Estoppel -- Collateral estoppel applicable; decision of federal district court was final; trial court erred in holding appellant was collaterally estopped by Eighth Circuit's decision. [ASCII, WP5.1]

WAL-MART STORES, INC. v. Lee DOUGLASS,
Insurance Commissioner of Arkansas

CA 95-34                                           ___ S.W.2d ___

                  Court of Appeals of Arkansas
                             En Banc
                  Opinion delivered May 8, 1996


1.   Estoppel -- collateral estoppel discussed. -- The doctrine of
     collateral estoppel or issue preclusion bars the relitigation
     of issues of law or fact actually litigated by the parties in
     the first suit.

2.   Estoppel -- collateral estoppel applicable -- decision of
     federal district court was final -- trial court erred in
     holding appellant was collaterally estopped by Eighth
     Circuit's decision. -- Where the issue of "tail coverage" was
     decided by the federal district court which held that the
     "tail coverage" was fully enforceable according to its terms,
     and although an appeal to the Eighth Circuit was taken in that
     case, the finding with regard to "tail coverage" was not
     appealed from, the decision of the federal district court was
     final on this issue and the trial court erred in holding that
     appellant was collaterally estopped by the Eighth Circuit's
     opinion; reversed and remanded. 


     Appeal from Pulaski Circuit Court; Chris Piazza, Judge;
reversed and remanded.
     Ronald A. Williams, Wal-Mart Corporate Counsel and Robinson,
Staley & Marshall, by:  Robert L. Robinson, Jr. and Patricia
Stanley Luppen, for appellant.
     Jack East, III, for appellee.

     Melvin Mayfield, Judge. *ADVREP*CA6*
                             EN BANC



                                        CA 95-34


                                             MAY 8, 1996


WAL-MART STORES, INC.              APPEAL FROM THE PULASKI
                                   COUNTY CIRCUIT COURT
               APPELLANT

VS.                                HON. CHRIS PIAZZA, JUDGE
                                        
LEE DOUGLASS, INSURANCE            REVERSED AND REMANDED
COMMISSIONER OF ARKANSAS

               APPELLEE




                     Melvin Mayfield, Judge.


