American Investors Life Ins. Co. v. Hudson

AMERICAN INVESTORS LIFE INSURANCE COMPANY v.
Patricia Kathleen HUDSON

CA 95-970                                          ___ S.W.2d ___

                  Court of Appeals of Arkansas
                             En Banc
               Opinion delivered December 23, 1996


1.   Judgment -- res judicata -- claim preclusion. -- Under the
     doctrine of res judicata or claim preclusion, a valid and
     final judgment rendered on the merits by a court of competent
     jurisdiction bars another action by the plaintiff or his
     privies against the defendant or his privies on the same claim
     or cause of action; privity of parties within the meaning of
     res judicata means a person so identified in interest with
     another that he represents the same legal right; res judicata
     bars not only the relitigation of claims that were actually
     litigated in the first suit, but also those that could have
     been litigated; collateral estoppel or issue preclusion bars
     the relitigation of issues of law or fact actually litigated
     by the parties in the first suit.

2.   Judgment -- collateral estoppel -- to whom it applies --
     concept of privity. -- The doctrine of collateral estoppel
     applies only to persons who were parties or who are in privity
     with persons who were parties in the first action and that
     persons in a privity relationship are deemed to have interests
     so closely intertwined that a decision involving one
     necessarily should control the other; privity, within the
     meaning of res judicata, means a person so identified in
     interest with another that he represents the same legal right;
     a person who is not a party to an action but who controls or
     substantially participates in the control of the present
     action on behalf of a party is bound by the determination of
     issues decided as though he were a party; the identity of
     parties or their privies for res judicata purposes is a
     factual determination of substance, not mere form.

3.   Judgment -- collateral estoppel -- appellant estopped from
     claiming it was not responsible for full satisfaction of
     judgment in favor of appellee. -- The appellate court held
     that, under the applicable law, the trial court did not err in
     holding that appellant was estopped from claiming that it was
     not responsible for full satisfaction of the judgment in favor
     of appellee.

4.   Parties -- appellant involved in litigation from its
     inception. -- The appellate court determined that appellant
     was involved in the lengthy litigation from its inception,
     noting that an employee of appellant was also employed by a
     sister company during the suit, testified as a representative
     on behalf of the defendants even before appellant became a
     party and was at all times aware of the facts and testified
     that he was "the attorney responsible for this claim at
     [appellant insurance company] since 1988."  

5.   Judgment -- collateral estoppel -- trial court's decision
     holding appellant fully liable affirmed. -- Under the law
     regarding collateral estoppel and applying the requirements of
     Ark. R. Civ. P. 52(a) that the findings of fact made by a
     judge in a trial without a jury not be set aside unless they
     are clearly erroneous or against the preponderance of the
     evidence, the appellate court affirmed the trial judge's
     decision holding appellant fully liable for all sums due
     appellee.


     Appeal from Sebastian Chancery Court; Warren O. Kimbrough,
Chancellor; affirmed.
     Skokos, Bequette & Smith, P.A., by: Jay Bequette, for
appellant.
     Hardin, Dawson & Terry, by: Rex M. Terry, for appellee.

