HCLC: Dismissal of medical malpractice claim based on limitations reversed

Milton Hill v. Kimberly Ann Russell, CRNA, No. (Tex.App. - Austin Feb. 14, 2008) (Opinion by Justice Puryear)(health care liability suit, sufficiency and timeliness of notice and other requirements, tolling of limitations, abatement)

Holding: We conclude that a plaintiff's failure to include the required but separate authorization form when he provides notice of his claim to a defendant health care provider within the two-year limitations period does not bar the tolling of limitations but instead allows the provider to obtain an abatement until sixty days after she receives the authorization form. We therefore reverse the trial court's granting of summary judgment in Russell's favor and remand the cause to the court for further proceedings.

Before Justices Patterson, Puryear and Pemberton)
Milton Hill, Individually and on behalf of The Heirs of Andrea K. Hill v. Kimberly Ann Russell, CRNA
Appeal from 200th District Court of Travis County
Disposition: Summary Judgment for Defendant reversed and case remanded

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT
NO. D-1-GN-07-000564, HONORABLE STEPHEN YELENOSKY, JUDGE PRESIDING

O P I N I O N

Appellant Milton Hill, individually and on behalf of the heirs of Andrea K. Hill, filed a health care liability claim against appellee Kimberly Ann Russell, CRNA. Russell sought summary judgment, arguing that Mr. Hill's suit was barred by limitations. The trial court agreed, granting summary judgment in Russell's favor. Mr. Hill appeals, and we reverse and remand.

Factual background

Andrea K. Hill, Mr. Hill's daughter, died during surgery for removal of a cyst on September 23, 2004. Russell, a nurse anesthetist, provided anesthesia services to Ms. Hill during surgery. On September 21, 2006, Mr. Hill sent Russell a notice of claim pursuant to section 74.051 of the civil practice and remedies code. See Tex. Civ. Prac. & Rem. Code Ann. § 74.051 (West 2005). Mr. Hill neglected to enclose with the notice the form authorizing the release of Ms. Hill's health information, which is required by section 74.052. See id. § 74.052 (West 2005). Mr. Hill corrected that omission four days later, sending the authorization form to Russell on September 25, 2006. On December 6, 2006, Mr. Hill filed suit against Russell, (1) asserting that she had breached the standard of care in her treatment of Ms. Hill, resulting in Ms. Hill's death. (2)

Russell moved for summary judgment, arguing that Mr. Hill's claims were barred by the two-year statute of limitations on health care liability claims. See id. § 74.251 (West 2005). Mr. Hill responded that his suit was timely under section 74.051(c), which tolls the running of limitations for seventy-five days if a claimant provides the defendant with notice of a claim under chapter 74. See id. § 74.051(c). Russell argued that because Mr. Hill did not provide the authorization form with his notice and within two years of Ms. Hill's death, Mr. Hill did not provide Russell proper notice that would toll the running of limitations. The trial court granted summary judgment in Russell's favor. Mr. Hill moved for a new trial, which was overruled as a matter of law. See Tex. R. Civ. P. 329b(c).

Discussion

It is undisputed that Mr. Hill did not file his suit within two years of Ms. Hill's death. Therefore, his suit is barred by limitations unless he can rely on a tolling provision that makes his suit--filed on December 6, 2006, approximately two years and two months after the cause of action accrued--timely. The issue before us, then, is whether Mr. Hill's failure to include the authorization form with his notice of claim, which was provided to Russell within two years of Ms. Hill's death, means that the notice did not toll the running of limitations until suit was filed. Russell insists that proper notice that allows a plaintiff to rely on section 74.051(c) for tolling requires three elements--the notice itself, the medical authorization form, and service by certified mail. See Tex. Civ. Prac. & Rem. Code Ann. § 74.051(a). Because the notice timely sent by Mr. Hill lacked the authorization form, she argues, the notice was insufficient to trigger the seventy-five day tolling of limitations. Mr. Hill, on the other hand, contends that his failure to include the form did not invalidate his timely notice and that Russell was at most entitled to a four-day abatement under section 74.052(a). See id. § 74.052(a) (failure to include authorization with notice abates proceedings against defendant "until 60 days following receipt" of authorization form).

Because we agree with Mr. Hill that the authorization form is a separate document from the required "notice" that triggers tolling under section 74.05(c), we reverse the trial court's granting of summary judgment and remand the cause for further proceedings.

We review the granting of summary judgment de novo and under well-established standards of review. See Tex. R. Civ. P. 166a(c); Diversicare Gen. Partner, Inc. v. Rubio, 185 S.W.3d 842, 846 (Tex. 2005). "A defendant moving for summary judgment on the affirmative defense of limitations has the burden to conclusively establish that defense, including the accrual date of the cause of action. If the movant establishes that the statute of limitations bars the action, the nonmovant must then adduce summary judgment proof raising a fact issue in avoidance of the statute of limitations." Diversicare Gen. Partner, 185 S.W.3d at 846 (citations omitted).
Section 74.051 requires a health care liability claimant to give written notice of such claim . . . to each physician or health care provider against whom such claim is being made at least 60 days before the filing of a suit . . . . The notice must be accompanied by the authorization form for release of protected health information as required under Section 74.052.
. . . .
(c) Notice given as provided in this chapter shall toll the applicable statute of limitations to and including a period of 75 days following the giving of the notice.
Tex. Civ. Prac. & Rem. Code § 74.051(a), (c). Section 74.052 provides that
Notice of a health care claim under Section 74.051 must be accompanied by a medical authorization in the form specified by this section. Failure to provide this authorization along with the notice of health care claim shall abate all further proceedings against the physician or health care provider receiving the notice until 60 days following receipt by the physician or health care provider of the required authorization. Id. § 74.052(a).

Russell contends that because the authorization form is required by section 74.051(a), its absence rendered Mr. Hill's notice ineffective to trigger the seventy-five day tolling period. Russell's argument, however, requires us to read the statute more strictly than necessary and requires us to imply language that the legislature chose not to insert into the statute. When interpreting a statute, we attempt to discern the legislature's intent and we begin our inquiry with the plain language of the statute. Fitzgerald v. Advanced Spine Fixation Sys., Inc., 996 S.W.2d 864, 865-66 (Tex. 1999). We assume that the legislature "tries to say what it means" and keep in mind that "ordinary citizens should be able to rely on the plain language of a statute to mean what it says." Id. at 866. If in our interpretation we stray from the statute's plain language, "we risk encroaching on the Legislature's function to decide what the law should be." Id. If the statute is unambiguous, we generally adopt the interpretation supported by the plain meaning of the statute's language. Id. at 865. We consider the whole statute, as well as other contextual information, not a single section in isolation. Id. at 866.

In enacting sections 74.051 and 74.052, the legislature unambiguously referred to the required "notice," which triggers tolling, as a separate document from the authorization form. See Tex. Civ. Prac. & Rem. Code Ann. §§ 74.051, .052. Indeed, in section 74.052(a), the legislature provided that failure to include the authorization "along with the notice" would result in a sixty-day abatement of the proceedings against the health care provider "receiving the notice" until the authorization was received by the provider. Id. § 74.052(a). The legislature did not state that the authorization was a part of the notice document or that tolling was not triggered in the absence of the authorization. Instead, it treated notice as a separate and distinct document from the authorization form, which should be included with the notice. Id. § 74.051. It is the provision of "notice," not the authorization form that triggers tolling under section 74.051(a).

