Court Opinion

ID: 7895
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:32:27+00
Date Added: 2024-06-11T12:28:58.046821
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                      FOR THE FIFTH CIRCUIT

                              No. 94-41150

JIMMY CHARLES PATIN, Sr., and
MARGARET PATIN,

                                              Plaintiffs-Appellants,

                                  versus

ALLIED SIGNAL, INC. and
TRAVELERS INSURANCE COMPANY
of RHODE ISLAND,

                                              Defendants,

TRAVELERS INSURANCE COMPANY
of RHODE ISLAND,
                                              Defendant-Appellee.

          Appeal from the United States District Court
                for the Eastern District of Texas

                            November 1, 1995

Before SMITH, WIENER and DEMOSS, Circuit Judges.

WIENER, Circuit Judge:

     We render this opinion not only to decide the case before us,

but also to resolve an intra-circuit conflict on an important and

recurring issue implicating removal from and remand to state court.

For the reasons set forth below, we hold that a covered employee's

claims and   the   claims   of   those   asserting   rights   through   the
employee against the employer's workers' compensation insurance

carrier for breach of the duty of good faith and fair dealing are

not immunized against removal to federal court by the provisions of

28 U.S.C. § 1445(c).    We conclude that such a claim is not a civil

action "arising under" the state workers' compensation law; rather,

such a claimSQ basically an insurance malpractice tortSQis separate

from and independent of a claim for statutory workers' compensation

benefits, regardless of the fact that such a tort claim is "related

to" a compensation benefits claim and to the workers' compensation

insurance coverage of the claimant's employer.

                                  I

                        FACTS AND PROCEEDINGS

     Plaintiff-Appellant Jimmy Charles Patin, Sr. sustained a work-

related injury on October 2, 1990, while employed by Defendant

Allied-Signal, Inc. (Allied).     He continued to work for Allied

without loss of time or compensation until he was discharged on

November 2, 1990.      As Allied's workers' compensation insurance

carrier, Defendant-Appellee Travelers Indemnity Company of Rhode

Island (Travelers) paid medical bills for Patin's treatment but

never initiated payment of weekly workers' compensation benefits

because (1) Patin had lost no time as a result of his work-related

injury, and (2) he had a pre-existing physical limitation in his

shoulder.

     On March 21, 1991, Patin filed a workers' compensation claim

with the Texas Industrial Accidents Board (IAB), which awarded

Patin $42,091.02 in connection with the October 1990 accident.

                                  2
Both parties to that administrative proceeding appealed in a suit

de novo filed in state district court.           At the completion of the

jury trial that ensued, Patin's award was increased to $75,021.88

for permanent partial disability; his claim for total temporary

disability was rejected.

       In another action, Patin sued Allied in federal court for age

discrimination and wrongful discharge, claiming that Allied had

retaliated against him for filing the workers' compensation claim

for the October 1990 accident.            In that case, a federal jury

rendered a verdict in favor of Allied, producing a take-nothing

judgment adverse to Patin.

       Yet   a   third   lawsuit   implicating       Patin's   October   1990

accidentSQthe suit from which this appeal arisesSQwas filed by Patin

and his wife, Margaret (collectively, the Patins), on July 23,

1993, in the 128th Judicial District Court, Orange County, Texas.

It included, among others, a claim against Travelers for breach of

the duty of good faith and fair dealing.             Travelers removed the

case to federal district court on the basis of diversity of

citizenship.     The Patins timely filed a motion to remand this case

to   state   court,   contending   that   (1)   as   an   insurance   company

conducting business in Texas, Travelers is a de facto citizen of

that state, and thus removal is not proper; and (2) no proof

existed that the required $50,000 minimum jurisdictional amount was

met.    In addition, the Patins' motion made mention, in connection

with the de facto citizenship argument, of the fact that Travelers

does business under the Texas Workers' Compensation Act (TWCA).

                                     3
The Patins concluded their remand motion with the statement that

"[t]he       cause   should   be    remanded      because      the   outcome    depends

entirely on claims under the Texas Workers' Compensation Act, and

there are not [sic] federal questions."                   After a full hearing in

October 1993, the district court denied the Patins' motion to

remand.

