Michael Perez v. Aaron Thomas Kleinert, Alexandria Marie Garza, and State Farm Mutual Automobile Insurance Company ( 2006 )

NUMBER 13-05-118-CV COURT OF APPEALS

THIRTEENTH DISTRICT OF TEXAS

CORPUS CHRISTI - EDINBURG

MICHAEL PEREZ, Appellant,

v.

AARON THOMAS KLEINERT, ALEXANDRIA

MARIE GARZA, AND STATE FARM MUTUAL

AUTOMOBILE INSURANCE COMPANY, Appellees.

On appeal from the 24th District Court of Victoria County, Texas

O P I N I O N

Before Justices Hinojosa, Rodriguez, and Garza Opinion by Justice Garza

Michael Perez raises four issues on appeal from a take-nothing judgment. At trial, Perez had asserted personal injury claims against Aaron Kleinert and Alexandria Marie Garza, the drivers of two automobiles involved in an accident on June 9, 2000, in which Perez was allegedly injured. The trial court entered the take-nothing judgment after a jury returned a finding of no liability as to Kleinert and Garza. The judgment also ordered that Perez take nothing on breach-of-contract and bad-faith insurance claims Perez had asserted against State Farm, even though the claims were never tried to a jury. We reverse the judgment and remand the case for a new trial.

I. Background

At the time of the accident giving rise to this lawsuit, Perez was a passenger in Garza's automobile. The automobile was a rental car that had been loaned to Garza by either Brian or Jeanne Spacek. Before loaning the automobile to Garza, the Spaceks had purchased an insurance policy from State Farm. After the accident, Perez apparently made a claim against State Farm for benefits under the Spacek policy. After State Farm allegedly refused to pay benefits, Perez named State Farm as a defendant in the lawsuit, asserting claims against State Farm for breach of contract and violations of section 21.55 of the Texas Insurance Code.

Perez's lawsuit against Kleinert, Garza, and State Farm was filed in the 24th District Court of Victoria County, Judge Stephen Williams presiding. State Farm initially took the position that Garza was an insured person under the Spacek policy. State Farm provided Garza with legal representation by retaining, on her behalf, the services of Troy Gilreath and his law firm, Walker, Keeling, & Carroll, L.L.P. Attorney Gilreath appeared before the trial court as Garza's attorney of record and filed Garza's answer to the lawsuit. Garza's live pleading denied liability and asserted a crossclaim against Kleinert, in addition to setting forth some special exceptions and affirmative defenses. Notably, Garza's live pleading also alleged, among other things, that Perez, her passenger, was negligent and his negligence was the sole proximate cause of the accident.

For reasons that are unknown to this Court, the relationship between State Farm and Garza subsequently soured and deteriorated into outright antagonism. State Farm openly complained that Garza was "uncooperative" in preparing her defense for trial. State Farm ultimately sued Garza in an action for declaratory judgment in the 377th District Court in Victoria County, again with Judge Williams presiding.

On April 6, 2004, Judge Williams, acting as the presiding judge of the 377th District Court of Victoria County (not the 24th District Court), entered a default judgment against Garza. In relevant part, the judgment states that "no coverage applied to Defendant under the Policy for the June 9, 2000 accident." The judgment further declares that "State Farm has no duty to defend or indemnify Defendant for the June 9, 2000 accident and resulting lawsuit styled Michael A. Perez v. Aaron Kleinert, et al . . . in the 24th District Court of Victoria County."

Back in the 24th District Court, where Perez's claims against Kleinert, Garza, and State Farm remained pending, attorney Gilreath filed a motion to withdraw as counsel for Garza. The motion to withdraw was filed on April 20, 2004. It specifically noted the default judgment awarded to State Farm by the 24th District Court on April 6, 2004 and stated that, based on the default judgment, State Farm had "terminated" attorney Gilreath's services in representing Garza. The motion further contended that Garza was "unable to pay for the retention of an attorney." Pursuant to Texas Rule of Civil Procedure 10, the motion stated that a copy of the motion had been sent to Garza at her last known address and that Garza had not exercised her right to oppose the motion. See Tex. R. Civ. P. 10. On April 29, 2004, Judge Williams granted the motion and entered an order withdrawing attorney Gilreath and his law firm as counsel for Garza. From that point forward, no attorney of record was designated for Garza. See id.

