Texas Catastrophe Property Ins. Ass'n v. Morales

• Decision Date: 28 October 1992
• Docket Number: No. 91-8593,91-8593
• Citation: 975 F.2d 1178
• Parties: TEXAS CATASTROPHE PROPERTY INSURANCE ASSOCIATION, et al., Plaintiffs-Appellees, v. Dan MORALES, Individually and in his official capacity as Attorney General of the State of Texas, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1178

975 F.2d 1178

61 USLW 2292

TEXAS CATASTROPHE PROPERTY INSURANCE ASSOCIATION, et al Plaintiffs-Appellees, v. Dan MORALES, Individually and in his official capacity as Attorney General of the State of Texas, Defendant-Appellant.

No. 91-8593.

United States Court of Appeals Fifth Circuit.

Oct. 28, 1992.

Rehearing and Rehearing En Banc

Denied Nov. 30, 1992.

Dan Morales, Atty. Gen., Elizabeth Marsh, Asst. Atty. Gen., Finance Div., Austin, Tex., for Dan Morales.

Martha Sue Dickie, Roy Q. Minton, Jennifer Ramsey, Minton, Burton, Foster & Collins, Austin, Tex., for Texas Catastrophe Prop. Ins., et al.

Gloria Leal, Gen. Counsel, Texas State Bd. of Ins., Austin, Tex., for amicus Texas State Bd. of Ins.

Appeal from the United States District Court for the Western District of Texas.

Before JOLLY and DUHE, Circuit Judges, and PARKER, ¹ District Judge.

DUHE, Circuit Judge:

This appeal requires us to decide whether the district court abused its discretion when it issued a preliminary injunction preventing the Attorney General for the State of Texas from fulfilling his statutory duty to provide the sole legal representation for the Texas Catastrophe Property Insurance Association (CATPOOL), an entity comprised of private insurers that writes insurance policies covering risks as prescribed by the State of Texas. We find no abuse of discretion and accordingly affirm the preliminary injunction.

I.

CATPOOL was created by the Texas Legislature in 1971. 1971 Tex.Gen.Laws 843 (codified as amended at Tex.Ins.Code Ann. art. 21.49 (West 1981 & Supp.1992)). CATPOOL is a sort of assigned risk pool; all of the property insurers in Texas are required to belong to the pool as a condition of doing business in the state. Tex.Ins.Code Ann. art. 21.49 § 4(a) (West 1981). The pool must write "windstorm, hail and fire insurance" in designated parts of the state. Id. § 1. CATPOOL writes its own policies and pays its own claims, which are funded first from premiums, then from assessments against the member companies. In short, CATPOOL is directly funded by the private monies of private citizens and corporations--not by the funds of the public treasury. If the losses exceed a certain amount, the companies that fund CATPOOL are entitled to limited tax credits from the state. The parties do not dispute these facts.

According to the statute that created it, CATPOOL is run according to a plan of operation adopted in a rulemaking procedure by the State Board of Insurance with the advice of the CATPOOL board of directors. Id. § 5(c) (West Supp.1992). Representatives of the member insurance companies comprise a majority of the board of directors. The directors are "responsible and accountable" to the State Insurance Board. Id. § 5(g). Since its creation, CATPOOL has employed its own private legal counsel.

A recent amendment to the statute, however, requires CATPOOL to rely exclusively on the Texas Attorney General for legal representation, and the constitutionality of that amendment is the subject of this suit. By an act effective September 1, 1991, the Legislature proclaimed: "The association [CATPOOL] is a state agency for purposes of employing or authorizing legal representation and shall be represented by the attorney general in the manner provided by general law for representation of any other state agency by the attorney general." 1991 Tex.Gen.Laws 1077 (codified at Tex.Ins.Code Ann. art. 21.49, § 12A (West Supp.1992)).

On September 3, CATPOOL and some of its member insurance companies filed this action under 42 U.S.C. § 1983, claiming that the amendment requiring CATPOOL to be represented by the attorney general deprived it of rights guaranteed by the federal constitution. In particular, CATPOOL prayed the district court to enjoin enforcement of the amendment on the ground that the new law stripped the association of its constitutional right to counsel. After a hearing, the district court agreed with CATPOOL and issued the preliminary injunction. The attorney general appeals.

II.

There are four requirements for a preliminary injunction: "(1) a substantial likelihood of success on the merits; (2) a substantial threat that the movant will suffer irreparable injury if the injunction is not issued; (3) that threatened injury to the movant outweighs any damage the injunction might cause to the opponent; and (4) that the injunction will not disserve the public interest." Apple Barrel Prods. v. Beard, 730 F.2d 384, 386 (5th Cir.1984). These four requisites are mixed questions of law and fact. Although we broadly review the district court's legal conclusions, its findings of fact will not be disturbed unless they are clearly erroneous. We will not reverse unless the appellant shows that the district court abused its discretion. Id.

