1 Chief Judge of the Eastern District of Texas, sitting by

designation. United States Court of Appeals,

Fifth Circuit.

No. 91–8593.

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.

Oct. 28, 1992.

Appeal from the United States District Court for the Western

District of Texas.

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

DUHÉ, 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 sol e 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 belongto the pool as a condition of doing business in the s t ate.

Tex.Ins.Code Ann. art. 21.49 § 4(a) (Wes t 1981). The pool must

write "windstorm, hail and fire insurance" in designated parts of

the state. I d. § 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 fund ed 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.

A ccording to the statute that created it, CATPOOL is run

according to a plan of operation adopted in a rulemaking procedure

by the Stat e Board of Insurance with the advice of the CATPOOL

board of directors. I d. § 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

t he State Insurance Board. I d. § 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 proclai med: "The association [CATPOOL] is a state

agency for p urposes 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 otherstate 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 in surance

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 gua ranteed 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 subs tantial 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 injun ction might cause to the

opponent; and (4) that the injunction will not disserve the public

i nterest." A

pple 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 gene ral has not disputed the district court's

h oldings on the issues of irreparable harm, the public intere st,

and relative lack of harm to the attorney general. Having reviewed2 Cf. U.S. Const. amend. VI ("In all criminal prosecutions,

the accused shall enjoy the right ... to have the assistance of

counsel for his defence.") (emphasis added). 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 Legisla ture 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 t he Constitution specifically say that a state

cannot deprive persons of counsel in civil trials, 2 but a number of

cases address the question. S ee, e.g., McCuin v. Texas Power &

Light Co., 714 F.2d 1255, 1262–65 (5th Cir.19 83); Mosley v. St.

Louis Sw. Ry., 63 4 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 (5th3 Powell, 287 U.S. at 50, 53 S.Ct. at 57.

4 The district court based its decision on the Fifth

Amendment, but that error is harmless. Cir.), cert. denied, 449 U.S. 820, 101 S.Ct. 78, 66 L.Ed.2d 22

(1980); a ccord 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)). B ut 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 sta te 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 P owell 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. P otashnick, 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 constitutional5 Mosley, 634 F.2d at 946.

6 McCuin, 714 F.2d at 1262.

7 E.g., Appellant's Br. at 23–24. dimensions and should be freely exercised without impingement," 5

the right is not absolute. M cCuin, 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 whet her CATPOOLholds this right. A state agency has no constitutional rights to

assert against the state of which it is a part. B oard 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 predic ated on the

concept that state agencies generally, if not always, are parts of

the state itself. The parties have expended many pages on the

question of whether CATPOOL is a "state agency." The more

appropriate question is whether CATPOOL is part of the state. For

if CATPOOL be a part of the sta te, it cannot make any

constitutional claims against the state; the agency and the state

would be one and the same thing.

State government, as it may be conceived for our present

purposes, is a great compendium of powers. It may make laws

governing a vast array of activities, as is evidenced by the

shelves filled with state statutes on myriad subjects. Sometimes,

for the sake of convenience, a state will squeeze off some of this

power to a political subdivision that it has creat ed, such as a

municipality or a levee board. Then that smaller state entity—that8 City of Trenton v. New Jersey, 262 U.S. 182, 185, 43 S.Ct.

534, 536, 67 L.Ed. 937 (1923).

9 Town of Mount Pleasant v. Beckwith, 100 U.S. 514, 524, 25

L.Ed. 699 (1880).

10 City of Pawhuska v. Pawhuska Oil & Gas Co., 250 U.S. 394,

398, 39 S.Ct. 526, 528, 63 L.Ed. 1054 (1919).

11 U.S. Const. art. I, § 10. "po litical subdivision" 8 or "auxiliar[y]" 9 or "arm[ ]" 10 of the

state—takes charge of the function assigned to it and exercises the

power delegated to it.

