Court Opinion

ID: 9483448
Source: CourtListenerOpinion
Date Created: 2023-08-05 09:20:44.560423+00
Date Added: 2024-06-11T17:49:38.067063
License: Public Domain

ROBERT M. PARKER, District Judge,
dissenting:
I agree with the majority opinion that the central question in this Section 1983 suit is whether CATPOOL is a part of the State of Texas, because a part of a state cannot assert constitutional rights against that state.1 But beyond this point, I must part from my colleagues.
The majority opinion attempts to distinguish CATPOOL from the agency auxiliaries to which the majority recognizes a state may delegate powers and functions, on the ground that CATPOOL’s member companies risk the loss of their own, private funds, and enjoy the possibility of private profit, or “augmentation.” At oral argument, Appellees characterized CAT-POOL as a group of private insurers protecting their private pocketbooks. I write in dissent because I do not agree that the money at risk is the “private” money of the CATPOOL member companies, and because the undisputed facts before the Court establish that CATPOOL is indeed a part of the State of Texas. Because CAT-POOL’s member companies cannot satisfy their burden with respect to the issuance of a preliminary injunction in this case, I would hold that the district court judge erred in granting them the injunction at issue. See Canal Authority v. Callaway, 489 F.2d 567, 572 (5th Cir.1974) (preliminary injunction can be granted only when the district court has found “a substantial likelihood that plaintiff will prevail on the merits.”) (emphasis added).
I. CATPOOL: State Entity
The majority opinion recognizes that the Texas Legislature could create a public insurance entity that is a part of the State, fund it by taxing insurers, and require it to rely solely on the services of the Attorney General. The Texas Legislature has done just that in clear and unambiguous language in the Catastrophic Property Insurance Pool statute. CATPOOL is a creature of state statute. Rowden v. Texas Catastrophe Prop. Ins. Ass’n, 677 S.W.2d 83, 90 (Tex.App.—Corpus Christi 1984, writ ref’d n.r.e.). The CATPOOL legislation indicates that CATPOOL is indeed “a part of” the State of Texas. As the majority notes: CATPOOL was created by the Texas Legislature to provide windstorm and hail insur-' anee to homes and businesses in the fourteen Texas counties along the Gulf Coast; the Texas Legislature created CATPOOL in 1971 to provide this windstorm and hail insurance. Prior to the emergence of the CATPOOL legislation, these areas of Texas were not insurable; private insurers in the pre-CATPOOL market were disinclined to insure such high-hurricane risk property. In short: the Legislature intended CAT-POOL to promote the public interest by protecting the economic security of Texas citizens along the coast (by insuring their homes and businesses), and by promoting economic growth and development along the Texas coast. See generally Rowden, id.
CATPOOL is funded through the coercive power of the State of Texas. Insurance companies doing business in Texas are compelled to be members of CATPOOL in order to be licensed by the State to sell insurance. Tex.Ins.Code Ann. art. 21.49,
*1185§ 4(a) (West 1989). CATPOOL’s public purpose is evident from its character as an auxiliary of the State Board of Insurance. As the majority appreciates:
Sometimes, for the sake of convenience, a state will squeeze off some of [its great compendium of powers] to a political subdivision that it has created, such as a municipality or a levee board. Then that smaller state entity — that “political subdivision” or “auxiliar[y]”[ ] or “arm[ ]”[ ] of the state — takes charge of the function assigned to it and exercises the power delegated to it.
But the majority fails to recognize that, because CATPOOL operates as a necessary arm of the State Board of Insurance — itself an auxiliary of the State of Texas — CAT-POOL is a State entity; that is, CATPOOL is “a part of the State ” for purposes of constitutional analysis.
The circumstances of this case do satisfy the explanatory hypothetical posited by the majority. If the State of Texas decides, as it has, that the funds assessed against CATPOOL’s member companies should be assessed by way of the State Board of Insurance-controlled CATPOOL scheme— as opposed to an arguably less efficient scheme operated through the State Board of Insurance, proper — no constitutional claim arises. It is the State’s money— obtained by force of the State’s coercive power — and the State can move the money from one part of itself to another (i.e., from the State Board of Insurance, which sets the assessments, to the State Board of Insurance-controlled CATPOOL). Such an administrative decision is for the State to make. As a matter of fundamental constitutional principle (federalism), a federal court should avoid wedging itself into such decisions.