     In       February   1994,     Travelers      filed    a   motion    for    summary

judgment, insisting that the Patins' claims were barred by both the

statute of limitations and the doctrine of res judicata.                       In August

1994, subsequent to a full merits hearing on that motion, the

district court granted summary judgment in favor of Travelers. The

following       month    the       Patins       timely    filed      a   motion     for

reconsideration, but it too was denied by the district court.1

     The Patins timely filed their notice of appeal from the

district court's denial of that post-judgment motion.                      On appeal

the Patins insist that 28 U.S.C. § 1445(c) mandates remand to state

court because their claims against Travelers arise under the TWCA.2

Predictably, the Patins also assert that neither the doctrine of

res judicata nor the applicable state statute of limitations bars

their claims.

     1
        The Patins' reconsideration motion was styled as a motion
for new trial, pursuant to Fed. R. Civ. P. 59(a), but was correctly
analyzed and decided in the district court as a Rule 59(e) motion
to reconsider entry of summary judgment.
         2
          "A civil action in any State court arising under the
workmen's compensation laws of such State may not be removed to any
district court of the United States."        28 U.S.C. § 1445(c)
(emphasis added).

                                            4
                                  II

                               ANALYSIS

A.   Standard of Review

     We review the district court's grant of a motion for summary

judgment de novo, applying the same standard as the district court

applied.3    Questions of law are decided just as they are outside of

the summary judgment context:     de novo.4

B.   Remand to State Court

     1.     Jurisdictional Amount and De Facto Citizenship

            In the district court the Patins, citizens of Louisiana,

contended that subject matter jurisdiction was wanting in federal

district court for       the following reasons:     (1) the summary

judgment evidence was insufficient to demonstrate that the amount

in controversy was equal to or exceeded $50,000, and (2) Travelers

was a de facto citizen of Texas by virtue of the way it does

business there.5    We agree with the district court's determination

that the requirements for diversity jurisdiction under 28 U.S.C.

§ 1332 were present and that 28 U.S.C. § 1441(b) does not prevent

     3
       Berry v. Armstrong Rubber Co., 989 F.2d 822, 824 (5th Cir.
1993), cert. denied,     U.S.    , 114 S. Ct. 1067, 127 L. Ed. 2d 386
(1994); Fraire v. City of Arlington, 957 F.2d 1268, 1273 (5th Cir.)
(citations omitted), cert. denied,       U.S.     , 113 S. Ct. 462,
121 L. Ed. 2d 371 (1992).
     4
Walker v. Sears, Roebuck & Co., 853 F.2d 355, 358 (5th Cir.
1988).
     5
       Complete diversity would still exist even if the Patins had
successfully argued that Travelers was a citizen of Texas. Under
these circumstances, however, removal would have been improper
because the Patins brought the action in Texas state court. See 28
U.S.C. § 1441(b).

                                   5
removal.   Presumably the Patins do too, as they do not challenge

these holdings on appeal.

     2.    Remand under 28 U.S.C. § 1445(c)

           Before     us,   the   Patins    rely    solely   on    §     1445(c)   as

justification for remand.         They contend that all of their claims

against Travelers "aris[e] under Workmen's Compensation laws" of

Texas; as such, the removal of this case from state court was void,

and the case therefore must be remanded to state court.                            In

response, Travelers offers two theories on which it urges us to

affirm the district court's denial of remand and retention of

jurisdiction:    (1) The Patins have waived their right to insist on

remand; and     (2)   the   Patins'   common       law   claim    that    Travelers

breached the duty of good faith and fair dealing, their Texas

Insurance Code claim, and their claim of civil conspiracy, were all

"separate and independent claims" from the claims for statutory

workers'   compensation      benefits       that    they   advanced       in   their

IAB/state court litigation, confirming that the Patins' action

cannot come within the purview of the non-removability provisions

of § 1445(c).    We address Travelers' two theories in sequence.

           a.    Waiver

                 If Travelers is correct that the Patins have waived

their right to claim improper removal, our remand inquiry is at an

end, and we need not consider non-removability under § 1445(c).

