* Judge, U.S. Court of International Trade, sitting by

designation.

UNITED STATES COURT OF APPEALS

For the Fifth Circuit

No. 00-40255

UNITED STATES FIRE INSURANCE COMPANY,

Plaintiff-Appellee,

VERSUS

ALBERT VILLEGAS, doing business as

Law Offices of Albert Villegas,

Defendant-Appellant.

Appeal from the United States District Court

for the Southern District of Texas

February 12, 2001

Before JONES and DeMOSS, Circuit Judges, and BARZILAY*, District

Judge.

DeMOSS, Circuit Judge:

Attorney Albert Villegas (“Villegas”) appeals from the final

judgment entered by the district court which granted judgment in

favor of United States Fire Insurance Company (“USF”) on a

conversion claim arising from Villegas’s negotiation of a

settlement that was in contravention of USF’s subrogation rights.
2

For the reasons discussed below, we AFFIRM the judgment of the

district court.

I.

The underlying claim giving rise to this indemnification

dispute was an on-the-job injury suffered by Villegas’s client,

Ruben Perez. Pursuant to a worker’s compensation policy with

Perez’s employer, USF paid medical expenses and made indemnity

payments to Perez in the total sum of $71,872.20. Villegas later

filed a third-party complaint on behalf of Perez and his family.

On August 3, 1994, USF notified Villegas of its subrogation rights

and lien on any benefits which might have been recovered in the

third-party claim. That action was ultimately settled at mediation

for a total of $150,000. 

Five days prior to the mediation conference, Villegas

represented to the state court hearing the “friendly” third-party

action, that the worker’s compensation carrier had a statutory

right to the first of the settlement proceeds and that he was

obligated to protect the worker’s compensation lien. He further

represented to the court that he represented the lienholder. At

the mediation on September 6, 1995, Villegas entered into a

settlement agreement under which $30,000 was to be awarded Perez,

USF’s parent company, and Villegas, and $120,000 was awarded to

Villegas and Perez family members. USF did not attend the

mediation conference relying instead on Villegas’s statutory duty
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to protect its $71,872.20 lien. In October 1995, Villegas tried to

cash the $30,000 check to make a distribution to USF’s parent

company, Villegas, and Perez, but an agent of the parent company

took the check and locked it in her drawer. The check was given to

Arnold Aguilar, USF’s attorney, in December 1995, and it remained

in his possession until April 1997 when Villegas demanded that it

be placed in the registry of the court.

On April 7, 1997, USF filed suit against Villegas asserting

that his actions constituted conversion and demanding actual

damages for the full amount of the lien as well as for punitive

damages and attorney’s fees. Specifically, USF claimed that

Villegas destroyed, and effectively converted, its right to

reimbursement for $36,263.65 in indemnity benefits and $35,608.55

in medical payments (a combined figure of $71,872.20). As a result

of the settlement awarding only $30,000 to Perez and USF’s parent

as opposed to the full $150,000, USF was unable to recover the

total amount of benefits which it had paid. The settlement also

precluded USF’s ability to receive a credit towards any future

medical payments up to the settlement total of $150,000.

In his own testimony, Villegas conceded that he was aware of

the amount of USF’s lien and the fact that he had a duty to protect

that lien. He also conceded that if one accepts and benefits from

a portion of a third-party settlement with actual notice that the

funds are subject to a worker’s compensation carrier’s subrogation

right, one does so wrongfully and is subject to a cause of action
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for conversion. 

In response to USF’s complaint, Villegas filed a motion to

dismiss for lack of jurisdiction because the amount in controversy

did not exceed the $75,000 requirement for diversity cases. He

contended that USF’s actual damages amounted only to $71,872.20.

A magistrate judge recommended that the motion to dismiss be denied

because on the face of its complaint, USF also sought punitive

damages against Villegas for his actions. Villegas contended that

punitive damages could only be recovered upon a showing of malice,

and because malice requires a finding that his actions would have

resulted in the financial ruin of USF, no punitive damages could

ever be recovered by the fully solvent USF, and thus the only form

of available damages, compensatory, were insufficient to establish

jurisdiction. In its order accepting the magistrate judge’s report

and recommendation and denying Villegas’s motion to dismiss, the

district court noted that Villegas’s motion relied on USF’s claim

for malice at trial, but that it ignored evidence in the pretrial

record showing that the conversion alleged in the complaint was

perpetrated by fraud in that Villegas falsely represented to the

state court in the “friendly” proceeding that he represented USF.

