IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_______________

No. 97-41302

_______________

BECKY FERRELL,

Individually and as Next Friend for

Samuel Ryann Ferrell,

Shawna Renee Ferrell,

and

Steven Rae Ferrell, Jr., Minors;

and as Representative of the Estate of

Steven Rae Ferrell, Deceased; et al.,

Plaintiffs,

CLARENDON AMERICA INSURANCE COMPANY,

Intervenor

Plaintiff-Appellee,

VERSUS

THE CHARLES MACHINE WORKS INCORPORATED,

d/b/a DITCH WITCH,

Defendant-Appellant.

* * * * * * * * * * * * * * * *
 

* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion

should not be published and is not precedent except under the limited

circumstances set forth in 5TH CIR. R. 47.5.4.

2

_______________

No. 97-41354

_______________

BECKY FERRELL,

Individually and as Next Friend for

Samuel Ryann Ferrell,

Shawna Renee Ferrell,

and

Steven Rae Ferrell, Jr., Minors;

and as Representative of the Estate of

Steven Rae Ferrell, Deceased; et al.,

Plaintiffs,

CLARENDON AMERICA INSURANCE COMPANY,

Intervenor

Plaintiff-Appellant,

VERSUS

THE CHARLES MACHINE WORKS INCORPORATED,

d/b/a DITCH WITCH,

Defendant-Appellee.

_________________________

Appeals from the United States District Court

for the Eastern District of Texas

(2:96-CV-132)

_________________________

August 13, 1998

Before JOLLY, SMITH, and BARKSDALE, Circuit Judges.

JERRY E. SMITH, Circuit Judge:*

In this consolidated appeal, we review a summary judgment in

favor of Clarendon America Insurance Company (“Clarendon”) on its
3

subrogation claim and a subsequent order denying its motion for

attorney's fees. We affirm the summary judgment and reverse and

remand the order denying fees.

I.

Steven Ferrell was killed by a defective Ditch Witch boring

machine while installing underground cables for his employer,

Utilities Installation of America (“UIA”), which paid his surviving

spouse and children $250,000 for Ferrell's accidental death

pursuant to the company's employee benefits package. Acceptance of

the benefit also entailed an agreement with UIA that if the

Ferrells collected from a third-party tortfeasor for the wrongful

death, UIA would have a claim of subrogation against the Ferrells

for the first $250,000 of the proceeds.

Clarendon reimbursed UIA for the $250,000 paid to the Ferrells

under the employee benefits package. UIA's policy with Clarendon

provided that in an accidental employment-related death, Clarendon

would pay UIA up to $250,000 for any death benefits that UIA paid

under the plan. Clarendon was subrogated to any recovery UIA

received as a result of the Ferrells' third-party recovery.

II.

After receiving the death benefits, the Ferrells sued UIA and

Ditch Witch in state court for the wrongful death. Clarendon

intervened in an attempt to recoup, from the Ferrells, the $250,000

it had previously paid to UIA. UIA then settled with the
 

1 Section 13 of Clarendon's policy insuring UIA provides:

SUBROGATION

If payment is made under this Policy, Company shall be subrogated to all

rights of recovery therefore of the Insured and any persons entitled to

the benefits of the Policy, against any person or organization . . . .

4

plaintiffs, paying them another $240,000. Thereafter, the

plaintiffs nonsuited their state court claims against Ditch Witch

and refiled this diversity action in federal court.

