Court Opinion

ID: 2779217
Source: CourtListenerOpinion
Date Created: 2015-02-13 01:00:45.77039+00
Date Added: 2024-06-11T12:20:39.526596
License: Public Domain

Case: 14-10317      Document: 00512935735         Page: 1    Date Filed: 02/12/2015

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT

                                      No. 14-10317
                                                                         United States Court of Appeals
                                                                                  Fifth Circuit

                                                                                FILED
COLONY INSURANCE COMPANY,                                                February 12, 2015
                                                                           Lyle W. Cayce
              Plaintiff - Appellee                                              Clerk

v.

MARTY D. PRICE; MUSTANG TOWN PROPERTY, L.P.; TOM GP, L.L.C.,

              Defendants - Appellants

                   Appeal from the United States District Court
                        for the Northern District of Texas
                             USDC No. 3:11-CV-3536

Before JOLLY, WIENER, and CLEMENT, Circuit Judges.
PER CURIAM:*
       In this declaratory-judgment action, Plaintiff-Appellee Colony Insurance
Co. (“Colony”) seeks a ruling that it has no duty to defend Defendants-
Appellees Marty D. Price, Mustang Town Property LP (“MTP”), and T.O.M.
GP, LLC (“TOM”) (collectively, “Price Defendants”) against claims alleged
against them in a state court lawsuit. The Price Defendants claim that they
are entitled to a defense pursuant to a commercial general liability policy (the

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
     Case: 14-10317   Document: 00512935735     Page: 2   Date Filed: 02/12/2015

                                 No. 14-10317

“Policy”) issued by Colony to another defendant in the state court proceeding.
The district court granted Colony’s motion for summary judgment, holding
that the Price Defendants are not “insureds” under the Policy. We affirm.

                          I.     Facts and Proceedings
A.    State Court Proceedings
      This insurance dispute arises from a tragic incident occurring at a
nightclub, the Wispers Cabaret, in October 2008. Fernando Ramirez, a patron
of the establishment, was beaten and whipped by club personnel, then thrown
outside the club and later died from his injuries.        His estate and heirs
subsequently brought a wrongful death suit in Texas state court (the “Ramirez
suit”). The state court petition (the “Petition”), filed in August 2011, alleged
various claims against a litany of defendants: Marsha McKee, individually and
d/b/a Mustang Amusements, Inc.; Thomas Sinclair; Jeffrey Ballew; James
Sinclair; Mustang Amusements, Inc.; Mustang Amusements, Inc. d/b/a
Wispers Cabaret; and the Price Defendants.
      According to the Petition, on October 1, 2008, “Ramirez was stopped from
leaving the club by its employees and . . . was then falsely imprisoned in the
club. At some point after being falsely imprisoned and suffering damages
therefrom, he was assaulted by club employees . . . .” This assault began with
an altercation between Ramirez and Ballew, “which led to the mortal injuries
inflicted upon [Ramirez] by Defendant Thomas H. Sinclair.”
      The Petition is not entirely clear on the ownership and management
structure of the Wispers Cabaret, but it appears to allege that at the time of
the incident, McKee, Mustang Amusements, Thomas Sinclair, and James
Sinclair operated and maintained the club. Thomas Sinclair, however, was in
the process of purchasing Wispers Cabaret from the other defendants. This

