Thornton, Summers, Biechlin, Dunham & Brown, Inc. v. Cook Paint & Varnish

United States Court of Appeals,

Fifth Circuit.

No. 95-50026.

THORNTON, SUMMERS, BIECHLIN, DUNHAM & BROWN, INC., Plaintiff-

Counter Defendant-Appellee,

v.

COOK PAINT & VARNISH, Defendant-Counter Claimant-Appellant,

v.

Don Dick DUNHAM, Executor of the estate of Thomas D. Dunham,

Deceased, Counter Defendant-Appellee,

Clemens & Spencer, Appellee.

May 8, 1996.

Appeal from the United States District Court for the Western

District of Texas.

Before POLITZ, Chief Judge, and HILL* and DeMOSS, Circuit Judges.

HILL, Circuit Judge:

Thornton, Summers, Biechlin, Dunham & Brown, Inc. and Don Dick

Dunham, Executor of the Estate of Thomas Dunham (Thornton Summers),

Appellees, brought this action in the United States District Court

for the Western District of Texas to recover legal fees and

expenses allegedly incurred in the defense of Curran Paint &

Varnish Company, f/k/a Cook Paint & Varnish Company (Cook Paint),

Appellant, in the matter styled Allied Tank Services, Inc. v. Cook

Paint & Varnish Co. brought in the 166th District Court of Bexar

County, Texas. Cook Paint answered and counterclaimed, asserting

that Thornton Summers and its lead counsel, Thomas Dunham,

*

Circuit Judge of the Eleventh Circuit, sitting by

designation.

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committed legal malpractice while defending Cook Paint in the

Allied Tank case.

The district court held that the doctrine of election of

remedies bars Cook Paint from recovering any damages from Thornton

Summers and granted Thornton Summers summary judgment. We hold

that summary judgment was entered erroneously, and reverse and

remand.

I. BACKGROUND

On May 8, 1990, a few days before Allied Tank was scheduled

for trial, Cook Paint learned for the first time that its insurance

agent, Alexander & Alexander, had failed to notify all of Cook

Paint's insurers of the Allied Tank suit. On May 12, 1990, Cook

Paint itself notified the insurers and demanded that they defend,

indemnify, and settle the Allied Tank case. The carriers refused,

claiming that they were prejudiced by the late notice. Cook Paint

sought, but was denied, a continuance, and the case proceeded to

trial. Thornton Summers defended Cook Paint. A judgment of

approximately $21,000,000 was entered against Cook Paint.

In June, 1990, Cook Paint filed a declaratory judgment action

in the United States District Court for the Western District of

Missouri against its insurers. Cook Paint asserted that the

insurance companies had been obligated in the Allied Tank case to

provide counsel, a defense, and indemnification, and to make all

reasonable efforts to settle the claims against it, and, that they

failed to do so.

Also in June of 1990, Cook Paint filed suit in Missouri

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against Alexander & Alexander. Cook Paint alleged that Alexander

& Alexander had been under a duty to notify Cook Paint's insurers

of claims and suits; that the agent represented to Cook Paint that

it had notified all of its insurance carriers of the Allied Tank

suit; but that on May 8, 1990, Cook Paint learned that Alexander

& Alexander had not notified excess and umbrella carriers.

On October 4, 1990, Cook Paint, its insurers, and Allied Tank

settled their differences. The agreement provided that Allied Tank

would receive approximately $7,200,000 from the insurers, and 75%

of any money recovered by Cook Paint in the Alexander & Alexander

lawsuit, in return for a covenant by Allied Tank not to execute on

the remainder of its $21,000,000 judgment. Subsequently, Cook

Paint paid Allied Tank approximately $6.7 million it had previously

received from its insurance carriers. It was required to pay the

remaining $450,000 from its own funds to cover an insurance gap

created by the insolvency of one of its insurers.

Cook Paint contends that in the fall of 1991, during discovery

in the Alexander & Alexander suit, it learned for the first time

from unspecified documents that Thornton Summers was negligent in

failing to advise of a favorable settlement opportunity and in

failing to obtain a settlement for Cook Paint in Allied Tank.

Thereafter, Cook Paint settled the Alexander & Alexander lawsuit

for $100,000. The suit was dismissed without prejudice to Cook

Paint's assertion of any claims it had against Thornton Summers.1

1

Cook Paint had filed a motion to join Thornton Summers and

Dunham as defendants in the Alexander & Alexander lawsuit. The

$100,000 was placed in escrow pending the outcome of this

3

Cook Paint brought a counterclaim against Thornton Summers in

this suit claiming damages for malpractice, including the failure

of Thornton Summers to investigate the availability of insurance

coverage for Cook Paint, and to explore and obtain settlement

within Cook Paint's insurance policy limits.