There, the Ferrells, Ditch Witch, and Clarendon (again as

intervenor-plaintiff) reached a “Stipulation Agreement” in

connection with the Ferrells' settlement of their case against

Ditch Witch. The Stipulation Agreement provides that (1) Ditch

Witch will indemnify and hold harmless the Ferrells against

Clarendon's subrogation claims on the $250,000 original payment

from the UIA employee benefits plan; (2) Clarendon drops any claim

against the Ferrells for subrogation from their second settlement

with UIA (the $240,000 payment for which Clarendon also reimbursed

UIA under its insurance policy); (3) Clarendon retains its rights

to sue Ditch Witch (a right acquired from UIA when it tendered them

payment of the $250,000)1 to enforce the Ferrells' duty to

subrogate up to the amount of the original $250,000 payment from

the UIA employee benefits plan; and (4) Clarendon allows Ditch

Witch to assert all of its own rights and defenses as well as all

of the Ferrells' in the instant subrogation litigation.

The Ferrells having dropped out of the suit, both the insurer

and Ditch Witch moved for summary judgment. Ditch Witch claimed

that Clarendon could not sue for subrogation because (1) the
5

subrogation right really belonged to UIA, not Clarendon, and UIA

had chosen to waive its right; (2) Clarendon and UIA violated the

Texas Insurance Code and thus could not seek subrogation; and

(3) the Texas Labor Code forbade Clarendon's claim for subrogation.

The district court scheduled a hearing on the motions, but at

the last moment Ditch Witch proffered new information, and the

court sua sponte referred the matter to a magistrate judge for a

report and recommendation. The magistrate judge did not hold a

hearing but recommended that summary judgment be denied to Ditch

Witch and granted to Clarendon.

The magistrate judge reasoned that, by the terms of the

contract, the Ferrells had agreed to subrogate their third-party

recovery to UIA; UIA had agreed to subrogate its recovery from the

Ferrells to Clarendon; and Ditch Witch had agreed to assume all of

the Ferrells' subrogation obligations to UIA. Concluding that

Clarendon and UIA did not waive any subrogation rights against the

Ferrells, the magistrate judge found it appropriate that judgment

should be entered against Ditch Witch for $250,000.

Although Clarendon had also raised equitable subrogation and

ERISA preemption as bases for its recovery, in addition to its

claim of contractual subrogation, the magistrate judge found the

contractual issue dispositive and therefore failed to address any

of Clarendon's other arguments. The magistrate judge also failed

to address Ditch Witch's arguments that this subrogation claim was

barred by the Texas Labor and Insurance Codes.

Ditch Witch objected to the district court; Clarendon did not
6

object to the report and recommendation. The district court,

conducting a de novo review, affirmed the magistrate judge's

factual findings and conclusions of law. Ditch Witch now appeals

in No. 97-41302 (referred to below as “Ditch Witch's appeal”).

Clarendon, after winning summary judgment on its subrogation

claim, moved for attorney's fees under state law and ERISA. The

district court referred the matter to the magistrate judge, who

recommended the motion be denied. Clarendon objected to the

district court, which denied the motion. The appeal in

No. 97-41354 followed (referred to below as “Clarendon's appeal”).

III.

We review summary judgment de novo. See Hanks v.

Transcontinental Gas Pipe Line Corp., 953 F.2d 996, 997 (5th Cir.

1992). Summary judgment is appropriate “if 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 a judgment as a matter of law.” FED. R. CIV. P. 56(c). The

party seeking summary judgment carries the burden of demonstrating

that there is an absence of evidence to support the non-moving

party’s case. See Celotex Corp. v. Catrett, 477 U.S. 317, 325

(1986). After a proper motion for summary judgment is made, the

non-movant must set forth specific facts showing that there is a

genuine issue for trial. See Hanks, 953 F.2d at 997.

We begin by consulting the applicable substantive law to
7

determine what facts and issues are material. See King v. Chide,

974 F.2d 653, 655-56 (5th Cir. 1992). We then review the evidence

relating to those issues, viewing the facts and inferences in the

light most favorable to the non-movant. See id. If the non-movant

sets forth specific facts in support of allegations essential to

his claim, a genuine issue is presented. See Brothers v.

Klevenhagen, 28 F.3d 452, 455 (5th Cir. 1994).

IV.