Perez's case against Kleinert, Garza, and State Farm proceeded to trial in August of 2004 in the 24th District Court, Judge Williams presiding. Although the trial court's order of April 29, 2004 rendered Garza a pro se litigant some five months ahead of trial, Garza failed to retain an attorney and appeared neither in person nor through counsel at trial.   ⁽¹⁾

On August 30, 2004, the eve of trial, attorneys for Perez and State Farm submitted to the trial court a set of written stipulations in which they agreed, among other things, that Perez was a "covered person" under the terms of the Spacek policy. The agreement was signed by counsel for Perez and attorney Isidro Castanon on behalf of State Farm. The trial court entered an order that the personal-injury claims against Kleinert and Garza were therefore to be tried first and separately from the contract and insurance claims against State Farm.

Attorney Castanon is State Farm's attorney of record. In addition to the written stipulations mentioned above, attorney Castanon also filed pleadings in the trial court for State Farm, including State Farm's second amended petition, its live pleading. That document pled that State Farm's insured, Perez, should take nothing by his claims against State Farm for numerous reasons. Thus, although State Farm acknowledged that Perez was a "covered person" at the time of the accident, stated that it intended "to comply with the terms and the policy," and promised to pay to Perez the amount he is entitled "to recover as covered damages as determined by the Court and the jury," State Farm opposed Perez's allegations and claims against Kleinert and Garza. In its live pleading, State Farm contended that neither driver was at fault and that, regardless of who was to blame for the accident, Perez's injuries, if any, were the results of pre-existing conditions or aggravated by a subsequent accident.

We further note--for reasons that will become clear below--that State Farm's live pleading was also inconsistent with Garza's live pleading. Garza had alleged that the actions of Kleinert were "the sole cause for the alleged injuries" suffered by Perez and that Kleinert's actions constituted "negligence and negligence per se." In addition to numerous other defenses, Garza alleged, apparently in the alternative, that Perez was the sole proximate cause of the traffic accident.

Attorney Castanon was present at the personal-injury trial between Perez, Kleinert, and Garza. Although he was recognized by the court and allowed to address the jury at trial, attorney Castanon never informed the jury that he was counsel for State Farm. In fact, no attorney represented State Farm before the jury. Instead, attorney Castanon represented to the jury that he was Garza's attorney and even apologized for her absence at trial.

Perez's attorney immediately objected to attorney Castanon's actions and false representations to the jury. The trial court overruled the objection and allowed Castanon to appear before the jury as counsel for Garza, even though he was actually the attorney for State Farm. Castanon proceeded to "represent" Garza throughout trial, making an opening statement and closing argument and even examining witnesses. In this manner, State Farm was able to have attorney Castanon directly represent its interest in defeating Perez's claims against Garza at trial without having to appear as State Farm before the jury.

Although Garza's live pleading alleged a cross-claim against Kleinert for negligence per se, there is no indication in the record that attorney Castanon ever pursued that claim at trial for Garza's benefit. Instead, as "counsel" for Garza, attorney Castanon collaborated with opposing counsel for Kleinert. Together, they insisted that a malfunctioning traffic light owned and maintained by the City of Dallas was the sole proximate cause of the accident. Garza's negligence per se allegation against Kleinert disappeared at trial. In the charge conference, attorney Castanon actually joined counsel for Kleinert in opposing Perez's request for an instruction on negligence per se.

After the jury returned a finding of no liability in favor of Kleinert and Garza, Perez filed a motion for new trial in which he argued, among other things, that the trial court had committed reversible error by allowing attorney Castanon to misrepresent his identity before the jury. The following exchange occurred at a hearing on the motion for new trial:

THE COURT: Now with respect to this State Farm issue, Mr. Hoedebeck [counsel for Perez], I have respect for you and the job you've done in this case, so when you say that the Court has sanctioned fabrication, I'm not going to resent that, because I'm assuming that's just rhetoric and not that you really mean that because I will never sanction fabrication in court.

HOEDEBECK: I thought about that as it came out and it was not meant as a personal thing, but the Court specifically stated, "and Castanon represents the interest of Alexandria Garza."

THE COURT: I think not only that and the record will reflect what it will reflect, but we had an extensive discussion about this that morning before we started voir dire.

HOEDEBECK: We did.

THE COURT: And we went from the point of the Deck [sic] action and the extra contractual action either not or being involved and, apparently, it was an agreement that it would not be involved. We went from that point to Castanon - - and I hadn't had this situation before, but my thinking on it was that despite the fact that Castanon had gone to the trouble of obtaining a declaratory judgment with respect to coverage, he has now come into Court and is, essentially, through an admission, and his request to go forward, he has set aside or undone that Deck [sic] action.

