Beaumont Indep. Sch. Disrict v. LRG-Loss Recovery Grp.

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BEAUMONT INDEPENDENT SCHOOL DISRICT, Appellant v. LRG-LOSS RECOVERY GROUP LLC AND RANDALL HARRIS, Appellees

No. 09-22-00144-CV

Court of Appeals of Texas, Ninth District, Beaumont

May 18, 2023

Submitted on April 10, 2023

On Appeal from the 128th District Court Orange County, Texas Trial Cause No. A190049-C

Before Horton, Johnson & Wright, JJ.

MEMORANDUM OPINION

LEANNE JOHNSON Justice

This is an accelerated appeal of a denial of a plea to the jurisdiction. See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(8) (permitting interlocutory appeals from rulings on a governmental unit's plea to the jurisdiction); Tex. Loc. Gov't Code Ann §§271.151-160 ("Chapter 271, Subchapter I," setting forth the requirements for adjudication of claims arising under written contracts with local governmental entities); Tex.R.App.P. 28.1(a) (providing rules for accelerated appeals). Appellant Beaumont Independent School District ("BISD" or "Appellant") appeals from the trial court's denial of its Plea to the Jurisdiction based on governmental immunity. Because we conclude that the contract at issue is covered by the waiver of governmental immunity expressly provided for in Chapter 271, we affirm.

Plaintiffs' Original Petition

On February 11, 2019, Plaintiffs LRG-Loss Recovery Group LLC ("LRG") and Randall Harris (collectively "Plaintiffs" or "Appellees") filed their Original Petition against Defendant BISD. Harris is a licensed public adjuster and the owner and operator of LRG. LRG later filed several amended petitions. LRG's Second Amended Petition added six defendants: Westchester Surplus Lines Insurance Company ("Westchester"), Axis Surplus Insurance Company ("Axis"), Underwriters at Lloyd's of London ("Lloyd's"), Endurance American Specialty Insurance Company ("Endurance") Peleus Insurance Company ("Peleus"), and Evanston Insurance Company ("Evanston") (collectively "the Insurers").^[1] In their Fourth Amended Petition, Plaintiffs' only claim against BISD was for a breach of contract. According to Plaintiffs, the dispute arose from a contract ("the Contract") wherein BISD "agreed to pay Plaintiff[s] to represent and assist in the process of investigating, filing, negotiating and adjusting the claims" BISD made for physical loss to Central Medical Magnet High School ("CMMHS" or "the Property") in Beaumont, Texas, from Hurricane Harvey in 2017. Plaintiffs alleged that, under the Contract, Plaintiffs' compensation would be calculated on a contingency basis, and upon settlement and payment of a claim, Plaintiffs would be paid 9% of the overall settlement. The Petition alleged that Axis was defined as "the lead insurance policy applicable to the claim[]" and the other Insurers were "members with Axis on the coverage and were affiliates of Axis, generally referred to as the Market[,]" and the Market retained McLarens, Inc. to adjust the claim. According to the Petition, "each insurance company participated in their pro-rata share" as to coverage for the claim.

Plaintiffs alleged that at some point, LRG demonstrated the damages exceeded "$2.5 Million wind driven rain sub-limit and that BISD had suffered more than $1 Million in mold and $1 Million in extra expense, which were all covered under BISD's policies." Plaintiffs alleged that it negotiated with the Insurers, and the Insurers issued "payments [] to BISD that included LRG as a named payee[,]" including a check for $300,000 from Axis to BISD and LRG, a check for $100,000 from Peleus to BISD and LRG, and a check for $100,000 from McLarens to BISD and LRG. Plaintiffs alleged that they did not endorse any of these checks, did not authorize the checks to be negotiated on their behalf, and they were not paid anything from the checks.

The Plaintiffs alleged that in June 2018, BISD's attorney sent a letter to LRG terminating LRG from the Contract and threatening litigation. According to the Petition, BISD's attorney also instructed BISD's Insurers to stop communicating with LRG. In addition, the Plaintiffs alleged that "BISD's attorney [] took the position that BISD's Hurricane Harvey claim was limited to $4.5 Million and that BISD was not entitled to any coverage for the flood or storm created openings at the Property." According to the Plaintiffs, there was "far more than $4.5 Million in storm damage" and "BISD's insurers then conspired with BISD's attorney to remove LRG from the claim." Plaintiffs alleged that the Insurers "cut off communications with LRG and removed LRG from future payments despite knowing that LRG was entitled to a percentage of all recoveries by BISD."

