United States District Court, S.D. Texas, Houston Division
MEMORANDUM AND ORDER ON ENTRY OF FINAL
F. ATLAS SENIOR UNITEJ2 STATES DISTRICT JUDGE
the Court is Defendant Petroleum Solutions, Inc.'s
(“PSI”) Motion for Entry of Final Judgment [Doc.
# 183] (“Motion”), which Plaintiff Mid-Continent
Casualty Company (“Mid-Continent”) opposes [Doc.
# 187] on several grounds. PSI has filed a reply [Doc. #
188]. The Motion is ripe for decision. The Court will enter a
final judgment as described hereafter.
Court Litigation.- In the 1990s, PSI sold to
Bill Head and installed on his property a fuel storage
system. It was discovered in 2001 that approximately 20, 000
gallons of oil had leaked into the soil. Head notified PSI of
the leak and accused PSI of violations of various duties
including sale of a defective product. PSI reported the claim
to its carrier, Mid-Continent, which agreed to defend PSI
under a reservation of rights in connection with a commercial
general liability policy in effect from May, 2001 to May,
2002, Policy No. 04-GL-000051591 (the “Policy”).
hired counsel to investigate the matter. PSI and counsel
contended that a defective flex connector manufactured by
Titeflex Corporation (“Titeflex”) had been the
cause of the leak. Counsel took possession of the flex
connector from the site and submitted it to a laboratory for
testing and storage. At some point, the flex connector was
lost or destroyed.
filed suit in February, 2006, in state court, in Hidalgo
County, Texas. Mid-Continent issued five additional
reservation of rights letters during the state court
state court suit, Mid-Continent and PSI agreed to assert a
third party contribution or indemnity claim against Titeflex,
as the manufacturer of the allegedly defective component part
in the fuel system giving rise to Head's property damage.
PSI filed that affirmative claim on October 5, 2006. On
January 30, 2007, Head asserted a similar claim against
PSI and Titeflex learned that the flex connector in issue had
been destroyed or lost while in the expert's custody,
Titeflex and Head asserted spoliation claims against PSI.
non-suited his claims against Titeflex in March, 2007. In
May, 2008, Titeflex asserted a counterclaim against PSI for
certain of its own attorneys' fees, expenses, and costs
(collectively, “fees”). Intending to eliminate
the spoliation issue and simplify the trial of Head's
claims, PSI non-suited without prejudice its claims against
Titeflex in August, 2008. Titeflex then clarified that it
would not dismiss its counterclaim for fees unless PSI
dismissed its affirmative contribution/indemnity claims
against Titeflex with prejudice. PSI refused. In
September, 2008, Titeflex broadened its counterclaim to seek
all fees from PSI that it incurred in the Head/PSI
litigation, relying on Texas Civil Practice and Remedies Code
§ 82.002 (“§ 82.002”).
products liability claim and Titeflex's fee claim against
PSI were tried to a jury over approximately eight weeks in
Hidalgo County, Texas, in or about September, October, and
November, 2008. The jury rendered verdicts against PSI
exceeding $1.2 million in favor of Head and $463, 000 on
Titeflex's § 82.002 claim. The state court entered
judgment on both aspects of the verdict in January, 2009. PSI
December 19, 2014, the Texas Supreme Court affirmed the
Titeflex judgment against PSI. The Supreme Court vacated the
judgment in Head's favor and remanded for a new trial.
formally denied coverage under the Policy with respect to the
Titeflex judgment, but continued to defend PSI against
Head's claims, asserting reservations of rights. In
February, 2015, upon demand, PSI paid the Titeflex judgment
in full, which by that time totaled, with interest, almost
of Federal Litigation.- Mid-Continent commenced
this federal action in February, 2009, seeking a declaration
that Mid-Continent does not owe PSI any indemnity for
PSI's payment of the Titeflex judgment. This case was
stayed pending completion of all appeals of the verdict in
state court. Upon notification that the Texas Supreme Court
had ruled in the state court litigation, the Court reopened
this declaratory judgment case.
then counterclaimed for breach of the Policy terms,
complaining that Mid-Continent had failed to cover PSI's
payment of the Titeflex judgment. PSI alleged Mid-Continent
had violated Texas Insurance Code § 541.060(a)(4), and
sought damages equaling the total sum PSI paid Titeflex on
the judgment as well as PSI's own attorneys' fees
under Texas Civil Practice and Remedies Code § 38.001.