Ditch Witch argues that Clarendon has waived its right to

argue equitable subrogation and ERISA preemption, contending that

although the insurer argued these points to the magistrate judge,

it failed to object to the district court when the magistrate judge

failed to address these arguments in his report and recommendation.

“[A] party's failure to file written objections to the proposed

findings, conclusions, and recommendation in a magistrate judge's

report and recommendation within 10 days after being served with a

copy shall bar that party, except upon grounds of plain error, from

attacking on appeal the unobjected-to proposed factual findings and

legal conclusions accepted by the district court . . . .” Douglass

v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996)

(en banc).

Ditch Witch's argument rests on the premise that the

magistrate judge's failure to address these points constituted an

adverse ruling to Clarendon on these issues. Logically, however,

that assumption is problematic. More likely, the magistrate judge
8

found the contractual subrogation issue dispositive and had no need

to address alternate theories of recovery. Thus, assuming arguendo

that a prevailing party fits into the Douglass rule, we do not find

the magistrate judge's failure to address something constitutes an

adverse “conclusion of law” where, as here, resolution of that

issue was not necessary to the reasoning supporting the

recommendation and report. A contrary holding would risk, as

Clarendon puts it, mandating “any prevailing party . . . to appeal

omitted references of their arguments that were raised but not

expressly written in a magistrate's report.”

V.

The crux of Ditch Witch's appeal is its contention that

Clarendon, through UIA, does not have a contractual right of

subrogation against the Ferrells because UIA failed to demand in

writing the Ferrells' agreement to subrogate; it argues that

UIASSand thereby Clarendon standing in UIA's shoesSScannot now

assert subrogation rights against Ditch Witch, which is standing in

the Ferrells' shoes. Ditch Witch's argument turns on the terms of

the employee benefits plan agreement between UIA and the Ferrells,

and on United States Fidelity & Guar. Co. v. Valdez, 390 S.W.2d 485

(Tex. Civ. App.SSHouston [1st Dist.] 1965, writ ref'd n.r.e.)

(hereinafter “USF&G”).

The employee benefits plan that UIA offered its employees

provided, in relevant part:

(a) To receive any Plan benefits . . . the Participant or

the Participant's legal representative (or in the case of
9

the Participant's death, the Participant's estate) must

agree in writing:

(i) that the Participant's Employer (as the

sole source for payment of benefits under the

Plan) will be subrogated to any recovery

(irrespective of whether there is any recovery

from the third party of the full amount of all

claims against the third party) or right of

recovery against that third party . . . .

(b) The Participant's Employer will be subrogated to the

extent of Plan benefits paid because of the Injury,

Occupational Disease, or Cumulative Trauma.

(c) Subrogation rights of the Participant's Employer

under this Section 5.4 will not be jeopardized merely

because the Participant's Employer fails to recognize or

claim its right of subrogation until after paying Plan

benefits, or if the Participant's Employer recognizes or

claims its right of subrogation, but fails to obtain the

written agreement provided at 5.4(a) above, before paying

Plan benefits. Any Plan benefits paid to the

Participant, his legal representative, or his estate must

be returned to the Employer immediately if the Employer

requests the recipient execute, deliver, and fully comply

with the written agreement provided at 5.4(a) above, and

the recipient of such Plan benefits fails or refuses to

execute, deliver, or comply fully with such agreement.

(d) The Participant, by participation in this Plan,

agrees that his or her estate, and the legal

representative of such estate, shall be obligated to

agree that the Participant's Employer will be subrogated

to any recovery or right of recovery the estate has

against any third party with respect to the Injury,

Occupational Disease or Cumulative Trauma or with respect

to any wrongful death claim or action.

Ditch Witch's argument against contractual enforcement of the

subrogation right against the Ferrells concentrates on the fact

that UIA never requested or required the Ferrells to execute a

written assignment agreement to subrogate under § 5.4(a) of the

employee benefits plan. Ditch Witch maintains that UIA's failure

to obtain a written subrogation agreement either before payment, or
10

after, constitutes a waiver of its rights to subrogation under the

terms of the plan.

