Court Opinion

ID: 2867234
Source: CourtListenerOpinion
Date Created: 2015-09-06 01:46:58.145925+00
Date Added: 2024-06-11T11:34:53.500520
License: Public Domain

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

                                        NO. 03-02-00658-CV

                         American Capitol Insurance Company and Texas
                           Imperial Insurance Company, Appellants

                                                   v.

                    Jose Montemayor, Commissioner of Insurance and Texas
                             Department of Insurance, Appellees

        FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT
               NO. GN200980, HONORABLE PAUL DAVIS, JUDGE PRESIDING

                             MEMORANDUM OPINION

                Appellants American Capitol Insurance Company and Texas Imperial Insurance Company

appeal from the district court=s order granting the plea to the jurisdiction filed by appellees Jose

Montemayor, Commissioner of Insurance, and the Texas Department of Insurance (collectively, ATDI@).

We reverse the judgment of the district court and remand the cause with instructions to abate the cause

pending resolution of the underlying administrative proceedings.

                                          The Controversy

                In 1999, the Commissioner, appellants, and the National Organization of Life and Health

Insurance Guaranty Associations entered into a Aliquidation plan@ governing the insolvency of Statesman
National Life Insurance Company. Statesman National was a wholly owned subsidiary of Texas Imperial,

which in turn is a wholly owned subsidiary of American Capitol. Under the liquidation plan, American

Capitol and Texas Imperial agreed to provide continuing coverage for several groups of Statesman

National=s policyholders and to contribute an Aenhancement@ to the life and health insurance guaranty

associations participating in the liquidation plan.

                 In November 2001, TDI reported to the Commissioner that American Capitol and Texas

Imperial had made inter-company settlements on business assumed under the liquidation plan without giving

TDI notice or obtaining TDI approval, thus violating the Holding Company Act. See Tex. Ins. Code Ann. '

21.49-1 (West Supp. 2003).1 TDI also reported that (1) Texas Imperial had violated accounting rules and

28 Tex. Admin. Code ' 7.28(e) (2002) by including its reinsurance gains as unassigned surplus instead of

as separate surplus funds on Texas Imperial=s financial statements, as TDI had requested in previous

communications, (2) American Capitol had violated accounting rules and 28 Tex. Admin. Code ' 7.70

(2002) by failing to disclose on its financial statement about $500,000 in assets under dispute with the

        1
          The Holding Company Act requires insurers to report to the Commissioner, among other items,
any purchases, sales, exchanges of assets, Atransactions not in the ordinary course of business,@ and
Amanagement and service contracts and all cost-sharing arrangements@ between an insurer and its holding
company, subsidiaries, or affiliates. Tex. Ins. Code Ann. ' 21.49-1, ' 3(b)(3) (West Supp. 2003). Prior
approval is required for sales, purchases, exchanges, loans, and other transactions between an insurer and a
member of its holding company system. Id. ' 4(d).

                                                      2
receivership estate, and (3) American Capitol had violated the liquidation plan by paying an employment

bonus.

                 On March 26, 2002, appellants filed a declaratory judgment suit against TDI in district

court. On April 11, TDI sent appellants notice of a hearing to consider whether to take disciplinary action

against appellants, making the same allegations it had made in its reports to the Commissioner. The hearing

was set for June 24. On June 14, TDI filed an amended notice of hearing, dropping the allegation related to

the bonus paid by American Capitol;2 the other allegations of statutory and rule violations remained the

same. TDI filed a plea to the jurisdiction in the district court, arguing that appellants= suit was an attempt to

thwart administrative procedures before the State Office of Administrative Hearings (ASOAH@). The district

court granted the plea to the jurisdiction and dismissed appellants= suit.

