Tex. Ass'n of Pub. Sch. Prop. & Liab. Fund v. White Deer Indep. Sch. Dist. (In re Tex. Ass'n of Pub. Sch. Prop. & Liab. Fund), Civil Action No. SA-18-CV-985-XR

• Decision Date: 01 March 2019
• Docket Number: Bkr. Adv. Case No. SA-18-5017-RBK,Civil Action No. SA-18-CV-985-XR
• Parties: IN RE: TEXAS ASSOCIATION OF PUBLIC SCHOOLS PROPERTY AND LIABILITY FUND, Debtor, Texas Association of Public Schools Property and Liability Fund, Appellant, v. White Deer Independent School District, Appellees.
• Court: U.S. District Court — Western District of Texas

598 B.R. 570

IN RE: TEXAS ASSOCIATION OF PUBLIC SCHOOLS PROPERTY AND LIABILITY FUND, Debtor,

Texas Association of Public Schools Property and Liability Fund, Appellant,

v.White Deer Independent School District, Appellees.

Civil Action No. SA-18-CV-985-XR

Bkr. Adv. Case No. SA-18-5017-RBK

United States District Court, W.D. Texas, San Antonio Division.

Signed March 1, 2019

Scott T. Clark, Adams and Graham LLP, Harlingen, TX, William Brand Kingman, Law Offices of William B. Kingman, San Antonio, TX, for Appellant.

Joni Paul, Packard, Hood, Johnson & Paul, L.L.P., Amarillo, TX, Michael Stewart Smiley, Underwood Law Firm, P.C., Amarillo, TX, Appellees.

ORDER

XAVIER RODRIGUEZ, UNITED STATES DISTRICT JUDGE

This civil action is before the Court on appeal from the United States Bankruptcy Court for the Western District of Texas. For the reasons stated below, the judgment of the bankruptcy court is REVERSED.

BACKGROUND

This case comes before the Court on appeal from two orders of the bankruptcy court regarding the parties' respective motions for summary judgment. Texas Association of Public Schools Property and Liability Fund ("TAPS") appeals the following orders of the Bankruptcy Court: (1) the order denying TAPS's Motion for Summary Judgment (docket no. 3 at 7); and (2) the order granting White Deer Independent School District's ("White Deer") Motion for Summary Judgment (docket no. 3 at 11).

This case stems from TAPS' choice not to defend or indemnify White Deer in a state-court tax suit. In that tax suit, Kelly Martin v. White Deer Independent School District , Cause No. 11807, Judicial District Court for Carson County, Texas ("Tax Suit"), Kelly Martin sued White Deer, alleging that it improperly applied tax laws and charged her excessive taxes.

The Tax Suit turned on changes to Texas's homestead exemption for property taxes. Before 2015, the first $ 15,000 of a homestead's value was tax exempt under Texas law, and local governments could reduce this exemption using a Local Option Home Exemption ("LOHE"). On June 15, 2015, the governor signed S.B. 1, which raised the exemption to $ 25,000 and barred local governments from reducing or repealing any LOHE until 2019. This change required approval by constitutional amendment. On June 30, 2015, White Deer lowered its 2014 LOHE. Then, in November 2015, S.B. 1 was approved by constitutional amendment. Meanwhile, White Deer collected Martin's taxes under the reduced LOHE (which was lawful when enacted), prompting Martin to bring the Tax Suit in 2016.

Martin sued White Deer, its board of trustees, its superintendent, and the county tax assessor. Docket no. 3 at 96. She alleged the defendants acted illegally in reducing the LOHE and then collecting higher taxes. Id. at 103. She thus sought declaratory relief that these actions were ultra vires and violated the Texas Constitution, a permanent injunction to reinstate White Deer's 2014 LOHE, and a "refund of illegally collected taxes which [Martin] paid to the school district as a result of duress."Id. at 97. At summary judgment in that case, White Deer argued that Martin's requested declaratory relief was barred by its governmental immunity against suits for money damages. Id. at 394. Martin denied that she sought money damages, contending that she demanded "only a refund of illegally collected taxes paid under duress," which are not " ‘money damages’ precluded by governmental or official immunity." Id. at 415.

In April 2018, the state court dismissed the individual defendants and granted summary judgment in Martin's favor. Id. at 429. Martin was granted declaratory relief that S.B. 1 was constitutional and prohibited repealing or barring the LOHE between 2015 and 2019, that White Deer violated S.B. 1, and that White Deer's reduction of the LOHE was void. Id. at 430. The state court ordered that White Deer "disgorge and refund to [Martin] those property taxes that it collected for tax years 2015, 2016, and 2017 from [Martin], if any, that are subject to the [LOHE] that it adopted for the 2014 tax year." Id. at 430-31. The pending appeal of the Tax Suit was filed May 7, 2018. Id. at 432.

TAPS is a self-funded risk program from which White Deer had previously purchased a policy; the section of this policy at issue here is titled "Educators' Legal Liability Cover." In response to the Tax Suit, White Deer submitted a claim to TAPS under this policy for defense and indemnification of the Tax Suit. On October 7, 2016, TAPS denied coverage. White Deer then brought this suit in state court, seeking declaratory and injunctive relief on the duties to defend and indemnify and damages for breach of contract and violation of the Texas Deceptive Trade Practices Act. TAPS removed to federal court and the case was transferred to bankruptcy court.¹ There, the parties filed cross motions for summary judgment; the bankruptcy court granted White Deer's motion and denied TAPS' motion. TAPS then appealed these orders to this Court.

