In The
Court of Appeals
Ninth District of Texas at Beaumont
__________________
NO. 09-19-00306-CV __________________
FAIRLAWN ASSETS, LLC, JOHN FERRANTE, AND JARROD FREEBORN, Appellants
V.
BARBARA BOOKER, AS GUARDIAN OF THE PERSON AND ESTATE OF M.H., Appellee
__________________________________________________________________
On Appeal from the 60th District Court Jefferson County, Texas Trial Cause No. B-202,429 __________________________________________________________________
MEMORANDUM OPINION
This is an accelerated interlocutory appeal from the trial court’s order denying
appellants’ motion to dismiss pursuant to the Texas Citizens Participation Act
(“TCPA”).1 We affirm the trial court’s judgment.
1 The Legislature amended the TCPA, effective September 1, 2019. See Act of May 17, 2019, 86th Leg., R.S., ch. 378, §§ 11, 12, 2019 Tex. Gen. Laws 684, 687. 1 BACKGROUND
Appellee Barbara Booker, the guardian of the person and estate of M.H., an
incapacitated adult, sued appellants Fairlawn Assets, LLC (“Fairlawn”), John
Ferrante, and Jarrod Freeborn, seeking to void a contract M.H. signed, in which
M.H. sold to Fairlawn his right to receive annuity payments pursuant to a structured
settlement agreement. 2 According to Booker’s petition, M.H. has several mental
health conditions, has never been able to manage finances or live independently, and
has minimal reading skills, poor memory, impaired judgment, and is “extremely
suggestible and easily led.” Booker pleaded that Fairlawn “invoked and participated
in the transaction” upon which her lawsuit is based, Ferrante is a member of
Fairlawn, and Freeborn is an independent contractor that Fairlawn engaged to
facilitate the transaction between Fairlawn and M.H. Booker asserted that Fairlawn
was formed by one or more of the individual defendants “to effectuate the illicit
exchange with M.H. with no intention to maintain Fairlawn Assets, LLC as a
corporate entity conducting otherwise legitimate business.”
The amendment only applies to suits filed after its effective date. See id. Therefore, because Booker’s original petition was filed before September 1, 2019, the version of the TCPA that was in effect immediately prior to the 2019 amendment applies to this appeal. See id. 2 Booker also sued other defendants who are not parties to this appeal. 2 Booker asserted that as a result of an injury M.H. sustained as a minor, M.H.
received a settlement structured through an annuity issued by an insurance company.
Booker pleaded that the periodic and lump sum payments provided by the annuity,
together with Social Security disability benefits, Medicaid, and housing benefits,
allowed M.H. to be financially self-sufficient. Booker alleged that M.H. was targeted
by “one or more of the individual defendants . . . because his settlement was
guaranteed by an annuity backed by an insurer with billions in assets and a high
credit rating.”
According to Booker, in February 2016, Fairlawn’s attorney filed an
application for approval of the transfer of M.H.’s structured settlement payment
rights, and attached to Fairlawn’s application was M.H.’s affidavit, which indicated
that M.H. agreed to sell $216,000 in remaining annuity payments for $93,000.
Booker pleaded that after deductions for discounted present value of the payments,
“the net amount to be received by M.H. was 51.13% of current value.” Booker
alleged that Fairlawn, Ferrante, and Freeborn purposely misled the presiding judge
into believing that M.H. had the mental capacity to knowingly enter into the contract.
According to Booker, the trial judge ordered payment of $110,000 to M.H. rather
than the $93,000 Fairlawn requested, but “even this amount was grossly unfair to
M.H., given his lack of mental capacity and the consequence . . . that the transaction
3 . . . would permanently deprive M.H. of government benefits necessary to M.H.’s
care.” Booker pleaded that Fairlawn was dissolved in June 2016. Booker contended
that, as a consequence of selling his annuity and receiving a lump sum payment,
M.H. became ineligible for the Social Security disability and other government
need-based benefits. Booker pleaded that she was appointed as M.H.’s guardian on
April 18, 2018. Booker asserted causes of action for fraudulent misrepresentation,
fraud and fraudulent inducement, fraud by non-disclosure, fraud in a real estate
transaction, conspiracy, tortious interference with an existing contract and
prospective contractual relations, alter ego, and restitution, and she sought to void
the contract.
