enterprise Doctrine to Insurance
Contracts
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 11 of 18
13 See Judgment, Appendix C to Plaintiff’s Second Motion for Summary Judgment [Doc. # 54].
14 Again, reliance on the doctrine of collateral estoppel has been avoided.
15 Defendants’ Joint Response to Plaintiff’s Second Motion for Summary Judgment [Doc. #
58], at 6.
16 See Erie R. Co. v. Tompkins, 304 U.S. 64 (1938).
P:\ORDERS\a11-2004\2222.2nd MSJ.wpd 071003.0957 12
Indemnity next focuses on the implications of the state court finding that AAI
and Salvage formed an SBE.13 Indemnity contends that this “enterprise” is a wholly
new legal entity, and as such, it is not an “insured” under the Policy. Defendants
offer little in response, but do suggest that a finding in this Court that Salvage and
AAI were an SBE14 renders AAI “legally [liable] for damages due to bodily injury
that resulted from an accident that arose out of garage operations.”15 Although
Defendants’ position assumes resolution in their favor of several open questions, the
Court nonetheless rejects Plaintiff’s argument.
As a federal court sitting in diversity, the Court must make an “Erie guess”16
about how the Texas Supreme Court would apply the SBE doctrine in the
circumstances presented here. Hamilton v. Segue Software Inc., 232 F.3d 473, 478
(5th Cir. 2000); United States v. Johnson, 160 F.3d 1061, 1063 (5th Cir. 1998). “In
the absence of Texas Supreme Court pronouncements, we generally defer to the
holdings of lesser state courts unless we are convinced by other evidence that the
state law is otherwise.” Hamilton, 232 F.3d at 479 (citing Johnson, 160 F.3d at
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 12 of 18
17 See id. at 14–15.
P:\ORDERS\a11-2004\2222.2nd MSJ.wpd 071003.0957 13
1063).
The SBE doctrine itself has not been endorsed by the Texas Supreme Court,
and its vitality remains somewhat uncertain. See So. Union Co. v. City of Edinburg,
129 S.W.3d 74, 87 (Tex. 2003); see also Carlson Mfg., Inc. v. Smith, 179 S.W.3d 688,
694 (Tex. App.–Beaumont 2003, no pet.) (Although “several intermediate [Texas]
courts . . . have recognized a concept of ‘single business enterprise’ in one context or
another . . . the [Texas] Supreme Court has thus far reserved ruling on the issue.”).
Because the doctrine has been recognized by the intermediate state courts, however,
this Court deems the doctrine generally valid under Texas law.17
Texas courts give no indication that an SBE is intended to be viewed as a
separate legal entity. Rather, the SBE doctrine exists as an “equitable veil-piercing
theory” by which “‘each constituent corporation [may be held] liable for the debts and
liabilities incurred in the common enterprise.’” De La Hoya v. Coldwell Banker
Mex., Inc., 125 Fed. Appx. 533, 536–37 (5th Cir. 2005) (quoting N. Am. Van Lines,
Inc. v. Emmons, 50 S.W.3d 103, 120 (Tex. App.–Beaumont 2001, pet. denied)). Its
purpose, “like the alter ego theory and other doctrines designed to pierce the
corporate veil, is to prevent an inequitable result.” Carlson Mfg. v. Smith, 179
S.W.3d 688, 694 (Tex. App.–Beaumont 2005, no pet.). Thus, Texas courts have
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 13 of 18
18 As a policy and theoretical matter, there seems to be little point to creation of a new entity
from the merged constituents, as Indemnity suggests. Presumably, the new entity would have
no assets apart from the assets of its constituents.
P:\ORDERS\a11-2004\2222.2nd MSJ.wpd 071003.0957 14
permitted collection of a debt from a member of an SBE upon a finding that the
constituents “integrate[d] their resources to achieve a common business purpose,” and
incurred debt in pursuit of that purpose. Old Republic Ins. Co. v. EX-IM Servs. Corp.,
920 S.W.2d 393, 396 (Tex. App.–Houston [1st Dist.] 1996, no writ.); see also Nat’l
Plan Adm’rs, Inc. v. Nat’l Health Ins. Co., 150 S.W.3d 718 (Tex. App.–Austin 2004,
pet. granted). A finding that two or more entities operated as an SBE permits
recovery against one entity for the debts and liabilities of another. See Paramount
Petroleum Corp. v. Taylor Rental Ctr., 712 S.W.2d 534, 536 (Tex. App.–Houston
[14th Dist.] 1986, writ ref’d n.r.e.); see also Hall v. Timmons, 987 S.W.2d 948 (Tex.
App.–Beaumont 1999, pet. denied); Superior Derrick Servs., Inc. v. Anderson, 831
S.W.2d 868 (Tex. App.–Houston [14th Dist.] 1992, writ denied ); Hideca Petroleum
Corp. v. Tampimex Oil Int’l, Ltd., 740 S.W.2d 838 (Tex. App.–Houston [1st Dist.]
1987, no writ). Should it be found that AAI and Salvage operated as an SBE, any
debts and liabilities of one of these two entities, incurred in pursuit of the SBE’s
common business purpose, would have to be deemed debts and liabilities of the other,
and not of some hypothetical “new” entity.18 See, e.g., N. Am. Van Lines, Inc., 50
S.W.3d at 113 (holding that two entities were an SBE at least “with respect to their
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 14 of 18
19 Inconsistently, Defendants also suggest that a finding in this Court that AAI and Salvage
were an SBE does not require the legal conclusion that an employee of one entity is also an
employee of the other. The Court is skeptical of this proposition. A finding that multiple
business entities operated as an SBE is based on the determination that those entities
“integrate[d] their resources to achieve a common business purpose.” Formosa Plastics
Corp. v. Kajima Int’l, Inc., 216 S.W.3d 436, 460 (Tex. App.–Corpus Christi 2006, pet. filed)
(citing Old Republic Ins. Co. v. EX-IM Servs. Corp., 920 S.W.2d 393, 396 (Tex.
App.–Houston [1st Dist.] 1996, no writ.). The finding Defendants seek would seem to
require, at a minimum, a showing that the employee in question was not operating in
furtherance of the SBE’s “common business purpose.” Because this inquiry raises material
fact issues, the Court does not reach the ultimate legal question whether an employee of one
constituent of an SBE is necessarily an employee of all others. Cf. N. Am. Van Lines, Inc.,
50 S.W.3d at 121 (analyzing, in light of federal law concerning the liability of interstate
motor carriers, how a finding that two entities were an SBE defined the employment
relationship between an employee of one entity and the SBE).
20 See August Memorandum, at 14–16.
P:\ORDERS\a11-2004\2222.2nd MSJ.wpd 071003.0957 15
Texas operations” and were therefore “liable for each other’s negligence” with
