Hanak v. Talon Ins. Agency, Ltd., Civil Action No. 1:05-CV-777.

• Court: United States District Courts. 5th Circuit. United States District Court of Eastern District Texas
• Citation: 470 F.Supp.2d 695
• Docket Number: Civil Action No. 1:05-CV-777.
• Parties: Guido E. HANAK and Mary C. Hanak, Plaintiffs, v. TALON INSURANCE AGENCY, LTD., Talon Insurance Group, Inc., Talon Insurance Management Services, Inc. f/k/a FCA Insurance Management, Inc., and Beazley Insurance Company, Inc. f/k/a Omaha Property and Casualty Insurance Company, Defendants.
• Decision Date: 13 October 2006

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470 F.Supp.2d 695 Guido E. HANAK and Mary C. Hanak, Plaintiffs,
v.
TALON INSURANCE AGENCY, LTD., Talon Insurance Group, Inc., Talon Insurance Management Services, Inc. f/k/a FCA Insurance Management, Inc., and Beazley Insurance Company, Inc. f/k/a Omaha Property and Casualty Insurance Company, Defendants. Civil Action No. 1:05-CV-777. United States District Court, E.D. Texas, Beaumont Division. October 13, 2006.

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COPYRIGHT MATERIAL OMITTED

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Thomas Nave Kiehnhoff, Reaud Morgan & Quinn, LLP, Beaumont, TX, for Plaintiff.

Douglas K. Clemons, The Clemons Law Firm, Houston, TX, Thomas C. Pennebaker and William Truman Treas, Nielsen Law Firm, Metairie, LA, for Defendant Beazley Insurance Co.

Robert Preston Gaddis, Gaddis Alvarez PC, Houston, TX, All Talon companies.

MEMORANDUM AND ORDER

CRONE, District Judge,

Pending before the court is Defendant Beazley Insurance Company, Inc. f/k/a Omaha Property and Casualty Insurance Company's ("Beazley") Motion for Summary Judgment (# 25). Beazley seeks summary judgment on Plaintiffs Guido E. Hanak and Mary C. Hanak's ("the Hanaks") claims for breach of contract and equitable lien arising out of a flood insurance policy issued by Beazley's predecessor, Omaha Property and Casualty Insurance Company ("OPAC"). Having reviewed the pending motion, the submissions of the parties, the pleadings, and the applicable law, the court is of the opinion that summary judgment is warranted.

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I. Background

On April 19, 2002, Albert Zamorsky ("Mr.Zarnorsky") and Susan Zamorsky ("Mrs.Zamorsky"), formerly known as Susan Fraijo, (collectively, "the Zamorskys") purchased real property located at 2315 North 23rd Street in Beaumont, Texas, from the Hanaks. The purchase was secured by a recorded deed of trust in favor of the Hanaks. In early November 2002, Mr. Zamorsky contacted Talon Insurance Agency, Ltd. ("Talon"), a defendant in this action, to inquire about obtaining flood insurance for the property. Talon provided a quote for a Standard Flood Insurance Policy ("SFIP") offered through the National Flood Insurance Program ("NFIP"). Mr. Zamorsky accepted the quote, and Talon, acting as the Zamorskys' agent,¹ completed the flood insurance application on the Zamorskys' behalf. The application did not list the Hanaks as additional insureds, and the "Mortgagee Information" section on the application was left blank.² Beazley's predecessor, OPAC, subsequently issued the SFIP in its capacity as a WYO insurance carrier.

On October 9, 2003, the insured property was damaged in a flood, and Mr. Zamorsky contacted Talon to seek assistance in filing a claim. On November 18, 2003, the Zamorskys signed a sworn proof of loss, which listed "None" in the section instructing the claimant to list persons with any interest in or encumbrance on the damaged property. OPAC paid the Zamorskys a total of 833,323.27 for the loss. The Hanaks were not named as payees on the proceeds checks from OPAC, and they did not receive any reimbursement from the Zamorskys. According to the Hanaks, the Zamorskys failed to use the insurance proceeds to repair the damaged property, which resulted in its significant deterioration before the Hanaks ultimately foreclosed the lien and repossessed the property.

On October 4, 2004, the Hanaks filed a complaint in the Zamorskys' voluntary Chapter 7 proceeding in the United States Bankruptcy Court for the Eastern District of Texas, Beaumont Division (Case No. 02-13215). Specifically, the Hanaks claimed that the Zamorskys fraudulently represented to OPAC that there was no lien-holder on the property and then willfully and maliciously misappropriated the insurance proceeds by failing to repair the Property or notify the Hanaks of the damage. The Bankruptcy Court entered a Final Default Judgment against the Zamorskys on March 1, 2006, awarding Plaintiffs $33,323.27 in actual damages, $1,650.00 in sanctions, and $8,500.00 in attorney's fees, as well as court costs and postjudgment interest. The court also ordered that the judgment would not be dischargeable pursuant to 11 U.S.C. § 523(a)(4) and (6).

