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R&M Mixed Beverage Consultants, Inc. v. Safe Harbor Benefits, Inc.

Court of Appeals of Texas, Eighth District, El Paso

June 12, 2019


          Appeal from the 210th District Court of El Paso County, Texas (TC# 2016DCV0374)

          Before McClure, C.J., Rodriguez, and Palafox, JJ.



         Appellant, R&M Mixed Beverage Consultants, Inc. (R&M), is a Texas Corporation that owns and operates several bar and grill establishments including Mavericks Bar & Grill (Mavericks), located in El Paso, Texas. R&M filed third-party petitions against Safe Harbor Benefits, Inc. (Safe Harbor), USG Insurance Services, Inc., (USG), Ryan Specialty Group Services, LLC and/or Ryan Specialty Group, LLC (collectively, Ryan Specialty Group), which it named as successors to entities including WKF&C Agency Inc., WKF&C Agency, Inc. of Texas, and WKF&C Agency (collectively, WKFC), asserting a claim of negligence coupled with violations of the Texas Insurance Act and the Texas Deceptive Trade Practices Act (DTPA). Collectively, the Appellees here only include Safe Harbor, USG, Ryan Specialty Group, LLC, and Ryan Specialty Group Services, LLC (Appellees or third-party defendants), as the WKFC entities were never served with process and are not parties in this suit.[1] On appeal, R&M challenges the trial court's order granting summary judgment in its entirety in favor of Appellees. We affirm.


         The Purchase of the Policy

         Richard Chavez and his brother Raymond ("Mike") Chavez owned and operated R&M with Richard serving as President and Mike serving as vice-president. Along with other duties, Richard assumed responsibility for procuring liquor liability protection for the bar and grills that R&M operated. In 2006, he approached Victoria Weir, an agent for Appellee Safe Harbor, to assist him in obtaining insurance coverage. Although Safe Harbor could not write a policy directly, Weir contacted a wholesale broker, Appellee USG, to assist with procuring a policy for R&M. In December 2006, R&M purchased its first liquor liability policy from First Mercury, a surplus lines company, which it then renewed a year later.

         Before the policy expired in December of 2008, R&M asked for a new quote, and at that time, Safe Harbor again contacted USG, which then contacted WKF&C Agency, a managing general underwriter, which then contacted Indemnity Insurance of DC Group (Indemnity) from whom it received a quote for coverage along with financial information and disclosures about the company. The information indicated that Indemnity had received an "A-" rating from A.M. Best, a well-known rating company, which placed Indemnity in the "excellent" category, among other companies rated. The information also described Indemnity as being licensed to operate in various states, including Texas, by respective departments of insurance.

         In addition, Safe Harbor provided R&M with written notice that Indemnity was registered with the State as a Risk Retention Group (RRG), which under Texas law, meant it did not participate in the Texas insolvency guaranty fund. Safe Harbor further informed R&M that an RRG is a "non-traditional market," and R&M needed to be "aware of certain information about this market." Through a series of transactions involving the Appellees, and formerly owned entities such as WKF&C, R&M purchased a liquor liability policy issued by Indemnity.

         On December 18, 2008, Richard Chavez signed an "acknowledgment" stating that he understood that the "coverage written [was] not subject to the protection and benefits of the state guaranty associations," and that R&M had agreed to hold Safe Harbor and WKF&C harmless with respect to "any future loss, damage, expense, or other financial risk and/or any other dispute that may arise relative" to its placement of coverage with Indemnity. As well, the policy itself contained a notice stating that: "Insurance Insolvency guaranty funds are not available for your risk retention group."

         Thereafter, R&M renewed its policy with Indemnity in 2009 and 2010, through the same series of transactions as before, thereby obtaining coverage through December 2010. With each renewal, R&M received the same information as before about Indemnity's rating with A.M. Best and the nature of its operations. At renewal, Indemnity had received an "A-" rating from A.M. Best. Once issued, the policy itself contained a notice that Indemnity continued operating as an RRG in the issuing state.

