Opinion
No. 05-02-00636-CV.
Opinion issued January 16, 2003.
Appeal from the 160th Judicial District Court, Dallas County, Texas, Trial Court Cause No. 01-06722-H
Affirmed.
MEMORANDUM OPINION
This is a conflict of laws case. The issue is whether the trial court erred in holding that Texas substantive law applied to BDO Seidman, LLP's (Seidman) contribution and indemnity claims against Bracewell Patterson, LLP (Bracewell). We conclude Seidman's indemnity claims are barred under either Texas or Louisiana substantive law and that Texas law applies to and bars Seidman's claim for contribution. We affirm the summary judgment granted by the trial court.
Factual and Procedural Background
Seidman, an accounting firm, provided auditing services for TGX Corporation (TGX). Bracewell, a law firm, represented TGX in litigation in New York involving a contract for the sale of natural gas. On March 3, 1986, Bracewell provided Seidman an audit letter regarding the New York litigation, opining TGX would ultimately prevail in the dispute. Purportedly based on Bracewell's letter, Seidman issued an unqualified opinion of TGX's financial condition that did not mention the New York litigation.
Gaylon and Gloria Simmons owned stock in Louisiana Energy Development Corporation (LEDCO), a Louisiana natural gas company. In November 1986, the Simmonses sold their LEDCO stock to TGX in exchange for cash, TGX stock, and deferred compensation. The Simmonses claim they relied on Seidman's audit and filings with the Securities Exchange Commission (SEC) by TGX in deciding to sell the LEDCO stock.
Based, at least in part, on the dispute that gave rise to the New York litigation, TGX filed for bankruptcy protection in 1990. The Simmonses' TGX stock plummeted in value and they did not receive the deferred compensation from the sale of the LEDCO stock. In 1991, the Simmonses filed suit against Seidman and Bracewell, among others, in Louisiana based on violations of Louisiana's securities law, conspiracy, negligent misrepresentation, and aiding and abetting liability. Bracewell was dismissed from the litigation on January 29, 1996 due to lack of personal jurisdiction.
On July 21, 2001, Seidman settled the Simmonses' claims for $2.15 million and received an assignment of the Simmonses' claims against Bracewell. Seidman then sued Bracewell in Texas for contribution and indemnity as well as negligent misrepresentation. Bracewell filed a motion for summary judgment, contending Seidman did not have a claim for contribution under Texas substantive law, Seidman's indemnity claim was barred under either Texas or Louisiana law, and Seidman's negligent misrepresentation claim was barred by the statute of limitations. The trial court found Texas law applied and granted summary judgment in favor of Bracewell. Seidman appealed.
Seidman has not argued on appeal the trial court erred in granting summary judgment on BDO's negligent misrepresentation claims.
Conflict of Laws
Seidman contends the trial court erred in finding Texas law applied to and barred Seidman's contribution and indemnity claims against Bracewell. The first question in conducting a choice-of-law analysis is whether there is any conflict between the substantive law of the various states. Ford Motor Co. v. Aguiniga, 9 S.W.3d 252, 260 (Tex.App.-San Antonio 1999, pet. denied). We conclude there is no conflict between Texas and Louisiana law applicable to Seidman's indemnity claim. However, there is a conflict as to Seidman's claim for contribution.
A. Indemnity
Under Texas law, the availability of common law indemnity is extremely limited. Cypress Creek Util. Serv. Co. v. Muller, 640 S.W.2d 860, 864 (Tex. 1982); BB Auto Supply, Sand Pit Trucking Co. v. Cent. Freight Lines, Inc., 603 S.W.2d 814, 816-17 (Tex. 1980). Common law indemnity survives in Texas only in products liability actions to protect an innocent retailer in the chain of distribution and in negligence actions to protect a defendant whose liability is purely vicarious in nature. Aviation Office of Am., Inc. v. Alexander Alexander of Tex., Inc., 751 S.W.2d 179, 180 (Tex. 1988) (per curiam).