                 On appeal, appellants contend that the district court had jurisdiction over their declaratory

judgment suit by virtue of (1) the terms of the liquidation plan, and (2) section 2001.038 of the government

code.3 Tex. Gov=t Code Ann. ' 2001.038(a) (West 2000). TDI, on the other hand, argues that (1) the

agency has initial exclusive jurisdiction under the insurance code, (2) the liquidation plan does not confer

         2
           Appellants ask us to determine as a matter of law whether paying the bonus was a violation of the
liquidation plan because Anothing would prohibit the TDI from further amending its notice and adding this
[charge] again.@ The determination of an issue not before us would be advisory and we will examine the
propriety of the district court=s decision based on the live pleadings at the time the decision was made, using
the allegations contained in TDI=s amended notice of hearing.
         3
          Before the district court, appellants also asserted jurisdiction under article 21.28 of the insurance
code and the Uniform Declaratory Judgments Act (AUDJA@). See Tex. Civ. Prac. & Rem. Code Ann. ''
37.001-.011 (West 1997 & Supp. 2003). However, they confine their arguments on appeal to the
liquidation plan and section 2001.038 of the government code.

                                                       3
exclusive jurisdiction on the district court, and (3) the district court properly deferred to TDI under the

doctrine of primary jurisdiction.

                                             Standard of Review

                 A plea to the jurisdiction contests a trial court=s authority to consider a cause of action.

Tsumi, Inc. v. Texas Parks & Wildlife Dep=t, 23 S.W.3d 58, 60 (Tex. App.CAustin 2000, pet. denied).

The plaintiff must allege facts to demonstrate that subject matter jurisdiction lies with the district court.

Texas Ass=n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 446 (Tex. 1993). Unless the petition

affirmatively shows on its face a lack of jurisdiction, the district court should liberally construe the allegations

in favor of jurisdiction. Continental Coffee Prods. Co. v. Cazarez, 937 S.W.2d 444, 449 (Tex. 1996).

When deciding whether the district court properly exercised jurisdiction, we consider the factual allegations

made by the plaintiff in good faith. Brannon v. Pacific Employers Ins. Co., 224 S.W.2d 466, 469 (Tex.

1949). These allegations are accepted as true unless the defendant pleads and proves that they were made

fraudulently to confer jurisdiction. Cazarez, 937 S.W.2d at 449. However, we are not completely

confined to the pleadings; we may consider evidence outside the pleadings and must do so when necessary

to resolve the jurisdictional issues. Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 555 (Tex. 2000).

Appellants= pleadings have not been challenged as fraudulent, and we will accept the factual allegations as

true. Subject matter jurisdiction raises a question of law, and we therefore conduct a de novo review of a

trial court=s decision. See Mayhew v. Town of Sunnyvale, 964 S.W.2d 922, 928 (Tex. 1998).

                                    Exclusive and Primary Jurisdiction

                                                         4
                Appellants and TDI both argue that the doctrine of exclusive jurisdiction applies to this

cause. Appellants argue that the district court has exclusive jurisdiction under the liquidation plan to

determine this and all disputes arising out of the plan, while TDI argues that it and SOAH have exclusive

jurisdiction to make an initial administrative determination.

                Texas trial courts are courts of general jurisdiction, meaning they presumably have subject

matter over a controversy unless a contrary showing is made. Subaru of Am., Inc. v. David McDavid

Nissan, Inc., 84 S.W.3d 212, 220 (Tex. 2002). Administrative agencies, on the other hand, are not

presumably authorized to resolve disputes; they only have powers clearly and expressly conferred upon

them by law. Id. We will not imply additional authority to an agency, and an agency may not take it upon

itself to expand its powers. Id.

                Exclusive jurisdiction is legislatively granted and gives an administrative agency the sole

authority to make an initial determination in a dispute. Id. at 221. Exclusive jurisdiction is found when a

Apervasive regulatory scheme@ indicates a legislative intent for the agency=s regulatory process to be the

exclusive means of resolving a dispute. Id. (quoting Andrew G. Humphrey, Comment, Antitrust

Jurisdiction and Remedies in an Electric Utility Price Squeeze, 52 U. Chi. L. Rev. 1090, 1107 n.73

(1985)). When an agency has exclusive jurisdiction, a party generally must exhaust its administrative

remedies before seeking judicial review and until the party has done so, trial courts lack jurisdiction and

should dismiss the party=s claims without prejudice. Id.