respect to an accident related to those operations).
However, implicit in Defendants’ position is the untested theory that a finding
in this Court that two separate businesses (AAI and Salvage) formed an SBE would
resolve the dispositive issue in this case, namely, whether Defendants may obtain
indemnification for damages occasioned by only one member of the enterprise –
Salvage – via the other member’s – AAI’s – insurance policy.19 Resolution of this
issue is premature because there remain material fact issues. But the outcome is
informed by the following observations and legal principles.
The application of the SBE doctrine in the context of insurance coverage has
not been explored by Texas courts.20 The SBE theory is one of several theories used
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 15 of 18
P:\ORDERS\a11-2004\2222.2nd MSJ.wpd 071003.0957 16
to pierce the corporate veil in order to assign liability where it otherwise would not
exist. See Carlson Mfg., 179 S.W.3d at 694. Unlike other veil-piercing theories, the
SBE doctrine does not require a finding of actual fraud in order to expand liability.
See, e.g., Nat’l Plan Adm’rs, Inc. v. Nat’l Health Ins. Co., 150 S.W.3d 718, 744–47
(Tex. App.–Austin 2004, no pet.); N. Am. Van Lines, 50 S.W.3d at 120–21;
Paramount Petroleum Corp., 712 S.W.2d at 536. Instead, the doctrine requires only
that a fact-finder consider a variety of factors to conclude that certain entities did not
operate separately, but instead integrated their resources to achieve a common
business purpose. See Hoffmann v. Dandurand, 180 S.W.3d 340, 348 (Tex.
App.–Dallas 2005, no pet. h.). While the precise limits of the doctrine differ from
other veil-piercing theories, such as “alter ego,” the SBE doctrine is conceptually
similar. See Castleberry v. Branscum, 721 S.W.2d 270 (Tex. 1986). Policies and
patterns of Texas courts in the veil-piercing context are therefore relevant to
assessment of the reach of the SBE doctrine.
Texas courts are reluctant to pierce the corporate veil and expand liability
except in “compelling circumstances.” Robbins v. Robbins, 727 S.W.2d 743, 746
(Tex. App.–Eastland 1987, ref. n.r.e.). Moreover, Texas law expresses more
reluctance to apply veil-piercing theories in contract cases, as compared to tort cases,
the notion being that one who is tortously injured does not choose his tortfeasor,
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 16 of 18
21 This provision insulates corporate shareholders from “liability to the corporation or its
obligees with respect to . . . any contractual obligation of the corporation or any matter
relating to or arising from a contractual obligation . . . unless the obligee demonstrates that
the [shareholder] caused the corporation to be used for the purpose of perpetrating and did
perpetrate an actual fraud on the obligee primarily for the direct personal benefit of the
holder . . . .” TEX. BUS. ORGS. CODE § 21.233(a)(2), (b).
P:\ORDERS\a11-2004\2222.2nd MSJ.wpd 071003.0957 17
while contracting parties enjoy “the element of choice inherent in a contractual
relationship.” Miles v. Am. Tel. & Tel. Co., 703 F.2d 193, 195 (5th Cir. 1983).
Indeed, after the Castleberry opinion appeared to discard the traditional distinction
between tort and contract in the context of corporate veil-piercing, the Texas
legislature responded, and now requires a showing of actual fraud in order to pierce
the corporate veil in a breach of contract case. TEX. BUS. ORGS. CODE § 21.233
(Vernon Supp. 2006)21; see TEX. BUS. CORP. ACT art. 2.21–repealed eff. Jan. 1, 2010;
see also So. Union Co., 129 S.W.3d at 86–87 (reserving judgment on whether the
SBE doctrine “is a necessary addition to Texas law regarding the theory of alter ego
for disregarding corporate structure and the theories of joint venture, joint enterprise,
or partnership for imposing joint and several liability,” but stressing that the court
“said nothing [in earlier cases] to indicate that a ‘single business enterprise’ theory
could be used to view the contracts of distinct corporations as the contracts of a
single, amalgamated entity”); De la Hoya, 125 Fed. App’x. at 538–41.
It is a serious and questionable step to hold a party to any contract, let alone a
contract in the complex arena of insurance, liable for debts of another party with
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 17 of 18
22 The uncertainty of application of the SBE doctrine in this context is highlighted by the fact
that the doctrine is designed to prevent “inequitable results.” See Old Republic Ins. Co., 920
S.W.2d at 395 (citing Castleberry, 721 S.W.2d at 271–72) (“Texas courts have disregarded
the corporate form when it is used as part of an unfair device to achieve an inequitable result,
such as when a corporation is organized and operated as a mere tool or business conduit of
another corporation, or when the corporate fiction is resorted to as a means of evading an
existing legal obligation.”). The doctrine would appear to achieve its goal if liability is
assigned to constituent members of an SBE, allowing an injured plaintiff to seek recovery
from the enterprise as a whole. It is not clear how requiring a non-SBE entity, such as an
insurance company, to indemnify an SBE constituent, that was not a named insured under
the insurance contract, and whose risks may not have been considered during the
underwriting process, furthers the goal of a narrow doctrine that is intended primarily to
permit recovery from a wrongdoer. See, e.g., Carlson Mfg., 179 S.W.3d at 693–94 (listing
situations in which Texas courts have recognized the SBE doctrine).
P:\ORDERS\a11-2004\2222.2nd MSJ.wpd 071003.0957 18
whom the original party had no contractual or tort relationship, the circumstance
here.22 Nevertheless, the Court does not yet determine the applicability of the SBE
doctrine to the scope of AAI’s insurance policy to cover Salvage’s wrong, because
this legal question turns on fact issues that remain to be decided.
IV. CONCLUSION AND ORDER
For the reasons set forth above, the Court concludes that Indemnity has failed
to demonstrate that it is entitled to summary judgment as a matter of law. It is
accordingly
ORDERED that Plaintiff’s Second Motion for Summary Judgment [Doc. # 54]
is DENIED.
SIGNED at Houston, Texas this 3rd day of October, 2007.
Case 4:04-cv-02222 Document 61 Filed 10/03/2007 Page 18 of 18