Had the legislature intended Russell's proposed interpretation, it easily could have written that intention into the statute, and we will not read such language into the statute, which would require us to ignore the legislature's use of "notice" in the statute as distinct from the "authorization form." The purpose of the notice requirement in a health care liability case is to encourage pre-suit negotiations and settlement and to reduce litigation costs. De Checa v. Diagnostic Ctr. Hosp., Inc., 852 S.W.2d 935, 938 (Tex. 1993) (quoting Schepps v. Presbyterian Hosp., 652 S.W.2d 934, 938 (Tex. 1983)); see also Hines v. Hash, 843 S.W.2d 464, 468 (Tex. 1992) (referring to former health care liability notice provision in interpreting deceptive trade practices notice provision, and stating that purpose of notice requirement statutes "is better served by abating an action filed without notice for the duration of the statutory notice period to allow the parties to negotiate, than by dismissing the action altogether"). Abatement of a suit brought by a plaintiff who fails to provide pre-suit notice, rather than immediate dismissal, also furthers negotiation and settlement. See De Checa, 852 S.W.2d at 938; Schepps, 652 S.W.2d at 938. Similarly, allowing tolling when a plaintiff sends notice without the authorization form gives the health care provider fair warning of an imminent claim and then allows the provider to obtain an abatement for negotiations and evaluation of the claim. We will not read an overly strict and unfounded requirement into section 74.051 when the plain language of the statute provides us with an unambiguous and reasonable meaning. See Fitzgerald, 996 S.W.2d at 865-66.

We conclude that a plaintiff's failure to include the required but separate authorization form when he provides notice of his claim to a defendant health care provider within the two-year limitations period does not bar the tolling of limitations but instead allows the provider to obtain an abatement until sixty days after she receives the authorization form. We therefore reverse the trial court's granting of summary judgment in Russell's favor and remand the cause to the court for further proceedings.
__________________________________________
David Puryear, Justice
Before Justices Patterson, Puryear and Pemberton
Reversed and Remanded
Filed: February 14, 2008

1. Mr. Hill also sued the hospital where the surgery took place. After the trial court granted summary judgment in favor of Russell, it severed Mr. Hill's claims against Russell from those against the hospital. Claims related to the hospital are not before us in this cause.
2. In his original petition, Mr. Hill mistakenly referred to the notice requirements of "Article 4590i, Section 4.01(a) of the Medical Liability and Insurance Improvement Act." However, article 4590i, which included a notice requirement and allowed for the tolling of limitations upon proper notice, was repealed effective September 1, 2003, and replaced by section 74.051 of the civil practice and remedies code. See Tex. Civ. Prac. & Rem. Code Ann. § 74.051 (West 2005). This minor error in pleading is not an issue on appeal.

Osborne v. Jauregui, Inc. (Tex.App. - Austin, Aug. 29, 2007)

Austin, TX - Third Court of Appeals reverses denial of attorney's fees in home owners' DTPA suit against builder and remands for fee segregation. Also remands homeowner insurance subrogation claim for re-evaluation in light of new Texas Supreme Court precedent. Trial court had denied subrogation claim prior to release of supreme court's opinion in Fortis Benefits v. Cantu, No. 05-0791 (Tex. Jun. 29, 2007)(Opinion by Justice Willett).

Appellants, Dr. Phillip Osborne and Deborah Osborne// Cross-Appellant, State Farm Lloyds vs. Appellee, Jauregui, Inc. // Cross-Appellees, Dr. Phillip Osborne and Deborah Osborne, No. (Tex.App.- Austin, August 29, 2007)(residential construction defect, mold claim, equitable and contractual subrogation rights of homeowner's insurance carrier, attorney's fees entitlement of prevailing party in DTPA suit)(Opinion by Justice Henson) (Before Justices Patterson, Puryear and Henson)
Appeal from 353rd District Court of Travis County
Disposition: Reversed and remanded
Also see dissenting opinion by Justice Puryear

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT
NO. 99-08727, HONORABLE SUZANNE COVINGTON, JUDGE PRESIDING

OPINION BY JUSTICE DIANE HENSON

This appeal arises from a dispute between appellants and cross-appellees Dr. Phillip Osborne and Deborah Osborne and appellee Jauregui, Inc. Jauregui was the architect and builder of the Osbornes' house, which turned out to contain numerous defects that eventually led to mold contamination, among other problems. State Farm provided the Osbornes' homeowners' insurance.

After mold was discovered in the house, the Osbornes brought suit against Jauregui and various subcontractors, seeking damages in excess of $2,000,000. State Farm intervened, asserting a subrogation claim for the amount it paid the Osbornes under their homeowners' policy. All parties other than Jauregui settled prior to trial for a total settlement amount of $1,260,500.

After the jury returned a verdict finding that the Osbornes had suffered approximately $835,000 in damages, the trial court applied a settlement credit in Jauregui's favor and entered judgment that the Osbornes should take nothing on their claims. The trial court declined to award the Osbornes attorney's fees and further declined to grant State Farm any of the proceeds from the Osbornes' settlement with the subcontractors under its subrogation claim.

The Osbornes and State Farm both appealed. We reverse the denial of the Osbornes' request for attorney's fees and the denial of State Farm's subrogation claim. We remand to the trial court for a calculation of attorney's fees and a reconsideration of State Farm's claim for subrogation rights against the settlement proceeds.

BACKGROUND

In 1997, the Osbornes bought a house from Jauregui for slightly more than $1 million. Shortly
after moving in, the Osbornes noticed flaws in the construction. They later learned that the house had serious mold problems due to various construction errors. The Osbornes also noticed that because the house was built along a golf course, golf balls frequently hit and damaged the house, although Jauregui and its realtor had assured them there would be no "golf ball problem." (1)

Prior to filing suit, the Osbornes provided Jauregui with a demand letter, offering to settle for the amount of $866,000, but Jauregui refused, responding with a counter-offer of $12,810. (2) In July 1998, the Osbornes sued Jauregui and its owner, Jose Luis Jauregui, asserting causes of action under the Texas Deceptive Trade Practices Act (DTPA) and for breach of contract, negligence, breach of warranty, real-estate fraud, and negligent misrepresentation.

The Osbornes also sued a number of subcontractors and suppliers of construction materials, alleging negligence, breach of warranty, DTPA violations, and products liability. (3) In March 2003, State Farm intervened as the Osbornes' subrogee. Shortly before trial, the Osbornes settled with all the defendants except Jauregui and its owner. The settling defendants paid a total of $1,260,500--$1,120,500 of which remains after the payment of expert-witness fees.

The Osbornes, who put on evidence at trial that they suffered a minimum of $2,418,153 in damages, excluding damages for mental anguish, bodily injury, and attorney's fees, went to trial to pursue its claims against Jauregui and its owner, the remaining defendants.

The jury found that Jauregui was negligent and breached warranties made to the Osbornes. The jury found that the Osbornes suffered damages totaling $835,158.78: $250,000 for repairs necessary to bring the house to the condition reasonably expected when they bought it; $220,000 for lost or damaged clothing and non-furniture personal effects; $70,000 for non-clothing items that were condemned due to mold contamination; $28,000 for repairs actually made by the Osbornes; $1,000 for damaged furniture; $95,158.78 for alternate living expenses; and $171,000 for moving, storage, and cleaning of their belongings. (4)

The jury found that Jauregui was responsible for 48% of the Osbornes' damages and that the subcontractors and suppliers were responsible for the remaining 52%. The jury determined that Jauregui did not engage in unconscionable conduct, deceptive practices, fraud, or negligent misrepresentation. The jury did not find Jauregui's individual owner responsible for any of the Osbornes' damages.

Jauregui elected a dollar-for-dollar credit of the settlement funds against the damages awarded by the jury, and after applying that credit to the jury award, the trial court entered a judgment that the Osbornes should take nothing against Jauregui and refused to award attorney's fees against Jauregui. The trial court also denied State Farm's claim that it was entitled to any settlement funds through subrogation.

The court made findings of fact and conclusions of law in which it found that there was evidence that the Osbornes had incurred $1,149,641.30 in attorney's fees, (5) but concluded that they were not entitled to attorney's fees because they did not obtain a net recovery from Jauregui and because they did not segregate the fees among the various claims and parties. Finally, the court found that because State Farm did not pay for any of the Osbornes' attorney's fees, the fees were "an uncompensated expense of collection," and that State Farm did not meet its burden to present evidence showing what portions of the settlement credits were "allocated to the items State Farm paid for . . . as opposed to other items of damage and expenses of collection alleged by [the Osbornes] in their petitions that State Farm had not paid for, such as mental anguish, bodily injury, repairs and attorney's fees." The court concluded that State Farm was not entitled to the settlement proceeds because it had not shown that the proceeds were payments for losses it had covered.

