1

Plaintiffs originally brought suit against Allstate in the 298th Judicial District Court of Dallas County

on December 22, 2003. Allstate removed the state court action to this court on diversity grounds on January

29, 2004. 

Memorandum Opinion and Order – Page 1

IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

GEORGE VEAZEY and §

STEPHANNIE MOWER, §

§

Plaintiffs, §

§

v. § Civil Action No. 3:04-CV-182-L

§

ALLSTATE TEXAS LLOYDS, §

§

Defendant. §

MEMORANDUM OPINION AND ORDER

Before the court are two cross motions for summary judgment: Defendant’s Motion for

Summary Judgment, filed December 19, 2005, and Plaintiffs’ Motion for Summary Judgment, filed

March 10, 2006. After careful consideration of the motions, briefs in support, responses, replies,

summary judgment evidence, record and applicable law, the court grants Defendant’s Motion for

Summary Judgment and denies Plaintiffs’ Motion for Summary Judgment.

I. BACKGROUND

This is a declaratory judgment action filed by insureds George Veazey and Stephannie

Mower (“Plaintiffs” or “insureds”) against their insurance company, Defendant Allstate Texas

Lloyds (“Allstate”). Plaintiffs seek a declaration that Allstate had no right, as Plaintiffs’ subrogee,

to enter into a settlement agreement with a third-party tortfeasor before Plaintiffs could recover for

all of their losses following a house fire. Plaintiffs’ Original Petition for Declaratory Judgment &

Request for Disclosure (“Complaint”) at 6.1

 Plaintiffs contend that, because they were not “made

 

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Upon transfer, the civil action was assigned cause number 3:02-CV-1297-K. Separately, Allstate

had filed its own product liability action as Plaintiffs’ subrogee against the same Toyota Defendants in state

court in the 191st Judicial District Court in Dallas County, but voluntarily dismissed the state court suit when

it decided to intervene in the federal court action initiated by Plaintiffs. See Def. Br. at 6. 

Memorandum Opinion and Order – Page 2

whole” under Texas law in their settlement with the tortfeasor, Allstate is not entitled to subrogation,

and must turn over all money it received from the tortfeasor in its own settlement as a subrogee. Id.

The parties agree that no genuine issue of a material fact exists in this dispute, only the application

of law to these facts. See Brief in Support of Defendant’s Motion (“Def. Br.”) at 5-7; see also

Plaintiffs’ Brief in Support of Motion for Summary Judgment (“Pls. Br.”) at 2-4, 6 (“Plaintiffs do

not now, nor have they ever, denied that Allstate had a contractual right of subrogation. The issue

is not ‘whether.’” The issue is ‘when.’”). Thus, the court will summarize the material facts as they

appear in both parties’ filings and provide citations only when referencing specific information as

it appears in a particular filing. 

On July 21, 2001, a suspected defect in Plaintiffs’ Lexus automobile caused it to catch fire

in the middle of the night. The fire spread to Plaintiffs’ house and damaged much of the house and

their personal property, which were insured by Allstate. Allstate paid Plaintiffs the limits of the

policy for the damages to the house and their personal property, and for living expenses, a total of

$1,375,523. Plaintiffs, however, claimed damages totaling $9,090,382.79, and filed a product

liability lawsuit against manufacturer Toyota Motor Sales, U.S.A., and other entities (collectively,

“Toyota”) on January 18, 2002, in the United States District Court for the Eastern District of Texas,

Marshall Division. Upon Toyota’s motion, the case was transferred to the Northern District of

Texas, Dallas Division, whereupon Allstate intervened as Plaintiffs’ subrogee.2

 On December 30,

2002, Allstate settled its subrogation claim with Toyota in a Confidential Settlement Agreement,

 

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The parties have requested that settlement documents be placed under seal; however, the $900,000

and the $1,375,523 figures are already in the public domain in unsealed court records. Accordingly, the court

sees no reason to seal this information. The court, however, places under seal the amount for which Plaintiffs

and Toyota settled, and such information is not included in this opinion. Moreover, the court has found it

necessary to quote from limited portions of the settlement agreement to write this opinion, and, by doing so,

hereby modifies any previous order placing certain documents under seal.

