Court Opinion

ID: 4532437
Source: CourtListenerOpinion
Date Created: 2020-05-07 14:15:54.918893+00
Date Added: 2024-06-11T12:33:06.301539
License: Public Domain

In The

                                Court of Appeals

                    Ninth District of Texas at Beaumont

                               __________________

                               NO. 09-19-00306-CV
                               __________________

      FAIRLAWN ASSETS, LLC, JOHN FERRANTE, AND JARROD
                    FREEBORN, Appellants

                                         V.

 BARBARA BOOKER, AS GUARDIAN OF THE PERSON AND ESTATE
                    OF M.H., Appellee

__________________________________________________________________

                On Appeal from the 60th District Court
                       Jefferson County, Texas
                      Trial Cause No. B-202,429
__________________________________________________________________

                          MEMORANDUM OPINION

      This is an accelerated interlocutory appeal from the trial court’s order denying

appellants’ motion to dismiss pursuant to the Texas Citizens Participation Act

(“TCPA”).1 We affirm the trial court’s judgment.

      1
      The Legislature amended the TCPA, effective September 1, 2019. See Act of
May 17, 2019, 86th Leg., R.S., ch. 378, §§ 11, 12, 2019 Tex. Gen. Laws 684, 687.
                                        1
                                 BACKGROUND

      Appellee Barbara Booker, the guardian of the person and estate of M.H., an

incapacitated adult, sued appellants Fairlawn Assets, LLC (“Fairlawn”), John

Ferrante, and Jarrod Freeborn, seeking to void a contract M.H. signed, in which

M.H. sold to Fairlawn his right to receive annuity payments pursuant to a structured

settlement agreement. 2 According to Booker’s petition, M.H. has several mental

health conditions, has never been able to manage finances or live independently, and

has minimal reading skills, poor memory, impaired judgment, and is “extremely

suggestible and easily led.” Booker pleaded that Fairlawn “invoked and participated

in the transaction” upon which her lawsuit is based, Ferrante is a member of

Fairlawn, and Freeborn is an independent contractor that Fairlawn engaged to

facilitate the transaction between Fairlawn and M.H. Booker asserted that Fairlawn

was formed by one or more of the individual defendants “to effectuate the illicit

exchange with M.H. with no intention to maintain Fairlawn Assets, LLC as a

corporate entity conducting otherwise legitimate business.”

The amendment only applies to suits filed after its effective date. See id. Therefore,
because Booker’s original petition was filed before September 1, 2019, the version
of the TCPA that was in effect immediately prior to the 2019 amendment applies to
this appeal. See id.
       2
         Booker also sued other defendants who are not parties to this appeal.
                                         2
      Booker asserted that as a result of an injury M.H. sustained as a minor, M.H.

received a settlement structured through an annuity issued by an insurance company.

Booker pleaded that the periodic and lump sum payments provided by the annuity,

together with Social Security disability benefits, Medicaid, and housing benefits,

allowed M.H. to be financially self-sufficient. Booker alleged that M.H. was targeted

by “one or more of the individual defendants . . . because his settlement was

guaranteed by an annuity backed by an insurer with billions in assets and a high

credit rating.”

      According to Booker, in February 2016, Fairlawn’s attorney filed an

application for approval of the transfer of M.H.’s structured settlement payment

rights, and attached to Fairlawn’s application was M.H.’s affidavit, which indicated

that M.H. agreed to sell $216,000 in remaining annuity payments for $93,000.

Booker pleaded that after deductions for discounted present value of the payments,

“the net amount to be received by M.H. was 51.13% of current value.” Booker

alleged that Fairlawn, Ferrante, and Freeborn purposely misled the presiding judge

into believing that M.H. had the mental capacity to knowingly enter into the contract.