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transaction led to a lawsuit between Thomas Sinclair and McKee/Mustang
Amusements, in which Thomas Sinclair apparently prevailed.                       Instead of
taking title in his own name, however, he assigned his interest in Wispers
Cabaret to MTP. According to the Petition, MTP and its general partner TOM
“were not formed by Defendants James Sinclair and Marty D. Price until
December 31, 2009.” MTP and TOM “did not exist” at the time that Ramirez
was killed. Marty Price was Thomas Sinclair’s attorney, and, per the Petition,
the purpose of the MTP/TOM scheme was to “defraud” the Ramirez plaintiffs
by essentially hiding Thomas Sinclair’s assets behind shell corporations
created on his behalf.
       Following these factual allegations, the Petition states a litany of claims.
Read liberally, it accuses the Price Defendants of negligence, negligence per se,
and gross negligence; false imprisonment; civil conspiracy; fraudulent transfer;
and conversion. The Petition is not entirely consistent internally, but these
claims appear to fall into two groups. In the first group are the negligence
claims and the false imprisonment claim, which arise from the club’s treatment
of Ramirez in 2008. 1       In the second group are the conspiracy, fraudulent
transfer, and conversion claims, which arise from the asset-hiding scheme
developed in 2009 and 2010 as a response to the imminent state court
litigation. The Petition does not clarify why the Price Defendants, consisting
of two entities not yet in existence at the time of the 2008 incident, and Price,
who allegedly was Thomas Sinclair’s attorney, not his business partner, would
be liable for the incident itself. It does allege that “[i]n Plaintiffs’ information

       1 Although the alleged assault and battery would be intentional torts, the Petition
pursues a negligence theory, alleging that the club was negligent in allowing Ramirez to be
injured and asserting claims of negligent training, negligent supervision, negligent hiring,
failure to warn, failure to provide “adequate safe security,” failure to provide medical care,
and vicarious liability.
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and belief, Mr. Price was always A [sic] true owner, whether legally or
equitably, of the real estate and improvements where the decedent sustained
his mortal injuries, or he was to act as the owner on behalf of Thomas H.
Sinclair, who became the authorized agent of Mr. Price and the other
Defendants.”       Reading the Petition liberally, this appears to gesture at a
vicarious liability theory with respect to the Price Defendants.
B.    District Court Proceedings
      In December 2011, Colony filed this suit in federal district court seeking
a declaratory judgment that it has no duty to defend the Price Defendants in
the Ramirez suit. The insurance policy that the Price Defendants rely on is
Thomas Sinclair’s commercial general liability policy for the Wispers Cabaret,
effective from May 28, 2008, to May 28, 2009. The Policy’s only named insured
was Tommy Sinclair d/b/a Mustang Entertainment. 2 It also contained several
additional-insureds provisions, one of which covered Thomas Sinclair’s
employees “for acts within the scope of their employment . . . or while
performing duties related to the conduct of [Sinclair’s] business.”
      Colony and the Price Defendants filed cross-motions for summary
judgment. The Price Defendants asserted that, according to the Petition, they
were “employees” of Sinclair and that the claims alleged against them were
covered by the Policy. Colony disputed their insured status. Alternatively, it
contended that the Policy did not extend to the state court claims because the
Ramirez plaintiffs’ injuries did not arise from “occurrences” within the
meaning of the Policy and, even if they were occurrences, the Price Defendants’
conduct was not covered under various policy exclusions.                   Thus, Colony
disclaimed any duty to defend the Price Defendants.

      2   Thomas Sinclair, Thomas H. Sinclair, and Tommy Sinclair refer to the same person.
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      The district court granted Colony’s motion, holding that the Price
Defendants are not insureds because the Petition did not allege that they were
employees of Sinclair. As the Price Defendants were not insureds, the district
court did not decide whether the claims alleged against them were covered by
the Policy. On appeal, both Colony and the Price Defendants continue to
pursue all arguments they raised in the district court.

                                    II.    Analysis
A.    Standard of Review
      We review the district court’s grant of summary judgment de novo. 3
“Summary judgment is appropriate when the evidence before the court shows
that ‘there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.’” 4 Under Texas law, an insurer’s duty
to defend is also a question of law that we review de novo. 5
B.    Applicable Law
      In Texas, an insurer’s duty to defend is governed by the eight-corners
rule. “[O]nly two documents are ordinarily relevant to the determination of
the duty to defend: the policy and the pleadings of the third-party claimant.” 6
“[T]he duty to defend arises only when the facts alleged in the complaint, if
taken as true, would potentially state a cause of action falling within the terms
of the policy.” 7 We consider the allegations in the underlying petition without

      3  ACE Am. Ins. Co. v. Freeport Welding & Fabricating, Inc., 699 F.3d 832, 839 (5th
Cir. 2012).
       4 Id. (quoting FED. R. CIV. P. 56(a)).
       5 Ooida Risk Retention Grp., Inc. v. Williams, 579 F.3d 469, 471–72 (5th Cir. 2009).
       6 GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 308 (Tex.