 

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

Corpus Christi-Edinburg.

 

NORTHFIELD INSURANCE COMPANY, Appellant,

v.

NABORS CORPORATE SERVICES, INC., f/k/a Pool Offshore Services, Appellee.

No. 13-07-093-CV.

 

May 29, 2009.

Justices YA EZ, BENAVIDES, and VELA.

 

MEMORANDUM OPINION

 

 

Memorandum Opinion by Justice YA EZ.

 

This appeal involves a claim for payment of attorneys’ fees arising from an indemnity dispute. By two issues, appellant, Northfield Insurance Company (“North-field”), contends the trial court erred in granting summary judgment in favor of appellee, Pool Com-pany Texas, Ltd. (“Pool”).FN1 Specifically, Northfield contends that: (1) Pool breached its mutual indemnity agreement with Northfield’s insured and third-party defendant, Abraxas Petroleum Company (“Abraxas”), by suing Abraxas for reimbursement, and (2) Northfield is entitled to attorneys’ fees it in-curred in the instant suit. We affirm the summary judgment in favor of Pool.

 

FN1. Although this case is styled Nabors Corporate Services, Inc. f/k/a Pool Offshore Services, the parties have stipulated that “Pool Company Texas Ltd.” is substituted for “Nabors Corporate Services, Inc. f/k/a Pool Offshore Services” in the record. We refer to appellee as “Pool.”

 

Background

 

As Pool notes, the facts and course of proceedings in this case are “best described as circuitous.” In an earlier related appeal involving the parties, FN2 the Fourteenth Court of Appeals set out the relevant facts, which we incorporate here.

 

FN2. Nabors Corporate Servs. v. Northfield Ins. Co., 132 S.W.3d 90 (Tex.App.-Houston [14th Dist.] 2004, no pet.).

 

In 1997, Abraxas hired Pool to perform work on an oil and gas lease owned and operated by Abraxas. As is customary in the oil and gas industry, Abraxas and Pool entered into a Master Service Agreement (the “Agreement”) which contained, in part, mutual indemnity provisions whereby each party agreed to indemnify the other for any claims or causes of action, without limit, for any injuries or death suffered by their respective employees. In the Agreement, each party also agreed to acquire insurance to cover these indemnity obligations [ FN3] in accordance with the safe harbor provisions of the [ Texas Oilfield Anti-Idemnity Act (“TOAIA”)[ FN4]. Pool’s general liability insurer was Reliance Insurance Company (“Reliance”)[ FN5] and Abraxas was insured by Northfield.