     Melvin Mayfield, Judge.
     This is the third appeal of this case in this court.  It
involves the continuing attempt of the appellee, Patricia Kathleen
Hudson as Executrix of the Estate of Pat K. Savelle, to collect
medical and life insurance benefits under a group insurance plan
covering Pat Savelle who died on April 28, 1986.
     In 1985, Pat Savelle filed a complaint seeking a declaratory
judgment holding that her medical coverage benefits under a group
policy issued by the Arkansas Nursing Home Employee Benefit Trust
was valid and should be continued until she was no longer totally
disabled.  Summary judgment was entered June 12, 1986, in her
favor.  However, this judgment was later vacated because Ms.
Savelle died prior to its entry.
     On September 17, 1987, the present appellee was substituted as
party plaintiff.  Appellee then filed an amended complaint
realleging and adopting the allegations of the original complaint
and seeking, in addition, death benefits as provided by the plan. 
On July 28, 1989, summary judgment was granted for appellee against
"Maury Barnes, Kenneth K. Yarbrough, Ann Wiggins, Melvin Nussbaum,
Perry Wilson, and any successors in interest thereto, as Trustees
of the Arkansas Nursing Home Association Employee Benefit Trust." 
(American Investors Life Insurance Company was not then a party.) 
The trial court granted the appellee's complaint for declaratory
judgment on the basis that Pat Savelle continued to be entitled to
all health insurance coverage, including death benefit coverage,
beyond the termination of her employment through the date of her
death, April 28, 1986.  On August 24, 1989, "Maury Barnes, et al"
filed a notice of appeal, and in an unpublished opinion handed down
June 27, 1990, this court affirmed the judgment in every respect
except for an award of statutory penalty.
     Subsequently, the appellee filed a motion asking the trial
court for a money judgment, consistent with her declaratory
judgment, for unpaid medical bills and life insurance benefits,
plus interest, costs, and attorney's fees.  The defendants opposed
the claim for some medical bills alleging entitlement to certain
offsets.  A hearing was held in July 1991, on the actual amount due
appellee and in an order entered April 8, 1992, the trial court
found the appellee was entitled to the amount of the claim
presented and granted appellee judgment in a specific amount,
including attorney's fees.   The trial court's finding was based in
part upon the testimony of Robert Alexander, an attorney for
American Investors Life Insurance Company, who appeared on behalf
of the defendants. The trial court entered judgment not only
against the trust as an entity, but also against the individual
trustees, for all amounts.  And the court also found that American
Investors was the successor in interest to the trust and was also
responsible for the judgment, and the court specifically reserved
jurisdiction for the sole purpose of joining American Investors as
an additional party for further proceedings against it which might
be necessary in the event appellee was unable to collect the
judgment awarded.
     Thereafter, on May 7, 1992, a notice of appeal was filed which
stated that "Maury Barnes, Kenneth K. Yarbrough, Ann Wiggins,
Melvin Nussbaum, Perry Wilson, and any Successors in Interest
Thereto, as Trustees of the Arkansas Nursing Home Association
Employee Benefit Trust, Defendants" appeal the order entered April
8, 1992.  In an unpublished opinion handed down June 30, 1993, this
court affirmed the judgments against the trust and the individual
trustees, but modified the amount of judgment by reducing it by an
amount that had been written off by Cooper Clinic, and by
eliminating post-judgment interest prior to April 8, 1992.  
     On September 9, 1993, the judgment not having been satisfied,
appellee filed an amended complaint in which she asked that the
appellant American Investors be added as an additional party, and
for judgment against that appellant also as a successor in
interest.  American Investors was made a party and answered denying
most of the allegations of the complaint stating, "Since American
Investors was not previously a party to the litigation, American
Investors is without sufficient information to admit or deny the
material allegations," and on March 14, 1994, it filed a motion for
summary judgment on the basis that the order of April 8, 1992, was
ineffective against it because it was not served with legal process
or notice, and it was not a successor in interest to the trust or
responsible for the trust's liabilities.
     After a hearing held March 25, 1994, the trial court entered
a well reasoned and comprehensive opinion holding that appellant
was fully liable for all sums due the appellee.  The trial court
awarded judgment in favor of the appellee in the amount of
$61,253.75, plus attorney's fees and accrued costs.  Because of its
completeness, we quote extensively from the trial court's decree
and judgment.  We also point out that the appeal from this judgment
is only by American Investors Life Insurance Company (American
Investors) and hereafter our reference to appellant without other
designation will be to that appellant.  The trial court's decree
states in part, as follows:
                              III.

          Plaintiff obtained Judgment in this Court on August
     2, 1989, as against all Defendants except American
     Investors Life Insurance Company, which was not then a
     party.  The Judgment held in favor of the Plaintiff,
     granting her Complaint for declaratory judgment.  The
     basis of the Court's holding was that Plaintiff's
     Decedent, Pat Savelle, continued to be entitled to all
     health insurance coverage, including death benefit
     coverage, beyond termination of her employment date
     through the date of her death, which was on April 28,
     1986.

     . . . . 

                               IX.