Memorandum Opinion and Order – Page 3

Release and Assignment of Claims for $900,000.3 See Appendix to Plaintiffs’ Motion for Summary

Judgment, Exhibit 5 (“Pls. App.” Ex. 5) at 7. The agreement specifically states that Allstate had

a “valid and assignable right to subrogation,” to the extent of its $1,375,523 in payments to

Plaintiffs, but accepted the $900,000 payment from Toyota in “full and final satisfaction of all

claims for damages and litigation expenses.” Id. at 5, 8. Allstate also assigned its subrogation rights

to the extent of its payments of $1,375,523 to Toyota. Id. at 17. In response, Plaintiffs filed a

Motion for Partial Summary Judgment on Validity of Assignment and Applicable Settlement Credit,

whereby Plaintiffs asserted that Toyota was not entitled to an assignment or settlement credit for the

full amount of Allstate’s subrogation claim, since Toyota only paid Allstate $900,000. Appendix

to Defendant Allstate Texas Lloyds’ Motion for Summary Judgment, Exhibit 12 (“Def. App.” Ex.

12) at 1-2. On July 31, 2003, before the court ruled on Plaintiffs’ motion, Plaintiffs entered into

their own Settlement Agreement and Release with Toyota. See Pl. App. Ex. 6. Plaintiffs’ settlement

acknowledges the $900,000 that Allstate had already accepted from Toyota, and states that:

[d]espite the fact that the Plaintiffs contend that they were not fully compensated for

damages Plaintiffs contend was a single, indivisible injury or that Plaintiffs contend

they were not made whole for their damages in this settlement, claims with which

[Toyota] disagrees, Plaintiffs will execute a release of Defendant and the other

released parties for all claims, causes of action or damages made the basis of the

incident in question, including claims related to Defendant’s previous settlement

with Allstate, in exchange for a payment of $_________ . . . . 

Id. at 2-3. The agreement also states that “nothing in this Agreement shall prohibit Plaintiffs from

filing a subsequent cause of action against Allstate as those rights, claims and causes of action are

 

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Allstate cites to the court order dated September 30, 2003, as the order that dismissed all remaining

parties and closed the case. Def. Br. at 7. This court’s independent review of the prior court’s records

reveals, however, that the September 30, 2003, Order to Nonsuit Cause with Prejudice granted an unnamed

“Plaintiff-Intervenor’s motion to nonsuit this case with prejudice,” likely in response to a motion filed five

days earlier by State Farm Mutual Auto, a separate subrogee of the Plaintiffs. The court could not find any

motion to dismiss or nonsuit filed by Allstate in the prior litigation.

Memorandum Opinion and Order – Page 4

specifically reserved.” Id. at 4. On August 11, 2003, upon a joint motion by Plaintiffs and Toyota,

the court entered an order of dismissal with prejudice on all of Plaintiffs’ claims. Allstate states that

the court entered an order to nonsuit with prejudice its claim as an intervening plaintiff on

September 30, 2003.4

 As previously stated, Plaintiffs filed the current lawsuit against Allstate in

state court on December 22, 2003, and Allstate removed the action to this court on January 29, 2004.

In Defendant’s Motion for Summary Judgment, Allstate argues that it is entitled to summary

judgment on three grounds: (1) Plaintiffs have misinterpreted the made-whole doctrine and cannot

apply it in this case; (2) even if the made-whole doctrine applies, Plaintiffs could have and should

have asserted their rights in the prior litigation and are barred by res judicata from now bringing this

claim; (3) even if Plaintiffs are not barred by res judicata, their failure to challenge Allstate’s

assertion of its subrogation interest until the filing of this lawsuit constitutes a waiver of their right

to such a challenge. Def. Br. at 8-15. Plaintiffs’ Motion for Summary Judgment essentially takes

the opposing view on all three of Allstate’s arguments. First, Plaintiffs contend that because they

have not fully recovered all of their damages from the fire, the made-whole doctrine prevents

Allstate from exercising its subrogation rights. Pls. Br. at 6-7. Second, Plaintiffs argue that they are

not barred by res judicata, since they had no standing to sue Allstate until their settlement with

Toyota failed to make them whole. Id. at 8-9. Finally, Plaintiffs assert that they had no legal duty

to object at the time of Allstate’s settlement with Toyota, and did not waive their right to now file

 

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Memorandum Opinion and Order – Page 5

this claim. Id. at 9. For the reasons stated below, the court disagrees with Plaintiffs, and determines

that it is appropriate to grant summary judgment in favor of Allstate.