According to Booker, the trial judge ordered payment of $110,000 to M.H. rather

than the $93,000 Fairlawn requested, but “even this amount was grossly unfair to

M.H., given his lack of mental capacity and the consequence . . . that the transaction

                                          3
. . . would permanently deprive M.H. of government benefits necessary to M.H.’s

care.” Booker pleaded that Fairlawn was dissolved in June 2016. Booker contended

that, as a consequence of selling his annuity and receiving a lump sum payment,

M.H. became ineligible for the Social Security disability and other government

need-based benefits. Booker pleaded that she was appointed as M.H.’s guardian on

April 18, 2018. Booker asserted causes of action for fraudulent misrepresentation,

fraud and fraudulent inducement, fraud by non-disclosure, fraud in a real estate

transaction, conspiracy, tortious interference with an existing contract and

prospective contractual relations, alter ego, and restitution, and she sought to void

the contract.

      Fairlawn and Ferrante jointly filed a motion to dismiss pursuant to the TCPA,

in which they argued that Booker’s lawsuit had infringed upon its “protected right

to petition and right of association[.]” Fairlawn and Ferrante asserted that Booker,

as the non-movant, could not meet her burden of showing, by clear and specific

evidence, a prima facie case for each essential element of her claims. In addition,

Fairlawn and Ferrante contended that Booker could not overcome their limitations

defense. Freeborn subsequently filed his own motion to dismiss pursuant to the

TCPA, in which he made arguments identical to those that Fairlawn and Freeborn

had made.

                                         4
      Booker filed a response to the defendants’ TCPA motions to dismiss, in which

she characterized defendants’ claims as asserting that the suit “should be dismissed

because the Defendants have a First Amendment right to deceive courts and the

disabled.” According to Booker, the motion to dismiss essentially claims that the

TCPA immunizes appellants from Booker’s lawsuit “because they were exercising

their constitutional right to petition the court to gain approval of a transaction they

fraudulently induced.” Booker contended, among other things, that the TCPA does

not apply to a legal action arising out of an insurance contract, and she maintained

that M.H.’s annuity was issued by The Prudential Insurance Company of America

(“Prudential”). According to Booker, Prudential is registered with the Texas

Department of Insurance as a life, health, or accident insurer.

      According to the settlement agreement reached in the personal injury lawsuit

filed by M.H.’s mother, lump sum and future payments would be paid to M.H.

Specifically, the agreement provided that M.H.’s mother would receive $20,710

upon execution of the agreement, and various monthly lump sum and monthly

payments would be made to M.H. throughout his life. The terms of the agreement

expressly permitted the insurer to make a qualified assignment of its liability to make

the period payments required by the agreement to Prudential. The agreement also

provided that the insurer and its assignee “reserve the right to fund their liability to

                                           5
make periodic payments through the purchase of an annuity policy from The

Prudential Insurance Company of America[,]” and the “[i]nsurer and/or the Assignee

shall be the owner of the annuity policy, and shall have all rights of ownership.”

Also on file with the trial court were documents from the Texas Department of

Insurance, which indicated that Prudential is a life, health, and accident company

and is licensed to write accident, health, life, and annuity policies.

      The record reflects that Fairlawn filed an application with the 58th District

Court, seeking approval of a proposed transfer of M.H.’s structured settlement

payment rights under the annuity. See generally Tex. Civ. Prac. & Rem. Code Ann.

§ 141.001-.007 (the Structured Settlement Protection Act). In its application,

Fairlawn pleaded that M.H. was entitled to receive tax-free payments under a

structured settlement arrangement and that M.H. agreed to transfer and assign those

rights to Fairlawn. In its application, Fairlawn explained that the insurer purchased

an annuity to fund its obligation to make the periodic payments due to M.H. under

the settlement, identified the insurer as Prudential, and asserted that the proposed

transfer was in M.H.’s best interest. With its application, Fairlawn provided a signed

affidavit from M.H., as well as a copy of the assignment agreement. M.H.’s affidavit

as well as the first paragraph of the assignment agreement both stated that M.H. was

                                           6
due periodic payments pursuant to a settlement agreement, which provided for an

annuity issued by Prudential to make the required payments.

      The judge of the 58th District Court signed a final order approving the sale of

M.H.’s partial annuity payments. In the order, the judge found that the proposed

transfer complied with the requirements of the Structured Settlement Protection Act.