          Defendant, American Investors insists that it is not
     responsible for any sums due and owing to the Plaintiff
     under the previously awarded judgments by the Court.  On
     the Contrary, the Court concludes that Defendant American
     Investors is fully liable for all sums due and owing to
     the Plaintiff, previously affirmed by the Arkansas Court
     of Appeals.  In so concluding, the Court has considered
     the testimony of the Plaintiff's representative, James
     Hudson, and the Defendants' representative, Robert
     Alexander, who had also previously testified for and on
     behalf of the other Defendants who are trustees of the
     Arkansas Nursing Home Association Employee Benefit Trust. 
     The Court is persuaded, consistent with Mr. Alexander's
     previous testimony in this matter, that American
     Investors assumed the claims that were outstanding as of
     January 1, 1989.  Those claims necessarily included the
     claim of the Plaintiff's decedent, Pat Savelle, which
     claim has been held valid by this Court in a previous
     proceeding, and which was affirmed by the Arkansas Court
     of Appeals.  Thus the Defendant American Investors'
     position that the claim is not valid because Ms. Savelle
     terminated her employment prior to the termination of the
     Trust, is wholly without merit, that issue having been
     conclusively determined by this Court, and the Arkansas
     Court of Appeals, in previous proceedings.  Defendant,
     American Investors cannot collaterally attack those
     previous findings of the Court.  That is particularly
     true here, since at all times, all Defendants have been
     represented by the same able attorneys, and have been
     represented at hearings by the same representative,
     namely, Robert Alexander.

                               X.

          The Court is persuaded that American Investors, or
     persons acting on its behalf, knew at all relevant phases
     of this litigation, as did Fewell & Associates, as did
     Robert Alexander and his predecessor . . . that the claim
     of the Plaintiff's decedent, and later the Plaintiff, was
     in existence, was being aggressively defended and
     litigated by the Nursing Home Trust, and that neither the
     nursing home Trust nor any of the Trustees had raised the
     claim that the Trust had been terminated on April 1,
     1984. . . . It would be unfair and inequitable for this
     Court to allow the Defendant to profit from a situation
     in which a Trust was terminated, over one year prior to
     the time that this lawsuit was filed, where the Plaintiff
     was never so informed.  Defendant American Investors
     would be allowed to profit from that, if this Court were
     to find in its favor.  Under these circumstances, the
     Defendant American Investors had a duty to speak, because
     at all times it had knowledge of the termination of the
     Trust, but failed to disclose it until after the decision
     by the Court of Appeals in the initial appeal.

                               XI.

          It was clear at both the July, 1991 and March, 1994
     hearings that Robert Alexander was at all times aware of
     the salient facts, and that personnel at American
     Investors knew the facts since the date of the initial
     Trust termination in April, 1984.  The initial Trust
     Agreement for the Arkansas Nursing Home Association
     Employee Benefit Trust states that upon termination,
     trustees must pay all obligations of the Trust, and must
     use the fund to continue insurance on employees insured
     under the policies and the families of employees, and
     must act to protect the employees that were insured at
     the time of the termination of the policies.  Further,
     the Trust instrument recites that the trustees shall pay
     all obligations of the Trust.  Robert Alexander testified
     previously in this matter that the Trust accomplished
     this by providing for the assumption of certain
     liabilities upon termination.

                              XII.

     . . . Under the circumstances presented by this case,
     Plaintiff's claim is a liability which should have been
     assumed in the various assumptions entered into by
     certain entities after the April 1, 1984 termination of
     the Trust.

                              XIII.

          Pursuant to the equitable doctrines of estoppel and
     waiver, American Investors is estopped to claim that it
     is not responsible for full satisfaction of the Judgment
     in favor of Plaintiff in this matter. At all times,
     Defendant, American Investors had knowledge of these
     transactions, and unquestionably had a duty to speak. 
     Robert Alexander testified that he supervised this
     litigation matter from the time he became an employee. 
     At any time during the course of the proceeding, he could
     have notified the Plaintiff, her Counsel, or his own
     attorneys, with respect to the termination of the Trust,
     but did not do so until September, 1990, after the first
     appeal to the Arkansas Court of Appeals.  Robert
     Alexander admitted that his attorney in this matter has
     been reporting either to him or his predecessor at
     American Investors, throughout this matter.  He further
     testified that Fewell & Associates, third-party
     administrator, is a sister company of American Investors.