 

FN3. The Agreement also required, with re-spect to mutual indemnities, that each party name the other as an additional insured and their respective insurers were to waive any rights of subrogation.

 

FN4. TEX. CIV. PRAC. & REM.CODE [ANN.] § 127.005 [ (Vernon 2005) ] (ex-cluding from the purview of the TOAIA mutual indemnity agreements providing that the parties agree to support the indemnity obligations with insurance).

 

FN5. Pool’s policy with Reliance had a $ 1,000,000 primary liability limit.

 

In 1999, a Pool employee, Michael Carter, was fatally injured. Carter’s heirs and estate filed suit (the “Carter litigation”) against Abraxas, and other defendants not parties to this appeal, asserting negligence claims. When Abraxas presented the claim to Northfield, Northfield hired counsel to represent Abraxas; counsel, in turn, contacted Pool and demanded Pool defend and indemnify Abraxas in accordance with the Agreement. Pool agreed, subject to its right under Texas law to deny indemnification for any grossly negligent conduct by Abraxas or any award for punitive damages. Pool then hired counsel to defend Ab-raxas.

 

In September 2001, the Carter litigation was settled on behalf of Abraxas for $ 1,545,000.[ FN6] However, prior to funding the settlement, Pool’s insurer, Reliance, became insolvent.[ FN7] Suit was filed by the Carter plaintiffs against Abraxas to enforce the settlement agreement, and Abraxas looked to Pool by virtue of the indemnity provision con-tained in the Agreement. Pool contributed $ 1,000,000 to the settlement by Abraxas, reserving all rights and causes of action, then demanded reimbursement from Northfield. Consequently, Northfield filed this declaratory judgment action, asserting it did not owe any reimbursement to Pool. Pool filed counterclaims against Northfield and third-party claims against Abraxas,[ FN8] al-leging both parties had violated the [ Texas Property and Casualty Insurance and Guaranty Act] and asserting claims for indemnity and un-just enrichment against both parties. Northfield filed a “Motion to Dismiss and/or Summary Judgment,” requesting the trial court dismiss Pool’s claims against Abraxas and Abraxas’s claims against Northfield in the event Abraxas should be held liable to Pool for any reimburse-ment.

 

FN6. Specifically, as stated in the settlement agreement, the claim was settled on behalf of “Abraxas and its insurers.”

 

FN7. Reliance was designated as an impaired insurer on October 5, 2001.

 

FN8. Abraxas filed counterclaims against Pool and also filed a separate lawsuit against Northfield.

 

The trial court signed a final judgment granting Northfield’s motion and (1) dismissing with pre-judice, Pool’s claims against Abraxas and North-field; (2) dismissing without prejudice, Abraxas’s counterclaims against Pool; and (3) dismissing as moot, Abraxas’s cross-claims for reimbursement against Northfield. The trial court severed all other remaining claims to permit appeal of the judgment.FN9

 

FN9. Northfield Ins. Co., 132 S.W.3d at 93-94 (internal footnotes as appear in origi-nal).

 

The Fourteenth Court affirmed the trial court’s sum-mary judgment in favor of Northfield and Abraxas, holding that the TOAIA (1) did not alter Pool’s in-demnity obligation, just because its insurer became insolvent, and (2) did not require Abraxas to reimburse Pool for the money it paid to settle the underlying claim.FN10

 

FN10.Id. at 99.

 

The claims in the present case were abated while the severed claims in Nabors v. Northfield were appealed to the Fourteenth Court. Northfield’s claims in the present case are: (1) that by failing to defend Abraxas, Pool breached its Agreement with Abraxas; (2) al-ternatively, that Northfield is entitled to contribution from Pool under chapter 33 of the civil practice and remedies code FN11 for any sums it may be required to pay to Abraxas; and (3) that it is entitled to recover from Pool its own attorneys’ fees and those incurred by Abraxas.FN12

 

FN11.See TEX. CIV. PRAC. & REM.CODE ANN. §§ 33.011-.017 (Vernon 2008).

 

FN12. The record contains a settlement agreement between Northfield and Abraxas, whereby the parties (1) dismiss all claims against each other, (2) Northfield pays Ab-raxas $97,500, and (3) Abraxas assigns any claims it has against Pool to Northfield. Northfield seeks recovery of $283,782.99 in attorneys’ fees incurred by Abraxas and re-covery of its own attorneys’ fees in the amount of $85,251.57.

 

On November 22, 2005, Pool filed an amended tradi-tional motion for summary judgment,FN13 in which it asserted that it was entitled to summary judgment:

 

FN13.SeeTEX.R. CIV. P. 166a(c).

 

on Northfield’s claims for contribution and indemnity because there is no legal basis upon which Pool is required to indemnify Northfield for Northfield’s conduct in refusing to defend and indemnify Abraxas, or for the attorneys’ fees incurred by Abraxas in defending itself against Pool’s com-pulsory claims in Nothfield’s declaratory judg-ment action. Moreover, Northfield is not entitled to contribution pursuant to Chapter 33 of the Texas Civil Practice and Remedies Code.