See generally id. The judge’s order stated that the insurers would not oppose transfer

of the assigned payments to Fairlawn’s designated assignee under the annuity

contract, which was identified by number, and it required Prudential to make the

assigned payments directly to Fairlawn’s assignee. In addition, the record indicates

that the Texas Department of Insurance licensed Prudential to write, among other

things, variable annuities and “Variable Life[.]” In its responses to interrogatories,

Fairlawn stated that “the only court-approved transfer of annuity payments in the

State of Texas involved [M.H.]” and that Freeborn had discussed with M.H, the

prospect of “selling his annuity payments in exchange for a lump sum payment[.]”

      The trial court signed an order denying appellants’ motions to dismiss, and

appellants filed this appeal, in which they raise five issues for our consideration: (1)

Fairlawn’s motion was timely filed; (2) the structured settlement is not an insurance

contract and Booker’s legal action did not arise under an insurance contract; (3) the

TCPA applies because Booker’s lawsuit is based on, related to, or brought in

                                           7
response to appellants’ exercise of their right to petition and right of association; (4)

Booker failed to establish a prima facie case for each essential element of her claims

by clear and specific evidence; and (5) Booker’s DTPA and tortious interference

claims were filed outside the applicable two-year limitations period.

                                     ANALYSIS

      As discussed above, appellants argue in issue two that M.H.’s structured

settlement is not an insurance contract and Booker’s legal action did not arise under

an insurance contract. Because issue two is dispositive, we address it first. We

review a trial court’s ruling on a motion to dismiss under the TCPA, including the

trial court’s construction of the TCPA, under a de novo standard. Lippincott v.

Whisenhunt, 462 S.W.3d 507, 509 (Tex. 2015); Dyer v. Medoc Health Servs., LLC,

573 S.W.3d 418, 424 (Tex. App.—Dallas 2019, pet. denied). The purpose of the

TCPA is “to encourage and safeguard the constitutional rights of persons to petition,

speak freely, associate freely, and otherwise participate in government to the

maximum extent permitted by law and, at the same time, protect the rights of a

person to file meritorious lawsuits for demonstrable injury.” Tex. Civ. Prac. & Rem.

                                           8
Code Ann. § 27.002;3 ExxonMobil Pipeline Co. v. Coleman, 512 S.W.3d 895, 898

(Tex. 2017).

      The TCPA permits a litigant to seek dismissal of a legal action that is “based

on, relates to, or is in response to a party’s exercise of the right of free speech, right

to petition, or right of association[.]” Act of May 21, 2011, 82nd Leg., R.S., ch. 341,

§ 2, sec. 27.003(a), 2011 Tex. Gen. Laws 960, 962. In determining whether the claim

should be dismissed, “the court shall consider the pleadings and supporting and

opposing affidavits stating the facts on which the liability or defense is based.” Act

of May 1, 2011, 82nd Leg., R.S., ch. 341, § 2, sec. 27.006(a), 2011 Tex. Gen. Laws

960, 962. “Under [s]ection 27.006 of the Act, the trial court may consider pleadings

as evidence.” Serafine v. Blunt, 466 S.W.3d 352, 360 (Tex. App.—Austin 2015, no

pet.) (op. on reh’g).

      Section 27.010(d) of the TCPA provides that the TCPA does not apply to a

legal action “arising out of an insurance contract[.]” Act of May 24, 2013, 83rd Leg.,

R.S., ch. 1042, § 3, sec. 27.010(d), 2013 Tex. Gen. Laws 2501, 2501 (current version

at Tex. Civ. Prac. & Rem Code Ann. § 27.010(a)(4)).4 The TCPA does not define

      3
        We cite to the current version of section 27.002 because it was not affected
by the 2019 amendments.
      4
        Although the 2019 amendment did not change the applicable language,
because the sections were amended and renumbered, we cite the pre-amendment
version of section 27.010 for clarity. See Tex. Civ. Prac. & Rem. Code Ann. §
                                          9
the terms “arising from” or “insurance contract.” See id.; Act of May 21, 2011, 82nd

Leg., R.S., ch. 341, §§ 1-4, 2011 Tex. Gen. Laws 960. To determine whether the

TCPA applies, we must construe the phrase “arising out of an insurance contract[.]”

