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In a first-of-its-kind ruling, the 5th U.S. Circuit Court of Appeals held recently that an insurer can intervene post-judgment in a suit against its insured, because the insured abandoned his appeal. The decision reverses a $10 million judgment awarded to an African-American family victimized by a cross-burning incident in 2000. The judgment was awarded against the father of one of the perpetrators. On Sept. 21, a three-judge panel of the 5th Circuit held in Dwayne Ross, et al. v. Matthew Curtis Marshall, et al. that Allstate Texas Lloyds Insurance Co. had a right to intervene in the suit to challenge the judgment against its insured, a father whom the trial court held vicariously liable for his son’s act of “racial terrorism.” Judge Patrick Higginbotham wrote the panel’s opinion, joined by Judges W. Eugene Davis and Emilio Garza. In its opinion, the 5th Circuit noted the following: Kent Mathews’ son, Wayne, was a 20-year-old college student when he gathered with a group of friends for a night of drinking outside his parents’ home in Katy on June 18, 2000. The father instructed his son to “wrap things up” and then went to bed around 10:30 p.m. Instead, Wayne Mathews, Matthew Curtis Marshall, the named defendant in the suit, and several of their friends decided to build a wooden cross using materials from the Mathews’ garage, and burned it in front of the Ross family home. The cross-burning incident occurred in the early morning hours of June 19 — known as Juneteenth, which celebrates the day in 1865 when a Union general read the Emancipation Proclamation in Galveston, freeing the slaves in Texas. As noted in a footnote to the 5th Circuit’s opinion, Wayne Mathews pleaded guilty in 2000 to one charge of conspiracy to commit civil rights violations in United States v. Mathews, et al. On Jan. 5, 2001, U.S. District Judge Sim Lake of Houston sentenced Mathews, one of five men who pleaded guilty in connection with the cross-burning incident, to 15 months in a federal prison. According to the 5th Circuit’s opinion, after Wayne Mathews’ pleaded guilty, the Ross family — Dwayne and Maria Ross, individually and on behalf of their two minor children — filed the civil suit against Wayne Mathews, Marshall and their friends, alleging various intentional torts and civil rights violations. The Rosses also named Wayne Mathews’ parents as defendants in the civil suit. U.S. District Judge Kenneth Hoyt of Houston presided over the suit. The 5th Circuit’s opinion noted that Wayne Mathews’ parents owned a homeowner’s insurance policy issued by Allstate that covered “damages because of bodily injury � caused by an occurrence” for which coverage was provided. The Rosses sought to recover damages from Wayne Matthews’ parents on the grounds they “knew or should have known that their properties and household effects were being used in a reckless and negligent manner.” According to the 5th Circuit opinion, Allstate provided an attorney to defend Wayne Matthews’ parents subject to a reservation of the insurance company’s rights. Allstate also filed a declaratory judgment suit, Allstate Texas Lloyds Insurance Co. v. Mathews, in Hoyt’s court, asking the judge to find that the insurance company had no obligation under the homeowner’s policy to indemnify or defend the parents against the Rosses’ suit. The declaratory judgment action remains pending in the trial court. The Rosses eventually dismissed their claims against Mathews’ mother. At the trial of the Rosses’ suit, the jury found Wayne Mathews and his friends liable for $10 million in damages and also found that Kent Mathews was negligent when he delegated authority over the Mathews’ property to his son on the night of the cross-burning, Higginbotham wrote. However, the jury found that the negligent delegation of authority did not cause the cross-burning. Higginbotham noted that Hoyt originally entered a take-nothing judgment as to Kent Mathews but subsequently amended the judgment, finding as a matter of law that the father was vicariously liable for the son’s conduct. According to the 5th Circuit’s opinion, Hoyt took that action in response to a motion by the Ross family in which the family argued that it should be allowed to recover against Kent Mathews, as principal, for the acts of his agent, his son Wayne. As noted in the 5th Circuit’s opinion, Kent Mathews, through an attorney hired by Allstate, filed a notice of appeal, and Allstate filed a supersedeas bond for $300,000 — the limit in Kent Mathews’ homeowner’s policy. Allstate also filed its post judgment answer, notice of appeal and a motion to intervene in the case. Kent Mathews filed a motion to amend Hoyt’s judgment. Hoyt struck Allstate’s answer and notice of appeal and denied the insurer’s motion to intervene and Kent Mathews’ motion to amend the judgment. Kent Mathews changed