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THE SUPREME COURT OF
In re Lumbermens Mutual Casualty Company, Relator
On Petition for Writ of Mandamus
Argued March 30, 2005
Justice O’Neill delivered the opinion of the Court.
The issue in this case is whether an insurer that posted a $29 million bond to supersede an adverse judgment against its insured may intervene in the insured’s appeal to assert a potentially dispositive issue that its insured abandoned in order to settle certain uninsured claims in another pending lawsuit. The court of appeals denied the insurer’s motion to intervene, and the insurer petitioned this Court for mandamus relief. We hold that, under the unique facts presented, the court of appeals abused its discretion and, accordingly, conditionally grant the writ of mandamus.I. Background
Sonat Exploration Company,
the owner of several gas wells in
1998, an explosion occurred during snubbing operations at the Otto Cummings No.
2-Alt. well in
Sonat eventually settled the personal-injury suits, and the
underlying indemnity action proceeded. One of the issues presented was whether
After Cudd perfected its appeal in the indemnity case underlying this mandamus proceeding, Cudd and Sonat entered into a Rule 11 Agreement in the breach-of-contract suit pursuant to which Cudd agreed to forgo any further challenge to the trial court’s choice-of-law ruling, and Sonat agreed to nonsuit its pending breach-of-contract claim against Cudd. Two days later, Cudd filed its appellate brief in the indemnity appeal, which did not raise the choice-of-law issue. Sonat then filed a motion to dismiss with prejudice its breach-of-contract claim pursuant to the Rule 11 Agreement, which the trial court granted. Ten weeks after Cudd filed its appellate brief, Lumbermens sought leave to intervene in the court of appeals in order to preserve the choice-of-law issue. The court of appeals denied Lumbermens’ motion, and the appeal remains pending in that court.
II. Standard of Review
the outset, we note that the issue presented has been somewhat miscast. Lumbermens contends the equitable virtual-representation
doctrine entitles it to “intervene” on appeal to assert the choice-of-law issue
that its insured abandoned. Under that doctrine, a
litigant is deemed to be a party if it will be bound by the judgment, its privity of interest appears from the record, and there is an
identity of interest between the litigant and a named party to the judgment.
Motor Vehicle Bd. of
the relatively unique procedural posture of this case, it is not surprising that
we have not articulated the standard of review by which to measure the court of
appeals’ denial of Lumbermens’ intervention. The
parties here assume that an abuse-of-discretion standard governs our review, and
we agree. When reviewing a trial court’s decision to strike a party’s
intervention under Rule 60 of the Rules of Civil Procedure,
we apply an abuse-of-discretion standard. Guar. Fed. Sav. Bank
v. Horseshoe Operating Co., 793 S.W.2d 652, 657
III. Parties’ Arguments
Lumbermens contends the court of appeals abused its
discretion in rejecting Lumbermens’ intervention
because, as Cudd’s insurer and the party that posted
the appellate security, Lumbermens is bound by the
judgment in the case. Accordingly, Lumbermens claims
it is entitled to appeal the trial court’s choice-of-law ruling under the
doctrine of virtual representation. See City of
the other hand, Sonat claims the court of appeals did
not abuse its discretion in denying Lumbermens’
intervention. According to Sonat, the
virtual-representation doctrine does not entitle Lumbermens to participate in the appeal because there must
be an identity of interests between the party claiming the doctrine’s benefit
(Lumbermens) and a party to the judgment (Cudd), and Lumbermens has
expressly acknowledged that its and Cudd’s interests
have diverged. Sonat further contends Lumbermens has no due-process stake in the appellate
proceedings because, if Cudd does not prevail in its
appeal, Lumbermens can invoke a noncooperation clause in Cudd’s
policy to deny coverage and ultimately avoid the judgment. Sonat also contends that, if Lumbermens desired to intervene, it had to do so before the
trial court rendered a final judgment and any attempt to intervene on appeal was
untimely. And even if intervention on appeal was permissible, Sonat maintains, Lumbermens waited
too long to avail itself of that procedure by failing to seek leave until after
all the appellate briefing was completed. Finally, Sonat asserts that allowing intervention would be bad public
policy because it could complicate virtually all appellate proceedings involving
liability insurance by enabling insurers to second-guess their insureds’ decisions regarding the appropriate issues to
raise on appeal. Such a course, contends Sonat, would be inconsistent with
IV. Virtual-Representation Requirements
only parties of record may appeal a trial court’s judgment.