II. LEGAL STANDARDS

A. Summary Judgment

Summary judgment shall be rendered when the pleadings, depositions, answers to

interrogatories and admissions on file, together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party is entitled to judgment as a matter

of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986); Ragas v. Tenn.

Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998). A dispute regarding a material fact is “genuine”

if the evidence is such that a reasonable jury could return a verdict in favor of the nonmoving party.

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When ruling on a motion for summary

judgment, the court is required to view all inferences drawn from the factual record in the light most

favorable to the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.

574, 587 (1986); Ragas, 136 F.3d at 458. Further, a court “may not make credibility determinations

or weigh the evidence” in ruling on a motion for summary judgment. Reeves v. Sanderson Plumbing

Prods., Inc., 530 U.S. 133, 150 (2000); Anderson, 477 U.S. at 254-55.

Once the moving party has made an initial showing that there is no evidence to support the

nonmoving party’s case, the party opposing the motion must come forth with competent summary

judgment evidence of the existence of a genuine fact issue. Matsushita, 475 U.S. at 586. Mere

conclusory allegations are not competent summary judgment evidence, and thus are insufficient to

defeat a motion for summary judgment. Eason v. Thaler, 73 F.3d 1322, 1325 (5th Cir. 1996).

Unsubstantiated assertions, improbable inferences and unsupported speculation are not competent

 

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Memorandum Opinion and Order – Page 6

summary judgment evidence. See Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir.), cert. denied, 513

U.S. 871 (1994). The party opposing summary judgment is required to identify specific evidence

in the record and to articulate to the precise manner in which that evidence supports his claim.

Ragas, 136 F.3d at 458. Rule 56 does not impose a duty on the court to “sift through the record in

search of evidence” to support the nomovant’s opposition to the motion for summary judgment. Id.;

see also Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 915-16 & n.7 (5th Cir.), cert. denied, 506 U.S.

832 (1992). “Only disputes over facts that might affect the outcome of the suit under the governing

laws will properly preclude the entry of summary judgment.” Anderson, 477 U.S. at 248. Disputed

issues which are “irrelevant and unnecessary” will not be considered by a court in ruling on a

summary judgment motion. Id. If the nonmoving party fails to make a showing sufficient to

establish the existence of an element essential to its case and on which it will bear the burden of

proof at trial, summary judgment must be granted. Celotex, 477 U.S. at 322-23.

B. Made-Whole Doctrine

With respect to the made-whole doctrine, as a general rule, under Texas law, “[a]n insurer

is not entitled to subrogation if the insured’s loss is in excess of the amounts recovered from the

insurer and the third party causing the loss.” Ortiz v. Great Southern Fire and Cas. Ins. Co., 597

S.W.2d 342, 343 (Tex. 1980) (internal citation omitted). Even when the insurer has a contractual

right to subrogation out of the first monies received by the insured, such reimbursement rights are

still subject to the equitable principles of the made-whole doctrine. Fortis Benefits v. Cantu, 170

S.W.3d 755, 758 (Tex. App.–Waco 2005, pet. granted Aug. 25, 2006). The idea behind the madewhole doctrine is that “when either the insurer or the insured must to some extent go unpaid, the loss

should be borne by the insurer for that is a risk the insured has paid it to assume.” Ortiz, 597 S.W.2d

 

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Memorandum Opinion and Order – Page 7

at 344. For the reasons set forth herein, the general rule regarding the made-whole doctrine does

not apply to the circumstances of this case.

C. Res Judicata 

The doctrine of res judicata prevents the relitigation of claims that have already been finally

adjudicated or that should have been litigated in a prior lawsuit. This doctrine applies when: (1)

there was a prior final judgment on the merits by a court of competent jurisdiction; (2) the prior

judgment was between identical parties or those in privity with them; and (3) there is a second action

based on the same claims as were raised or could have been raised in the first action. U.S. ex rel

Laird v. Lockheed Martin Eng’g and Sci. Servs. Co., 336 F.3d 346, 357 (5th Cir. 2003).

D. Waiver and Forfeiture

Allstate contends that the Plaintiffs’ failure to challenge Allstate’s assertion of its

subrogation interest until the filing of this lawsuit constitutes a waiver of their right to such a

challenge. Def. Br. at 11-12. Allstate has not used the term “forfeiture,” however, the court

addresses this term because the allegations and facts set forth by Allstate appear to more

appropriately reflect “forfeiture” rather than “waiver.” Waiver is the “intentional relinquishment

or abandonment of a known right,” while forfeiture is the “failure to make timely assertion of a

right.” United States v. Olano, 507 U.S. 725, 733 (1993) (internal citations omitted); Douglas v.