                                                      5
                 Primary jurisdiction is judicially created and allocates power between courts and

administrative agencies when both are authorized to make initial determinations in a dispute. Id. Trial courts

should defer to an agency for initial decisions when:

        (1) an agency is typically staffed with experts trained in handling the complex problems in
        the agency=s purview; and (2) great benefit is derived from an agency=s uniformly
        interpreting its laws, rules, and regulations, whereas courts and juries may reach different
        results under similar fact situations.

Id.; see Butnaru v. Ford Motor Co., 84 S.W.3d 198, 208 (Tex. 2002). If primary jurisdiction requires a

trial court to defer to an agency for initial decisions, the trial court should abate the claims until the agency

has acted on the matter. David McDavid, 84 S.W.3d at 221. A trial court=s determination regarding

exclusive or primary jurisdiction is reviewed on appeal de novo. Id. at 222.

                 Paragraph 8.2 of the liquidation plan provides that Athe Parties hereby consent to the

exclusive jurisdiction of the [district court] to resolve any and all disputes as amongst the parties which arise

out of or relate, directly or indirectly, to the Liquidation Plan.@ Appellants argue that, because the district

court initially had jurisdiction over the liquidation plan and all related matters, the court maintains exclusive

jurisdiction over these disputes between appellants and TDI. They cite to Texas A&M University-

Kingsville v. Lawson in support, arguing that once a trial court validly assumes jurisdiction over a cause, it

maintains continuing jurisdiction over later, related disputes. 87 S.W.3d 518 (Tex. 2002). In Lawson, the

plaintiff sued the university under the Whistleblower Act, Tex. Gov=t Code Ann. '' 554.001-.010 (West

1994 & Supp. 2003), and then settled with the university and dismissed his suit. Lawson, 87 S.W.3d at

518-19. Some time later, the plaintiff again sued, alleging the university had breached the settlement

                                                        6
agreement. Id. at 519. The university filed a plea to the jurisdiction, asserting sovereign immunity, but the

supreme court held that the trial court properly denied the plea because immunity from the plaintiff=s original

claims was waived under the Whistleblower Act. Id. at 521. The court held that the university could not

through settlement regain immunity that was legislatively waived. Id. at 522-23.

                 The cause at hand presents a different issue than the question decided in Lawson. Here,

there is no question related to sovereign immunity and no indication that TDI is attempting to sidestep a

waiver of any other defense.4 We instead review this cause under the law as stated in Chenault v. Phillips:

AThis Court=s jurisdiction, like that of all Texas courts, is conferred solely by the Texas Constitution and

state statutes. We do not have jurisdiction to decide any case absent an express constitutional or statutory

grant.@ 914 S.W.2d 140, 141 (Tex. 1996). It follows that parties cannot contractually agree to confer

jurisdiction, exclusive or otherwise, on a particular court if jurisdiction does not lie under legislative or

constitutional grant.

                 Paragraph 8.2 does not automatically vest the district court with exclusive jurisdiction

related to TDI=s allegations of statutory and rule violations. Nor does a review of the insurance code reveal

any statutory provision or other clear legislative intent granting TDI and SOAH exclusive jurisdiction over

this dispute. See David McDavid, 84 S.W.3d at 223 (exclusive jurisdiction is matter of statutory

interpretation; statute clearly and expressly granted agency Aexclusive, original jurisdiction@ over disputes).

        4
            Nor is this a situation akin to Continental Coffee Co. v. Cazarez, in which a plaintiff originally
filed suit asserting damages within the trial court=s jurisdiction, and then later increased her pleaded damages
beyond the trial court=s jurisdictional limit. 937 S.W.2d 444, 449 (Tex. 1996). The supreme court held
that because the trial court properly acquired jurisdiction over the cause, later events did not divest the court
of jurisdiction. Id.