 

Likewise, Pool is entitled to summary judgment as a matter of law on Abraxas’ claims because the at-torneys’ fees that were incurred by Abraxas were not within the scope of the indemnity agreement be-tween Abraxas and Pool, and the attorneys’ fees Abraxas incurred are not recoverable from Pool as damages. Additionally, Abraxas is not entitled to reimbursement from Pool for any monies it paid to settle its gross negligence exposure in the Carter litigation because Pool’s indemnity obligation was limited to $1,000,000, and Pool satisfied its obliga-tion when it tendered $1,000,000 to settle the Carter litigation. Additionally, Abraxas accepted Pool’s qualified offer to defend and indemnify Abraxas in the Carter litigation for all claims except gross negligence claims or punitive damages, and has therefore, waived any claims for reimbursement.

 

Pool attached the following summary judgment evi-dence:

(1) the Master Service Agreement;

 

(2) February 8, 1999 correspondence from Pool’s counsel to Abraxas’s counsel;

 

(3) an April 1, 2002 letter from Pool’s counsel to Ab-raxas’s and Northfield’s counsel regarding Pool’s right to seek reimbursement of settlement funds;

 

(4) an April 9, 2002 letter from Abraxas’s and Northfield’s counsel to Pool’s counsel regarding the same subject;

 

(5) the Fourteenth Court’s opinion in Nabors Corpo-rate Servs. v. Northfield Ins. Co.;

 

(6) Abraxas’s First Amended Cross-Claim against Northfield;

 

(7) Northfield’s Third-Party Petition against Pool; and

 

(8) Abraxas’s Alternative Cross-Claim against Pool.

 

On December 8, 2005, Northfield filed a response to Pool’s amended motion for summary judgment.

 

On November 30, 2005, Northfield filed an amended traditional motion for summary judgment,FN14 in which it noted that (1) it had purchased an assignment of all of Abraxas’s claims against Pool, and (2) Ab-raxas had dismissed all its claims against North-field.FN15In its motion, Northfield argued that by suing Abraxas for reimbursement, Pool breached the Agreement between Pool and Abraxas. Northfield also argued that it was entitled to recover Abraxas’s attorneys’ fees and its own attorneys’ fees from Pool.FN16 As evidence in support of its motion, Northfield incorporated the evidence attached to its August 17, 2004 motion, which included: (1) Pool’s answer and counter-claims against Northfield in the severed litigation; (2) Northfield’s insurance policy with Abraxas; (3) letters between Northfield and Ab-raxas regarding Northfield’s alleged duty to defend Abraxas in the claims brought by Pool; (4) a copy of the Carter plaintiffs’ petition; (5) a copy of Abraxas’s cross-claim against Northfield, alleging breach of its insurance policy with Northfield; (6) Abraxas’s counter-claim against Pool, alleging that Pool breached the Agreement; (7) copies of invoices for attorneys’ fees submitted to Abraxas; (8) a copy of the petition to enforce the settlement in the Carter litiga-tion; (9) a copy of Abraxas’s third-party claims against Pool, alleging breach of Pool’s indemnity obligations under the Agreement; (10) the Carter plaintiffs’ motion for summary judgment for enforcement of the settlement agreement; and (11) a letter confirming Abraxas’s agreement to pay $1,545,000 in settlement of the Carter litigation. On December 29, 2005, Pool filed a response to Northfield’s motion for summary judgment.

 

FN14.SeeTEX.R. CIV. P. 166a(c).

 

FN15. As summary judgment evidence, Northfield attached its settlement agreement with Abraxas.

 

FN16. We note that in its August 1, 2005 motion for summary judgment, prior to its settlement with Abraxas, Northfield reserved the right to contest the reasonableness of Abraxas’s fees, stating that such fees were “grossly exaggerated, and deal with numer-ous tasks that had nothing to do with de-fending the case brought by Nabors/Pool against Abraxas.”In its November 30, 2005 amended motion, Northfield also stated that if its motion is granted, it will submit fee af-fidavits establishing the amount of its attor-neys’ fees.

 

On September 21, 2006, the trial court denied North-field’s Amended Motion for Summary Judgment, and on November 15, 2006, entered a take-nothing judg-ment in Pool’s favor on all claims asserted against it by Northfield and Abraxas.

 

Standard of Review

 

We review the trial court’s grant of summary judgment de novo.FN17When both parties move for summary judgment, we indulge all reasonable inferences and resolve all doubts in favor of the losing party.FN18When both parties move for summary judgment on the same issues and the trial court grants one motion and denies the other, the reviewing court considers the summary-judgment evidence presented by both sides, determines all questions presented, and if it determines the trial court erred, renders the judgment the trial court should have rendered.FN19

 

FN17. Joe v. Two Thirty Nine J. V., 145 S.W.3d 150, 156-57 ( Tex.2004); Branton v. Wood, 100 S.W.3d 645, 646 (Tex.App.-Corpus Christi 2003, no pet.).

 

FN18. Dallas, Garland, & Ne. R.R. v. Hunt County, 195 S.W.3d 818, 820 (Tex.App.-Dallas 2006, no pet.).

