CHARLA ALDOUS; CHARLA G. ALDOUS, P.C., doing business as Aldous Law Firm, Plaintiffs - Appellants Cross-Appellees
DARWIN NATIONAL ASSURANCE COMPANY, Defendant-Appellee Cross-Appellant
from the United States District Court for the Northern
District of Texas
REAVLEY, ELROD, and GRAVES, Circuit Judges.
REAVLEY, Circuit Judge.
over two trusts begat litigation between the prevailing
party, Albert Hill III, and his attorneys. Appellant Charla
Aldous is one of those attorneys, and she prevailed against
her erstwhile client. In addition to establishing an
entitlement to significant attorney's fees, Aldous and
her cohort also successfully defended against breach of
contract and professional negligence claims, among others.
Hill's claims against the attorneys triggered insurance
coverage provided by appellee Darwin National Assurance, Co.,
Aldous's insurer. And now, in this third layer of
litigation, we confront the resulting coverage dispute.
Aldous claims Darwin did not pay enough to fully cover the
costs of her defense. Darwin asserts it paid too much.
case was decided in favor of Darwin on summary judgment. In a
ruling that effectively doomed Aldous's claims, the
district court ruled she was judicially estopped from
claiming defense costs in excess of $668, 068.38. Building on
this ruling, the district court further found that Darwin was
entitled to recover "overpayments" on an equitable
"money had and received" theory. Aldous appealed.
addition to issues raised by the district court's summary
judgment ruling, we are also called upon to decide whether
the district court erred in partially granting a motion to
dismiss brought by Darwin. Lastly, Darwin has filed a
cross-appeal, contending that judgment should not have been
granted in favor of Aldous with respect to a breach of
with Lisa Blue and Steve Malouf, Aldous represented Hill in
litigation that resulted in a judgment for their client
valued at $114, 745, 870. (The association of lawyers Blue,
Aldous, and Malouf are hereinafter referred to as
"BAM.") BAM represented Hill on a contingency
basis, but Hill did not want to pay. Litigation ensued. After
BAM sued Hill, Hill counterclaimed, alleging breach of
fiduciary duty, duress, breach of oral contract, fraud, and
had a valid professional liability insurance policy through
Darwin (the "Policy"), and Hill's counterclaims
triggered coverage. Blue and Malouf were also covered under
separate policies through separate insurers. BAM had already
retained Alan Loewinsohn to represent its affirmative claims
against Hill and requested that the insurers allow Loewinsohn
to handle the defense as well. The insurers relented. The
various parties agreed (and continue to agree) that Darwin is
responsible only for one-third of the covered costs of
defense; Blue and Malouf (or their insurers) were separately
responsible for their one-third shares.
ultimately prevailed against Hill, securing an award of $21,
942, 961 in earned attorney's fees (offset by $691,
175.93), costs of $479, 595.67, and the "reasonable
costs and fees in defending against Hill III's
counterclaims in the amount of $2, 586, 560.11." By the
time judgment was entered, Aldous and Darwin were already
embroiled in this coverage dispute.
filed this suit in Texas state court, and it was removed to
federal court on the basis of diversity jurisdiction. As
relevant here, Aldous alleged breach of contract, breach of
the duty of good faith and fair dealing, violations of the
Texas Insurance Code, and violations of the Texas Deceptive
Trade Practices Act. She also sought a declaratory judgment
that Darwin is liable for the costs associated with the
prosecution of her affirmative claims against Hill to the
extent those affirmative claims were inextricably intertwined
with her defense. Darwin counterclaimed, alleging (among
other things) breach of contract, unjust enrichment, and
money had and received. The district court partially granted
a Rule 12(b)(6) motion filed by Darwin, dismissing
Aldous' breach of the duty of good faith and fair dealing
claim, as well as a Texas Insurance Code § 541 claim and
the Texas Deceptive Trade Practices Act claim. Subsequently,
the parties filed cross-motions for summary judgment.