Thus a levee board may expropriate land and develop a levee

system, using the power of expropriation and development that was

delegated by the state when the state created the levee board. The

expropriated land belongs to the state because the levee board that

took it is part of the state. H uls, 852 F.2d at 143. If the state

then decides that the land should no longer be in the charge of the

levee board but should be transferred to the park service, no

constitutional claim arises. It is the state's land, and the state

can m ove the land from one part of itself to another. A federal

court would not entertain a suit by the levee board against the

state, for "[t]o allow [such a] suit would be to allow the state to

sue the state over state land." Id.

Similarly , a private company that holds rights granted by a

state may assert a contract clause 11 claim if the state i mpinges

upon that contract. If the same company conveys its rights to a

municipality, however, and the state then impinges on the

municipality's rights, no federal cou rt will entertain the suit.

City of Trenton v. New Jersey, 262 U.S. 182, 43 S.Ct. 534, 67 L.Ed.937 (1923). As Chief Justice Marshall first stated the principle

that a part of the state may not sue the state under the federal

constitution:

If the act of incorporation be a grant of political power, if

it create a civil institution to be employed in the

adminis tration of the government, or if the funds ... be

public property, or if the state

..., as a government, be

alone interested in its transactions, the su bject is one in

which the legislature of the state may act according to its

own judgment, u nrestrained by any limitation of its power

imposed by the constitution of the United States.

Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518,

629–30, 4 L.Ed. 629 (1819).

The relevant inquiry, then, is one of identity: the material

question is whether CATPOOL is a part of the state. The district

court held that CATPOOL is not a part of the state, and we agree.

If CATPOOL makes a profit, that money does not go to the state.

Although some profits are used to purchase reinsurance, the member

comp anies may receive distributions from profits. Tex.Ins.Code

Ann. art. 21.49, § 5(b) (West Supp.1992). If losses exceed

premiums, the member companies are assess ed, not the public

treasury. S ee id. When CATPOOL loses, the bank accounts of its

members are depleted, not the public treasury. The fact that

losses are subsidized in part through the allowance of tax credits

does not eliminate the risk to the private entities' capital. When

CATPOOL wins, the bank accounts of its members may be augmented,

not the public treasury. Hypothetically, if CATPOOL's lawyer is

incompetent or disloyal, the members, w ho are private companies,

lose money, not the public treasury.

That the state holds, and exercises, the coercive p ower to

force p rivate insurers doing business in Texas to cover certain12 This power is not disputed in this suit, and we assume

that the state does hold such a power for purposes of this

decision. We express no opinion on the validity of such a power.

13 The attorney general argues that CATPOOL "serves as an

integral part of the State [Insurance] Board's administrative

process for claims." Appellant's Reply Br. at 6. Administration

and processing of claims, even when done pursuant to the State

Insurance Board's process, hardly makes this an agency involved

"in the administration of the government." risks 12 does not mean that the money coming out of the companies'

bank accounts is state money. It is private money directed to pay

private claims. Indeed, the amount of money paid on individual

claims depends on its attorneys' successfully advancing their

positions. The act creating CATPOOL is not "a grant of political

power," as in the case of a municipality or other political

subdivision; CATPOOL is not "employed in the administration of the

government"; 13 and the funds that will be used if counsel is

incompetent or disloyal come from the accounts of private

companies, where that money could remain if it were protected by

counsel. In short, the State of Texas is not alone interested in

the assets of CATPOOL. See Dartmouth College, 17 U.S. (4 Wheat.)

at 629–30. Rather, the member companies are vitally interested in

protecting their private monies, and the State of Texas cannot

deprive those companies of the rights guaranteed themby the

Constitution of the United States to protect their private

property.

We hasten to recognize that a state has extremely broad powers

to legislate for the welfare of those in the state. The State of

Texas indeed has the power to create a state agency that is truly

a part of the state—like the State Insurance Board—and fund that14 See supra Part III.

agency by burdensome taxes against insurers doing business in

Texas. It could require that agency to rely solely on the services

of the attorney general. Because private money is at risk through

CATPOOL, the legislature has not created such an agency in CATPOOL.