My thought was, well, if he wants to do that, that's fine with me, but we're still not going to - - and this is my primary concern, we're still not going to inject insurance in the case. I think what we did by allowing him to not only say he represented her interests, I think he said he represented her is my recollection of the way that the case played out. So it was as if he was in there representing her under any other policy of insurance.

The jury never found out about the declaratory judgment action or any bad faith claim or anything else, so where I think we got in the case was we had two defendants - - each with a lawyer. We had the Plaintiff's lawyer. Everybody was very well represented. It was submitted to the jury, the jury just did not find in the Plaintiff's favor and, based on that, I think the case was fairly tried . . . .

II. Analysis

In his third issue, Perez complains of the trial court's ruling regarding attorney Castanon's conduct at trial. At the outset, we question the applicability of rule 12 to Perez's complaint. See Tex. R. Civ. P. 12. Rule 12 is often described as the "exclusive method" for questioning the authority of an attorney to represent a party in any court proceeding. See, e.g., Kindle v. Wood County Elec. Co Op, Inc., 151 S.W.3d 206, 210 (Tex. App.--Tyler 2004, pet. denied) (citing Fulcher v. Tex. State Board of Public Accountancy, 571 S.W.2d 366, 371 (Tex. App.--Corpus Christi 1978, writ ref'd n.r.e). In relevant part, rule 12 provides, "A party in a suit or proceeding pending in a court of this state may, by sworn written motion stating that he believes the suit or proceeding is being prosecuted or defended without authority, cause the attorney to be cited to appear before the court and show his authority to act." Tex. R. Civ. P. 12. Although rule 12 now applies equally to both sides of the bar, we question whether its application would serve any legitimate purpose in a situation such as this, where the record conclusively establishes the attorney's lack of authority.

Attorney Castanon never suggested to the trial court that he actually represented Garza as her attorney. To the contrary, Castanon's client remained State Farm throughout the litigation, a fact which has been admitted. Indeed, Castanon has even filed an appellate brief on behalf of State Farm, not Garza, who has filed no appellate brief.

Far from representing Garza as a client or protecting her interests, attorney Castanon sued Garza on behalf of State Farm and even took a default judgment against her. By the time Perez's personal injury action went to trial, a binding judgment from a different court stated that State Farm had no duty to defend Garza, who, as a result of the lawsuit, was an uninsured party in the personal injury action. Acting as the presiding judge of the 24th District Court, Judge Williams then allowed State Farm to remove attorney Gilreath from the personal injury action, leaving Garza not only uninsured but also pro se.

Given the judgment signed by Judge Williams in the 377th District Court and the order signed by Judge Williams in the 24th District Court, there is no question that Garza was pro se at the trial on Perez's personal injury claims. Given that attorney Castanon had previously sued and taken a default judgment against Garza on behalf of State Farm, was never designated of record to be Garza's attorney, and remained the attorney in charge for State Farm, there was simply no basis for invoking rule 12 to challenge his actions in misrepresenting his identity to the jury. Rule 12 does not contemplate a situation in which an attorney admits from the outset that he or she has no authority for representation but requests to do so anyway--solely before the jury at trial--so that an unrelated-third party may reap collateral benefits. The proper way for State Farm to protect its interests against an uninsured motorist presenting an insubstantial defense or defaulting at a trial such as this is to withhold consent to suit between the uninsured and insured motorists. See Allstate Ins. Co. v. Hunt, 469 S.W.2d 151, 153 (Tex. 1971).

We conclude that the trial court erred in allowing attorney Castanon to conceal his identity from the jury. Castanon is admittedly State Farm's attorney. With full knowledge of this fact, the trial court nevertheless allowed him to conceal his identity from the jury. The trial court also allowed Castanon to act before the jury in the capacity of Garza's attorney, a capacity which the trial court's records conclusively establish Castanon did not have. In holding that the trial court erred in doing so, we note that, under Rule 10, any substituted attorney "be designated of record with notice to all other parties in accordance with Rule 21a." Tex. R. Civ. P. 10. Because there were no such designations or notice in this case, there was no basis for the trial court to recognize Castanon as Garza's attorney, even if only for the purposes of concealing Castanon's true client from the jury. See id. Even assuming that attorney Castanon did have Garza's consent to legal representation--a tremendously dubious assumption on these facts--and assuming further that Rule 10 would not be violated by his participation with designation of record, Perez has argued that there was also a fatal conflict of interest in this case that would have rendered the trial court's ruling nevertheless erroneous. We agree.