     In its appeal from the above decree and judgment, the
appellant argues the chancellor's order is clearly erroneous
"because the record is barren of any facts that prove it was the
successor in interest to the Trust and/or . . . assumed liabilities
of the Trust for the claims made by Appellee."  Appellant argues
that the trial court's finding that it was the successor in
interest to the Trust and the responsible party is clearly against
the preponderance of the evidence.
     The problem with appellant's argument is that the trial court
held appellant estopped to claim that it is not responsible for
full satisfaction of the judgment.
     In Robinson v. Buie, 307 Ark. 112, 817 S.W.2d 431 (1991), our
supreme court stated:
          Under the doctrine of res judicata or claim
     preclusion, a valid and final judgment rendered on the
     merits by a court of competent jurisdiction bars another
     action by the plaintiff or his privies against the
     defendant or his privies on the same claim or cause of
     action.  Privity of parties within the meaning of res
     judicata means "a person so identified in interest with
     another that he represents the same legal right."  Res
     judicata bars not only the relitigation of claims which
     were actually litigated in the first suit, but also those
     which could have been litigated.  Collateral estoppel or
     issue preclusion bars the relitigation of issues of law
     or fact actually litigated by the parties in the first
     suit.

307 Ark. at 114, 817 S.W.2d  at 432-33 (citations omitted).

     And in Arkansas Department of Human Services v. Dearman, 40
Ark. App. 63, 842 S.W.2d 449 (1992), we discussed the doctrine of
collateral estoppel.  We stated:
          The question of who may be bound by a judgment is
     considered in Freidenthal, Kane, and Miller, Civil
     Procedure  14.9 (1985).  In discussing the general issue
     underlying collateral estoppel, the authors state:

          When an issue has been litigated fully between
          the parties, spending additional time and
          money repeating this process would be
          extremely wasteful.  This is particularly
          important in an era when the courts are
          overcrowded and the judicial system no longer
          can afford the luxury þ if it ever could þ of
          allowing people to relitigate matters already
          decided.
     
     Id. at 658.  The authors also state that this doctrine
     applies only to persons who were parties or who are in
     privity with persons who were parties in the first action
     and that persons in a privity relationship are deemed to
     have interests so closely intertwined that a decision
     involving one necessarily should control the other.  Id.
      14.13 at 682-83.

          It has been suggested that privity is merely a word
     used to say that the relationship between one who is a
     party and another person is close enough that a judgement
     [sic] that binds the one who is a party should also bind
     the other person.  This is the view taken in 18 Wright,
     Miller, and Cooper, Federal Practice and Procedure  4448
     (1981) where it is stated:

          As to privity, current decisions look directly
          to the reasons for holding a person bound by a
          judgment.  This method should be adopted
          generally so that a privity label is either
          discarded entirely or retained as no more than
          a convenient means of expressing conclusions
          that are supported by independent analysis.

     The Arkansas Supreme Court has said that privity within
     the meaning of res judicata means a person so identified
     in interest with another that he represents the same
     legal right.  In Restatement (Second) of Judgments  39
     (1982) it is stated that "a person who is not a party to
     an action but who controls or substantially participates
     in the control of the present action on behalf of a party
     is bound by the determination of issues decided as though
     he were a party."  It has also been held that the
     identity of parties or their privies for res judicata
     purposes is a factual determination of substance, not
     mere form.