The state can deprive itself of any constitutional rights, as it

deems wise, but it cannot prevent private insurers from protecting

their own money with retained counsel of their choice.

We conclude t hat CATPOOL holds the right to counsel, as

explained above. S ee supra section III.A. The recent amendment to

the CATPOOL statute has deprived CATPOOL and its member insurers of

t hat right, and the district court was correct to hold tha t the

Plaintiffs have a substantial likelihood of success on the merits.

IV.

The attorney general has also challenged the standing of the

Plaintiffs. Article III of the Constitution requires a plaintiff

to "show that he personally has suffered so me actual or

threatened injury as a result of the putatively illegal

conduct of the defendant," Gladstone, Realtors v. Village of

Bellwood, 441 U.S. 91, 99, 99 S.Ct. 1601, 1608, 60 L.Ed.2d 66

(1979), and that the injury "fairly can be traced to the

challenged action" and "is likely to be redressed by a

favorable decision," Simon v. Eastern Kentucky Welfare Rights

O rg., 426 U.S. 26, 38, 41, 96 S.Ct. 1917, 1924, 1925, 48

L.Ed.2d 450 (1976).

Valley Forge Christian College v. Americans United for Separation

of Church & State, Inc., 454 U.S. 464, 472, 102 S.Ct. 752, 758, 70

L.Ed.2d 700 (1982). As should be apparent from the preceding

discussion, 14 CATPOOL and its member insurers stand to lose a

constitutionally guaranteed right if section 12A is enforced. If

the adjudicating court issues the injunction that the Plaintiffs1 It is fundamental that state entities and political

subdivisions have no due process or other rights to sue the state

creating and sustaining them. See generally Williams v. Mayor

and City Council of Baltimore, 289 U.S. 36, 53 S.Ct. 431, 77

L.Ed. 1015 (1933); City of Trenton v. State of New Jersey, 262 seek, the State of Texas will be unable to enforce th e new

amendment and the Plaintiffs' injury will be relieved. The

Plaintiffs have shown standing.

We are puzzled by the attorney general's argument that CATPOOL

itself (as distinct from its member companies) has no standing

because it did not adequately comply with the Texas Open Meetings

Act. S ee Tex.Ins.Code Ann. art. 21.49, § 5(k) (West Supp.1992)

(requiring notice of meetings to be g iven according to

Tex.Rev.Civ.Stat.Ann. art. 6252–17 (West Supp.1992)). Standing is

determined according to the crite ria set out in the previous

paragraph, and CATPOOL has met those standards. The attorney

general may have some cause of action under state law if he is

correct in arguing that CATPOOL ina dequately complied with its

notice obligations, but we discern no standing issue.

V.

For the foregoing reasons, the judgment of the district court

is

AFFIRMED.

ROBERT M. PARKER, District Judge, dissenting:

I agree with the majority opinion that the central question in

this Section 1983 suit is whether CATPOOL is a part of the State of

Texas, because a part of a state cannot assert constitutional

rights against that state. 1 But beyond this point, I must partU.S. 182, 43 S.Ct. 534, 67 L.Ed. 937 (1923); Board of Levee

Commissioners of the Orleans Levee Board v. Huls, 852 F.2d 140,

143 (5th Cir.1988). from my colleagues.