United Servs. Auto. Ass’n, 79 F.3d 1415, 1420 (5th Cir. 1996).

 

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The court does not reveal the exact amount Plaintiffs have recovered in settlement with Toyota,

because the amount is confidential and under seal.

Memorandum Opinion and Order – Page 8

III. DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

A. Made-Whole Doctrine

Plaintiffs assert that, because they have recovered more than $1,375,523 through settlement

and insurance payments, but less than the $9,090,382.79 they are seeking, they have not been made

whole.5 Pls. Mot. Summ. J. at 2. Therefore, Plaintiffs contend that “Allstate was not entitled to

collect on its subrogation claim and must now reimburse Plaintiffs the amount paid by Toyota to

Allstate in settlement, payments which Toyota would have otherwise paid to Plaintiffs.” Id. at 3.

 Plaintiffs make clear that they “do not now, nor have they ever, denied that Allstate had a

contractual right of subrogation.” Pl. Br. at 6. Plaintiffs, however, contend that Allstate had no right

to settle with Toyota first. Id. To support their contention, Plaintiffs cite to language from Texas

courts stating that “the insurer’s right of subrogation may not be exercised until the insured has been

made whole.” Id. (citing Ortiz, 597 S.W.2d at 343; Esparza v. Scott and White Health Plan, 909

S.W.2d 548, 552 (Tex. App.–Austin 1995, writ denied)) (emphasis added). Additionally, Texas

courts have stated that “[w]hile an insurance contract providing expressly for subrogation may

remove from the realm of equity the question of whether the insurer has a right to subrogation, it

cannot answer the question of when the insurer is actually entitled to subrogation or how much it

should receive.” Fortis, 170 S.W.3d at 758 (emphasis in original). 

The court agrees with Allstate that Plaintiffs “are attempting to mis-use [sic] the ‘made

whole’ doctrine, which is an equitable doctrine intended to apply where there are insufficient funds

to cover the insured’s damages.” Def. Br. at 13-14. No authority exists to support Plaintiffs’

position that until they recover 100 percent of their claimed damages, their insurer has no right to

 

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Memorandum Opinion and Order – Page 9

recover its subrogation claim directly from the third-party tortfeasor. Unlike other injured plaintiffs

who rely on the made-whole doctrine as a shield from their insurers’ reimbursement claims,

Plaintiffs are attempting to use the doctrine as a sword to extract a double recovery for payments

covering insured losses. The made-whole doctrine simply does not apply, as a matter of law, in the

manner in which Plaintiffs seek to use it in this case. 

In the only Texas Supreme Court case squarely addressing this issue, the court specifically

stated that there is no requirement that the amount recovered by an insured through insurance and

a third-party tortfeasor must exceed his total damages before the insurer is entitled to subrogation.

Ortiz, 597 S.W.2d at 344. In Ortiz, the insureds suffered more than $15,000 in damages to their

home after a negligent carpet installation caused a fire. Id. at 343. The Ortizes claimed at least

$4,000 in real property damages, which were covered by their insurance policy, and more than

$11,000 in personal property damages, which were not covered by their policy. Id. The insurer,

after paying the $4,000 claimed for real property damages, asserted a subrogation interest in that

amount from the Ortizes’ $10,000 settlement with the tortfeasor. Id. Plaintiffs’ reliance on language

from Ortiz that “a right to subrogation does not arise until the insured’s loss has been fully paid,”

id. at 344 (quoting Garrity v. Rural Mut. Ins. Co., 253 N.W.2d at 514 (Wis. 1977)), is misplaced.

A complete analysis of the Ortiz case shows that the Texas Supreme Court did not adopt the

Wisconsin holding, or hold that the Ortizes’ insurer had no right to subrogation because they had

not been made whole. The court explicitly stated, “[W]e are not holding that the amount recovered

by an insured from his insurer and a third-party tortfeasor must exceed the damages to both insured

and uninsured property before the insurer is entitled to subrogation.” Ortiz, 597 S.W.2d at 344

(emphasis added). Instead, the court held that

 

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The Settlement Agreement and Release that Plaintiffs negotiated with Toyota states that the

settlement payment “is not intended as compensation for punitive damages, loss of wages or loss of wage

Memorandum Opinion and Order – Page 10

[i]f any portion of the $10,000 settlement was intended as compensation for damages

to the insured real property, Great Southern, after a deduction of its share of the cost

of collection, would be entitled to subrogation to the extent that the sum of insurance

collected plus the amount allocated in the settlement agreement to real property

damage exceeded the Ortizes’ loss to their home.