Travelers insists that the Patins neither cited nor relied on

§ 1445(c) in their Motion to Remand or in their argument to the

district court at the hearing on that motion.                     Rather, states

                                        6
Travelers, remand based on § 1445(c) was raised for the first time

in the Patins' motion for a new trial (reconsideration), thereby

failing to comply with the requirement of § 1447(c) that "[a]

motion to remand the case on the basis of any defect in removal

procedure must be made within 30 days after the filing of the

notice       of    removal   under   section   1446(a)."6   Travelers   notes

correctly that in this circuit the wrongful removal of a civil

action arising under a state's workers' compensation law is a

procedural defect that is waivable under § 1447(c).7               Patin no

longer disputes that diversity is complete, so the instant claim

clearly could have been brought originally in federal court.              As

such, the following rule of this circuit applies:

                  If a plaintiff initially could have filed his
                  action in federal court, yet chose to file in
                  state court, even if a statutory provision
                  prohibits the defendant from removing the
                  action and the defendant removes despite a
                  statutory proscription against such removal,
                  the plaintiff must object to the improper
                  removal within thirty days after the removal,
                  or he waives his objection.8

     Although Travelers correctly recites the applicable law when

it asserts that the Patins' removal complaint is procedural in

nature and thus waivable, the facts eschew waiver.           True, § 1445(c)

was neither quoted nor cited by section number in the Patins'

removal motion or in their argument to the district court at the

     6
             28 U.S.C. § 1447(c).
         7
Will. v. AC Sparkplugs, 985 F.2d 783 (5th Cir. 1993)
(construing § 1445(c)); Lirette v. N.L. Sperry Sun, Inc., 820 F.2d
116, 117 (5th Cir. 1987) (en banc) (construing § 1445(a)).
     8
Will. v. AC Sparkplugs, 985 F.2d at 787.

                                         7
hearing on that motion.    Nevertheless, the substantive concept

embodied in § 1445(c)SQnon-removability of claims arising under

state workmen's compensation lawsSQwas adverted to in the motion

and was discussed, however briefly, in the hearing.   Moreover, in

contesting removal Travelers apparently addressed briefly the issue

of non-removability and referred to § 1445(c) by number, thereby

eliminating any question whether that ground for remand was before

the district court. Thus, we reject Travelers' contention that the

Patins waived their   right to insist on remand to state court.

          b.   "Arising Under" the Texas Workers' Compensation Act

          The intra-circuit conflict alluded to in the introductory

portion of this opinion was created by diametrically opposed

jurisprudential answers to the question whether an employee's claim

against his employer's workers' compensation insurance carrier for

the breach of its duty of good faith and fair dealing "arises

under" the workers' compensation laws of the state.        Federal

district courts of this circuit are split on the issue.9

      9
          Compare Warner v. Crum & Forster Commercial Ins. Co.,
839 F. Supp. 436, 439 (N.D. Tex. 1993); Haines v. National Union
Fire Ins. Co., 812 F. Supp. 93, 95 (S.D. Tex. 1993); Bastian v.
Travelers Ins. Co., 784 F. Supp. 1253, 1258 (N.D. Tex. 1992); Powers
v. Travelers Ins. Co., 664 F. Supp. 252, 254 (S.D. Miss. 1987) (good
faith and fair dealing claims removable) with Walker v. Health
Benefit Management Cost Containment, Inc., 860 F. Supp. 1163, 1166
(N.D. Tex. 1994); Almanza v. Transcontinental Ins. Co., 802 F. Supp.
1474, 1477 (N.D. Tex. 1992); Allsup v. Liberty Mutual Ins. Co., 782
F. Supp. 325, 327 (N.D. Tex. 1991); Watson v. Liberty Mutual Fire
Ins. Co., 715 F. Supp. 797, 798 (W.D. Tex. 1989) (good faith and
fair dealing claims arise under the TWCA and are not removable).
In both Allsup and Watson, claims for benefits were removed with
good faith and fair dealing claims. In both cases resolution of
the question whether the good faith and fair dealing claims arose
under the TWCA was unnecessary because the benefit claim was
sufficient alone to defeat removal. See Allsup, 782 F. Supp. at 328

