IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

FORT WORTH DIVISION

GREAT WEST CASUALTY COMPANY §

§

VS. § CIVIL ACTION NO.4:05-CV-678-Y

 § 

OMNIFLIGHT HELICOPTERS, INC., §

et al. §

ORDER DENYING PLAINTIFF’S

MOTION FOR DEFAULT JUDGMENT, VACATING

CLERK’S ENTRY OF DEFAULT, AND DISMISSING DEFENDANT

COMPASS TRANSPORTATION & LOGISTICS, INC., FROM THIS CASE

Plaintiff Great West Casualty Company (“Great West”) filed the

above-styled and -numbered action seeking declaratory relief that

it does not have a defense or indemnity obligation to defendant

Compass Transportation & Logistics, Incorporated (“Compass”), in

Omniflight Helicopters, Inc., v. Omni Logistics, Inc., et al., a

lawsuit pending in the 342nd Judicial District Court of Texas,

Tarrant County (“the underlying lawsuit”). Great West also seeks

declaratory relief that it does not have an obligation to pay a

judgment against Compass to defendant Omniflight Helicopters,

Incorporated (“Omniflight”), resulting from the underlying lawsuit.

Omniflight sued Compass along with Omni Logistics, Incorporated (“Omni”), and AOD Transport, Incorporated (“AOD Transport”),

in the underlying lawsuit for damages to its 1982 Bell Model 206L

helicopter. According to the allegations in the underlying

lawsuit, Omniflight hired Omni to transport its helicopter from

Mesa, Arizona, to Omniflight’s place of business at Addison, Dallas

County, Texas. Omniflight claims that, unbeknownst to it, Omni

hired Compass and Compass in turn hired AOD Transport to ship the

helicopter. Omniflight alleges that by the time it received

 

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delivery of the helicopter, it had suffered massive irreparable

damage. Omniflight brought the underlying lawsuit in state court

against Omni, Compass, and AOD Transport for negligence. 

At the time of the alleged loss, Compass had in place a

property-damage insurance policy issued by Great West. According

to Great West, Compass never informed Great West of the underlying

lawsuit. Great West claims that the first notice it received came

in the form of a demand letter for the policy limits of the

insurance contract--not from Compass but from Omniflight. This

occurred, according to Great West, over three years after the

alleged loss of the helicopter. 

Compass never appeared or filed an answer in the underlying

lawsuit. Consequently, Omniflight obtained a default judgment

against Compass. Being, then, a judgment creditor of Compass, the

state court awarded 

the cause of action possessed or owned by

[Compass] against insurer, [Great West], as a

result of [Great West’s] failure to defend and

indemnify [Compass] under the terms and conditions of policy number CLP51581A, . . . to the

Movant, [Omniflight]. 

In essence, Omniflight moved for and received an order from the

state court transferring ownership in Compass’s cause of action

against its insurer, Great West, under the Texas Civil Practice &

Remedies Code, section 31.002 (commonly referred to as the Texas

turnover statute). The state court’s order also directed Compass

to deliver to Omniflight “any documents in its possession” relating

to the insurance policy issued by Great West to Compass. 

 

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Just as in the underlying lawsuit, Compass has failed to make

an appearance or file an answer in this case. Instead, Omniflight,

“as a judgment creditor of Compass and as an assignee by judgment

of any rights of Compass under the Great West insurance policy,”

filed an answer to Great West’s complaint for declaratory judgment

praying that it be denied. Omniflight also made a counterclaim

against Great West “to recover the liability limits of the Great

West policy, up to the amount of the judgment against Compass in

the [underlying lawsuit].” Despite Omniflight’s answer, Great West

moved for an entry of default against Compass under FED.R.CIV.P.

55(a). And, over Omniflight’s objections, the Court granted Great

West’s motion and ordered the clerk to enter a default against

Compass.

Great West now files the instant motion requesting that the

Court enter a final judgment in default against Compass under

FED.R.CIV.P. 55(b)(2). Omniflight again opposes, arguing that,

under the state court’s order and the Texas turnover statute, it

now owns Compass’s cause of action against Great West for its

failure to defend and indemnify Compass. Omniflight argues that it

is “the proper party to litigate whether Great West had a duty to

defend and indemnify Compass pursuant to the policy,” and submits

that it has appeared in this case. 

