Royal Ins. Co. of America v. Quinn-L Capital Corp.

• Court: U.S. District Court — Northern District of Texas
• Writing for the Court: SANDERS
• Citation: Royal Ins. Co. of America v. Quinn-L Capital Corp., 759 F.Supp. 1216 (N.D. Tex. 1990)
• Decision Date: 30 November 1990
• Docket Number: Civ. A. No. 3-90-0550-H.
• Parties: ROYAL INSURANCE COMPANY OF AMERICA and Royal Lloyds of Texas, Plaintiffs, v. QUINN-L CAPITAL CORPORATION, Quinn-L Equities, Inc., Quinn-L Financial Corporation, and Quinn-L Mortgage Company, Defendants.

759 F. Supp. 1216

ROYAL INSURANCE COMPANY OF AMERICA and Royal Lloyds of Texas, Plaintiffs, v. QUINN-L CAPITAL CORPORATION, Quinn-L Equities, Inc., Quinn-L Financial Corporation, and Quinn-L Mortgage Company, Defendants.

Civ. A. No. 3-90-0550-H.

United States District Court, N.D. Texas, Dallas Division.

November 30, 1990.

COPYRIGHT MATERIAL OMITTED

Chester Hinshaw & Patricia J. Villareal, Jones Day Reavis & Pogue, Dallas, Tex., for plaintiffs.

Samuel L. Boyd, Boyd and Associates, Dallas, Tex., and William R. Edwards & Michael G. Terry, Edwards & Terry, Corpus Christi, Tex., for defendants.

MEMORANDUM OPINION AND ORDER

SANDERS, Chief Judge.

Before the Court are Plaintiffs Royal Insurance Company of Texas and Royal Lloyds of Texas' (collectively "Royal") Application for Injunctive Relief, filed October 30, 1990; and Defendants Quinn-L Capital Corporation, Quinn-L Equities, Inc., Quinn-L Financial Corporation, Quinn-L Management Corporation, Quinn-L Mortgage Company's (collectively "Quinn-L" or "the Quinn-L Entities") and numerous Individual Investors' (collectively the Investor Plaintiffs) Opposition to Royal's Application, filed October 31, 1990. In addition, the Court has before it Proposed Findings of Fact and Conclusions of Law submitted by both Plaintiffs and Defendants, exhibits (designated "PX" and "DX" herein) and deposition transcripts admitted into evidence by the Court. Also, the Court has taken judicial notice of the proceedings in various related judicial proceedings. See Hearing Tr. at 13-14.

Upon Royal's Application filed October 30, 1990 the Court entered a Temporary Restraining Order ("TRO") on October 31, 1990 after hearing oral argument of counsel. The TRO presently restrains Defendants from pursuing certain actions in state court in Brownsville, Texas wherein they seek to enforce against Royal a $740 million state court judgment obtained after this Court entered judgment on September 8, 1989 declaring that Royal had neither a duty to defend Quinn-L nor a duty to indemnify Quinn-L under the insurance policies at issue in these actions. The hearing on Royal's Application for Preliminary Injunction following the issuance of the TRO was extended from November 13, 1990 to November 20, 1990, a date agreed upon by the parties.

Having considered the pleadings and evidence on file as well as the oral argument of counsel at the November 20, 1990 hearing, the Court GRANTS Royal's Application for a Preliminary Injunction. The following constitute the Court's findings of fact and conclusions of law. Because "the four prerequisites for preliminary injunctive relief are mixed questions of fact and law," Apple Barrel Productions, Inc. v. Beard, 730 F.2d 384, 386 (5th Cir.1984), any factual finding which is actually a legal conclusion should be deemed to be and treated as such, and any legal conclusion which is really a factual finding should be deemed to be and treated as such.

I. Findings of Fact.

A. The Federal Liability Action and the First Federal Declaratory Action.

In May of 1987, 26 lawsuits were brought in this Court by some 157 investors (the "Investor Plaintiffs" or simply "Investors") who allegedly lost money they had invested in various syndicated real estate investments offered or managed by one or more of the Defendant Quinn-L Entities. Mr. S. Mark Lovell is the sole shareholder of all of the Quinn-L Entities, save Quinn-L Capital Corporation. Lovell is the sole owner of all of the voting stock of Quinn-L Capital Corporation and is the beneficial owner of all of its assets.¹See PX 3 at ¶ 2; PX 4 at 3-11. The 26 lawsuits brought by the Plaintiff-Investors against Quinn-L and Lovell were consolidated by the Court into one case, Civil Action No. 3-87-1384-H.² The Federal Liability Suits alleged, inter alia, RICO and federal securities claims, as well as state-law causes of action of negligence, fraud, constructive fraud, breach of contract, breach of fiduciary duties, civil conspiracy, negligent misrepresentation, violations of the Texas Securities Act and the Texas Deceptive Trade Practices Act, exemplary damages, and attorneys' fees. All of these claims were based on a common nucleus of operative facts—that is, the Plaintiff-Investors claimed that they sustained damages due to the loss of their investments because of the conduct of Quinn-L. See PX 9.