                                 8
                We begin by reiterating a basic rule of this circuit that

the "arising under" standard expressed in § 1445(c) should be

interpreted        broadly   and    in   a   manner   consistent   with   our

interpretation of that standard under § 1331, which governs federal

question jurisdiction.10           We see that admonition followed by the

district court in Almanza v. Transcontinental Ins. Co., a case

relied on by the Patins, at least by analogy.11           The Almanza court

reasoned that, inasmuch as proof of a viable workers' compensation

claim is an essential element of a claim against the compensation

insurance carrier for breach of the duty of good faith and fair

dealing, the workers' compensation statute creates the cause of

action and the claim arises under that law.12            The district court

reasoned further that placing good faith and fair dealing claims

within the scope of § 1445(c) serves the important policy function

of allowing courts of the states to vindicate the policies embodied

in their workers' compensation schemes.13

     Travelers distinguishes the situation in Jones v. Roadway

n.5 (reserving judgment on issue whether removal of claim alleging
breach of duty of good faith and fair dealing alone would have been
proper).
     10
Jones v. Roadway Express, Inc., 931 F.2d 1086, 1092 (5th
Cir. 1991) (suit under Texas statute prohibiting discharge and
retaliation for filing Workers' Compensation claim arises under
TWCA).
    11
              Almanza v. Transcontinental Ins. Co., 802 F. Supp. 1477-79.
         12
          Id. at 1477 (quoting Jones, 931 F.2d at 1092 ("A suit
arises under the law that creates the cause of action.")).
     13
              Id. at 1479.

                                         9
Express, Inc.14 from the circumstances in the good faith and fair

dealing cases that reliedSQerroneously, according to TravelersSQon

Jones.          Travelers correctly observes that the cause of action

underlying the retaliatory discharge claim at issue in Jones was

created not by Texas common law but by statute, with specific

reference to workers' compensation claims.15

     Historically, workers injured in Texas could not recover more

than the statutory remedies contained in the compensation statute.16

In 1988, however, the Texas Supreme Court recognized an employee's

common law cause of action in tort for the breachSQby an employer's

workers' compensation insurance carrierSQof the duty of good faith

and fair dealing in the mishandling of the employee's compensation

benefits claim.17           Nevertheless, the Texas Supreme Court in Aranda

made clear, as have the state appellate courts in the cases that

have followed, that good faith and fair dealing claims arise under

common         law,   not   under   the   compensation   statute.18   This   is

     14
               931 F.2d 1086 (5th Cir. 1991).
          15
           See also Haines, 812 F. Supp. at 95 n.1; Bastian, 784
F. Supp. at 1256-57 (distinguishing Jones and retaliatory discharge
claims); Jones, 931 F.2d at 1091-92 & n.3.
    16
       See Aranda v. Insurance Co. of N. Am., 748 S.W.2d 210, 213
(Tex. 1988) (disapproving of a number of prior appellate decisions
which had held that no duty was owed to the injured worker).
     17
               Id.
         18
         Aranda, 748 S.W. 2d at 214 (good faith and fair dealing
claim permitted only when injured worker can demonstrate that
carrier's breach is "separate from the compensation claim and
produced an independent injury"); Izaguirre v. Texas Employers'
Ins. Ass'n, 749 S.W.2d 550, 553 (Tex. App.SQCorpus Christi 1988,
writ denied) (". . . `bad faith' is a tort independent of the
underlying claim for employment injury .        . ."); see also

                                           10
consistent with the fact that damages for breach of good faith and

fair dealing are not measured by reference to the exclusive remedy

provisions of the TWCA.19

     Even if we were inclined to stop at this point, though, our

inquiry could not be deemed complete.     For, although state law may

create the cause of action and define the claim, federal law

governs whenever our consideration involves construction of a

removal statute.20   Those of our federal district courts that have

held that bad faith claims do not arise under the state statute

have, like the state courts, relied on the independent tort nature

of such claims, i.e., that the duty to deal fairly and in good

faith is created by the common law, not by the compensation

statute.21   For example, in Warner v. Crumb & Forster Commercial

Insurance Co.,22 the most recent federal case holding that claims

for breach of that duty are removable because they do not arise

under the TWCA, the district court speculated that "[i]f the Texas

legislature were to codify the duty of good faith and fair dealing,

Transportation Ins. Co. v. Moriel, 879 S.W.2d 10, 17 (Tex. 1994);
Viles v. Security Nat'l. Ins. Co., 788 S.W.2d 566, 567 (Tex. 1990)
(bad faith claim is separate from claim for breach of underlying
contract).
     19
          Moriel, 879 S.W.2d at 17-19.
     20
          Jones, 931 F.2d at 1092.
     21
         See, e.g., Haines, 812 F. Supp. at 95 (duty of good faith
and fair dealing is judicially created common law cause of action);
Bastian, 784 F. Supp. at 1256, 1258 (bad faith claims clearly not
created or determined by provisions of TWCA); Powers, 664 F. Supp.
at 255 (bad faith claim does not arise under Mississippi Workers'
Compensation Act).
     22
          839 F. Supp. 436 (N.D. Tex. 1993).

