Texas Common Law Fraud and Misrepresentation Law in Insurance Case

United States District Court,

S.D. Texas,

Houston Division.

MEDISTAR TWELVE OAKS PARTNERS, LTD., Plaintiff,

AMERICAN ECONOMY INSURANCE COMPANY, et al., Defendants.

Civil Action No. H-09-3828.

May 17, 2010.

OPINION AND ORDER

MELINDA HARMON, District Judge.

Pending before the Court in the above referenced cause, arising out of an insurance claim by Plaintiff Medistar Twelve Oaks Partners, Ltd. (“Medistar”) for damages to Medistar’s commercial building and its contents caused by Hurricane Ike and removed from the 55th District Court of Harris County, Texas on diversity jurisdiction, are (1) Defendant Nelson Architectural Engineers, Inc.’s (“Nelson’s”) first motion to dismiss (instrument # 4); (2) Defendants American Economy Insurance Company (“American Economy”), Liberty Mutual Insurance Company (“Liberty”), and Safeco Insurance Company of America’s (“Safeco’s”) (collectively, “insurance company Defendants’) motion to dismiss or, alternatively, for more definite statement (# 5); and (3) Plaintiff Medistar Twelve Oaks Partners, Ltd.’s (“Medistar’s”) motion to remand (# 10).

According to Medistar’s Original Petition (Ex. A to # 1, Notice of Removal), Medistar’s commercial building was insured under an all-risk policy,FN1 number 02-CE-188659-10, issued by American Economy and Safeco. Safeco is the parent and controlling entity of American Economy, while Liberty is the parent and controlling company of Safeco. Medistar submitted a claim FN2 for damages to the insurance companies and states that it cooperated fully with their investigation. It alleges that American Economy, Safeco, and Liberty had an obligation in good faith and fair dealing to conduct an investigation and an evaluation of the benefits owed to Medistar and to promptly pay all benefits owed to Medistar. Among their good faith duties was an obligation to hire a sufficient number of qualified, properly trained adjustors, investigators and consultants to perform this work. Medistar complains that the insurance company Defendants hired Nelson for an “outcome oriented” and “dishonest” investigation of the cause of and resulting damages to Medistar’s insured property. Medistar asserts that the insurance company Defendants have wrongfully failed or refused to pay Medistar’s covered claims on a timely basis, but have persisted in delay or refusal to pay the full amounts due without giving honest reasons for their payment of an inadequate amount of benefits. Medistar claims that it has been forced to hire its own engineers at its own expense and an attorney to represent it here. It charges Nelson with “misrepresent[ing] survey results during its investigation of Medistar’s Insurance claim,” putting “these misrepresentations in reports,” and “attempt[ing] to manipulate changes to the survey results in a scheme to manufacture desired results which would lower claim payments” made by the insurance company Defendants. Original Petition at ¶ 45.

FN1. An “all-risks” policy is “one in which the insurer undertakes the risk for all losses of a fortuitous nature, which, in the absence of the insured’s fraud or other intentional misconduct, is not expressly excluded in the agreement.” Lexington Insurance Co. v. Buckingham Gate, Ltd., 993 S.W.2d 185 (Tex.App.-Corpus Christi 1999) (and cases cited therein).

FN2. Assigned claim number 598799873017.

Medistar sues the insurance company Defendants for breach of [ insurance] contract, noncompliance with Section 542.055 (failure to pay claim within fifteen business days of receiving all required information) of the Texas Prompt Payment of Claims Act and Texas Insurance Code, Chapter 542, breach of common law duty of good faith and fair dealing, violations of Section 17.50 of the Texas Deceptive Trade Practices Act (“DTPA”) and/or Chapter 541 of the Texas Insurance Code, fraud, and conspiracy to commit fraud. Medistar sues Nelson for fraud, conspiracy to commit fraud, and tortious interference with contract.FN3

FN3. The same causes of action were pleaded against Wiss, Janney, Elstner Associates, Inc., but it was voluntarily dismissed on January 11, 2010(# 25).

The parties have blended arguments regarding remand with others relating to Rule 12(b)(6) dismissal, at times confusing the standards for removal/remand with federal standards for adequate pleading of claims. Therefore the Court summarizes the arguments in the motions together. Nevertheless, because the motion to remand must be decided on the basis of the pleadings at the time of removal,FN4 and not on any subsequent existing or proposed post-removal amendment, and because that Original Petition determines this Court’s jurisdiction, the Court must address the motion for remand first. The resolution of that motion will determine whether the Court has jurisdiction to consider the Rule 12(b)(6) motions to dismiss.

FN4. The right to remove depends upon the plaintiffs’ pleading at the time of the petition for removal. Pullman Co. v. Jenkins, 305 U.S. 534, 537-38, 59 S.Ct. 347, 83 L.Ed. 334 (1939); Cavallini v. State Farm Mutual Auto Ins., 44 F.3d 256, 264 (5th Cir.1995); Ford v. Property & Cas. Ins. Co. of Hartford, No. Civ. A. H-09-1731, 2009 WL 4825222, *2 (S.D.Tex. Dec.9, 2009).

Relevant Law

Under 28 U.S.C. § 1441(a) any state court action over which federal courts would have original jurisdiction may be removed from state to federal court. Gasch v. Hartford Accident & Indemnity Co.., 491 F.3d 278, 282 (5th Cir.2007). Moreover, under 28 U.S.C. § 1441(b), when original federal jurisdiction would be based on diversity, a defendant may remove a state court civil action only “if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.”

The doctrine of improper joinder, or fraudulent joinder,FN5 prevents defeat of federal removal jurisdiction premised on diversity by the presence of an improperly joined, non-diverse defendant. Borden v. Allstate Ins. Co., 589 F.3d 168, 171 (5th Cir.2009). Citizenship of an improperly joined party is totally disregarded in determining the court’s subject matter jurisdiction. Smallwood v. Illinois Cent. R.R. Co., 385 F.3d 568, 572 (5th Cir.2004) (en banc), cert. denied, 544 U.S. 992, 125 S.Ct. 1825, 161 L.Ed.2d 755 (2005).

FN5. The Fifth Circuit prefers the term “improper joinder” to “fraudulent joinder” because it is more consistent with the statutory language in 28 U.S.C. §§ 1141 and 1332. Smallwood v. Ill. Cent. R. Co., 385 F.3d 568, 571 n. 1 and 572-73 (5th Cir.2004) (en banc), cert. denied, 544 U.S. 992, 125 S.Ct. 1825, 161 L.Ed.2d 755 (2005).

Improper joinder may be established by showing (1) actual fraud in the pleading of jurisdictional facts or (2) an inability to establish a cause of action against the non-diverse defendant in state court. Gasch, 491 F.3d at 281; Smallwood, 385 F.3d at 573. The latter is alleged here. Defendants claiming improper joinder based on the second type bear a heavy burden of showing that there is no possibility of recovery by the plaintiff against the in-state defendant, i.e., in other words there is no reasonable basis for predicting that state law would allow recovery against the in-state defendant. Smallwood, 385 F.3d at 576. A “reasonable basis” means more than a mere a hypothetical basis. Griggs v. State Farm Lloyds, 181 F.3d 694, 701 (5th Cir.1999) (“whether the plaintiff has stated a valid state law cause of action depends upon and is tied to the factual fit between the plaintiffs’ allegations and the pleaded theory of recovery”).

To determine whether a plaintiff has a “reasonable basis for recovery under state law, the court may “conduct a Rule 12(b) (6)-type analysis.” Smallwood, 385 F.3d at 573; Anderson v. Georgia Gulf Lake Charles, 342 Fed. Appx. 911, 915 (5th Cir.2009). First the court should look at the pleadings to determine whether the allegations state a claim under state law against the in-state defendant. Smallwood, 385 F.3d at 573. If the “plaintiff has stated a claim, but has misstated or omitted discrete facts that would determine the propriety of joinder,” the court may look beyond the pleadings and consider summary judgment-type evidence. Georgia Gulf, 342 Fed. Appx. at 915-16. That discovery should be very restricted and the summary inquiry should be limited to identifying “discrete and undisputed facts that would bar a plaintiffs’ recovery against an in-state defendant; anything more risks ‘moving the court beyond jurisdiction and into the resolution of the merits ….’ ” Id. at 916, quoting Smallwood, 385 F.3d at 573-74. The court has the discretion to determine what procedure is necessary. Smallwood, 385 F.3d at 573.

The district court must resolve all contested fact issues and ambiguities of state law in favor of the plaintiff and remand. Gasch, 491 F.3d at 281, citing Guillory v. PPG Indus., Inc., 434 F.3d 303, 308 (5th Cir.2005). The Fifth Circuit explains that since “ ‘the effect of removal is to deprive the state court of an action properly before it, removal raises significant federalism concerns.’ The removal statute is therefore to be strictly construed, and any doubt about the propriety of removal must be resolved in favor of remand.” Id. at 281-82, quoting Carpenter v. Wichita Falls Indep. Sch. Dist., 44 F.3d 362, 365-66 (5th Cir.1995).

Fed. Rules of Civil Procedure 12(b)(6) and 9(b)

When a district court reviews a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), it must construe the complaint in favor of the plaintiff and take all well-pleaded facts as true. Kane Enterprises v. MacGregor (US), Inc., 322 F.3d 371, 374 (5th Cir.2003), citing Campbell v. Wells Fargo Bank, 781 F.2d 440, 442 (5th Cir.1986).

“While a complaint attacked by a Rule 12(b)(6) motion to plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do ….” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1964-65, 167 L.Ed.2d 929 (2007) (citations omitted). “Factual allegations must be enough to raise a right to relief above the speculative level.” Id. at 1965, citing 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, pp. 235-236 (3d ed. 2004) (“[T]he pleading must contain something more … than … a statement of facts that merely creates a suspicion [of] a legally cognizable right of action”). “Twombly jettisoned the minimum notice pleading requirement of Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 … (1957) [“a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief”], and instead required that a complaint allege enough facts to state a claim that is plausible on its face.” St. Germain v. Howard, 556 F.3d 261, 263 n. 2 (5th Cir.2009), citing In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir.2007) (“To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead ‘enough facts to state a claim to relief that is plausible on its face.’ ”), citing Twombly, 127 S.Ct. at 1974). See also Alpert v. Riley, No. H-04-CV-3774, 2008 WL 304742, *14 (S.D.Tex. Jan.31, 2008). “Dismissal is proper if the complaint lacks an allegation regarding a required element necessary to obtain relief ….” Rios v. City of Del Rio, Texas, 444 F.3d 417, 421 (5th Cir.2006), cert. denied, 549 U.S. 825, 127 S.Ct. 181, 166 L.Ed.2d 43 (2006).

Recently, in Ashcroft v. Iqbal, — U.S. —-, —-, 129 S.Ct. 1937, 1940, 173 L.Ed.2d 868 (2009)(5-4), the Supreme Court, applying the Twombly plausibility standard to a Bivens claim of unconstitutional discrimination and a defense of qualified immunity for government official, observed that two principles inform the Twombly opinion: (1) “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” … Rule 8 “does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.”; and (2) “only a complaint that states a plausible claim for relief survives a motion to dismiss,” a determination involving “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.”

