FaulknerUSA, L.P., FaulknerUSA GP, Inc. and Safeco Insurance Company of America v. Alaron Supply Company, Inc.

• Court: Court of Appeals of Texas
• Decided: October 21, 2009
• Docket: 08-09-00119-CV
• Status: Published

Opinion

COURT OF APPEALS EIGHTH DISTRICT OF TEXAS EL PASO, TEXAS

FAULKNERUSA, LP, FAULKNERUSA § GP, INC., AND SAFECO INSURANCE No. 08-09-00119-CV COMPANY OF AMERICA, § Appeal from the Appellants, § 166th District Court v. § of Bexar County, Texas ALARON SUPPLY COMPANY, INC., § (TC#2008-CI-12096) Appellee. §

OPINION ON MOTION

FaulknerUSA, LP, FaulknerUSA GP, Inc. (“Faulkner”), and Safeco Insurance Company of

America (Safeco Insurance), Appellants, seek review of the trial court’s ruling that their surety on

the supersedeas bond was insufficient. Because this case has been transferred to our Court, we apply

the law of the transferring jurisdiction. See TEX . R. APP . P. 41.3. After reviewing the record and the

parties’ contentions, we reverse the trial court’s ruling and hold the bond sufficient.

BACKGROUND

In a contract dispute involving Alaron Supply Company (“Alaron”), Faulkner, and Safeco

Insurance, the trial court rendered judgment against Faulkner and Safeco Insurance for $808,658.74,

plus court costs.1 Faulkner and Safeco Insurance subsequently filed a single supersedeas bond for

$830,000 to cover the judgment, interest, and costs. The surety on Appellants’ bond was American

States. Alaron objected to the surety, claiming American States was a subsidiary of Safeco Insurance

1 W e note that Safeco Insurance and American States Insurance Company (“American States”) were sureties on the project’s original payment bond; however, Alaron did not name American States as a defendant in its suit and no judgment was rendered against American States. and therefore did not qualify as a sufficient surety under state laws.

STANDARD OF REVIEW

The Texas Rules of Appellate Procedure provide a method for appellants to suspend the

execution of judgment by filing a “good and sufficient bond,” by making a cash deposit, or by

providing alternate security ordered by the court. TEX . R. APP . P. 24.1. The intent of the rule is to

enable the appellee to collect the judgment against the appellant and his sureties if the judgment is

affirmed. Lovelace v. Sabine Consol., Inc., 733 S.W.2d 648, 657 (Tex. App.– Houston [14th Dist.]

1987, writ denied); Mudd v. Mudd, 665 S.W.2d 128, 130 (Tex. App.–San Antonio 1983, no writ).

This Court may review the trial court’s ruling in assessing the amount and type of security only upon

a motion filed in this Court by one of the parties. TEX . R. APP . P. 24.4; TransAmerican Nat. Gas

Corp. v. Finkelstein, 905 S.W.2d 412, 414 (Tex. App.–San Antonio 1995, pet. dism’d). We review

the trial court’s ruling on the sufficiency of a supersedeas bond under an abuse-of-discretion

standard. TransAmerican, 905 S.W.2d at 414.

A judgment debtor cannot be his own surety as a surety must answer “for the debt of

another.” Crimmins v. Lowry, 691 S.W.2d 582, 585 (Tex. 1985); TransAmerican, 905 S.W.2d at

414. When a surety provides the losing party security for the payment of the judgment, the surety

must be an entity or individual separate from the judgment debtor and not a party to the suit, whose

solvency and ability to pay the judgment are established. Brown & Root, Inc. v. DeSautell, 554

S.W.2d 764, 771 (Tex. Civ. App.–Houston [1st Dist.] 1977, writ ref’d n.r.e.). The party tendering

the bond bears the burden of establishing that its surety, whether corporate or individual, is a

“sufficient surety.” TransAmerican, 905 S.W.2d at 414.

ANALYSIS

2 On appeal, the parties do not claim that American States is insolvent or lacks the ability to

pay the judgment. Indeed, based on the evidence submitted to the trial court, American States has

over $1 billion in assets. Rather, the sole issue presented is whether American States is a separate

legal entity that may act as surety when its parent company, Safeco Corporation, also owns Safeco

Insurance.

The parties focus much of their analysis on the San Antonio Court of Appeals’ decision in

TransAmerican. There, the trial court rendered judgment against TransAmerican for approximately

$18 million, and pending appeal, TransAmerican filed a supersedeas bond. TransAmerican, 905

S.W.2d at 413. The sureties on the bond were John and Eileen Stanley and Southern States

Exploration, Inc. Id. The Stanleys owned 100 percent of the capital stock in TransAmerican, and

TransAmerican wholly owned Exploration, its third-tier subsidiary. Id. On appeal, the court found

that the Stanleys were not sufficient sureties as they did not have any assets other than their stock

in TransAmerican, and TransAmerican was already at risk to pay the judgment. Id. at 414-15. The

court also found Exploration an insufficient surety as TransAmerican owned 100 percent of

Exploration’s stock, making Exploration at risk by virtue of TransAmerican’s status as a judgment

debtor. Id. at 415.

In determining that the Stanleys and Exploration were insufficient sureties, the court

distinguished the First District’s opinion in Brown & Root, which found a sibling company’s status

as a surety sufficient when it was not a party to the suit. TransAmerican, 905 S.W.2d at 415; Brown

& Root, 554 S.W.2d at 771. In that case, the judgment debtor, Brown & Root, and its surety,

Highlands Insurance Company, were both wholly-owned subsidiaries of Halliburton. Brown & Root,

554 S.W.2d at 771. Neither Halliburton nor Highlands were parties to the suit. Id. Brown & Root

3 owned none of Highlands’ assets, nor did Highlands own any of Brown & Root’s assets. Id.

In this case, we find the facts more similar to the situation found in Brown & Root. Safeco

Insurance, a judgment debtor, is owned by Safeco Corporation. Safeco Corporation also owns

American States. American States is not a subsidiary of Safeco Insurance. Safeco Insurance does

not own any of American States’ assets, nor does American States own any of Safeco Insurance’s

assets. Rather, the parent company, Safeco Corporation, owns American States and Safeco

Insurance. Unlike the situation in TransAmerican, American States is the surety, not Safeco

Corporation. Further, neither Safeco Corporation, Safeco Insurance, nor American States own any

assets or stocks in Faulkner. Because American States is a separate legal entity, which is not owned

by Safeco Insurance or Faulkner and whose assets are not at risk since it was not a party to the

lawsuit, American States was a sufficient surety.2 See Brown & Root, 554 S.W.2d at 771; cf.

TransAmerican, 905 S.W.2d at 414-16.

CONCLUSION

We find that the trial court abused its discretion in holding American States as an insufficient

surety. Accordingly, the motion to approve the supersedeas bond surety filed by Faulkner and

Safeco Insurance is granted. See TEX . R. APP . P. 24.4(d).

GUADALUPE RIVERA, Justice

October 21, 2009

Before Chew, C.J., McClure, and Rivera, JJ.

2 Alaron asserts that since American States and Safeco Insurance agreed to participate in a pooling agreement, which provided that each company is liable for a certain percentage of the net premiums, losses, and associated assets and liabilities of the participating companies, American States is partly liable for the judgment rendered against Safeco Insurance. Alaron’s argument, however, was not raised in the trial court, and therefore, is not preserved for our review. See T EX . R. A PP . P. 33.1; Khaledi v. H.K. Global Trading, Ltd., 126 S.W .3d 273, 286 (Tex. App.–San Antonio 2003, no pet.).

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