Fairlawn and Ferrante jointly filed a motion to dismiss pursuant to the TCPA,
in which they argued that Booker’s lawsuit had infringed upon its “protected right
to petition and right of association[.]” Fairlawn and Ferrante asserted that Booker,
as the non-movant, could not meet her burden of showing, by clear and specific
evidence, a prima facie case for each essential element of her claims. In addition,
Fairlawn and Ferrante contended that Booker could not overcome their limitations
defense. Freeborn subsequently filed his own motion to dismiss pursuant to the
TCPA, in which he made arguments identical to those that Fairlawn and Freeborn
had made.
4 Booker filed a response to the defendants’ TCPA motions to dismiss, in which
she characterized defendants’ claims as asserting that the suit “should be dismissed
because the Defendants have a First Amendment right to deceive courts and the
disabled.” According to Booker, the motion to dismiss essentially claims that the
TCPA immunizes appellants from Booker’s lawsuit “because they were exercising
their constitutional right to petition the court to gain approval of a transaction they
fraudulently induced.” Booker contended, among other things, that the TCPA does
not apply to a legal action arising out of an insurance contract, and she maintained
that M.H.’s annuity was issued by The Prudential Insurance Company of America
(“Prudential”). According to Booker, Prudential is registered with the Texas
Department of Insurance as a life, health, or accident insurer.
According to the settlement agreement reached in the personal injury lawsuit
filed by M.H.’s mother, lump sum and future payments would be paid to M.H.
Specifically, the agreement provided that M.H.’s mother would receive $20,710
upon execution of the agreement, and various monthly lump sum and monthly
payments would be made to M.H. throughout his life. The terms of the agreement
expressly permitted the insurer to make a qualified assignment of its liability to make
the period payments required by the agreement to Prudential. The agreement also
provided that the insurer and its assignee “reserve the right to fund their liability to
5 make periodic payments through the purchase of an annuity policy from The
Prudential Insurance Company of America[,]” and the “[i]nsurer and/or the Assignee
shall be the owner of the annuity policy, and shall have all rights of ownership.”
Also on file with the trial court were documents from the Texas Department of
Insurance, which indicated that Prudential is a life, health, and accident company
and is licensed to write accident, health, life, and annuity policies.
The record reflects that Fairlawn filed an application with the 58th District
Court, seeking approval of a proposed transfer of M.H.’s structured settlement
payment rights under the annuity. See generally Tex. Civ. Prac. & Rem. Code Ann.
§ 141.001-.007 (the Structured Settlement Protection Act). In its application,
Fairlawn pleaded that M.H. was entitled to receive tax-free payments under a
structured settlement arrangement and that M.H. agreed to transfer and assign those
rights to Fairlawn. In its application, Fairlawn explained that the insurer purchased
an annuity to fund its obligation to make the periodic payments due to M.H. under
the settlement, identified the insurer as Prudential, and asserted that the proposed
transfer was in M.H.’s best interest. With its application, Fairlawn provided a signed
affidavit from M.H., as well as a copy of the assignment agreement. M.H.’s affidavit
as well as the first paragraph of the assignment agreement both stated that M.H. was
6 due periodic payments pursuant to a settlement agreement, which provided for an
annuity issued by Prudential to make the required payments.
The judge of the 58th District Court signed a final order approving the sale of
M.H.’s partial annuity payments. In the order, the judge found that the proposed
transfer complied with the requirements of the Structured Settlement Protection Act.
See generally id. The judge’s order stated that the insurers would not oppose transfer
of the assigned payments to Fairlawn’s designated assignee under the annuity
contract, which was identified by number, and it required Prudential to make the
assigned payments directly to Fairlawn’s assignee. In addition, the record indicates
that the Texas Department of Insurance licensed Prudential to write, among other
things, variable annuities and “Variable Life[.]” In its responses to interrogatories,
Fairlawn stated that “the only court-approved transfer of annuity payments in the
State of Texas involved [M.H.]” and that Freeborn had discussed with M.H, the
prospect of “selling his annuity payments in exchange for a lump sum payment[.]”