Fraud claims must also satisfy the heightened pleading standard set out in Federal Rule of Civil Procedure 9(b): “In allegations alleging fraud …, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” A dismissal for failure to plead with particularity as required by this rule is treated the same as a Rule 12(b)(6) dismissal for failure to state a claim. Lovelace v. Software Spectrum, Inc., 78 F.3d 1015, 1017 (5th Cir.1996). The Fifth Circuit interprets Rule 9(b) to require “specificity as to the statements (or omissions) considered to be fraudulent, the speaker, when and why the statements were made, and an explanation of why they were fraudulent.” Plotkin v. IP Axess, Inc., 407 F.3d 690, 696 (5th Cir.2005).

The elements of a fraud claim are (1) the defendant made a representation to the plaintiff; (2) the representation was material; (3) the representation was false; (4) when the defendant made the representation, the defendant a) knew that the representation was false or b) made the representation recklessly, as a positive assertion, and without knowledge of its truth; (5) the defendant made the representation with the intent that the plaintiff act on it; (6) the plaintiff relied on the representation; and (7) the representation caused the plaintiff injury. In re First Merit Bank, 52 S.W.3d 749, 758 ( Tex.2001).

To prevail on a conspiracy claim, the plaintiff must show (1) the defendant was a member of a combination of two or more persons; (2) the object of the combination was to accomplish a) an unlawful purpose or b) a lawful purpose by unlawful means; (3) the members had a meeting of the minds on the object or course of action; (4) one of the members committed an unlawful overt act to further the object or course of action; and (5) the plaintiff suffered injury as a proximate result of the wrongful act. Tri v. J.T.T., 162 S.W.3d 552, 556 ( Tex.2005); Insurance Co. of North America v. Morris, 981 S.W.2d 667, 675 ( Tex.1998).

The pleading standards of Twombly and Rule 9(b) apply to pleading a state law claim of conspiracy to commit fraud. U.S. ex rel. Grubbs v. Kanneganti, — F.3d —-, No. 07-40963, 565 F.3d 180, 2009 WL 930071, *9 (5th Cir. Apr.8, 2009) (“a plaintiff alleging a conspiracy to commit fraud must ‘plead with particularity the conspiracy as well as the overt acts … taken in furtherance of the conspiracy’ ”), quoting FC Inv. Group LLC v. IFX Markets, Ltd.., 529 F.3d 1087, 1097 (D.C.Cir.2008).

If Plaintiffs fail to state a claim for fraud underlying their civil conspiracy claim, the civil conspiracy claim must be dismissed, too. Allstate Ins. Co. v. Receivable Finance, Inc., 501 F.3d 398, 414 (5th Cir.2007); American Tobacco Co., Inc. v. Grinnell, 951 S.W.2d 420, 438 ( Tex.1997) (“Allegations of conspiracy are not actionable absent an underlying [tort]”); Krames v. Bohannon Holman LLC, No. 3:06-CV-2370-0, 2009 WL 762205, *10 (N.D.Tex. Mar.24, 2009).

*5 To prevail on a claim of tortious interference in an existing contract, a plaintiff must establish (1) the plaintiff has a valid contract; (2) the defendant willfully and intentionally interfered with the contract; (3) the interference proximately caused the plaintiff’s injury; and (4) the plaintiff incurred damage or loss. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 207 ( Tex.2002); Prudential Ins. Co. v. Financial Rev. Servs., 29 S.W.3d 74, 77 ( Tex.2000).

Motions to dismiss for failure to state a claim are appropriate when a defendant attacks the complaint because it fails to state a legally cognizable claim. Ramming v. United States, 281 F.3d 158, 161, 162 (5th Cir.2001) (“[W] hen considering a Rule 12(b) (6) motion to dismiss for failure to state a claim, the district court must examine the complaint to determine whether the allegations provide relief on any possible theory,” citing Cinel v. Connick, 15 F.3d 1338, 1334 (5th Cir.1994)), cert. denied sub nom. Cloud v. U.S., 536 U.S. 960, 122 S.Ct. 2665, 153 L.Ed.2d 839 (2002).

When a plaintiff’s complaint fails to state a claim, the court should generally give the plaintiff at least one chance to amend the complaint under Rule 15(a) before dismissing the action with prejudice. Great Plaints Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir.2002) ( “District courts often afford plaintiffs at least one opportunity to cure pleading deficiencies before dismissing a case, unless it is clear that the defects are incurable or the plaintiffs advise the court that they are unwilling or unable to amend in a manner that will avoid dismissal.”); United States ex rel. Adrian v. Regents of the Univ. of Cal., 363 F.3d 398, 403 (5th Cir.2004) (“Leave to amend should be freely given, and outright refusal to grant leave to amend without a justification … is considered an abuse of discretion. [citations omitted]”). The court should deny leave to amend if it determines that “the proposed change clearly is frivolous or advances a claim or defense that is legally insufficient on its fact ….” 6 Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Proc. § 1487 (2d ed.1990).

When addressing a motion to remand, however, the controlling pleading is the viable one at the time of removal; post-removal amendments are not considered. Pullman Co. v. Jenkins, 305 U.S. 534, 537-38, 59 S.Ct. 347, 83 L.Ed. 334 (1939); Cavallini v. State Farm Mutual Auto Ins., 44 F.3d 256, 264 (5th Cir.1995).

Pending Motions

The gist of Medistar’s motion to remand is that there is no diversity jurisdiction here: Medistar is a Texas limited partnership, made of up partners who are all Texas citizens; Defendant Nelson is also a Texas citizen.FN6

FN6. It is undisputed that the other Defendants are diverse from Plaintiff: American Economy Insurance Company is an Indiana corporation with its principal place of business in Indianapolis, Indiana. Liberty Mutual Insurance Company is a Massachusetts corporation, with its principal place of business in Boston, Massachusetts.

Defendants contend that Nelson was fraudulently joined to defeat diversity.

In its response, Nelson incorporates its motion to dismiss, or alternatively, for more definite statement, and Nelson combines arguments for dismissal for improper joinder with dismissal for inadequate pleading of claims under Federal Rules of Civil Procedure 12(b)(6) and 9(b). With a supporting affidavit Nelson explains that it was hired not by Medistar, but by an agent of Medistar’s insurer to evaluate Medistar’s damage from Hurricane Ike and to provide engineering services relating to Medistar’s claims. As part of its services, Nelson asserts that it submitted four true and accurate engineering reports about the damage observed at Medistar’s commercial building, based upon site observations, field information, measurements, verbal information, and Mr. Nelson’s experience and structural analysis. Nelson insists Medistar cannot establish a cause of action against it in state court, but in large part argues that Medistar fails to satisfy pleading standards for its causes of action against Nelson.

Nelson maintains that Medistar failed to plead specific facts to support its fraud and conspiracy to commit fraud claims, as required by Federal Rules of Civil Procedure 12(b)(6) and 9(b). Medistar charges that Nelson misrepresented its survey results and manipulated its results to cause lower payments by the insurers during its investigation of Medistar’s insurance claim, but it does not identify the circumstances-the who, what when and where-to establish a fraud claim as to each defendant. It makes only broad, blanket statements about all of them generally. Medistar has also conceded that it did not rely on the representations made by Defendants, but instead relied on its own CEO and its own outside engineers to refute the reports and findings of Nelson. The conclusory statements in the Original Petition fail to plead a viable claim for conspiracy because they are merely speculative and fail to identify a specific time or place in which any meeting of the minds occurred.

Nelson does maintain that Medistar’s tortious interference claim FN7 against Nelson is not a viable cause of action in Texas against an independent engineer hired by an insurer to assist in the investigation absent a special relationship. Dagley v. Haag Engineering Co., 18 S.W.3d 787, 793-94 (Tex.App.-Houston [14th Dist.] 2000, no pet.), citing Dear v. Scottsdale Ins. Co., 947 S.W.2d 908 (Tex.App.-Dallas 1997) (holding that since there was no insurance contract and therefore no special relationship between the insured and an independent adjustor firm hired by the insured’s insurance carrier, the adjustor firm owed no duty to the insured and is not liable to the insured for improper investigation, settlement advice, negligence, bad faith, breach of contract, tortious interference or DTPA claims), overruled on other grounds, Apex Towing Co. v. Tolin, 41 S.W.3d 118, 122-23 ( Tex.2001). It is undisputed that Nelson did not have a contractual or other special relationship with Medistar at any time.

FN7. Paragraph 128 contains the tortious interference claim against Nelson:

Nelson interfered with Medistar’s contract with American Economy, Safeco and Liberty Mutual by submitting fraudulent building surveys, reports, and sealed engineering drawings for the purpose of providing a misrepresentation for the investigation of Medistar’s insurance claim that arose from Medistar’s insurance contract with American Economy, Safeco, and Liberty Mutual. Nelson prepared building diagrams which were false and materially misrepresented in such a manner that would indicate Medistar’s claims would be wrongfully denied or underpaid.

Nor, argues Nelson, does the pleading of the tortious interference claim satisfy Rule 12(b)(6). The Original Petition does not allege facts demonstrating that Nelson had an intent to interfere with the insurance contract between Medistar and the insurance company Defendants, how he interfered with it, that the interference proximately caused plaintiff’s injury, or that Nelson actively participated in persuading the insurance company Defendants to breach its contract. Instead the petition contains the kind of conclusory allegations and legal conclusions that Rule 12(b)(6) seeks to prevent.

Nelson also emphasizes that Plaintiff has failed to move for leave to amend to cure the problem, which has been pointed out in the two pending motions to dismiss. Nelson claims that evidence outside of the pleadings demonstrates that there is no reasonable basis to predict that Plaintiff might recover against Nelson under theories of fraud and/or conspiracy to commit fraud.

Finally under the economic loss rule, “mere nonfeasance under a contract creates liability only for breach of contract” and therefore “ ‘tort damages are generally not recoverable unless the plaintiff suffers an injury that is independent and separate from the economic losses recoverable under a breach of contract claim.’ ” Crawford v. Ace Sign, Inc., 917 S.W.2d 12, 13 ( Tex.1996); Heil Co. v. Polar Corp., 191 S.W.3d 805, 815 (Tex.App.-Fort Worth 2006), quoting Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 45-47 ( Tex.1998).FN8 See also M.D. Thompson v. Espey Huston & Assoc., Inc., 26 S.W.3d 103 (Tex.App.-Houston [14th Dist.] 2000, no writ) (holding that the negligence of an engineering firm, if any, in the performance of its inspections caused no injury to the owner beyond the economic loss to the subject of the contract under the economic loss rule). Nelson observes that although Medistar asserts tortious interference against Nelson and breach of contract against the other defendants, Medistar fails to demonstrate or allege that it has sustained a loss beyond the economic loss associated with the alleged delay in coverage under the insurance contract.