Id. Thus, the court clearly holds that an insurer may be entitled to subrogation, even though the

insured has not been “made whole.” This holding comports with the equitable right of subrogation,

since, as the court noted, the idea “is to prevent the insured from receiving a double recovery.” Id.

at 343. In essence, the Texas Supreme Court held that recovery in tort for uninsured losses belongs

exclusively to the injured plaintiff, and that an insurer would only be entitled to subrogation for tort

payments intended to cover the insured losses for which the plaintiff has already been compensated.

In the Ortizes’ case, the $10,000 settlement could have been intended to cover only their uninsured

personal property damage, but the court noted that “it is unlikely that Great Southern would release

its claim against the third-party tortfeasor without some compensation.” Id. at 344. Ultimately, the

court held that the insurance company had the burden of showing “what amount, if any, of the

settlement agreement was allocated to the insured property loss,” since it was seeking the right of

reimbursement from its insured. Id.

In the present case, Plaintiffs are the ones seeking reimbursement from their insurance

company for the amount that Allstate recovered from Toyota in its subrogation settlement. Pls.

Mot. Summ. J. at 3. Accordingly, Plaintiffs bear the burden of showing what amount, if any, of

Allstate’s settlement agreement with Toyota was allocated to uninsured property loss, which

Plaintiffs have the exclusive right to recover under the made-whole doctrine. Plaintiffs have

provided no evidence on this issue.6

 Plaintiffs cannot provide any evidence suggesting that Toyota

 

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earning capacity.” Pls. App. Ex. 6 at 11. The amount for which Plaintiffs settled with Toyota is not allocated

toward any specific categories of damages.

Memorandum Opinion and Order – Page 11

paid Allstate for uninsured losses, since the basis of Allstate’s subrogation claim against Toyota was

for the insured losses that Allstate had already paid to Plaintiffs. Plaintiffs’ claim is simply

untenable, because Plaintiffs are, in essence, seeking to recover from their insurance company

payments exceeding the limits of their policy. Plaintiffs cite no authority for the proposition that

insureds who are not made whole may seek additional compensation from their insurer for damages

above and beyond the policy limits. Plaintiffs have also cited no authority supporting their

proposition that a duly subrogated insurer may not seek payment directly from the third-party

tortfeasor until after the insureds have recovered 100 percent of their insured and uninsured

damages. In fact, Texas appeals courts have held under similar circumstances that an insurer “had

the right to settle its subrogation claim with [the third-party tortfeasor] before trial,” and before the

insured plaintiff has settled her claim with the tortfeasor. See Brandon v. American Sterilizer Co.,

880 S.W.2d 488, 495 (Tex. App.–Austin 1994, no writ); see also Hartnett v. Hampton Inns, Inc.,

870 S.W.2d 162 (Tex. App.–San Antonio 1993, no writ) (holding that defendants were entitled to

offset the full amount of the insurer’s subrogation claim, which had been settled independently by

the insurer prior to trial). Additionally, the Brandon court concluded that the tortfeasor could offset

its liability to the insured plaintiff by the full amount of the insurer’s subrogation interest ($52,000),

rather than the lesser amount the tortfeasor paid to the insurer to settle the subrogation claim

($30,000). Id. The court rejected Brandon’s argument that granting the full amount as an offset

would amount to a $22,000 “windfall” for the tortfeasor, because the tortfeasor “was taking a risk

that it would lose that entire amount if Brandon did not prevail at trial.” Id. Additionally, the court

noted that since Brandon was obliged by statute to fully reimburse its insurer under the Texas

 

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Memorandum Opinion and Order – Page 12

Workers’ Compensation Act, she was not entitled to the $22,000 difference, as she claimed, because

“the Act was not intended to allow employees to receive a double recovery when pursuing both its

workers’ compensation claim and a claim against the third party tortfeasor.” Id. 

In this case, Plaintiffs have no entitlement to any payments Toyota has made for insured

damages already covered by Allstate, as that would amount to a double-recovery for those damages.