The trial court signed an order denying appellants’ motions to dismiss, and
appellants filed this appeal, in which they raise five issues for our consideration: (1)
Fairlawn’s motion was timely filed; (2) the structured settlement is not an insurance
contract and Booker’s legal action did not arise under an insurance contract; (3) the
TCPA applies because Booker’s lawsuit is based on, related to, or brought in
7 response to appellants’ exercise of their right to petition and right of association; (4)
Booker failed to establish a prima facie case for each essential element of her claims
by clear and specific evidence; and (5) Booker’s DTPA and tortious interference
claims were filed outside the applicable two-year limitations period.
ANALYSIS
As discussed above, appellants argue in issue two that M.H.’s structured
settlement is not an insurance contract and Booker’s legal action did not arise under
an insurance contract. Because issue two is dispositive, we address it first. We
review a trial court’s ruling on a motion to dismiss under the TCPA, including the
trial court’s construction of the TCPA, under a de novo standard. Lippincott v.
Whisenhunt, 462 S.W.3d 507, 509 (Tex. 2015); Dyer v. Medoc Health Servs., LLC,
573 S.W.3d 418, 424 (Tex. App.—Dallas 2019, pet. denied). The purpose of the
TCPA is “to encourage and safeguard the constitutional rights of persons to petition,
speak freely, associate freely, and otherwise participate in government to the
maximum extent permitted by law and, at the same time, protect the rights of a
person to file meritorious lawsuits for demonstrable injury.” Tex. Civ. Prac. & Rem.
8 Code Ann. § 27.002;3 ExxonMobil Pipeline Co. v. Coleman, 512 S.W.3d 895, 898
(Tex. 2017).
The TCPA permits a litigant to seek dismissal of a legal action that is “based
on, relates to, or is in response to a party’s exercise of the right of free speech, right
to petition, or right of association[.]” Act of May 21, 2011, 82nd Leg., R.S., ch. 341,
§ 2, sec. 27.003(a), 2011 Tex. Gen. Laws 960, 962. In determining whether the claim
should be dismissed, “the court shall consider the pleadings and supporting and
opposing affidavits stating the facts on which the liability or defense is based.” Act
of May 1, 2011, 82nd Leg., R.S., ch. 341, § 2, sec. 27.006(a), 2011 Tex. Gen. Laws
960, 962. “Under [s]ection 27.006 of the Act, the trial court may consider pleadings
as evidence.” Serafine v. Blunt, 466 S.W.3d 352, 360 (Tex. App.—Austin 2015, no
pet.) (op. on reh’g).
Section 27.010(d) of the TCPA provides that the TCPA does not apply to a
legal action “arising out of an insurance contract[.]” Act of May 24, 2013, 83rd Leg.,
R.S., ch. 1042, § 3, sec. 27.010(d), 2013 Tex. Gen. Laws 2501, 2501 (current version
at Tex. Civ. Prac. & Rem Code Ann. § 27.010(a)(4)).4 The TCPA does not define
3 We cite to the current version of section 27.002 because it was not affected by the 2019 amendments. 4 Although the 2019 amendment did not change the applicable language, because the sections were amended and renumbered, we cite the pre-amendment version of section 27.010 for clarity. See Tex. Civ. Prac. & Rem. Code Ann. § 9 the terms “arising from” or “insurance contract.” See id.; Act of May 21, 2011, 82nd
Leg., R.S., ch. 341, §§ 1-4, 2011 Tex. Gen. Laws 960. To determine whether the
TCPA applies, we must construe the phrase “arising out of an insurance contract[.]”
In construing a statute, we must “determine and give effect to the Legislature’s
intent.” Nat’l Liab. & Fire Ins. Co. v. Allen, 15 S.W.3d 525, 527 (Tex. 2000). In
determining the Legislature’s intent, we do not confine our review to isolated words,
phrases, or clauses, “but rather we examine the entire act to glean its meaning.”