                                 11
its codification undoubtedly would be with laws pertaining to the

obligations of insurers generally, not with worker's compensation

laws."23     Given the general nature of the duty and the broad

spectrum of relationships to which it can apply, the Warner court

concluded    that       good   faith   and    fair   dealing   claims   are   only

"incidentally related" to the workers' compensation statute and the

underlying contract providing compensation benefits.24
Walker v. Health Benefit Management Cost Containment, Inc.,25

is the only published post-Almanza opinion from a district court of

this circuit to hold that bad faith claims are not removable.                  The

Walker     court    construed      §    1445(c)      as   reflecting    a   strong

Congressional policy to defer to the states in the area of workers'

compensation.26         In Walker the district court placed great weight

on what it characterized as the "almost laughable anomaly" that

would be created if the bad faith claim were removable while the

claim for benefits, on which it depends, were not.27                    We're not

laughing:     Perhaps on deeper analysis the Walker court too would

have perceived the situation to be more serious and less amusing;

for, in actuality, these claims are quite often severed at the

state level.

     Indeed,       as   most   states    have   enacted    expedient    and   less

     23
           Id. at 439 n.5.
     24
           Id. at 439.
     25
           860 F. Supp. 1163 (N.D. Tex. 1994).
     26
           Walker, 860 F. Supp. at 1169-70.
     27
           Id. at 1169.

                                         12
expensive administrative procedures for adjudicating claims of

injured workers,28 we interpret the policy underlying § 1445(c)

somewhat differently than did the Walker court.                     Section 1445(c)

was passed       to   encourage   the    use   of   just    such     administrative

procedures and to prevent the undue burden that is placed on the

worker when an action is removed to federal court, where such

procedures generally do not apply. That underlying policy does not

appertain, though, when the cause of action at issue is independent

of the administrative procedures applicable to a state workers'

compensation claimSQas are claims for breach of the duty of good

faith and fair dealing.

      Given (1) the cogent analysis of the Texas Supreme Court that

claims against insurers "arise under" the common law, not under the

TWCA, (2) the foregoing analysis of the purpose of § 1445(c), and

(3)     the     burgeoning    administrative         treatment        of   workers'

compensation claims in the several states, we conclude that claims

for the breach of the duty of good faith and fair dealing do not

"arise under" the state workers' compensation statutes but are, at

most, "related to" those statutes and thus do not come within the

ambit      of   the   non-removability    provision        of   §   1445(c).29   We

therefore affirm the ruling of the district court rejecting the

      28
        S. Rep. No. 1830, 85th Cong., 2d Sess. (1958), reprinted
in 1958 U.S.C.C.A.N. 3099, 3106.
        29
          This court recently reached the same conclusion in the
context of removal and remand of an action instituted by an
employee seeking to set aside a compromise settlement agreement
(CSA) with the employer's workers' compensation carrier. See Ehler
v. St. Paul Fire and Marine Ins. Co.,     F.3d     (5th Cir. 1995).

                                         13
Patins'    motion      to   remove    and        their    more   recent    motion     to

reconsider. As this holding confirms the diversity jurisdiction of

the district court and sustains the district court's rejection of

the removal and remand challenge mounted by the Patins, we turn now

to consider the next hurdle that the Patins must clear to prevail,

res judicata.

C.   Res Judicata

     Recall that Patin initiated three lawsuits in the wake of his

work-related accident and employment termination by Allied.                          In

addition    to   the    instant      suit    against       Travelers      and   to   the

employment discrimination suit against Allied, the Patins also

filed a lawsuit in the state district court in Orange County,

Texas, arising out of the Patins' successful (but, in his opinion,

undercompensated) claim with the IAB.                In the Orange County suit,

Patin successfully increased his benefit award against Travelers

from $45,091.02 to $75,021.88.

     The district court in the instant case concluded that, even

though the Patins did not assert the good faith and fair dealing

claim against Travelers in their state court suit for compensation

benefits, they could have and should have done so.                     We agree.

