Forex, Ltd. v. U.S. Speciality Insurance Company--Appeal from 73rd Judicial District Court of Bexar County

Annotate this Case
No. 04-02-00406-CV
FOREX, LTD.,
Appellant
v.
U.S. SPECIALTY INSURANCE CO.,
Appellee
From the 73rd Judicial District Court of Bexar County, Texas
Trial Court No. 2001-CI-00881
Honorable Andy Mireles, Judge Presiding

Opinion by: Paul W. Green, Justice

Sitting: Paul W. Green, Justice

Karen Angelini, Justice

Sandee Bryan Marion, Justice

Delivered and Filed: July 30, 2003

AFFIRMED

Appellee U.S. Specialty Insurance Co. (U.S. Specialty) served as insurer to Appellant Forex, Ltd., (Forex) hiring an attorney to represent the company in a wrongful death suit. A subsequent potential conflict of interest led Forex to file a declaratory judgment action with the trial court, attempting to obtain the right to choose its own counsel to be paid for by U.S. Specialty. Shortly thereafter Forex filed a suggestion of bankruptcy and had the U.S. Bankruptcy Court appoint new counsel. U.S. Specialty filed a motion for summary judgment with the trial court, ignoring the bankruptcy court's order and refuting Forex's right to choose its own counsel. The trial court granted U.S. Specialty's motion, finding that U.S. Specialty held the exclusive right to choose counsel for Forex and had no duty to pay for attorneys' fees beyond those covered in the insurance policy. Forex now appeals the trial court's order granting the summary judgment.

Forex presents this court with five issues, citing several reasons it believes the trial court erred in granting U.S. Specialty's motion for summary judgment. In its first three issues, Forex contends the trial court erred in granting the summary judgment motion because (1) the bankruptcy court's order preempted the trial court's ruling regarding Forex's right to select its counsel, (2) the bankruptcy court's order served to preclude the representation issue from the trial court under the doctrine of collateral estoppel, and (3) 11 U.S.C. 327 specifically requires the approval of the bankruptcy court for the selection of counsel to represent a bankrupt estate. In its last two issues, Forex argues the trial court erred in granting U.S. Specialty's motion for no evidence summary judgment because Forex's summary judgment evidence, including its affidavits, established genuine issues of material fact regarding the existence of a conflict of interest.

Background

On August 9, 2000, Forex employee, Troy Fielding, was electrocuted and died while working at a manufacturing plant operated by Forex. At the time of the accident, Forex provided workers' compensation and employers' liability benefits to its employees through U.S. Specialty Insurance. (1) Following Fielding's death, U.S. Specialty began to pay statutory death benefits to Fielding's legal beneficiaries. The Fieldings subsequently filed a wrongful death suit against several parties, including Forex.

U.S. Specialty hired attorney Wayne Shuffield from the law firm of Adami, Goldman & Shuffield, to represent Forex in the wrongful death case. Shuffield met with Forex president Gabor Zanoti to discuss the case. (2) Shuffield and his law firm were also to represent U.S. Specialty in any potential subrogation claims the insurer may have had against all defendants in the underlying case, possibly including Forex. Worried about this conflict of interest, Forex voiced its concerns to U.S. Specialty who refused to allow Forex to select its own counsel. (3) Soon after, U.S. Specialty elected to have Wade Shelton from the law firm of Shelton and Valadez defend Forex in the Fielding suit while retaining Shuffield and his firm as attorneys of record for U.S. Specialty in any workers' compensation or subrogation proceedings.

Acting of its own volition, Forex then retained the law offices of Sinkin and Barretto as its counsel. On January 19, 2001, Forex, citing what it viewed as a definite conflict of interest, filed a declaratory judgment action, seeking the right to be able to decide who would represent them in the Fielding suit and any subsequent suits arising from the same incident and asking that any fees incurred from such representation be paid by U.S. Specialty. Although Shelton answered the pleadings on behalf of U.S. Specialty in Forex's declaratory judgment suit, U.S. Specialty substituted Shuffield as its counsel of record in the suit less than a month after Forex filed.

On September 6, 2001, Forex filed a suggestion of bankruptcy and sought the assistance of the U.S. Bankruptcy Court in having Sinkin and Barretto appointed as special counsel for the bankrupt estate under 11 U.S.C. 327. On January 10, 2002, U.S. Specialty filed a motion for summary judgment in the declaratory judgment action, under both Texas Rule of Civil Procedure 166a(c) and 166a(i). In its response, filed on February 28, 2002, Forex included a paragraph indicating that the bankruptcy court had ordered, on February 11, 2002, that Sinkin and Barretto were to be appointed as special counsel for Forex in the bankruptcy matter.