On appeal, the Osbornes argue that they were "prevailing parties" under the DTPA and were not required to segregate their attorney's fees. In its cross-appeal against the Osbornes, State Farm argues that the trial court abused its discretion in denying State Farm's subrogation claim because that denial grants the Osbornes a double recovery. State Farm also argues that any money received from Jauregui would be subject to State Farm's subrogation rights and that the trial court properly denied the Osbornes' request for attorney's fees.

STANDARD OF REVIEW

The availability of attorney's fees under a particular statute is a question of law to be reviewed de novo. Holland v. Wal-Mart Stores, Inc., 1 S.W.3d 91, 94 (Tex. 1999); see Johnson v. City of Fort Worth, 774 S.W.2d 653, 656 (Tex. 1989) ("Matters of statutory construction are questions of law for the court to decide."). The extent to which attorney's fees can or cannot be segregated is a mixed question of law and fact. Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 313 (Tex. 2006). Where segregation of fees is possible, remand is required. Id. at 314.

In the absence of an unambiguous contractual provision regarding subrogation, the right to subrogation is grounded in equitable principles, and "[a] trial court's balancing of the equities should not be disturbed on appeal unless a showing is made that it would be inequitable to allow the judgment to stand." Esparza v. Scott & White Health Plan, 909 S.W.2d 548, 552 (Tex. App.--Austin 1995, writ denied).

DISCUSSION

Attorney's Fees

The trial court determined that the Osbornes were not eligible to recover attorney's fees because they were not "prevailing parties" under the DTPA. The trial court also found that the Osbornes could not recover attorney's fees because they had not segregated their attorney's fees among the various claims and defendants. The Osbornes argue on appeal that they should recover attorney's fees as prevailing parties under the DTPA and that they were not required to segregate their attorney's fees because the fees were based on inextricably intertwined claims derived from the same set of facts.

Under the DTPA, a "consumer who prevails shall be awarded court costs and reasonable and necessary attorneys' fees." Tex. Bus. & Com. Code Ann. § 17.50(d) (West Supp. 2006). The Texas Supreme Court has held that a plaintiff "who is awarded actual damages under the DTPA should also be awarded attorney's fees, even though the damage award is entirely offset by an opposing claim." McKinley v. Drozd, 685 S.W.2d 7, 10 (Tex. 1985). While McKinley involved a DTPA claim offset by a counterclaim rather than settlements from other defendants, the court emphasized the "legislative mandate to liberally construe the [DTPA] to protect consumers from deceptive practices, and the legislative intent to provide consumers with an efficient and economical means to seek redress for those deceptive practices." Id. at 9.

The Texas Supreme Court has not ruled on whether the reasoning in McKinley would apply in a situation where the damages owed by one defendant, such as Jauregui in the present case, were entirely offset by settlement amounts from other defendants. The appellate courts have been split in determining whether a plaintiff "prevails" under the DTPA where settlement amounts from other defendants exceed the judgment. Jauregui relies primarily on Hamra v. Gulden, 898 S.W.2d 16, 19 (Tex. App.--Dallas 1995, writ dism'd w.o.j.), which held that a plaintiff who sued two defendants jointly and severally did not prevail on a DTPA claim where the settlement credit from one defendant exceeded the damages found at trial, citing only Blizzard v. Nationwide Mutual Fire Insurance Co., 756 S.W.2d 801, 806 (Tex. App.--Dallas 1988, no writ), to support this holding.

The payments made to the plaintiff prior to trial in Blizzard, however, constituted insurance payments from her insurer. Id. at 806-07. The plaintiff sued her insurance company, but the amount of damages found by the jury at trial did not exceed the total amount of insurance payments paid to the plaintiff by the defendant prior to trial. These pretrial payments, made by the defendant subject to the judgment rather than a settling party, resemble the insurance benefits paid prior to trial by the defendant in Allstate Insurance Co. v. Bonner, 51 S.W.3d 289, 292 (Tex. 2001), where the plaintiff could not recover attorney's fees under the insurance code because the judgment amount owed by a defendant insurance company was entirely offset by benefits previously paid by that defendant. In cases where the amount of damages found by the jury at trial is lower than payments previously paid to the plaintiff by the defendant to compensate for such damages, it is reasonable to view the plaintiff as not having prevailed on a claim.

In the present case, however, the jury did not find that Jauregui owed less in damages than some amount that Jauregui had already paid to the Osbornes. Instead, the jury found Jauregui responsible and assessed damages in the amount of $835,000, while Jauregui reaped the benefits of its refusal to settle by offsetting the entire judgment with settlement funds paid by other defendants.

We find the facts in the instant case to more closely resemble those in Roberts v. Grande, 868 S.W.2d 956, 962 (Tex. App--Houston [14th Dist.] 1994, no writ), in which the plaintiff was allowed an award of attorney's fees even though the judgment was entirely offset by settlement amounts. "[A]pplying an offset from a previous settlement should not deprive a consumer of its attorney's fees." Id.

The Osbornes made a settlement offer to Jauregui prior to trial in the amount of $866,000, which proved to be a reasonable demand in light of the subsequent jury award, at a time when the Osbornes' attorney's fees had only reached $22,000. Jauregui responded with a counter-offer of only $12,810, forcing the Osbornes to incur an additional $1,127,641.30 in attorney's fees. (6) The Osbornes should not be penalized for proceeding to trial when their good-faith attempt to negotiate a settlement prior to filing suit was refused.

The dissent maintains that the Osbornes should not be awarded attorney's fees because they were fairly compensated for their damages before trial and that they should not continue to "litigate a claim after being made whole." However, the dissent assumes that the Osbornes were fairly compensated for their damages, ignoring the fact that the Osbornes put on evidence at trial that they suffered at least $2,418,153 in damages, excluding damages for mental anguish, bodily injury, and attorney's fees. Before litigation began, State Farm's experts had estimated that the Osbornes' damages exceeded their homeowners' insurance policy limit of $1,874,687, which left an uninsured deficit of approximately $600,000, not including uncovered damages such as mental anguish, bodily injury, and attorney's fees. Meanwhile, shortly before trial, the Osbornes were able to negotiate settlement amounts with certain defendants, but only after incurring substantial attorney's fees. The settlement amounts totaled $1,260,500 and were placed in trust because of State Farm's subrogation claim. Thus, prior to trial it was unclear whether the Osbornes would actually receive any of the settlement funds due to State Farm's subrogation interest. In light of the damage estimates produced by both the Osbornes and State Farm, it was highly unlikely that the Osbornes could have predicted that a jury would find that they suffered only $835,158.78 in damages.

While it is true that the Osbornes had received $1,874,687 from State Farm in insurance payments prior to trial and even assuming that they would receive all of the $1,260,500 in settlement amounts for a total of $3,135,187, the Osbornes were also relying on evidence that they had suffered at least $2,418,153 in damages and incurred almost $1,149,641 in attorney's fees for a total of $3,567,794. Therefore, unless the Osbornes went to trial, they would still have had at least $432,607 in uncompensated damages. If the jury had agreed that the Osbornes suffered $2,418,153 in damages as a result of Jauregui's conduct, and the trial judge had awarded the Osbornes their full $1,149,641 in attorney's fees, the Osbornes would have recovered $2,307,294 at trial, taking into account the dollar-for-dollar settlement credit. Assuming the Osbornes would then have been "made whole," and assuming State Farm properly asserted its subrogation claim to $1,874,687, the Osbornes would have been left with the $432,607 they needed to be fully compensated. Faced with these circumstances prior to trial, it was not at all unreasonable for the Osbornes to continue to pursue their claims against Jauregui.

Awarding attorney's fees to the Osbornes before applying the settlement credit is consistent with the reasoning in McKinley and the purpose of the DTPA. The Texas legislature determined that the DTPA "shall be liberally construed and applied to promote its underlying purposes, which are to protect consumers against false, misleading, and deceptive business practices, unconscionable actions, and breaches of warranty and to provide efficient and economical procedures to secure such protection." Tex. Bus. & Com. Code Ann. § 17.44(a) (West 2002).