Plaintiffs are entitled only to payments for uninsured damages not previously compensated for by

Allstate. The more than $9 million in damages that Plaintiffs claim exceed the amount that they

have recovered through insurance and settlement. This circumstance, however, results from

Plaintiffs’ own choices and decisions about the amount of insurance they would carry on their

property and the amount they would accept from Toyota in settlement for their claims. As Texas

courts have explained, the made-whole doctrine grows from equitable principles, such as the belief

that “when either the insurer or the insured must to some extent go unpaid, the loss should be borne

by the insurer for that is a risk the insured has paid it to assume.” Ortiz, 597 S.W.2d at 344. Equity,

however, “is inextricably tied to facts,” and conflicts of interests in subrogation “cannot be resolved

by a bright-line test that curtails a trial court’s discretion to apply equity based on the facts of the

case.” Esparza, 909 S.W.2d at 553. If the made-whole doctrine is intended to equitably allocate

the risk of loss, Plaintiffs in this case chose to bear a tremendous risk of loss by carrying only $1.3

million worth of insurance on a property that would cost more than $9 million to restore if

destroyed. Allstate has paid Plaintiffs the limits of their policy and has not sought reimbursement

from them in subrogation. Furthermore, Plaintiffs’ willingness to settle with Toyota for an amount

that does not make them whole for their alleged damages indicates that Plaintiffs accepted the

payment as an equitable compromise to their claims after a deliberate and thorough evaluation of

 

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The court takes judicial notice that Plaintiffs settled with Toyota after the deadline for completion

of all discovery, after both parties had filed motions for summary judgment, and two weeks prior to the

scheduled trial date. See Mower v. Toyota Motor Sales, U.S.A., Inc., No. 3:02-CV-1297-K (N.D. Tex.,

Scheduling Order, April 7, 2003).

Memorandum Opinion and Order – Page 13

all relevant factors, such as the strength of their evidence, the cost of trial, and the likely amount of

recovery through a trial on the merits.7

 Ultimately, Plaintiffs have not shown that Toyota’s payment

to Allstate was intended to cover uninsured losses to which they have the exclusive right to recover;

nor have they shown that Allstate, by settling first with Toyota, impaired their ability to recover

more from Toyota for their uninsured losses. In short, Plaintiffs failed to raise a genuine issue of

a material fact on either of these grounds, and, therefore, Allstate is entitled to judgment as a matter

of law. Stated alternatively, the court agrees with Allstate that it is entitled to summary judgment

because the made-whole doctrine does not apply to the facts of this case. As the made-whole

doctrine does not apply to this case, this ground, alone, is sufficient for the court to grant

Defendant’s Motion for Summary Judgment; however, the court believes that res judicata and

waiver or forfeiture are alternative grounds to grant summary judgment.

B. Res Judicata

Allstate asserts that Plaintiffs could have and should have litigated the issue of whether

Allstate was entitled to subrogation in the prior federal lawsuit, and are now barred by res judicata

from bringing this claim. Def. Br. at 8–11. Plaintiffs agree with Allstate that the prior action

resulted in a final judgment rendered by a court of competent jurisdiction involving the same parties;

however, Plaintiffs contend that the third element of res judicata is absent, because the two suits

involve distinct causes of action. Plaintiffs’ Response to Defendant’s Motion for Summary

Judgment (“Pls. Resp.”) at 7-8. Specifically, Plaintiffs assert that the prior litigation arose from a

product liability claim, whereas the current action is based on Allstate’s alleged breach of the made-

 

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Memorandum Opinion and Order – Page 14

whole doctrine, although loosely couched as a breach of contract claim. Id. Plaintiffs further assert

that they had no standing to bring the current claim against Allstate until they learned that they

would not be made whole by their settlement with Toyota. Id. The court disagrees with Plaintiffs’

interpretation of the doctrine of res judicata and determines that Plaintiffs could have and should

have asserted their claim in the prior litigation.