Under Louisiana law, a tortfeasor has no right of indemnity against another tortfeasor unless the actual fault is attributable to one of the parties and the other is only technically or constructively at fault, such as through vicarious liability. Nassif v. Sunrise Homes, Inc., 739 So.2d 183, 185 (La. 1999); Petroleum Rental Tools, Inc. v. Hal Oil Gas Co., Inc., 701 So.2d 213, 218 (La.App. 1st Cir. 1997). Indemnity is not available when the party seeking indemnity was actively negligent. Nassif, 739 So.2d at 185; Hunt v. City Stores, Inc., 387 So.2d 585, 590 (La. 1980).
Neither the Simmonses' nor Seidman's pleadings allege Seidman was liable based on strict liability or that Seidman's liability was premised on constructive or vicarious liability for Bracewell's actions. Thus, Seidman is not entitled to indemnity under either Texas or Lousiana law, and the trial court did not err in granting summary judgment on Seidman's indemnity claim.
B. Contribution
Turning to Seidman's contribution claim, under Texas law a settling tortfeasor does not have a right to contribution from other alleged tortfeasors. Beech Aircraft Corp. v. Jinkins, 739 S.W.2d 19, 22 (Tex. 1987); Filter Fab, Inc. v. Delauder, 2 S.W.3d 614, 617 (Tex.App.-Houston [14th Dist.] 1999, no pet.). Further, chapter 33 of the civil practice and remedies code does not permit a tortfeasor to seek postjudgment contribution from a tortfeasor that was not a party to the primary suit. Casa Ford, Inc. v. Ford Motor Co., 951 S.W.2d 865, 876 (Tex.App.-Texarkana 1997, pet. denied). Thus, if Texas law, applies Seidman may not maintain its contribution claim against Bracewell.
Pursuant to the law in effect at the time the Simmonses filed their lawsuit, Louisiana permitted a joint tortfeasor to settle the plaintiff's entire claim and take an assignment of the plaintiff's cause of action against the remaining defendants. See La. Civ. Code Ann. art. 1804 (West 1987); Ducote v. Commercial Union Ins. Co., 616 So.2d 1366, 1370-71 (La.App. 3rd Cir.), writ denied, 620 So.2d 877 (1993). Consequently, if Louisiana law applies, Seidman's contribution cause of action is viable. We must therefore determine which state's substantive law applies to Seidman's contribution claim.
1. Choice-of-Law
Which state's substantive law governs an issue is a question of law. Torrington Co. v. Stutzman, 46 S.W.3d 829, 848 (Tex. 2000). Texas follows the Restatement's "most significant relationship" test in deciding choice-of-law issues. Id.; Hughes Wood Prods., Inc. v. Wagner, 18 S.W.3d 202, 205 (Tex. 2000); see Restatement (Second) of Conflict of Laws, §§ 6, 145, 173 (1971). This test focuses on the particular substantive issue, not the controversy at large. Wagner, 18 S.W.3d at 205; Chesapeake Operating, Inc. v. Nabors Drilling USA, Inc., Nos. 14-00-00173-CV 14-00-00580-CV, 2002 WL 31628769, at *6 (Tex.App.-Houston [14th Dist.] Nov. 21, 2002, no pet. h.) (en banc). Therefore, the substantive law applicable to the underlying tort action is not automatically applicable to a defendant's contribution claim. Chesapeake Operating, Co., 2002 WL 31628769, at *6 ("What is determinative is which state has the most significant relationship with respect to the indemnity issue."); see Restatement (Second) of Conflict of Laws, § 173, cmt. a ("The state where conduct and injury occurred will not by reason of these contacts alone be the state that is primarily concerned with the question whether one tortfeasor may obtain contribution against another."); Bill Alexander Ford, Lincoln Mercury, Inc. v. Casa Ford, Inc., 931 P.2d 1126, 1128-29 (Az. App. 1997) (applying Arizona law to contribution claim based on judgment entered pursuant to Texas law).
