Court Opinion

ID: 9664829
Source: CourtListenerOpinion
Date Created: 2023-08-24 00:31:14.599+00
Date Added: 2024-06-11T18:15:10.643630
License: Public Domain

GONZALEZ, Justice,
dissenting.
I dissent. I would hold that the insurer has standing to appeal an adverse judgment against its insured under the doctrine of virtual representation even though the insured chooses to settle with the claimant/judgment creditor and dismisses its respective interest in the appeal.
Waiver — Right to Appeal
The court does not reach the question of Continental’s standing to appeal the adverse judgment against its insured, SHWC; rather, the court holds that whether or not Continental had standing to appeal, that such right was waived by Continental’s voluntary payment of the policy limits to the plaintiff, Huizar. The court says that Continental has waived its rights, if any, because it admits payment; yet the court chooses to disregard Continental’s explanation that their payment was not voluntary.
In concluding that the present record is insufficient for us “to conclude that the *433payment of the policy limits to the Huizars was anything but voluntary,” p. 430, the court purports to follow Highland Church of Christ v. Powell, 640 S.W.2d 235 (Tex.1982). This was a suit to determine the validity of ad valorem taxes assessed on an office building owned by the church. The record showed that the church paid the judgment on the disputed taxes to prevent the taxing authorities from taking steps to collect the taxes before the appeal was determined. Among other things, the church asserted that the payments were not made voluntarily but were made under implied duress. The church paid the judgment to avoid the resulting embarrassment should execution issue. The court of appeals reversed the judgment of the trial court and dismissed the cause as moot after the church paid the judgment rendered against it. The supreme court, in a unanimous opinion, reversed the judgment of the court of appeals and remanded the cause to that court for determination of the merits of the appeal. The court held that the payment of a judgment which is apparently voluntary does not waive one’s right to appeal if, under the facts of the case, duress may fairly be implied.
The duress brought to bear on Continental by the settlement between its insured and the plaintiff was certainly the equal of that faced by the appellant in Powell. In this settlement, SHWC agreed to dismiss its appeal and assign a major part of any claims it might have against Continental to Huizar in return for Huizar’s covenant not to execute. Huizar and SHWC then initiated an action against Continental alleging claims under the Stowers doctrine, G.A. Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 544 (Tex.Comm’n App.1929, holding approved), and the Deceptive Trade Practices Act, Tex.Bus. & Com.Code Ann. § 17.41 et seq. (Vernon Supp.1987).
I have no quarrel with the rule that voluntary payment of a judgment moots an appeal, but such payment must actually settle the controversy between the parties. Padgitt v. Young County, 111 Tex. 98, 229 S.W. 459 (1921). It seems unreasonable to conclude that Huizar has taken the policy limits in settlement of its judgment against the insured. If it has, then indeed the present appeal is moot as is the Stowers /DTPA claims presently pending in Hidal-go county.
In Powell, the court discussed the basis underlying the voluntary payment rule:
The basis for this rule is to prevent a party who has freely decided to pay a judgment from changing his mind and seeking the court’s aid in recovering the payment. A party should not be allowed to mislead his opponent into believing that the controversy is over and then contest the payment and seek recovery. Voluntary payment ends the controversy, and appellate courts will not decide moot cases involving abstractions.
640 S.W.2d at 236. Here, no one has been misled into believing that Continental’s payment under protest ended the present controversy. In holding that the present appeal is moot, the majority has merely shifted the issues which might have been resolved in the present appeal, such as the liability of the insured, to another forum, the subsequently filed Stowers /DTPA suit.
Plasky v. Gulf Ins. Co., 160 Tex. 612, 335 S.W.2d 581 (1960) indicates that had Continental simply tendered the policy proceeds into the registry of the court, rights to appeal would have been unaffected. Because Huizar’s acceptance of the policy proceeds here apparently does not end the controversy between the parties, I would hold that Continental’s tender of the policy proceeds, under protest, but at the direction of the insured, likewise does not moot its right to appeal.

Virtual Representation

Because Continental was not a named party at trial, there remains the issue of Continental’s standing to continue the present appeal. As the court notes, a right of appeal is generally available only to parties of record. I submit, however, that Continental is entitled to pursue the present appeal under the equitable doctrine of virtual representation. It is undisputed *434that Continental, although not named as a party, provided and controlled the defense of its insured, SHWC. Continental and SHWC further share an identity of interest with regard to the liability of SHWC and the insurance fund created by the contract of insurance existing between them. Finally, we have previously recognized that an insurer who controls the defense of its insured is a real party in interest and as such is bound by the material issues determined in the action against its insured. Massachusetts Bonding & Insurance Co. v. Orkin Exterminating Co., 416 S.W.2d 396 (Tex.1967); American Indemnity Co. v. Fellbaum, 263 S.W. 908 (1924); American Fidelity & Casualty Co. v. Williams, 34 S.W.2d 396, 404 (Tex.Civ.App.-Amarillo 1930, writ ref’d).
Although not mentioned by name in these cases, the doctrine of virtual representation is applied to bind the insurer to the liability findings against its insured. Application of the doctrine here is closely related to principles of res judicata, or more precisely, collateral estoppel. This relationship is explained as follows:
The strict rule that a judgment is operative, under the doctrine of res judicata, only in regard to parties and privies, is sometimes expanded to include as parties, or privies, a person who is not technically a party to a judgment, or in privity with him, but who is, nevertheless, connected with it by his interest in the prior litigation and by his right to participate therein, at least where such right is actively exercised by prosecution of the action, employment of counsel, control of the defense, filing of an answer, payment of expenses or costs of the action, the taking of an appeal, or the doing of such other acts as are generally done by parties.
46 Am.Jur.2d, Judgments, § 535 (1969).
As applicable here the doctrine is probably best explained in the Restatement (Second) of Judgments. It provides that a person who is not a party to an action but who nevertheless actually controls the presentation on behalf of a party is bound by a determination of issues decided as though he were a party. Restatement (Second) of Judgments § 39 (1982). Control means that the unnamed party has the “effective choice as to the legal theories and proofs to be advanced in behalf of the party to the action” and “the opportunity to obtain review.” Id. at comment c (emphasis supplied). Application of § 39 is further subject to the exceptions that govern issue preclusion as it applies to a party. Id. at comment b. The pertinent exception provides:
Although an issue is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, relitigation of the issue in a subsequent action between the parties is not precluded in the following circumstances:
(1) The party against whom preclusion is sought could not, as a matter of law, have obtained review of the judgment in the initial action; ....
Restatement (Second) of Judgments § 28(1) (1982).
If Continental does not have the right to appeal, it is not truly in control of the defense of its insured and cannot be bound to the issues found in favor of Huizar against the insured. American Indemnity Co. v. Fellbaum, 263 S.W.2d at 910; American Fidelity & Casualty Co. v. Williams, 34 S.W.2d at 404; Restatement (Second) of Judgments §§ 28, 39 (1982). It is, after all, Continental’s exclusive control of the defense of its insured which is a predicate for the Stowers claim subsequently filed against Continental by SHWC and Huizar.
It would be more economical and expeditious to simply recognize Continental as a real party in interest under the doctrine of virtual representation, as we have done before, and allow it to prosecute the appeal. If, however, Continental is a stranger to the appeal and has no standing, then relitigation of the liability issues in an action in which Continental is a named party will be necessary before the insurance company may be bound.
For the above reasons, I would reverse the judgment of the court of appeals, and remand the cause to the court of appeals *435with directions to allow Continental’s intervention for the purpose of consideration of the merits of the appeal.
HILL, C.J., joins in this dissenting opinion.