Regarding res judicata, the parties agree that the first two elements are met. To determine

whether two lawsuits involve distinct or the same cause of action, the Fifth Circuit applies a

transactional test. Ellis v. Amex Life Ins. Co., 211 F.3d 935, 938 (5th Cir. 2000). The action are the

same if they arise out of the same transaction or series of transactions with the same “nucleus of

operative facts.” Id. In other words, a court must ask: “is the same right infringed by the same

wrong? Would a different judgment obtained in the second action impair rights under the first

judgment?” Neilsen v. City of Moss Point, Miss., 701 F.2d 556 (5th Cir. 1983). If so, res judicata

“prevents the relitigation of a claim or cause of action that has been finally adjudicated, as well as

related matters that, with the use of diligence, should have been litigated in the prior suit.” U.S. ex

rel Laird, 336 F.3d at 357. Here, a judgment against Allstate would impair the rights it acquired

under the first judgment. While Plaintiffs were suing Toyota on a products liability claim, Allstate

sued as an intervenor, and its entitlement to a final judgment in that action depended upon its right

to subrogate Plaintiffs’ claim. Plaintiffs assert that they do not dispute Allstate’s right to

subrogation, but to the timing of their settlement with Toyota. Pls. Br. at 6. Since Plaintiffs’

position relies on the premise that Allstate has no right to subrogate until after they have been “made

whole,” Plaintiffs could have and should have asserted this claim during the prior litigation when

Allstate and Toyota first reached their settlement.

 

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Memorandum Opinion and Order – Page 15

Plaintiffs also contend that they lacked standing to pursue such a claim until their own

settlement with Toyota failed to make them whole. Pls. Resp. at 8. The court disagrees. If Allstate

had no right to subrogate until Plaintiffs were made whole, Plaintiffs’ cause of action would arise

the moment Allstate settled with Toyota, because, under Plaintiffs’ theory, they would have already

suffered an injury in fact that could have been redressed by a favorable decision. Further, Plaintiffs

also allege that Allstate impaired their ability to recover from Toyota, because they “received less

from Toyota as a result of Toyota’s previous settlement with Allstate.” Pls. Br. at 4. If Allstate

impaired Plaintiffs’ ability to negotiate a favorable settlement by settling first, Plaintiffs could have

and should have asserted their claim during the prior federal litigation that Allstate had no right to

settle first. All parties’ rights and positions were clear before any entry of a final judgment in the

prior litigation, since Allstate settled with Toyota on December 30, 2002, and Plaintiffs settled with

Toyota on July 31, 2003, but the court did not enter orders to dismiss and nonsuit until August 11,

2003, and September 30, 2003, respectively. Thus, at the latest, the claims comprising Plaintiffs’

current cause of action should have been raised during the prior litigation when they realized and

were made aware on July 31, 2003, that they would allegedly not be made whole, and that Allstate

had already received a sum for its subrogation claim. Their current cause of action necessarily

qualifies as a “related matter that, with the use of diligence, should have been litigated in the prior

suit.” See U.S. ex rel Laird, 336 F.3d at 357. Accordingly, Allstate is entitled to summary judgment

because Plaintiffs’ claim is barred by res judicata.

C. Waiver

Finally, Allstate contends it is entitled to summary judgment because Plaintiffs waived their

right to dispute Allstate’s subrogation claims by failing to assert it sooner and engaging in conduct

 

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8

As the court pointed out in footnote 2, supra, Allstate had filed its own product liability action as

Plaintiffs’ subrogee against Toyota in state court, but voluntarily dismissed the state court suit when it

decided to intervene in the federal court action initiated by Plaintiffs. See Def. Br. at 6. 

Memorandum Opinion and Order – Page 16

inconsistent with their current claim. Def. Br. at 11. Specifically, Allstate asserts that Plaintiffs

never raised the made-whole doctrine during the prior federal court litigation, which lasted nine

months. Id. Additionally, when Allstate sued Toyota in state court, Toyota attempted to join

Plaintiffs in that state court action. Plaintiffs objected and specifically asserted that Allstate had a

right to independently seek subrogation in that state court lawsuit. Def. Br. at 11-12; Def. App. Ex.

13. 

In light of Plaintiffs’ past conduct, they have either waived or forfeited their right to now

complain about the timing and propriety of Allstate’s settlement with Toyota. In their effort to strike

Toyota’s claims against them as third-party defendants in Allstate’s state court action, Plaintiffs

argued that “[t]he insurer can assert its subrogation claim independently of the insured, even though

that claim is considered derivative of the insured’s claim.” Def. App. Ex. 13 at 3 (citing Prudential

Prop. and Cas. Co. v. Dow Chevrolet-Olds, Inc., 10 S.W.3d 97, 100 (Tex. App.–Texarkana 1999,

pet dism’d)). In the same motion, Plaintiffs further contended that: 

[a]ll of Allstate’s relief for the insured portions of the loss can be adjudicated in the

above-entitled and numbered cause without the necessity of George Veazey and

Stephannie Mower. . . . [A]ll of Allstate’s claims can be adjudicated and their ability

to protect their interest is not impeded by the absence of George Veazey.