2006).
       7 Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 528 (5th Cir. 2004).

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                                      No. 14-10317

regard to their truth or falsity, 8 but we need defer only “to a complaint’s
characterization of factual allegations, not legal theories or conclusions.” 9 And,
“though [the court] liberally construe[s] the allegations in the petition in
determining the duty to defend, resolving any doubt in favor of the insured, [it]
will not read facts into the pleadings for that purpose.” 10
C.     Analysis
       The Policy insures Thomas Sinclair’s “employees . . . for acts within the
scope of their employment.” Although the Petition is not entirely consistent or
clear in its characterization of the relationship between the Price Defendants
and Thomas Sinclair, it never alleges that they are his employees. Rather, to
the extent that it suggests any employment relationship between them, it
appears to allege that it was Sinclair who was the employee. 11                       Even
construing the Petition liberally, we see nothing to support the Price
Defendants’ theory.
       The Price Defendants urge the opposite conclusion based on their
reading of two other statements in the Petition.               The Petition makes the
following statement in its “Facts” section: “While at the club, Mr. Ramirez was
stopped from leaving the club by its employees and he was then falsely
imprisoned in the club.” Then, several pages later in the “Negligence” section,

       8 GuideOne, 197 S.W.3d at 308.
       9 Evanston Ins. Co. v. Legacy of Life, Inc., 370 S.W.3d 377, 380 (Tex. 2012) (emphasis
added); see also Farmers Tex. Cnty. Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 82 (Tex. 1997).
       10 Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 825 (Tex. 1997) (citation

omitted).
       11 The Petition states that MTP and TOM, “in the alternative, owned the Mustang

property at the time of the Ramirez’ [sic] killing and maintained a principal/agent,
master/servant and/or respondeat superior relationship with Thomas Sinclair whereby
Defendant Sinclair would operate and manage the Wispers Cabaret at the behest of land
owners [MTP] and [TOM].” Furthermore, “[a]t all times material hereto, Thomas Sinclair
was acting within his course and scope of agency and/or employment with these two
Defendants.”
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after a long list of complaints against all “Defendants,” the petition states: “In
the alternative, Plaintiffs contend that Defendants falsely imprisoned Plaintiff
against his will causing Plaintiff damages.” The Price Defendants submit that
“a fair reading and reasonable inference” of these statements is that
“Defendants” and “employees” are synonymous for the purpose of the false
imprisonment claim, and thus, the Price Defendants, as a subset of all
“Defendants,” are employees of Thomas Sinclair.
      We cannot agree with this logic. Most obviously, the Price Defendants
fail to explain how MTP and TOM, a partnership and a limited liability
company, can be employees at all, let alone employees who falsely imprisoned
Ramirez on October 1, 2008, particularly given that the Petition alleges that
they were not formed until December 31 of the following year. 12 The Price
Defendants also ignore the Petition’s many other uses of “Defendants” and
“employees” that make it obvious that these terms are not synonymous. The
only plausible and internally consistent reading of the Petition is that the first
statement was a factual allegation and the second was an assertion of vicarious
liability. And, to the extent that a pleading must be read liberally in favor of
insurance coverage, this liberal construction does not apply to legal
conclusions: The second statement certainly is that.
      A straightforward eight-corners analysis of the Petition reveals no
allegations that would qualify the Price Defendants as additional insureds
under the terms of the Policy. We therefore affirm the district court’s grant of
Colony’s motion for summary judgment on this basis.

       If MTP and TOM are not employees, then “employees” and “Defendants” are not
      12

synonymous. In that case, there is nothing suggesting that Price was an employee, either.
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                             III.   Conclusion
     Under the eight-corners rule, the Price Defendants are not additional
insureds within the meaning of the Policy. Thus, Colony has no duty to defend
the Price Defendants in the Ramirez suit. The district court’s judgment is
AFFIRMED.

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