In this case, Sonat contends Lumbermens may not invoke the virtual-representation doctrine’s benefit because Lumbermens has acknowledged that its interests and Cudd’s have diverged, in that Cudd no longer wishes to contest the trial court’s choice-of-law decision. Lumbermens responds that its and Cudd’s ultimate aim—to reverse the underlying judgment— remains the same. We agree with Lumbermens. The identity of interest upon which the virtual-representation doctrine in this case turns relates to protecting the funds that the underlying judgment puts at risk. See Huizar, 740 S.W.2d at 434 (Gonzalez, J., dissenting). That different legal theories may be asserted to defend those funds does not defeat the identity of interest between Lumbermens and Cudd that the insuring contract creates and the virtual-representation doctrine protects.
any event, our decisions in El Paso Independent Automobile Dealers Ass’n and City of San Benito illustrate that the
position of one who relies on the virtual-representation doctrine to appeal and
the party that formerly represented its interests will have often, if not
always, diverged to some extent by the time the beneficiary of the doctrine
invokes it. In El Paso Automobile Dealers Ass’n, for example, the interests of the Attorney
General and the Motor Vehicle Board in defending the Blue Laws’
constitutionality were initially protected by the local attorneys. Not until
those attorneys abandoned their defense of the statute did the need arise for
the Attorney General and the Board to directly participate in order to protect
their interests. Despite the diverging positions of the state and local entities
regarding the Blue Law’s constitutionality, we held that the Attorney General
and the Board were entitled to appeal. 1 S.W.3d at
110-11. And in City of
Sonat contends Lumbermens should not be allowed to invoke the virtual-representation doctrine because it can ultimately avoid coverage for the judgment by invoking a noncooperation clause in Cudd’s policy. But irrespective of any potential coverage dispute between Lumbermens and Cudd, Lumbermens has pledged $29 million to secure the judgment in Sonat’s favor. Even if Lumbermens could eventually recoup the amount it has pledged through a potential coverage suit against Cudd, its obligation to pay the underlying judgment to Sonat is immediate and binding in the event Cudd’s appeal is unsuccessful.
In this case, neither the fact that Cudd’s and Lumbermens’ interests in pursuing appeal of the choice-of-law issue have diverged, nor the possibility that Lumbermens could later assert a noncooperation defense against Cudd, prevent Lumbermens from invoking the virtual-representation doctrine. But because the doctrine is equitable, we must determine whether other considerations weigh against applying the doctrine to allow Lumbermens’ intervention on appeal. See Huizar, 740 S.W.2d at 430 (holding that right to appeal insurer may have had under virtual-representation doctrine was waived by voluntary payment of judgment); see also Gonzalez v. Banco Cent. Corp., 27 F.3d 751, 761 (1st Cir. 1994) (“[V]irtual representation is best understood as an equitable theory rather than as a crisp rule with sharp corners and clear factual predicates . . . such that a party’s status as a virtual representative of a nonparty must be determined on a case-by-case basis.” (citation omitted); Tyus v. Schoemehl, 93 F.3d 449, 455 (8th Cir. 1996); see City of San Benito, 109 S.W.3d at 756 (emphasizing that intervening class members had preserved appellate rights by attempting to opt out of class and objecting to settlement).
V. Timing Considerations
A. Post-judgment Action
Sonat contends that, even if Lumbermens had a right to participate on appeal, the court
of appeals did not abuse its discretion in denying Lumbermens’ intervention because Lumbermens only attempted to do so after the trial court’s
judgment became final. Ordinarily, a trial court does not abuse its discretion
by denying a motion to intervene after the court has rendered a final judgment.
Comal County Rural High Sch.
Dist. No. 705 v. Nelson, 314 S.W.2d 956, 957 (
Sonat argues that Lumbermens is
not entitled to intervene because it did not attempt to do so until after Cudd filed its reply brief in the court of appeals, ten
weeks after Sonat nonsuited
its breach-of-contract claims and Cudd failed to raise
the choice-of-law issue in its initial appellate brief. We have never
articulated a particular standard for evaluating the timeliness of a
virtually-represented party’s effort to invoke appellate rights. But we find
useful the test that the Fifth Circuit has recently articulated for evaluating
the timeliness of a motion to intervene as of right under Rule 24(a)(2) of the Federal Rules of Civil Procedure.
Considerations under that test are (1) the length of time during which the
would-be intervenor should have known of its interest
in the case before attempting to intervene; (2) the extent of prejudice that the
existing parties may suffer as a result of the would-be intervenor’s failure to apply for intervention as soon as it
actually knew or should have known of its interest in the case; (3) the extent
of prejudice the would-be intervenor would suffer if
intervention is denied; and (4) the existence of unusual circumstances
militating either for or against a determination that the application is timely.
Ross, 426 F.3d at 754. These factors “give
structure to [the] timeliness analysis, [but the analysis] remains ‘contextual’
and should not be used as a ‘tool of retribution to punish the tardy would-be
intervenor, but rather [should serve as] a guard
against prejudicing the original parties . . . .’”
first factor “‘focuses on the time lapse between the applicant’s receipt of
actual or constructive knowledge of his interest in the litigation and the
filing of his motion for intervention.’”
