Jerry Allen v. Union Standard Ins. Co. ( 2013 )

Opinion filed August 30, 2013
In The
Eleventh Court of Appeals
__________
No. 11-12-00233-CV
__________
JERRY ALLEN, Appellant
V.
UNION STANDARD INS. CO., Appellee
On Appeal from the 70th District Court
Ector County, Texas
Trial Court Cause No. A-67,038
MEMORANDUM OPINION
Jerry Allen sued Union Ins. Co. for bad faith and other claims arising out of his
workers’ compensation injuries and subsequent care. Union was the workers’
compensation carrier that provided coverage to Allen on behalf of Allen’s employer.
Union moved for summary judgment on an affirmative defense of res judicata; Union
argued that the federal court had already ruled against Allen on his claims and that
those claims were barred, even in state court. The trial court granted summary
judgment in Union’s favor; Allen appealed. The issue before this court is whether
Allen’s state court action is barred, under the doctrine of res judicata, because the
federal court dismissed his claims without prejudice. We reverse and remand.
I. Procedural History
This case stems from a 1985 judgment against Union under then-existing laws
of workers’ compensation. 1 A brief procedural summary follows.
A. Original Judgment
In 1981, Allen was injured in the course and scope of his employment. The
161st District Court of Ector County entered judgment in 1985 in favor of Allen. In
that judgment, the trial court made Union liable for future medical expenses as
provided by then-existing workers’ compensation laws. Union remained liable for all
future medical benefits that were not settled or limited in time.
B. Removal to Federal Court
In 2010, Allen sued Union. He alleged that Union had violated the duty of good
faith and fair dealing and committed fraud when it failed to pay his continued medical
costs and failed to conduct a reasonable investigation to determine whether there was
a reasonable basis to deny his benefits. Union alleged diversity jurisdiction and
removed the suit to the United States District Court for the Western District of Texas.
The federal court stayed the suit to allow Allen and Union to conduct an
administrative hearing on the compensability issue. The Texas Department of
Insurance, Division of Workers’ Compensation, stated that, after the original judgment
1
The Texas Workers’ Compensation Act, herein referred to as “Old Law,” was repealed effective
January 1, 1991, but is continued in effect for claims for injuries that occurred prior to January 1, 1991. Act
of Dec. 12, 1989, 71st Leg., 2nd C.S., ch. 1, §§ 16.01, 17.18, 1989 Tex. Gen. Laws 1, 114, 122.
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in 1985 by the state trial court, the Division maintained limited jurisdiction over
Allen’s workers’ compensation claims. 2 The Division hears worker complaints when,
after medical services are rendered, the insurance company either refuses to pay or
reduces the payment. The Division can determine the liability of the workers’
compensation carrier for the cost and expenses of medical benefits already incurred.
In order to make such a determination here, the Division required Allen to submit an
itemized bill and documentation from Union to show that Union refused to pay or that
it reduced the payment. The record does not reflect whether Allen has submitted any
documentation to the Division.
The federal court granted Union’s motion to dismiss without prejudice and
dismissed the suit. The federal court stated in its order that it lacked jurisdiction over
Allen’s claims because, when the suit was brought, Allen had not exhausted his
administrative remedies.
C. Enforcement Proceedings
Following the federal court’s dismissal without prejudice, Allen filed the current
lawsuit in the 70th District Court in Ector County and sought enforcement of the 1985
judgment. Union moved for summary judgment and alleged that the affirmative
defense of res judicata barred Allen’s enforcement claim. The trial court granted
Union’s motion for summary judgment. After granting Union’s motion, the trial court
denied Allen’s motion for new trial; Allen then filed this appeal.
2
The predecessor to the Division of Workers’ Compensation was the Texas Workers’ Compensation
Commission, which replaced the Industrial Accident Board. See Act of December 12, 1989, 71st Leg., 2nd
C.S., ch. 1, §§ 2.01, 17.01, 1989 Tex. Gen. Laws 6, 115, repealed by Act of May 12, 1993, 73rd Leg., R.S.,
ch. 269, § 5.2, 1993 Tex. Gen. Laws 1273. The Commission was abolished in 2005, and all powers and
duties were transferred to the Division. See Act of May 29, 2005, 79th Leg., R.S., ch. 265, §§ 1.003, 8.001,
2005 Tex. Gen. Laws 469, 470, 607–08.
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II. Standard of Review
We look only to the evidence presented to the trial court when we review
de novo the trial court’s grant of summary judgment. Valence Operating Co. v.
Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); Provident Life & Accident Ins. Co. v.
Knott, 128 S.W.3d 211, 215 (Tex. 2003). We take as true all evidence favorable to the
nonmovant, Allen, and draw all reasonable inferences in his favor. Fort Worth
Osteopathic Hospital, Inc. v. Reese, 148 S.W.3d 94, 99 (Tex. 2004). Any disputed
evidence in favor of Union will not be considered. Great Am. Reserve Ins. Co. v. San
Antonio Plumbing Supply Co., 391 S.W.2d 41, 47 (Tex. 1965).
Union moved for summary judgment on the affirmative defense of res judicata.
See TEX. R. CIV. P. 94, 166a. A properly pleaded affirmative defense may serve as the
basis for a summary judgment. Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492,
494 (Tex. 1991). Union, as the moving party, had the burden to conclusively establish
all elements of its affirmative defense; Union must have shown that there were no
disputed issues of material fact, and that it was entitled to judgment as a matter of law.
TEX. R. CIV. P. 166a(c); Knott, 128 S.W.3d at 215–16; D. Houston, Inc. v. Love, 92
S.W.3d 450, 454 (Tex. 2002); Montgomery v. Kennedy, 669 S.W.2d 309, 310–11 (Tex.
1984). Once a defendant establishes a right to summary judgment as a matter of law,
the burden shifts to the plaintiff to present evidence raising a genuine issue of material
fact. City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678–79 (Tex.
1979).
III. Doctrine of Res Judicata
Allen argues that res judicata does not operate to bar his enforcement claim.
Allen asserts that Union was not entitled to judgment as a matter of law because his
enforcement claim was not part of the federal lawsuit and because the federal court
did not have jurisdiction to enforce the original 1985 judgment. Union argues that the
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federal court’s dismissal without prejudice bars Allen’s enforcement action in the state
district court.
The doctrine of res judicata involves the conclusive effects of judgments,
encompassing two separate categories: (1) claim preclusion (usually referred to as res
judicata) and (2) issue preclusion (usually called collateral estoppel). Barr v.
Resolution Trust Corp. ex rel. Sunbelt Fed. Savs., 837 S.W.2d 627, 628 (Tex. 1992)
(citing Puga v. Donna Fruit Co., Inc., 634 S.W.2d 677, 679 (Tex. 1982)). Some courts
have confused the two doctrines and used them interchangeably. Jeanes v. Henderson,
688 S.W.2d 100, 103 (Tex. 1985).
We decline to address issue preclusion because we cannot review a ground for
summary judgment not expressly presented to the trial court. TEX. R. CIV. P. 166a(c);
McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337, 341 (Tex. 1993); see also
Smith v. Killion, No. 11-11-00083-CV, 2013 WL 1859336, at *5 (Tex. App.—Eastland
Apr. 30, 2013, no pet. h.) (“In those cases where a motion for summary judgment was
filed in which specific grounds were asserted, summary judgment cannot be upheld on
grounds that were not asserted in the motion, even though the evidence supports the
unasserted grounds.”). Claim preclusion was the sole ground in Union’s motion for
summary judgment.
The basis for Union’s removal of Allen’s suit to federal court was diversity
jurisdiction. We consider the preclusive effect of federal judgments in diversity cases
under Texas rules of preclusion. Taylor v. Sturgell, 553 U.S. 880, 891 n.4 (2008);
Semtek Int’l, Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001); Truck Ins.
Exch. v. Mid-Continent Cas. Co., 320 S.W.3d 613, 617–18 (Tex. App.—Austin 2010,
no pet.); Heartland Holdings, Inc. v. U.S. Trust Co. of Tex. N.A., 316 S.W.3d 1, 10
(Tex. App.—Houston [14th Dist.] 2010, no pet.); Madera Prod. Co. v. Atl. Richfield
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Co., 107 S.W.3d 652, 661 (Tex. App.—Texarkana 2003, pet. denied in part, dism’d in
part).
