Lancer Corp. v. Murillo

• Decision Date: 06 September 1995
• Docket Number: No. 04-94-00814-CV,04-94-00814-CV
• Citation: 909 S.W.2d 122
• Parties: LANCER CORPORATION, Appellant, v. Juventino MURILLO, Maria Murillo, Edgar Murillo and Juventino Murillo, Jr., Appellees.
• Court: Texas Court of Appeals

Page 122

909 S.W.2d 122

LANCER CORPORATION, Appellant, v. Juventino MURILLO, Maria Murillo, Edgar Murillo and Juventino Murillo, Jr., Appellees.

No. 04-94-00814-CV.

Court of Appeals of Texas,

San Antonio.

Sept. 6, 1995.

Les Katona, Jr., Lang, Ladon, Green, Coghlan & Fisher, P.C., San Antonio, for appellant.

George W. Mauze, II, Law Offices of Mauze & Jones, San Antonio, for appellees.

Before CHAPA, C.J., and RICKHOFF and STONE, JJ.

OPINION

RICKHOFF, Justice.

This appeal questions whether a self-insured employer is liable to its insured employee for attorney's fees and litigation expenses when it rejects the insured's offer of representation and intervenes in third-party litigation to protect its subrogation interest. The appellant and self-insured, Lancer Corporation, appeals from a judgment granting attorney's fees and expenses to its insureds, the appellees, Juventino Murillo, Maria Murillo, Edgar Murillo and Juventino Murillo, Jr. (collectively, Murillo). In fourteen points of error, Lancer contends the trial court erred in awarding attorney's fees and expenses to the appellees because there is no legal, equitable, or factual basis for the award. We find the common fund doctrine applicable but also find the appellate record insufficient to evaluate the sufficiency of the evidence to support the award. We affirm.

Summary of Facts

Lancer, a self-insured manufacturer, pays medical benefits to its employees. According to Lancer's group benefit plan, the company may recover from its employee any money it expends on the employee's behalf as a result of an accident or injury caused primarily by a third party. The plan also requires participants to notify Lancer of any pending legal action or third-party recovery. The plan does not discuss attorney's fees and litigation expenses.

In February 1992, Maria Murillo, wife of Lancer's employee Juventino Murillo, was injured in a gas explosion in her home. Pursuant to its benefit plan, Lancer paid Maria $101,325.85 in medical expenses. In June 1992, Juventino signed Lancer's "Reimbursement Agreement," wherein he authorized his family's attorney to reimburse the corporation for the benefits received.

In October 1992, Murillo filed suit against City Public Service (CPS), agent for the City of San Antonio, for the injuries the family sustained in the gas explosion. A month later, Murillo's attorney wrote Lancer a letter offering to assist its recovery of the paid medical benefits. Specifically, the attorney proposed a one-third contingency fee on the recovered amount and expense sharing up to $6,000. Lancer's chief executive officer rejected the offer.

In February 1993, Lancer intervened in the suit, alleging its contractual right of subrogation and seeking repayment of the benefits it paid on Maria's behalf. It propounded interrogatories and requests for production to CPS. In turn, it responded to interrogatories and requests for production propounded by CPS and filed a motion for protective order. According to Lancer's attorney, he attended approximately five depositions and five hearings associated with the case and incurred $13,000 in attorney's fee. Murillo's attorney testified that Lancer participated in two or three of sixty depositions and about twenty percent of the discovery related hearings.

The Murillo family stipulated that Lancer expended $101,325.85 in medical benefits and agreed to pay that sum from any monies received from CPS. They further agreed to release Lancer from future medical benefits to the extent the jury found CPS liable for future medical care. Both the Murillo family and Lancer contended each was entitled to attorney's fees and litigation costs, and agreed to submit the issue to the trial court.

In March 1994, the third-party action was submitted to trial. During the jury's deliberations, the Murillo family settled its claim against CPS for $4.3 million, and the court severed CPS from the case. The court permitted the jury to reach a verdict to determine the amount of Maria's future medical care; the corresponding jury award was $2.5 million. Murillo and Lancer then tried the issues of attorney's fees and litigation expenses before the trial court.

After hearing the evidence and taking judicial notice of usual and customary attorney's fees, the court found that Murillo's attorney provided "practically all" the legal services resulting in the recovery. It further found that these services were necessary and created a "tremendous benefit" for Lancer. In light of the issues involved, the amount in controversy, and efforts expended, the court concluded that Murillo was entitled to attorney's fees and litigation expenses.

The trial court rendered judgment for Lancer in the amount of its subrogated interest, $101,316.25, ¹ less $33,775.28, one-third of the recovered medical benefits representing Murillo's attorney's fees, and less $7,398.00, one-third of Murillo's litigation expenses not reimbursed by CPS. Thus, Lancer's net recovery was $60,142.97, together with postjudgment interest. The judgment also released Lancer from $2.5 million in future medical benefits related to the accident.