Meritor Auto., Inc. v. Ruan Leasing Co., 44 S.W.3d 86, 90 (Tex. 2001); see also
Tex. Gov’t Code Ann. § 311.011(a).
We must construe statutory language to ascertain and effectuate legislative
intent, and we presume that the Legislature intends the plain meaning of its words.
Epco Holdings, Inc. v. Chicago Bridge & Iron Co., 352 S.W.3d 265, 269-70 (Tex.
App.—Houston [14th Dist.] 2011, pet. dism’d). We presume that every word of a
statute was used for a purpose and every omitted word was purposefully not chosen.
Id. at 270. Words that are not defined in a statute are read in context and construed
according to the rules of grammar and common usage. Tex. Gov’t Code Ann. §
311.011(a). We presume that the Legislature enacted a statute “with complete
27.010(a)(4); Act of May 24, 2013, 83rd Leg., R.S., ch. 1042, § 3, sec. 27.010(d), 2013 Tex. Gen. Laws 2501, 2501 (both stating that the TCPA does not apply to a legal action “arising out of an insurance contract”). 10 knowledge of the existing law and with reference to it.” Acker v. Tex. Water
Comm’n, 790 S.W.2d 299, 301 (Tex. 1990).
The TCPA defines a “legal action” as “a lawsuit, cause of action, petition,
complaint, cross-claim, or counterclaim or any other judicial pleading or filing that
requests legal or equitable relief.” Act of May 21, 2011, 82nd Leg., R.S., ch. 341, §
2, sec. 27.001(6), 2011 Tex. Gen. Laws 960. “‘[A] cause of action’ means the fact
or facts entitling one to institute and maintain an action, which must be alleged and
proved in order to obtain relief.” Loaisiga v. Cerda, 379 S.W.3d 248, 262 (Tex.
2012). “A ‘cause of action’ consists of the operative facts entitling the plaintiff to
the relief sought.” Robert B. James, DDS, Inc. v. Elkins, 553 S.W.3d 596, 604 (Tex.
App.—San Antonio 2018, pet. denied).
To resolve issue two, we must construe the phrases “arising out of” and
“insurance contract” as used in section 27.010(d) and then apply section 27.010(d)
to the facts of this case. See Act of May 24, 2013, 83rd Leg., R.S., ch. 1042, § 3, sec.
27.010(d), 2013 Tex. Gen. Laws 2501, 2501 (current version at Tex. Civ. Prac. &
Rem Code Ann. § 27.010(a)(4)). We find the opinion of our sister Court of Appeals
in Elkins instructive. In Elkins, a dental practice hired a dentist (Elkins) for its
practice and subsequently investigated Elkins for theft, reported Elkins to the police,
and made an insurance claim based upon the purported theft. Id. at 602. Elkins
11 subsequently sued the practice for defamation, business disparagement, intentional
infliction of emotional distress, and civil conspiracy. Id. The trial court denied the
dental practice’s motion to dismiss under the TCPA, and the dental practice
appealed. Id. One of the issues before the Elkins court was whether the legal actions
Elkins brought against the dental practice and the individual appellants fell within
the insurance contract exemption set forth in section 27.010(d). Id. at 603. As the
Elkins court noted, “[t]he insurance contract exemption in section 27.010(d) does
not exempt legal actions ‘seeking recovery for benefits under’ an insurance
contract[;]” rather, “the plain language of section 27.010(d) exempts legal actions
‘arising out of’ an insurance contract, regardless of whether the legal action is
‘seeking recovery for benefits under’ an insurance contract and regardless of
whether the nature of the claim sounds in tort or in contract.” Id. at 604. “The text
of the TCPA as a whole demonstrates the Legislature knew how to use narrower
qualifying phrases, and could have limited the insurance contract exemption to legal
actions ‘brought under’ or ‘based on’ an insurance contract.” Id.