summary judgment, the district court ruled largely in favor
of Darwin. In a ruling with major consequences, the district
court ruled that Aldous was judicially estopped from claiming
that the costs in defending against Hill's counterclaims
exceeded $668, 068.38. This ruling meant that Darwin's
coverage obligations were limited to $222, 689.44-one-third
of the total cost to defend. Darwin had paid Aldous far more
than that, $502, 364.59. Based on this ruling, Aldous'
breach of contract claim necessarily failed. The judicial
estoppel ruling also meant that Darwin had overpaid, and the
district court ruled that Darwin could recover this
overpayment through an action for money had and received. The
district court further ruled that Aldous was not entitled to
costs related to the prosecution of her affirmative claims
against Hill, even if she could show those affirmative claims
were inextricably intertwined with her defense against
Hill's counterclaims. And, as clarified in a subsequent
order, the district court granted summary judgment against
Darwin with respect to its breach of contract counterclaim,
reasoning that the anti-subrogation rule prevented it from
asserting subrogation rights against its own insured.
STANDARD OF REVIEW
Judgment. Summary judgment rulings are subject to
de novo review. Cal-Dive Int'l, Inc. v.
Seabright Ins. Co., 627 F.3d 110, 113 (5th Cir. 2010).
"We will affirm the district court's judgment if no
genuine issues of fact are presented and if judgment was
proper as a matter of law." Id. On
cross-motions for summary judgment, we consider "each
party's motion independently, viewing the evidence and
inferences in the light most favorable to the nonmoving
party." Morgan v. Plano Indep. Sch. Dist., 589
F.3d 740, 745 (5th Cir. 2009).
to Dismiss. Dismissal for failure to state a claim
is also reviewed de novo. Colony Ins. Co. v.
Peachtree Const., Ltd., 647 F.3d 248, 252 (5th Cir.
2011). Dismissal is appropriate if, assuming the truth of all
facts alleged in the complaint, the plaintiff is not entitled
to relief as a matter of law. Ashcroft v. Iqbal, 556
U.S. 662, 678, 129 S.Ct. 1937, 1949 (2009); see Fed.
R. Civ. P. 12(b)(6).
parties understand, the district court's judicial
estoppel ruling had major ripple effects. It is the
foundation of the grant of summary judgment in favor of
Darwin's equitable claim for relief, and it precludes
Aldous from establishing any breach of contract. As we will
see, however, the foundation is faulty. Application of
judicial estoppel was inappropriate.
law governs the substance of this dispute, but "we apply
federal principles of judicial estoppel." RSR Corp.
v. Int'l Ins. Co., 612 F.3d 851, 859 (5th Cir.
2010). There are two basic requirements: "First, it must
be shown that 'the position of the party to be estopped
is clearly inconsistent with its previous one; and [second, ]
that party must have convinced the court to accept that
previous position." Id. (quoting Hall v. GE
Plastic Pac. PTE Ltd., 327 F.3d 391, 396 (5th Cir.
2003)). That said, "the Supreme Court has refused to
'establish inflexible prerequisites or an exhaustive
formula for determining the applicability of judicial
estoppel, ' stating instead that different considerations
'may inform the doctrine's application in specific
factual contexts.'" Reed v. City of
Arlington, 650 F.3d 571, 574 (5th Cir. 2011) (en banc)
(quoting New Hampshire v. Maine, 532 U.S. 742, 751,
121 S.Ct. 1808, 1815 (2001)). Even when serving as the basis
for a summary judgment ruling, a district court's
judicial estoppel determination is reviewed for abuse of
discretion. Kane v. Nat'l Union Fire Ins. Co.,
535 F.3d 380, 384 (5th Cir. 2008). "A district court
abuses its discretion if it misapplies the law or bases its
decision upon erroneous findings of fact." RSR
Corp., 612 F.3d at 859.
thorough review of the record, we can only conclude that
Aldous never took the position (let alone
"clearly") that her defense costs in the underlying
suit were limited to $668, 068.31 and that the prior court
never accepted such a position. The district court's
contrary determination represents an abuse of discretion.
the prior proceedings, BAM was required to show how much it
expended both in prosecuting its claims against Hill and in
defending against Hill's counterclaims. The parties
stipulated that these attorney's fees could be
established through declarations, and BAM's attorney
filed a series of relevant declarations (the "Loewinsohn
Declarations"). The first of the declarations makes it
plain that BAM did not claim its costs of defense were
limited to $668, 068.31. Therein, Loewinsohn asserted legal
fees of $2, 054, 178.18, including both affirmative and
defensive claims. He expressly declared that the
"fees and expenses can all be allocated either to the
prosecution of BAM's breach of contract claim or to the
defense of the counterclaims and affirmative defenses
asserted by the Hills, which was necessary in BAM's
prosecution of their claim, or both."