                                                       7
                                             TDI=s Jurisdiction

                 TDI filed its reports to the Commissioner pursuant to chapter 84 of the insurance code,

which governs the imposition of administrative penalties. See Tex. Ins. Code Ann. '' 84.001-.051 (West

Supp. 2003). Under chapter 84, if TDI determines that an insurer has violated the insurance code or rules,

TDI files a report setting out the alleged violations and recommending an administrative penalty. Id. '

84.041. If the insurer disputes the report and recommended penalty, TDI must conduct a SOAH hearing.

Id. '' 84.042, .043. Following the SOAH hearing, the administrative law judge (1) makes findings of fact

and conclusions of law and (2) sends a proposed decision to the Commissioner, who may impose a penalty

or find that no violation occurred. Id. '' 84.043(c), .044. The insurer may then file for judicial review of the

Commissioner=s decision. Id. ' 84.045. Appellants= issues are related to violations alleged by TDI pursuant

to chapter 84, and TDI and SOAH have jurisdiction over the dispute.

                                     The District Court=s Jurisdiction

                 A trial court may be asked to render a declaratory judgment as to an agency=s rule under

section 2001.038 of the government code, which provides that

        The validity or applicability of a rule . . . may be determined in an action for declaratory
        judgment if it is alleged that the rule or its threatened application interferes with or impairs,
        or threatens to interfere with or impair, a legal right or privilege of the plaintiff.

Tex. Gov=t Code Ann. ' 2001.038(a) (West 2000). A Arule@ is defined as an agency statement of general

applicability that implements, interprets, or prescribes law or policy, or describes the procedures or

                                                       8
practices of an agency; it Adoes not include a statement regarding only the internal management or

organization of a state agency and not affecting private rights or procedures.@ Id. ' 2001.003(6) (West

2000). Because the parties do not dispute that section 2001.038 applies here, we will assume without

deciding that section 2001.038 grants the district court jurisdiction over this action. 5 Therefore, the agency

and the district court have concurrent jurisdiction, and we must decide whether the doctrine of primary

jurisdiction required the district court to defer to the ongoing SOAH proceedings. See Cash Am. Int=l Inc.

v. Bennett, 35 S.W.3d 12, 18 (Tex. 2000).

                                   Does Primary Jurisdiction Apply?

        5
            It is not entirely clear that the disputed statements or actions are Arules@ as defined by section
2001.003(6). See Beacon Nat=l Ins. Co. v. Montemayor, 86 S.W.3d 260, 269 (Tex. App.CAustin
2002, no pet.) (not all agency statements, letters, or bulletins are Arules@ requiring administrative review and
subject to section 2001.038 suit); see also Railroad Comm=n v. WBD Oil & Gas Co., 46 Tex. Sup. Ct. J.
442, 448-49, 2003 Tex. LEXIS 9, at *28-33 (Feb. 13, 2003) (agency=s field rules are not Arules@ subject
to section 2001.038 review; rulemaking procedures are mutually exclusive of contested case procedures).
However, because neither party disputes that the actions complained of by appellants are such Arules,@ we
will limit our discussion to the complaints raised by the parties.

                                                       9
                 Appellants urge that section 2001.038 trumps the application of primary jurisdiction,

pointing to subsection (d) of the statute, which provides that A[a] court may render a declaratory judgment

without regard to whether the plaintiff requested the state agency to rule on the validity or applicability of the

rule in question.@ Tex. Gov=t Code Ann. ' 2001.038(d). However, subsection (d) uses permissive, not

mandatory, language: a trial court may exercise jurisdiction over such a complaint. Further, subsection (d)

addresses the exhaustion of remedies, not the doctrine of primary jurisdiction. See Lopez v. Public Util.

Comm=n, 816 S.W.2d 776, 782 (Tex. App.CAustin 1991, no writ).6 Subsection (d) allows a plaintiff to

seek a declaratory judgment regardless of whether it sought administrative review of the complaint; it does

not express a clear legislative intent that the doctrine of primary jurisdiction is inapplicable to a challenge

under section 2001.038. See id. We hold that when the dispute arises out of an agency proceeding, the

doctrine of primary jurisdiction allows a trial court to defer to an agency=s expertise and decline to render a

declaratory judgment. Id. (Athe precepts of the primary-jurisdiction doctrine may permit a district court, in

its discretion, to deny declaratory relief@).