The district court found clear evidence that Villegas completely

failed to properly communicate with USF regarding settlement

beforehand, and that he falsely portrayed himself as a

representative of USF, and that as a result of this

misrepresentation, he was able to settle the claim in a manner
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adverse to USF’s interests. The district court concluded that

jurisdiction was proper because USF’s valid punitive damages claim,

if established and coupled with the alleged actual damages, would

satisfy the $75,000 amount in controversy requirement. 

The parties agreed that the district court needed to first

make a legal determination as to whether the settlement agreement

would be res judicata against USF’s conversion claim. The parties

further agreed that if the settlement did not constitute res

judicata, Villegas would then be liable for conversion as a matter

of law. The district court received argument from both sides and

then concluded, as a matter of law, that Villegas converted the

medical and indemnity payments made by USF to Perez by not making

certain that USF’s lien was protected through first monies payment

to USF, and that Villegas benefitted from the proceeds of the

settlement. The district court went on to hold that Villegas also

converted some portion of the remaining $78,127.80, that portion

being an amount which a jury would decide should have been awarded

to Perez instead of the four other family members. This issue was

litigated by the parties so that USF could receive a credit for any

future medical payments it may have to make to Mr. Perez. But the

district court declined to submit the issue to the jury, and USF

has waived its challenge to this issue on appeal. The district

court did ask the jury to decide whether USF was entitled to

punitive damages on the basis that Villegas acted with malice. On

this issue, the jury returned with a verdict denying USF any
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punitive damages. 

The district court then considered Villegas’s waiver of any

entitlement to the original $30,000 settlement funds, in addition

to approximately $800 interest on those funds. After deducting

expenses, the district court found that the remaining portion of

the original $71,872.20 in damages converted by Villegas was

$29,405.07. Final judgment in that amount plus $5,997.83 in

prejudgment interest was entered in favor of USF. Villegas has

timely appealed.

II.

In Villegas’s first point on appeal, he argues that the

district court never had jurisdiction over this case to begin with

because the amount in controversy never exceeded the $75,000

threshold found in 28 U.S.C. § 1332(a)(1). We review the district

court’s determination as to jurisdiction de novo. See St. Paul

Reinsurance Co. v. Greenberg, 134 F.3d 1250, 1252 (5th Cir. 1998).

The district court’s factual determinations made in the process of

determining jurisdiction are reviewed for clear error. See Harvey

Construction Co. v. Robertson-Ceco Corp., 10 F.3d 300, 303 (5th

Cir. 1994). 

The jurisdictional issue presented in this appeal is quite

simple: was USF’s claim for punitive damages sufficient to bring

its claim for $71,872.20 in actual damages over the $75,000

threshold for federal diversity jurisdiction. It is undisputed
7

that actual damages claimed for medical and indemnity payments

already made by USF totaled $71,872.20. What is in dispute is the

value, if any, of USF’s remaining claims for which it ultimately

received no relief.

USF contends that in addition to its actual damages, its

complaint asserted a claim for the present value, in the form of a

credit, of any future medical expenses it might have to pay Mr.

Perez, as well as for those additional punitive damages to which it

alleges it is entitled as a result of Villegas’s fraudulent

activities. And despite Villegas’s protestation that USF did not

present its fraud claim to the jury and that the jury did not find

malice, USF properly notes that neither of these facts prevents

those claims from being used to satisfy the amount in controversy

requirement for federal diversity jurisdiction. 

As the Supreme Court has made clear, where it appears to a

legal certainty that a plaintiff’s claim is truly for an amount

below the jurisdictional amount required to confer federal

jurisdiction, dismissal may be justified. In making that

determination the district court may look, not only to the face of

the complaint, but to the proofs offered by the parties. See St.

Paul Mercury Indemnity v. Red Cab Co., 58 S. Ct. 586, 590 (1938);

see also Greenberg, 134 F.3d at 1253.

Villegas notes that the applicable Texas statute governing the

reimbursement of worker’s compensation benefits from third-party
8

settlements requires that the lien be reduced by a proportionate

share of litigation expenses, as was done in this case. Villegas

contends that after reducing for expenses, USF only pleaded actual

damages in an amount approximating $60,000. Villegas next contends

that to get over the $75,000 hurdle, USF added a claim for punitive

damages, upon which it would never have been able to recover,

simply to get into federal court. 