Subsequently, the Quinn-L Entities, through the Dunn-Odom Insurance Agency, Inc., requested that Royal defend them in the Federal Liability Suits, which Royal agreed to do subject to a reservation of rights.³ Quinn-L accepted this qualified defense by Royal. See PX 12-15. On May 10, 1988, Royal filed a declaratory judgment action in this Court. See Royal Insurance Company of America v. Q-L Investments, Inc., No. CA3-88-1069-H (the "Federal Declaratory Judgment Action"). In this federal action, Royal sought a declaration that it owed no duty to defend and no duty to indemnify the Quinn-L Entities for any claims brought in the Federal Liability Suits. See PX 16 at ¶ 30.

On June 6, 1988 the Plaintiff-Investors moved to intervene in the Federal Declaratory Judgment Action "in order that they might be provided a fair opportunity to protect their bona fide interests, which have thus far been trampled upon by all involved parties." DX 12 at 9; PX 19 at 9. The Plaintiff-Investors sought to intervene in order to move to dismiss the Federal Declaratory Judgment Action for lack of justiciability.⁴ See DX 12 at Ex. C; PX 19 at Ex. C. The Court denied the Plaintiff-Investors' Motion to Intervene, finding that they failed to meet the requirements for intervention as a matter of right pursuant to Federal Rule of Civil Procedure 24.⁵

The Quinn-L Entities filed three documents in the Federal Declaratory Judgment Action on February 10, 1989. First, Quinn-L filed its Answer. The Quinn-L Answer asserted fifteen affirmative defenses, including that Royal was estopped to deny defense and indemnification obligations because of "acts and courses of conduct of Royal agents, representative, and employees." PX 22 at 6.

The second document Quinn-L filed on February 10, 1989 was a counterclaim against Royal seeking declarations of duties to defend and to indemnify under seventy-four insurance policies alleged to be issued by Royal and other companies, and not just under the general comprehensive business policy and umbrella policy under which the Quinn-L Entities originally had requested a defense. See PX 21 at Ex. A. The counterclaim sought a declaration that these numerous policies "provide coverage and/or indemnity for any losses incurred by Quinn-L arising from the claims asserted" in the Federal Liability Suits. PX 21 ¶ 3, at 2. Furthermore, Quinn-L alleged in the counterclaim that the Federal Liability Suits "state causes of action alleging an occurrence resulting in property damage, bodily injury, or other liability within the coverage provided by one or more of the policies" and that these occurrences "are not excluded by the limitations, exclusions, conditions, endorsements, riders, or forms made a part of the policies, or any one of them." Id. ¶¶ 6, 7, at 3.

The third document Quinn-L filed on February 10, 1989 was their Response to Royal's Motion for Summary Judgment, which had been filed on December 12, 1988. In Part III of their Response, entitled "Plaintiffs As A Matter Of Law Have A Duty To Defend Defendants On The Allegations In The Underlying Complaints," the Quinn-L Entities stated the following:

Under Texas law, the duty to defend is determined solely from the face of the pleadings and it arises if one or more of the underlying claims, taken as true, are sufficient to state a cause of action coming within the terms of the policy. Rhodes v. Chicago Insurance Co., A Division of Interstate National Corporation, 719 F.2d 116, 119 (5th Cir.1983).... In applying the "pleadings only" rule the Court should indulge in the most liberal interpretation of the allegations with doubts as to the import of the allegations resolved in favor of the insured and coverage.... Even when the complaint pleads in the alternative or alleges more than one cause of action, the insurer is obligated to defend, as long as the complaint alleges "at least one cause of action within the coverage of the policy." Rhodes, supra at 119.

It is clear from a reading of the allegations contained in the pending consolidated suits the Federal Liability Suits that Defendants are not only owed a duty to defend by Royal, but are within the terms of coverage under the policies....

Policy PLA 172833 is denominated as a "Comprehensive Catastrophe Liability Policy" (Big Shield Policy), with a $5,000,000 occurrence policy limit.... Big Shield Policy also includes liability for all professional liability unless limited by the amounts stated in the declarations, or exclusions.... The coverage under the Big Shield Policy as stated above covers personal injury which includes mental injury, mental anguish, malicious prosecution, humiliation, also invasion of rights of privacy, liable sic, slander, or defamation of character.

....

... Moreover, in the Quinn-L litigation the Federal Liability Suits, the Plaintiffs seek not only damages for loss of investment and future profits; but also personal injury, property damage, and advertising liability in addition to:

....

(3) treble damages, as consumers of services for Defendants' unlawful acts and conduct for violations of the Deceptive Trade Practices Act. Tex.Bus. & Com.Code § 17.41 et seq.....

PX 24 at 5-9 (footnotes omitted). The Quinn-L Entities further argued in their Rejoinder, filed March 14, 1989, that claims for mental anguish were both included in the Federal Liability Suits and were covered by the policies at issue in the Federal Liability Suits. In Section D of that Rejoinder, Quinn-L states:

1. Mental Anguish.... Amongst the allegations and claims in the Akin and Barrett actions are claims for negligence, negligent misrepresentation,

...