After review of Great West’s motion, Omniflight’s response and

Great West’s reply, the Court concludes that the motion for default

judgment should be DENIED, the clerk’s entry of default against

Compass VACATED, and defendant Compass be DISMISSED from this case.

 

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In pertinent part, the Texas turnover statute provides,

§ 31.002. Collection of Judgment Through Court

Proceeding

(a) A judgment creditor is entitled to

aid from a court of appropriate jurisdiction

through injunction or other means in order to

reach property to obtain satisfaction on the

judgment if the judgment debtor owns property,

including present or future rights to property, that:

(1) cannot readily be attached or levied

on by ordinary legal process . . . 

(b) The court may:

(1) order the judgment debtor to turn

over nonexempt property that is in the

debtor's possession or is subject to the

debtor's control, together with all documents

or records related to the property . . . 

(d) The judgment creditor may move for

the court's assistance under this section in

the same proceeding in which the judgment is

rendered or in an independent proceeding.

A cause of action is a property right that can be subject to

turnover under the statute. Main Place Custom Homes, Inc., v.

Honaker, 192 S.W.3d 604, 627 (Tex. App.—Ft. Worth 2006); Charles v.

Tamez, 878 S.W.2d 201, 205 (Tex. App.—Corpus Christi 1994). The

purpose of the Texas turnover statute was “to ascertain whether an

asset is either in the judgment debtor’s possession or subject to

the debtor’s control,” and “to facilitate the collection of assets

from the judgment debtor to the judgment creditor.” Republic

Insurance Company v. The Honorable Richard W. Millard, Judge, 825

S.W.2d 780, 783 (Tex. App.—Houston 1992). Thus, when the state

court transferred to Omniflight, under the Texas turnover statute,

Compass’s ownership in its cause of action against its insurer

Great West for its failure to defend and indemnify under its

 

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insurance policy, Omniflight became the appropriate party to defend

against Great West’s complaint for declaratory relief. Great West

has filed suit seeking declaratory relief that if granted, would

make Omniflight’s property interest in Compass’s cause of action

worthless. Accordingly, Omniflight has a right and standing to

defend its property interest transferred to it under the Texas

turnover statute.

Great West argues that the Texas turnover statute “is purely

procedural in nature” and “does not allow for a determination of

the substantive rights of involved parties.” It is Great West’s

position that “to allow Omniflight to pursue a cause of action

owned by Compass . . . would enlarge the turnover statute’s scope

beyond the procedural device contemplated by the legislation.” But

as discussed above, Compass no longer owns a cause of action

against Great West—that was transferred to Omniflight in the state

court’s order under the Texas turnover statute.

Additionally, Great West’s argument that the Texas turnover

statute is purely procedural is misplaced. It is well settled that

the Texas turnover statute is purely procedural in nature. Id.

But this is a cause of action for declaratory relief, not a

proceeding under the Texas turnover statute. Cf. Resolution Trust

Corp., v. Smith, 53 F.3d 72, 80 (5th Cir. 1995)(reversing district

court for deciding substantive issue of whether a stock pledge was

fraudulent in a turnover proceeding under the Texas turnover

statute). The state court’s order transferring all property rights

and interest in Compass’s cause of action against Great West to

 

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Omniflight did not decide any of the substantive issues in this

case. All it did was discern whether Compass owned and possessed

a cause of action to seek redress against Great West and then

transferred Compass’s ownership in that cause of action to

Omniflight. There still remains the question as to whether that

property interest actually holds any value. In other words, the

state court order did not rule on whether Great West owed a duty or

obligation to defend and indemnify Compass in that turnover

proceeding. Had it done so, that surely would have been beyond the

scope of the Texas turnover statute. Thus, by allowing Omniflight

to defend its property interest would not “enlarge the turnover

statute’s scope,” but rather, would champion its exact purpose. 