     In federal court, the preclusive effect of a prior state court

judgment is governed by state law.30                     Under Texas law, a prior

judgment "precludes a second action by the parties and their

privies not only on matters actually litigated, but also on causes

of action or defenses which arise out of the same subject matter

     30
           Kurzweg v. Marple, 841 F.2d 635, 639 (5th Cir. 1988).

                                            14
and which might have been litigated in the first suit."31

     The Patins dispute neither that rule nor its applicability in

federal court; instead, they insist that Patin's attempt to amend

his pleadings in the employment discrimination suit against Allied

immunizes the Patins' claims against Travelers in the instant suit

from the doctrine of res judicata.          In advancing this theory, the

Patins rely on Turner v. Richardson I.S.D..32            In Turner a state

district court held that res judicata did not bar litigation of

pendent state law claims over which a federal district court had

previously refused to exercise supplemental jurisdiction.33

     We find Turner inapposite, affording no support for Patin's

contention.      Regardless of Patin's failed efforts to include the

instant   good    faith   and   fair   dealing   claim   in   his   erstwhile

discrimination suit against Allied, the Patins clearly made no

attempt, either originally or subsequently, to include the breach

of good faith and fair dealing claim against Travelers in the state

court compensation benefit suit against that insurer; neither is

there any showing that the state trial judge denied the Patins the

opportunity to bring or add such claims.34

    31
        Getty Oil Co. v. Insurance Co. of N. Am., 845 S.W.2d 794,
798 (Tex. 1992) (quoting Barr v. Resolution Trust Corp., 837 S.W.
2d 627, 630 (Tex. 1992)), cert. denied sub nom., Youell & Cos. v.
Getty Oil Co.,     U.S.     , 114 S. Ct. 76, 126 L. Ed. 2d 45 (1993).

     32
          885 S.W.2d 553 (Tex. App.SQDallas 1994, no writ).
     33
          Id. at 560.
     34
        Tex. R. Civ. P. 51(a) permits joinder of "as many claims
either legal or equitable or both as [plaintiff] may have against
an opposing party."

                                       15
      In that state court compensation suit against Travelers, the

Patins could have included or added claims for breach of that

insurer's duty of good faith and fair dealingSQa cause of action

that arose from the same subject matter as did their benefits

claims, i.e., Travelers' failure or refusal to pay compensation to

Patin following his work-related October 1990 accident.35 Thus, the

district court's dismissal of the instant suit as barred by the

doctrine of res judicata was correct and is hereby affirmed.           As a

result, we need not, and therefore do not, reach the question

whether the Patins' claims against Travelers are time barred as

well.

                                     III

                              CONCLUSION

      The Patins could have brought their claim against Travelers

for its alleged breach of the duty of good faith and fair dealing

by filing suit in federal district court in the first place.            It

follows, then, that the Patins' objection that the removal of their

state court suit violated § 1445(c) implicates a procedural defect

in   that    removal.   As   such,    their   objection   was   waivable.

Nevertheless, the record on appeal demonstrates that the Patins'

timelySQif    inartfullySQplaced   non-removability   under     §   1445(c)

before the district court in their Motion to Remand and again in

     35
        The Patins' contention that their bad faith claim did not
ripen until they won their compensation suit in state court is
simply wrong, and is not supported by Marino v. State Farm Fire &
Casualty Ins. Co., 787 S.W.2d 948 (Tex. 1990). Marino dealt with
a cause of action that arose post-judgment and thus could not have
been asserted in the prior case, clearly distinguishable from the
Patins' situation.

                                     16
their argument at the hearing on that motion.    Thus, they did not

waive their right to contest removal on grounds of a violation of

§ 1445(c).

     We hold, however, that the breach of the duty of good faith

and fair dealing by a carrier of workers' compensation insurance is

an independent tort created bySQand thus "arising under"SQthe common

law, and is at most "related to" the workers' compensation laws

that create the basic benefit rights of the covered employee and

those claiming through him.36   Consequently, the non-removability

provisions of § 1445(c) are inapplicable to claims grounded in a

breach of that duty.   The district court's denial of remand in the

instant case was correct.    Also correct was the district court's

determination that res judicata bars the Patins' claims based on

Travelers' alleged breach of the duty of good faith and fair

dealing.

