Utica Lloyd's of Texas v. Mitchell

• Decision Date: 15 April 1998
• Docket Number: No. 96-50431,96-50431
• Citation: 138 F.3d 208
• Parties: UTICA LLOYD'S OF TEXAS, Plaintiff-Appellee, v. Eric MITCHELL, d/b/a The Mitchell Company; et al., Defendants, Eric Mitchell, Individually and d/b/a The Mitchell Company, Anderson, Wormley Mitchell & Hunt, Inc., and Wormley, Mitchell & Associates, Inc., Defendants-Appellants. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 208

138 F.3d 208

UTICA LLOYD'S OF TEXAS, Plaintiff-Appellee, v. Eric MITCHELL, d/b/a The Mitchell Company; et al., Defendants Eric Mitchell, Individually and d/b/a The Mitchell Company Anderson, Wormley Mitchell & Hunt, Inc., and Wormley, Mitchell & Associates, Inc. Defendants-Appellants.

No. 96-50431

Summary Calendar.

United States Court of Appeals Fifth Circuit.

April 15, 1998.

Rehearing Denied May 22, 1998.

Scott Patrick Stolley, Thompson & Knight, Dallas, TX, Jeffrey Scott Boyd, Austin, TX, for Plaintiff-Appellee.

Michael Klein, John Pike Powers, Marcy Hogan Greer, Fulbright & Jaworski, Austin, TX, for Defendants-Appellants.

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

Before JONES, DeMOSS and PARKER, Circuit Judges.

EDITH H. JONES, Circuit Judge:

Utica Lloyd's of Texas ("Utica") brought this diversity suit under the Declaratory Judgment Act (the "Federal DJA"), 28 U.S.C. §§ 2201-02, against Eric Mitchell, The Mitchell Company, Anderson, Wormley, Mitchell & Hunt, Inc. and Wormley, Mitchell & Associates, Inc. (collectively, the "Mitchell Defendants") seeking construction of a policy issued by Utica, and a determination whether it had the duty to defend and indemnify the Mitchell Defendants in an underlying state court suit. Following an order by the federal district court determining that Utica had a duty to defend the Mitchell Defendants, the Mitchell Defendants sought attorney's fees pursuant to the Texas version of the Uniform Declaratory Judgments Act (the "Texas DJA"), TEX. CIV. PRAC. & REM.CODE § 37.001, et seq. ¹ The district court denied the request for attorney's fees, perceiving itself bound by our decision in Bituminous Casualty Corp. v. Vacuum Tanks, Inc., 975 F.2d 1130, 1133 (5th Cir.1992), which found that attorney's fee awards against certain insurers should be denied in Texas declaratory judgment actions. We affirm, but for a different reason.

The district court in the instant case relied on a statement in Bituminous that TEX. CIV. PRAC. & REM.CODE § 38.006 "exempts certain insurers from payment of attorney's fees in declaratory judgment actions." Bituminous, 975 F.2d at 1133. The court apparently interpreted Bituminous as a broad holding applying to any declaratory judgment arising under Texas law. Bituminous, however, involved an award of attorney's fees under § 38.001(8), which provides for such fees for claims on "an oral or written contract," and never addressed the provision for attorney's fees under § 37.009 of the Texas Declaratory Judgment Act, while the Mitchell Defendants in the instant case base their claim for fees solely on § 37.009. Furthermore, § 38.006 simply provides that Chapter 38 "does not apply to a contract issued by an insurer that is subject to" one of five provisions. ² Accordingly, Bituminous limits only the availability of attorney's fees sought under Chapter 38, and is not relevant to the issue before this court--whether the Mitchell Defendants are entitled to attorney's fees under § 37.009 in a federal declaratory judgment action arising under diversity.

Federal courts follow the American Rule in the absence of fee-shifting congressional legislation. See Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 247, 95 S.Ct. 1612, 1616, 44 L.Ed.2d 141 (1975). Section 2202 of the Federal DJA provides that "[f]urther necessary or proper relief based on a declaratory judgment or decree may be granted ... against any adverse party whose rights have been determined by such judgment." As this court has noted, however, § 2202 of the Federal DJA "does not by itself provide statutory authority to award attorney's fees that would not otherwise be available under state law in a diversity action." Mercantile Nat'l Bank v. Bradford Trust Co., 850 F.2d 215, 218 (5th Cir.1988). Furthermore, the "otherwise ... available" state law in a diversity case must be substantive, for Mercantile explicitly stated that an award of attorney's fees in a federal declaratory judgment action "is confined to two situations: (i) where, under the restrictive American rule, attorney's fees are allowed; and (ii) where controlling substantive law permits recovery." Id. at 216 (emphasis added).

The Mitchell defendants rely on the § 37.009 of the Texas DJA to authorize recovery of attorney's fees. Although the Texas DJA expressly provides for attorney's fees, it functions solely as a procedural mechanism for resolving substantive "controversies which are already within the jurisdiction of the courts." Housing Authority v. Valdez, 841 S.W.2d 860, 864 (Tex.App.--Corpus Christi 1992, writ denied). Unlike substantive law, however, Texas procedure does not govern this diversity action. See Gasperini v. Center for Humanities, Inc., 518 U.S. 415, ----, 116 S.Ct. 2211, 2219, 135 L.Ed.2d 659 (1996) (observing that "[u]nder the Erie doctrine, federal courts sitting in diversity apply state substantive law and federal procedural law").

This court specifically noted in Self-Insurance Institute of America, Inc. v. Korioth, 53 F.3d 694 (5th Cir.1995) that although "a party may recover fees in a federal declaratory judgment action where 'controlling substantive law' permits such recovery," "[t]he Texas DJA is neither substantive nor controlling." Id. at 697 (internal citation omitted). Though jurisdiction in Korioth...