FN8. Should Medistar assert that its fraud claim is excluded from the economic loss rule under Formosa Plastics, Nelson points out that the Texas Supreme Court in that case held that “tort damages are recoverable for a fraudulent inducement claim irrespective of whether the fraudulent representations are later subsumed in a contract or whether the plaintiff suffers an economic loss related to the subject matter of the contract.” 960 S.W.2d at 47. If a plaintiff only asserts a claim for fraud and makes no allegation that it was fraudulently induced to enter into a contract, as here, Formosa Plastics does not apply and it is proper for the court to apply the economic loss rule to bar the fraud claim. Heil Co. v. Polar Corp., 191 S.W.3d at 816-19; Southwestern Bell Tel. Co. v. John Carlo Tex., Inc., 843 S.W. ed 470, 494-95 ( Tex.1992), citing Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 ( Tex.1986). The Texas Supreme Court subsequently clarified its opinion in Formosa Plastics:

In Formosa Plastics we concluded that Presidio could bring a fraudulent inducement claim even though its damages consisted only of economic losses related to the performance and subject matter of the parties’ contract. Some of our language in that opinion suggests that there is no distinction between a claim for fraud and fraudulent inducement. Fraudulent inducement, however, is a particular species of fraud that arises only in the context of a contract and requires the existence of a contract as part of its proof. That is, with a fraudulent inducement claim, the elements of fraud must be established as they relate to an agreement between the parties. Formosa Plastics involved a fraudulent inducement claim based on representations contained in the bid packet upon which Presidio based its contract offer, which resulted in a written contract between the parties. Thus, the case was correctly decided as to fraudulent inducement. Although economic losses may be recoverable under either fraud or fraudulent inducement, Formosa Plastics should not be construed to say that fraud and fraudulent inducement are interchangeable with respect to the measure of damages that would be recoverable. [citations omitted]

R.E. Haase v. Glazner, 62 S.W.3d 795, 798-99 ( Tex.2001). Medistar’s Original Petition asserts only a claim for fraud, and none for fraudulent inducement, and the fraud allegations arise out of the alleged breach of contract. Thus, argues Nelson, Medistar’s tortious interference with an existing contract, fraud, and conspiracy to commit fraud claims must be dismissed under Rule 12(b) (6) for failure to state a claim by application of the economic loss rule.

Last of all, Nelson insists that Medistar’s claim for consequential damages must also be dismissed under Rule 12(b)(6) for failure to allege any facts that would show an entitlement to such damages. It is black letter law in Texas that a claimant can only recover damages that are a proximate cause of the injury sustained and of which the defendant has received fair notice. Therefore a plaintiff must plead sufficient facts to give the defendant fair and adequate notice of the damages sought. Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 896-97 ( Tex.2000). Nelson argues that Medistar has failed to plead any facts that would put Nelson on notice as to the type of consequential damages Medistar will seek. Thus the claim for consequential damages must be dismissed under Rule 12(b)(6).

Insurance Defendants’ Response to Medistar’s Motion to Remand and Their Motion to Dismiss or for More Definite Statement (# 5)

American Economy, Safeco, and Liberty respond to Medistar’s motion to remand by complaining that Medistar did not plead any specific facts for its claims against Nelson, but instead erroneously argued that there could be no remand as long as Nelson could conceivably under some set of facts allege a cause of action against Nelson.FN9

FN9. This Court observes that Medistar’s argument invokes the old rule under Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 … (1957) [“a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief”], which has been abrogated in federal court by Twombly, 127 S.Ct. at 1965 (“Factual allegations must be enough to raise a right to relief above the speculative level” and plead a claim that is plausible on its face). Moreover, as noted in Smallwood, “A ‘mere possibility of recovery under local law” will not preclude a finding of improper joinder.’ ” 385 F.3d at 573 n. 9, quoting Badon v. RJR Nabisco, Inc., 236 F.3d 282, 286 n. 4 (5th Cir.2000).

They urge the Court to deny Medistar’s motion to remand for three reasons: (1) Medistar’s conclusory allegations fail to state a claim against Nelson; (2) Texas law does not permit Medistar to bring tort claims against Nelson, an independent engineer; or (3) the economic loss rule bars Medistar’s tort claims against Nelson.

For the first reason, Medistar cites Waters v. State Farm Mutual Automobile Ins. Co., 158 F.R.D. 107, 109 (S.D.Tex.1994), in which this Court held that such conclusory allegations without factual basis are insufficient to state a claim against a non-diverse defendant and constitute fraudulent joinder. Medistar concedes that a proper fraudulent joinder analysis is made under Rule 12(b)(6), but it is well settled law that because Medistar made only conclusory allegations, it cannot survive such an analysis. This is especially true with respect to the fraud claim, which also fails to meet the particularity pleading standard of Rule 9(b). Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 339 (5th Cir.2008) (holding that conclusory allegations of fraud, without setting forth specific facts, are insufficient to survive a Rule 12(b)(6) analysis). In a typical statement, like the others devoid of facts and with legal conclusions masquerading as factual conclusions, Medistar alleged only that Nelson “made false statements, misrepresented material facts, and engaged in actions and/or omissions for the purpose of misleading Medistar as to the actual damages resulting from the peril of wind or the peril of storm surge or flood, and Medistar having relied upon such fraudulent conduct has been injured.” Original Petition as ¶ 120. See Fernandez-Mon tes v. Allied Pilots Ass’n, 987 F.2d 278, 284 (5th Cir.1993) ( “conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss”). They emphasize that a fraud complaint should be filed only after a wrong is reasonably believed to have occurred; it should serve to seek redress for a wrong, not find one. Segal v. Gordon, 467 F.2d 602, 607-08 (2d Cir.1971). Thus Medistar’s fraud allegations should be dismissed for failure to state a claim under Rule 12(b)(6). The insurance company Defendants also point out that in response to the Rule 12(b)(6) motions filed by the insurance company Defendants and Nelson, Medistar chose not to amend its petition or move for leave to amend or state any facts in its motion to remand or in its responses to the motions to dismiss, but chose to stand on its petition. Furthermore, they note that Medistar makes only two references to alleged misrepresentations by the insurance company Defendants: (1) that they “misrepresented to Medistar that the damage to property was not in excess to the amount paid as of the date of this complaint, even though the damage was caused by a covered peril and clearly in excess of previously paid amounts” (Original Petition ¶ 39); and (2) that the insurance company Defendants did not “offer Medistar adequate compensation without any honest explanations in writing or orally as to why additional payments were not being made” (id. at ¶ 40). Neither supports a fraud claim, and neither pleads the elements of fraud with the requisite particularity. Nor does Medistar allege specific facts to establish that each defendant individually committed fraud, but instead makes impermissibly broad, blanket statements pertaining to all defendants. See, e.g., Medistar alleges that Safeco “through its agents and employees, knowingly and with reckless disregard for Medistar in the course of handling of this subject claim made false statements, misrepresented material facts, and engaged in actions and/or omissions for the purpose of misleading Medistar as to the actual damages resulting from the peril of wind, and Medistar having relied upon such fraudulent conduct, has been injured.” Original Petition, ¶¶ 67, 90, 113. There is no identification of time, context, substance or speaker of the alleged false statements.

Insurance company Defendants also argue that because Medistar has failed to state a claim for fraud, its conspiracy to commit fraud claim also fails and should be dismissed. In addition, they contend that the conspiracy claims are also vague and conclusory allegations, not stated with particularity, including a specific time or place in which there was any meeting of the minds. Alternatively, the conspiracy claims should be dismissed under the “intra-corporate conspiracy rule,” which states that in the case of a corporation, “the acts of a corporate agent are the acts of the corporation, and a corporation cannot conspire with itself.” Elliott v. Tilton, 89 F.3d 260, 265 (5th Cir.1996); Wilhite v. H.E. Butt Co., 812 S.W.2d 1, 5 (Tex.App.-Corpus Christi 1991, no writ) (“As a matter of law, a corporation or other company cannot conspire with itself, no matter how many of its agents participated in the complained of action,”).

The insurance company Defendants, too, urge that the conspiracy to commit fraud claims against Nelson cannot not survive a Rule 12(b)(6) analysis because they also are conclusory. Original Petition at ¶¶ 123-25. Rule 9(b)’ s requirement of particularity also applies to the allegations of conspiracy to commit fraud. In re Enron Corp. Securities, Derivative and ERISA Litig., 623 F.Supp.2d 798, 811 n. 11 (S.D.Tex.2009).

Medistar’s tortious interference claims also do not survive a Rule 12(b)(6) analysis because of conclusory nature of all the allegations, insist Defendants. See Nabors Drilling U.S.A. L.P. v. Twister Exploration, L.L.C., No. Civ. A. 01-2109, 2002 WL 1610957, *2-3 (E.D.La. July 18, 2002) (granting renewed motion for Rule 12(b)(6) dismissal because plaintiff pleaded only conclusory allegations of tortious interference).

As for the second reason for denying remand, like Nelson the insurance company Defendants argue that Texas law does not allow an insured to assert tort claims against independent engineer Nelson. Dagley, 18 S.W.3d 787. That bar applies not only to negligence and implied duty of good faith and fair dealing, but to tortious interference and conspiracy claims. Id. Although the rule originally arose to preclude a breach of good faith and fair dealing cause of action against an insurance adjuster ( Natividad v. Alexsis, Inc., 875 S.W.2d 695, 698, 700 ( Tex.1994) (in the absence of a contractual or special relationship between an agent or contractor and an insured, it is the insurance carrier that is liable to the insured for the acts of its agents or contractors)), it was expanded to preclude all manner of tort claims alleged against adjusters, law firms, and engineering companies hired by an insurer to respond to claims. Dear, 947 S.W.2d at 916 (holding that an independent adjusting firm, hired by an insurer to investigate the claim of an insured, has no special relationship with the insured); Castillo v. Professional Serv. Indus., Inc., No. 04-97-00775-CV, 1999 WL 155833, *1-2 (Tex.App.-San Antonio March 24, 1999) (absent a special relationship, soil tester hired by an independent engineer, in turn hired by an insurance company to investigate a claim, does not owe a legal duty to the insured and “cannot be held liable as a matter of law, whether the claim is brought under the Texas Insurance Code, the DTPA, intentional infliction of emotional distress, conspiracy to commit fraud, or tortious interference with contractual relations.”); Dagley, 18 S.W.3d at 791-92 (dismissing multiple tort claims of negligence, DTPA, Insurance Code violations, tortious interference and civil conspiracy against independent engineering firm hired by insurer); Muniz v. State Farm Lloyds, 974 S.W.2d 229, 235-37 (Tex.App.-San Antonio 1998, no pet.), citing Bui v. St. Paul Mercury Ins. Co., 987 F.2d 204, 210 (5th Cir.1993) (applying Texas law and dismissing tort claims against independent adjuster because adjuster owed no duty to insured).

As the third and final reason for denying the motion to remand, Texas law does not permit tort claims which allege merely the economic loss suffered by breach of the insurance policy, insist the insurance company defendants. Agreeing with Nelson, the insurance company Defendants contend that under the economic loss rule, “tort damages are generally not recoverable unless the plaintiff suffers an injury that is independent and separate from the economic losses recoverable under a breach of contract claim.” Heil Co. v. Polar Corp., 191 S.W.3d 805, 815 (Tex.App.-Fort Worth 2006, pet. denied). Insurance company Defendants assert that Medistar acknowledges the rule, but tries to avoid it by stating that it “it will show additional independent extra contractual damages, as a result of the claim,” without providing any facts to support such damages now. Motion to Remand at 6-7. The conclusory allegations of independent injury are insufficient to defeat a claim of fraudulent joinder. Waters, 158 F.R.D. at 109 (“[F]ailure to specify the factual basis for recovery against a non-diverse party constitutes failure to state a claim and fraudulent joinder of that party.”).