Section 6 of the Restatement lists the general factors used to decide a choice-of-law question:
(a) the needs of the interstate and international systems;
(b) the relevant policies of the forum;
(b) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue;
(c) the protection of justified expectations;
(d) the basic policies underlying the particular field of law;
(e) certainty, predictability, and uniformity of result; and
(f) ease in the determination and application of the law to be applied.
Restatement (Second) of Conflict of Laws, § 6(2); see Torrington Co., 46 S.W.3d at 848.
Section 173 of the Restatement specifically addresses choice-of-law as it relates to contribution and indemnity among tortfeasors and directs us to consider the contacts listed in section 145 in applying the section 6 principles. Restatement (Second) of Conflict of Laws, § 173. These contacts include:
(a) the place where the injury occurred;
(b) the place where the conduct causing the injury occurred;
(c) the domicil, residence, nationality, place of incorporation, and place of business of the parties; and
(d) the place where the relationship, if any, between the parties is centered.
Restatement (Second) of Conflict of Laws, § 145(2).
2. Section 145(2) Contacts
Seidman's injury, if any, occurred when it paid a disproportionate share of the Simmonses' damages in the lawsuit brought by the Simmonses in Louisiana. The first contact therefore favors the application of Louisiana law. However, Bracewell's conduct, if any, that gave rise to the injury occurred in Texas when Bracewell mailed the audit response letter from Houston to Dallas.
The second contact favors Texas. Seidman is a New York limited liability partnership. Although Seidman has maintained an office in Dallas, its headquarters have never been in Texas. Bracewell is a Texas limited liability partnership with its main office in Texas. Neither Seidman nor Bracewell had a Louisiana office during the relevant time period. The third contact leans toward the application of Texas law. The final contact requires us to consider the center of the parties' relationship. The Restatement contemplates that where the tortfeasors are domiciled in the same state and there exists a special relationship between them which is centered in that state, "it would seem that, usually at least, this state would have the greatest interest in the issue of contribution and that its local law should be applied." Restatement (Second) of Conflict of Laws, § 173, cmt.
a. Although comment (a) to section 173 does not discuss what constitutes a "special relationship," the illustration to comment (b), discussing the choice of applicable indemnity law, is helpful:
A lends his car to B in state X.
A and B are both domiciled in X.
B drives the car into state Y where he negligently runs over C.
C recovers damages from A.
A now sues B for indemnity in state Z.
The Z court, in the absence of strong countervailing considerations, should apply X local law to determine A's right to indemnity.
Id. § 173, cmt. b.
The audit letter that forms the basis of Seidman's contribution claim was prepared by Bracewell in Texas and1 forwarded to Seidman in Texas. Seidman relied on the audit letter in deciding to give an unqualified opinion of TGX's financial condition. This opinion and certain reports filed by TGX with the SEC were conceivably disseminated throughout the country. However, Bracewell had no control over the dissemination of the information. The relationship between Bracewell and Seidman was centered in Texas, and the fact the Simmonses received the information in Louisiana does not cause the center of the Bracewell/Seidman relationship to change. See Restatement (Second) of Conflict of Laws § 173, cmts. a, b.
The final contact points to the application of Texas law.
3. Section 6 General Factors
We now consider how the weighted section 145(2) contacts apply to the general factors listed in section 6 of the Restatement.
The first factor, the needs of the interstate and international systems, is neutral. Although Louisiana has an interest in ensuring its citizens who are harmed are made whole, that interest was met when Seidman settled with the Simmonses. Louisiana has, at best, a limited interest in having its laws applied to a non-Louisiana accounting firm's attempts to recoup a portion of a settlement from a Texas law firm. See W.R. Grace Co. v. Cont'l Cas. Co., 896 F.2d 865, 874 (5th Cir. 1990) ("It is important that neither Texas nor the School Districts have any interest in whether the settlement is paid by Grace or, instead, by its insurers. Their only interest is in being paid, and they have been.").
The second, third, and fifth factors concern the relevant policies of Texas and Louisiana and the basic policies underlying the particular field of law. Texas courts have emphasized these factors in determining which forum has the "most significant relationship" to the claim at issue. Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 421 (Tex. 1984); Vizcarra v. Roldan, 925 S.W.2d 89, 91 (Tex.App.-El Paso 1996, no writ).