The majority opinion attempts to distinguish CATPOOL from the

agency auxilia ries to which the majority recognizes a state may

delegate powers and functions, on the ground that CATPOOL's member

companies risk the loss of their own, private funds, and enjoy the

possibility of private profit, or "augmentation." At oral

argument, Appellees characterized CA TPOOL as a group of private

insurers protecting their private pocketbooks. I write in dissent

because I do not agree that the money at risk is the "private"

money of the CATPOOL member companies, and because the undisputed

facts before the Court establish that CATPOOL is indeed a part of

the State of Texas. Because CATPOOL's member companies cannot

satisfy their burden with respect to the issuance of a preliminary

injunction in this case, I would hold that the district court judge

erred in granting them the injunction at issue. S ee Canal

Authority v. Callaway, 489 F.2d 567, 572 (5 th Cir.1974)

(preliminary injunction can be granted only when the district court

has found "a substantial likelihood that plaintiff will prevail on

the merits.") (emphasis added).

I. CATPOOL: State Entity

The majority opinion re cognizes that the Texas Legislature

could create a public insurance entity that is a part of the State,

fund it by taxing insurers, and require it to rely solely on the

services of the Attorney General. The Texas Legislature has done

just that in clear and unambiguous language in the CatastrophicProperty Insurance Pool statute. CATPOOL is a creature of state

statute. R owden v. Texas Catastrophe Prop. Ins. Ass'n, 677 S.W.2d

83, 90 (Tex.App.—Corpus Christi 1984, writ ref'd n.r.e.). The

CATPOOL legislation indicates that CA TPOOL is indeed "a part of"

the State of Texas. As the majority notes: CATPOOL was created by

the Texas Legislature to provide windstorm an d hail insurance to

homes and businesses in the fourteen Texas counties along the Gulf

Coast; the Texas Legislature created CATPOOL in 1971 to provide

this windstorm and hail insurance. Prior to the emergence of the

CATPOOL legislation, these areas of Texas were not insurable;

private insurers in t he pre-CATPOOL market were disinclined to

insure such high-hurric ane risk property. In short: the

Legislature intended CATPOOL to pro mote the public interest by

protecting the economic security of Texas citizens along the coast

(by insuring their homes and businesses), and by promoting economic

growth and development along the Texas coast. S ee generally

Rowden, id.

CATPOOL is funded through the coercive power of the State of

Texas. Insurance companies doing business in Texas are compelled

to be members of CATPOOL in order to be licensed by the State to

sell insurance. Tex.Ins.Code Ann. art. 21.49, § 4(a) (West 1989).

CATPOOL's public purpose is evide nt from its character as an

auxiliary of the State Board of Insurance. As the majority

appreciates:

Sometimes, for the sake of convenience, a state will squeeze

off some of [its great compendium of powers] to a political

subdivision that it has created, such as a municipality or a

levee board. Then that smaller state entity—that "political

subdivision" or "auxiliar[y]"[ ] or "arm[ ]"[ ] of the

state—takes charge of the function assign ed to it andexercises the power delegated to it.

But the majority fails to recognize that, because CATPOOL operates

as a necessary arm of the State Board of Insurance—itself an

auxiliary of the State of Texas—CATPO OL is a State entity; that

is, CATPOOL is "a part of the State " for purposes of

constitutional analysis.

The circumstances of this case do sa tisfy the explanatory

hypothetical posited by the majority. If the State of Texas

decides, as it has, that the f unds assessed against CATPOOL's

member companies should be assessed by way of the State Board of

Insurance-controlled CATPOOL scheme—as opposed to an arguably less

efficient scheme operated throug h the State Board of Insurance,

proper—no constitutional claim arises. It is the State's

money—obtained by force of the State's coercive power—and the State

can move the money from one part of itself to another ( i.e., from

the State Board of Insurance, which sets the assessments, to the

State Board of Insu r ance-controlled CATPOOL). Such an

administrative decision is for the State to make. As a matter of

fundamental constitutional principle (federalism), a federal court

should avoid wedging itself into such decisions.