 

FN19. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 ( Tex .2005).

 

When the trial court does not specify the basis for its ruling, it is the appellant’s burden on appeal to show that none of the independent grounds that were as-serted in support of summary judgment is sufficient to support the judgment.FN20Thus, when the trial court’s order granting summary judgment does not specify the grounds on which it was granted, we will affirm the summary judgment if any of the theories advanced support the judgment. FN21

 

FN20. Coffey v. Singer Asset Fin. Co., 223 S.W.3d 559, 562-63 (Tex.App.-Dallas 2007, no pet.)(citing Star-Telegram, Inc. v. Doe, 915 S.W.2d 471, 473 ( Tex.1995)).

 

FN21. Browning v. Prostok, 165 S.W.3d 336, 344 ( Tex.2005) (citing Provident Life Ins. Co. v. Knott, 128 S.W.3d 211, 216 ( Tex.2003)); Coffey, 223 S.W.3d at 563.

 

Discussion

 

The trial court’s order denying Northfield’s motion for summary judgment does not specify the basis for its ruling. Thus, Northfield has the burden on appeal to show that none of the grounds asserted in support of Pool’s motion for summary judgment is sufficient to support the judgment.FN22

 

FN22.See Coffey, 223 S.W.3d at 562-63.

 

In Northfield’s amended motion, it moved the trial court to hold that Pool breached its Agreement with Abraxas by suing it for reimbursement of the funds Pool paid in settlement of the Carter litigation. Northfield argued that the Nabors court determined that Pool’s Agreement with Abraxas was valid.FN23 Thus, Pool’s decision to sue Abraxas was “an obvious breach of the indemnity agreement.”Northfield also argued that it is entitled to recover (1) its own attorneys’ fees, and (2) pursuant to its purchase of the as-signment of Abraxas’s claims, attorneys’ fees incurred by Abraxas.

 

FN23.See Nabors, 132 S.W.3d at 99.

 

In its first issue, Northfield argues that even though Pool eventually funded the settlement made on Ab-raxas’s behalf, it initially refused to do so, and thereby breached the Agreement with Abraxas. Northfield argues that the Agreement between Pool and Abraxas contemplates that litigation may be necessary to determine the extent of the indemnity, and thus provides that legal costs involved with enforcing the indemnification provisions are recoverable as damages. The provision of the Agreement cited by Northfield states: “In the event one party must bring legal action in order to enforce an indemnification, all such legal costs shall be included as part of the indemnification.”

 

Northfield also argues that Abraxas’s attorneys’ fees are recoverable under chapter 38 of the civil practice and remedies code FN24 and under the Uniform Dec-laratory Judgment Act (“the DJA”).FN25 Northfield points to the affidavit of Michael Orlando, counsel for Abraxas, as evidence in support of the claim for at-torneys’ fees in the amount of $283,782.99.

 

FN24.See TEX. CIV. PRAC. & REM.CODE ANN. §§ 38.001-.006 (Vernon 2008).

 

FN25.See id. § 37.009 (Vernon 2008).

 

By its second issue, Northfield argues that it is entitled to recover its own attorneys’ fees pursuant to the DJA; FN26 Northfield argues that it sought a declaratory judgment that Pool was responsible for funding the Carter settlement, and the Nabors court so held. Northfield points to the affidavit of John C. Tollefson, which states that Northfield’s attorneys’ fees were $85,251.57.FN27

 

FN26.See id.

 

FN27. We note that the record reference in Northfield’s brief to the affidavit of John C. Tollefson refers to an exhibit attached to Northfield’s Response to Pool’s Amended Motion for Summary Judgment; the affidavit was not submitted in support of Northfield’s amended motion for summary judgment.

 

In its response to Northfield’s amended motion, Pool argued that it satisfied its obligations under the Agreement by funding the Carter settlement, and reserved its right to seek reimbursement from Abraxas and Northfield. In response to Northfield’s claim that Pool’s third-party claim against Abraxas constituted a breach of the Agreement, Pool made several argu-ments. First, Pool argued that when Northfield sued Pool, it was forced to bring Abraxas into the litigation, because Northfield was asking the trial court to con-strue the Agreement between Pool and Abraxas, and Abraxas’s interests would thereby be affected by the court’s decision. Second, Pool argued it was entitled to pursue its reimbursement claims because the parties agreed in writing that Pool preserved its right to seek reimbursement of the settlement funds.FN28

 

FN28. The record contains a letter dated April 1, 2002, from Pool’s counsel to Abraxas’s and Northfield’s counsel, stating that Pool will advance the $1 million to fund the settlement “subject to agreement by Abraxas and its insurers, including but not limited to Northfield Insurance Company … that all rights, remedies, causes of action, limitations, etc. are preserved by and between [Pool] and its related companies, insurers and/or re-insurers…. More specifically, of course, we are preserving all rights and remedies to seek reimbursement of all or part of the settlement funds without prejudice to any arguments that Pool is not, and shall not be, liable for any amount previously agreed upon by Abraxas and/or Reliance….” A responsive letter dated April 9, 2002, to Pool’s counsel acknowledges that Pool is advancing the $1 million, subject to the agreement that all rights, remedies, causes of action, etc. are preserved by and between Abraxas, North-field, and Pool. The letter is signed by counsel and/or representatives of Abraxas and Northfield.