As the Elkins court explained, the plain meaning of “‘arise’” is “‘[t]o
originate; to stem (from)’” or “‘[t]o result (from)[,]’” and the Texas Supreme Court
has held that, in the context of construing insurance contracts, the term “‘arise out
of’ means that there is simply ‘a causal connection or relation,’ which is interpreted
12 to mean that there is but for causation, though not necessarily direct or proximate
causation.” Id. at 605. The Elkins court concluded that although the TCPA does not
define the term “insurance contract,” “the plain meaning of the term undoubtedly
includes an insurance policy or agreement that governs the legal rights of and
relationship between an insurer and insured regarding insurance benefits.” Id. at 606.
When determining whether a legal action arises out of an insurance contract, we
must consider not only the insurance contract, but other alleged facts involving the
insurance contract. Id. According to the Elkins court, the term “arising out of” in the
insurance contract exemption requires something more than the mere presence of an
insurance contract or a cause of action merely having any relationship to an
insurance contract[,]” but it requires less than a cause of action being based on,
brought under, seeking benefits under, or seeking recovery for breach of an
insurance contract. Id. The Elkins court held that “‘arising out of an insurance
contract’” required “that the insurance contract be a ‘but-for’ or motivating cause of
the alleged facts entitling the plaintiff to relief, or that the alleged facts entitling the
plaintiff to relief have a nexus to or originate in a contractual relationship between
an insurer and an insured for insurance benefits.” Id.
In the case sub judice, Fairlawn sought to acquire M.H.’s right to receive
payments under the structured settlement agreement, which provided for the
13 purchase of an annuity to fund the obligation to M.H. To do so, Fairlawn applied to
the 58th District Court for approval of the proposed transfer, as required by the
Structured Settlement Protection Act (“SSPA”), and Fairlawn cited the SSPA in its
application. See generally Tex. Civ. Prac. & Rem. Code Ann. § 141.001-.007. The
SSPA defines an “[a]nnuity issuer” as “an insurer that has issued a contract to fund
periodic payments under a structured settlement.” Tex. Civ. Prac. & Rem. Code Ann.
§ 141.002(1) (emphasis added). In addition, the Texas Insurance Code provides that
“an annuity contract is considered an insurance policy or contract if the annuity
contract is issued: (1) by a life, health, or accident insurance company . . . .” Tex.
Ins. Code Ann. § 1108.002(1). As discussed above, documents from the Texas
Department of Insurance, which were filed with the trial court, indicate that the
annuity issuer, Prudential, is a life, health, and accident company and is licensed to
write accident, health, life, and annuity policies.
Giving the undefined terms in section 27.010(d) their plain meaning,
presuming that the Legislature enacted the TCPA with complete knowledge of
existing law and with reference to it, and following the analysis and interpretation
of section 27.010(d) in Elkins, we conclude that Booker’s causes of action “arise out
of” an insurance contract. See Tex. Gov’t Code Ann. § 311.011(a); Acker, 790
S.W.2d at 301; Elkins, 553 S.W.3d at 602-06; Epco Holdings, 352 S.W.3d at 269-
14 70. The payments to which M.H. was entitled were being made pursuant to an
annuity contract, issued by an insurer, and the 58th District Court’s order permitting
the transfer from M.H. to Fairlawn under the SSPA identified the annuity contract
by number. The annuity contract issued by Prudential is one of the operative facts
upon which Booker’s requested relief is based. See Elkins, 553 S.W.3d at 606. For
all these reasons, we conclude that the TCPA does not apply to the Booker’s claims
against appellants. We overrule issue two. Having concluded that the TCPA does
not apply, we need not consider appellants’ remaining issues, which pertain to the
merits of appellants’ TCPA motion to dismiss and its timeliness. See Tex. R. App.
P. 47.1. We affirm the trial court’s order denying appellants’ motion to dismiss.
AFFIRMED.
_________________________ STEVE McKEITHEN Chief Justice
Submitted on January 24, 2020 Opinion Delivered May 7, 2020
Before McKeithen, C.J., Kreger and Johnson, JJ.