this case, ten weeks elapsed between the time Lumbermens became aware that Cudd
would not pursue the choice-of-law ruling and the time Lumbermens filed its motion to intervene. Lumbermens explains this delay by pointing to the novel
posture of this case and the uncertainty created by the lack of any specific
rule providing for intervention on appeal. In evaluating the reasonableness of
an appellant’s explanation of delay in perfecting an appeal, we have given
weight to the fact that the underlying procedural rules were unclear. See
Hone v. Hanafin, 104 S.W.3d 884,
The second factor in the Fifth Circuit’s timeliness test is the extent of prejudice that the existing parties may suffer as a result of the applicant’s failure to apply for intervention at an earlier time; this factor “‘is concerned only with the prejudice caused by the applicants’ delay, not that prejudice which may result if intervention is allowed.’” Ross, 426 F.3d at 755 (quoting Edwards, 78 F.3d at 1002). Sonat contends it was prejudiced by Lumbermens’ delay because Lumbermens seeks to raise issues that were not raised in Cudd’s initial appellant’s brief, effectively contravening Rule 38.1(e) of the Rules of Appellate Procedure. But until Cudd filed a brief that omitted the choice-of-law issue, Lumbermens had no cause to attempt to intervene. Sonat further argues, though, that it will suffer prejudice because it has already filed its responsive brief. However, Rule 38.7 of our appellate rules empower the courts of appeals to allow parties to amend or supplement their briefs whenever justice requires. Tex. R. App. P. 38.7. If Lumbermens is permitted to raise the choice-of-law issue based on the virtual-representation doctrine, then justice would surely require that Sonat be permitted to respond.
The third factor the Fifth Circuit considers is the extent of prejudice the applicant would suffer if intervention is not permitted. Ross, 426 F.3d at 754. It is undisputed that the choice-of-law issue is potentially dispositive. Although Lumbermens invites us to decide the choice-of-law issue, we make no judgment regarding the issue’s merits. But if the trial court erred in its choice-of-law decision and the judgment stands despite that error, then the prejudice to Lumbermens is obvious and severe. “‘[I]t is essential to our system of justice, that litigants should have their day in court.’” United Airlines, 432 U.S. at 395 n.16 (quoting Am. Brake Shoe & Foundry Co. v. Interborough Rapid Transit Co., 3 F.R.D. 162, 164 (S.D.N.Y 1942)); see also Verburgt v. Dorner, 959 S.W.2d 615, 616-17 (Tex. 1997) (disfavoring disposition of appeals based upon harmless procedural defects); Tex. R. Civ. P. 1 (“The proper objective of rules of civil procedure is to obtain a just, fair, equitable and impartial adjudication of the rights of litigants under established principles of substantive law”) (emphasis added).
The fourth factor the Fifth Circuit considers is “the existence of unusual circumstances militating either for or against a determination that the application is timely.” Ross, 426 F.3d at 754. To some extent, the fact that Sonat nonsuited its breach-of-contract claims against Cudd with prejudice militates against finding that Lumbermens’ effort to intervene in this case was timely. But in several of the cases we have cited, a virtually-represented party was allowed to appeal despite the fact that the opposing party had negotiated a settlement with the virtual representative. In Ross, the plaintiff had negotiated an agreement with the insured under which no appeal of the underlying judgment would have ensued if the Fifth Circuit had not permitted the insurer’s intervention. Moreover, if Lumbermens is not permitted to intervene and the choice-of-law issue is meritorious, Cudd will have essentially foisted liability for uninsured claims onto its insurer. Cf. State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696, 713 (Tex. 1996) (invalidating assignment of bad faith claims on public policy grounds when insured abandoned its natural position in order to take advantage of insurer).
In light of the novel posture of this case, the extent of likely prejudice to Lumbermens if it is not allowed to raise the choice-of-law issue its insured abandoned, and the unlikelihood of prejudice to Sonat resulting from the timing of Lumbermens’ effort to invoke appellate rights, we conclude that the timing of Lumbermens’ motion does not prevent its intervention.
C. Public Policy
Sonat argues that if Lumbermens is
permitted to appeal in this case, then all insurers, indemnitors, and other similarly-situated parties will be
entitled to intervene on appeal, potentially interfering with insureds’ appellate strategy or raising issues contrary to
their insureds’ interests or colluding with their
insureds to expand briefing schedules or page
limitations. We note that analogous concerns arguably exist when an insurer
intervenes in the trial court, and Sonat seems to
agree that Lumbermens would have been entitled to
intervene in the trial court if Cudd had opted not to
pursue the choice-of-law issue there. Nevertheless, we agree that every
disagreement between an insured and its liability insurer would not justify
separate appeals. As we recently acknowledged , the
insurance policy determines whether an insurer or its insured has the right to
control litigation, a contract right that would be defeated if every
disagreement between the two justified each in filing its own appeal. See N.
We hold that under the unusual circumstances this case presents, Lumbermens is entitled to invoke the virtual-representation doctrine to raise on appeal the choice-of-law issue its insured abandoned in order to settle uninsured claims in another suit, and the court of appeals abused its discretion in holding otherwise. Accordingly, we conditionally grant the writ of mandamus and direct the court of appeals to permit Lumbermens’ participation to contest the trial court’s choice-of-law ruling. The writ will issue only if the court fails to do so.
OPINION DELIVERED: February 3, 2006.