     This is an appeal from an order of the Pulaski County Circuit
Court which held that the appellant, Wal-Mart Stores, Inc., is
"collaterally estopped from recovering any sums under the 'tail
coverage' from the Arkansas Property and Casualty Insurance
Guaranty Fund (Fund) and is bound by the Eighth Circuit's opinion." 
The appellee is the Administrator of the Fund and is also Ancillary
Receiver of Transit Casualty Company.  
     In 1982, Wal-Mart, a self-insured employer, sought proposals
for its workers' compensation insurance.  Carlos Miro, who was
authorized to issue and place insurance on behalf of Transit
Casualty Company (which is now insolvent), offered to provide
workers' compensation insurance coverage for all Wal-Mart employees
for a flat and guaranteed premium of $3,500,000, which would not be
increased regardless of losses.  In addition to the workers'
compensation insurance coverage, "tail coverage" (retroactive
coverage for Wal-Mart's liability with respect to the period of
time during which Wal-Mart was self-insured and which time period
had already passed when coverage was purchased) would be provided
for a guaranteed premium of $2,852,000.  Wal-Mart accepted Miro's
offer.  When Transit issued the policy, it contained a provision
for computation of premium in accordance with the standard manual
rates which are on file with the appropriate state regulatory
agencies and which are multiplied by the estimated payroll to reach
the premium.  The policy premium was $3,500,000 as agreed, but to
reach the premium guarantee, Wal-Mart's payroll, reported to
Transit as $547,000,000, was reduced on the face of the policy to
$250,000,000.
     Policy claims were far beyond expectations, and in January
1985, Transit requested an additional premium of $13,000,000.  Wal-
Mart filed a declaratory judgment action in an Arkansas federal
district court seeking to enforce the policy as written.  Transit
answered and filed a counterclaim seeking to recover additional
premiums in the amount of approximately $20,000,000.  During the
pendency of the action, a Missouri court entered an order of
insolvency against Transit and appointed a receiver.
     In an opinion dated July 6, 1987, the federal district court
held, among other things, that the agreement under which Wal-Mart
would pay a flat rate for workers' compensation insurance was void
and unenforceable.  The district court refused to apply the
doctrine of in pari delicto and "leave the parties where it found
them" and held that Wal-Mart was liable for the sum of $16,772,144
in additional premiums for the coverage.  The district court could
find no basis, however, to hold that the "tail coverage" was not in
compliance with the law and held that the "tail coverage" was fully
enforceable according to its terms.  Wal-Mart Stores, Inc. v.
Crist, 664 F. Supp. 1242 (W.D. Ark. 1987).
     Wal-Mart appealed to the Eighth Circuit Court of Appeals, and
in an opinion dated December 26, 1988, the court of appeals agreed
that the agreement was illegal and violated state law.  The Eighth
Circuit, however, applied the doctrine of in pari delicto and held
that the district court should have denied relief on both Wal-
Mart's action for declaratory judgment and Transit's counterclaim
for payment of premiums.  The Eighth Circuit reversed the decision
of the district court with respect to Transit's counterclaim and
remanded to the district court with directions to dismiss the case
without relief to either party.  The opinion was silent as to the
"tail coverage" except for a footnote in which the court stated
that the portion of the district court's decision holding that the
"tail coverage" was a fully enforceable agreement binding on both
parties was not challenged on appeal, and "we shall not discuss it
further."  Wal-Mart Stores, Inc. v. Crist, 855 F.2d 1326 (8th Cir.
1988).
     On August 19, 1991, the appellee filed a "Motion for Order
Denying Claim of Wal-Mart Stores, Inc." (No. 85-011593) in Pulaski
County Circuit Court.  The appellee stated that in January and
February 1986 Wal-Mart made a demand for indemnification and loss
adjustment expenses from the Arkansas Property and Casualty
Insurance Guaranty Fund for claims arising under the Transit
policies; that the appellee refused to honor the demands because
the validity of the "tail coverage" was the subject of litigation
in federal district court; that the "tail coverage" was ultimately
declared to be part of an illegal agreement by the Eighth Circuit;
that Wal-Mart failed to seek review of the Eighth Circuit decision;
and that Wal-Mart is barred by res judicata and collateral estoppel
from relitigating the legality of the insurance contracts between
it and Transit.  The appellee stated that Wal-Mart had made a claim
against the Fund for the "tail coverage" in the amount of
$445,516.40.  The appellee asserted that the Fund is responsible
only for the payment of "covered claims" as defined by Ark. Code
Ann.  23-90-103(2); and that because, under the Eighth Circuit
opinion, there is no valid policy of insurance, there are no
"covered claims."  The appellee asked for an order denying Wal-
Mart's claim.
     On August 21, 1991, the appellee filed a "Complaint and Motion
to Transfer and Consolidate Actions" in Pulaski County Circuit
Court (No. 91-4836).  In the complaint, the appellee stated that,
under the mistaken belief that Transit had insured Wal-Mart with
valid and legally enforceable policies of insurance, the
Commissioner had paid $221,702.02 to claimants and as claims
adjusting expense until August 25, 1988, and an additional
$31,031.03 since that date.  The appellee stated that the Eighth
Circuit had found the agreement illegal and asked for a monetary
judgment in the amount of $252,733.05 together with prejudgment
interest as allowed by law and attorney fees.  The appellee also
asked that case No. 91-4836 be transferred to Pulaski County
Circuit Court, 7th Division, and that an order be entered
consolidating case No. 91-4836 with case No. 85-011593.
     On October 21, 1991, Wal-Mart filed a "Motion for Partial
Summary Judgment" in both cases.  Wal-Mart alleged it was entitled
to partial summary judgment in No. 85-011593 because the federal
district court held the "tail coverage" was properly issued and
that policy enforceable according to its terms; that decision was
not appealed to the Eighth Circuit; and the Eighth Circuit did not
decide that issue.
     On October 28, 1991, cases No. 91-4836 and 85-011593 were
transferred to Pulaski County Circuit Court, 2nd Division, and the
cases were consolidated.
     On June 9, 1993, the appellee filed a motion for summary
judgment in connection with the workers' compensation insurance
claims in case No. 91-4836, and on November 8, 1993, the circuit
judge entered an order granting appellee's motion for summary
judgment in No. 91-4836.  No appeal was taken from that order and
we shall not consider it further.
     On June 19, 1994, the circuit judge entered an order in No.
85-011593 granting the appellee's "Motion for Order Denying Claim
of Wal-Mart Stores, Inc." in regard to the "tail coverage".  The
circuit judge held that the Eighth Circuit found that Transit and
the appellant were parties to an illegal agreement; that the "tail
coverage" was part of that agreement; and that the Eighth Circuit
dismissed the case, including the "tail coverage", without relief
to any party.  The circuit judge held, therefore, that Wal-Mart is
collaterally estopped from recovering any sums under the "tail
coverage" and is bound by the Eighth Circuit's opinion.
     Appellant argues on appeal that the trial court erred in
holding that, because of the Eighth Circuit's opinion, it was
collaterally estopped from recovering any sums from the Fund. 
Appellant contends that the Eighth Circuit opinion dealt solely
with Transit's counterclaim for additional workers' compensation
insurance premiums and had nothing to do with the "tail coverage."
     The doctrine of collateral estoppel or issue preclusion bars
the relitigation of issues of law or fact actually litigated by the
parties in the first suit.  Scallion v. Whiteaker, 44 Ark. App.
124, 868 S.W.2d 89 (1993).  In the instant case, the issue of "tail
coverage" was decided by the federal district court which held that
the "tail coverage" was fully enforceable according to its terms. 
Wal-Mart Stores, Inc. v. Crist, 664 F. Supp. 1242 (W.D.Ark. 1987). 
Although an appeal was taken in that case, the finding with regard
to "tail coverage" was not appealed from.  Indeed, in Wal-Mart
Stores, Inc. v. Crist, 855 F.2d 1326 (8th Cir. 1988), the Eighth
Circuit stated that the district court's decision regarding "tail
coverage" was not challenged on appeal and "we shall not discuss it
further."  Therefore, the decision of the federal district court
was final on this issue and the trial court erred in holding that
appellant was collaterally estopped by the Eighth Circuit's
opinion.
     Reversed and remanded for further proceedings not inconsistent
with this opinion.
     Cooper, Stroud, Neal, and Griffen, JJ., agree.
     Jennings, C.J., dissents. 
 