On October 28, 2005, the Hanaks filed the instant action in the 58th Judicial District Court of Jefferson County, Texas, and Beazley removed the case to federal court on November 21, 2005, on the basis of

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federal question jurisdiction. Against Talon, the Hanaks allege state law claims for breach of fiduciary duty and negligence for its failure to list them as mortgagees on the SFIP. Against Beazley, the Hanaks allege breach of contract on the grounds that Beazley knew or should have known that they held an interest in the insured property and failed to name them as payees. They further contend that this breach creates an equitable lien in Plaintiffs' favor pursuant to Texas law. On June 9, 2006, Beazley and Talon each filed third-party complaints against the Zamorskys, who were served with process on September 16, 2006, but have not yet entered an appearance in this action.

On May 25, 2006, Beazley moved for summary judgment on the Hanaks' breach of contract and equitable lien claims. Beazley argues that Plaintiffs' equitable lien claim is preempted by federal law and that there is no privity of contract between Beazley and the Hanaks. Beazley further contends that the doctrines of res judicata and collateral estoppel bar Plaintiffs' claims because the Hanaks have already litigated these matters against the Zamorskys in Bankruptcy Court. In response, Plaintiffs assert that the SFIP specifically includes them as mortgagees "determined to exist at the time of loss" and that they are third-party beneficiaries of the SFIP. Plaintiffs also argue that res judicata and collateral estoppel do not apply because there was no privity between Beazley and the Zamorskys in the bankruptcy action and the Bankruptcy Court would have lacked jurisdiction over the instant claims.

II. Analysis

A. Summary Judgment Standard

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R.Civ.P. 56(c). The party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and identifying those portions of the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Warfield v. Byron, 436 F.3d 551, 557 (5th Cir.2006); Lincoln Gen. Ins. Co. v. Reyna, 401 F.3d 347, 349 (5th Cir.2005); Martinez v. Schlumberger, Ltd., 338 F.3d 407, 411 (5th Cir.2003); Terrebonne Parish Sch. Bd. v. Mobil Oil Corp., 310 F.3d 870, 877 (5th Cir.2002).

"A fact is 'material' if it `might affect the outcome of the suit under governing law.'" Bazan ex rel. Bazan v. Hidalgo County, 246 F.3d 481, 489 (5th Cir. 2001) (emphasis in original) (quoting Anderson, 477 U.S. at 248, 106 S.Ct. 2505); see Cooper Tire & Rubber Co. v. Farese, 423 F.3d 446, 454 (5th Cir.2005); Harken Exploration Co. v. Sphere Drake Ins. PLC, 261 F.3d 466, 471 (5th Cir.2001); Merritt-Campbell, Inc. v. RxP Prods., Inc., 164 F.3d 957, 961 (5th Cir.1999); Burgos v. Southwestern Bell Tel. Co., 20 F.3d 633, 635 (5th Cir.1994). "Factual disputes that are irrelevant or unnecessary will not be counted." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. "An issue is 'genuine' if it is real and substantial, as opposed to merely formal, pretended, or a sham." Bazan, 246 F.3d at 489 (emphasis in original). Thus, a genuine issue of material

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fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505; accord EMCASCO Ins. Co. v. American Int'l Specialty Lines Ins. Co., 438 F.3d 519, 523 (5th Cir.2006); Cooper Tire & Rubber Co., 423 F.3d at 454; Harken Exploration Co., 261 F.3d at 471; Merritt-Campbell, Inc., 164 F.3d at 961. The moving party, however, need not negate the elements of the nonmovants' case. See Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th Cir. 2005); Wallace v. Texas Tech Univ., 80 F.3d 1042, 1047 (5th Cir.1996) (citing Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994)).

Once a proper motion has been made, the nonmoving parties may not rest upon mere allegations or denials in the pleadings but must present affirmative evidence, setting forth specific facts, to show the existence of a genuine issue for trial. See Celotex Corp., 477 U.S. at 322 n. 3, 106 S.Ct. 2548 (citing FED.R.CIV.P. 56(e)); Anderson, 477 U.S. at 256, 106 S.Ct. 2505; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 n. 11, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); EMCASCO Ins. Co., 438 F.3d at 523; Smith ex rel. Estate of Smith v. United States, 391 F.3d 621, 625 (5th Cir.2004); Malacara v. Garber, 353 F.3d 393, 404 (5th Cir.2003); Rushing v. Kansas. City S. Ry. Co., 185 F.3d 496, 505 (5th Cir.1999), cert. denied, 528 U.S. 1160, 120 S.Ct. 1171, 145 L.Ed.2d 1080 (2000). "[T]he court must review the record `taken as a whole.'" Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000) (quoting Matsushita Elec. Indus. Co., 475 U.S. at 587, 106 S.Ct. 1348); see Riverwood Int'l Corp. v. Employers Ins. of Wausau, 420 F.3d 378, 382 (5th Cir.2005). All the evidence must be construed "in the light most favorable to the non-moving party without weighing the evidence, assessing its probative value, or resolving any factual disputes." Williams v. Time Warner...