Fireman's Fund Ins. Co. v. Murchison

• Decision Date: 02 August 1991
• Docket Number: No. 90-1717,90-1717
• Citation: 937 F.2d 204
• Parties: FIREMAN'S FUND INSURANCE COMPANY and The American Insurance Company, Plaintiffs-Appellees, v. Clint W. MURCHISON, III and Clint W. Murchison, Jr. as Trustees for Clint Murchison, III Administrative Trust; Clint W. Murchison, Jr. and Robert Murchison as Trustees for Robert Murchison Administrative Trust; Clint W. Murchison, Jr. and Burk Murchison as Trustees for Burk Murchison Administrative Trust; Clint W. Murchison, III and Clint W. Murchison, Jr. as Trustees for Coke Ann Sanders Administrative Trust; Pacific Construction Co., Ltd.; and Waitec Development, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 204

937 F.2d 204

FIREMAN'S FUND INSURANCE COMPANY and The American Insurance Company, Plaintiffs-Appellees, v. Clint W. MURCHISON, III and Clint W. Murchison, Jr. as Trustees for Clint Murchison, III Administrative Trust Clint W. Murchison, Jr. and Robert Murchison as Trustees for Robert Murchison Administrative Trust; Clint W. Murchison Jr. and Burk Murchison as Trustees for Burk Murchison Administrative Trust; Clint W. Murchison, III and Clint W Murchison, Jr. as Trustees for Coke Ann Sanders Administrative Trust; Pacific Construction Co., Ltd.; and Waitec Development, Inc., Defendants-Appellants.

No. 90-1717.

United States Court of Appeals Fifth Circuit.

Aug. 2, 1991.

Bobby M. Rubarts, Robert H. Mow, Jr., Hughes & Luce, Dallas, Tex., for trustee defendants.

G. Leroy Street, Geary, Stahl & Spencer, Dallas, Tex., for Pacific Const. Co. and Waitec Development.

Michael D. Farris, James A. Knox, Vial, Hamilton, Koch & Knox, Dallas, Tex., for plaintiffs-appellees.

Appeals from the United States District Court for the Northern District of Texas.

Before GARZA, POLITZ and JONES, Circuit Judges.

REYNALDO G. GARZA, Circuit Judge:

Fireman's sued the Trusts, Pacific and Waitec for losses which allegedly are covered by a General Indemnity Agreement. The district judge, finding the indemnity agreement to be unambiguous, entered summary judgment in favor of Fireman's. Because the agreement is ambiguous, however, we REVERSE and REMAND the case for a jury trial. Finding no special relationship in this case we AFFIRM the district judge on his 12(b)(6) dismissal of the good faith and fair dealing counterclaim. On remand, the district court is to determine whether the Trusts can assert their unconscionability affirmative defense under the DTPA. Assuming the evidence of unconscionability is sufficient, the defense is to be put before the jury.

Facts and Procedural Background

The Murchison family interests are extensive, varied, and interrelated in a complex chain of holding companies and trusts. TeCe corporation is the Murchison's main holding company. Clint W. Murchison, Jr. ¹ and his four children, Clint W. Murchison, III, Burk C. Murchison, Coke Ann Saunders and Robert F. Murchison, each own twenty percent of TeCe. The TeCe interests of Clint III, Burk, Coke Ann and Robert are held in administrative trusts (Trusts). TeCe holds an eighty percent ownership interest in TSI Holdings. TSI holds ownership interests in twenty-four real estate development and construction companies, including Marina Bay Development, Pacific Construction Company and Waitec Development.

Clint W. Murchison, Jr. holds personal assets, which include Mulholland Drive Corporation and approximately fifty other companies. Murchison Brothers, a general partnership between Clint W. Murchison, Jr. and John Dabney Murchison, owns assets separate from the Trusts and Clint W. Murchison, Jr.'s personal assets.

In 1979, the Trusts, Pacific and Waitec executed a General Indemnity Agreement (GIA) in favor of Fireman's Fund to obtain bonding for various construction projects. In alleged reliance on the GIA, Fireman's, as surety, issued bonds on behalf of Marina Bay and Mulholland. Fireman's also issued supersedeas bonds on behalf of Clint W. Murchison, Jr. and TeCe. The indemnitors or their representatives requested that Fireman's issue these bonds.

Fireman's paid claims against the Marina Bay bonds for $106,939.12, and claims against the Mulholland bonds for $66,377.33, for a total loss of $173,376.45. Fireman's eventually escaped liability on the supersedeas bonds. A $300,000 claim is pending against the Mulholland bonds. Fireman's demanded that the Trusts, Pacific and Waitec indemnify it for these claims, but they refused.

In 1985, Fireman's brought this action against the Trusts, Pacific and Waitec for indemnity for Fireman's losses on the Mulholland and Marina Bay bonds, and a declaration that the GIA covered the supersedeas bonds. The Trusts filed a counterclaim against Fireman's alleging a breach of a duty of good faith and fair dealing. Pacific and Waitec filed cross-claims against the Trusts for indemnity, and the Trusts filed a cross-claim against Pacific and Waitec for declaratory relief.