In construing a statute, we must “determine and give effect to the Legislature’s

intent.” Nat’l Liab. & Fire Ins. Co. v. Allen, 15 S.W.3d 525, 527 (Tex. 2000). In

determining the Legislature’s intent, we do not confine our review to isolated words,

phrases, or clauses, “but rather we examine the entire act to glean its meaning.”

Meritor Auto., Inc. v. Ruan Leasing Co., 44 S.W.3d 86, 90 (Tex. 2001); see also

Tex. Gov’t Code Ann. § 311.011(a).

      We must construe statutory language to ascertain and effectuate legislative

intent, and we presume that the Legislature intends the plain meaning of its words.

Epco Holdings, Inc. v. Chicago Bridge & Iron Co., 352 S.W.3d 265, 269-70 (Tex.

App.—Houston [14th Dist.] 2011, pet. dism’d). We presume that every word of a

statute was used for a purpose and every omitted word was purposefully not chosen.
Id. at 270. Words that are not defined in a statute are read in context and construed

according to the rules of grammar and common usage. Tex. Gov’t Code Ann. §

311.011(a). We presume that the Legislature enacted a statute “with complete

27.010(a)(4); Act of May 24, 2013, 83rd Leg., R.S., ch. 1042, § 3, sec. 27.010(d),
2013 Tex. Gen. Laws 2501, 2501 (both stating that the TCPA does not apply to a
legal action “arising out of an insurance contract”).
                                          10
knowledge of the existing law and with reference to it.” Acker v. Tex. Water

Comm’n, 790 S.W.2d 299, 301 (Tex. 1990).

      The TCPA defines a “legal action” as “a lawsuit, cause of action, petition,

complaint, cross-claim, or counterclaim or any other judicial pleading or filing that

requests legal or equitable relief.” Act of May 21, 2011, 82nd Leg., R.S., ch. 341, §

2, sec. 27.001(6), 2011 Tex. Gen. Laws 960. “‘[A] cause of action’ means the fact

or facts entitling one to institute and maintain an action, which must be alleged and

proved in order to obtain relief.” Loaisiga v. Cerda, 379 S.W.3d 248, 262 (Tex.

2012). “A ‘cause of action’ consists of the operative facts entitling the plaintiff to

the relief sought.” Robert B. James, DDS, Inc. v. Elkins, 553 S.W.3d 596, 604 (Tex.

App.—San Antonio 2018, pet. denied).

      To resolve issue two, we must construe the phrases “arising out of” and

“insurance contract” as used in section 27.010(d) and then apply section 27.010(d)

to the facts of this case. See Act of May 24, 2013, 83rd Leg., R.S., ch. 1042, § 3, sec.

27.010(d), 2013 Tex. Gen. Laws 2501, 2501 (current version at Tex. Civ. Prac. &

Rem Code Ann. § 27.010(a)(4)). We find the opinion of our sister Court of Appeals

in Elkins instructive. In Elkins, a dental practice hired a dentist (Elkins) for its

practice and subsequently investigated Elkins for theft, reported Elkins to the police,

and made an insurance claim based upon the purported theft. Id. at 602. Elkins

                                          11
subsequently sued the practice for defamation, business disparagement, intentional

infliction of emotional distress, and civil conspiracy. Id. The trial court denied the

dental practice’s motion to dismiss under the TCPA, and the dental practice

appealed. Id. One of the issues before the Elkins court was whether the legal actions

Elkins brought against the dental practice and the individual appellants fell within

the insurance contract exemption set forth in section 27.010(d). Id. at 603. As the

Elkins court noted, “[t]he insurance contract exemption in section 27.010(d) does

not exempt legal actions ‘seeking recovery for benefits under’ an insurance

contract[;]” rather, “the plain language of section 27.010(d) exempts legal actions

‘arising out of’ an insurance contract, regardless of whether the legal action is

‘seeking recovery for benefits under’ an insurance contract and regardless of

whether the nature of the claim sounds in tort or in contract.” Id. at 604. “The text

of the TCPA as a whole demonstrates the Legislature knew how to use narrower

qualifying phrases, and could have limited the insurance contract exemption to legal

actions ‘brought under’ or ‘based on’ an insurance contract.” Id.

