TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-04-00813-CV
Appellants, Dr. Phillip Osborne and Deborah Osborne //
Cross-Appellant, State Farm Lloyds
v.
Appellee, Jauregui, Inc. // Cross-Appellees, Dr. Phillip Osborne and Deborah Osborne
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT
NO. 99-08727, HONORABLE SUZANNE COVINGTON, JUDGE PRESIDING
D I S S E N T I N G O P I N I O N
Because I believe the trial court properly denied the Osbornes' request for attorney's
fees but improperly denied State Farm's request for subrogation rights, I must respectfully dissent.
The Osbornes bought their house in 1997 for slightly more than $1 million. State
Farm paid the Osbornes a total of $1,874,687, (1) and the Osbornes sold the house "as is" before trial
for $750,000. The Osbornes settled before trial with the defendants, obtaining $1,260,500 that was
placed into the court's registry, and proceeded to trial against Jauregui. The jury found that the
Osbornes suffered damages totaling $835,158.78 and that Jauregui was responsible for 48% of those
damages; the settling defendants were found to be responsible for 52% of the damages. The trial
court found that the Osbornes had incurred $1,149,641.30 in attorney's fees, $17,606.01 of which
they have already been paid. The Osbornes now seek $1,132,035.29 in attorney's fees, plus $50,000
for appellate fees, and seek to keep the $1.2 million in settlement funds.
I cannot agree with the majority's conclusions that State Farm is not entitled to
subrogation against the settlement funds or that the Osbornes can be considered "prevailing parties"
who may recover attorney's fees from Jauregui. I believe that the majority's holding violates the
one-satisfaction rule and State Farm's rights to subrogation. My disagreement with the majority with
regard to both attorney's fees and subrogation is guided by my belief that a plaintiff should not
continue to litigate a claim after being fully compensated and made whole.
Attorney's Fees
The majority states that "the jury found Jauregui responsible for $835,000 in
damages." This, however, is not accurate. The jury found that Jauregui was responsible for 48%
of those damages, which amounts to $400,876.21. Under the DTPA, a prevailing plaintiff may
recover reasonable attorney's fees, Tex. Bus. & Comm. Code Ann. § 17.50(d) (West Supp. 2006),
and the supreme court has explained that to "prevail" under the DTPA means "to prevail in a claim
under the Act, rather than to obtain a net recovery on all claims joined in one lawsuit." McKinley
v. Drozd, 685 S.W.2d 7, 9 (Tex. 1985). A plaintiff may be considered a prevailing party and thus
may recover attorney's fees even if his claim is "entirely offset by a claim of an opposing party."
Id.; Roberts v. Grande, 868 S.W.2d 956, 962 (Tex. App.--Houston [14th Dist.] 1994, no writ).
I agree with our sister court, which stated that the rule that a net recovery is not
necessary for a plaintiff to be considered a prevailing party "does not apply in a case in which a
consumer has already received payment of an amount equal to or greater than the damages found by
the fact finder in the trial of the consumer's case against the non-settling defendant." Hamra
v. Gulden, 898 S.W.2d 16, 19 (Tex. App.--Dallas 1995, writ dism'd w.o.j.). "It is one thing to allow
a party an attorney's fees award on a successful claim notwithstanding an opposing party's success
on an offsetting claim. However, it is another to allow attorney's fees on a claim that, although
successful, was paid in full before trial." Id.; see also Buccaneer Homes of Ala., Inc. v. Pelis,
43 S.W.3d 586, 591 (Tex. App.--Houston [1st Dist.] 2001, no pet.) (consumer sued retailer and
manufacturer, settling pretrial with retailer, and jury found manufacturer breached warranty; because
damages were paid in full under pretrial settlement with retailer, consumer could not recover
attorney's fees from manufacturer). In McKinley, the supreme court held that under the DTPA, "the
more sensible meaning of the word 'prevail' is to prevail in a claim under the Act, rather than to
obtain a net recovery on all claims joined in one lawsuit," 685 S.W.2d at 9, but it did not hold that
a claim entirely offset by the settlement of that same claim by other defendants could support an
award of attorney's fees. McKinley considered only whether one party's damages award, which was
offset by a damages award for the opposing party's claims against them, could support an award of
attorney's fees. See id. at 8-9.
The settling defendants paid $1,260,500 to settle the very claims the Osbornes
asserted against Jauregui. (2) I would hold that under these circumstances the Osbornes cannot be
considered prevailing parties under the DTPA.
I also believe that the majority's holding promotes a bad public policy in that it
encourages a plaintiff to gamble on continuing to trial despite having been fairly compensated for
his damages, in essence proceeding to trial on the chance that he might recover more than his real
damages solely to obtain attorney's fees. If a plaintiff can recover attorney's fees that accrue after
he is fully compensated by continuing to litigate a claim after being made whole, he risks nothing
by seeking more recovery than he is entitled to under the one-satisfaction rule. This does not
promote justice or efficiency in our legal system.