The district court held that the GIA covered the Marina Bay, Mulholland and supersedeas bonds and entered summary judgment in favor of Fireman's for $173,316.45. The district court dismissed the Trusts' counterclaim against Fireman's. The district court also awarded Fireman's $42,814.21 in attorneys' fees and expenses. The Trusts, Pacific, and Waitec appeal the summary judgment, and the Trusts appeal the attorneys' fees award.

Standard of Review and Applicable Law

We review a summary judgment de novo, applying the same standard as the district court. Degan v. Ford Motor Co., 869 F.2d 889, 892 (5th Cir.1989). Summary judgment is appropriate if there is "no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Because this suit is based on diversity jurisdiction, we must apply Texas substantive law to determine whether Fireman's was entitled to judgment as a matter of law.

Ambiguous?

Under Texas law, the general rules of contract construction are applicable to indemnity agreements. Liberty Steel Co. v. Guardian Title Co. of Houston, Inc., 713 S.W.2d 358, 360 (Tex.App.--Dallas 1986, no writ). Whether a contract is ambiguous is a question of law. Hettig & Co. v. Union Mut. Life Ins. Co., 781 F.2d 1141, 1143 (5th Cir.1986) (citing Coker v. Coker, 650 S.W.2d 391, 394 (Tex.1983)). A contract is ambiguous if it is reasonably subject to more than one meaning. Id. In construing a contract, the court must give meaning to each of its provisions, in light of the circumstances surrounding the contract's execution, excluding statements of parties as to what they intended. Id. If a contract is ambiguous, summary judgment is inappropriate because the interpretation of a contract is a question of fact. Toren v. Braniff, Inc., 893 F.2d 763, 765 (5th Cir.1990); Reilly v. Rangers Management, Inc., 727 S.W.2d 527, 529 (Tex.1987).

The Trusts, Pacific and Waitec contend that the GIA is ambiguous because it is susceptible to more than one reasonable interpretation, and therefore summary judgment was inappropriate. Pacific and Waitec argue that the GIA could reasonably be interpreted to cover bonds issued for the benefit of any entity in which any of the indemnitors has an ownership interest, or to cover only bonds issued for the benefit of an entity in which each indemnitor has an ownership interest. The Trusts assert a third possible interpretation; the GIA covers only bonds issued for Pacific. The dispute over the GIA's scope is based on the following provisions:

KNOW ALL MEN BY THESE PRESENTS, that whereas the undersigned, hereinafter called Indemnitors, have requested and do hereby request FIREMAN'S ... to execute or procure the execution of such bonds, undertakings, or recognizances (all of which are hereinafter included within the term "bond or bonds") as have been and such as may hereafter be applied for directly or through an agent, attorney or other representative or required, solely or as co-adventurer with others, by any of the Indemnitors or by any person, firm, corporation or association whose name shall, for that purpose, have been furnished to the Surety by any of the Indemnitors, it being understood and agreed that this instrument shall cover all bonds so applied for and executed, whether or not this instrument is referred to or mentioned in connection therewith;

21. Whereas, the Indemnitors have a substantial material and beneficial interest in the obtaining of said bonds on behalf of various related companies, it is agreed that this Agreement shall apply to any bonds executed on behalf of any subsidiary, affiliated partnership, joint venture or corporation of the Indemnitors, now existing or hereafter formed or acquired, and whether partially or wholly owned or controlled, as fully as if the names and signatures of such subsidiaries or affiliates appeared herein as Indemnitors.

(emphasis added).

Based on these provisions, the scope of the GIA could reasonably be interpreted to include bonds issued on behalf of an entity in which any indemnitor has an ownership interest, or only bonds issued on behalf of an entity in which all of the indemnitors have an ownership interest. The scope of the GIA could not reasonably be limited to cover only bonds issued on behalf of Pacific. Because the GIA is subject to two reasonable interpretations it is ambiguous and the district court erred in granting summary judgment. Consequently, we reverse the summary judgment and remand the case for a jury trial on the merits.

The good faith and fair dealing counterclaim

In their counterclaim the Trusts alleged that Fireman's had breached its duty of good faith and fair dealing by issuing bonds without notice to companies outside the TeCe chain. ² Fireman's filed a Rule 12(b)(6) motion to dismiss, which the district court granted. On appeal, the Trusts contend the district court erred in dismissing this claim. Rule 12(b)(6) allows dismissal for failure to state a claim if the district court finds that the plaintiff "can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45, 46, 78 S.Ct. 99, 101, 102, 2 L.Ed.2d 80 (1957). This court reviews the district court's disposition of a 12(b)(6) motion de novo, applying the same test as the district court. See Fontana v. Barham, 707 F.2d 221, 225-27 (5th Cir.1983), cert. denied, 464 U.S. 1043, 104 S.Ct. 711, 79 L.Ed.2d 175 (1984).

The Trusts based their claim on Arnold v. National County Mut. Fire Ins. Co., 725 S.W.2d 165 (Tex.1987). In Arnold, the Texas Supreme Court held that when a "special relationship" exists between the parties to a contract, there is a common law duty of good faith and...