         The Dram Shop Lawsuits and Indemnity's Liquidation

          In September 2011, two different customers who were served liquor at Mavericks were involved in separate accidents. In July of 2012, victims of the first accident filed a lawsuit against the driver who had been served liquor at Maverick's, and against R&M under the Dram Shop Act. A year later, a similar suit was filed by the victims of the second accident. Initially, Indemnity proceeded to defend R&M in both suits by contracting and paying attorneys to enter appearances and defend against all allegations asserted. By April of 2014, however, circumstances changed after Indemnity suffered a precipitously-occurring financial calamity that resulted it its eventual liquidation, not only causing attorneys representing R&M to withdraw and leave R&M to defend itself, but also exposing it to liability without insurance coverage. The record indicates that A.M. Best had downgraded Indemnity's rating on September 24, 2013, when it issued a revision indicating that Indemnity had suffered a "precipitous decline" in its capitalization structure. At that time, the rating agency placed Indemnity "under review," and downgraded its rating to a "B." The revision stated that it still had faith in Indemnity's ability to address its capitalization issue given its history and expertise in the insurance industry, but further warned that another "negative rating action may occur if capital levels do not continue to support the ratings and if compliance does not improve."

         In addition, on July 26, 2013, the Insurance Commissioner of the State of Delaware, where Indemnity was incorporated, filed a Liquidation Petition, seeking entry of a Liquidation and Injunction Order, in light of Indemnity's financial issues. Following an investigation, the Commissioner determined that Indemnity's financial situation had not improved, and that its financial condition was so "unsound" and "impaired" that any further transaction of insurance as a going concern posed a hazard to its policy holders. Therefore, on November 7, 2013, a court of chancery in the State of Delaware issued a Rehabilitation and Injunction Order, enjoining Indemnity from conducting any additional business and appointed the Insurance Commissioner as a receiver to conduct business on behalf of Indemnity and to take control of its assets. On April 10, 2014, the court entered a "Liquidation and Injunction Order," indicating that the Commissioner had uncovered several areas of "high concern" regarding Indemnity's financial viability, and information indicating that Indemnity's principal, Jeffrey B. Cohen, had engaged in possible fraudulent conduct.[2] The court concluded that Indemnity was unable to develop a Rehabilitation Plan to remediate and correct its financial issues, and that liquidation was in order, thereby requiring that all insurance policies issued by Indemnity be cancelled, and that anyone holding a policy had the right to file a claim with the receiver on or before January 16, 2015 for any losses incurred.[3]

         The Third-Party Lawsuits and the Motions for Summary Judgment

         After Indemnity became insolvent and its lawyers withdrew from the litigation, R&M filed its initial third-party petition, in March of 2015, against Safe Harbor and USG. Months later, in July 2015, R&M supplemented to add WKF&C, and its related entities, Ryan Specialty Group, LLC, and Ryan Specialty Group Services, LLC (collectively, the Ryan Specialty Group). [4] In its supplemental petition, R&M alleged that WKF&C was a division, component, or subsidiary of the

          Ryan Specialty Group, and these entities provided insurance related services pertaining to the series of transactions that included Safe Harbor and USG, which led to R&M's purchase of the Indemnity insurance policy at issue in this case. R&M asserted a variety of allegations against the third-party defendants, contending that they had made misrepresentations and/or had failed to disclose material information with regard to R&M's purchase of the Indemnity policy; that they were negligent in their actions or omissions; and that they had engaged in violations of the Texas Deceptive Trade Practices Act (DTPA), and the Texas Insurance Code. After a period of discovery, the Ryan Specialty Group filed motions for summary judgment against all claims asserted by R&M. The trial court subsequently entered an order granting summary judgment in its entirety in favor of Ryan Specialty Group, LLC, and Ryan Specialty Group Services, LLC. Thereafter, USG and Safe Harbor filed traditional and no-evidence motions for summary judgment challenging all claims asserted against it. Issuing a final judgment, the trial court granted the motions for summary judgment filed by USG and Safe Harbor, which effectively disposed of all parties and all claims. This appeal followed.


         On appeal, we review a trial court's order granting both no-evidence and traditional motions for summary judgment de novo. See Border Demolition & Envtl., Inc. v. Pineda, 535 S.W.3d 140, 151 (Tex. App.-El Paso 2017, no pet.) (citing Valence Operating Company v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); see also Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010). When, as here, a party has moved for summary judgment on both no-evidence and traditional grounds, we first review the no-evidence grounds. See Cmty. Health Sys. Prof'l Services Corp. v. Hansen, 525 S.W.3d 671, 680 (Tex. 2017); Lightning Oil Co. v. Anadarko E&P Onshore, LLC, 520 S.W.3d 39, 45 (Tex. 2017). If we conclude that the trial court properly granted the no-evidence summary judgment motion, we need not address the traditional motion to the extent that it addresses the same claims. See Lightning Oil Co., 520 S.W.3d at 45 (citing Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 600 (Tex. 2004)).

