United States District Court, N.D. Texas, Dallas Division
DR. NICHOLAS ARIZPE, ET AL., Plaintiffs,
v.
PRINCIPAL LIFE INSURANCE COMPANY, ET AL., Defendants.
MEMORANDUM OPINION AND ORDER
A. JOE
FISH, SENIOR UNITED STATES DISTRICT JUDGE.
Before
the court are the counterclaims of the defendant Principal
Life Insurance Company (“Principal”).
See Defendant's Answer and Counterclaim to
Plaintiffs' Second Amended Complaint (“Answer and
Counterclaim”) (docket entry 31) at 12. For the reasons
stated below, the court concludes that Principal is not
entitled to relief on its counterclaims and thus they are
DENIED.
I.
BACKGROUND
A full
statement of the factual and procedural background of this
case may be found in the court's previous memorandum
opinion and order granting Principal's motion for summary
judgment. See Memorandum Opinion and Order (docket
entry 68). Although the court granted summary judgment in
Principal's favor and ordered that the plaintiffs take
nothing on their claims, see Judgment (docket entry
69), Principal did not seek summary judgment on its
counterclaims, which therefore remained pending in this case.
See Motion for Summary Judgment (docket entry 26) at
2, n. 3. Thus, to expedite the resolution of Principal's
counterclaims, on July 25, 2019, the court ordered a status
conference regarding Principal's counterclaims.
See Order Setting Status Conference (docket entry
70). Five days later, on July 30, 2019, Principal filed its
motion to establish procedures for resolving its
counterclaims. See Motion to Establish Procedures
for Resolution of Counterclaims (“Motion to Establish
Procedures”) (docket entry 71). The plaintiffs filed
their response to this motion on August 5, 2019. See
Response to Motion to Establish Procedures (docket entry 73).
On August 7, 2019, Principal filed its reply. See
Reply to Motion to Establish Procedures (docket entry 74).
Also on
August 7, 2019, the court presided over the previously
ordered status conference regarding Principal's
counterclaims. See Electronic Minute Entry for
Status Conference (docket entry 76). As a result of the
status conference, on August 8, 2019, the court ordered an
evidentiary hearing regarding Principal's counterclaims
to. See Order Setting Evidentiary Hearing (docket
entry 75). On August 12, 2019, the parties appeared before
the court for an evidentiary hearing. See Electronic
Minute Entry for Evidentiary Hearing (docket entry 77).
At the
conclusion of the hearing, the court gave the parties the
opportunity to submit briefs regarding Principal's
counterclaims. See Electronic Transcript of
Evidentiary Hearing Proceedings (“Transcript”)
(docket entry 80) at 119-21. On August 16, 2019, Principal
submitted its brief regarding the plaintiffs' liability
on the defendant's counterclaims. See Trial
Brief (docket entry 81). On August 21, 2019, the plaintiffs
submitted their response brief. See Response to
Trial Brief (docket entry 82). On August 23, 2019, Principal
filed its reply brief. See Brief/Memorandum in
Support of Trial Brief (docket entry 83). Because the parties
have concluded their briefing as to the question of the
plaintiffs' liability on Principal's counterclaims,
the court concludes that this question is now ripe for
decision.
II.
ANALYSIS
A.
Legal Standard for Principal's Counterclaims
In its
answer, Principal raises counterclaims against the plaintiffs
for attorney's fees and court costs under the Texas
Insurance Code and the Deceptive Trade Practices Act
(“DTPA”). See Answer and Counterclaim at
12. In particular, Principal contends that pursuant to
section 541.153 of the Texas Insurance Code, Principal is
entitled to recover its reasonable and necessary
attorney's fees and court costs since the plaintiffs'
claims under the Texas Insurance Code were groundless and
brought in bad faith or for the purpose of harassment.
Id. Moreover, Principal avers that under section
17.50(c) of the DTPA, it is entitled to recover its
reasonable and necessary attorney's fees and court costs
because the plaintiffs' DTPA claims were groundless in
fact or law, or brought in bad faith, or brought for the
purpose of harassment. Id.
Texas
Insurance Code § 541.153 provides that “[a] court
shall award to the defendant court costs and reasonable and
necessary attorney's fees if the court finds that an
action under this subchapter is groundless and
brought in bad faith or brought for the purpose of
harassment.” See Texas Insurance Code §
541.153 (emphasis added). Section 17.50(c) of the DTPA
provides that “[o]n a finding by the court that an
action under this section was groundless in fact or law
or brought in bad faith, or brought for the
purpose of harassment, the court shall award to the defendant
reasonable and necessary attorneys' fees and court
costs.” See Texas Business & Commerce Code
§ 17.50(c) (emphasis added).