To buttress its point, Ditch Witch points to USF&G, in which

the court found waiver of a plan beneficiary's obligation to repay

the employer for amounts recovered from a third party for the

deceased's wrongful death. In USF&G, the court was faced with a

similar, unexecuted written release provision in the employee

benefits plan. The court noted:

[There] is a special provision for subrogation. It

contemplates that the beneficiary shall execute an

assignment. It is true that the provision says one of

the conditions precedent to payment shall be the

execution of an assignment but this contemplates

affirmative action by the beneficiary and not automatic

transfer by reason of payment. There is a very good

reason for such a provision contemplating the execution

of an assignment instead of automatic subrogation. The

beneficiary of a deceased employee who was not covered by

the compensation law has a cause of action against an

employer for negligence or he may receive voluntary

compensation payments. He might hesitate to accept the

compensation payments in lieu of a possible damage claim

against his employer for negligence if he was thereby

giving up his full rights against a third party. The

provision, therefore, contemplates that the insurer may

not want to insist on the assignment.

USF&G, 390 S.W.2d at 492. From these observations, Ditch Witch

urges us to conclude that unless the beneficiary executes a written

assignment agreement, we must find that the payor waives its

subrogation rights.

This conclusion, however, did not necessarily follow for the

policy at issue in USF&G, nor does it for this case. As in the

instant employee benefits plan, the policy in USF&G provided that

acceptance of the payor's subrogation rights would be a condition
11

precedent to payment to the insured. Here, the employee benefits

plan provides in § 5.4(d) that “by participation in this Plan, [the

Participant] agrees that his or her estate, and the legal

representative of such estate, shall be obligated to agree that the

Participant's Employer will be subrogated to any recovery or right

of recovery the estate has against any third party with respect to

the Injury . . . .”

Given such a clause, the USF&G court found:

Appellant [USF&G] here insists that appellees [the

beneficiaries] having accepted the benefits of the

contract must take the contract as they find it and this

includes the conditions under which they were entitled to

payment. This correctly states the general rule of law.

Were the facts in this case merely that payment was made

we would have to presume appellees accepted it under the

conditions provided and appellant could require the

execution of an assignment.

USF&G, 390 S.W.2d at 492 (emphasis added). The court, however,

found that USF&G had done more than just fail to obtain a written

assignment; it had also voluntarily waived that right in a judicial

proceeding.

In USF&G, the beneficiaries did not claim the payment outright

from the employer. Instead, they filed a “friendly suit” in state

court in which the employer agreed to pay the death benefit. The

judgment also provided, however, that nothing contained therein

would “release or prejudice any right [that the beneficiaries]

might have against any third party responsible for the death of

[the deceased].” Id. (quoting the judicial settlement).

The USF&G court read this as a release of the employer's

rights under the employee benefits plan to obtain an assignment:
12

“We feel it may be inferred from the facts in the record that by

not taking the assignment when the other condition precedent was

carefully stated in the judgment and the release that appellant did

not intend to rely on this condition precedent. . . . [T]his was an

express reservation by appellees of all of their rights against the

third party which includes the full amount of damages recoverable.”

Id.

Although UIA did not enforce the written request as a

condition precedent to payment, its waiver of its assignment rights

cannot be assumed. First, UIA has the right, under the employee

benefits plan, to insist on assignment either before or after

payment; the employee's participation in the plan is his

contractual acceptance of the employer's assignment rights.

Second, there is no comparable express waiver of UIA's

subrogation rights in a settlement document, judicial or otherwise.

The key fact that the USF&G court appeared to rely on was the

employer's decision to enter into a settlement agreement with the

aforementioned waiver language. Although the USF&G court was

sympathetic to the beneficiaries, the court had to acknowledge that

the “general rule” is that the beneficiary “took the contract as he

finds it” and that by accepting the money, they would otherwise

have opened themselves up for a claim of subrogation. See id.