Because we find that the Osbornes were prevailing parties under the DTPA, we conclude that the trial court erred by holding that the Osbornes were not entitled to attorney's fees because they did not prevail under the DTPA. However, the trial court also held that the Osbornes were not entitled to attorney's fees because they failed to segregate the fees among the various claims and parties. The Osbornes contend that they are not required to segregate their attorney's fees by claim or defendant because the fees are related to inextricably intertwined claims that are based on a common set of facts.

Generally, a party seeking attorney's fees has a duty to segregate the fees incurred in pursuing claims or defendants for which fees are recoverable from those in which they are not, and a trial court may refuse to award attorney's fees in the absence of segregation. West Beach Marina, Ltd. v. Erdeljac, 94 S.W.3d 248, 267 (Tex. App.--Austin 2002, no pet.). However, there has historically been an exception to this rule when claims "are dependent upon the same set of facts or circumstances and thus are 'intertwined to the point of being inseparable.'" Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 11 (Tex. 1991) (quoting Gill Sav. Ass'n v. Chair King, Inc., 783 S.W.2d 674, 680 (Tex. App.--Houston [14th Dist.] 1989), modified, 797 S.W.2d 31 (Tex. 1990)). The Osbornes argue that they are subject to this exception because the facts necessary to prove that the various subcontractors and suppliers performed defective work or supplied defective products are the same facts necessary to prove that Jauregui failed to construct the house in a good and workmanlike manner.

The Texas Supreme Court recently curtailed the Stewart Title exception, stating that intertwined facts do not make fees recoverable and that "it is only when discrete legal services advance both a recoverable and unrecoverable claim that they are so intertwined that they need not be segregated." Chapa, 212 S.W.3d at 313-14. However, the Osbornes' failure to segregate fees does not mandate a denial of all attorney's fees because "an unsegregated damages award requires a remand." Id. at 314.

We find that the Osbornes have a duty to segregate their attorney's fees into recoverable and nonrecoverable claims. While the claims against Jauregui and the various settling defendants may arise from the same set of facts, this exception no longer applies. We remand for purposes of determining the amount of attorney's fees incurred by the Osbornes on the DTPA claim against Jauregui in a manner consistent with Chapa. See id.

Subrogation

The trial court determined that State Farm did not have subrogation rights against the settlement proceeds because State Farm did not meet its burden to present evidence allocating the settlement amounts to losses covered by insurance payments. State Farm argues that its contractual right of subrogation displaces any equitable considerations regarding whether the Osbornes have been "made whole" for their damages. State Farm further argues that even under an equitable determination of subrogation rights, it is entitled to the settlement proceeds because the Osbornes have already been "made whole" by insurance payments totaling $1,874,687.28. State Farm contends that it is entitled to the settlement funds without being required to show which settlement amounts were allocated to damages covered by insurance payments.

The principle of subrogation provides that an insurer that has paid its insured for losses covered by an insurance policy is entitled to the insured's rights and remedies against a third party for the covered losses. Harris v. American Prot. Ins. Co., 158 S.W.3d 614, 622 (Tex. App.--Fort Worth 2005, no pet.). Texas courts are "particularly hospitable" to the concept. Id. (quoting Interfirst Bank Dallas, N.A. v. United States Fid. & Guar. Co., 774 S.W.2d 391, 397 (Tex. App.--Dallas 1989, writ denied)).

In the absence of a contractual subrogation provision, subrogation rights are "firmly granted in" and "not easily detached from" equity. Esparza v. Scott & White Health Plan, 909 S.W.2d 548, 552 (Tex. App.--Austin 1995, writ denied). If either an insured or an insurer "must to some extent go unpaid, the loss should be borne by the insurer for that is a risk the insured has paid it to assume." Ortiz v. Great S. Fire & Cas. Ins. Co., 597 S.W.2d 342, 344 (Tex. 1980) (quoting Garrity v. Rural Mut. Ins. Co., 253 N.W.2d 512, 514 (Wis. 1977)). An insurer is not entitled to an equitable right of subrogation until the insured is "made whole" for his loss. Ortiz, 597 S.W.2d at 343; Esparza, 909 S.W.2d at 552.

In determining equitable subrogation rights, "[t]o avoid injustice, the equities must still be balanced in deciding what amount, if any, the subrogee is entitled to receive in a given case . . . . A trial court is not cast adrift on the sea of equity without guidance, however. Various rules and considerations offer moorings for the trial court in applying equity." Esparza, 909 S.W.2d at 552. Such considerations include the prevention of a double recovery by the insured, the parties' conduct during settlement or before the court, and evidence of damages. Id. at 552-553.

In a determination of subrogation based purely on equitable factors, the trial court did not abuse its discretion in denying subrogation rights to State Farm. For example, State Farm, by arguing at trial and on appeal that the Osbornes are not entitled to attorney's fees under the DTPA, asserted a position that was adverse to the very parties whose interests State Farm, as an insurer, was expected to protect. The fact that State Farm attempts to compromise the Osbornes' efforts to achieve the fullest possible recovery suggests that equity should not favor State Farm in a determination of subrogation rights.

Furthermore, State Farm's statements at trial directly conflict with its argument on appeal that the Osbornes were "made whole" because the jury returned a judgment of $835,158.78 in damages, and the total insurance payments received by the Osbornes exceed this amount. For example, State Farm stated in its third amended petition in intervention that the Osbornes suffered damages at least in the amount of $1,902,247.44. A judicial admission is conclusive upon the party making it, relieves the opposing party's burden of proving the admitted facts, and bars the admitting party from disputing it. Mendoza v. Fidelity & Guar. Ins. Underwriters, Inc., 606 S.W.2d 692, 694 (Tex. 1980). State Farm also put on an expert, Buddy Henderson, to testify that $1,477,351 was a reasonable cost of repairs for the house and that he relied on this amount in determining that State Farm should pay the full policy limits to the Osbornes. A party's testimony at trial will be treated as a judicial admission if (1) the statement is deliberate, clear, and unequivocal, (2) the statement is contrary to an essential fact embraced in the theory of recovery asserted by the party giving the testimony, (3) the statement is not also destructive of the opposing party's theory of recovery, and (4) it would be unjust to permit a party to recover after he has sworn himself out of court by clear and unequivocal testimony. Id. Each of these factors is satisfied with reference to Henderson's expert testimony that the cost of repairs alone could reasonably be $1,477,351.

However, State Farm now asserts that the Osbornes' damages are limited to the amount of the jury verdict. As a policy matter, allowing this drastic change in State Farm's damages assessment would mean that insured parties could not accept insurance payments from an insurer without fear that in the future, the insurer would claim that it had overpaid and that the excess should be used to offset settlement payments for mental anguish or other uncovered damages. These factors support the trial court's equitable decision to deny subrogation to State Farm. Based on longstanding Texas law regarding equitable subrogation at the time the trial court's judgment was issued, the trial court did not abuse its discretion.

However, the Texas Supreme Court recently held in Fortis Benefits v. Cantu, No. 05-0791, 2007 Tex. LEXIS 603, at *18-19 (Tex. June 29, 2007), that contract-based subrogation rights trump equitable considerations, which are to be used by default in the absence of a contractual right to subrogation. As a result, equitable considerations such as the "made whole" doctrine are to apply "only in the absence of contrary reimbursement language in the contract." Id. at *18.

The contract at issue in Fortis established a right of subrogation, stating, "Upon payment of benefits, We will be subrogated to all rights of recovery a Covered Person may have against any person or organization. . . . Such right extends to the proceeds of any settlement or judgment; but is limited to the amount of benefits We have paid." Id. at *5 n.11. The Texas Supreme Court noted that because the provision was "not imprecise or ambiguous" and it gave Fortis "an unfettered right to recover the proceeds from the settlement," equitable considerations must give way to the language of the contract. Id.

State Farm, in its petition for intervention, stated that "State Farm is equitably entitled to seek recovery for such damages against Defendants as a real-party-in-interest, and is authorized to pursue this claim in the name of its insured. [The Osbornes] have assigned their rights and interest to the extent of such benefits paid to them by State Farm." This language reflects both equitable and contractual subrogation principles. In addition, State Farm claims in its October 20, 2004 motion to modify, correct, or reform the judgment that the trial court's judgment is in error "in that it denies State Farm Lloyds the right to apply settlement funds received from third parties in satisfaction of State Farm Lloyds [sic] contractual and equitable subrogation claim." (7)

The subrogation provision in the Osbornes' homeowners' insurance policy with State Farm reads in its entirety:

Subrogation. An insured may waive in writing before a loss all rights of recovery against any person. If not waived, we may require an assignment of rights of recovery for a loss to the extent that payment is made by us.
If an assignment is sought, an insured must sign and deliver all related papers and cooperate with us.