In response to Nelson (# 12), Medistar admits its allegations regarding Nelson’s fraudulent activity do not satisfy Rule 9(b) particularity requirements but says “a more particular statement should be forthcoming.” Because Medistar’s tortious interference claim against Nelson is not a fraud claim, it is subject only to “notice pleading” requirements of Rule 8, Medistar insists that it has met that standard. Medistar also maintains that Dagley and Nativida, premised on negligence or a breach of implied duty of good faith and fair dealing, do not apply to the issues in this case. Moreover the cases were decided at summary judgment stage, not at a motion to dismiss stage. It responds to Nelson’s Economic Loss Rule argument by citing Nazareth Int’l Inc. v. J.C. Penny Corp., Inc., 2005 U.S. Dist. LEXIS 14473 (N.D.Tex. July 19, 2005) for the proposition that the Economic Loss Rule does not bar recovery for any tort claim if an additional injury exists outside the parameter of contract damages. Medistar points to paragraph 141(f) of the Original Petition requesting actual damages, exemplary damages, punitive damages and other relief the Court deems just and proper-all outside contractual damages. It also argues that Rule 8 does not require its claim for consequential damages to be pleaded with particularity. If remanded, the issue can be addressed in state court.

In response (# 11) to the insurance Company Defendants’ motion to dismiss or for more definite statement, Medistar urges the court to deny the motion or to allow it to amend. Medistar concedes that some of its allegations do not satisfy the particularity requirement and “that a more particular statement will be forthcoming” if the Court denies remand. It maintains that its conspiracy claim does not fall under the intra-corporate conspiracy rule because it is alleging that the insurers conspired with Nelson. It reiterates that the Economic Loss Rule does not apply because paragraph 141(f) of the Original Petition requests actual damages, exemplary damages, punitive damages and other relief the Court deems just and proper-all outside contractual damages. Medistar argues that it has adequately pleaded a claim against the insurance company Defendants for violations of the DTPA, breach of the duty of good faith and unfair dealing, Chapter 542, and breach of contract.

Court’s Ruling

*10 Because the motion to remand must be decided on the basis of the pleadings at the time of removal, and not on any subsequent existing or proposed post-removal amendment, and because that pleading determines this Court’s jurisdiction, the Court addresses the remand issues first, separately from the motions to dismiss.

As a matter of law in Texas, since Medistar has no contractual or special relationship with Nelson, Medistar fails to state a claim agsinst Nelson for tortious interference with contract and for conspiracy to defraud relating to Nelson’s alleged improper negligent investigation of the insurance claims and manipulation of its reports to limit Medistar’s recovery on its claim against the insurance company Defendants.

In Natividad v. Alexsis, Inc., 875 S.W.2d 695, 698 ( Tex.1994), the Texas Supreme Court held that in the insurance context because the duty of good faith and fair dealing arises only from a contract giving rise to a special relationship as a result of unequal bargaining power between the parties to the insurance contract, where there is no privity of contract, as with an independent adjusting firm hired by the insurer, the adjusting firm did not owe an insured such a duty and therefore could not be liable for a breach of that duty. The duty of good faith and fair dealing is non-delegable. Id. Therefore the Texas Supreme Court concluded that the insurer “remains liable for actions by its employees, agents or contractors that breached the duty of good faith and fair dealing owed to” the insured by the insurer. Id. at 698 & n. 7 (“The insurance companies must answer for the ‘sins’ of their agents.”)

Relying on the rationale in Navidad, the Fifth Circuit in Bui v. St. Paul Mercury Ins. Co., 981 F.2d 209, 210 (5th Cir.1993) (applying Texas law), determined that any claim for negligent investigation brought by an insured against an independent claims adjusting firm hired by the insurer must fail as a matter of law. Subsequently that rule was expanded by the Dallas Court of Appeals in Dear, which found the independent adjusting firm “established its status as Scottsdale’s agent” to cover allegations of improper investigation and settlement advice regardless of whether the plaintiff framed his allegations as negligence, bad faith, breach of contract, tortious interference with contract, or DTPA violations. Dear. 947 S.W.2d at 917.

In the much-cited Dagley action, 18 S.W.3d 787, charging wrongful denial of insurance claims, the plaintiffs alleged that Haag Engineering Company, an independent engineering firm hired by insurer State Farm to evaluate hail storm damage, was liable for negligence, conspiracy, tortious interference, violations of the DTPA and the Texas Insurance Code. The appellate court, in affirming a summary judgment’s dismissal of the tortious interference claim inter alia, concluded, “[A]bsent a special relationship, Haag cannot be held liable for tortious interference.” 18 S.W.3d at 794, citing Dear, 947 S.W.2d at 917. In Dear, the Court reasoned that the defendant independent adjuster was retained and paid for by the insurer, had never entered into a contract with the insured, had no duty to the insured, had performed its role as an independent adjusting firm, and therefore was an agent or independent contractor of the insurance company. Id. at 791 & n. 3, citing Dear, 947 S.W. at 917. Moreover the Fourteenth Court of Appeals also affirmed the trial court’s summary judgment dismissing the claim that State Farm and Haag conspired in their investigation of the plaintiffs’ claims in an attempt to deny them the insurance benefits rightfully due them:

“The mere agreement to resist a claim, however, is not an actionable civil conspiracy,” Massey v. Armco Steel Co., 652 S.W.2d 932, 934 ( Tex.1983). For liability to attach there must be an unlawful, overt act to support a conspiracy. See id. We cannot conclude that submitting a report to State Farm with the conclusion that there was no hail storm damage to appellants’ home is an unlawful, overt act to support a conspiracy. Moreover, having found that Haag is not liable to appellants on their other claims, Haag cannot be liable for conspiracy.

18 S.W.3d at 795.

Thus the only remaining claim against Nelson is for fraud. Because the Original Petition was drafted in Texas state court, it was subject only to the requirements for adequate pleading under state law. There is no counterpart to Federal Rule 9(b) in the Texas Rules of Civil Procedure for pleading fraud. Nor has Texas followed Twombly. Instead Texas Rule of Civil Procedure 45(b) states that in the district and county courts the petition should “consist of a statement in plain and concise language of the plaintiff’s cause of action …. That an allegation be evidentiary or be of legal conclusion shall not be grounds for objection when fair notice to the opponent is given by the allegations as a whole.” Rule 47 also requires only notice pleading:

An original pleading which sets forth a claim for relief whether an original petition, counterclaim, cross-claim, or third party claim, shall contain

(a) a short statement of the cause of action sufficient to give fair notice of the claim involved,

(b) in all claims for unliquidated damages only the statement that the damages sought are within the jurisdictional limits of the court, and

“A pleading provides sufficient fair notice of the claim involved when ‘an opposing attorney of reasonable competence could examine the pleadings and ascertain the nature and basic issue of the controversy and the relevant testimony.’ ” UMLIC VP LLV v. T & M Sales and Environmental Systems, 176 S.W.3d 595 (Tex.App.-Corpus Christi 2005) (citation omitted). “The pleadings must be sufficiently adequate so the court is able, from an examination of the pleadings alone, to ascertain with reasonable certainty and without resorting to information from another source, the elements of a plaintiff’s cause of action and relief sought with sufficient information upon which to base a judgment. Id., citing Tone v. Lawyers Title Ins. Corp., 578 S.W.2d 679, 683 ( Tex.1979). The petition must be liberally construed in favor of the pleader. Id., citing Stone v. Lawyers Title Ins. Corp., 554 S.W.2d 183, 186 ( Tex.1977). “ ‘The court will look to the pleader’s intendment’ and uphold the pleading as to a cause of action even if some element of that cause of action has not been specifically alleged.” Id., citing Gulf, C. & S.F. Ry. Co. v. Bliss, 368 S.W.2d 594, 599 ( Tex.1963), and Boyles v. Kerr, 855 S.W.2d 593, 601 ( Tex.1993). “ ‘Every fact will be supplied that can reasonably be inferred from what is specifically stated.’ ” Id., citing Bliss, 368 S.W.2d at 599. “ ‘Mere formalities, minor defects and technical insufficiencies’ will not invalidate a cause of action in a petition so long as the pleading gives fair notice to the opposing party.” Id., citing Stoner, 578 S.W.2d at 683.

Because Nelson was not a party to any contract with Medistar, Medistar cannot assert a claim against Nelson for breach of contract or any cause of action that arises out of a contract.FN10 To be viable, its claim for fraud against Nelson must be independent of the contract. Because there are essentially no facts, but only vague and conclusory statements regarding Medistar’s fraud claim, a summary judgment-type inquiry is required to determine who said or wrote what, where, and when and facts demonstrating reliance on those particular representations by Medistar. Frisby v. Lumbermens Mut. Cas. Co., 500 F.Supp.2d 697, 699 (S.D.Tex.2007), citing Smallwood, 385 F.3d at 573. At present it appears to the Court that Medistar would have difficulty showing that it relied on Nelson’s allegedly erroneous reports since it contends that they were incorrect, but it will give Medistar an opportunity to state supporting facts if it has any.

FN10. For this reason the Economic Loss Rule does not apply to the fraud claim.

Accordingly, the Court

ORDERS Medistar to submit within twenty days either an affidavit or a deposition of someone with personal knowledge who can provide the necessary supporting facts satisfying Fifth Circuit pleading standards FN11 to support the elements of its fraud claim FN12 against Nelson. Defendants may file responses within ten days after Medistar submits its summary judgment-type evidence. The Court reminds the parties that such inquiry will be limited to identifying “discrete and undisputed facts that would bar a plaintiffs’ recovery against an in-state defendant; anything more risks ‘moving the court beyond jurisdiction and into the resolution of the merits ….’ ” Smallwood, 385 F.3d at 573-74. The Court defers ruling on the motions to dismiss until the motion to remand has been resolved.

FN11. The Fifth Circuit has ruled, “State law fraud claims are subject to the heightened pleading requirements of Rule 9(b). To plead fraud adequately, the plaintiff must ‘specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent.’ ” Sullivan v. Leor Energy, LLC., 600 F.3d 542d, 550-51 (5th Cir.2010), citing Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 338-39 (5th Cir.2008), and ABC Arbitrage v. Tchuruk, 291 F.3d 336, 350 (5th Cir.2002).

FN12. The elements of common law fraud are (1) a material representation was made; (2) the representation was false; (3) when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury. Allstate Ins. Co. v. Receivable Finance Co., L.L.C., 501 F.3d 398, 406 (5th Cir.2007), citing In re First Merit Bank, N.A., 52 S.W.3d 749, 758 ( Tex.2001).

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.

Jul 21st, 2015 Contracts and Commercial Litigation, Insurance Defense Litigation

Statutory Durable Power of Attorney–Texas Law

STATUTORY DURABLE POWER OF ATTORNEY
NOTICE: THE POWERS GRANTED BY THIS DOCUMENT ARE BROAD AND SWEEPING. THEY ARE EXPLAINED IN THE DURABLE POWER OF ATTORNEY ACT, CHAPTER XII, TEXAS PROBATE CODE. IF YOU HAVE ANY QUESTIONS ABOUT THESE POWERS, OBTAIN COMPETENT LEGAL ADVICE. THIS DOCUMENT DOES NOT AUTHORIZE ANYONE TO MAKE MEDICAL AND OTHER HEALTH-CARE DECISIONS FOR YOU. YOU MAY REVOKE THIS POWER OF ATTORNEY IF YOU LATER WISH TO DO SO.
I, ______[ (also known as)/” (also known as )”/” (also ], my address being ______, ______, ______ ______, appoint [my wife, , whose address is ~, ], as my agent[s] (hereinafter[ jointly/” jointly”] referred to as “agent”) to act for me in any lawful way with respect to all of the following powers except for a power that I have crossed out below.