The CATPOOL Legislation

The Texas Legislature, in creating CATPOOL, granted political

power to this entity of its own creation. In essence, CATPOOL is

a legislatively created, civil institution to be empl oyed in the

administration of Texas government. It is clear to me that Texas'

CATPOOL scheme falls on the state side of the federalism markings

left by Chief Justice Marshall in 1819. S ee Trustees of DartmouthCollege v. Woodward, 17 U.S. (4 Wheat.) 518, 629–630, 4 L.Ed. 624

(1819) (" If the act of incorporation be a grant of political power,

if it create a civil institution, to be employed in the

administration of the government, or if the funds

... be public

property, ... the subject is one in which the legislature of the

state may act according to its own judgment, unrestrained by any

limitation of its power imposed by the constitution of the United

States.").

In addition to setting the assessments imposed involuntarily

upon CATPOOL's member companies, the State Board of Insurance sets

insurance premium rates. Wind and hailstorm losses and expenses

incurred by CATPOOL are primarily covered by dollars collec ted

thr ough the State Board of Insurance-set premiums p aid by the

insured persons of Texas. The district court found that the

maximum amount of premiums collected during a single year by

CATPOOL is $21 million. But, as the district court found yet

failed to appreciate: any time premiums exceed losses in a given

year, those excess dollars are used to purchase reinsurance to

c over loss exposure for possible future-year losses in excess of

premiums. If ever such losses and expenses exceed CATPOOL's

premium and reinsurance funds, the CATPOOL member companies are

assessed so that CATPOOL can cover the losses and expenses under

such circumstances. The companies are assessed in amounts

proportionate to the amount of busi ness they respectively wrote

during the previous year.

The State Board of Insurance has complete authority to adopt,

revise and amend CATPOOL's plan of operation, and CATPOOL's Board2 In contrast, a state-regulated private corporation's Board

of Directors is responsible to the corporation's private

shareholders, not to the State. Accordingly, a private

corporation's primary duty is private-interested, not

public-interested: the private corporation's primary task is to

earn private profit for its shareholders (within the bounds of

public-interested regulations). of Directors is responsible and accountable to the State Board of

Insurance. Tex.Ins.Code Ann. art. 21.49 §§ 4 and 5 (Vernon

Supp.19 92). Indeed, CATPOOL's plan of operation ( i .e., its

by- laws) must be adopted by the State Board as an a gency rule.

Tex.Ins.Code Ann. art. 21 .49, § 5(c) (Vernon Supp.1992). Thus,

CATPOOL is completely controlled by the State Board of Insurance,

not simply regulated by it. 2

CATPOOL performs administrative functions; CATPOOL serves as

an integral part of the S tate Board's administrative process for

claims. For example, the CATPOOL Act provides that claims are

first determined by CATPOOL, whos e decisions, considered "agency

order [s]," are appealable to the State Board. Tex.Ins.Code Ann.

art. 21.49, § 9 (Vernon Supp.1992). Texas Catastrophe Prop. Ins.

Ass'n v. Mill er, 625 S.W.2d 343, 346 (Tex.Civ.App.—Houston [14th

Dist.] 1981, writ dism'd); s ee also Rowden v. Texas Catastrophe

Prop. Ins. Ass'n, 677 S.W.2d 83, 89 (Tex.App.—Corpus Christi 1984,

writ ref'd n.r.e.). Functions like those exercised by CATPOOL are

delegated by the Texas Legislature to state administrative bodies

to further public purposes; they are not granted to private

entities representing private interests. B eacon National Insurance

Co. v. State Board of Insurance, 582 S.W.2d 616, 618–619

(Tex.Civ.App.—Austin 1979, writ ref'd n.r.e.). Indeed, the Texas

Supreme Court has construed the administrative process involving3 Of course, the Legislature may waive sovereign immunity