This provision, which merely states that State Farm "may" require an assignment of rights, is significantly more ambiguous than the provision at issue in Fortis, which states that the insurer "will be subrogated to all rights of recovery," including "the proceeds of any settlement or judgment." Fortis, 2007 Tex. LEXIS 603, at *5 n.11 (original emphasis removed, emphases added).

Even if State Farm's contractual right to subrogation controls over equitable considerations, State Farm may be prevented from recovering settlement funds due to its failure to allocate the funds to covered versus uncovered losses. The subrogation provision in the Osbornes' policy states that an assignment of rights may be required "for a loss to the extent that payment is made by [State Farm]." In a claim for subrogation where settlement amounts are at issue, an insurer bears the burden of showing what amount, if any, of the settlement amounts correspond to amounts paid by it. Ortiz, 597 S.W.2d at 344.

Subrogation should not be awarded if it is not clear what portion of the settlement is intended to compensate for covered losses. Id. "In true subrogation cases, where the insurer is bringing the action against the third party, or is participating in the insured's action against the third party, recovery by the insurer is generally limited to the same elements as those for which it has made payment." Lee R. Russ & Thomas F. Segalla, 16 Couch On Insurance § 226-52 (3d ed. 2000).

It is not clear from the record which types of losses were meant to be covered by the amounts that the Osbornes received from the settling parties. "[T]he mere fact that an insured receives a recovery from another source may not establish that the amounts recovered correspond to the same elements of loss for which the insured has already recovered from the insurer." Id.

State Farm failed to allocate the settlement funds to covered versus uncovered losses. We can assume that because State Farm asserts in its brief that it assisted "vigorously" in securing the settlements, there was ample opportunity to make such an allocation. There is no evidence that the remaining settlement amounts are allocable to covered damages, rather than uncovered damages such as mental anguish, attorney's fees, or any reduction in the house's market value due to the "golf ball problem."

Because the trial court's order denying subrogation rights to State Farm was issued prior to Fortis and thus before specific contractual subrogation rights were deemed controlling over equitable principles, the trial court did not have an opportunity to evaluate and interpret the subrogation clause in the Osbornes' homeowners' policy. Therefore, we remand to the trial court for a review of the subrogation provision in order to determine whether the language is sufficiently precise and unambiguous to control over equitable subrogation principles and to evaluate the effect of State Farm's failure to allocate the settlement funds, in light of the Texas Supreme Court's holding in Fortis.

In the event that Fortis is applicable to the Osbornes' homeowners' policy, the contractual subrogation provision must control over equitable considerations. In the alternative, if the trial court finds that Fortis does not apply to the present case because the contractual subrogation provision is not sufficiently precise and unambiguous, the determination of State Farm's subrogation rights must be based on the "trial court's balancing of the equities." Esparza, 909 S.W.2d at 552. Based on an evaluation of equitable factors, the trial court did not abuse its discretion in denying subrogation rights to State Farm. However, we find it significant that at the time such rights were denied, the Osbornes were also denied their attorney's fees. We have since determined that the Osbornes should be awarded attorney's fees. As a result, the factors that may be taken into account by the trial court in balancing the equities to determine subrogation rights have changed. Where the facts have changed, the trial court's equitable determination may change as well because "[e]quity is inextricably tied to facts" and "the conflict of interests in subrogation . . . cannot be resolved by a bright-line test that curtails a trial court's discretion to apply equity based on the facts of the case." Id. at 553. In light of the fact that this case has been remanded to the trial court for purposes of segregating the Osbornes' attorney's fees and to allow for a review of the contractual subrogation provision and the applicability of Fortis, the trial court, if it finds Fortis to be inapplicable, may also wish to revisit its equitable determination of State Farm's subrogation rights.

We reverse the trial court's denial of State Farm's subrogation claim and remand to the trial court for purposes of reviewing the contractual subrogation provision in light of Fortis and, if necessary, revisiting its equitable determination of State Farm's subrogation rights as a result of our award of attorney's fees to the Osbornes and remand for the purpose of calculating the fee award.

CONCLUSION

Because the Osbornes were prevailing parties under the DTPA, they are entitled to reasonable and necessary attorney's fees from Jauregui. We reverse the trial court's denial of the Osbornes' attorney's fees. Because we find that the Osbornes were required to segregate their attorney's fees, we remand for the purposes of segregation.

Because the Texas Supreme Court's recent decision in Fortis Benefits v. Cantu requires that precise and unambiguous contractual language regarding subrogation controls over equitable considerations, we reverse the trial court's denial of State Farm's subrogation claim and remand for a determination of State Farm's subrogation rights in light of the contractual subrogation provision in the Osbornes' homeowners' policy and, if Fortis is deemed inapplicable, a determination of State Farm's equitable subrogation rights after any award of attorney's fees to the Osbornes.

Diane Henson, Justice
Before Justices Patterson, Puryear and Henson;
Dissenting Opinion by Justice Puryear
Reversed and Remanded
Filed: August 29, 2007

1. Any reduction in the house's market value due to the "golf ball problem" is one example of a loss suffered by the Osbornes that would generally not be covered by a homeowners' insurance policy.
2. A pre-suit demand letter is required in order to pursue a claim under the Texas Deceptive Trade Practices Act. Tex. Bus. & Com. Code Ann. § 17.505(a) (West 2002). This statutory notice requirement is designed to afford parties the opportunity to negotiate and settle prior to suit, potentially avoiding lengthy and costly litigation. Star Houston Inc. v. Kundak, 843 S.W.2d 294, 297 (Tex. App.--Houston [14th Dist.] 1992, no writ). If a defendant tenders an offer during settlement negotiations that is refused by the plaintiff, and the amount tendered turns out to be equal to or greater than the damages found at trial, the plaintiff's attorney's fee award is limited to the amount of fees incurred at the time the rejected settlement offer was made. Tex. Bus. & Com. Code Ann. § 17.5052(h) (West 2002).
3. The Osbornes also sued Jauregui's realtor, but those claims are not before us on appeal.
4. No questions were submitted to the jury regarding the measure of damages for items such as permanent reduction in market value of the home or the loss of time spent by the Osbornes in attempting to correct problems with the house. See Ludt v. McCollum, 762 S.W.2d 575, 576 (Tex. 1988) (holding that permanent reduction in market value after repair is recoverable in DTPA claim); Village Mobile Homes, Inc. v. Porter, 716 S.W.2d 543, 549-50 (Tex. App.--Austin 1986, writ ref'd n.r.e.) (holding that damages for lost time may be recoverable in DTPA claim).
5. The Osbornes have since received $17,606.01 from one of the defendants and state that if they prevail, the fees should be reduced to $1,132,035.29. They also seek $50,000 in appellate fees.
6. It is not uncommon for an attorney's fee award to exceed the damages recovered. Hoover Slovacek L.L.P. v. Walton, 206 S.W.3d 557, 563 n.8 (Tex. 2006).
7. State Farm further states in its November 12, 2004 motion to modify, correct, or reform the amended final judgment that "because State Farm Lloyds has already paid $1,874,687.28 to the Plaintiffs, and the Plaintiffs' damages were only $835,158.78, State Farm Lloyds is both equitably and contractually entitled to subrogation."

Zeifman v. Michels and Austin ISD (Tex.App.- Austin, Jun. 20, 2007)

Clifford Zeifman v. Michels and Austin Indep. Sch. Dist. (Tex.App.- Austin, Jun. 20, 2007)(Pemberton)(ISD law, parental rights, SACPR)

REVERSED AND REMANDED ON MOTION FOR REHEARING:

Opinion by Justice Bob Pemberton

Before Justices Patterson, Pemberton and Waldrop

Clifford Zeifman v. Sheryl Diane Michels and Austin Independent School District

Appeal from 353rd District Court of Travis County


FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT
NO. D-1-GN-06-002930, HONORABLE WILLIAM E. BENDER, JUDGE PRESIDING


OPINION BY JUSTICE PEMBERTON


We withdraw our opinion issued May 11, 2007, and substitute the following in its place. The Court has overruled Michels's motion for rehearing.