Next, Great West argues that the Texas turnover statute did

not give Omniflight ownership in or standing to bring its extracontractual claims against Great West as set out in its counterclaims. Again, Great West’s argument is misplaced. The instant

motion is for a default judgment on Great West’s claim for

declaratory relief, not for a judgment on Omniflight’s counterclaims. Whether the state court’s transfer of Compass’s cause of

action against Great West to Omniflight under the Texas turnover

statute gives Omniflight the right and standing to sue for any

extra-contractual claims set out in its counterclaim is something

Great West will have to address in an appropriate dispositive

motion. What Omniflight does own is Compass’s cause of action that

is the subject of Great West’s suit for declaratory relief. And

that, Omniflight has standing to defend.

 

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Finally, Great West argues that “irrespective of the turnover

order,” Omniflight cannot posses Compass’s right to sue Great West

in this matter pursuant to the principle enunciated in State Farm

Fire and Casualty Company v. Gandy, 925 S.W.2d 696 (Tex. 1996).

But that case addressed a settlement arrangement between the

plaintiff and the defendant that assigned the defendant’s cause of

action against the defendant’s insurance company to the plaintiff.

In that case, Gandy sued her stepfather, Pearce, for acts of

molestation, some of which occurred in Pearce’s home. At the time

of the alleged incidents, Pearce had a homeowner’s insurance policy

with State Farm. Although State Farm reserved its right not to

cover him under the policy, it nevertheless undertook Pearce’s

defense. But unbeknownst to State Farm, Gandy and Pearce reached

a settlement agreement. And in that agreement, Pearce agreed to a

judgment and agreed to assign all claims that he had against his

insurer State Farm to Gandy. In return, Gandy covenanted not to

collect the judgment from Pearce. 

The Texas supreme court invalidated the settlement and

assignment as against public policy for two reasons: first, the

agreement actually increased and prolonged the litigation rather

than promoted its speedy and efficient resolution; and, second, the

agreement “greatly distorted” and “confused” the positions of the

parties because it removed any incentive for Pearce to oppose Gandy

and actually made Pearce an ally of Gandy against State Farm. Id.

at 712-13. As a result, the Texas supreme court held that

settlement agreements containing assignments of this nature are

 

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invalid if, (1) “it is made prior to an adjudication of plaintiff’s

claim against defendant in a fully adversarial trial;” (2) the

defendant’s insurer “had tendered a defense;” and, (3) either the

defendant’s insurer has accepted coverage or “has made a good faith

effort to adjudicate coverage issues prior to the adjudication of

plaintiff’s claim.” Id. at 714.

Here, there is no settlement agreement between Omniflight and

Compass. Compass simply did not defend and Omniflight took a

default judgment. As a result, Omniflight became a judgment

creditor of Compass and exercised its rights under the Texas

turnover statute to have Compass’s ownership in its cause of action

against Great West transferred to Omniflight. There is no

prolonging or distorting of this or the underlying litigation—the

issue remains the same: whether Great West has a duty to defend and

indemnify Compass. Regardless of the transfer, Great West would

still need that issue resolved. 

And Compass has not been turned into an ally of Omniflight

against its insurer. Although there wasn’t a “fully adversarial

trial” because Compass took a default judgment, that does not

prohibit the state court from transferring Compass’s property

interest in its cause of action to Omniflight. What Compass’s

decision to take a default judgment rather than defend in the

underlying lawsuit may affect, however, is to what extent, if any,

Omniflight may be able to recover under the insurance policy. If,

because of Compass’s actions in the underlying lawsuit, Great West

has no duty or obligation to defend and indemnify Compass,

 

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Omniflight would not be entitled to recover under Compass’s policy.

All Omniflight received, and all the state court could transfer, is

the property right in Compass’s cause of action—not any entitlement

to any relief. The value of that cause of action will be determined by this litigation. Thus, Great West’s reliance on the

“Gandy principle” is misplaced.

For the foregoing reasons, Great West’s motion for a default

judgment against Compass is DENIED. The clerk’s entry of default

against Compass is VACATED and Compass is DISMISSED as a party to

this litigation. A review of the Court’s docket shows that Great

West has not filed a reply to Omniflight’s counterclaims.

Accordingly, Great West may file a reply no later than 20 days from

the date of this order. 

SIGNED November 13, 2006.

 

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