The basis for the conflict is well-explained in Allstate Ins. Co. v. Hunt. See id. There, the Texas Supreme Court clarified that the primary duty of an insurance company is to its insured. Id. at 152. The Court then proceeded to decide the "basic issue" presented in the case, which was "whether a co-defendant insurance company shall be permitted to defend an uninsured motorist against its own insured in an attempt to prevent or limit recovery by its insured after the insurance company has requested and been granted a separate trial." Id. at 152. The Supreme Court concluded that "it should be left to the discretion of the trial court to pass upon the disqualification or conflict of interest, with the burden being upon the insurance company to show no substantial conflict of interest." Id. at 153. The Court cited the likelihood that the insurance company would be put in a position to defend two antagonists at trial as a primary consideration in evaluating fatal conflicts arising in uninsured motorist cases. Id.

Here, the uninsured and insured motorists were squarely at odds. Garza, the uninsured motorist, alleged among other things that Perez, State Farm's insured, was the sole proximate cause of the accident. Perez, in contrast, blamed Kleinert and Garza for the accident. Thus, to defend Garza, State Farm was called to oppose its insured, Perez, in the lawsuit.

We see a substantial conflict of interest in State Farm doing so. Although attorney Castanon chose not to pursue Garza's allegations that Perez was the sole proximate cause of the accident, the allegations were included in the live pleadings that were tried to the jury. At trial, attorney Castanon abandoned Garza's negligence per se claim against Kleinert, a claim which Perez had also asserted against Kleinert, as well as against Garza. Attorney Castanon even collaborated with counsel for Kleinert in opposing Perez's request for a jury instruction on negligence per se. Counsel for Kleinert and attorney Castanon also made a common defense on Perez's pre-existing condition and damages.

In the face of these conflicts and despite Perez' s numerous objections to counsel's participation on behalf of the absent and uninsured Garza, attorney Castanon never attempted to meet State Farm's burden of showing that there existed no substantial conflict of interest. See id. In fact, attorney Castanon made no attempt to justify his actions when they were challenged before the jury for the first time. Even at the hearing on Perez's motion for new trial and on appeal, attorney Castanon has only addressed this issue as one of "injecting insurance" into a personal injury case. See Tex. R. Evid. 411. We do not view the issues created by the trial court's ruling to be evidentiary in nature so as to come under the purview of rule 411. See id.

We also do not find any merit in State Farm's contention on appeal that, at the time of trial, the interests of State Farm were aligned with Garza. Based on the facts detailed above, this is obviously quite a departure from the truth. At the time of trial, State Farm had successfully sued Garza for a default judgment that rendered her an uninsured, pro se defendant. Even if State Farm's antagonism toward Garza were somehow ignored and we were able conclude that State Farm and Garza actually had aligned interests, that consideration would not validate the trial court's actions. To the contrary, it would further demonstrate a conflict of interest because State Farm had aligned itself with an uninsured motorist in order to defeat claims by its insured.

State Farm also argues on appeal that attorney Castanon participated in the personal injury trial because it served the interests of judicial economy to have the claims against State Farm tried together with the claims against Kleinert and Garza. We disagree. The claims against State Farm were not tried together with the claims against Kleinert and Garza. The claims against State Farm were specifically ordered to be tried separately.

On this record, there is no basis for concluding that State Farm rebutted or attempted to rebut the presumption precluding its representation of Garza through common counsel. See Nationwide Mut. Ins. Co. v. Patterson, 962 S.W.2d 714, 716 (Tex. App.--Austin 1998, pet. denied). Accordingly, the trial court erred by allowing counsel for State Farm to represent the interests of Garza before the jury. See Gov't Employees Ins. Co. v. Lichte, 792 S.W.2d 546, 547 (Tex. App.--El Paso 1990, writ denied) (concluding that insurance company "could not have represented the uninsured motorist's interest at . . . hearing because a conflict of interest would occur . . . because the main duty of the insurance company is to the insured.").

Perez's third issue is sustained. On the facts detailed above, we conclude that the error in allowing counsel's unauthorized participation at trial under false pretenses probably caused the rendition of an improper judgment. See Tex. R. App. P. 44.1(a)(1). The judgment is therefore reversed and the case is remanded for a new trial.

________________________ DORI CONTRERAS GARZA,

JUSTICE

   Opinion delivered and filed

this the 31st day of August, 2006.

1.

  ¹   This is confirmed by agreement of the parties, by the reporter's record of the trial, and by the trial court's "final judgment," which states, "Defendant Alexandria Marie Garza did not appear for trial." As noted above, no attorney of record was designated for Garza after the trial court ordered attorney Gilreath and his law firm withdrawn from the case.