Moody v. Nat'l W. Life Ins. Co.
| Decision Date | 10 December 2020 |
| Docket Number | NO. 01-18-01106-CV,01-18-01106-CV |
| Parties | ROBERT L. MOODY, JR., Appellant v. NATIONAL WESTERN LIFE INSURANCE COMPANY; NATIONAL WESTERN LIFE GROUP, INC.; ROSS RANKIN MOODY; ELVIN JEROME PEDERSON; STEPHEN EDWARD GLASGOW; CHARLES D. MILOS; ERLE DOUGLAS MCLEOD; LOUIS EDWARD PAULS, JR.; AND FRANCES ANNE MOODY-DAHLBERG, Appellees |
| Court | Texas Court of Appeals |
On Appeal from the 122nd District Court Galveston County, Texas
Robert L. Moody, Jr. filed a shareholder's derivative suit challenging business practices of National Western Life Insurance Company, a wholly owned subsidiary of National Western Life Group, Inc. Both the businesses and the individual board members filed pleas to the jurisdiction, which the trial court granted. The trial court also awarded the defendants a total of $1,314,053.73 in trial attorney's fees and expenses and up to $505,000 in appellate attorney's fees. In three issues on appeal, Moody Jr. challenges the rulings on the pleas to the jurisdiction, the award of fees and expenses, and the dismissal of a counterclaim.
We modify the judgment to condition the award of appellate attorney's fees on success in the appellate court, and as modified we affirm the trial court's judgment.
National Western Life Insurance Company ("National Western") was founded in 1956 by Robert L. Moody, who served as Chairman and Chief Executive Officer of the company until June 2015. National Western is incorporated in Colorado and has maintained its principal place of business in Austin, Texas since 1963. In 1968, National Western acquired by merger a company that had in force numerous policies insuring citizens of Central and South America. National Westernassumed these international policies and thereafter accepted by mail applications for insurance from residents of other countries. National Western took the position that it did not need to be licensed in other countries because it was licensed in Texas, received applications and issued policies in Texas, and worked only with independent international brokers.1
Robert L. Moody, Jr. ("Moody Jr.") is the eldest son of Robert L. Moody ("Moody Sr."). Moody Jr. owns Moody Insurance Group, Inc. ("Moody Insurance"), an insurance marketing business. By contract, both Moody Insurance and Moody Jr., individually, are "independent contractor" agents for National Western. They earn commissions for sales of National Western products based on standard commission schedules. Moody Jr. purchased shares of National Western between 2008 and January 1, 2012.
Ross Rankin Moody is Moody Jr.'s younger brother, and he has been President and Chief Operating Officer of National Western since 2000. Other family members who serve on the board of directors of National Western include: Moody Jr.'s stepmother, Ann M. Moody; his half-sister, Frances A. Moody-Dahlberg; and his stepmother's brother, E. Douglas McLeod.
In the early 2000s, National Western's issuance of policies to non-U.S. residents increased steeply. Texas insurance regulators raised concerns about National Western's activities in Argentina and Russia. Based on advice of counsel, National Western responded in writing that it "does not market or solicit products in foreign countries" and that it works with independent brokers abroad.2
In 2005, a Brazilian court entered a default judgment against National Western for wrongful refusal to pay a life insurance claim.3 As a result of that judgment, theBrazilian regulatory authority ("SUSEP")4 initiated an infraction proceeding against National Western, alleging that it had operated as an insurance company without due authorization. In 2011, SUSEP assessed an ex parte penalty in an amount equal to about $6 billion U.S.5 When National Western learned of the fine in late October 2011, it obtained an additional legal opinion from a Brazilian law firm confirming its position that Brazilian law did not prohibit it from issuing policies to Brazilian residents or bring it within the jurisdiction of Brazilian authorities.
National Western disclosed the situation in 2011 and 2012 Securities and Exchange Commission filings. On advice of counsel, National Western appeared in the Brazilian infraction proceeding, and on further appeal the fine was reduced to approximately $960,000 U.S. National Western paid the fine without admitting liability and stopped selling insurance policies to Brazilian residents. Brazilian authorities then opened a criminal investigation regarding the sales of insurance to its residents.
Meanwhile, in 2013 National Western hired Price Waterhouse to study the feasibility of becoming licensed to sell insurance in Brazil. The study concluded it would not be profitable to operate in that manner because National Western's business advantage was the ability to denominate policies in stable U.S. dollars as opposed to the volatile Brazilian real.
In March 2015, National Western Life Group, Inc. ("Group") was incorporated in Delaware.6 National Western shares were converted one-for-one to shares in Group, which holds all of the currently issued stock of National Western. Group does not issue insurance or conduct any insurance business.
In 2016, National Western's audit committee discontinued some of Moody Jr.'s financial and in-kind benefits. In a series of text messages, Moody Jr. informed Ross of his opposition to these actions. The same year, Ross's daughter, Elizabeth, was appointed as Trustee of the Moody Foundation, the family charitable entity. Moody Jr., who had by then been thrice overlooked for appointment as trustee, also expressed his opposition to this appointment.
In January 2017, Moody Jr.'s attorney sent a letter to Ross and National Western. The letter noted the SUSEP fine and proceeding, discounted National Western's jurisdictional defense, and questioned the company's decision to continue issuing insurance policies to non-U.S. residents. The letter also questioned Ross's "competency to serve on any board representing Moody family interests." The letter identified eight questions, most of which did not relate to National Western's sales to foreign residents or the SUSEP infraction proceeding.7 The letter also threatenedthe filing of a derivative suit. Counsel for Group contested the facts of Moody Jr.'s January 2017 letter and concluded that the matters raised in that letter related to Ross and the Moody family personally, not to National Western or Group.
In April 2017, Moody Jr. sent a demand letter to National Western and Group alleging that board members had breached their fiduciary duties. It focused on the enforcement action in Brazil, and it demanded that the boards of directors take eight corrective actions including: (1) removing Ross as Chairman and Chief Executive Officer of Group; (2) filing a civil action for breach of fiduciary duty against the board members; (3) making additional disclosures to shareholders; (4) ending sales without licenses in foreign jurisdictions; and (5) reimbursing Moody Jr. for attorney's fees and costs.8
The boards of directors of National Western and Group met jointly on June 6, 2017.9 They considered available information pertaining to:
The boards concluded that no further investigation was necessary and that a suit by Group or National Western against its board of directors was not in the best interest of the business. The boards voted to reject all of Moody Jr.'s demands; Ross did not participate in the vote.
Moody Jr. filed a derivative suit based on the boards' refusal of his demands, and he sought damages and equitable relief, including attorney's fees. Moody Jr. made the following allegations:
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