whenever it chooses. And the Texas Legislature did just that in

September, 1991, relative to one aspect of CATPOOL's sovereign

immunity. Until September, 1991, CATPOOL, unlike private

insurers, was immune to "bad faith" lawsuits under Article 21.21

of the Texas Insurance Code. See Leisure Services, Inc. v. Texas

Catastrophe Property Insurance Association, 712 S.W.2d 266,

267–268 (Tex.App.—Austin 1986, writ ref'd n.r.e.). Unhappy with

CATPOOL's treatment of insureds, the Legislature amended the Act

to apply Article 21.21 to CATPOOL. The fact emphasized by the

majority, that "[s]ince its creation, CATPOOL has employed its

own private legal counsel," is one properly understood in the

light of this sovereign power of waiver. (This counsel-waiver the State Board and its auxiliary, CATPOOL, as one "administrative

body." T exas Catastrophe Prop. Ins. Ass'n v. Council of Co–Owners

of Saida II Towers Condominium Ass'n, et al., 706 S.W.2d 644,

645–646 (Tex.1986).

Other provisions of the CATPOOL Act indicate that CATPOOL is

a state entity. First, CATPOOL is explicitly subject to the Texas

Open Meetings Act, which Act applies only to governmental bodies.

Tex.Ins.Code Ann. art. 21.49, § 5(k) (Vernon Supp.1992).

Tex.Rev.Civ.Stat.Ann. art. 6252–17, § 1(c) (Vernon Supp.1992). No

private entities are subject to the Texas Open Meetings Act, whose

purpose in fact is to "enable public access to and to increase

public knowledge of government decisionmaking." C ity of San

Antonio v. Fourth Court of Appeals, 820 S.W.2d 762, 765 (Tex.1991).

The Act also provides CATPOOL immunity from liability in some

circumstances. Basically, CATPOOL enjoys immunity for property

inspections and statements made at administrative hearings.

Tex.Ins.Code Ann. art. 21.49, § 10 (West 1989). Immunity from

liability is an attribute of a sovereign. S ee e.g., Stout v. Grand

Prairie Independent Schoo l District, 733 S.W.2d 290, 297

(Tex.App.—Dallas 1987, writ ref'd n.r.e.). 3fact is also, I think, properly understood as partially a

pragmatic product of the State's fiscal concerns.)

4 The other, more fundamental part of CATPOOL's funds comes

by way of the premiums set by the State Board of Insurance and

paid by the insured persons of Texas. Finally, the Texas Legislature has specified, in the statutory

amendment at the center of this case, that CATPOOL is a "state

agency for purposes of employing or au thorizing 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." Tex.Ins.Code Ann. art.

21.49, § 12A (Vernon Supp.1992).

II. CATPOOL Funds, Private and Public Interests: The Proper

Perspective

The majority, like the dist r ict court, misapprehends the

CATPOOL scheme so as to imagine due process-violative takings from

private pocketbooks when such deprivation is not in fact happening.

This is where the majority, like the district court before it,

appears to have lost its way.

True, CATPOOL is funded in part through State-coerced

ass essments against all Texas insurance companies. 4 Texas courts

have held that similar assessments amount to Sta te taxes, and

accordingly, have upheld them— i.e., because they are "imposed upon

and extracted from producers by governmental authority for a public

purpose. " C onlen Grain and Mercantile, Inc. v. Texas Grain Sorghum

Producers Board, 519 S.W.2d 620, 623 (Tex.1975) (emphasis added).

See also Friedman v. American Surety Co. of New York, 137 Tex. 149,

151 S.W.2d 570, 577 (1941). It is, then, irrelevant whether

CATPOOL receives money from the State Treasury o r directly fromprivat e sources conscripted for a special public purpose.

Governmental funds always come from private sources. Ultimately,

C ATPOOL's funds are S tate funds, because they are raised through

the State's coercive power for public purposes. Thus, in this

respect too, Texas' CATPOOL scheme fits within Chief Justice

Marshall's Dartmouth College paradigm. See Trustees of Dartmouth

College v. Woodward, 17 U.S. (4 Wheat.) 518, 629–630, 4 L.Ed. 629

(1819) ("If the act of incorporation be a grant of political power,

if it create a civil institution, to be employed in the

administration of the government, or if the funds

... be public

property,

... the subject is one in which the legislature of the

state may act according to its own judgment, unrestrained by any

limitation of its power imposed by the constitution of the United

States.").