Plaintiffs alleged that BISD "breached the contract by refusing to pay Plaintiff's] from proceeds [BISD] received from its insurance carrier[]" and that Plaintiffs suffered damages in excess of $400,000. In the alternative, if BISD disputed the terms of the Contract, Plaintiffs pleaded ambiguity and sought to have the terms determined by the jury.^[2] Plaintiffs also sought attorney's fees.

In BISD's Answers, BISD asserted a general denial and various affirmative defenses including its entitlement to governmental immunity from Plaintiffs' breach of contract claim.

BISD's Combined Motion for Summary Judgment and Plea to the Jurisdiction

BISD filed a Combined Motion for Summary Judgment and Plea to the Jurisdiction ("Plea to the Jurisdiction"). Therein, BISD admitted it had a contract with Plaintiffs and described the Contract between BISD and the Plaintiffs as one "to adjust Hurricane Harvey insurance claims expressly limited to claims paid by Axis" on BISD's Property, for which BISD would pay Plaintiffs 9% of the claims paid by Axis only and not for claims paid by other insurance carriers or on other BISD properties. BISD argued that the Contract at issue is covered by Chapter 271 of the Texas Local Government Code, which limits a party's recovery to "the balance due and owed by the local government entity under the contract[.]" See Tex. Loc. Gov't Code Ann. § 271.153(a)(1). According to BISD, Plaintiffs failed to identify a "balance due and owed" by BISD under the Contract, and for this reason, BISD retains its governmental immunity.

According to BISD, after Hurricane Harvey, BISD's Board of Managers authorized the Superintendent, Dr. John Frossard, to secure vendors to protect BISD. Thereafter, BISD entered into the Contract with Harris and LRG to represent BISD with claims for loss or damage that resulted from Hurricane Harvey at CMMHS. BISD asserted that the Contract with LRG identified Axis as the only "Insurer[,]" and Axis is not and never has been a subsidiary or affiliate of the other Insurers involved in the lawsuit, nor is there a "member" or "member company" relationship between Axis and the other Insurers in the lawsuit. BISD alleged it terminated the Contract with LRG and Harris in June 2018 because the "Plaintiffs had materially failed to perform their duties under the Contract." According to BISD, Plaintiffs' subsequent demand letter did not identify a balance due and owing under the Contract nor had Plaintiffs identified a balance due and owing in their discovery responses. Therefore, BISD argued that damages are not recoverable under Chapter 271 because Plaintiffs have not shown and cannot show an amount due and owing under the Contract. BISD asked the trial court to grant its Plea to the Jurisdiction and dismiss Plaintiffs' breach of contract claim with prejudice for lack of jurisdiction.

Attached to BISD's Plea to the Jurisdiction were various exhibits, including: a transcript of the deposition of Cheryl Hernandez, the Chief Financial Officer for BISD; a transcript of the deposition of Randall Harris; a Public Adjuster Contract ("the Contract") executed by BISD and Randall Harris; a letter dated June 19,2018, terminating the Contract; and a demand letter dated July 12, 2018 to BISD from LRG's counsel. The Contract identified the "insurer(s) of the property" as "Axis Surplus Insurance Company" and the Policy Number as EAF752171-17. The Contract further stated that it was for assistance with claims for loss or damage resulting from Hurricane Harvey "solely to property commonly referred to as Central Medical Magnet High School at 88 Jaguar Drive and 3410 Austin Street, Beaumont TX 77702[.]"

Plaintiffs' Response and Opposition to Defendant BISD's Combined Motion for Summary Judgment and Plea to the Jurisdiction

In their Response to BISD's Plea, Plaintiffs argued that BISD was not entitled to summary judgment because there were genuine issues of material fact regarding the scope of the Contract and "whether the damages for [] breach of Contract are unquantifiable[,]" and because BISD's immunity from suit had been waived as a matter of law. LRG also argued that ambiguities in the Contract should be decided by a jury.

According to Plaintiffs, CMMHS suffered severe, possibly catastrophic damage as a result of Hurricane Harvey, and other BISD properties suffered "lesser damage." Plaintiffs alleged that "BISD 'was in a state of emergency' after the storm, and authorized its Superintendent, Dr. John Frossard [] 'to secure vendors to protect the District.'" Citing Cheryl Hernandez's deposition testimony, Plaintiffs stated that BISD's insurance at the time of the hurricane was a "market share policy" comprised of a group of insurers where each insurer in the group bears a percentage of the risk. According to Plaintiffs, the initial inspections of BISD schools after the hurricane determined that, although there was damage to numerous schools, CMMHS was the most severely damaged campus and the only school where the damage would be likely to exceed the deductible.

Plaintiffs acknowledged that the signed Contract "cabins the scope of LRG's duties to services performed with...