This appeal arises within a statutory scheme intended to ensure the best interests of children following their parents' divorce. It also implicates the principles underlying our adversarial system, which we trust to ensure justice and truth under our law through the refining of issues achieved when parties and their able advocates receive their "day in court" under fair procedures.


Ex-spouses Sheryl Michels and Clifford Zeifman, aided by their respective legal teams, are embroiled in a controversy concerning the best interests of their two children, A.A. and G.L. The background of this controversy is detailed in our opinions in prior proceedings that have arisen from it in recent months. (1) To summarize, Michels and Zeifman "have pursued extensive and acrimonious litigation over which [elementary] school A.A. should attend," (2) a conflict that evidently has spread to other issues involving both A.A. and a second child, G.L. (3) Informed by the harsh tenor of the litigation and legal expenses that, the record of these proceedings reveal, are spiraling into the hundreds of thousands of dollars, we have previously suggested that "the adversarial processes of our court system," at least when utilized in this manner, "may not be the best means" of either deciding which school A.A. should attend or of ensuring this young child's best interests. (4)

This latest appeal involves a contention by Zeifman that Michels and her lawyers sought to advance their interests by unethically circumventing the procedural protections that our adversarial justice system provides him. The conduct he alleges is indeed disturbing. In our August 4, 2006 opinion in Cause No. 03-05-00533-CV, we held that, on the record before us, the district court had abused its discretion in modifying the comprehensive terms of the parties' original agreed divorce decree to give Michels sole power to make educational decisions on behalf of A.A. See Zeifman v. Michels, 212 S.W.3d 582, 596 (Tex. App.--Austin 2006, pet. denied); id. at 596 (Pemberton, J., concurring). During the period in which the district court's order was in effect, Michels had exercised her authority to withdraw A.A. from the Austin Independent School District's (AISD) Bryker Woods Elementary, the school in which the original agreed divorce decree had required the child to be enrolled, and enrolled her in St. Andrews. Zeifman, 212 S.W.3d at 586. After we had released our opinion but before mandate issued, Michels sued AISD seeking injunctive relief to prevent the district from permitting Zeifman to enroll A.A. at Bryker Woods or any other AISD school as the 2006 school year began. Michels alleged that permitting such enrollment would (1) violate Michels's exclusive parental rights (at least until the mandate in No. 05-533-CV issued) to make educational decisions on behalf of A.A. and (2) "actively assist[] . . . and aid[] and abet[] Clifford Zeifman in the violation of a valid court order," a December 17, 2004, standing order governing Travis County family law cases. (5)


While Michels's new lawsuit was directed at controlling Zeifman's actions--and despite the fact that he was A.A.'s father, joint-managing conservator, and her opposing party in ongoing litigation concerning A.A.'s education--Michels did not name Zeifman as a party. Zeifman represents that, even worse, Michels sought to avoid his notice or detection by deliberately filing her lawsuit on a day--Monday, August 14--on which "Sheryl and her attorneys were aware" from a vacation letter and prior correspondence "that Clifford's attorney was out of town attending the Advanced Family Law Course in San Antonio." (6)


At 2:48 p.m. on August 14, Michels obtained an ex parte temporary restraining order against AISD. On the following Friday, August 18, (7) Zeifman filed a petition in intervention, motion to dismiss, and motion for sanctions. Zeifman pleaded that he had a justiciable interest in Michels's new lawsuit as A.A.'s father and co-managing conservator, and as respondent and counter-petitioner in the ongoing litigation. Zeifman moved to dismiss Michels's suit as an improper attempt to circumvent the district court's jurisdiction over the divorce decree and this Court's jurisdiction over "the issue of [A.A.'s] education." Zeifman also urged that Michels's attempt to invoke the district court's jurisdiction was inconsistent with the position she had taken only a few months earlier in a second modification proceeding she had initiated under the divorce decree in 2005. Specifically, in response to a counter-petition from Zeifman to modify the educational-choice portions of the decree, Michels had filed a plea to the jurisdiction asserting that the district court lacked subject matter jurisdiction over the counter-petition while the appeal of the decree modifications in No. 05-533 was pending. The district court then "agree[d] that it has no jurisdiction to modify the order addressing the education of [A.A.] because of the current appeal of that matter" but overruled Michels's plea because it "retains jurisdiction with respect to all other aspects of the parent-child relationship as to both children under Chapters 155 and 156 of the Texas Family Code." (8)


Zeifman sought sanctions under rule 13 of the Texas Rules of Civil Procedure, chapters 9 and 10 of the civil practice and remedies code, and the district court's inherent power. He complained chiefly that Michels had filed a "frivolous and groundless" separate suit against AISD, rather than seeking relief in the divorce and custody case, to circumvent the jurisdiction of the district court and this Court, and in a manner deliberately calculated to avoid his knowledge or participation for a short, but critical, period of time. Zeifman argues that these tactics, coupled with subsequent events, reveal Michels's sole design to have been delay. He represents that he had been scheduled to have custody of A.A. during the week of August 14, that classes at Bryker Woods were to begin on August 15, and that custody was scheduled to return to Michels the following week. Thus, Zeifman maintains, Michels filed what proved to be a "one-week lawsuit" solely to prevent him from enrolling A.A. during his custody week and to "buy time" until custody returned to Michels the following week and she could enroll A.A. in St. Andrews.

A hearing on Zeifman's intervention, motion to dismiss, and motion for sanctions was set on the third business day thereafter, Wednesday, August 23. On Monday, August 21, Michels filed a rule 11 agreement with AISD, dated August 18, whereby the district agreed not to permit A.A. to be enrolled at or attend Bryker Woods "until such time as [AISD] is presented with a final, non-appealable order expressly authorizing such enrollment and attendance," in return for Michels's agreement to dismiss her pending suit. Michels filed a notice of non-suit on August 22 and, on the day of the hearing, filed a motion to strike Zeifman's intervention. After a hearing in which only argument was presented, the district court signed an "Order Confirming Nonsuit" and, by separate order, granted Michels's motion to strike intervention, dismissed as moot

Zeifman's motion to dismiss, and denied Zeifman's motion for sanctions.


Zeifman brings two issues, contending that the district court abused its discretion in striking his intervention and in denying his sanctions motion. We agree that the district court abused its discretion in striking Zeifman's intervention. Furthermore, because this ruling was undisputedly a predicate for the district court's ruling on Zeifman's sanctions motion, we remand Zeifman's sanctions motion for further proceedings.


As this Court has previously observed, the right of intervention is ultimately rooted in equity. Highlands Ins. Co. v. Lumberman's Mut. Cas. Co., 794 S.W.2d 600, 601 (Tex. App.--Austin 1990, no pet.) ("The right of intervention is an equitable right. It does not depend upon a rule or statute for its existence."). This right is recognized in rule 60 of the Texas Rules of Civil Procedure, which provides that "[a]ny party may intervene by filing a pleading, subject to being stricken by the court for sufficient cause on the motion of any party." Tex. R. Civ. P. 60; see Highlands Ins. Co., 794 S.W.2d at 601-02.


Sufficient cause exists for striking an intervention when a would-be intervenor faced with a motion to strike cannot demonstrate a justiciable interest in the lawsuit. Mendez v. Brewer, 626 S.W.2d 498, 499-500 (Tex. 1982); see Law Offices of Windle Turley, P.C. v. Ghiasinejad, 109 S.W.3d 68, 70 (Tex. App.--Fort Worth 2003, no pet.); McCord v. Watts, 777 S.W.2d 809, 812 (Tex. App.--Austin 1989, no writ). This justiciable interest may be either legal or equitable in nature but must be present and not merely remote or contingent. Mendez, 626 S.W.2d at 499; McCord, 777 S.W.2d at 811-12 ("An intervenor must show some present legal or equitable interest in the subject matter which makes it proper for him to participate in the proceedings."). This interest is "analogous to that essential for a party to maintain or defend an action." McCord, 777 S.W.2d at 811-12 (citing 1 McDonald, Texas Civil Practice § 3.47 (1981 ed.)); see also Law Offices of Windle Turley, 109 S.W.3d at 70 ("A party has a justiciable interest in a lawsuit, and thus a right to intervene, when his interests will be affected by the litigation."). Whether an intervenor possesses a present justiciable interest is determined, in the first instance, by the facts alleged in the petition in intervention, which "also should be construed along with the allegations of fact set forth in the pleadings of the other parties." McCord, 777 S.W.2d at 812.