The CATPOOL Legislation

The Texas Legislature, in creating CAT-POOL, granted political power to this entity of its own creation. In essence, CAT-POOL is a legislatively created, civil institution to be employed in the administration of Texas government. It is clear to me that Texas’ CATPOOL scheme falls on the state side of the federalism markings left by Chief Justice Marshall in 1819. See Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518, 629-630, 4 L.Ed. 624 (1819) (“If the act of incorporation be a grant of political power, if it create a civil institution, to be employed in the administration of the government, or if the funds ... be public property, ... the subject is one in which the legislature of the state may act according to its own judgment, unrestrained by any limitation of its power imposed by the constitution of the United States.”).
In addition to setting the assessments imposed involuntarily upon CATPOOL’s member companies, the State Board of Insurance sets insurance premium rates. Wind and hailstorm losses and expenses incurred by CATPOOL are primarily covered by dollars collected through the State Board of Insurance-set premiums paid by the insured persons of Texas. The district court found that the maximum amount of premiums collected during a single year by CATPOOL is $21 million. But, as the district court found yet failed to appreciate: any time premiums exceed losses in a given year, those excess dollars are used to purchase reinsurance to cover loss exposure for possible future-year losses in excess of premiums. If ever such losses and expenses exceed CATPOOL’s premium and reinsurance funds, the CATPOOL member companies are assessed so that CATPOOL can cover the losses and expenses under such circumstances. The companies are assessed in amounts proportionate to the amount of business they respectively wrote during the previous year.
The State Board of Insurance has complete authority to adopt, revise and amend CATPOOL’s plan of operation, and CAT-POOL’s Board of Directors is responsible and accountable to the State Board of Insurance. Tex.Ins.Code Ann. art. 21.49 §§ 4 and 5 (Vernon Supp.1992). Indeed, CAT-POOL’s plan of operation (i.e., its by-laws) must be adopted by the State Board as an agency rule. Tex.Ins.Code Ann. art. 21.49, § 5(c) (Vernon Supp.1992). Thus, CAT-POOL is completely controlled by the State *1186Board of Insurance, not simply regulated by it.2
CATPOOL performs administrative functions; CATPOOL serves as an integral part of the State Board’s administrative process for claims. For example, the CATPOOL Act provides that claims are first determined by CATPOOL, whose decisions, considered “agency order[s],” are appealable to the State Board. Tex.Ins.Code Ann. art. 21.49, § 9 (Vernon Supp.1992). Texas Catastrophe Prop. Ins. Ass’n v. Miller, 625 S.W.2d 343, 346 (Tex.Civ.App.—Houston [14th Dist.] 1981, writ dism’d); see also Rowden v. Texas Catastrophe Prop. Ins. Ass’n, 677 S.W.2d 83, 89 (Tex.App.—Corpus Christi 1984, writ ref d n.r.e.). Functions like those exercised by CATPOOL are delegated by the Texas Legislature to state administrative bodies to further public purposes; they are not granted to private entities representing private interests. Beacon National Insurance Co. v. State Board of Insurance, 582 S.W.2d 616, 618-619 (Tex.Civ.App.—Austin 1979, writ ref’d n.r.e.). Indeed, the Texas Supreme Court has construed the administrative process involving the State Board and its auxiliary, CATPOOL, as one “administrative body.” Texas Catastrophe Prop. Ins. Ass’n v. Council of Co-Owners of Saida II Towers Condominium Ass’n, et al., 706 S.W.2d 644, 645-646 (Tex.1986).
Other provisions of the CATPOOL Act indicate that CATPOOL is a state entity. First, CATPOOL is explicitly subject to the Texas Open Meetings Act, which Act applies only to governmental bodies. Tex. Ins.Code Ann. art. 21.49, § 5(k) (Vernon Supp.1992). Tex.Rev.Civ.Stat.Ann. art. 6252-17, § 1(c) (Vernon Supp.1992). No private entities are subject to the Texas Open Meetings Act, whose purpose in fact is to “enable public access to and to increase public knowledge of government de-cisionmaking.” City of San Antonio v. Fourth Court of Appeals, 820 S.W.2d 762, 765 (Tex.1991).
The Act also provides CATPOOL immunity from liability in some circumstances. Basically, CATPOOL enjoys immunity for property inspections and statements made at administrative hearings. Tex.Ins.Code Ann. art. 21.49, § 10 (West 1989). Immunity from liability is an attribute of a sovereign. See e.g., Stout v. Grand Prairie Independent School District, 733 S.W.2d 290, 297 (Tex.App.—Dallas 1987, writ refd n.r.e.).3
Finally, the Texas Legislature has specified, in the statutory amendment at the center of this case, that CATPOOL is a “state agency for purposes of employing or authorizing legal representation and shall be represented by the Attorney General in the manner provided by general law for representation of any other state agency by the Attorney General.” Tex.Ins.Code Ann. art. 21.49, § 12A (Vernon Supp.1992).
II. CATPOOL Funds, Private and Public Interests: The Proper Perspective
The majority, like the district court, misapprehends the CATPOOL scheme so as to imagine due process-violative takings from private pocketbooks when such deprivation is not in fact happening. This is where the majority, like the district court before it, appears to have lost its way.