Without the express waiver by UIA, under USF&G, Texas law holds the

Ferrells to the employee benefits plan contract. See id. That is,

when they agreed to take the $250,000, they also agreed, under

§ 5.4 of the plan, to assign any claims up to that amount to UIA.
 

2 Ditch Witch also argues that, to the extent the Ferrells did

contractually assign their wrongful death claim, they were precluded from doing

so under Texas law absent a statutory grant of authority to do so. See, e.g.,

Carter v. Van Meter, 495 S.W.2d 583 (Tex. Civ. App.SSDallas 1973, writ

dismissed). Ditch Witch raised this argument before the magistrate judge, who,

although failing to address it, ruled against Ditch Witch. The magistrate judge

therefore necessarily rejected it, and Ditch Witch was obliged to raise this

objection to the district court under Douglass. Its failure to do so means that

only plain error review applies. See Douglass, 79 F.3d at 1428-29. Under this

standard of review, Ditch Witch has demonstrated no “manifest injustice” or

threat to the “integrity of the judicial process” necessary to justify reversal,

even if, arguendo, the district court erred on this point of Texas law.

13

Thus, under the convoluted assignments and reassignments of rights

and duties, Ditch Witch is contractually liable to Clarendon for

the Ferrells' receipt of the $250,000 from UIA.2

VI.

Ditch Witch argues that even if the Ferrells were

contractually bound to assign their third-party recovery to UIA,

the assignment was prohibited by the Texas Insurance Code.

Specifically, Ditch Witch contends that because this insurance

coverage is triggered by the participant's death, it is life

insurance. See TEX. INS. CODE ANN. art. 3.01 § 1. Therefore,

according to Ditch Witch, all of the state regulatory hurdles for

selling life insurance must be met by the “seller”SSUIA.

Otherwise, Ditch Witch argues, the life insurance seller is, or

should be, estopped from asserting any of its rights under the

illegal life insurance contract against the insured/beneficiary.

See TEX. INS. CODE ANN. art. 3.42(a); Mutual Life Ins. Co. v. Daddy$

Money, Inc., 646 S.W.2d 255, 257 (Tex. App.SSDallas 1982, writ

ref'd n.r.e.).

Ditch Witch's argument relies on an incorrect premise: Even
 

3 The court added:

Although Appellant is correct in stating that the definition of a

life insurance company, found in art. 3.01 § 1, could reasonably

include payments for cessation of life by accidental death, TEX. INS.

CODE ANN. art. 3.01 § 2 (Vernon 1981), precludes us from so holding.

Section 2 defines an “accident insurance company” as a corporation

which pays money in the event of death resulting from traveling or

general accidents. A maxim of statutory construction is that a

specific provision governs a general provision.

Id.

14

though this insurance benefit is triggered by the participant's

death, and thus at first glance falls within the Insurance Code's

definition of “life insurance,” Texas courts have found that death

benefits awarded as part of an occupational injury plan are not

“life insurance” under art. 3.01 § 1. See, e.g., Ayre v. Brown &

Root, Inc., 678 S.W.2d 564, 565 (Tex. App.SSHouston [14th Dist.]

1984, writ ref'd n.r.e.).3 Instead, they are more properly thought

of as “accident insurance” under TEX. INS. CODE ANN. art. 3.01 § 2.

See id.

If this benefit is not “life insurance,” art. 3.42 and its

regulatory hurdles do not apply. Because the state has not, and,

in our view, would not invoke its art. 3.42 regulatory, police

powers over this “life insurance” contract in the first instance,

any argument that we should “supplement” those powers, by finding

this contract a nullity, is without force.

VII.

Ditch Witch avers that the state workers' compensation laws

prevent Clarendon's recovery. Specifically,

(a) A contract entered into to indemnify an employer from
15

loss or damage resulting from an injury sustained by an

employee that is compensable under this subtitle is void

unless the contract also covers liability for payment of

compensation under this subtitle.