On March 8, 2002, notwithstanding the bankruptcy court's order, the trial court ruled in favor of U.S. Specialty, granting its motion for summary judgment giving U.S. Specialty the right to choose counsel for Forex in the underlying lawsuit, and absolving the insurer of any duty to pay for legal fees incurred by Forex outside of those charged by the counsel hired by U.S. Specialty. Forex appeals.

Standard of Review: Summary Judgment

To prevail on a motion for summary judgment, a movant must establish that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c). In a traditional motion for summary judgment, a defendant who conclusively negates at least one of the essential elements of each of the plaintiff's causes of action is entitled to summary judgment. Wornick Co. v. Casas, 856 S.W.2d 732, 733 (Tex.1993); Wayne Harwell Props. v. Pan American Logistics Ctr., Inc., 945 S.W.2d 216, 217 (Tex. App.--San Antonio 1997, writ denied). In reviewing a summary judgment, we must accept as true evidence in favor of the nonmovant, indulging every reasonable inference and resolving all doubts in the nonmovant's favor. Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex.1985).

A no evidence motion for summary judgment is improperly granted when the non-movant brings forth more than a scintilla of probative evidence that raises a genuine issue of material fact. Tex. R. Civ. P. 166a(i); Gomez v. Tri City Cmty. Hosp., Ltd., 4 S.W.3d 281, 283 (Tex. App.--San Antonio 1999, no pet.). As with a traditional motion for summary judgment, we review the evidence in the light most favorable to the party against whom the no-evidence summary judgment was rendered, disregarding all contrary evidence and inferences. Merrell Dow Pharm., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex.1997).

Traditional Motion for Summary Judgment: Preemption and Issue Preclusion

In its first issue, Forex claims the trial court erred in granting U.S. Specialty's motion for summary judgment because the bankruptcy court's order preempts the trial court's order. A state law is preempted and without effect if it conflicts with federal law. See Maryland v. Lousiana, 451 U.S. 725, 746 (1981); Cedar Bayou Baptist Church v. Gregory-Edwards, Inc., 987 S.W.2d 156, 158 (Tex. App.--Houston [14th Dist.] 1999, no pet.). Preemption may be either express or implied. Preemption is implied when the scope of a statute indicates Congress intended federal law to occupy the area exclusively or when state law actually conflicts with federal law. See Freightliner Corp. v. Myrick, 514 U.S. 280, 287 (1995); Cedar Bayou Baptist Church, 987 S.W.2d at 158. An actual conflict between state and federal law arises when it is impossible for a private party to comply with both state and federal requirements or when state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives and Congress. Myrick, 514 U.S. at 287; Cedar Bayou Baptist Church, 987 S.W.2d at 158.

11 U.S.C. 327(e)(2002), taken from the United States Annotated Bankruptcy Code, provides as follows:

(e) The trustee, with the court's approval, may employ, for a specified special purpose, other than to represent the trustee in conducting the case, an attorney that has represented the debtor, if in the best interest of the estate, and if such attorney does not represent or hold any interest adverse to the debtor or to the estate with respect to the matter on which such attorney is to be employed.

Examining the language of 11 U.S.C. 327(e), it appears as though there are three requirements necessary for the bankruptcy court to approve of counsel employed to represent the estate for a specified special purpose: (1) the attorney must have previously represented the debtor, (2) hiring the attorney must be in the best interest of the estate, and (3) the attorney must not hold an interest adverse to the debtor or estate with respect to the matter on which such attorney is to be employed. 11 U.S.C. 327(e)(2002); In re NWFX, Inc., 267 B.R. 118, 246 (Bankr. W.D. Ark. 2001). According to the legislative history behind the statute, Congress intended for trustees and debtors-in-possession to use this provision to avoid the interruption and delay that could occur if a debtor were required to switch attorneys during an active lawsuit because of an intervening bankruptcy filed by that debtor. S. Rep. No. 95-989 at 38-39, 95th Cong., 2d Sess. (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5824-25.

Although Texas law speaking directly to the issue of choice of counsel with regard to an insured bankrupt estate is scarce, looking at the law of preemption it seems as though the bankruptcy court's order would preempt any state court order with regard to choice of counsel if that order served as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. See Myrick, 514 U.S. at 287.