*1187True, CATPOOL is funded in part through State-coerced assessments against all Texas insurance companies.4 Texas courts have held that similar assessments amount to State taxes, and accordingly, have upheld them — i.e., because they are “imposed upon and extracted from producers by governmental authority for a public purpose.” Conlen Grain and Mercantile, Inc. v. Texas Grain Sorghum Producers Board, 519 S.W.2d 620, 623 (Tex.1975) (emphasis added). See also Friedman v. American Surety Co. of New York, 137 Tex. 149, 151 S.W.2d 570, 577 (1941). It is, then, irrelevant whether CATPOOL receives money from the State Treasury or directly from private sources conscripted for a special public purpose. Governmental funds always come from private sources. Ultimately, CATPOOL’s funds are State funds, because they are raised through the State’s coercive power for public purposes. Thus, in this respect too, Texas’ CATPOOL scheme fits within Chief Justice Marshall’s Dartmouth College paradigm. See Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518, 629-630, 4 L.Ed. 629 (1819) (“If the act of incorporation be a grant of political power, if it create a civil institution, to be employed in the administration of the government, or if the funds ... be public property, ... the subject is one in which the legislature of the state may act according to its own judgment, unrestrained by any limitation of its power imposed by the constitution of the United States.”).
Moreover, while it is possible that CAT-POOL’s losses in any catastrophe year might exceed the then current amount of premiums-derived money in CATPOOL’s coffer — so that the members will have to pay at once the difference — the private pocketbooks of the CATPOOL member companies are ultimately protected in various ways. First, excess money from year to year, derived from the members’ selling of insurance premiums, is invested by CATPOOL; CATPOOL uses such profits to purchase reinsurance — i.e., to cover the costs associated with the expected major wind and hailstorm catastrophes of the future. Second, there is a scheme of tax credits in place to compensate companies paying any “excess” (damage claim) assessments in any year {i.e., when the reinsurance money in any “catastrophe year” is not then sufficient to cover the costs of the catastrophe).
It is, finally, important to realize the following. The insurance companies comprising CATPOOL’s membership are not forced to do business in Texas. They choose to operate their businesses in the Texas insurance market. Membership in CATPOOL, and all that such membership entails, is simply a businessperson’s calculated cost or condition of operating an insurance business in Texas. If the State Board of Insurance failed to set premiums at a rate affording insurance companies the ability to operate at a profit — i.e., at a rate overcoming the business cost associated with potential CATPOOL assessments— these companies would soon disappear from the Texas landscape.
In sum: the State of Texas has a substantial interest in making sure CAT-POOL’s member companies are not assessed so often or to such an extent that they lose money. Texas protects this interest primarily through her insurance-specialist alter ego, the State Board of Insurance — which sets the rates of the insurance premiums: (1) CATPOOL’s member companies sell, and (2) comprising the primary source of funds to which State Board of Insurance-auxiliary, CATPOOL, turns in ord.er to cover losses and expenses associated with wind and hailstorm catastrophes along the Texas Gulf Coast. Texas supplements the protection of her interest in attracting and accommodating private insurance companies through a tax credit scheme, which scheme ameliorates the impact of any assessments CATPOOL must make against its members.
The majority, like the district court, focuses (1) on the fact that CATPOOL currently carries but $137 million worth of *1188reinsurance (while an “average CAT. 4” hurricane hitting the Texas Coast would evidently generate $1 billion worth of damage claims); and (2) on the fact that a CATPOOL member company can only credit 20% of a loss per tax year under the CATPOOL tax credit scheme. In so circumscribing its vision, the majority, like the district court, freezes aspects of the CATPOOL funding scheme in time and out of context so as to misconstrue the CAT-POOL funding scheme’s true, holistic nature.
Additionally, to the extent the private CATPOOL-member companies feel the need to employ their own counsel to protect their peculiar interests within the administrative scheme created by the Texas Legislature, they may do so. The CATPOOL Act itself recognizes this through its authorization that: (1) “any affected insurer who may be aggrieved by any act, ruling or decision of the Association [CATPOOL] ... [to] appeal to the commissioner [of Insurance],” and (2) any “person aggrieved by any order or decision of the commissioner” to appeal to a District Court in Travis County, Texas_”.5
III. Conclusion
CATPOOL would have no existence and no funds if it were not for the State’s coercive power. And the private interests implicated by the CATPOOL legislation appear insignificant in comparison to the enormous public interests at stake. The Texas Legislature operated within its authority when it amended the CATPOOL statute so as to explicitly designate the Attorney General of Texas as CATPOOL’s representative. Because I find the district court’s preliminary injunction analysis clearly erroneous — in terms of its evaluation of the essential nature of CATPOOL— 'and offensive to our country’s constitutional scheme of federalism, I would reverse.
I respectfully dissent.