(b) This section does not prohibit an employer who is not

required to have workers' compensation insurance coverage

and who has elected not to obtain workers' compensation

insurance coverage from obtaining insurance coverage on

the employer's employees if the insurance is not

represented to any person as providing workers'

compensation insurance coverage authorized under this

subtitle.

TEX. LABOR CODE ANN. § 406.052. Ditch Witch's argument is bipartite.

First, it asserts that Clarendon's policy “is void” under

subsection (a) because it does not provide for compensation to

UIA's employees under the workers' compensation laws. Second,

Ditch Witch maintains that subsection (b) precludes Clarendon and

UIA from enforcing their rights because the insurance policy

provided by Clarendon insures UIA, not UIA's employees directly.

Subsection (a) is not applicable, as no one contends that UIA

must provide workers' compensation insurance. By its terms,

subsection (a) applies only to those injuries that are

“compensable under this subtitle” of the Texas Labor Code. As

Ditch Witch acknowledges, UIA has the option, under Texas labor

law, to forego the workers' compensation scheme entirely and

subject itself to the full extent of the common law

liabilitySSabsent any common law defenses. See TEX. LABOR CODE ANN.

§§ 406.002, 406.033. UIA chose to exercise this option.

Accordingly, injuries occurring in the scope of its employees'

employment are not “compensable under” the state workers'

compensation laws.
16

The relevant issue thus becomes whether UIA comported with the

requirements of subsection (b). Ditch Witch argues that because

Clarendon's policy covered only UIA and not UIA's employees

directly, subsection (b) bars Clarendon's insurance coverage of

UIA. Subsection (b), however, cannot be read for all that Ditch

Witch suggests.

The statute “does not prohibit” non-workers' compensation

subscribing employers from obtaining “insurance on the employer's

employees” if the employer provides adequate notice and

representations to the employee that this insurance is not workers'

compensation. The crux of Ditch Witch's argument is its reading of

subsection (b) as an exclusive exception to subsection (a). That

reading is incorrect.

The structure of the law is more properly understood thus:

Subsection (a) provides that if an employer obtains workers'

compensation insurance (and thereby receives the statutory

protection from employee suit), it must cover all that the workers'

compensation laws say it must cover. Lurking in the background of

subsection (a) is the fact that Texas does not require employers to

have workers' compensation insurance. See TEX. LABOR CODE ANN.

§ 406.002.

Subsection (b) prevents employers from getting the benefits of

the workers' compensation laws without paying their full price.

For instance, in the absence of subsection (b), an employer might

opt out of the workers' compensation scheme but still offer its

employees some type of private insurance coverage for on-the-job
17

accidents. 

Let us assume that this insurance does not cover the statutory

requirements of workers' compensation. Let us also assume that the

employer tells its employees that it is offering private “workers'

compensation.” An unknowing, injured employee might take the

private insurance benefit and think that he is thereby precluded

from also bringing suit against the employer by the workers'

compensation laws. The employer has no incentive to dispel the

employee's misperception and may even wish to foster it through

affirmative misrepresentations.

Subsection (b) is a statutory protection of these workers. It

allows employers the right to provide their own insurance, if it

is not represented as workers' compensation insurance. As a

result, there is less likelihood that an injured employee will

wrongly conclude that acceptance of the benefit also precludes his

own independent tort action against the employer. That said,

subsection (b) says nothing about an employer's decision to offer

its own benefits to employeesSSbenefits not represented to

employees as workers' compensation insuranceSSand then to have

itself insured on having to pay those benefits, as is the case

here. In such a circumstance, there is no need to protect

unknowing employees, and thus subsection (b) does not apply.

VIII.

