You Can’t Always Get What You Want (if what you want is a declaratory judgment on non-liability)
In re Houston Specialty Insurance Co., 569 S.W.3d 138 (Tex. Jan. 25, 2019) is a mandamus case involving an insurer’s motion to dismiss a declaratory judgment action by a law firm seeking a declaration of non-liability for malpractice in representing the insurer and advising it did not owe a defense in an underlying suit. The Texas Supreme Court ultimately held the Rule 91a motion was proper because the declaratory judgment action seeking non-liability was without merit.[Ed. Note – Rule 91a of the Texas Rules of Civil Procedure was meant to provide a vehicle, similar to Federal Rule of Civil Procedure 12(b)(6), for parties to seek early dismissals of meritless cases. Until our most recent legislative session (more on that in blog posts to come), Rule 91a provided a mandatory award of attorney’s fees to the victor, which could explain why we have not seen a huge volume of Rule 91a filings.]
In the underlying suit, the insured had been sued for improperly mining coal on private land. Acting on the advice of coverage counsel, Houston Specialty denied a defense for the coal company. The coal company then filed third-party claims against Houston Specialty for breach of contract and bad faith. The trial court granted summary judgment finding Houston Specialty had a duty to defend, and the suit ultimately ended with a settlement between the plaintiffs and the coal company, and between the coal company and Houston Specialty.
In a somewhat unusual move, Houston Specialty asserted that its lawyers committed malpractice and demanded reimbursement of the $2.8 million settlement. Thompson Coe responded by preemptively filing suit in Harris County, asserting a request for relief under the Texas Declaratory Judgments Act (“TDJA”). Houston Specialty filed a motion to dismiss under Texas Rule of Civil Procedure 91a, arguing Thompson Coe’s claim had “no basis in law” in that it violated the rule that a potential tort defendant may not obtain a declaration of non-liability in tort. The Harris County district court denied Houston Specialty’s motion to dismiss and the court of appeals denied its mandamus petition without addressing the merits. Houston Specialty sought mandamus in the Supreme Court.
The Court, citing Abor v. Black, 695 S.W.2d 564 (Tex. 1985) (orig. proceeding), held the trial court clearly abused its discretion in permitting the declaratory action to go forward because the TDJA cannot be used to obtain a declaration of non-liability. Thompson Coe argued the courts have discretionary jurisdiction to retain actions for a declaration of non-liability if the tortfeasor–plaintiff also requests declarations that do not expressly ask for a determination of liability. The court rejected this argument holding a “legally invalid claim cannot be saved by accompanying claims that may be valid.” Id. at 141. Because each of Thompson Coe’s requested declarations sought to establish a defense to a malpractice claim “they are legally invalid, have ‘no basis in law,’ and should have been dismissed” under Rule 91a. Id.
Finally, in order to grant mandamus relief, Houston Specialty had to show not only an abuse of discretion, but that it had no adequate remedy by appeal. Although a prior case had held there was an adequate appellate remedy for an improper Rule 91a denial, later cases had determined that mandamus was proper “to spare private parties and the public the time and money utterly wasted enduring the eventual reversal of improperly conducted proceedings.” Id. at 142. The Court concluded that a legally invalid suit that “deprive[s] the real plaintiff of the traditional right to choose the time and place of suit,” satisfies this test. Id.
Plaintiffs often attempt to use the TDJA, which permits discretionary attorneys fees, to recover fees in a case where they otherwise might not be permissible. The Court’s reaffirmance of Abor, and of the fact that it has “never recognized any exception or nuance to the rule that a potential tort defendant may not seek a declaration of nonliability in tort,” should put such tactics to rest in a tort suit, such as a suit based on the common law duty of good faith and fair dealing.