Thornton Summers moved for summary judgment against Cook

Paint's malpractice claim, arguing that Cook Paint had made an

election of remedies when it sued and settled with its insurance

carriers after judgment in the Allied Tank case. The district

court granted Thornton Summers summary judgment, ruling that all of

Cook Paint's claims against Thornton Summers were barred by the

doctrine of election of remedies.2

We review the grant of summary judgment de novo. Burgos v.

Southwestern Bell Telephone Co., 20 F.3d 633, 635 (5th Cir.1994).

We do not affirm a summary judgment unless we conclude, after an

independent review of the record, that "there is no genuine issue

as to any material fact and that the moving party is entitled to a

judgment as a matter of law." Id.; Fed.R.Civ.P. 56(c).

II. ANALYSIS

Under Texas law, the election of remedies doctrine may

constitute a bar to relief when (1) one successfully exercises an

informed choice (2) between two or more remedies, rights or states

litigation.

2

We also reverse the district court's striking of Cook

Paint's affirmative defenses to Thornton Summers' claim for

attorney's fees inasmuch as these defenses were predicated upon

the malpractice claims which were erroneously foreclosed.

4

of fact (3) that are so inconsistent as to (4) constitute manifest

injustice. Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 851

(Tex.1980). The doctrine does not, however, bar the assertion of

inconsistent facts, nor the assertion of concurrent but

inconsistent remedies or distinct causes of action against

different persons arising out of independent transactions. Id. at

852.

The district court found Cook Paint's transactions with its

insurers and with Thornton Summers to be "interconnected," not

separate or independent. The court wrote:

... Cook Paint's suit against its insurers was on the premise

that they owed unqualified duties to provide legal counsel, a

defense, indemnification, and to make all efforts to

reasonably settle the Allied Tank suit, and that their failure

to do so was without cause and resulted in the adverse verdict

and consequent damages. Its suit against its lawyers (and

Alexander & Alexander) is premised on the inconsistent theory

that their omissions allowed or caused the insurers to refuse

to settle, and the failure to settle caused the adverse

verdict and resulting damages.

In the district court's analysis, Cook Paint cannot have it

both ways—either the insurers' failure to settle caused Cook

Paint's damages, or Thornton Summers' negligence caused Cook

Paint's damages. Cook Paint, the court concluded, is barred in

this lawsuit from asserting a second version of how it was damaged

by having previously and successfully asserted an inconsistent

version against the insurers.

The district court further found the remedies claimed against

the insurers and Thornton Summers to be "repugnant," reasoning

that, even if the omissions of Cook Paint's insurers and Thornton

Summers both harmed Cook Paint, it was the same harm—the

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$21,000,000 verdict which resulted from the lack of a pre-trial

settlement. The court held:

Having successfully settled the carrier suit based on its

allegations that the jury verdict and ensuing damages resulted

from the carriers' failure to settle, it cannot collect again

from Thornton Summers by adopting the inconsistent position

that its legal counsel, rather than its insurers, caused the

same damages by omissions that precluded a settlement. The

election doctrine is used to prevent a double redress for a

single wrong (citation omitted).

The district court concluded that Cook Paint is barred from

asserting its negligence claims against Thornton Summers by the

election of remedies doctrine, the sole purpose of which is "to

prevent double recovery for a single wrong." Slay v. Burnett

Trust, 143 Tex. 621, 187 S.W.2d 377, 393 (1945).

We do not agree. Cook Paint has not asserted a single wrong

for which it seeks double recovery. On the contrary, Cook Paint

has alleged two wrongs. First, the insurance carriers are alleged

to have breached their unqualified duty to Cook Paint to defend,

settle, and indemnify. Second, Thornton Summers is alleged to have

breached its duty of care to Cook Paint in the Allied Tank lawsuit.

Furthermore, in its subsequent action against the insurers, Cook

Paint was required to attempt to overcome the insurers' defense of

late notice—a formidable defense which Cook Paint alleges was

provided to the insurance carriers by Thornton Summers. Had

Thornton Summers timely evaluated and notified the insurers of Cook

Paint's potential exposure in the Allied Tank case, it may well be

that the subsequent actions against the insurers and against

Alexander & Alexander would not have been required, and Cook Paint

would not have been relegated to a claim against an insolvent

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insurance carrier.