Ditch Witch maintains that the magistrate judge erred in

ruling on the motions for summary judgment without a hearing and
 

4 Jackson and Daniels, moreover, do not conflict with Capital Films Corp.

v. Charles Fries Prods., Inc., 628 F.2d 387, 392 (5th Cir. 1980), cited by Ditch

Witch. Capital Films, too, is concerned with giving the non-movant adequate

notice by making sure it has at least ten days to respond to the motion for

summary judgment. The later cases offer a more articulate standard of the one

introduced in Capital Films.

Also, the facts of Capital Films were egregious. The defendant filed a

motion for summary judgment. The court acted as if it were proceeding to trial.

The day before voir dire (a year after the motion was filed), it entered summary

judgment, apparently not giving the plaintiff a chance to offer additional

material in support of its contention, developed during the interim year, that

a genuine issue of material fact existed. Ditch Witch offers no similar showing

of reliance on the alleged lack of notice.

18

with no notice that a hearing would not be held after the district

court referred the matter to the magistrate judge.

Rule 56(c) merely requires the court to give the nonmovant an adequate opportunity to respond prior to a

ruling. . . . Rule 56(c) requires neither an oral

hearing nor advance notice of a 'date certain' on which

a motion for summary judgment is to be decided; instead

'if there is not a hearing, the adverse party must have

at least ten days to respond to the motion for summary

judgment.' Daniels v. Morris, 746 F.2d 271, 274-75 (5th

Cir. 1984).

Jackson v. Widnall, 99 F.3d 710, 713 (5th Cir. 1996).4

Ditch Witch makes no claim that it was prejudiced by a lack of

notice; it merely asserts that there was lack of notice. Its

arguments are unavailing. 

First, an oral hearing is not required. See id. Second,

Ditch Witch had more than ten days to offer a rebuttal to the

motion for summary judgment before the magistrate judge ruled on

the motion. Indeed, in considering the cross-motions for summary

judgment, the district court granted an additional ten days at the

originally scheduled hearing of July 7, 1997, for Clarendon to

respond to a last-minute filing submitted by Ditch Witch. Ditch

Witch could easily have used that time to respond to Clarendon
 

5 Clarendon points to a multi-factored test that the district court should,

or must, consider in determining whether to award attorney's fees under ERISA.

It claims that it was error for the district court not to discuss these

considerations in this case. We disagree. Clarendon cannot pass the threshold

showing that this is an ERISA case. Therefore, any further inquiry into what

ERISA requires the district court to consider in its award of attorney's fees is

necessarily unjustified.

19

before the magistrate judge issued his recommendation. We

therefore uphold the summary judgment in Ditch Witch's appeal.

IX.

Clarendon cross-appeals, claiming attorney's fees under both

Texas state law and ERISA. We address the latter issue first.

A.

Clarendon's claim for attorney's fees under ERISA is easily

dismissed. An award of attorney's fees for cases “brought under”

ERISA is within the discretion of the district court. See

29 U.S.C. § 1132(g)(1).5

As far as we can tell from the briefs and the arguments, this

case has little to no nexus with ERISA; the “brought under”

requirement of § 1132(g)(1) is not met. The crux of the dispute

between Clarendon and Ditch Witch concerns state contract and

insurance subrogation law. ERISA supposedly arises only as an

affirmative defense, and it really does not even appear in that

regard.

The insurer's reliance on ERISA is ironic because, aside from

arguing that it did not waive the issue in the district court, the

issue appears nowhere in its brief in the related appeal on the
 

6 “[R]ecovery on a valid claim founded on a written or oral contract”

includes maintaining the award on appeal. See Humble Nat'l Bank v. DCV, Inc.,

933 S.W.2d 224, 236 (Tex. App.SSHouston [14th Dist.] 1996, writ denied). Our

affirmance in the consolidated appeal in No. 97-41302 satisfies this requirement.

20

merits. Accordingly, the district court was well within its

discretion in denying an award of attorney's fees under ERISA.

B.