The attorney general has not disputed the district court's holdings on the issues of irreparable harm, the public interest, and relative lack of harm to the attorney general. Having reviewed the district court's opinion, we believe that the court soundly exercised its discretion when it held for the Plaintiffs on those three issues, and we focus the remainder of our opinion on the question that the parties have asked us to resolve: whether there is a substantial likelihood that the Plaintiffs will prevail on the merits of their claim.

III.

The central question in this § 1983 suit is whether any federally guaranteed right of CATPOOL has been violated. The attorney general, apparently not disputing that a right to retained counsel in civil matters generally exists, argues that CATPOOL is a state agency and therefore has no constitutional rights to assert against the state which created it, and which could destroy it if the Legislature decided to do so. We conclude that there is a constitutionally guaranteed right to retain hired counsel in civil matters, that the right in this case is grounded in the Fourteenth Amendment due process clause, and that CATPOOL holds such a right.

A.

Nowhere does the Constitution specifically say that a state cannot deprive persons of counsel in civil trials, ² but a number of cases address the question. See, e.g., McCuin v. Texas Power & Light Co., 714 F.2d 1255, 1262-65 (5th Cir.1983); Mosley v. St. Louis Sw. Ry., 634 F.2d 942, 945-46 (5th Cir. Unit A Jan. 1981), cert. denied, 452 U.S. 906, 101 S.Ct. 3032, 69 L.Ed.2d 407 (1981); Potashnick v. Port City Constr. Co., 609 F.2d 1101, 1117 (5th Cir.), cert. denied, 449 U.S. 820, 101 S.Ct. 78, 66 L.Ed.2d 22 (1980); accord Gray v. New England Tel. & Tel. Co., 792 F.2d 251, 257 (1st Cir.1986). This Court has construed Supreme Court precedent to find "a constitutional right to retain hired counsel." Id. at 1118 (construing Powell v. Alabama, 287 U.S. 45, 69, 53 S.Ct. 55, 64, 77 L.Ed. 158 (1932)). But see Kentucky W. Va. Gas Co. v. Pennsylvania Public Utility Comm'n, 837 F.2d 600, 618 (3d Cir.) ("The Supreme Court has not recognized a constitutional right to counsel in a civil case...."), cert. denied, 488 U.S. 941, 109 S.Ct. 365, 102 L.Ed.2d 355 (1988). As the Supreme Court stated,

If in any case, civil or criminal, a state or federal court were arbitrarily to refuse to hear a party by counsel, employed by and appearing for him, it reasonably may not be doubted that such a refusal would be a denial of a hearing, and, therefore, of due process in the constitutional sense.

Powell, 287 U.S. at 69, 53 S.Ct. at 64. The Powell Court, which directly reviewed a state conviction, was speaking of the Fourteenth Amendment due process clause, ³ while Potashnick applied the Fifth Amendment due process clause to a deprivation caused by a federal court. Potashnick, 609 F.2d at 1117. Because the deprivation in the instant case is caused by a state, the Fourteenth Amendment due process clause is the appropriate amendment on which to base this due process claim. ⁴

The right to counsel in civil matters "includes the right to choose the lawyer who will provide that representation." McCuin, 714 F.2d at 1257. While this right is "one of constitutional dimensions and should be freely exercised without impingement," ⁵ the right is not absolute. McCuin, 714 F.2d at 1262. If the state can show "compelling reasons," then a party's right to choose its own counsel may be overridden. We can find no intimation in the record of the case at bar, though, that the State of Texas has met the extraordinary burden of showing that it is compelled to deprive CATPOOL its fundamental right ⁶ to choose its own counsel.

The district court specifically found that the reasons proffered by the attorney general in support of this statute are not compelling in the constitutional sense. Before this Court, the attorney general has argued that the state's interests are "important," ⁷ but for purposes of constitutional analysis, "important" reasons do not suffice where the Constitution requires "compelling" ones. We do not mean to say that the attorney general cannot, as a matter of law, satisfy this burden when it comes time for him to oppose a permanent injunction. For the present, we are only concerned with a substantial likelihood of success on the merits, and we do not believe that the district court abused its discretion when it found that CATPOOL is likely to prevail on this point.

B.

Having concluded that there is a constitutional right to retained counsel in civil cases, and that this right may not be impinged without compelling reasons, we must ask whether CATPOOL holds this right. A state agency has no constitutional rights to assert against the state of which it is a part. Board of Levee Comm'rs of the Orleans Levee Board v. Huls, 852 F.2d 140, 143 (5th Cir.1988). The attorney general has founded much of his case upon this principle, but the principle cannot uphold the elaborate argument that he has tried to build upon it.

The principle that a state agency has no constitutional rights to assert against the state that created it is predicated on the concept...