DISCUSSION

I. Appellant's Issues on Appeal

TAPS's issues on appeal are:

(1) Whether the bankruptcy court erred in granting White Deer's motion for summary judgment and denying TAPS's motion.

(2) Whether the bankruptcy court erred in granting summary judgment that TAPS owed White Deer a duty to defend the underlying suit.

(3) Whether any duty to indemnify White Deer is nonjusticiable because the issue is premature until the underlying judgment is final and the appeal is exhausted.

(4) Whether the bankruptcy court erred in granting summary judgment that TAPS owed White Deer a duty to indemnify Whiter Deer for any part of the judgment in the underlying suit.

(5) Whether the bankruptcy court erred in failing to grant summary judgment dismissing White Deer's claims for declaratory relief, injunctive relief, breach of contract, and attorney's fees.

(6) Whether TAPS may contest coverage only upon the grounds identified by its letter denying coverage.

(7) Whether the bankruptcy court erred in granting summary judgment that White Deer recover attorney's fees.

(8) Whether the bankruptcy court erred in failing to grant summary judgment dismissing White Deer's DTPA claims.

Docket no. 6 at 14.

Although TAPS lists eight issues on appeal, the base issue is whether the bankruptcy court erred in granting White Deer's Motion for Summary Judgment and denying TAPS's Motion for Summary Judgment. Accounting for redundancy in the above issues, the Court must consider the following questions to decide this appeal:

(1) Whether the bankruptcy court erred in granting summary judgment that TAPS owed White Deer a duty to defend the underlying Tax Suit.

(2) Whether the bankruptcy court erred in granting summary judgment that TAPS owed White Deer a duty to indemnify White Deer for any part of the judgment in the underlying suit.

(3) Whether the bankruptcy court erred in denying TAPS' no-evidence summary judgment motion on White Deer's DTPA claims.

(4) Whether the bankruptcy court erred in granting White Deer's summary judgment motion for attorney's fees.

II. Appellate Standard of Review

A district court has jurisdiction to hear appeals from final judgments, orders, and decrees of bankruptcy judges entered in cases and proceedings referred to bankruptcy judges. See 28 U.S.C. § 158(a). On appeal, a bankruptcy judge's conclusions of law are reviewed de novo , whereas findings of fact will not be set aside unless they are found to be clearly erroneous. In re National Gypsum Co. , 208 F.3d 498, 503 (5th Cir. 2000). The district court reviews mixed questions of law and fact de novo. Id.

The court reviews discretionary decisions of the bankruptcy court for abuse of discretion. See Mendoza v. Temple-Inland Mortgage Corp. (In re Mendoza) , 111 F.3d 1264, 1270 (5th Cir. 1997). A bankruptcy court abuses its discretion when "its ruling is based on an erroneous review of the law or on a clearly erroneous assessment of the evidence." In re Yorkshire, LLC , 540 F.3d 328, 331 (5th Cir. 2008) (quoting Chaves v. M/V Medina Star , 47 F.3d 153, 156 (5th Cir.1995) ).

III. Review of the Bankruptcy Court's Orders

The bankruptcy court granted White Deer's Motion for Summary Judgment (and denied TAPS's), concluding that TAPS had a duty to defend and indemnify White Deer, that TAPS's denial of coverage constituted a violation of the Texas Deceptive Trade Practices Act (DTPA), and that White Deer was entitled to attorney's fees. TAPS appeals these conclusions.

a. Legal Standard

Texas's rules of contract construction govern this diversity case. Amica Mut. Ins. Co. v. Moak , 55 F.3d 1093, 1095 (5th Cir. 1995). Under Texas law, the usual principles of contract law apply to insurance policies. American States Ins. Co. v. Bailey , 133 F.3d 363, 369 (5th Cir. 1998). The construction of an insurance policy is a question of law. Stumph v. Dallas Fire Ins. Co., 34 S.W.3d 722, 729 (Tex. App.—Austin 2000, no pet.) (citing Coker v. Coker , 650 S.W.2d 391, 393-94 (Tex. 1983) ).

b. Applicable Policy Provisions

The relevant policy provisions are in a document titled "TEXAS ASSOCIATION OF PUBLIC SCHOOLS PROPERTY AND LIABILITY FUND COVERAGE DOCUMENT." Docket no. 3 at 310-15. The section at issue is titled "EDUCATORS' LEGAL LIABILITY COVER." Id. at 310. Under "COVERAGE," the document states (1) "[t]he Fund will pay, on behalf of the member, loss resulting from a claim for a wrongful act first made against the member during the coverage period ...." and (2) "[t]he Fund has the right and duty to investigate, defend and conduct settlement negotiations in any claim or suit, if such claim or suit alleges a wrongful act covered under this coverage part." Id.

The relevant terms are defined as follows:

• "Fund" is defined as TAPS, id. , and no party disputes that White Deer is a "member" as defined in the policy, id. at 311.

• The definition of "claim" relevant here is "[a]ny judicial ... proceeding initiated against any members seeking to hold such member responsible for a wrongful act through monetary damages, other than attorney's fees

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