A plaintiff who chooses to continue litigation after he has been fully compensated for
his damages should not be allowed to recover attorney's fees incurred in seeking excess
compensation after he is made whole. Because the claims on which the jury found against Jauregui
were the same as those settled in an amount well in excess of the jury's award and because the
Osbornes utterly failed to even attempt to segregate their attorney's fees, I would hold that the trial
court did not err in finding that the Osbornes may not recover attorney's fees from Jauregui. See
Buccaneer Homes, 43 S.W.3d at 591; Hamra, 898 S.W.2d at 19.
Subrogation
I further disagree with the majority's conclusion that State Farm has not shown itself
entitled to subrogation against the settlement funds and believe that State Farm's contractual
subrogation rights trump considerations of equity under the supreme court's recent decision in Fortis
Benefits v. Cantu, No. 05-0791, 2007 Tex. LEXIS 603, at *18-19 (Tex. June 29, 2007). The contract
provides that State Farm "may require an assignment of rights" and that if such an assignment is
sought, the insured "must" sign any necessary documents to accomplish the assignment. The
majority states that because the provision only says that State Farm may ask for an assignment, the
provision is ambiguous. I would emphasize the word "require" instead, which means that although
State Farm's subrogation rights were not automatically asserted, when State Farm chose to assert its
rights, the Osbornes were required to cooperate. In other words, once State Farm informed the
Osbornes that it was seeking both contractual and equitable subrogation, the Osbornes were
contractually required to cooperate.
Even if Fortis Benefits does not control to require subrogation under the contract, I
would hold that State Farm is entitled to subrogation under equitable principles. First, I disagree
with the majority's concerns about State Farm's appellate arguments that the Osbornes should not
recover attorney's fees. State Farm acted in furtherance of its insureds' interests up through trial,
assisting in negotiating settlements and providing evidence that the Osbornes suffered damages well
in excess of those found by the jury. The Osbornes' "efforts to achieve the fullest possible recovery"
are in direct opposition to State Farm's interests in the settlement funds, and I do not believe we
should fault State Farm for its appellate stand against the Osbornes, taken only post-trial and post-judgment and after the Osbornes have opposed State Farm. Nor do I agree that State Farm's
assertions that the Osbornes should not be awarded attorney's fees undercuts its rights to subrogation
in equity. The majority, which later notes that at trial State Farm attempted to bolster the Osbornes'
assertions of damages beyond those found by the jury, seems to fault State Farm coming and going,
holding against it the fact that it opposes the Osbornes' continued quest for over-recovery, but
penalizing it for assisting the Osbornes in maximizing their damages award from the jury.
I also disagree with the majority's statement that State Farm's assertions about the
damages suffered by their insured or its testimony about sums it paid to the Osbornes under the
policy were judicial admissions. State Farm paid the Osbornes well beyond the damages found by
the jury, relying on expert opinions, and, although those payments were later determined to be
excessive, State Farm was still entitled to seek subrogation from the payments made by the settling
defendants. The majority states that allowing State Farm to first attempt to obtain maximum
recovery for its insured, motivated at least in part by its hopes of obtaining some repayment for the
payments it made under the insurance policy, and then argue that the Osbornes' damages are limited
to the jury's finding would mean that insureds in the future would risk being asked to repay
excessive insurance payments through sums paid for uncovered damages, such as mental anguish,
but I disagree. The trial court ruled that the Osbornes were not entitled to damages for mental
anguish. Thus, State Farm is not seeking reimbursement from settlements paying for "uncovered
damages." Nor has State Farm suggested that the Osbornes should repay the overpaid sums out of
their own pockets. It seeks only to exercise contractual and equitable subrogation rights in the sums
paid to settle the very claims covered by State Farm's insurance payments. (3) In the context of a
subrogation action, an insurer should be able to assert that due to whatever cause it has overpaid an
insured's claim, as evidenced by a jury's final determination of damages, and should be free to
pursue subrogation rights in sums paid to settle the claims it paid to its insured.
I disagree that State Farm failed to show that the settlements paid for the same claims
paid under the policy. The jury's verdict determined the damages suffered by the Osbornes, and I
believe we and the parties are bound by that determination. Thus, the settlement funds, paid by
defendants against whom the Osbornes asserted the same damages found by the jury, paid for the
property damage suffered by the Osbornes, the same injury compensated by State Farm's policy
payments. Because there were no "uncovered" damages suffered in this case, there is no issue of
State Farm recovering its policy payments from sums intended to pay for such uncovered injuries.
Finally, I strongly believe that barring State Farm from asserting subrogation rights
in the settlement funds, thus allowing the Osbornes to recover those monies on top of the sums
already paid by State Farm, violates the one-satisfaction rule. See Tony Gullo Motors I, L.P. v.
Chapa, 212 S.W.3d 299, 303 (Tex. 2006). "[A]n injured party is entitled to but one satisfaction for
the injuries sustained by him." Bradshaw v. Baylor Univ., 84 S.W.2d 703, 705 (Tex. 1935). In other
words, a plaintiff may not recover twice for a single injury. Crown Life Ins. Co. v. Casteel, 22
S.W.3d 378, 390 (Tex. 2000); AMX Enters., Inc. v. Bank One, N.A., 196 S.W.3d 202, 206 (Tex.