     As we affirm the rulings of the district court on both removal

and res judicata, we affirm that court's dismissal of the Patins'

     36
          Non-retroactive amendments to the Texas Workers'
Compensation Statute post-dated the accrual of the Patins' cause of
action and thus could not affect the § 1445(c) issue in this case.
See Acts 1989, 71st Leg., 2nd C.S., ch. 1, § 10.41 (repealed and
codified at Tex. Lab. Code Ann. § 416.001) (providing that certain
actions taken by the carrier in reliance on the Commission or the
benefit review officer are not actionable for breach of the duty of
good faith and fair dealing); and § 416.002 (placing a cap on the
quantum of damages recoverable from a compensation carrier on a
claim for breach of the duty of good faith and fair dealing). Even
if these amendments had been in effect when the Patins' cause of
action accrued, they would not change our conclusion that a cause
of action for breach of that duty "arises under" the common law;
these statutory amendments at most "relate to" that common law
cause of action, and therefore do not affect the § 1445(c)
question.

                                 17
claims against Travelers.

AFFIRMED.

DeMOSS, Circuit Judge, dissenting:

     I concur with the conclusion reached in Part 2(a) of the

majority opinion, which rejects Travelers' contention that the

Patins waived their right to insist on remand to state court.

However, I am unable to concur with the conclusion reached by the

majority in Part 2(b), that claims for breach of the duty of good

faith and fair dealing do not "arise under" the state workers'

compensation statutes, and thus do not come within the ambit of the

nonremovability provision of § 1445(c).

     I start with the text of 28 U.S.C. § 1445(c) which reads:

          (c) A civil action in any State court arising under
     the workmen's compensation laws of such State may not be
     removed to any district court of the United States.

(emphasis added.)         The critical error which I believe the majority

makes   is   to    read    the   underlined    word    "laws"   as   if    it    were

"statutes".       Section 1445 subparts (a) and (b) both define actions

that may not be removed by reference to specific sections in the

United States Code.         However, in subsection (c) the Congress used

the broad generic term "laws".               The majority opinion recognizes

that "the `arising under' standard expressed in § 1445(c) should be

interpreted       broadly    and    in   a    manner    consistent        with    our

interpretation of that standard under § 1331, which governs federal

question jurisdiction;" and cites as precedent Jones v. Roadway

Express, Inc., 931 F.2d 1086, 1092 (5th Cir. 1991).                  In my view,

this cross-reference to § 1331 decides this case.               In interpreting

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the language   of   §   1331   which   gives   district   courts   original

jurisdiction "of all civil actions arising under the Constitution,

laws or treaties of the United States," the Supreme Court has

clearly interpreted the word "laws" to include, not only statutory

enactments, but also judicial decisions which construe and extend

those statutory provisions. See Illinois v. City of Milwaukee, 406
U.S. 91, 92 S. Ct. 1385, 31 L. Ed. 2d 712 (1972) (holding that §

1331 jurisdiction will support claims founded upon federal common

law as well as those of statutory origin).          Likewise, in another

context, the Supreme Court has recognized that the statutory word

"laws" includes court decisions for purposes of determining the

"state law" to be applied by federal courts.        Erie Railroad Co. v.

Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed 2d 1188 (1932).          In

§ 1445(c), Congress used the phrase "arising under the workmen's

compensation laws of such State."       In my view, that includes both

(1) civil actions specified by the state's workers' compensation

statute, and (2) civil actions created by the state's Supreme Court

which substantially relate to the duties, rights and privileges

established by that statute. The Supreme Court of Texas recognized

such a civil action in Aranda v. Insurance Company of North

America, 748 S.W.2d 210 (Tex. 1988), which held:

          (a) that the Texas Workers' Compensation Act sets
     forth a compensation scheme that is based on a three-
     party agreement entered into by the employer, the
     employee and the compensation carrier;

          (b) that the constitutionality of the Workers'
     Compensation Act rests on the contractual nature of this
     agreement;

          (c) that the injured employee is a party to the
     contract and therefore entitled to recover in that
     capacity;
          (d) that the contract between the compensation
     carrier and the injured employee creates the same type of
     special relationship that arises under other insurance
     contracts; and

          (e) that there is a duty on the workers'
     compensation carrier to deal fairly and in good faith
     with injured employees in the processing of compensation
     claims.