Moreover, while it is possi ble that CATPOOL's losses in any

catas trophe year might exceed the then current amount of

premiums-derived money in CATPOOL's coffer—so that the members will

have to pay at once the difference—the private pocketbooks of the

CATPOOL member companies are ultimately protected in various ways.

First, excess money from year to year, derived from the members'

selling of insurance premiums, is invested by CATP OOL; CATPOOL

uses such profits to purchase reinsurance—i.e., to cover the costs

associated with the expected major wind and hailstorm catastrophes

of the future. Second, there is a scheme of tax credits in place

to compensate companies paying any "excess" (damage claim)

assessments in any year ( i.e., when the reinsurance money in any

"catastrophe year" is not then sufficient to cover the costs of thecatastrophe).

It is , finally, important to realize the following. The

insurance companies comprising CATPOOL's membership are not forced

to do business in Texas. They choose to operate their businesses

in the Texas insurance market. Membership in CATPOOL, and all that

such membership entails, is simply a business person's calculated

cost or condition of operating an insurance business in Texas. If

the State Board of Insurance failed to set premiums at a rate

affording insurance companies the ability to operate at a

profit— i.e., at a rate overcoming the business cost associated with

potential CATPOOL assessments—these companies would soon disappear

from the Texas landscape.

In sum: the State of Texas has a substantial interest in

making sure CATPOOL's member companies are not assessed so often or

t o such an extent that they lose money. Texas protects this

interest primarily through her insurance-specialist alter ego, the

State Board of Insurance—which sets the rates of the insurance

premiums: (1) CATPOOL's member companies sell, and (2) comprising

the primary source of funds to which State Board of

Insurance-auxiliary, CATPOOL, turns i n order to cover losses and

expenses associated with wind and hailstorm catastrophes along the

Texas Gulf Coast. Texas supplements the protection of her interest

in attracting and accommodating private insurance companies through

a tax credit scheme, which scheme ameliorates the impact of any

assessments CATPOOL must make against its members.

The majority, like the district court, focuses (1) on the fact

that CATPOOL currently carries but $137 m illion worth of5 Tex.Ins.Code Ann. art. 21.49 § 9 (Vernon Supp.1992).

reinsurance (while an "average CAT. 4" hurricane hitting the Texas

Coast would evidently generate $1 billion worth of damage claims);

and (2) on the fact that a CATPOOL member company can only credit

20% of a loss per tax year under the CATPOOL tax credit scheme. In

so circumscribing its vision, the majority, like the district

court, freezes aspects of the CATPOOL funding scheme in time and

out of context so as to misconstrue the CATPOOL funding scheme's

true, holistic nature.

Additionally, to the extent the private CATPOOL-member

companies feel the need to employ their own counsel to protect

their peculiar interests within the administrative scheme created

by the Texas Legislature, they may do so. The CATPOOL Act itself

recognizes this through its authorization that: (1) "any affected

insurer who may be aggrieved by any act, ruling or decision of the

Association [CATPOOL]

... [to] appeal to the commissioner [of

Insurance]," and (2) any "person aggrieved by any order or decision

of the commissioner" to appeal to a District Court in Travis

County, Texas....". 5

III. Conclusion

CATPOOL would have no existence and no funds if it were not

for the State's coerciv e power. And the private interests

implicated by the CATPOOL legislation appear insi g nificant in

comparison to the enormous public interests at stake. The Texas

Legislature operated within its authority when it amended the

CATPOOL statute so as to explicitly designate the Attorney General

of Texas as CATPOOL's representative. Because I find the districtcourt's preliminary injunction analysis clearly erroneous—in terms

of its evaluation of the essential nature of CATPOOL—and offensive

to our country's constitutional scheme of federalism, I would

reverse.

I respectfully dissent.