The more difficult issue is whether the court erred in

concluding that Clarendon could not recover attorney's fees under

state law. We conclude that it did so err.

Under TEX. CIVIL PRAC. & REM. CODE ANN. § 38.001(8), “[a] person

may recover reasonable attorney's fees from an individual or

corporation, in addition to the amount of a valid claim and costs,

if the claim is for: . . . (8) an oral or written contract.” “The

award of reasonable attorney's fees to a plaintiff recovering on a

valid claim founded on a written or oral contract preceded by

proper presentment of the claim is mandatory” under § 38.001(8).

In re Smith, 966 F.2d 973, 978 (5th Cir. 1992).6

“The requisites to recover for attorney's fees under

[§ 38.001(8)] . . . are: 1) recovery of a valid claim in

a suit on an oral or written contract; 2) representation

by an attorney; 3) presentment of the claim to the

opposing party or a representative of the opposing party;

and 4) failure of the opposing party to tender payment of

the just amount owed before the expiration of thirty days

of presentment.” Sikes v. Zuloaga, 830 S.W.2d 752, 753

& n.1 (Tex. App.SSAustin 1992, no writ). The party

seeking attorney's fees must both “plead and prove that

presentment of a contract claim was made to the opposing

party and that the party failed to tender performance.”

Ellis v. Waldrop, 656 S.W.2d 902, 905 (Tex. 1983).

Triad Elec. & Controls, Inc. v. Power Sys. Eng'g, Inc., 117 F.3d
 

7 Ditch Witch does not argue that any of these requirements is unmet, and

our review of the record additionally satisfies us that all were. Although our

review of the record convinces us that Clarendon made a sufficient presentment

of its contract claim to the Ferrells and to Ditch Witch, Clarendon failed to

“plead” presentment in its motion for attorney's fees. Under Texas law, Ditch

Witch has waived any rights it may have in that regard, however, by failing to

object to the district court, or to raise it on appeal. See, e.g., Mendleski v.

Silvertooth, 798 S.W.2d 30, 32 (Tex. App.SSCorpus Christi 1990, no writ)

(“[F]ailure to properly plead presentment would be waived absent a special

exception . . . .”).

21

180, 196 (5th Cir. 1997).

In its briefs, Ditch Witch does not contend that Clarendon has

failed to meet any of these requirements.7 Rather, it argues that

there is no contractual right or duty between Ditch Witch and

Clarendon. Essentially, it contends that this case really concerns

Clarendon's “tort” claim against Ditch Witch, not a “contract”

claim.

We disagree. At bottom, this suitSSas Ditch Witch freely

acknowledges in the related appeal on the meritsSSis a claim by UIA

against the Ferrells for reimbursement given their recovery from

Ditch Witch. There certainly is a contract between UIA and the

Ferrells in this regardSS§ 5.4 of the employee benefits plan.

The idea that Clarendon is suing Ditch Witch for its tort also

conflicts with the record: Clarendon's complaint in intervention

sues “all the plaintiffs” for subrogation on their recovery.

Therefore, UIA, via Clarendon, is suing the Ferrells, via Ditch

Witch, on the Ferrells' broken contractual promise under the UIA

employee benefits package made in consideration for their receipt

of the $250,000 payment.

Accordingly, under Texas law, Clarendon has recovered on a

“claim [that] is for . . . an oral or written contract.” TEX. CIV.
22

PRAC. & REM. CODE ANN. § 38.001(8). Once the aforementioned

requirements are met, the award of attorney's fees becomes

“mandatory.” See Smith, 966 F.2d at 978. Without a choice, we

therefore reverse, in Clarendon's appeal, and remand for

determination of “reasonable” attorney's fees. See TEX. CIV. PRAC.

& REM. CODE ANN. § 38.003.

The judgment in No. 97-41302 is AFFIRMED; the judgment in

No. 97-41352 is REVERSED and REMANDED.