     *ADVREP*CA6-A*
                              EN BANC



                                        CA 95-34
                                                                         
                                                       May 8, 1996


WAL-MART STORES, INC.                APPEAL FROM PULASKI COUNTY
          APPELLANT                  CIRCUIT COURT, SECOND DIVISION

                                   
VS.
                                     
LEE DOUGLAS, INSURANCE               
COMMISSIONER OF ARKANSAS           
          APPELLEE                   DISSENTING OPINION





                     John E. Jennings, Chief Judge.




     The majority opinion accurately sets forth the procedural
history in this case.  It must also be conceded that the footnote
contained in the opinion of the Eighth Circuit Court of Appeals
lends support to the view that the majority takes.  I cannot agree,
however, that the decision of the trial court should be reversed.
     First, the so called "tail-coverage" was made a part of the
insurance policy by way of endorsement and the insurance policy was
held to be an illegal bargain by the Eighth Circuit.  The court
specifically held that the district court should have found the
parties in pari delicto and refused to grant relief of any sort. 
It specifically held that the district court should have denied
relief on Wal-Mart's action for a declaratory judgment.  The last
sentence of the opinion of the Eighth Circuit states, "We reverse
the decision of the district court with respect to Transit's
counterclaim, and remand with directions to dismiss the case
without relief to any party."  On remand, the district court
ordered "that the parties take nothing and that this action be
dismissed on the merits without relief to any party."  No appeal
was taken from this order.
     Clearly the Eighth Circuit's holding that the parties to the
insurance contract were in pari delicto is binding on the Pulaski
County Circuit Court.  So is the district court's dismissal on
remand.  Under these circumstances I cannot agree that the Pulaski
County Circuit Court erred in denying Wal-Mart the relief that it
now seeks against the state insurance commissioner.  Therefore, I
respectfully dissent.