. It is fundamental that state entities and political subdivisions have no due process or other rights to sue the state creating and sustaining them. See generally Williams v. Mayor and City Council of Baltimore, 289 U.S. 36, 53 S.Ct. 431, 77 L.Ed. 1015 (1933); City of Trenton v. State of New Jersey, 262 U.S. 182, 43 S.Ct. 534, 67 L.Ed. 937 (1923); Board of Levee Commissioners of the Orleans Levee Board v. Huls, 852 F.2d 140, 143 (5th Cir.1988).

. In contrast, a state-regulated private corporation’s Board of Directors is responsible to the corporation’s private shareholders, not to the State. Accordingly, a private corporation’s primary duty is private-interested, not public-interested: the private corporation’s primary task is to earn private profit for its shareholders (within the bounds of public-interested regulations).

. Of course, the Legislature may waive sovereign immunity whenever it chooses. And the Texas Legislature did just that in September, 1991, relative to one aspect of CATPOOL’s sovereign immunity. Until September, 1991, CAT-POOL, unlike private insurers, was immune to "bad faith” lawsuits under Article 21.21 of the Texas Insurance Code. See Leisure Services, Inc. v. Texas Catastrophe Property Insurance Association, 712 S.W.2d 266, 267-268 (Tex.App.—Austin 1986, writ ref'd n.r.e.). Unhappy with CATPOOL’s treatment of insureds, the Legislature amended the Act to apply Article 21.21 to CATPOOL. The fact emphasized by the majority, that “[sjince its creation, CATPOOL has employed its own private legal counsel," is one properly understood in the light of this sovereign power of waiver. (This counsel-waiver fact is also, I think, properly understood as partially a pragmatic product of the State’s fiscal concerns.)

. The other, more fundamental part of CAT-POOL’s funds comes by way of the premiums set by the State Board of Insurance and paid by the insured persons of Texas.

. Tex.Ins.Code Ann. art. 21.49 § 9 (Vernon Supp.1992).