      As the Elkins court explained, the plain meaning of “‘arise’” is “‘[t]o

originate; to stem (from)’” or “‘[t]o result (from)[,]’” and the Texas Supreme Court

has held that, in the context of construing insurance contracts, the term “‘arise out

of’ means that there is simply ‘a causal connection or relation,’ which is interpreted

                                         12
to mean that there is but for causation, though not necessarily direct or proximate

causation.” Id. at 605. The Elkins court concluded that although the TCPA does not

define the term “insurance contract,” “the plain meaning of the term undoubtedly

includes an insurance policy or agreement that governs the legal rights of and

relationship between an insurer and insured regarding insurance benefits.” Id. at 606.

When determining whether a legal action arises out of an insurance contract, we

must consider not only the insurance contract, but other alleged facts involving the

insurance contract. Id. According to the Elkins court, the term “arising out of” in the

insurance contract exemption requires something more than the mere presence of an

insurance contract or a cause of action merely having any relationship to an

insurance contract[,]” but it requires less than a cause of action being based on,

brought under, seeking benefits under, or seeking recovery for breach of an

insurance contract. Id. The Elkins court held that “‘arising out of an insurance

contract’” required “that the insurance contract be a ‘but-for’ or motivating cause of

the alleged facts entitling the plaintiff to relief, or that the alleged facts entitling the

plaintiff to relief have a nexus to or originate in a contractual relationship between

an insurer and an insured for insurance benefits.” Id.

       In the case sub judice, Fairlawn sought to acquire M.H.’s right to receive

payments under the structured settlement agreement, which provided for the

                                            13
purchase of an annuity to fund the obligation to M.H. To do so, Fairlawn applied to

the 58th District Court for approval of the proposed transfer, as required by the

Structured Settlement Protection Act (“SSPA”), and Fairlawn cited the SSPA in its

application. See generally Tex. Civ. Prac. & Rem. Code Ann. § 141.001-.007. The

SSPA defines an “[a]nnuity issuer” as “an insurer that has issued a contract to fund

periodic payments under a structured settlement.” Tex. Civ. Prac. & Rem. Code Ann.

§ 141.002(1) (emphasis added). In addition, the Texas Insurance Code provides that

“an annuity contract is considered an insurance policy or contract if the annuity

contract is issued: (1) by a life, health, or accident insurance company . . . .” Tex.

Ins. Code Ann. § 1108.002(1). As discussed above, documents from the Texas

Department of Insurance, which were filed with the trial court, indicate that the

annuity issuer, Prudential, is a life, health, and accident company and is licensed to

write accident, health, life, and annuity policies.

      Giving the undefined terms in section 27.010(d) their plain meaning,

presuming that the Legislature enacted the TCPA with complete knowledge of

existing law and with reference to it, and following the analysis and interpretation

of section 27.010(d) in Elkins, we conclude that Booker’s causes of action “arise out

of” an insurance contract. See Tex. Gov’t Code Ann. § 311.011(a); Acker, 790
S.W.2d at 301; Elkins, 553 S.W.3d at 602-06; Epco Holdings, 352 S.W.3d at 269-

                                          14
70. The payments to which M.H. was entitled were being made pursuant to an

annuity contract, issued by an insurer, and the 58th District Court’s order permitting

the transfer from M.H. to Fairlawn under the SSPA identified the annuity contract

by number. The annuity contract issued by Prudential is one of the operative facts

upon which Booker’s requested relief is based. See Elkins, 553 S.W.3d at 606. For

all these reasons, we conclude that the TCPA does not apply to the Booker’s claims

against appellants. We overrule issue two. Having concluded that the TCPA does

not apply, we need not consider appellants’ remaining issues, which pertain to the

merits of appellants’ TCPA motion to dismiss and its timeliness. See Tex. R. App.

P. 47.1. We affirm the trial court’s order denying appellants’ motion to dismiss.

      AFFIRMED.

                                                    _________________________
                                                       STEVE McKEITHEN
                                                           Chief Justice

Submitted on January 24, 2020
Opinion Delivered May 7, 2020

Before McKeithen, C.J., Kreger and Johnson, JJ.

                                         15