 

Pool also argued that in Frank’s Casing, the Texas Supreme Court found that a party is entitled to settle with an injured party and subsequently challenge coverage and seek reimbursement.FN29Pool cited the supreme court’s 2005 opinion in Frank’s Casing, which was subsequently withdrawn and a new opinion issued, as explained in a recent law review article:

 

FN29.See Excess Underwriters at Lloyd’s London v. Frank’s Casing Crew & Rental Tools, Inc., 246 S.W.3d 42, 46-48 ( Tex.2008) (op. on reh’g).

 

In a much anticipated opinion, Excess Underwriters at Lloyd’s, London v. Frank’s Casing Crew & Rental Tools, Inc., the Texas Supreme Court revisited the issue of whether an insurer is entitled to reimbursement from its insured of amounts it paid to settle third-party claims against the insured when it later determined that those claims are not covered under the policy. The supreme court first addressed this issue in 2000, in Texas Association of Counties County Government Risk Manage-ment Pool v. Matagorda County,[ FN30] holding that an insurer may seek reimbursement only if it “obtains the insured’s clear and unequivocal consent to the settlement and the insurer’s right to seek reimbursement.”In its original opinion in Frank’s Casing, the supreme court had “clarified” Matagorda County and had expanded the insur-er’s right of reimbursement to include the addi-tional circumstances: (1) when the insured de-mands that the insurer accept a settlement offer that is within policy limits, or (2) when the insured expressly agrees that the settlement offer should be accepted.

 

FN30. http://www.westlaw.com/Find/Default.wl?rs=dfa1.0&vr=2.0&DB=4644&FindType=Y&SerialNum=2000655007Tex. Ass’n of Counties County Gov’t Risk Mgmt. Pool v. Matagorda County, 52 S.W.3d 128 ( Tex.2000).

 

The supreme court granted rehearing in Frank’s Cas-ing on January 6, 2006, and on February 1, 2008, withdrew its prior opinion and issued a new opi-nion. The supreme court expressly declined to overrule Matagorda County, reiterating that in weighing the varying risks surrounding settlement offers when coverage is disputed, “insurers, on balance, are better positioned to handle them ‘either by drafting policies to specifically provide for reimbursement or by accounting for the pos-sibility that they may occasionally pay uncovered claims in their rate structure.’“

 

The supreme court next addressed whether the case was sufficiently distinguishable from Matagorda County to justify an exception to the Matagorda County rule and thereby permit reimbursement based on the insured’s implied consent. The un-derwriters emphasized that (1) they were excess carriers who did not have a duty to defend or otherwise have unilateral control over settlement, (2) the policy prohibited settlement without the insured’s consent, and (3) the insured had de-manded that the underwriters settle the claim. Reasoning that “none of these distinctions alle-viates the concerns that drove the supreme court’s analysis in Matagorda County,” the supreme court declined to recognize an exception to the Matagorda County rule and accordingly refused to find an implied-in-fact agreement. The su-preme court also refused to recognize a reim-bursement right under the equitable theories of quantum meruit and assumpsit.

 

Consequently, after Frank’s Casing, an insurer has a right of reimbursement from its insured only if: (1) the policy specifically provides for reim-bursement, or (2) the insured clearly and une-quivocally consents to the settlement and the in-surer’s right to seek reimbursement.FN31

 

FN31. J. Price Collins, Ashley E. Frizzell, and Omar Galicia, Insurance Law, 61 SMU L.Rev. 877 (2008) (internal citations omit-ted).

 

Here, Pool’s claim for reimbursement of the settlement funds against Abraxas was based on its argument that the indemnity provision in the Agreement was void due to the insolvency of Reliance.FN32The Nabors court rejected Pool’s argument, finding that Pool bore the risk of any loss associated with its underlying insurance obligations.FN33Thus, unlike the issue in Frank’s Casing and Matagorda County, Pool’s claim was not seeking reimbursement of settlement costs for an uncovered claim; rather, its claim was to determine whether Reliance’s insolvency altered its indemnity obligation-and the Nabors court found it did not.FN34Moreover, the April 1 and April 9, 2002 letters demonstrate that the parties agreed that Pool preserved the right to seek reimbursement for all or part of the settlement funds. We reject Northfield’s argument that by exercising a right that the parties expressly agreed to, Pool “breached” its Agreement with Abraxas.

 

FN32.See Nabors, 132 S.W.3d at 95.

 

FN33.See id. at 98.

 

FN34.See id.

 

We are also unpersuaded by Northfield’s argument that it is entitled to recover Abraxas’s attorneys’ fees and its own attorneys’ fees pursuant to the provision in the Agreement that “[i]n the event one party must bring legal action in order to enforce an indemnifica-tion, all such legal costs shall be included as part of the indemnification.”Pool argues that no “legal action” was required to “enforce an indemnification” because Pool had already satisfied its indemnity obligation by paying $1 million toward the funding of the settle-ment. Northfield’s declaratory judgment action was in the nature of a defense: that it did not owe Pool any reimbursement.FN35We decline to construe Northfield’s declaratory judgment action as an action to “enforce an indemnification” within the meaning of the Agreement. We overrule Northfield’s first issue.