Arguments on Appeal

Although the judgment did not expressly award Murillo attorney's fees and expenses, it effectively did so by reducing Lancer's subrogated interest. On appeal, Lancer assigned fourteen points of error to this reduction, arguing there is no legal or equitable basis for such an award and no evidence to support it.

1. Standard of Review

A reviewing court will not overturn a trial court's allowance of attorney's fees or litigation expenses unless the award constitutes a clear abuse of discretion. Hartford Accident & Indem. v. Collins, 895 S.W.2d 750, 751 (Tex.App.--Corpus Christi 1995, no writ) (expenses); Ross v. 3D Tower Ltd., 824 S.W.2d 270, 273 (Tex.App.--Houston [14th Dist.] 1992, writ denied) (attorney's fees). The test for whether the trial court abused its discretion is whether it acted without reference to any guiding rules and principles, that is, whether the court's action was arbitrary and unreasonable. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex.1985), cert. denied, 476 U.S. 1159, 106 S.Ct. 2279, 90 L.Ed.2d 721 (1986). In deciding whether a trial court acted arbitrarily, we may review the trial court's findings for legal and factual sufficiency of the evidence. See Beaumont Bank, N.A. v. Buller, 806 S.W.2d 223, 226 (Tex.1991); Jackson v. Barrera, 740 S.W.2d 67, 68-69 (Tex.App.--San Antonio 1987, no writ).

2. Basis of the Award

Generally, attorney's fees and expenses are not recoverable unless expressly provided for in contract or by statute. New Amsterdam Casualty Co. v. Texas Indus., Inc., 414 S.W.2d 914, 915 (Tex.1967); Baja Energy, Inc. v. Ball, 669 S.W.2d 836, 838 (Tex.App.--Eastland 1984, no writ). In its first through third points of error, Lancer argues there is no contractual or statutory basis for the award in this case. ² Murillo conceded these points at oral argument, observing, as do we, that fees and expenses may be recovered on equitable principles. See, e.g., Enochs v. Brown, 872 S.W.2d 312, 321 (Tex.App.--Austin 1994, no writ) (quantum meruit); Ball, 669 S.W.2d at 838 (common fund).

Although the parties agree quantum meruit is not applicable, they dispute the viability of the common fund doctrine. Lancer raises this contention in its fourth point of error, which states there is no equitable basis for the court's award.

Under the common fund doctrine, the court may allow reasonable attorney's fees to a litigant who, at his own expense, has maintained a suit which creates a fund benefitting other parties as well as himself. Trustees v. Greenough, 105 U.S. 527, 532-37, 26 L.Ed. 1157 (1881); Knebel v. Capital Nat'l Bank, 518 S.W.2d 795, 799-801 (Tex.1974). The common fund doctrine is based on the principle that those receiving the benefits of the suit should bear their fair share of the expenses. Greenough, 105 U.S. at 533-34; Knebel, 518 S.W.2d at 799.

Although the common fund doctrine has been infrequently asserted in Texas, the courts have applied it to class actions, see, e.g., City of Dallas v. Arnett, 762 S.W.2d 942, 954 (Tex.App.--Dallas 1988, writ denied); shareholder derivative suits, see, e.g., Bayliss v. Cernock, 773 S.W.2d 384, 386-87 (Tex.App.--Houston [14th Dist.] 1989, writ denied); and insurance subrogation, see, e.g., Camden Fire Ins. Ass'n v. Missouri, Kentucky & Tennessee Ry. Co., 175 S.W. 816, 821 (Tex.Civ.App.--Dallas 1915, no writ). ³ The Texas Supreme Court rejected application of the common fund doctrine when a hospital holds a statutory lien against a debtor injured by a third party. Bashara v. Baptist Memorial Hosp. Sys., 685 S.W.2d 307, 310-11 (Tex.1985). ⁴

Although there is no contractual or statutory basis for the trial court's award, there is a potential equitable basis. Accordingly, we overrule Lancer's second through fourth points of error but sustain its first point of error. We now turn to the common fund elements.

3. Existence of Subrogation

The trial court found that Lancer had a right of subrogation, pursuant to its benefit plan, for the total medical expenses paid on Murillo's behalf. Consistent with the common fund doctrine, it thereafter concluded that Murillo was equitably entitled to recover attorney's fees and expenses.

We read Lancer's ninth through eleventh points of error as challenges to the legal and factual sufficiency of the evidence to support the court's subrogation finding. ⁵ In its related fifth point of error, Lancer maintains it had only a debtor-creditor relationship with Murillo, to which equitable principles do not apply.

Subrogation is the substitution of one person in the place of another with reference to a lawful right or claim. Cockrell v. Republic Mortgage Ins. Co., 817 S.W.2d 106, 113 (Tex.App.--Dallas 1991, no writ). Subrogation may be equitable (legal) or contractual (conventional). Smart v. Tower Land &...