Everest Reinsurance Co. v. Howard, 03-97-00035-CV

• Court: Court of Appeals of Texas
• Writing for the Court: KIDD
• Citation: 950 S.W.2d 800
• Parties: EVEREST REINSURANCE COMPANY/James A. HOWARD, Special Deputy Receiver of Texas Employers' Insurance Association, Appellants, v. James A. HOWARD, Special Deputy Receiver of Texas Employers' Insurance Association/Everest Reinsurance Company, Appellees.
• Docket Number: No. 03-97-00035-CV,03-97-00035-CV
• Decision Date: 28 August 1997

Page 800

950 S.W.2d 800 EVEREST REINSURANCE COMPANY/James A. HOWARD, Special Deputy
Receiver of Texas Employers' Insurance
Association, Appellants,
v.
James A. HOWARD, Special Deputy Receiver of Texas Employers'
Insurance Association/Everest Reinsurance Company,
Appellees. No. 03-97-00035-CV. Court of Appeals of Texas,
Austin. Aug. 28, 1997.

Page 801

Mark M. Donheiser, Strasburger & Price, L.L.P., Dallas, for Appellants.

Ellen G. Robinson, Robinson, Curley & Clayton, P.C., Chicago, IL., for Appellees.

Before POWERS, JONES and KIDD, JJ.

KIDD, Justice.

Both Everest Reinsurance Company ("Everest") and James A. Howard, challenge portions of the trial court's order allowing Everest to remove this cause to federal court, but enjoining Everest from seeking arbitration in federal court. We will affirm in part and reverse in part the trial court's judgment.

Page 802

BACKGROUND

Each year from 1985 to 1990, Everest Reinsurance Company ("Everest") ¹ entered into reinsurance agreements with Texas Employers' Insurance Association ("Texas Employers"). In 1991 Texas Employers was declared insolvent, and the 201st District Court of Travis County (the "receivership court") appointed James A. Howard as its special deputy receiver (the "receiver"). The receivership court also entered a permanent injunction, part of which forms the basis of this dispute. Specifically, the injunction forbade any person from

"commencing, or prosecuting any action or appeal or arbitration ... against Defendant Texas Employers' Insurance Association ... except by doing so in the receivership proceedings herein, and from asserting any claims against Defendant Texas Employers' Insurance Association, or against the Permanent Receiver thereof, whether against or through Defendant Texas Employers' Insurance Associations' policyholders, except in the receivership proceedings herein...."

In 1996, the receiver filed a complaint against Everest in the receivership court. The receiver contended that, under the reinsurance agreements, Everest owed Texas Employers over eleven million dollars. Everest answered the receiver's complaint. In addition, Everest asserted that under the terms of its reinsurance agreements with Texas Employers it had a right to arbitrate this dispute. Everest then removed the case to federal court based on diversity of citizenship and requested that the federal court order the parties to arbitration. In response, the receiver requested that the receivership court declare Everest's removal and motion to compel arbitration violative of both the court's permanent injunction and article 21.28 of the Texas Insurance Code. See Tex. Ins.Code Ann. art 21.28, §§ 2(e), 4(h) (West 1981 & Supp.1997) (hereinafter the "Receivership Statute"). The receivership court entered a seemingly contradictory order, finding that Everest's removal to federal court did not violate the permanent injunction or Receivership Statute, but that Everest's request for federal-court-ordered arbitration did. Both parties appeal the receivership court's order. ²

DISCUSSION

Everest argues the receivership court correctly decided that Everest could remove the case to federal court; however, it contends that the court erred by finding that the injunction and statute forbade it from seeking arbitration in federal court. Conversely, the receiver contends that the court erred in finding that Everest could seek removal to federal court.

Removal to Federal Court

The receiver argues that the receivership court should have declared that Everest's removal of the case to federal court violated both the permanent injunction and the Receivership Statute. We disagree.

Initially, we address whether Everest's removal violated the receivership court's permanent injunction. This injunction forbade Everest from commencing or prosecuting any action. In this case, however, the receiver commenced an action against Everest in the receivership court. Everest merely responded to the receiver's complaint by removing the case to federal court; it did not assert any claim of its own against the receiver. This response does not constitute the commencement or prosecution of an action; therefore, by exercising its right of removal to federal court, Everest did not violate the permanent injunction.

Next, we address whether Everest's removal violated sections 2(e) and 4(h) of the Receivership Statute. Section 2(e) authorizes the receiver to conduct the business of...