App.--Houston [1st Dist.] 2006, pet. denied); Buccaneer Homes, 43 S.W.3d at 589. The one-satisfaction rule is applied to situations in which several defendants commit the same act or when
multiple defendants commit technically different acts that result in the same, single injury. See AMX
Enters., 196 S.W.3d at 206 (citing Casteel, 22 S.W.3d at 390). The application of the rule is not
limited to tort claims, and whether the rule may be applied depends not on the cause of action
asserted but rather the injury sustained. Id. (citing El Paso Natural Gas Co. v. Berryman,
858 S.W.2d 362, 364 (Tex. 1993); Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 8 (Tex. 1991)).
Although the Osbornes sued multiple defendants, they suffered but one injury--the
defective house. The Osbornes in essence concede this point by their argument that they are unable
to segregate their attorney's fees incurred in suing the various defendants, arguing that the claims
were too interrelated to be separated from one another. The jury found that the Osbornes had
suffered $835,158.78 in damages, which was a definitive assessment of the Osbornes' damages. The
Osbornes were entitled to be made whole for their injury, but not to more than is necessary to
accomplish that.
I believe that State Farm is entitled to subrogation under the insurance contract, which
trumps any considerations of equity. See Fortis Benefits, 2007 Tex. LEXIS 603, at *18-19. Even
when we consider equity, this issue raises similar public policy considerations as the question of
whether a party is a prevailing party under the DTPA. The Osbornes filed suit after having been
compensated by their insurer, settled with the subcontractors for an amount well beyond the damages
they suffered and for which they had already been compensated by their insurer, and then continued
with the lawsuit against Jauregui. The Osbornes have already recovered more than the amount in
which they were damaged. Allowing them to recover further sums violates the one-satisfaction rule,
promotes bad public policy, results in a windfall for the Osbornes well beyond the $835,000 in
damages they suffered, and leaves State Farm without remedy to recover any of the nearly
$2,000,000 it paid for the Osbornes' claims. Liberally applying the doctrine, see Matagorda County
v. Texas Ass'n of Counties County Gov't Risk Mgmt. Pool, 975 S.W.2d 782, 785
(Tex. App.--Corpus Christi 1998), aff'd, 52 S.W.3d 128 (Tex. 2000), I would hold that State Farm
is entitled to equitable subrogation against the settlement proceeds.
Conclusion
If the Osbornes prevail on their arguments, they will have received a total of
$3,885,187 (4) in compensation for $835,159 in damages, in addition to more than $1.2 million in
attorney's fees paid by Jauregui, which was found by the jury to be responsible for $400,876.21 of
the Osbornes' damages. This surely violates the one-satisfaction rule, under which an injured party
is entitled only to be made whole for his injury. Because the Osbornes received more in pretrial
settlement of the same claims for which the jury awarded them damages against Jauregui, I would
hold that they are not prevailing parties so as to recover attorney's fees under the DTPA. Further,
I would hold that the trial court erred in refusing to award State Farm contractual subrogation
interests in the settlement funds. Therefore, I respectfully dissent.
__________________________________________
David Puryear, Justice
Before Justices Patterson, Puryear and Henson
Filed: August 29, 2007
1. State Farm paid a total of $1,874,687 for the Osbornes' claims. Most of that was paid to
the Osbornes, including policy limits of $1,071,600 for damage to the structure, but about $500,000
was paid to third parties for alternate living expenses and moving/storage costs. State Farm also paid
more than $150,000 for experts to examine the house and testify at trial.
2. I believe this conclusion is supported by the Osbornes' argument that they could not
segregate fees because the facts necessary to prove their claims against the settling defendants were
"essentially the same facts necessary to prove that Jauregui . . . did not construct the house in a good
and workmanlike manner," noting that Jauregui, as architect and builder, was responsible for the
settling defendants' conduct. I do not, however, believe that the Osbornes may be excused from
segregating their attorney's fees.
3. Texas courts have been "particularly hospitable" to subrogation rights, and equitable
subrogation is applied liberally and broadly. See Harris v. American Prot. Ins. Co., 158 S.W.3d 614,
622 (Tex. App.--Fort Worth 2005, no pet.) (Texas courts are "particularly hospitable" to
subrogation); II Deerfield Ltd. P'ship v. Henry Bldg., Inc., 41 S.W.3d 259, 268 (Tex. App.--San
Antonio 2001, pet. denied) (doctrine of equitable subrogation given liberal and broad application);
see also Rowland & Rowland, P.C. v. Texas Employers Indem. Co., 973 S.W.2d 432, 436
(Tex. App.--Austin 1998, no pet.) ("there is an abundance of case law in which Texas courts have
manifested their interest in examining settlements in third-party actions to ensure an insurance
carrier's right to subrogation"); Yonack v. Interstate Sec. Co., 217 F.2d 649, 651 (5th Cir. 1954)
(Texas courts have been hospitable to subrogation and "have been in the forefront in upholding the
right to it"). The majority's opinion, however, seems to take a distinctly hostile approach.
4. This sum includes the $750,000 the Osbornes received for the sale of the house.