TO WITHHOLD A POWER, YOU MUST CROSS OUT EACH POWER WITHHELD.

Real property transactions;
Tangible personal property transactions;
Stock and bond transactions;
Commodity and option transactions;
Banking and other financial institution transactions;
Business operating transactions;
Insurance and annuity transactions;
Estate, trust and other beneficiary transactions;
Claims and litigation;
Personal and family maintenance;
Benefits from social security, Medicare, Medicaid, or other governmental programs or civil or military service;
Retirement plan transactions;
Tax matters.
IF NO POWER LISTED ABOVE IS CROSSED OUT, THIS DOCUMENT SHALL BE CONSTRUED AND INTERPRETED AS A GENERAL POWER OF ATTORNEY, AND MY AGENT SHALL HAVE THE POWER AND AUTHORITY TO PERFORM OR UNDERTAKE ANY ACTION I COULD PERFORM OR UNDERTAKE IF I WERE PERSONALLY PRESENT.

SPECIAL INSTRUCTIONS:

Special instructions applicable to gifts (initial in front of the following sentence to have it apply):

________ I grant my agent the power to apply my property to make gifts, except that the amount of a gift to an individual may not exceed the amount of annual exclusions allowed from the federal gift tax for the calendar year of the gift.

ON THE FOLLOWING LINES YOU MAY GIVE SPECIAL INSTRUCTIONS LIMITING OR EXTENDING THE POWERS GRANTED TO YOUR AGENT.

*[ None.

]**[ In addition to the powers granted above, I grant to my agent all of the following powers:*[

(A) If I have initialed the line above granting my agent the power to apply my property to make gifts, then in addition to such power, I further grant to my agent the power to make gifts of any of my property to or to pay amounts on behalf of (including transfers which are made outright, in trust or otherwise) any one or more of my descendants (including my agent, if my agent is a descendant of mine) or to any charitable organization to which deductible gifts may be made under the income and gift tax provisions of the Internal Revenue Code of 1986, as amended, (the “Code”) if, in the opinion of my agent, such gifts would reduce income, estate, generation skipping transfer or state inheritance taxes. Such gifts or amounts paid to my descendants shall include those which are excludible under Section 2503(b) or Section 2503(e) of the Code or those to which the split gift provisions of Section 2513 of the Code are expected to apply. Nothing herein shall be construed to require any court action whatsoever prior to making such gifts, nor to restrict such gifts to a situation in which it must be determined that I will remain incompetent for the remainder of my lifetime. Notwithstanding the foregoing, the gifts made by a person who is serving as my agent under this instrument to himself or herself shall not exceed in the aggregate for any calendar year the greater of five thousand dollars ($5,000) or five percent (5%) of the fair market value of my estate (for U.S. gift tax purposes) as of December 31st of such calendar year.]**[

(B) The power to take legal action to compel third parties to recognize the validity of this instrument, and the power to sue for damages, both punitive and actual, in the case of a refusal by a third party to honor this power.]**[

(C) To create for me (and with my wife as to any property owned by my wife or in which my wife has any interest which may be transferred) one or more revocable trusts (referred to as a “grantor trust”) of which I am an income beneficiary and with such person or persons as my agents shall select as the Trustee or Co-Trustees (including my agents or any corporate trustee having capital and surplus at the time of its appointment in excess of $10,000,000.00), without bond or other security, and with such other terms and provisions as my agent shall deem appropriate, including, but not limited to, provisions to minimize or eliminate any death or transfer taxes which may be imposed on my estate, any grantor trust, any beneficiary of my estate or any beneficiary of any grantor trust, and to grant to the Trustee or Co-Trustees of any grantor trust any one or more of the powers granted to a trustee under the Texas Trust Code, as amended, provided that I retain the power to revoke any grantor trust, in whole or in part at any time or I have a general power of appointment over the assets of such trust; and further provided that at my death the assets of any grantor trust which would have constituted my community property if such assets had not been transferred to such grantor trust, together with all of such assets which would have constituted any separate property if such assets had not been transferred to such grantor trust shall pass to the beneficiary or beneficiaries or Trustee or Trustees named in such grantor trust, or if there is no person named in such grantor trust to whom such assets shall pass, then such assets shall be delivered to the personal representative of my estate.]**[

(D) The power to exercise my rights to manage the community estate of my wife and myself if I am married at such time (which power shall be presumptively exercised to its fullest extent unless otherwise provided), and the power to enter into partition or other marital agreements between my wife and me.]**[

(E) The power to make, execute and deliver oil, gas and mineral leases upon all lands and mineral interests owned or claimed by me, wheresoever located, to such persons and upon such terms and conditions as my agent may deem advisable. Such oil, gas and mineral leases may be for such duration and contain such warranties of title, pooling and unitization provisions, and other special clauses as my agent may agree to upon my behalf. This power shall include the right to negotiate and contract for the sale of any such oil, gas and mineral lease or leases. I also give my agent the power and authority to execute pooling or unitization agreements affecting any oil, gas or other mineral rights or interests owned or claimed by me, whether mineral fee interests, royalty interests or leasehold interests, so as to pool and combine any such interest or interests with the interests of others in the same or other lands, such agreements to be upon such terms and conditions and to contain such authorizations as my agent may deem advisable.]**[

(F) The power to appoint or substitute one or more agents to serve as my agent under this power of attorney; provided, however, such power shall be exercisable only by the then-serving agent (or if more than one agent is serving, by all such agents acting unanimously), and any such appointment or substitution shall override other provisions contained herein which may attempt to name one or more successor agents. Any such appointment or substitution may be revoked by me or my agent at any time and for any reason, and such appointment or substitution shall not terminate upon the death, disability, incapacity or resignation of my agent. Any such appointment or substitution shall be evidenced by acknowledged written instrument.]**[

(G) In addition to the powers enumerated above, I hereby give and grant unto my said agent[s] full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done, as fully, to all intents and purposes, as I might or could do if personally present, hereby ratifying and confirming whatsoever my said agent[s] shall and may do by virtue hereof; provided, however, and notwithstanding the foregoing, if I have deleted a particular power or several powers on page one of this power of attorney, then my agent shall not have such power or powers by virtue of the power and authority conferred by this sentence.]*

]* UNLESS YOU DIRECT OTHERWISE HEREIN, THIS POWER OF ATTORNEY IS EFFECTIVE IMMEDIATELY AND WILL CONTINUE UNTIL IT IS REVOKED.*[

This power of attorney is effective immediately and is not affected by my subsequent disability or incapacity.]**[

This power of attorney becomes effective upon my disability or incapacity. I shall be considered disabled or incapacitated for purposes of this power of attorney if a physician certifies in writing at a date later than the date this power of attorney is executed that, based on the physician’s medical examination of me, I am mentally incapable of managing my financial affairs. I authorize the physician who examines me for this purpose to disclose my physical or mental condition to another person for purposes of this power of attorney. A third party who accepts this power of attorney is fully protected from any action taken under this power of attorney that is based on the determination made by a physician of my disability or incapacity.]**[

CHOOSE ONE OF THE FOLLOWING ALTERNATIVES BY CROSSING OUT THE ALTERNATIVE NOT CHOSEN:

(A) Effective Immediately: This power of attorney is effective immediately and is not affected by my subsequent disability or incapacity.

(B) Effective Upon Disability or Incapacity: This power of attorney becomes effective upon my disability or incapacity.

YOU SHOULD CHOOSE ALTERNATIVE (A) IF THIS POWER OF ATTORNEY IS TO BECOME EFFECTIVE ON THE DATE IT IS EXECUTED. IF NEITHER (A) NOR (B) IS CROSSED OUT, IT WILL BE ASSUMED THAT YOU CHOSE ALTERNATIVE (A).

If Alternative (B) is chosen, I shall be considered disabled or incapacitated for purposes of this power of attorney if a physician certifies in writing at a date later than the date this power of attorney is executed that, based on the physician’s medical examination of me, I am mentally incapable of managing my financial affairs. I authorize the physician who examines me for this purpose to disclose my physical or mental condition to another person for purposes of this power of attorney. A third party who accepts this power of attorney is fully protected from any action taken under this power of attorney that is based on the determination made by a physician of my disability or incapacity.]*

I agree that any third party who receives a copy of this document may act under it. Revocation of the durable power of attorney is not effective as to a third party until the third party receives actual notice of the revocation. I agree to indemnify the third party for any claims that arise against the third party because of reliance on this power of attorney.*[

If[ both] [~P0002/”~P0002V”][ all] [dies, becomes legally disabled, resigns, or refuses/”dies, b] to act, I appoint [my wife, ~P0002/”my wife, ~P0002V”/”~P1110V”/”my father, ~P1] as my agent[s] (referred to[ jointly/” jointly”] herein as “agent”).*[ If[ both] [~P0002/”~P0002V”][ all] [dies, becomes legally disabled, resigns, or refuses/”dies, b] to act, I appoint [my wife, ~P0002/”my wife, ~P0002V”/”~P1120V”/”my father, ~P1] as my agent[s] (referred to[ jointly/” jointly”] herein as “agent”).*[ If[ both] [~P0002/”~P0002V”][ all] [dies, becomes legally disabled, resigns, or refuses/”dies, b] to act, I appoint [my wife, ~P0002/”my wife, ~P0002V”/”~P1130V”/”my father, ~P1] as my agent[s] (referred to[ jointly/” jointly”] herein as “agent”).]*
Signed on _________________________, [19___/”19___”/1995/1996].

______

THE STATE OF TEXAS §
§
COUNTY OF ______ §

This document was acknowledged before me on _________________________, [19___/”19___”/1995/1996] by ______, Principal.

NOTARY PUBLIC IN AND FOR
THE STATE OF T E X A S

Notary’s printed name:
My commission expires:
THE ATTORNEY IN FACT OR AGENT, BY ACCEPTING OR ACTING UNDER THE APPOINTMENT, ASSUMES THE FIDUCIARY AND OTHER LEGAL RESPONSIBILITIES OF AN AGENT.