Villegas overlooks two important points regarding the amount

in controversy. First, USF pleaded and proved that the settlement

negotiated by Villegas would preclude any credit in its favor for

future medical payments. Those payments would be above and beyond

the $71,872.20 already paid. Thus, USF was indeed justifiably

seeking recovery in excess of $75,000, when the value of the lost

credit for future payments is considered. While the district court

denied the jury the opportunity to apportion the remaining amount

of the settlement up to $150,000 because Mr. Perez was not a party

to the suit before it, we are nonetheless justified in considering

this category of damages when determining whether the amount in

controversy was sufficient to support federal court jurisdiction.

See Greenberg, 134 F.3d at 1253.

Likewise, Villegas overlooks USF’s claim for punitive damages.

As noted above, Villegas claims that no punitive damages were

recoverable. But a closer look reveals that USF’s assertion of the

claim for punitive damages was legitimate in light of Villegas’s
9

behavior. The jury’s failure to award such damages, however, does

not preclude our reliance upon such potential damages to establish

the threshold amount in controversy. See Greenberg, 134 F.3d at

1253-54 (“[J]urisdictional facts must be judged as of the time the

complaint is filed; subsequent events cannot serve to deprive the

court of jurisdiction once it has attached.”) Texas law permits

recovery of exemplary or punitive damages upon a showing of fraud

or malice. See Tex. Civ. Prac. & Rem. Code § 41.003(a). As is

discussed above, USF claimed in its complaint that Villegas acted

with malice. Additionally, the evidence presented established that

Villegas knowingly misrepresented himself as a representative of

USF to the state court, and he profited from such representation,

that is to say, his misrepresentation inured to his benefit and to

USF’s detriment. Clearly a fact issue existed as to Villegas’s

malicious or fraudulent actions sufficient to sustain and support

a claim for punitive damages under Texas law. Indeed, the jury was

properly given the issue of punitive damages for its resolution of

the factual issues related thereto. See id. at 1253 (“the court

may rely on ‘summary judgment-type’ evidence to ascertain the

amount in controversy”).

Villegas’s claim that malice can only be established if the

plaintiff establishes that the charged malicious conduct threatened

USF with financial ruin is a strained interpretation of the Texas

Supreme Court’s decision in Transportation Ins. Co. v. Moriel, 879
10

S.W.2d 10, 24 (Tex. 1994) at best. In Moriel, the court, in

stating that a plaintiff must establish “extraordinary harm” and in

using examples of death, physical injury, or financial ruin,

established a standard for delineating between ordinary negligence

and gross negligence by an insurance company against an individual.

Indeed, as USF properly notes, Villegas’s strained interpretation,

if accepted, would lead to a rule that he should be allowed to

violate a statute, convert funds to his own use with full knowledge

that his actions are contrary to law, and completely eliminate

USF’s ability to satisfy its lien, just because USF can afford to

absorb the loss. Such a result would be absurd and we decline to

extend Moriel in the manner suggested by Villegas.

We also note that USF had a colorable claim for punitive

damages based upon Villegas’s admitted fraudulent acts, and that

USF requested a jury instruction to that effect. Under the facts

of this case, to suggest that USF was not justified in adding a

claim for punitive damages for behavior which Villegas himself

admits was suspect, is disingenuous. USF had a good faith basis

for proceeding with its claim for punitive damages, and Villegas

has failed to show that USF would, under no circumstances, have

ever been able to recover for punitive damages. Indeed, we
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conclude that had the jury found in favor of USF on its punitive

damages claim, such a finding would most certainly have been

supported by the record of this case. 

Accordingly, we conclude that though USF’s actual damages

tallied less than $75,000, it asserted in good faith additional

claims which when combined with the actual damages, permitted the

district court to accept federal diversity jurisdiction over USF’s

conversion claims. 

III.

Villegas argues in the alternative that the district court

erred in holding that, as a matter of law, he had converted USF

funds. We review de novo the district court’s award of judgment as

a matter of law pursuant to Rule 50(a)(1), and we evaluate the

evidence in the light most favorable to the non-moving party. See

Casarez v. Burlington Northern/Santa Fe Co., 193 F.3d 334, 336 (5th

Cir. 1999).