                 Appellants next argue that it has not been shown that the doctrine of primary jurisdiction

should be applied to this cause. As stated above, a trial court may allow an administrative agency to make

an initial determination of an issue when (1) the agency is staffed with experts trained in the complex

        6
           Lopez v. Public Utility Commission discussed the applicability of primary jurisdiction to section
12 of the Administrative Procedure and Texas Register Act, section 2001.038=s predecessor. 816 S.W.2d
776, 782 (Tex. App.CAustin 1991, no writ). Section 12, like section 2001.038, provided that declaratory
judgment Amay be rendered whether the plaintiff has requested the agency to pass on the validity or
applicability of the rule in question.@ Act of April 8, 1975, 64th Leg., R.S., ch. 61, ' 12, 1975 Tex. Gen.
Laws 136, 141, repealed and replaced by Act of May 4, 1993, 73d Leg., R.S., ch. 268, ' 1, 1993 Tex.
Gen. Laws 583, 739 (current version at Tex. Gov=t Code Ann. ' 2001.038).

                                                       10
problems within the agency=s purview, and (2) substantial benefit is derived from a uniform interpretation of

the agency=s rules, laws, and regulations. Butnaru, 84 S.W.3d at 208 (applying primary jurisdiction to

declaratory judgment suit brought under statute other than ' 2001.038); Beacon Nat=l Ins. Co. v.

Montemayor, 86 S.W.3d 260, 271-72 (Tex. App.CAustin 2002, no pet.) (applying primary jurisdiction to

suit brought under section 2001.038). In determining whether primary jurisdiction requires deference to an

agency, the trial court should ask whether the issues are within the agency=s special competence and

whether the justifications for primary jurisdiction will be served by deferring to the agency. Bennett, 35

S.W.3d at 18 (quoting Southwestern Bell Tel. Co. v. Public Util. Comm=n, 735 S.W.2d 663, 669-70

n.3 (Tex. App.CAustin 1987, no writ); Kavanaugh v. Underwriters Life Ins. Co., 231 S.W.2d 753, 755

(Tex. Civ. App.CWaco 1950, writ ref=d)).

                 The issues raised by appellants are: (1) whether the liquidation plan was subject to the

insurance code; (2) whether the inter-company settlements were subject to and ran afoul of administrative

or insurance code provisions; (3) whether TDI had prior notice of the settlements and whether TDI=s failure

to object implicitly approved of them; (4) whether American Capitol was required by the insurance code to

disclose the $500,000 in disputed assets; (5) whether Texas Imperial improperly reported initial reinsurance

gains as unassigned surplus, thus violating accounting regulations and the insurance code; and (6) whether

American Capitol violated the liquidation plan by paying an employment bonus. Although appellants

attempt to frame their issues as pure questions of law arising solely from the liquidation plan, TDI=s live

allegations are all related to violations of statutes or rules and the issues require complex determinations of

                                                      11
fact that would be aided by an expertise in accounting and insurance practices. The propriety of accounting

procedures, i.e., the handling and reporting of inter-company enhancements, when and how disputed assets

should be included in a financial report, and how reinsurance gains should be disclosed, and the application

and interpretation of accounting and insurance rules and statutes are all questions best left for initial

determination by agency staff who are knowledgeable of insurance and accounting norms and complex

business transactions. See Beacon Nat=l, 86 S.W.3d at 271-72. Furthermore, the area of insurance

regulation will be benefited by a uniform agency interpretation of accounting practices. See id. at 272. The

resolution of appellants= issues will be well served by the district court=s decision to defer to TDI under the

doctrine of primary jurisdiction. See id. at 271-72. The trial court did not err in abstaining from determining

the issues related to the underlying TDI allegations. However, it was error for the trial court to dismiss

appellants= declaratory judgment suit. See David McDavid, 84 S.W.3d at 221. Instead, the trial court

should have abated the cause, pending resolution of the administrative proceedings below. Id. Once the

issues have been initially determined at the administrative level, appellants can then seek trial court

determination of any remaining issues. Therefore, we reverse the trial court=s judgment and remand the

cause with instructions to abate the cause pending resolution of the administrative proceedings.

                                                   __________________________________________

                                                   Jan P. Patterson, Justice

Before Justices Kidd, Yeakel and Patterson

                                                      12
Reversed and Remanded

Filed: March 27, 2003

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