AFTER RECORDING RETURN TO:

______
Texas Probate Code Sections 491 – 505
§ 491. Construction of Powers Generally

The principal, by executing a statutory durable power of attorney that confers authority with respect to any class of transactions, empowers the attorney in fact or agent for that class of transactions to:
(1) demand, receive, and obtain by litigation, action, or otherwise any money or other thing of value to which the principal is, may become, or may claim to be entitled;
(2) conserve, invest, disburse, or use any money or other thing of value received on behalf of the principal for the purposes intended;
(3) contract in any manner with any person, on terms agreeable to the attorney in fact or agent, to accomplish a purpose of a transaction and perform, rescind, reform, release, or modify the contract or another contract made by or on behalf of the principal;
(4) execute, acknowledge, seal, and deliver a deed, revocation, mortgage, lease, notice, check, release, or other instrument the agent considers desirable to accomplish a purpose of a transaction;
(5) prosecute, defend, submit to arbitration, settle, and propose or accept a compromise with respect to a claim existing in favor of or against the principal or intervene in an action or litigation relating to the claim;
(6) seek on the principal’s behalf the assistance of a court to carry out an act authorized by the power of attorney;
(7) engage, compensate, and discharge an attorney, accountant, expert witness, or other assistant;
(8) keep appropriate records of each transaction, including an accounting of receipts and disbursements;
(9) prepare, execute, and file a record, report, or other document the attorney in fact or agent considers necessary or desirable to safeguard or promote the principal’s interest under a statute or governmental regulation;
(10) reimburse the attorney in fact or agent for expenditures made in exercising the powers granted by the durable power of attorney; and
(11) in general, do any other lawful act that the principal may do with respect to a transaction.

§ 492. Construction of Power Relating to Real Property Transactions

In a statutory durable power of attorney, the language conferring authority with respect to real property transactions empowers the attorney in fact or agent without further reference to a specific description of the real property to:
(1) accept as a gift or as security for a loan or reject, demand, buy, lease, receive, or otherwise acquire an interest in real property or a right incident to real property;
(2) sell, exchange, convey with or without covenants, quitclaim, release, surrender, mortgage, encumber, partition, consent to partitioning, subdivide, apply for zoning, rezoning, or other governmental permits, plat or consent to platting, develop, grant options concerning, lease or sublet, or otherwise dispose of an estate or interest in real property or a right incident to real property;
(3) release, assign, satisfy, and enforce by litigation, action, or otherwise a mortgage, deed of trust, encumbrance, lien, or other claim to real property that exists or is claimed to exist;
(4) do any act of management or of conservation with respect to an interest in real property, or a right incident to real property, owned or claimed to be owned by the principal, including power to:
(A) insure against a casualty, liability, or loss;
(B) obtain or regain possession or protect the interest or right by litigation, action, or otherwise;
(C) pay, compromise, or contest taxes or assessments or apply for and receive refunds in connection with them; and
(D) purchase supplies, hire assistance or labor, or make repairs or alterations in the real property;
(5) use, develop, alter, replace, remove, erect, or install structures or other improvements on real property in which the principal has or claims to have an estate, interest, or right;
(6) participate in a reorganization with respect to real property or a legal entity that owns an interest in or right incident to real property, receive and hold shares of stock or obligations received in a plan or reorganization, and act with respect to the shares or obligations, including:
(A) selling or otherwise disposing of the shares or obligations;
(B) exercising or selling an option, conversion, or similar right with respect to the shares or obligations; and
(C) voting the shares or obligations in person or by proxy;
(7) change the form of title of an interest in or right incident to real property; and
(8) dedicate easements or other real property in which the principal has or claims to have an interest to public use, with or without consideration.
§ 493. Construction of Power Relating to Tangible Personal Property Transactions

In a statutory durable power of attorney, the language conferring general authority with respect to tangible personal property transactions empowers the attorney in fact or agent to:
(1) accept as a gift or as security for a loan, reject, demand, buy, receive, or otherwise acquire ownership or possession of tangible personal property or an interest in tangible personal property;
(2) sell, exchange, convey with or without covenants, release, surrender, mortgage, encumber, pledge, hypothecate, create a security interest in, pawn, grant options concerning, lease or sublet to others, or otherwise dispose of tangible personal property or an interest in tangible personal property;
(3) release, assign, satisfy, or enforce by litigation, action, or otherwise a mortgage, security interest, encumbrance, lien, or other claim on behalf of the principal, with respect to tangible personal property or an interest in tangible personal property; and
(4) do an act of management or conservation with respect to tangible personal property or an interest in tangible personal property on behalf of the principal, including:
(A) insuring against casualty, liability, or loss;
(B) obtaining or regaining possession or protecting the property or interest by litigation, action, or otherwise;
(C) paying, compromising, or contesting taxes or assessments or applying for and receiving refunds in connection with taxes or assessments;
(D) moving from place to place;
(E) storing for hire or on a gratuitous bailment; and
(F) using, altering, and making repairs or alterations.
§ 494. Construction of Power Relating to Stock and Bond Transactions

In a statutory durable power of attorney, the language conferring authority with respect to stock and bond transactions empowers the attorney in fact or agent to buy, sell, and exchange stocks, bonds, mutual funds, and all other types of securities and financial instruments other than commodity futures contracts and call and put options on stocks and stock indexes, receive certificates and other evidences of ownership with respect to securities, exercise voting rights with respect to securities in person or by proxy, enter into voting trusts, and consent to limitations on the right to vote.
§ 495. Construction of Power Relating to Commodity and Option Transactions

In a statutory durable power of attorney, the language conferring authority with respect to commodity and option transactions empowers the attorney in fact or agent to buy, sell, exchange, assign, settle, and exercise commodity futures contracts and call and put options on stocks and stock indexes traded on a regulated options exchange and establish, continue, modify, or terminate option accounts with a broker.

§ 496. Construction of Power Relating to Banking and Other Financial Institution Transactions

In a statutory durable power of attorney, the language conferring authority with respect to banking and other financial institution transactions empowers the attorney in fact or agent to:
(1) continue, modify, or terminate an account or other banking arrangement made by or on behalf of the principal;
(2) establish, modify, or terminate an account or other banking arrangement with a bank, trust company, savings and loan association, credit union, thrift company, brokerage firm, or other financial institution selected by the attorney in fact or agent;
(3) hire a safe deposit box or space in a vault;
(4) contract to procure other services available from a financial institution as the attorney in fact or agent considers desirable;
(5) withdraw by check, order, or otherwise money or property of the principal deposited with or left in the custody of a financial institution;
(6) receive bank statements, vouchers, notices, or similar documents from a financial institution and act with respect to them;
(7) enter a safe deposit box or vault and withdraw or add to the contents;
(8) borrow money at an interest rate agreeable to the attorney in fact or agent and pledge as security real or personal property of the principal necessary to borrow, pay, renew, or extend the time of payment of a debt of the principal;
(9) make, assign, draw, endorse, discount, guarantee, and negotiate promissory notes, bills of exchange, checks, drafts, or other negotiable or nonnegotiable paper of the principal, or payable to the principal or the principal’s order, to receive the cash or other proceeds of those transactions, to accept a draft drawn by a person on the principal, and to pay the principal when due;
(10) receive for the principal and act on a sight draft, warehouse receipt, or other negotiable or nonnegotiable instrument;
(11) apply for and receive letters of credit, credit cards, and traveler’s checks from a financial institution and give an indemnity or other agreement in connection with letters of credit; and
(12) consent to an extension of the time of payment with respect to commercial paper or a financial transaction with a financial institution.
§ 497. Construction of Power Relating to Business Operation Transactions

In a statutory durable power of attorney, the language conferring authority with respect to business operating transactions empowers the attorney in fact or agent to:
(1) operate, buy, sell, enlarge, reduce, or terminate a business interest;
(2) to the extent that an agent is permitted by law to act for a principal and subject to the terms of the partnership agreement:
(A) perform a duty or discharge a liability or exercise a right, power, privilege, or option that the principal has, may have, or claims to have under a partnership agreement, whether or not the principal is a general or limited partner;
(B) enforce the terms of a partnership agreement by litigation, action, or otherwise; and
(C) defend, submit to arbitration, settle, or compromise litigation or an action to which the principal is a party because of membership in the partnership;
(3) exercise in person or by proxy or enforce by litigation, action, or otherwise a right, power, privilege, or option the principal has or claims to have as the holder of a bond, share, or other instrument of similar character and defend, submit to arbitration, settle, or compromise a legal proceeding to which the principal is a party because of a bond, share, or similar instrument;
(4) with respect to a business owned solely by the principal:
(A) continue, modify, renegotiate, extend, and terminate a contract made with an individual or a legal entity, firm, association, or corporation by or on behalf of the principal with respect to the business before execution of the power of attorney;
(B) determine:
(i) the location of its operation;
(ii) the nature and extent of its business;
(iii) the methods of manufacturing, selling, merchandising, financing, accounting, and advertising employed in its operation;
(iv) the amount and types of insurance carried; and
(v) the mode of engaging, compensating, and dealing with its accountants, attorneys, and other agents and employees;
(C) change the name or form of organization under which the business is operated and enter into a partnership agreement with other persons or organize a corporation to take over all or part of the operation of the business; and
(D) demand and receive money due or claimed by the principal or on the principal’s behalf in the operation of the business and control and disburse the money in the operation of the business;
(5) put additional capital into a business in which the principal has an interest;
(6) join in a plan of reorganization, consolidation, or merger of the business;
(7) sell or liquidate a business or part of it at the time and on the terms that the attorney in fact or agent considers desirable;
(8) establish the value of a business under a buy-out agreement to which the principal is a party;
(9) prepare, sign, file, and deliver reports, compilations of information, returns, or other papers with respect to a business that are required by a governmental agency, department, or instrumentality or that the attorney in fact or agent considers desirable and make related payments; and
(10) pay, compromise, or contest taxes or assessments and do any other act that the attorney in fact or agent considers desirable to protect the principal from illegal or unnecessary taxation, fines, penalties, or assessments with respect to a business, including attempts to recover, in any manner permitted by law, money paid before or after the execution of the power of attorney.
§ 498. Construction of Power Relating to Insurance Transactions

In a statutory durable power of attorney, the language conferring authority with respect to insurance and annuity transactions empowers the attorney in fact or agent to:
(1) continue, pay the premium or assessment on, modify, rescind, release, or terminate a contract procured by or on behalf of the principal that insures or provides an annuity to either the principal or another person, whether or not the principal is a beneficiary under the contract;
(2) procure new, different, or additional contracts of insurance and annuities for the principal or the principal’s spouse, children, and other dependents and select the amount, type of insurance or annuity, and mode of payment;
(3) pay the premium or assessment on or modify, rescind, release, or terminate a contract of insurance or annuity procured by the attorney in fact or agent;
(4) designate the beneficiary of the contract, except that an attorney in fact or agent may be named a beneficiary of the contract or an extension, renewal, or substitute for the contract only to the extent the attorney in fact or agent was named as a beneficiary under a contract procured by the principal before executing the power of attorney;
(5) apply for and receive a loan on the security of the contract of insurance or annuity;
(6) surrender and receive the cash surrender value;
(7) exercise an election;
(8) change the manner of paying premiums;
(9) change or convert the type of insurance contract or annuity with respect to which the principal has or claims to have a power described in this section;
(10) change the beneficiary of a contract of insurance or annuity, except that the attorney in fact or agent may be designated a beneficiary only to the extent authorized by Subdivision (4) of this section;
(11) apply for and procure government aid to guarantee or pay premiums of a contract of insurance on the life of the principal;
(12) collect, sell, assign, hypothecate, borrow on, or pledge the interest of the principal in a contract of insurance or annuity; and
(13) pay from proceeds or otherwise, compromise or contest, or apply for refunds in connection with a tax or assessment levied by a taxing authority with respect to a contract of insurance or annuity or its proceeds or liability accruing because of the tax or assessment.
§ 499. Construction of Power Relating to Estate, Trust, and Other Beneficiary Transactions