40 Ark. App. at 67-68, 842 S.W.2d  at 451-52 (citations omitted).

     Under the law as cited above, we do not think the trial court
erred in holding that the appellant is estopped from claiming it is
not responsible for full satisfaction of the judgment in favor of
the appellee.
     At this point, we want to note that the appellant filed a
motion for summary judgment in this case; that the trial court
advised the parties, by letter to their attorneys, that there were
material facts at issue; but that no order was filed to that effect
until after the evidentiary hearing had been held.  Then, in the
decree and judgment from which we have quoted above, the court
stated that "it specifically finds that the Motion for Summary
Judgment filed by the Defendant, American Investors should be
denied."
     In response to American Investors' motion for summary
judgment, the appellee summarized the background of this litigation
and stated that the court should hold the appellant estopped to
deny liability in this matter.
     Now, in light of that pleading, we want to also note that this
case has had a long and tortuous history.  A section of appellant's
brief entitled "ABSTRACT OF PRIOR TESTIMONY" abstracts the
testimony of Robert Alexander given at the July 1991 hearing on
behalf of the Trustees long before American Investors was named as
a party.  At that time, Alexander testified that he had been an
attorney for American Investors since September 1988.  He testified
that Fewell & Associates is a third-party administrator that
administered the Nursing Home Association Trust, the Multiple
Employer Trust that the nursing home people went into, the fully
insured program for Paramount life, and then Mr. Fewell purchased
American Investors and Fewell & Associates administered the
business of the new insurance company.  Alexander testified that he
also served as staff counsel for Fewell & Associates and went to
work for them in September 1988.  
     Alexander again testified at the hearing held March 25, 1995,
again as representative for the defendants, this time including
American Investors.  He testified that Pat Savelle was one of the
beneficiaries of the Nursing Home Trust; that the "Employer Benefit
Group" took over claims that occurred prior to April 1, 1984; and
that another entity called Paramount Life Insurance Company came
next.  Alexander testified that Fewell & Associates was the third-
party administrator for the Nursing Home Trust and that it is owned
by Bob Fewell who is also the president of American Investors.  He
said that in July 1991, the party defendants were the trustees of
the Nursing Home Trust; that he was employed then as now by
American Investors; and that he came as a witness to "shed any
light I could on the information that I had collected."  He said he
came to the July 1991 hearing for Fewell & Associates and had been
involved in the case at least from February 1991.  He said he did
not come for American Investors, but American Investors and Fewell
& Associates are sister companies; that he had gathered information
in preparation for the hearing; and came to give the information he
had.  Alexander went to great lengths to explain why Ms. Savelle
claim was not covered.  He testified her claim fell into the
category of claims which were ineligible because they were incurred
after April 1, 1984.  He said the Employer Benefit Group (MET)
assumed only claims incurred prior to April 1, 1984, that had not
been paid, or so called "run-off" claims; that Ms. Savelle's claim
was not a run-off claim; that it assumed no claims incurred after
April 1, 1984, unless the people continued to participate; that Ms.
Savelle was disabled and not able to be employed; and that her
claims were incurred after April 1, 1984, and their liability was
not assumed. He testified further that American Investors had no
connection with the Nursing Home Trust or the Employer Benefit
Group, and it only assumed claims incurred under the Paramount Life
Group Policy.    
     However, we think the appellant was involved in this
litigation from its inception.  Alexander, an employee of American
Investors, was also employed by Fewell & Associates during this
suit.  He testified as a representative on behalf of the defendants
even before American Investors became a party.  He was at all times
aware of the facts and testified that he was "the attorney
responsible for this claim at American Investors since 1988."  
     Under the law regarding collateral estoppel, as set out in the
cases of Robinson v. Buie and Arkansas Department of Human Services
v. Dearman, supra, and applying the requirements of Ark. R. Civ. P.
52(a) that we not set aside the findings of fact made by a judge in
a trial without a jury unless they are clearly erroneous or against
the preponderance of the evidence, we think that the trial judge's
decision in this case should be affirmed.
     Affirmed.
     Jennings, C.J., and Robbins, Roger, and Stroud, JJ., agree.
     Pittman, J., dissents.

=================================================================
              John Mauzy Pittman, Judge, dissents.