While the determination of whether a justiciable interest exists based on the pleadings would appear to present a pure question of law, cf. Texas Parks & Wildlife Dept. v. Miranda, 133 S.W.3d 217, 226-27 (Tex. 2004), the ultimate determination of whether an intervention should be struck, even if a justiciable interest is shown, has long been held to be vested in the sound discretion of the trial court. Mendez, 626 S.W.2d at 499 ("It is settled law that a motion to strike an intervention is addressed to the sound discretion of the trial court."); Law Offices of Windle Turley, 109 S.W.3d at 70; McCord, 777 S.W.2d at 812. We accordingly review a trial court's decision on a motion to strike an intervention for abuse of discretion. See In re Lumbermens Mut. Cas. Co., 184 S.W.3d 718, 722 (Tex. 2006) (citing Guaranty Fed. Sav. Bank v. Horseshoe Operating Co., 793 S.W.2d 652, 657 (Tex. 1990)). An abuse of discretion denotes "act[ing] without reference to guiding rules or principles; in other words . . . the act was arbitrary or unreasonable." Worford v. Stamper, 801 S.W.2d 108, 109 (Tex. 1990).


During oral argument, Michels conceded that Zeifman had shown a justiciable interest in her suit against AISD, at least at its inception. Zeifman's justiciable interest is obvious from the face of his petition, if not from Michels's own petition. Michels's suit sought to prevent Zeifman from enrolling A.A. in Bryker Woods or other AISD schools. Both Zeifman and Michels pleaded that Zeifman is A.A.'s father. Zeifman pleaded that he was joint managing conservator; Michels requested the district court to take judicial notice of the file in their divorce case, which demonstrated Zeifman's joint managing conservatorship. Both Zeifman and Michels recounted the history of their litigation concerning where A.A. should attend elementary school, including the opinion of this court reversing the district court's order granting Michels sole control over A.A.'s educational decisions. Michels further alleged that she and Zeifman had each filed additional motions to modify the divorce decree and were currently litigating these issues.
Even if Zeifman demonstrated a justiciable interest in her suit, Michels contends, he has not demonstrated that the district court abused its discretion in striking his intervention. She relies on the proposition that "[i]t is only an abuse of the trial court's discretion to strike a petition in intervention if the intervenor: (1) could have brought the same action, or any part of it, in its own name; (2) the intervention would not complicate the case by excessively multiplying the issues; and (3) the intervention is almost essential to effectively protect the intervenor's interest." Michels derives these principles from the Texas Supreme Court's decision in Guaranty Federal. See 793 S.W.2d at 657; see also Intermarque Auto Prod., Inc. v. Feldman, 21 S.W.3d 544, 549 (Tex. App.--Texarkana 2000, no pet.). Applying her characterization of the Guaranty Federal holding, Michels contends that "Zeifman could not have brought the same action against the Austin Independent School District that [she] filed," which she depicts as seeking to protect her personal rights as a parent to solely control A.A.'s educational decisions (which she could continue to enforce, in her view, until this Court's mandate issued in the previously pending litigation) and rights unique to her under the Travis County standing order. Michels adds that Zeifman's suit would have "complicated" her case by interjecting issues--specifically, a motion to dismiss and a motion for sanctions--that were not raised by the original parties. She further emphasizes that Zeifman did not make a record of the district court's proceedings, nor request findings of fact and conclusions of law, requiring us to assume that the district court found all factual issues in support of any legal ground that could have supported its order. See Feldman v. Marks, 960 S.W.2d 613, 614 (Tex. 1996); Land v. AT & S Transp., Inc., 947 S.W.2d 665, 668 (Tex. App.--Austin 1997, writ denied).


Michels misconstrues the Guaranty Federal holding in several ways. In that case, the Texas Supreme Court first held that a trial court abused its discretion in striking an intervention sua sponte, as rule 60 presumptively permitted an intervention unless a motion to strike was filed. 793 S.W.2d at 657 (citing Tex. R. Civ. P. 60). The supreme court went on to observe:


Furthermore, under Rule 60, a person or entity has the right to intervene if the intervenor could have brought the same action, or any part thereof, in his own name, or, if the action had been brought against him, he would be able to defeat recovery, or some part thereof. The interest asserted by the intervenor may be legal or equitable. Although the trial court has broad discretion in determining whether an intervention should be stricken, it is an abuse of discretion to strike a plea in intervention if (1) the intervenor meets the above test, (2) the intervention will not complicate the case by an excessive multiplication of the issues, and (3) the intervention is almost essential to effectively protect the intervenor's interest.
Id. (internal citations omitted). The supreme court held that these conditions were met in that case and that, accordingly, the district court had abused its discretion in striking the intervention. Id. at 757-58.


While Guaranty Federal does identify a set of equitable conditions under which the striking of an intervention would be an abuse of discretion, it does not, contrary to Michels's assertion, establish the "only" or exclusive circumstances in which that would be so. See In re Lumbermens Mutual, 184 S.W.3d at 722-29 (based on balancing of different equitable considerations, concluding that court of appeals had abused its discretion in barring intervention on appeal) (9); see also In re Estate of York, 951 S.W.2d 122, 126 (Tex. App.--Corpus Christi 1997, no pet.) ("[W]e question whether the general rule of Guaranty Federal, which allows some discretion to strike the intervention, even applies to a probate proceeding in which interested parties attempt to assert claims which will otherwise be adjudicated against them in their absence.").


Furthermore, Michels both misstates the first element of the Guaranty Federal framework and misapplies it. This element is not limited to whether the would-be intervenor "could have brought the same action, or any part of it, in its own name," as Michels states, but also is satisfied "if the action had been brought against him, he would be able to defeat recovery, or some part thereof." (10) Moreover, the first element of the Guaranty Federal framework is not as restrictive as Michels suggests:


The requirement [for intervention] has been stated, not exhaustively, to demand that "the intervenor's interest . . . be such, that if the original action had never been commenced, and he had first brought it as the sole plaintiff, he would have been entitled to recover in his own name to the extent at least of a part of the relief sought; or if the action had first been brought against him, he would have been able to defeat a recovery, in part at least." The statement, a useful guide, does not reach all situations. It does not cover, for example, the case in which the intervenor-defendant could not have been sued directly, yet a judgment for plaintiff may lead to an action over against the intervenor or otherwise seriously prejudice the intervenor, and the intervenor's intervention is necessary to assure proper defense of the claim. Nor does it meet the situation in which the intervenor asserts a claim adverse to both parties, though in special circumstances such an intervention may be proper . . . .
1 Roy W. McDonald & Elaine A. Grafton Carlson, Texas Civil Practice § 5.80, at 967-68 (2d ed. 2004) (citations omitted) (emphasis added). Citing this commentary with approval, we held in McCord that while a child's grandparents in that case could not have initiated an original suit affecting the parent-child relationship, they did possess a justiciable interest in their grandchild's best interests that could support intervention in the divorce and custody suit initiated by the child's parents. McCord, 777 S.W.2d at 811-13; see also Jenkins v. Entergy Corp., 187 S.W.3d 785, 797 (Tex. App.--Corpus Christi 2006, pet. denied) ("Even where an intervenor has not or could not have been sued directly, if a judgment for the plaintiff may lead to an action against the intervenor or otherwise seriously prejudice the intervenor, the intervention is necessary to assure a proper defense against the claim.").