         No-evidence motions for summary judgment are governed by Rule166a(i) of the Texas Rules of Civil Procedure, which requires a defendant to allege that adequate time for discovery has passed and that the plaintiff still has no evidence to support one or more essential elements of a claim for which the plaintiff would bear the burden of proof at trial. See Stierwalt v. FFE Transp. Services, Inc., 499 S.W.3d 181, 194 (Tex. App.-El Paso 2016, no pet.) (citing KCM Fin. LLC v. Bradshaw, 457 S.W.3d 70, 79 (Tex. 2015)); Tex.R.Civ.P. 166a(i). The motion must specifically state the elements as to which the movant contends there is no evidence. Tex.R.Civ.P. 166a(i); see also Timpte Industries, Inc. v. Gish, 286 S.W.3d 306, 310 (Tex. 2009); Wade Oil & Gas, Inc. v. Telesis Operating Company, Inc., 417 S.W.3d 531, 540 (Tex. App.-El Paso 2013, no pet.). The burden thereafter shifts to the non-movant to produce at least a scintilla of evidence to raise a genuine issue of material fact regarding each challenged element. Tex.R.Civ.P. 166a(i); see also Lightning Oil Co., 520 S.W.3d at 45; Smith v. O'Donnell, 288 S.W.3d 417, 424 (Tex. 2009); Wade Oil & Gas, 417 S.W.3d at 540. More than a scintilla of evidence exists when reasonable and fair-minded individuals could differ in their conclusions. King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003). Although the nonmoving party is not required to marshal all of his proof in response to a summary judgment motion, he must present countervailing evidence that raises a genuine fact issue on the challenged elements. Duchene v. Hernandez, 535 S.W.3d 251, 258 (Tex. App.-El Paso 2017, no pet.) (citing Sw. Elec. Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex. 2002) (citing Tex.R.Civ.P. 166a)). The non-movant fails in their burden of creating a fact issue when the evidence is so weak as to do no more than create a mere surmise or suspicion of material fact. Wade Oil & Gas, 417 S.W.3d at 540; see also Lozano v. Lozano, 52 S.W.3d 141, 145 (Tex. 2001); see also Frost Nat'l Bank v. Fernandez, 315 S.W.3d 494, 508 (Tex. 2010).

         A defendant may move for a traditional summary judgment at any time, with or without supporting affidavits, alleging that the plaintiff does not have evidence to support her claims. Tex.R.Civ.P. 166a. The defendant moving for traditional summary judgment bears the burden of proving there is no genuine issue of material fact as to at least one essential element of the plaintiff's cause of action, and that it is entitled to judgment as a matter of law. Lightning Oil Co., 520 S.W.3d at 45 (citing Tex.R.Civ.P. 166a(c); Nassar v. Liberty Mut. Fire Ins. Co., 508 S.W.3d 254, 257 (Tex. 2017)); see also Amedisys, Inc. v. Kingwood Home Health Care, LLC, 437 S.W.3d 507, 511 (Tex. 2014). If the defendant meets that initial burden, the burden then shifts to the plaintiff to raise an issue of fact as to at least one of those elements, and in order to do so, it must come forward with more than a scintilla of evidence as to that element. Amedisys, Inc., 437 S.W.3d at 511; see also Chance v. Elliot & Lillian, LLC, 462 S.W.3d 276, 283 (Tex. App.-El Paso 2015, no pet.); Ciguero v. Lara, 455 S.W.3d 744, 747 (Tex. App.-El Paso 2015, no pet.). However, if the defendant does not satisfy its initial burden, the burden does not shift and the plaintiff need not respond or present any evidence. See Amedisys, Inc., 437 S.W.3d at 511; see also State v. Ninety Thousand Two Hundred Thirty-Five Dollars and No Cents in U.S. Currency ($90, 235), 390 S.W.3d 289, 292 (Tex. 2013) (citing M.D. Anderson Hosp. & Tumor Inst. v. Willrich, 28 S.W.3d 22, 23 (Tex. 2000) (per curiam)).

         On appeal, whether we are reviewing the granting of a traditional or a no-evidence motion for summary judgment, we review the evidence in the light most favorable to the non-movant, crediting evidence favorable to that party if reasonable jurors could do so, and disregarding contrary evidence unless reasonable jurors could not. Pineda, 535 S.W.3d at 151 (citing Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex. 2006); see also Lightning Oil Co., 520 S.W.3d at 45. We further indulge every reasonable inference in favor of the non-movant, and resolve any doubts against the motion. Lightning Oil Co., 520 S.W.3d at 45 (citing City of Keller v. Wilson, 168 S.W.3d 802, 824 (Tex. 2005)).