Although they are not unrelated, Thornton Summers and the

insurers owed independent duties to Cook Paint; the breaches

alleged are also independent. Thornton Summers' alleged negligence

may have in part caused the insurers to fail in their duties to

Cook Paint, but the failure of the insurers was an independent

harm. Each tortfeasor owed a separate and independent duty to Cook

Paint which it is alleged to have breached. These are independent

wrongs.

Claims asserted on inconsistent theories, but which arise

from independent wrongs, are not barred by the doctrine of election

of remedies. American Sav. & Loan Ass'n v. Musick, 531 S.W.2d 581

(Tex.1975). For example, the Texas Supreme Court has held that a

suit for trespass to try title against one party is not

inconsistent with a claim against a title insurance company for

failure of title. Id. at 588. The court held that a claim against

a title insurance company invokes the insurer's obligation to pay

the claim or defend title to the property, and this claim is

separate and distinct from the claim of ownership. The loss

covered by the title insurance, the inability to obtain title to

the property, was separate from the loss of title and continued to

exist until title was finally established. Id.

Furthermore, not only do Cook Paint's claims arise from

different wrongs, but the different wrongs produced different

damages. Cook Paint's claim against Thornton Summers is for

damages that have never been wholly or even partially recovered.

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Its settlement with its insurers resulted in Cook Paint's having to

pay $450,000 out of its own pocket to Allied Tank.3 It also claims

attorneys' fees and expenses which it otherwise would not have

incurred (some of these are the same fees which Thornton Summers

seeks to recover in this suit) as well as those incurred in the

declaratory judgment action and the Alexander & Alexander lawsuit

(approximately $732,898); economic loss from negative publicity

($6,123,311); forced sale of the division involved in the Allied

Tank lawsuit ($12,000,000); and the approximately $13,000,000

balance of the Allied Tank judgment.4

In rejecting these damages as support for Cook Paint's

contention that this is a different lawsuit from that against the

insurers or Alexander & Alexander, the district court held that

"[t]here are no separate and independent damages caused by the

lawyers' failure to investigate, evaluate, and advise," and that

the damages which Cook Paint seeks are equally attributable to the

insurers' omissions.

In the district court's assessment, if the case had settled

prior to judgment, Cook Paint would not have incurred any of these

other damages. Therefore, all of the damages were the result of

the verdict which would not have occurred had it not been for the

breach by the insurers. All these damages were "presumably" sought

by Cook Paint in the lawsuit against the insurers.

3

In addition, Allied Tank received all the settlement

proceeds of approximately $7,200,000.

4

We express no opinion on whether these or any other alleged

damages are recoverable from Thornton Summers.

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The district court's opinion seems to be based on the

conclusion that the damages represented by the verdict have been

satisfied by Cook Paint's prior settlement with the insurers rather

than upon the election of remedies doctrine:

While the damages Cook Paint seeks may have been attributable

to the lawyers' omissions, they are equally attributable to

the insurers' (and Alexander & Alexander's) omissions and have

been satisfied by settlement.... Having successfully resolved

its claims against the insurers, Cook Paint is barred by the

election of remedies doctrine from seeking to recover the same

damages from the lawyers.

Cook Paint's theory, however, is that the omissions of

Thornton Summers caused its insurers to fail to settle.5 If

Thornton Summers breached its duty to Cook Paint to evaluate Cook

Paint's liability exposure and explore and obtain settlement within

policy limits, it was responsible for the insurers' refusal to

settle prior to trial, and, therefore, for the verdict and

additional elements of damage now claimed by Cook Paint.6 These

are not the same damages, nor have they been satisfied.

For the foregoing reasons, we hold that the remedy pursued by

Cook Paint in this lawsuit is not inconsistent with that pursued by

it in its lawsuit against its insurers. We reverse the summary

judgment and final judgment entered by the district court, the

striking of Cook Paint's affirmative defenses and remand this case

5

We express no opinion on whether the insurers may have a

right to contribution from Thornton Summers, but note that each

owed a separate duty to Cook Paint such that Cook Paint has a

separate cause of action against each.

6

We express no opinion on whether Cook Paint's theory that

it can recover the full amount of the Allied Tank verdict as

damages is well-founded.

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for further proceedings.

REVERSED and REMANDED.

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