 

FN35.See id. at 93.

 

We next address Northfield’s claim that Abraxas’s attorneys’ fees are recoverable under chapter 38 of the civil practice and remedies code FN36 and under the DJA.FN37By its second issue, Northfield claims it is entitled to recover its own attorneys’ fees under the DJA.

 

FN36.See TEX. CIV. PRAC. & REM.CODE ANN. §§ 38.001-.006.

 

FN37.See id. § 37.009.

 

Section 38.001(8) of the civil practice and remedies code permits an award of attorney’s fees for a suit based on a written contract.FN38However, “[t]o recover attorney’s fees under 38.001, a party must (1) prevail on a cause of action for which attorney’s fees are recoverable, and (2) recover damages….”FN39 At-torneys’ fees are in the nature of costs, not damag-es.FN40Here, Abraxas asserted a breach of contract claim against Pool in Pool’s claim for reimbursement from Abraxas of the $1 million in settlement funds. The Nabors court held that Abraxas was not required to reimburse Pool.FN41Therefore, Abraxas did not recover any “damages,” and is therefore not entitled to attorneys’ fees under section 38.001.

 

FN38.See id. § 38.001(8).

 

FN39. Green Int’l, Inc. v. Solis, 951 S.W.2d 384, 390 ( Tex.1997); Alma Group, L.L.C. v. Palmer, 143 S.W.3d 840, 845-46 (Tex.App.-Corpus Christi 2004, pet. denied); see Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195, 201 ( Tex.2004).

 

FN40. Alma Group, L.L.C., 143 S.W.3d at 846.

 

FN41.See Nabors, 132 S.W.3d at 99.

 

Northfield also claims it is entitled to recover Ab-raxas’s attorneys’ fees under the DJA.FN42In a decla-ratory judgment action, the decision to grant or deny attorneys’ fees is solely within the discretion of the trial court.FN43Pool argues that Northfield, as Abraxas’s assignee, is not entitled to attorneys’ fees under chapter 37 because, among other reasons, Northfield did not seek any declaratory relief against Pool in this proceeding.FN44 In addition, Pool argues, Abraxas did not seek any declaratory relief against Pool in this proceeding.FN45Pool contends that Northfield cannot “bootstrap” its request for declaratory relief in the severed action because that action was concluded by final judgment.FN46We agree with Pool that neither Northfield nor Abraxas asserted a request for decla-ratory relief against Pool; accordingly, Northfield is neither entitled to recover its own attorneys’ fees, nor, as Abraxas’s assignee, is it entitled to recover Abraxas’s attorneys’ fees under the DJA.FN47We overrule both of Northfield’s issues.

 

FN42.See id. § 37.009 (“In any proceeding under this chapter, the court may award costs and reasonable and necessary attorneys’ fees as are equitable and just.”).

 

FN43.See id.; Neeley v. W. Orange-Cove Consol. Indep. Sch. Dist ., 176 S.W.3d 746, 799 ( Tex.2005); Wilson v. Chazanow, 105 S.W.3d 21, 26 (Tex.App.-Corpus Christi 2002, no pet.).

 

FN44. In Northfield’s Third-Party Petition Against Pool, dated January 20, 2005, Northfield acknowledges that its declaratory judgment action against Pool is “now final” (the Nabors case). It notes that Abraxas’s claim against Pool is a claim for attorneys’ fees. Northfield’s claim is a claim for in-demnity or alternatively, contribution, for any sums Northfield may be compelled to pay Abraxas. The petition does not seek any declaratory relief. Similarly, Northfield’s Amended Petition Against Pool, dated No-vember 21, 2005, asserts a claim for indem-nity against Pool for any sums that Northfield paid to Abraxas. Although the amended pe-tition asserts that Northfield is entitled to recover its own attorneys’ fees under chapters 37 and 38 of the civil practice and remedies code, it does not request any declaratory re-lief.

 

FN45. Abraxas’s Alternative Cross-Claim Against Pool, dated May 18, 2005, seeks di-rect recovery from Pool for any of Abraxas’s claims against Northfield that are more properly asserted against Pool. The pleading does not request any declaratory relief from Pool. In Abraxas’s Amended Cross-Claim Against Northfield, dated June 17, 2005, Abraxas sought declaratory relief against Northfield, seeking a declaration as to cov-erage under its policy with Northfield. However, because all claims between Ab-raxas and Northfield have been settled, Ab-raxas’s amended cross-claim against North-field is moot, and cannot support the award of attorneys’ fees.

 

FN46.See Nabors, 132 S.W.3d at 100.

 

FN47.See McDowell v. McDowell, 143 S.W.3d 124, 131 (Tex.App.-San Antonio 2004, pet. denied) (reversing award of at-torneys’ fees to appellee where appellee had not requested declaratory judgment).

 

Conclusion

 

We affirm the trial court’s order granting summary judgment in Pool’s favor.

 

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