     As stated by the majority, Pat Savelle was an employee of Oak
Lodge Nursing Home and had medical insurance through her employer
with the Arkansas Nursing Home Association Employee Benefit Trust
(hereinafter "Trust").  The personal representative of Savelle's
estate, the appellee herein, brought suit against the trustees of
the Trust seeking to enforce insurance coverage and to recover
medical benefits.  The lower court held that Savelle continued to
have coverage and that the Trust was liable and found that American
Investors Life Insurance Company was a subsequent successor to the
Trust and liable for appellee's claims.  American Investors now
appeals from that decision.  
     I must respectfully dissent from the majority opinion
affirming the decision holding American Investors liable because I
believe that the lower court erred by precluding American Investors
from presenting evidence as to the liability it assumed.
     Savelle became totally disabled with cancer and terminated her
employment in December 1983.  The Trust terminated on April 1,
1984, and the Employer Benefit Group (hereinafter "Group") insured
employees of the Oak Lodge Nursing Home who elected to continue
coverage and assumed runoff claims, i.e., claims incurred in the
previous year but not yet submitted.  The Group terminated on
January 1, 1986, and a Multiple Employer Trust underwritten by
Paramount Life assumed the same runoff claims.  Coverage through
Paramount Life terminated on December 31, 1988, and American
Investors provided coverage for continuing employees of the nursing
home and assumed only runoff claims. 
     This is the third appeal of this case.  The first appeal
involved the trial court's order holding that despite Savelle's
termination of employment and because she was totally disabled, she
was entitled to continued coverage.  The trial court further found
that the Trust was liable for Savelle's claims until her death on
April 28, 1986.  We affirmed.  Savelle's estate then filed a motion
in the lower court seeking to enforce the judgment against the
trustees in their individual capacities.  The court granted the
motion in its April 8, 1992, order holding that the trustees were
liable in their individual and representative capacities.  The
court further held that American Investors was a successor in
interest to the Trust and, based on the testimony of Robert
Alexander that American Investors assumed claims outstanding as of
January 1, 1989, that American Investors was liable for the
judgment.  The court reserved jurisdiction to name American
Investors as a defendant.  That decision was affirmed on appeal. 
American Investors was subsequently joined as a defendant.  On May
31, 1995, the court held that American Investors was liable for the
original judgment and precluded American Investors from presenting
any evidence of the liability it assumed because the court had
previously found that American Investors was the responsible party
as the successor in interest.  The court further found that
American Investors could not collaterally attack the court's
earlier finding, that Savelle had continuing coverage despite
termination of her employment, because the finding was affirmed on
appeal.  
     American Investors now appeals the May 31, 1995, order arguing
that it was not a party to the case when liability was decided by
the court, that it did not have an opportunity to defend its
interest, and that appellee failed to prove that it was the
successor in interest to the Trust.
     I believe that the court erred in refusing to consider
evidence concerning the liability American Investors assumed. 
American Investors argues that it assumed only runoff claims and
that appellee has never shown or even asserted that Savelle's claim
was a runoff claim.  Before American Investors can be held liable
for Savelle's claim, its assumed liability must be determined.  
     Appellee argues that American Investors is precluded from
asserting a defense because it is bound by the court's earlier
decision holding American Investors liable as successor, which was
affirmed on appeal.  Thus, she argues that the doctrines of "law of
the case," res judicata, and collateral estoppel apply.  Generally,
the law of the case applies only against those who were parties to
the case when the prior decision was rendered.  See Hodges v. Gray,
321 Ark. 7, 901 S.W.2d 1 (1995); McDonald's Corp. v. Hawkins, 319
Ark. 2-A, 894 S.W.2d 136, supp'l op. (1995); Willis v. Estate of
Adams, 304 Ark. 35, 799 S.W.2d 800 (1990); Potter v. Easley, 288
Ark. 133, 703 S.W.2d 442 (1986).  The same is true for res judicata
and collateral estoppel to apply.  Carmical v. City of Beebe, 316
Ark. 208, 871 S.W.2d 386 (1994); Arkansas Dep't of Human Services
v. Dearman, 40 Ark. App. 63, 842 S.W.2d 449 (1992).  Here, the
court considered the doctrines of res judicata, law of the case and
collateral estoppel as a basis of establishing American Investors'
liability.  These doctrines have no application to this fact
situation because American Investors was not a party to the case
when its liability was determined.  
     Lastly, I do not believe the "privity" doctrine has any
application to the case under consideration.  A person is
considered to be in privity with a party when that person controls
or substantially participates in the control of the present action
on behalf of a party.  Arkansas Dep't of Human Services v. Dearman,
supra.  Robert Alexander testified that he did not appear on behalf
of American Investors at the hearing at which the court determined
American Investors' liability.  The majority opinion places 
emphasis on the fact that Robert Alexander is associated with
Fewell and Associates and American Investors, both of which are
owned by Bob Fewell.  Because of Fewell and Associates'
participation, the majority reasons that American Investors is now
estopped from defending its interest.  Privity requires that the
entities have similar, non-adverse interests.  Id.  Fewell and
Associates was a third-party administrator and, unlike American
Investors, was not responsible for a judgment against the Trust. 
It appeared only to produce its records pertaining to its previous
administration of the Trust, the Employee Benefit Group, and
Paramount Life.  
     Because the court ruled that it had previously determined that
American Investors was liable and refused to give it an opportunity
to present evidence regarding the liability it assumed, the case
should be remanded.
     I would reverse and remand for the court to decide American
Investors' liability consistent with this opinion.