Villegas contends that there is a conflict in the evidence as

to whether USF suffered a loss. He contends that under Texas law,

a conversion action is one for the wrongful exercise of dominion

and control over the personal property of another, and that only

the person whose rights were interfered with has a cause of action.

See Lone Star Beer, Inc. v. Republic Nat. Bank of Dallas, 508

S.W.2d 686 (Tex.Civ.App.–Dallas 1974, no writ). According to

Villegas, the disputed money in this case belonged, not to USF, but
12

to the Texas Worker’s Compensation Insurance Facility (“the

Facility”) for whom USF operated as a servicing company. According

to Villegas, Texas law clearly states that an entity functioning as

a conduit for money does not have a conversion cause of action.

See Groves v. Hanks, 546 S.W.2d 638 (Tex.Civ.App.–Corpus Christi

1976, writ ref’d n.r.e.). Villegas argues that the evidence in

this case established only that the Facility was entitled to the

funds and that USF was merely passing money through to another

party. 

Villegas fails to acknowledge that the very case he cites also

states that a conversion plaintiff need only prove “that it is the

owner of the property converted or that it had legal possession of

the property so taken or that it is entitled to possession.” Lone

Star Beer, 508 S.W.2d at 687 (emphasis supplied). As the testimony

revealed, when an employee is injured and files a claim through his

employer, the employer files a claim with the servicing carrier (in

this case USF), and the carrier pays the benefits. USF payed

benefits directly to Mr. Perez and USF was later to be reimbursed

by the Facility. Notwithstanding a separate arrangement with the

Facility regarding indemnification, the evidence clearly

established that all funds paid to Mr. Perez and converted by

Villegas belonged to USF. As USF notes, the Groves case would only

be applicable to this case if the Facility was seeking funds from

USF. Here, the only relevant issue is whether Villegas converted
13

funds from USF, and the issue of who ultimately should recover

those funds is between USF and the Facility, not USF and Villegas.

We therefore conclude that the district court did not err in

concluding that Villegas converted funds which belonged to USF,

irrespective of the relationship between USF and the Facility, and

no reversible error has been shown. 

IV.

Finally, Villegas contends that the district court erred in

holding that USF’s actual damages totaled $29,405.07. Here,

Villegas argues that the insurance carrier is not entitled to any

reimbursement for a settlement to the beneficiary’s spouse or

children. He contends that a trier of fact should have apportioned

the value of each of the claims of the beneficiary, his spouse, and

each of the children. Without such an accounting, Villegas

contends that the district court could not determine what amount he

converted.

Villegas overlooks the fact that this is a conversion action

between himself and USF and that USF was not a party to the

underlying lawsuit resulting in the settlement. USF correctly

notes that as a worker’s compensation carrier, it is entitled to

recoupment of its claims first to the extent of all compensation

paid out. See Watson v. Glenn Falls Ins. Co., 505 S.W.2d 793, 795

(Tex. 1974). Under Texas law, a trial court has no authority to

apportion settlement funds between an injured’s estate, spouse, or
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children, without first giving effect to the wording of the

Worker’s Compensation Act by first reimbursing the carrier. See

Performance Ins. Co. v. Frans, 902 S.W.2d 582, 585 (Tex.App.–

Houston [1st Dist.] 1995, writ denied). And Villegas himself

agrees that, under Texas law, a carrier is not required to

intervene in a third-party action in order to enforce its rights to

subrogation, and that any agreement reached between beneficiaries

and non-beneficiaries is not binding with respect to the recovery

of a workers compensation carrier’s subrogation claim. 

We conclude that the district court did not err by refusing to

allow the jury to reapportion the settlement funds due to Perez and

his family members. USF is entitled to have its expenses

reimbursed first, before any benefits are paid to any beneficiary,

spouse, or child. Villegas has repeatedly acknowledged by his own

testimony that all of the elements for conversion have been

satisfied, and he presents no winning argument that the district

court should permit a new accounting of the settlement since,

irrespective of a reapportionment, USF is entitled to first

proceeds from the settlement, before any individual beneficiary or

relative receives their apportioned interest. 

V.

Based upon the foregoing, we find that no reversible error was

committed by the district court. Accordingly, we AFFIRM in all

respects the judgment entered by the district court.
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AFFIRMED.