In a statutory durable power of attorney, the language conferring authority with respect to estate, trust, and other beneficiary transactions empowers the attorney in fact or agent to act for the principal in all matters that affect a trust, probate estate, guardianship, conservatorship, escrow, custodianship, or other fund from which the principal is, may become, or claims to be entitled, as a beneficiary, to a share or payment, including to:
(1) accept, reject, disclaim, receive, receipt for, sell, assign, release, pledge, exchange, or consent to a reduction in or modification of a share in or payment from the fund;
(2) demand or obtain by litigation, action, or otherwise money or any other thing of value to which the principal is, may become, or claims to be entitled because of the fund;
(3) initiate, participate in, or oppose a legal or judicial proceeding to ascertain the meaning, validity, or effect of a deed, will, declaration of trust, or other instrument or transaction affecting the interest of the principal;
(4) initiate, participate in, or oppose a legal or judicial proceeding to remove, substitute, or surcharge a fiduciary;
(5) conserve, invest, disburse, or use anything received for an authorized purpose; and
(6) transfer all or part of an interest of the principal in real property, stocks, bonds, accounts with financial institutions, insurance, and other property to the trustee of a revocable trust created by the principal as settlor.
§ 500. Construction of Power Relating to Claims and Litigation

In a statutory durable power of attorney, the language conferring general authority with respect to claims and litigation empowers the attorney in fact or agent to:
(1) assert and prosecute before a court or administrative agency a claim, a claim for relief, a counterclaim, or an offset or defend against an individual, a legal entity, or a government, including suits to recover property or other thing of value, to recover damages sustained by the principal, to eliminate or modify tax liability, or to seek an injunction, specific performance, or other relief;
(2) bring an action to determine adverse claims, intervene in an action or litigation, and act as amicus curiae;
(3) in connection with an action or litigation, procure an attachment, garnishment, libel, order of arrest, or other preliminary, provisional, or intermediate relief and use an available procedure to effect or satisfy a judgment, order, or decree;
(4) in connection with an action or litigation, perform any lawful act the principal could perform, including acceptance of tender, offer of judgment, admission of facts, submission of a controversy on an agreed statement of facts, consent to examination before trial, and binding of the principal in litigation;
(5) submit to arbitration, settle, and propose or accept a compromise with respect to a claim or litigation;
(6) waive the issuance and service of process on the principal, accept service of process, appear for the principal, designate persons on whom process directed to the principal may be served, execute and file or deliver stipulations on the principal’s behalf, verify pleadings, seek appellate review, procure and give surety and indemnity bonds, contract and pay for the preparation and printing of records and briefs, or receive and execute and file or deliver a consent, waiver, release, confession of judgment, satisfaction of judgment, notice, agreement, or other instrument in connection with the prosecution, settlement, or defense of a claim or litigation;
(7) act for the principal with respect to bankruptcy or insolvency proceedings, whether voluntary or involuntary, concerning the principal or some other person, with respect to a reorganization proceeding or a receivership or application for the appointment of a receiver or trustee that affects an interest of the principal in real or personal property or other thing of value; and
(8) pay a judgment against the principal or a settlement made in connection with a claim or litigation and receive and conserve money or other thing of value paid in settlement of or as proceeds of a claim or litigation.
§ 501. Construction of Power Relating to Personal and Family Maintenance

In a statutory durable power of attorney, the language conferring authority with respect to personal and family maintenance empowers the attorney in fact or agent to:
(1) perform the acts necessary to maintain the customary standard of living of the principal, the principal’s spouse and children, and other individuals customarily or legally entitled to be supported by the principal, including providing living quarters by purchase, lease, or other contract, or paying the operating costs, including interest, amortization payments, repairs, and taxes on premises owned by the principal and occupied by those individuals;
(2) provide for the individuals described by Subdivision (1) of this section normal domestic help, usual vacations and travel expenses, and funds for shelter, clothing, food, appropriate education, and other current living costs;
(3) pay necessary medical, dental, and surgical care, hospitalization, and custodial care for the individuals described by Subdivision (1) of this section;
(4) continue any provision made by the principal, for the individuals described by Subdivision (1) of this section, for automobiles or other means of transportation, including registering, licensing, insuring, and replacing the automobiles or other means of transportation;
(5) maintain or open charge accounts for the convenience of the individuals described by Subdivision (1) of this section and open new accounts the attorney in fact or agent considers desirable to accomplish a lawful purpose; and

(6) continue payments incidental to the membership or affiliation of the principal in a church, club, society, order, or other organization or to continue contributions to those organizations.
§ 502. Construction of Power Relating to Benefits From Certain Governmental Programs or Civil or Military Service

In a statutory durable power of attorney, the language conferring authority with respect to benefits from social security, Medicare, Medicaid, or other governmental programs or civil or military service empowers the attorney in fact or agent to:
(1) execute vouchers in the name of the principal for allowances and reimbursements payable by the United States, a foreign government, or a state or subdivision of a state to the principal, including allowances and reimbursements for transportation of the individuals described by Section 501(1) of this code, and for shipment of their household effects;
(2) take possession and order the removal and shipment of property of the principal from a post, warehouse, depot, dock, or other place of storage or safekeeping, either governmental or private, and execute and deliver a release, voucher, receipt, bill of lading, shipping ticket, certificate, or other instrument for that purpose;
(3) prepare, file, and prosecute a claim of the principal to a benefit or assistance, financial or otherwise, to which the principal claims to be entitled under a statute or governmental regulation;
(4) prosecute, defend, submit to arbitration, settle, and propose or accept a compromise with respect to any benefits the principal may be entitled to receive; and
(5) receive the financial proceeds of a claim of the type described in this section and conserve, invest, disburse, or use anything received for a lawful purpose.

§ 503. Construction of Power Relating to Retirement Plan Transactions

(a) In a statutory durable power of attorney, the language conferring authority with respect to retirement plan transactions empowers the attorney in fact or agent to do any lawful act the principal may do with respect to a transaction relating to a retirement plan, including to:
(1) apply for service or disability retirement benefits;
(2) select payment options under any retirement plan in which the principal participates, including plans for self-employed individuals;
(3) designate or change the designation of a beneficiary or benefits payable by a retirement plan, except that an attorney in fact or agent may be named a beneficiary only to the extent the attorney in fact or agent was a named beneficiary under the retirement plan before the durable power of attorney was executed;
(4) make voluntary contributions to retirement plans if authorized by the plan;
(5) exercise the investment powers available under any self-directed retirement plan;
(6) make “rollovers” of plan benefits into other retirement plans;
(7) borrow from, sell assets to, and purchase assets from retirement plans if authorized by the plan;
(8) waive the right of the principal to be a beneficiary of a joint or survivor annuity if the principal is a spouse who is not employed;
(9) receive, endorse, and cash payments from a retirement plan;
(10) waive the right of the principal to receive all or a portion of benefits payable by a retirement plan; and
(11) request and receive information relating to the principal from retirement plan records.
(b) In this section, “retirement plan” means:
(1) an employee pension benefit plan as defined by Section 1002, Employee Retirement Income Security Act of 1974 (ERISA), without regard to the provisions of Section (2)(B) of that section;
(2) a plan that does not meet the definition of an employee benefit plan under ERISA because the plan does not cover common law employees;
(3) a plan that is similar to an employee benefit plan under ERISA, regardless of whether it is covered by Title I of ERISA, including a plan that provides death benefits to the beneficiary of employees; and
(4) an individual retirement account or annuity or a self-employed pension plan or similar plan or account.
§ 504. Construction of Power Relating to Tax Matters

In a statutory durable power of attorney, the language conferring authority with respect to tax matters empowers the attorney in fact or agent to:
(1) prepare, sign, and file federal, state, local, and foreign income, gift, payroll, Federal Insurance Contributions Act, and other tax returns, claims for refunds, requests for extension of time, petitions regarding tax matters, and any other tax-related documents, including receipts, offers, waivers, consents, including consents and agreements under Section 2032A, Internal Revenue Code of 1986 (26 U.S.C. Section 2032A), closing agreements, and any power of attorney form required by the Internal Revenue Service or other taxing authority with respect to a tax year on which the statute of limitations has not run and 25 tax years following that tax year;
(2) pay taxes due, collect refunds, post bonds, receive confidential information, and contest deficiencies determined by the Internal Revenue Service or other taxing authority;
(3) exercise any election available to the principal under federal, state, local, or foreign tax law; and
(4) act for the principal in all tax matters for all periods before the Internal Revenue Service and any other taxing authority.
§ 505. Existing Interest; Foreign Interests

The powers described in Sections 492 through 504 of this code may be exercised equally with respect to an interest the principal has at the time the durable power of attorney is executed or acquires later, whether or not the property is located in this state and whether or not the powers are exercised or the durable power of attorney is executed in this state. ______
*[______
______, [State of choice – Initial Caps] ______]*[Where to send letters]

Date: __________________
______

Re: Escrow Instructions for my Power of Attorney
and other Estate Planning Documents

To my attorneys:

As you are aware, I have recently signed an original Statutory Durable Power of Attorney (referred to herein as the “Durable Power of Attorney”) and other estate planning documents. You have agreed to hold such documents for me. Accordingly, please retain my Durable Power of Attorney together with any other original estate planning documents.

I direct that you deliver the original of my Durable Power of Attorney to the person named as my agent therein only upon the occurrence of one or more of the following:

1. Written instructions from me (and in such case, you may presume the signature on any such letter to be authentic);

2. Written certification by a physician (at a date later than the date this power of attorney is executed) that, based on that physician’s medical examination of me, I am mentally incapable of managing my own financial affairs;

3. Receipt of proof that I have disappeared or cannot be located for at least 90 days, and I am therefore unable to attend to my own financial affairs and best interests; or

4. Your determination (in your sole and absolute judgment) that I am mentally incapable of managing my financial affairs, but only if none of the other methods in 1-3 above has been satisfied.

You may deliver the originals of any other documents you are holding upon the occurrence of one or more of the following:

1. Written instructions from me (and in such case, you may presume the signature on any such letter to be authentic), in which case you shall deliver such documents to me or to the person I have designated;

2. My death, in which case you shall deliver my Will to the clerk of the court in the county in which I was a resident at the time of my death;

3. Your determination (in your sole and absolute judgment) that such documents should be delivered to the person requesting them, in which case you shall deliver such documents to such person.

I agree to all of the following conditions of your holding my original document(s): You and the law firm are under no duty to inform me or anyone named in the Durable Power of Attorney (or any of the other documents you are holding) of any change in tax, probate, trust or other applicable laws. You and the law firm will not be charged with having been informed of my death or any person named in any such documents unless and until written notification of that fact has been given to you by a person who is interested therein. You and the law firm will not be disqualified from representing any client or prospective client (whose interests may be adverse to my own) as a result of holding such documents. And last, you and the law firm will not incur any liability for relying on any information required for the release of my original document(s).

Sincerely,
______

Jul 21st, 2015 Contracts and Commercial Litigation

Sample Texas Form–Designation of Health Care Agent, Including Permission to Travel–Texas Law

DESIGNATION OF HEALTH CARE AGENT FOR MY SON
(INCLUDING PERMISSION TO TRAVEL)
I, _______________ of _______________ County, Texas hereby designate my brother and sister-in-law, _______________, to be the health care agents (referred to herein jointly as my “Health Care Agent”) for my son, _______________ (referred to herein as “my son”). In the event _______________ both die, fail to serve, or cease to serve for any reason, I hereby designate my brother and sister-in-law, _______________, to be the health care agents (referred to herein jointly as my “Health Care Agent”) for my son.