We conclude that even if Zeifman could not assert precisely the same claims or defenses as Michels and AISD, he possessed a justiciable interest in the suit, and was potentially prejudiced by it, in a manner that satisfies the equitable considerations underlying the first element of the Guaranty Federal analysis. We likewise reject Michels's contentions that Zeifman's intervention to protect his interests and join issue with Michels would "complicate" the litigation or "excessively multiply" the issues relative to the benefits his participation would yield. McCord, 777 S.W.2d at 812 (trial court had discretion to determine that grandparents' intervention "may enhance [its] ability to adjudicate what is in the best interest of the child."). (11) The district court would have abused its discretion in striking his intervention on these grounds.
Michels ultimately relies on the fact that she subsequently non-suited her claims against AISD, suggesting that this tactic extinguished any justiciable interest Zeifman might have possessed in the action at its inception, see Potash Corp. of Saskatchewan, Inc. v. Mancias, 942 S.W.2d 61, 63-65 (Tex. App.--Corpus Christi 1997, no writ), or otherwise divested him of his right to intervene. Michels overlooks the fact that Zeifman filed his intervention on August 18, while she did not file her non-suit until the following week. As of the time of Michels's non-suit, Zeifman, as we have determined, was a proper party. Michels's non-suit thus could not defeat or render moot his claims for sanctions and for attorney's fees under rule of civil procedure 13, and sections 9 and 10 of the civil practice and remedies code. Allstate Ins. Co. v. Hellman, 159 S.W.3d 640, 642-43 (Tex. 2005) (where merits of UDJA claim were rendered moot, claim for attorney's fees "'breathes life' into this appeal and prevents it from being moot.") (quoting Camerena v. Texas Employment Comm'n, 754 S.W.2d 149, 151 (Tex. 1988)); Tri-M Erectors, Inc. v. Clearwater Constructors, Inc., 788 S.W.2d 906, 907-08 (Tex. App.--Austin 1990, writ denied); see Tex. R. Civ. P. 162 ("Any dismissal pursuant to this rule shall not prejudice the right of an adverse party to be heard on a pending claim for affirmative relief or excuse the payment of all costs taxed by the clerk. A dismissal under this rule shall have no effect on any motion for sanctions, attorney's fees or other costs pending at the time of dismissal . . . .").


For these reasons, we hold that the district court abused its discretion in striking Zeifman's intervention, accordingly sustain Zeifman's first issue, and reverse the district court's striking of the intervention. During oral argument, Michels conceded that the district court's order denying sanctions was necessarily predicated upon its order striking Zeifman's intervention. Thus, we also reverse the district court's order denying sanctions and remand for further proceedings.
Regarding sanctions, rule 13 of the Texas Rules of Civil Procedure allows a trial court to impose sanctions against an attorney, a represented party, or both, who file groundless pleadings brought in bad faith or brought for the purpose of harassment. Tex. R. Civ. P. 13.


Additionally, chapter 10 of the Civil Practices and Remedies Code allows a trial court to impose sanctions against a person, party, or both for advancing frivolous pleadings or motions. Tex. Civ. Prac. & Rem. Code Ann. §§ 10.001(1), .004(a) (West 2002). In light of our observation that Michels's conduct as alleged by Zeifman "is indeed disturbing," the district court on remand should carefully consider the facts known by Michels at the time she filed suit against AISD when determining whether sanctions are appropriate. See Law Offices of Windle Turley, P.C. v. French, 164 S.W.3d 487, 490-94 (Tex. App.--Dallas 2005, no pet.) (upholding sanctions order where law firm filed suit against former clients for improper purpose); Martin v. Zieba, No. 03-03-00584-CV, 2004 Tex. App. LEXIS 3742, at *9-*13 (Tex. App.--Austin 2004, no pet.) (mem. op.) (upholding sanctions order where husband filed pleadings in child custody case for improper purpose); see also Low v. Henry, 50 Tex. Sup. J. 606, 2007 Tex. LEXIS 320, *6-*17 (Tex. Apr. 20, 2007). (12)
__________________________________________

Bob Pemberton, Justice
Before Justices Patterson, Pemberton and Waldrop
Reversed and Remanded on Motion for Rehearing
Filed: June 20, 2007

1. See Zeifman v. Michels, 212 S.W.3d 582 (Tex. App.--Austin 2006, pet. denied); see also In re Zeifman, No. 03-06-00601-CV, slip op. at 1-2 (Tex. App.--Austin Nov. 22, 2006) (orig. proceeding) (mem. op.); In re Zeifman, No. 03-07-00075-CV, slip op. at 1 (Tex. App.--Austin Mar. 16, 2007, orig. proceeding) (mem. op.). We have taken judicial notice of our files from these prior related proceedings.
2. In re Zeifman, No. 03-06-00601-CV, slip op. at 2.
3. In re Zeifman, No. 03-07-00075-CV, slip op. at 1.
4. In re Zeifman, No. 03-06-601-CV, slip op. at 2. We also observed that "A.A.'s parents--not the courts or other third parties--are in the best position, perhaps with the assistance of a competent mediator, to make that determination in A.A.'s best interests, thereby avoiding extensive and acrimonious litigation that could adversely impact A.A., their other child, each other, and possibly others."
5. This standing order, applicable to "every divorce suit and every suit affecting the parent-child relationship filed in Travis County" after January 1, 2005, prohibits parties, "while the lawsuit is pending before the court," from actions including "[d]isrupting or withdrawing the children from the school or day-care facility where the children are presently enrolled, without the written agreement of both parents or an order of this Court." See Travis Co. Standing Order Regarding Children, Property and Conduct of the Parties (Travis Co. Dist. Clerk's File No. 121,012 (Local Rules and Orders)) (effective Jan. 1, 2005). Although the parties' 1997 divorce decree predated the standing order, Michels alleged that Zeifman had made himself subject to the order by filing a cross-petition in a second modification proceeding she had initiated in 2005 concerning G.L.
6. The publicly available State Bar of Texas publications from this course state that it was held between August 14-17, 2006.
7. This date corresponds to the day after the 2006 State Bar Advanced Family Law Course was scheduled to end.
8. Order on Plea to the Jurisdiction of Sheryl Diane Michels, May 24, 2006. On appeal, Zeifman points out that Michels subsequently made similar arguments in the district court, after she filed a petition for review of this Court's judgment in the supreme court, in resisting his efforts to enforce his rights under the original divorce decree.
9. Lumbermens Mutual involved the appellate intervention of an insurer after its insured, for whom it had paid the appeal bond, abandoned potentially dispositive issues impacting claims within the scope of coverage. See In re Lumbermens Mutual,184 S.W.3d 718, 720-21 (Tex. 2006). The supreme court determined that the insurer had invoked "the equitable doctrine" of virtual representation, and then considered "other factors [that] may weigh against allowing intervention after final judgment has been rendered, including the length of time the insurer had known of its interest in the case before attempting to intervene, the extent of prejudice the existing parties may suffer from the would-be intervenor's delay, the extent of prejudice to the would-be intervenor if intervention is denied, and the existence of unusual circumstances militating for or against a determination that the application is timely." Id. at 726. The supreme court held that the court of appeals abused its discretion in refusing to allow the intervention. Id. at 729.
10. We thus reject Michels's contention that "[a] proper intervention requires that the intervenor be seeking some sort of affirmative relief from the court."
11. We find it interesting that Michels would decry Zeifman's intervention as "complicating" their litigation by "multiplication" of issues where she has done precisely that by foregoing the parties' ongoing proceedings under the divorce decree and filing a related but separate lawsuit (leading to a separate appeal), ensnaring a third party in her domestic dispute, yet oddly not naming Zeifman as a party in that separate proceeding--who, she acknowledged at oral argument, clearly had a justiciable interest. If intervention is ultimately an equitable concept, Highlands Ins. Co. v. Lumberman's Mut. Cas. Co., 794 S.W.2d 600, 601 (Tex. App.--Austin 1990, no pet.), Michels arguably would be estopped from arguing that Zeifman's intervention would have complicated or excessively multiplied the issues in litigation.
12. We note that Zeifman did not obtain a reporter's record below, nor requests findings of fact and conclusions of law. As Michels observes, such devices enable an appellate court to review a trial court's rulings to award (or not award) sanctions.