This extended coverage litigation followed.
light of this Court's rulings on summary judgment, PSI
presently seeks entry of final judgment awarding it damages
for Mid-Continent's breach of the Policy for a
“total recovery of $187, 604.17, ” an amount to
which the parties stipulated as “damages” in the
Joint Pretrial Order [Doc. # 126] (“Joint PTO”),
plus pre- and post-judgment interest. Mid-Continent contends that
the Joint PTO stipulation has been misinterpreted by PSI and
there remains another question for the Court to decide,
namely, what portion of the reduced sum stipulated by the
parties on the collateral estoppel issue is covered under the
Policy as interpreted by the Court.
Court assumes familiarity with its prior rulings, and
describes these federal proceedings only to the extent
pertinent to the pending issues raised by Mid-Continent
pertaining to entry of the final judgment requested by PSI.
in This Federal Litigation Pertaining to the Amount
of Damages to PSI Covered by the
Policy.- After close of discovery, the parties
filed motions for summary judgment on numerous issues
surrounding Policy defenses asserted by Mid-Continent. The
Court decided as a matter of law most of the issues presented
in an 82-page opinion. See Memorandum and Order
[Doc. # 93], dated July 29, 2016. The Court's rulings
generated motions for reconsideration seeking clarifications
and alterations of conclusions in the Memorandum and Order.
The Court carefully considered each of the parties'
points and, on September 29, 2016, issued a 97-page Amended
Memorandum and Order [Doc. # 109] (“Amended
M&O”). Ultimately, the Court held that Mid-Continent
breached the Policy by not paying indemnity covering certain
of the Titeflex fees that PSI claimed were its covered
losses, but held that there was a threshold issue of fact
whether PSI had satisfied a condition precedent that it
cooperate in the investigation and settlement of the claims
against PSI, including whether PSI cooperated when it refused
to dismiss with prejudice its affirmative claim against
Titeflex for indemnity. The Court also concluded that there
were other issues of fact arising from the Court's
interpretation of the Policy coverage language and its
determination that Policy coverage extended only to
Titeflex's fees, expenses and costs (i.e., fees)
incurred in connection with defending against Head's
claims, and did not include fees incurred solely in defense
of PSI's affirmative claims. Specifically, the Court
identified the following fact issues: (1) whether, for
purposes of this coverage case, there was a waiver by counsel
for PSI in the state court litigation (hired and paid for by
Mid-Continent) of the issue of segregation, or allocation, of
Titeflex's fees attributable, respectively, to PSI or to
Head's claims against Titeflex, and (2) if waiver
occurred, whether it collaterally estopped Mid-Continent from
objecting to Policy coverage in this coverage action for sums
PSI paid attributable to Titeflex's fees incurred solely
in connection with defending against PSI's affirmative
claims. The parties disagreed about what work
should be included and the Court held the issue had to be
resolved at trial because these sums were not ascertainable
from the record.
Proceedings.- To address the issue of
segregation, among other open issues, Mid-Continent submitted
on October 17, 2016, a joint report from the parties to the
Court in light of the issues remaining after Amended M&O. The
Report states in pertinent part:
In its Amended Memorandum and Order (“Order”)
[Doc. #109], the Court ordered the parties to submit briefing
on Texas law of collateral estoppel. The parties are
diligently working on stipulations of fact such that the
Court can rule on the collateral estoppel issue as a matter
of law. If the parties reach stipulations, the collateral
estoppel briefing can be submitted to the court within 15
days. If the parties cannot reach stipulations, then it may
require the re-opening of discovery.
* * * *
The parties will agree to stipulate to the amount of
Titeflex's attorney's fees, and applicable
post-judgment interest, for the period when Titeflex was
defending Head's claim and, if Collateral Estoppel
applies, for the period when PSI's claim was pending
against Titeflex. These stipulations will negate any jury
issue regarding damages (other than attorneys' fees for
the prevailing party).
contends the parties merely planned to agree “to the
amount of Titeflex's damages, ” not the damages to
which PSI is entitled to recover if it did or did not prevail
on the collateral estoppel issue. Shortly thereafter, the
parties reported they reached agreement on the collateral
estoppel issue and submitted briefing on the subject in early
and mid- November. See Docs. ## 118, 119, 122, 123.
The Court took the matter under advisement.
November 30, 2016, the parties submitted their Joint PTO in
which they stated:
31. The Parties have stipulated to damages as follows:
a. If the Court determines collateral estoppel does not
apply, and PSI only gets the period that Judge Atlas
identified in the Amended Opinion and Order, the Parties have
agreed that the damages are $136, 499.97 plus $51, 104.40 in
post-judgment interest, for a total recovery of $187, 604.17.
b. Alternatively, if the Court determines collateral estoppel
applies, the parties have agreed that the damages are $278,
545.36 plus $104, 285.11 in post-judgment interest, for a
total recovery of $382, 830.47.
c. These are exclusive of attorneys' fees in this case,
and any pre-judgment interest that would apply to ...