Def. App. Ex. 13 at 5. As waiver is the intentional relinquishment or abandonment of a known

right, Plaintiffs demonstrated their intent to waive the current claim against Allstate by arguing in

the state court proceeding that Allstate had the right to pursue its subrogation claim independently

of them, and before they had been “made whole” through their own separate litigation against

Toyota.8

 In fact, Plaintiffs argued that Allstate and their own actions against Toyota could each

 

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Memorandum Opinion and Order – Page 17

proceed in state court and federal court independently of each other, “and present[ed] no risk to

Toyota being subjected to double recovery or impair[ed] any party’s right to protect their respective

interest.” Id. at 12. Such an argument shows Plaintiff’s relinquishment of any claim to payments

intended as reimbursement for insured losses. Accordingly, Plaintiffs, through their statements and

conduct, have waived the right to now assert a claim for reimbursement from Allstate.

Alternatively, plaintiffs forfeited the right to bring this claim by failing to timely assert it,

either as a third party defendant in Allstate’s state court action, or during the pendency of the prior

federal court action. Allstate reached its settlement with Toyota on December 30, 2002. Pls. App.

Ex. 5. Plaintiffs reached their own settlement with Toyota on July 31, 2003. Pls. App. Ex. 6. In the

time between the two settlements, on May 16, 2003, Plaintiffs, in the earlier federal lawsuit, filed

a Motion for Partial Summary Judgment on Validity of Assignment and Applicable Settlement

Credit. Def. App. Ex. 13. In the motion, Plaintiffs argued that Allstate’s assignment to Toyota of

its subrogation claims following their settlement should either be void as against public policy in

Texas, or should be limited to the $900,000 Toyota paid, rather than Allstate’s full $1.3 million

subrogation interest. Id. at 3-8. At no time did Plaintiffs suggest that Allstate had violated the

made-whole doctrine by settling before they did. Before the court in the prior federal case ruled on

Plaintiffs’ motion, they settled with Toyota and dismissed their action. Thus, Plaintiffs had the

opportunity to object to Allstate and Toyota’s settlement, but either failed or chose not to do so, and

also failed to assert their current claim in a timely manner. 

Plaintiffs argue that they did not waive their made-whole claim, because they had no

standing to bring the claim until their settlement with Toyota failed to make them whole. As the

court noted, Allstate and Plaintiffs settled with Toyota on December 30, 2002, and July 31, 2003,

 

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Memorandum Opinion and Order – Page 18

respectively, but the court did not enter orders to dismiss and nonsuit until August 11, 2003, and

September 30, 2003, respectively. If Plaintiffs believed that Toyota paid them too little for their

uninsured losses, or that Allstate received payment, in violation of the made-whole doctrine, for

uninsured losses that should have been paid first to them, they could have and should have raised

those matters between December 30, 2002 and September 30, 2003. Plaintiffs’ failure to timely

assert their claim constitutes a forfeiture of that claim.

IV. PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT

The court has determined that Defendant’s Motion for Summary Judgment should be

granted. In Plaintiffs’ Motion for Summary Judgment, they contend that the made-whole doctrine

applies and that res judicata and waiver do not apply. As the court has already ruled on these

matters in deciding Defendant’s Motion for Summary Judgment, a favorable ruling on Plaintiff’s

Motion for Summary Judgment would be totally inconsistent with the legal determinations the court

made regarding Defendant’s Motion. Accordingly, summary judgment would not be appropriate

in favor of Plaintiffs. 

V. CONCLUSION

For the reasons stated herein, the court determines that no genuine issue of material fact

exists regarding any claim asserted by Plaintiffs, and Allstate is entitled to summary judgment as

a matter of law. Accordingly, the court grants Defendant’s Motion for Summary Judgment; and

denies Plaintiffs’ Motion for Summary Judgment. Judgment will issue by separate document as

required by Fed. R. Civ. P. 58.

 

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Memorandum Opinion and Order – Page 19

It is so ordered this 3rd day of January, 2007.

_________________________________

Sam A. Lindsay

United States District Judge

 

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