Res judicata or claim preclusion prevents the relitigation of a claim or cause of
action that has been finally adjudicated, as well as related matters that, with the use of
diligence, should have been litigated in the prior suit. Barr, 837 S.W.2d at 628 (citing
Gracia v. RC Cola-7-Up Bottling Co., 667 S.W.2d 517, 519 (Tex. 1984), and
Bonniwell v. Beech Aircraft Corp., 663 S.W.2d 816, 818 (Tex. 1984)). Claim
preclusion is final not only as to the matter determined, but also as to every other
matter that the parties could have litigated in the cause and might have decided. Barr,
837 S.W.2d at 629. Under claim preclusion, any cause of action that arises out of the
same facts should be litigated in the same lawsuit, if practicable. Id. at 630.
Under Texas law, whether a claim is precluded is determined by three factors:
(1) whether a prior judgment on the merits was entered by a court of competent
jurisdiction; (2) whether the prior suit involves the same parties or those in privity
with them; and (3) whether the second action is based on the same claims as raised or
could have been raised in the prior suit. Citizens Ins. Co. of Am. v. Daccach, 217
S.W.3d 430, 449 (Tex. 2007). Because we hold that there was no prior judgment on
the merits, we need not address the second and third elements. Our examination of
the first element of the test establishes that the federal court dismissal without
prejudice is not res judicata as to Allen’s claims in state court.
First, Allen argues that the federal court dismissal without prejudice was not an
adjudication on the merits by a court of competent jurisdiction. In Semtek, the
Supreme Court noted that not necessarily all judgments denominated “on the merits”
are entitled to claim preclusive effect. Semtek Int’l, Inc., 531 U.S. at 501. Interpreting
Federal Rule of Civil Procedure 41(b), the Semtek Court concluded that adjudication
on the merits is the opposite of a dismissal without prejudice. Id. at 505. The effect of
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adjudication on the merits under Rule 41(b) is “simply that, unlike a dismissal
‘without prejudice,’” the dismissal with prejudice barred refiling of the same claim in
the same court. Id. at 506. But we do not have that adjudication “on the merits” in
this case because the federal court dismissed without prejudice.
“A party aggrieved by a decision of the [Division] has the right to seek judicial
review if it has first exhausted its administrative remedies.” Tex. Dep’t of Ins., Div. of
Workers’ Comp. v. Jackson, 225 S.W.3d 734, 736 (Tex. App.—Eastland 2007, no
pet.). The exhaustion of the administrative process operates like a condition
precedent. Here, the federal court entered a dismissal without prejudice in federal
court, not a decision on the merits; therefore, Allen could refile his claim in the
original state court without preclusive effect.
When a federal district court dismisses a suit for lack of subject-matter
jurisdiction, the disposition is “without prejudice on the merits, which are open to
review in state court to the extent the state’s law of preclusion permits.”
Frederiksen v. City of Lockport, 384 F.3d 437, 438 (7th Cir. 2004); see also FED. R.
CIV. P. 41(b). Allen’s claims of bad faith and fraud were dismissed without prejudice
by the federal court. Dismissal without prejudice does not have the force of a
judgment on the merits. Semtek Int’l, Inc., 531 U.S. at 505; McConnell v. Attorney
Gen. of Tex., 878 S.W.2d 281, 283 (Tex. App.—Corpus Christi 1994, no writ); Bell v.
Moores, 832 S.W.2d 749, 755 (Tex. App.—Houston [14th Dist.] 1992, writ denied).
Union’s affirmative defense of res judicata on the basis of claim preclusion fails on
this element. We sustain Allen’s issue.
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IV. This Court’s Ruling
We reverse the judgment of the trial court, and we remand the cause to the trial
court for further proceedings.
MIKE WILLSON
JUSTICE
August 30, 2013
Panel consists of: Wright, C.J.,
McCall, J., and Willson, J.
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