Utilizing the stated legislative purpose iterated above, it appears as though the representation of Sinkin and Barretto actually caused rather than prevented a delay in litigation. This delay was caused by Forex's refusal to accept the attorney hired by U.S. Specialty, Wade Shelton, who was defending Forex in the wrongful death suit. In fact, the dispute created litigation in the form of the declaratory judgment action filed by Forex. The state court's order, then, does not serve as an obstacle to the full purposes and objectives of Congress and is, thus, not preempted by the bankruptcy court's order. We accordingly overrule Forex's first issue.

In its second issue, Forex asserts the trial court erred in granting the summary judgment motion because the bankruptcy court's order collaterally estops the trial court from deciding the issue in question. The doctrine of collateral estoppel, or issue preclusion, prohibits the relitigation of identical issues of fact or law that were actually litigated and essential to the judgment in a prior suit. Once an essential issue is actually litigated and determined, that issue is considered to be conclusive in a subsequent action between the same parties. Van Dyke v. Boswell, O'Toole, Davis & Pickering, 697 S.W.2d 381, 384 (Tex. 1985); Mid-Continent Cas. Co. v. Safe Tire Disposal Corp., 2 S.W.3d 393, 396 (Tex. App.--San Antonio 1999, no pet.). Mutuality of parties is required only with respect to the party against whom collateral estoppel is asserted. Sysco Food Servs., Inc. v. Trapnell, 890 S.W.2d 796, 802 (Tex. 1994); Mid-Continent Cas. Co., 2 S.W.3d at 396.

Although the bankruptcy court appointed Sinkin and Barretto as counsel for Forex, it did not actually decide either issue raised in the declaratory judgment action. The bankruptcy court did not decide whether Forex had a right to determine who would serve as its counsel or whether U.S. Specialty had a duty to pay for any outside counsel obtained by the insured, Forex. In addition, U.S. Specialty was not a party in the bankruptcy action. Issue preclusion is, therefore, inapplicable. Additionally, U.S. Specialty cites the case of In re Vouziana, 250 B.R. 478 (E.D. N.Y. 2000), aff'd 259 F.3d 103, (2nd Cir. 2001), in which the bankruptcy court found that the appointment of counsel is a limited grant of authority and does not give the bankrupt estate the ability to interfere with a pre-bankruptcy personal injury cause of action. We overrule Forex's second issue.

In its third issue, Forex claims the trial court erred in granting U.S. Specialty's motion for summary judgment because 11 U.S.C. 327 dictates the bankruptcy court must be the entity to appoint counsel for a bankrupt estate. The wording of the statute, however, employs the use of the phrase, "with the court's approval, may employ..."(emphasis added). The statute, itself, does not preclude another method of selecting counsel and does not limit the selection of counsel strictly to the bankruptcy court. Moreover, Forex fails to cite any authority for its position. Because Forex fails to include the proper authority for its argument, it has failed to present an issue for review. Accordingly, we overrule Forex's third issue. Tex. R. App. P. 33.1.

CONCLUSION

We overrule Forex's first three issues, finding the trial court did not err in granting U.S. Specialty's traditional motion for summary judgment. Accordingly, it is unnecessary to reach Forex's remaining issues which address the no evidence motion for summary judgment. The judgment of the trial court is affirmed.

Paul W. Green, Justice

1. The insurance policy provisions applicable to the case at hand are as follows:

Part One--Workers Compensation Insurance

C. We Will Defend

We have the right and duty to defend at our expense any claim, proceeding, or suit against you for benefits payable by this insurance. We have the right to investigate and settle these claims, proceedings or suits. We have no duty to defend a claim, proceeding or suit that is not covered by this insurance.

Part Two--Employers Liability Insurance

D. We Will Defend

We have the right and duty to defend, at our expense, any claim, proceeding or suit against you for damages payable by this insurance. We have the right to investigate and settle these claims, proceedings and suits. We have no duty to defend a claim, proceeding or suit that is not covered by this insurance.

2. Forex's brief indicates that it discussed not only the particulars of the Fielding case, but also a potential suit, arising out of the same set of facts, against a third party, its electrical contractor.

3. It appears from the briefs as though U.S. Specialty would not permit Shuffield, the attorney originally chosen to represent Forex in the Fielding suit to represent the company in any subsequent third party suits which may have arisen from the same set of underlying facts. For example, U.S. Specialty would not permit Shuffield to represent Forex in a suit against the electrical contractor.

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