first declaration was filed on April 29, 2011. After that
day, the rest of the litigation concerned only Hill's
counterclaims. On June 29, 2011, Loewinsohn submitted a
"supplemental declaration" that further testified
that "for the time period of May 1, 2011 to June 24,
2011, for the defense of the Counterclaims, " $668,
068.31 had been reasonably expended. Then, on January 9,
2012, he submitted a "second supplemental
declaration" which "incorporated by reference"
the first and reiterated his opinion "that an
attorney's fee, including expenses, of $668, 068.31 was a
reasonable and necessary fee for the defense of the
Counterclaims." As can be readily seen, mere recitation
of the Loewinsohn Declarations establishes that Aldous never
claimed that defense costs totaled $668, 068.31. Rather, the
fees incurred after April 29 totaled $668, 068.31 and were
other notable facts emerge from the declarations and a review
of the prior proceedings. First, the reason that fees
incurred after April 29 related solely to defending against
Hill's claims is that BAM's affirmative claims had
already been litigated. An evidentiary hearing commencing
April 20th resolved those claims. Second, the lion's
share of dispositive defense work was done prior to
April 29, as shown by the judge's ruling that, with one
exception, all of Hill's counterclaims "were legally
barred based on her prior rulings" stemming from the
April 20 hearing.
district court's ruling contains several errors. Most
fundamentally, the district court unjustifiably read the
supplemental declaration in isolation. It took as
Aldous's binding position that defense costs in the prior
proceeding were incurred only between May 1 and June
24 and that those costs totaled $668, 068.31. To make this
large error, the district court was required to make small
example, the district court refused to credit Aldous's
argument that the first declaration did not segregate fees
and therefore included costs related to defending against
Hill. In the district court's view, this argument was
undercut by the fact that "Loewinsohn segregate[d] the
fees associated with the affirmative and defensive claims in
his supplemental and second supplemental declaration."
Charla G. Aldous, P.C. v. Darwin Nat. Assur. Co., 92
F.Supp.3d 555, 566 (N.D. Tex. 2015). Loewinsohn's
newfound ability to segregate fees is easily explained,
however. As mentioned above, after June 29 the only remaining
work to be done was defense work.
even the district court's interpretation of the
supplemental declaration ignores its plain language. The
supplemental declaration establishes fees incurred "for
the time period of May 1, 2011 to June 24, 2011." When
Aldous pointed out that the declaration was time-limited, the
district court closed its ears and refused to consider the
point. See id. at 566 ("The purpose of judicial
estoppel, however, prevents Plaintiffs from taking positions
such as this one."). As the district court saw it,
judicial estoppel itself precluded Aldous from explaining her
prior position. It should go without saying that judicial
estoppel cannot be applied to the question of whether
judicial estoppel applies. Aldous should have been permitted
make arguments reconciling and harmonizing the
cannot condone the district court's approach to the
second aspect of judicial estoppel-whether the first court
accepted the prior inconsistent position. To find judicial
estoppel applicable, the district court was required to find
that the prior court accepted $668, 068.31 as BAM's total
costs on defense. Instead, the prior court issued a judgment
"[t]hat BAM shall recover from Hill III its reasonable
costs and fees in defending against Hill III's
counterclaims in the amount of $2, 586, 560.11."
(Emphasis added.) As Aldous argues, this single sentence from
the judgment demonstrates that judicial estoppel was
the district court found that the "record clearly
reflects the court's acceptance of and reliance on
Plaintiffs' prior position in the Hill lawsuit."
Charla G. Aldous, P.C., 92 F.Supp.3d at 568. The
evidence cited by the district court does not show that the
prior court accepted $668, 068.31 as the full measure of
defense costs. It shows the parties agreed "to be bound
by [the prior court's] attorney's fees
determination" and "agreed that they would submit
the issue of attorney's fees to [a magistrate judge];
that they could appeal only to [a district court judge]; and
that they would not request an additional evidentiary hearing
before [the district court judge]." Id. The