Aranda, 748 S.W.2d at 212-13.       When the Texas Supreme Court so

clearly bases its recognition of the right to sue for breach of the

duty of good faith and fair dealing on the rights and duties

created by the Workers' Compensation Act, then I have no trouble

whatsoever in concluding that a claim by an injured employee

against the compensation carrier for bad faith in dealing with his

claim is one "arising under the workers' compensation laws" of the

State of Texas, and is therefore not removable.             The majority's

cramped and stingy reading of the word "laws", which insists that

if you can't find the words "good faith and fair dealing" in the

text of the workers' compensation statute then the cause of action

does not arise under the "workers' compensation laws," is clearly

inconsistent with Supreme Court cases, the Congressional policy

reflected in § 1445(c) and our own precedent in Jones v. Roadway

Express, 931 F.2d at 1092 ("whether a state has codified a statute

as part of its workers' compensation chapter does not determine

whether a claim filed under that statute is one `arising under the

workers'   compensation   laws'   for   the   purpose      of   §   1445(c)")

(alteration in original).

     Furthermore,   I   would   point   out   that   the    Texas    workers'

compensation statute was amended in 1989 to include new provisions

                                   20
that expressly define and limit good faith and fair dealing actions

against Texas workers' compensation carriers.               These amendments

came right on the heels of the Texas Supreme Court decision in

Aranda and it is significant to me that, contrary to the district

court's speculation in Warner, the legislature used the workers'

compensation    statute     rather    than    statutes    relating     "to   the

obligations of insurers generally," as the vehicle for implementing

these changes.      Warner, 839 F. Supp. at 439 n.5.              One statutory

amendment provides that certain actions taken by the carrier in

reliance on the Commission or the Benefit Review officer are not

actionable for breach of the duty of good faith and fair dealing.

Acts 1989, 71st Leg., 2d C.S., ch. 1, § 1041 repealed and codified,

TEX. LABOR CODE § 416.001.       The second provision places a damage cap

on   good   faith   and   fair    dealing    actions    against    compensation

carriers.    Acts 1989, 71st Leg., 2d C.S., ch. 1, § 1042 repealed

and codified, TEX. LABOR CODE § 416.002.               Because both of these

sections became effective June 1, 1991, which was after Patin's

original injury, I recognize they do not control the present case.

I mention them to point out the strange anomaly that will occur

when the majority opinion is applied to workers' injuries occurring

after June 1, 1991.       In those cases, the compensation carrier will

be able to remove any claim for breach of the duty of good faith

and fair dealing to federal court, because in the majority's view

that claim does not arise under the Texas workers' compensation

statute.    At the same time, however, the carrier will be entitled

to exemptions from liability and limitations on its damage exposure

                                       21
because express provisions have been inserted in the Texas workers'

compensation statute giving those protections.                    The majority's

treatment           of   sections    416.001    and   416.002    in   footnote    36

accentuates the stinginess of the majority's interpretation of the

word "laws"; and in my view the majority errs in not leaving open

for future decisions whether good faith and fair dealing claims

based on injuries occurring after the effective date of these

sections "arise under" the Texas workers' compensation statutes.

        Finally, it seems to me that whether or not a compensation

carrier did in fact deal fairly and in good faith with the injured

employee is a determination which will be inextricably intertwined

with the determination of what the injured employee was entitled to

in the way of compensation benefits under the Texas Compensation

Act.     In Aranda, the Texas Supreme Court made this expressly clear

by    specifying         that   an   injured    employee   who   asserts   that   a

compensation carrier has breached the duty of good faith and fair

dealing by refusing to pay or delaying payment of a claim must

establish:

        (1) the absence of a reasonable basis for denying or
        delaying payment of the benefits of the policy; and (2)
        that the carrier knew or should have known that there was
        not a reasonable basis for denying the claim or delaying
        payment of the claim.

Aranda, 748 S.W.2d at 213.               Clearly, the benefits to which an

employee may be entitled under the Texas Compensation Act are

issues of state law, as to which federal district courts have no

background or expertise and have heretofore been prohibited by §

1445(c) from addressing.               The majority opinion will now force
opin\94-41150.dis
                                           22
federal district courts in Texas to address the intricacies of the

Texas      workers'   compensation   statute   as   an   integral   part   of

resolving a claim of lack of good faith and fair dealing by the

compensation carrier after removal from the state court.            I think

it would be better policy and more efficient judicial management to

leave the disposition of the cases brought against the compensation

carrier for noncompliance with its duty of fair dealing with the

state courts.

        I would vacate the judgment of the district court and remand

the case to the district court with instructions to remand to the

state court from whence it was removed.

opin\94-41150.dis
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