Texas prohibits a settling tortfeasor from accepting the assignment of a plaintiff's cause of action against other defendants because it is against "public policy to permit a joint tortfeasor the right to purchase a cause of action from a plaintiff to whose injury the tortfeasor contributed." Int'l Proteins Corp. v. Ralson-Purina Co., 744 S.W.2d 932, 934 (Tex. 1988). This policy seeks to prevent a distortion of the parties' positions in the litigation, possibly leading to extended litigation, confusion of the jury, and harm to the other potential tortfeasors. Jinkins, 739 S.W.2d at 22.
The joint tortfeasor can settle only its proportionate share of liability and may not preserve a right to contribution by taking an assignment of the plaintiff's cause of action. Int'l Proteins Corp., 744 S.W.2d at 934.
Until 1987, Louisiana imposed solidary liability on joint tortfeasors that allowed a plaintiff to recover all damages from one tortfeasor. Farbe v. Cas. Reciprocol Exch., 765 So.2d 994, 995 (La. 2000). The policy behind solidary liability was that it was better to allocate damages to the parties responsible for the injury, even in a disproportionate amount, rather than have the victim suffer a reduced recovery. Touchard v. Williams, 617 So.2d 885, 890 (La. 1993). The right of contribution mitigated the harsh effects of solidary liability by permitting a joint tortfeasor who has paid more than his share of a solidary obligation to seek reimbursement from the other tortfeasors for their respective share of the judgment. Farbe, 765 So.2d at 996. Louisiana's statutory scheme, however, was primarily focused on protecting the victim. See Touchard, 617 So.2d at 890. In this case, the victims have been compensated. Texas law prohibits both the assignment of the Simmonses' causes of action against Bracewell to Seidman and a second lawsuit by a settling tortfeasor seeking contribution from a joint tortfeasor.
In 1987, Louisiana modified solidary liability to cap a joint tortfeasor's liability at fifty percent of the plaintiff's damages. Id. at 995-96. In 1996, Louisiana abolished solidary liability except for in the case of intentional torts. Id. at 996 n. 3.
Any interest Louisiana may have in applying its law to a contribution claim between two non-Louisiana residents in a Texas forum do not outweigh Texas's interest in enforcing its long-standing policy. These important factors favor the application of Texas law.
The fourth factor, the protection of justified expectations, is neutral. Although Seidman claims it justifiably expected to have Louisiana contribution law apply to the settlement of a Louisiana lawsuit, we must also consider Bracewell's justified expectations. Bracewell prepared an audit letter in Texas and mailed it to Seidman in Texas. Bracewell did not have sufficient contacts with Louisiana to be subject to suit in that forum. Bracewell could, therefore, expect that Texas law would apply to its conduct in Texas.
The sixth factor, the certainty, predictability, and uniformity of result, superficially favors the application of Louisiana law. A blanket rule applying the contribution law from the state where the injury occurred would obviously be the simplest to apply. However, this result is contrary to the Texas Supreme Court's holdings in Guiterrez v. Collins, 583 S.W.2d 312 (Tex. 1979) that lex loci delicti no longer controls the choice-of-law analysis and in Hughes Wood Products, Inc. v. Wagner, 18 S.W.3d 202 (Tex. 2000) that the choice-of-law analysis must focus on the substantive issue. In fact, this outcome ignores "the very substantial interests of the forum state in applying its own law." Guiterrez, 583 S.W.2d at 317. We conclude this factor is neutral.
The final factor, the ease in the determination and application of the law to be applied, is also neutral. Obviously, a Texas court could easily apply Texas contribution law. However, Louisiana's law is not so daunting that a Texas court would be unable to correctly apply it to Seidman's claims. Applying the specific factual contacts from section 145(2) to the general principles espoused in section 6 of the Restatement, we conclude the trial court did not err in determining Texas law applies to Seidman's contribution claim and prohibits Seidman from maintaining that claim in this litigation.
We overrule points of error one and two and affirm the trial court's judgment.