         If the trial court's order does not specify the grounds on which the summary judgment was granted, "we must affirm the summary judgment if any of the theories presented to the trial court and preserved for appellate review are meritorious." See Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 216 (Tex. 2003); see also FM Properties Operating Co. v. City of Austin, 22 S.W.3d 868, 872-73 (Tex. 2000) (citing Star-Telegram, Inc. v. Doe, 915 S.W.2d 471, 473 (Tex. 1995)).


         On April 1, 2012, an entity known as the RSG Underwriting Managers, LLC, entered into a purchase agreement, to purchase the assets of WKF&C. Thereafter, WKF&C voluntarily dissolved in 2013. Because of its inability to name WKF&C as a third-party defendant in the underlying lawsuit, R&M ultimately named the Ryan Specialty Group, i.e., Ryan Specialty Group Services, LLC, and Ryan Specialty Group, LLC, as third-party defendants, contending that WKF&C had "merged" into and/or had been "acquired" by the two Ryan Specialty Group Defendants. R&M further contended that WKF&C was a "division, component or subsidiary of the Ryan Specialty Group" entities as referenced in the petition, and/or was an alter ego of the Ryan Specialty Group Defendants, and sought to hold them liable for WKF&C's conduct in procuring the Indemnity insurance policy on that basis.

         Effective May 1, 2012, by means of an Instrument of Assumption included in the purchase agreement, another entity identified as WKFC Underwriting Managers, (WKFC), a series of RSG Underwriting Managers, LLC, assumed certain liabilities of the WKF&C companies, as assignee of RSG Underwriting Managers, LLC. The Instrument of Assumption, however, also expressly excluded all obligations of WKF&C, and its related entities, unless specifically stated.[5]

         In their traditional motion for summary judgment seeking to dismiss this claim, the Ryan Specialty Group argued that they could not be held liable, as a matter of law, for the actions of WKF&C, as they were not involved in any of the transactions in question, they were not the actual parties to the Purchase Agreement, there was no merger between WKF&C and any of the Ryan Specialty Group entities, and none of the Ryan Specialty Group entities agreed to assume any liabilities for WKF&C's actions. To the contrary, the Ryan Specialty Group pointed out that the Purchase Agreement itself expressly stated that WKFC Underwriting Managers-an entity separate and apart from WKF&C-assumed specified liabilities of WKF&C's, including liabilities of the type under consideration herein.

         In addition, the Ryan Specialty Group attached excerpts from a deposition given by their attorney, Ian Ackerman, as well as Ackerman's affidavit, stating that there was no merger between the various entities-as there was no exchange of shares and that it was instead, an arm's length transaction in which WKF&C's assets were sold for cash only. In addition, Ackerman stated that the various entities involved in the sale had no common ownership before the purchase, had no commingled funds, and that WKF&C's owners remained separate and discrete from any of the Ryan Specialty Group entities throughout the sale. The Ryan Specialty Group therefore argued that they could not be held liable on either an alter ego or a successor liability theory.

         In response, R&M argued that a material issue of fact existed on the issue of whether WKF&C could have been held liable for Indemnity's fraudulent conduct, as WKF&C was acting as Indemnity's agent in the marketplace. R&M further contended that a question of fact existed on whether the Ryan Specialty Group's purchase of WKF&C was used as a sham to avoid liability for claims of this nature involving Indemnity. According to R&M, if in fact the acquisition was for the purpose of escaping liability, the Ryan Specialty Group should be held liable on that basis. R&M contended that the transaction described as a sale and acquisition was "nothing more than a shell game in which the assets, key employees, and operations of [WKF&C] were moved as a going concern into a new entity and where the litigation liabilities of [WKF&C] were left in a dormant entity and eventually done away with." R&M then concluded that for "legal and equitable reasons, the corporate fiction must be disregarded," and that the court should therefore treat WKFC, as successor of WKF&C, as either a "continuing entity or as having de facto merged" with the Ryan Specialty Group Services, LLC, and with the Ryan Specialty Group LLC, or collectively the "Ryan Defendants."

         In reply, the Ryan Specialty Group supplemented their motion for summary judgment with excerpts from Ackerman's deposition testimony, in which he averred that the Ryan Defendants did not acquire WKF&C as part of any fraudulent scheme to defeat R&M's interests, stating that WKF&C did not share any concerns about Indemnity's financial stability at the time of the sale, and that he did not believe there was any cause for concern at the time of the sale in any event. In addition, the Ryan Specialty Group argued that there was no evidence that the various entities were alter egos of each other.

         The trial court granted the motion for summary judgment of Ryan Specialty Group and ordered that R&M take nothing on their claims.

         Arguments ...

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