Notably,
while both statutes feature the same three elements, their
requirements differ. While under Texas Insurance Code §
541.153 a defendant, to be entitled to attorney's fees
and court costs, must establish that the plaintiff's
claims were (1) groundless and brought in bad faith, or (2)
groundless and brought for the purpose of harassment, under
DTPA § 17.50(c) a defendant need only show that the
plaintiff's DTPA claims were either groundless, or
brought in bad faith, or brought for the purpose of
harassment. Compare Texas Insurance Code §
541.153 with Texas Business & Commerce Code
§ 17.50(c); see also McClung v. Wal-Mart, 866
F.Supp. 306, 310 (N.D. Tex. 1994) (Belew, J.) (analyzing
previous version of § 17.50(c) of the DTPA which was
worded similarly to the current § 541.153 of the Texas
Insurance Code and determining that a court may award
attorney's fees “if it finds that the
plaintiff's suit is groundless and brought in bad faith,
or it finds the suit was brought to harass the
defendant.”); Schott v. Leissner, 659 S.W.2d
752, 754 (Tex. App. - Corpus Christi 1983) writ ref'd
n.r.e., 668 S.W.2d 686 (Tex. 1984).
Despite
the slight difference between DTPA § 17.50(c) and Texas
Insurance Code § 541.153, Texas courts and federal
courts interpreting these two statutory provisions have
determined that “whether an action is groundless,
brought in bad faith, or brought for the purpose of
harassment is a question to be determined by the trial
court.” Knoderer v. State Farm Lloyds, 515
S.W.3d 21, 45 (Tex. App. - Texarkana 2017, pet. denied);
Donwerth v. Preston II Chrysler-Dodge, Inc., 775
S.W.2d 634, 637 (Tex. 1989) (“The court, not the
factfinder, must determine the existence of groundlessness,
bad faith and harassment under section 17.50(c).”);
Alcan Aluminum Corp. v. BASF Corp., 133 F.Supp.2d
482, 506 (N.D. Tex. 2001) (Lindsay, J.) (“A claim for
attorneys' fees . . . ‘requires the court to
determine the existence of groundlessness, bad faith, and
harassment. . . .'”) (quoting McDuffie v.
Blassingame, 883 S.W.2d 329, 335 (Tex. App. - Amarillo
1994, writ denied)).
Additionally,
both Texas courts and federal courts interpreting these
statutory provisions have determined that “[a]
groundless action is defined as one having no basis in law or
fact and not warranted by a good faith contention for
modification, reversal, or extension of existing law.”
Alcan Aluminium Corp., 133 F.Supp.2d at 506 (quoting
McDuffie, 833 S.W.2d at 335); see also
Donwerth, 775 S.W.2d at 637. In particular, courts
have established that “[t]he standard for determining
whether an action is groundless is ‘whether the
totality of the tendered evidence demonstrates an arguable
basis in fact and law for the consumer's
claim.'” In re Frazin, No.
02-32351-BJH-13, 2017 WL 7050632, Adversary No. 08-3021-BJH,
at *26 (Bankr. N.D. Tex. Dec. 22, 2017) (Houser, Chief
Bankruptcy J.) (quoting Kang v. Keen, 2005 WL
1704840, at *3 (Tex. App. - Houston [1st Dist.] July 21,
2005)). Courts have also explained that “[a] case is
not groundless ‘simply because a plaintiff failed to
convince a jury of the truth of her allegations.'”
Id. (quoting Rutherford v. Riatta Cadillac
Co., 809 S.W.2d 535, 538 (Tex. App. - San Antonio
1991)).
Similarly,
Texas courts and federal courts have explained that
“[t]o establish bad faith, it must be shown that the
claim was motivated by a malicious or discriminatory
purpose.” Alcan Aluminum Corp., 133 F.Supp.2d
at 506 (quoting McDuffie, 883 S.W.2d at 335).
“[M]alice may be inferred from the proof that the
consumer did not have a good faith belief that there was a
basis for his claim.” Knebel v. Port Enterprises,
Inc., 760 S.W.2d 829, 832 (Tex. App. - Corpus Christi
1988, writ denied). But, ...