I expressly give my Health Care Agent permission and authority to make any and all health care decisions related to the welfare of my son at all times when I am absent from the City of _______________, Texas, or at any time when my son have been left in the care of my Health Care Agent. In addition, I expressly give my Health Care Agent permission to travel with my son to any location outside the City of _______________, Texas, for any reason my Health Care Agent deems necessary

_______________, Declarant

The foregoing instrument was signed by _______________ in our presence, and we, the undersigned witnesses, sign our names hereunto as witnesses at Declarant’s request and in Declarant’s presence, and in the presence of each other, on _________________________, 20_.

Witness
Witness

Jul 21st, 2015 Contracts and Commercial Litigation

Federal Truth in Mileage Act of 1986–Texas Department of Motor Vehicles Law

In an effort to deter odometer fraud and to protect consumers, the 99th Congress of the
United States enacted the Truth in Mileage Act of 1986 (Public Law 99-579) which
amended Title IV of the Motor Vehicle Information and Cost Savings Act, 15 U.S.C.
1981-1991. In order to comply with this Act, Federal rules and Texas law, the department
revised the odometer disclosures on certificate of titles issued on and after April 29, 1990,
to contain the following:
• The odometer reading at the time of transfer, not to include tenths of miles;

• The date of the odometer disclosure statement;

• The signature, hand printed name and current address of the transferor (seller);
• The signature, hand printed name and current address of the transferee (buyer);
Note: The same individual may not sign an Odometer Disclosure Statement as both
buyer and seller.
• The vehicle description, including make, model, year, body style, and VIN;
• A statement referring to the Federal and State law advising that failure to complete or
providing false information may result in fines and/or imprisonment; and
• A certification completed by the transferor (seller) stating that, to the best of their
knowledge, the odometer reading reflects the actual mileage, not actual mileage, or
that the actual mileage is in excess of the mechanical limits of the odometer.

Note: The department discontinued the Odometer Disclosure Statement, Form
VTR-40 effective January 1, 2011. If there is an actual buyer and seller or the
vehicle is exempt, complete the odometer statement on the vehicle assignment.
If there is not an actual buyer and seller, record odometer information
directly on the Application for Texas Title, Form 130-U.

Jul 21st, 2015 Texas Tidbits: Past and Present

Completing and Submitting the DWC Form 73 in Texas Workers’ Compensation Law

What is the purpose of the DWC Form 73?

The Work Status Report is a communication tool used to inform the insurance carrier, employer, and injured employee of the injured employee’s ability to work.

When is the DWC Form 73 required?

Submitted by the treating doctor and referral doctor
•At the request of the insurance carrier:
•Must be based on scheduled appointments with the injured employee; and
•Not more than once every two weeks.

A complete report indicates whether the injured employee:
•is able to work without restrictions,
•is able to work with restrictions and gives an explanation of what the restrictions are, or
•is unable to work and gives an explanation of how the injury prevents the employee from returning to work.

Who submits the DWC Form 73 ?
28 TAC §126.6, 127.10, 129.5
•The injured employee’s treating doctor.
•A doctor to whom the treating doctor referred the injured employee.
•A designated doctor under a TDI-DWC order.
•A required medical exam (RME) doctor upon request from the insurance carrier.

Common Errors When Completing and Submitting the DWC Form 73:
•Dates indicating how long the injured employee can work with restrictions and the specific activity restrictions are not provided
•Dates indicating how long the injured employee cannot return to work and a description of how the injury prevents the employee from returning to work
•Doctor does not sign the form.

Jul 21st, 2015 Workers' Compensation Defense

Subrogation Interest of Workers’ Compensation Insurer Must Be Protected Under Texas Law

The Supreme Court said in Texas Mut. Ins. Co. v. Ledbetter, 251 S.W.3d 31 (Tex. 2008) :

“When an injured worker settles a case without reimbursing a compensation carrier, everyone involved is liable to the carrier for conversion – the plaintiffs, the plaintiffs’ attorney, and the defendants. As between those parties, we have held that generally those who received the funds unlawfully (the plaintiffs and their attorney) should disgorge them rather than making the tortfeasors pay twice.”

In this case, plaintiff’s attorney attempted to manipulate a settlement by dismissing all claims in a death case, except for the claims of the deceased’s estate. The Court ordered that the carrier’s intervention be reinstated. It also remanded the case with instructions for the trial court to protect the carrier’s subrogation interests.

Jul 21st, 2015 Insurance Defense Litigation, Workers' Compensation Defense

Medical Treatment Guidelines

Medical treatment guidelines are a delicate balance. Guidelines that are too restrictive may control costs in the short term, but limit necessary medical care to injured workers, who suffer unnecessarily, while outcomes fail to improve. Non-productive UR costs skyrocket when denials and friction clog the system, as good providers stop taking workers’ comp patients because they can’t get necessary medical care approved. Guidelines that are not restrictive enough, on the other hand, have little net effect. While ODG is unique in striving for and generally achieving this balance based on a thorough and ongoing review of the medical evidence, we still think it is important to allow for the possibility of exceptions. When and how those exceptions should be handled, together with explicit case study examples, providing the framework to ensure timely and appropriate medical care, should be clearly illustrated even for the unconventional injured worker.

Jul 21st, 2015 Workers' Compensation Defense

Texas Case on Chronic Depression and the A.D.A.–Texas Employment Law

Chronic depression alone doesn’t necessarily mean an employee is disabled within the meaning of the Americans with Disabilities Act. Granting summary judgment for the Defendant Employer, the court found that the employee failed to establish that she was “disabled” within the meaning of the ADA. The definition of “disability” under the ADA requires (1) a physical or mental impairment that substantially limits one or more of the major life activities; (2) a record of such impairment or, (3) being regarded as having such an impairment.

Bethel v. Garland, City of, Northern District of Texas No. 3-96-CV-1103-BD, September 11, 1997.

Jul 21st, 2015 Employment Law Defense

Workers’ Compensation Insurance Coverage for Texas Employers: Know the Texas Law–TDI

Workers’ compensation insurance coverage provides covered employees with income and medical benefits if they sustain a work-related injury or illness. Except as otherwise provided by law; Texas private employers can choose whether or not to provide workers’ compensation insurance coverage for their employees. Except in cases of gross negligence or an intentional act or omission of the employer, workers’ compensation insurance limits an employer’s liability if an employee brings suit against the employer for damages. Certain building or construction employers who contract with governmental entities are required to provide workers’ compensation coverage for each employee working on the public project. Some clients may also require their contractors to have workers’ compensation insurance. Providing Workers’ Compensation Insurance If employers choose to provide workers’ compensation, they must do so in one of the following ways:

• purchase a workers’ compensation insurance policy from an insurance company licensed by the Texas Department of Insurance (TDI) to sell the coverage in Texas;

• be certified by the Texas Department of Insurance, Division of Workers’ Compensation (TDI-DWC) to self-insure workers’ compensation claims; or

• join a self-insurance group that has received a certificate of approval from the TDI. Note: Political subdivisions may self-insure, buy coverage from insurance companies, or enter into inter-local agreements with other political subdivisions that self-insure. EMPLOYER RIGHTS Covered employers have the following rights:

• the right to contest the compensability of a workers’ compensation claim if the insurance carrier accepts liability for payment of benefits;

• the right to be notified of a proposal to settle a claim or of any administrative or judicial proceeding related to resolution of a claim (after making a written request to the insurance carrier);

• the right to attend dispute resolution proceedings related to an employee’s claim and present relevant evidence about the disputed issues; • the right to report suspected fraud to the TDI-DWC or to the insurance carrier;

• the right to contest the failure of the insurance carrier to provide required accident prevention services; and

• the right to receive return-to-work coordination services as necessary to facilitate an employee’s return to employment.

To dispute a workers’ compensation claim, an employer may file the DWC Form-004, and the DWC Form-045, Request to Schedule, Reschedule or Cancel a Benefit Review Conference (BRC), which may be obtained from the TDI website at http://www.tdi.texas.gov/forms/ form20employer.html or by calling 1-800-252-7031. Non-Reimbursable Employer Payments An employer is not entitled to and cannot seek reimbursement from the employee or insurance carrier if after a work-related injury or illness they voluntarily:

• continue to pay the injured employee’s salary continuation; or

• pay the injured employee salary supplementation to supplement income benfits paid by the insurance carrier. Employer Voluntary Payments of Benefits An employer may voluntarily pay income or medical benefits to an employee during a period in which the insurance carrier has: • contested compensability of the injury;

• contested liability for the injury; or

• has not completed its initial investigation of the injury. Note: an employer is only allowed to pay benefits in this situation for the first two weeks after the injury. For reimbursement, the employer is required to timely report the injury to the insurance carrier and to let the insurance carrier know, within 7 days of beginning voluntary payments, that voluntary payments are being made. The insurance carrier is only required to reimburse the employer for the amount of benefits the insurance carrier would have paid. If the employer made payments in excess of what the insurance carrier would have paid, the excess amount is not reimbursable, unless there is a written agreement between the injured employee and the employer that the excess amount can be recouped from future impairment income benefits paid by the insurance carrier, if any. The employer must file the DWC Form- 002, Employer’s Report for Reimbursement of Voluntary Payment. The DWC Form-002 may be obtained from the TDI website at http://www.tdi.texas.gov/forms/ form20employer.html or by calling 1-800-252-7031.

Jul 20th, 2015 Employment Law Defense, Workers' Compensation Defense

Texas Division of Workers’ Compensation Recovers More than $500,000 For Injured Employees and Beneficiaries

AUSTIN, TX –The Division of Workers’ Compensation (DWC) conducted performance audits of several insurance carriers on the accuracy of payments of Lifetime Income Benefits (LIBs) and Death Benefits (DBs). Through these audits, DWC discovered underpayments on 64 claims totaling over $511,000.

“One of my chief compliance priorities is to make sure injured employees and beneficiaries obtain benefits in a timely and accurate manner,” said Commissioner of Workers’ Compensation Ryan Brannan. “I am pleased to see that claimants received monies owed to them. However, I am concerned there may be other deserving claimants in the same situation. These results indicate that we need to continue these types of performance audits.”

The primary focus of these performance audits was to ensure compliance with Labor Code §408.081 which provides that an insurance carrier must pay income benefits accurately. The proper calculations of average weekly wage, LIBs, and DBs are detailed in Labor Code §§408.041, 408.161, and 408.181, and in 28 TAC §§128.1, 128.3, 131.2, and 132.1.

Common compliance errors discovered in these performance audits that contributed to the underpayment of benefits included:

Failure to pay 75% of average weekly wage
Failure to obtain a complete wage statement
Failure to properly calculate average weekly wage
Failure to include non-pecuniary wages in average weekly wage

The TDI-DWC conducts performance audits every year and a list can be found at http://www.tdi.texas.gov/wc/pbo/index.html#ai . For more information on performance audits, please contact Darrell Cooper at 512-804-4768 or Darrell.Cooper@tdi.texas.gov.

Jul 20th, 2015 Workers' Compensation Defense