his mind about pursing an appeal. After reaching an agreement with the Ross family, the father fired the appellate attorney Allstate had hired to represent him, dropped his appeal and agreed to assign his rights against the insurance company to the Rosses, Higginbotham wrote in the opinion. Allstate then appealed to the 5th Circuit, which held that Hoyt erred in denying the insurance company’s motion to intervene in the suit. The 5th Circuit also held that Hoyt abused his discretion when he amended the judgment in Ross to hold, as a matter of law, that Kent Mathews was vicariously liable for his son’s conduct in the cross-burning incident. Reversing Hoyt’s order denying intervention and his judgment against Kent Mathews, the 5th Circuit remanded Ross to the trial court with instructions that the Rosses take nothing in their suit against Kent Mathews. David Holman, appellate attorney for the Ross family, calls the 5th Circuit’s decision bizarre. “It’s the first court in the country to allow an insurance company, which isn’t a party to the case, to intervene and challenge a judgment against its insured, when it has a pending suit against its insured challenging coverage,” says Holman, a partner in and chairman of the appellate section at Godwin Gruber in Houston. The lead counsel for Allstate views the decision differently. “The Ross family had something happen to them that no one would wish on anybody,” says Ronald Restrepo, a partner in Houston’s Doyle, Restrepo, Harvin & Robbins. But he says Hoyt’s judgment indicated the father, Kent Mathews, was involved in racial terrorism. “This exonerates our insured,” he says of the 5th Circuit’s decision. Restrepo says Allstate sought to intervene in the suit because Kent Mathews abandoned his appeal. Holman and Benjamin Hall, the Ross family’s trial lawyer, say the father decided to drop the appeal after Allstate opted to post a bond only for its policy limits, leaving him unprotected for the full amount of the judgment. Allstate’s obligations are based on the contract the insurance company had with Kent Mathews, Restrepo says. “The homeowner’s policy limits were $300,000, so we offered the full amount of our contract limits,” he says. JURISDICTION Before reaching its decision, the 5th Circuit first had to determine that it had jurisdiction over Allstate’s appeal. According to the 5th Circuit’s opinion, the Ross family argued that the district court lacked jurisdiction to consider Allstate’s motion to intervene because defendant Kent Mathews had already filed a notice of appeal. Allstate argued the notice of appeal became ineffective when Kent Mathews filed his motion to amend the judgment, and that the notice was not revived until Hoyt issued an order disposing of Mathews’ motion to amend the judgment. The 5th Circuit agreed with Allstate, holding that Kent Mathews’ motion to amend the judgment suspended the effectiveness of his earlier notice of appeal until Sept. 15, 2003, the date on which Hoyt denied the motion to amend. “Thus, the district court had jurisdiction to deny Allstate’s motion to intervene on Sept. 12,” Higginbotham wrote in the opinion. Hall, principal in the Hall Law Firm in Houston, calls the 5th Circuit’s opinion disgraceful. “This opinion manufactures jurisdiction that does not exist,” Hall says. “We have no precedent that supports this rationale for jurisdiction.” In its brief to the 5th Circuit, Allstate argued that it, like any other entity, has a right to intervene under Rule 24 of the Federal Rules of Civil Procedure to protect its own monetary interests. Higginbotham noted in the opinion that “although Allstate was aware its interests were at stake long before it sought to intervene, intervention prior to judgment would have been pointless as its interests were being adequately represented by counsel for Kent Mathews — counsel that was being provided by Allstate.” Dallas attorney Rob Roby, who does insurance defense work but is not involved in Ross, says Allstate’s intervention was the only way for the carrier to protect its interests and the interests of its insured. “I think this was a case that someone just needed to step in and correct an injustice,” says Roby, a partner in Gwinn & Roby. In determining that Allstate has a right to intervene post-judgment, the 5th Circuit found that the insurance carrier is not trying to interfere with the defense of its insured. “Rather, Allstate’s interest in minimizing its potential liability is aligned with [Kent] Mathews’ interest in avoiding a $10 million judgment,” Higginbotham wrote for the panel. The 5th Circuit also found that Allstate has a second interest in minimizing its exposure in a settlement-practices claim. As noted in the opinion, the Rosses have made Allstate “the central focus of their collections efforts” by agreeing to delay executing on Kent Mathews’ property in exchange for the assignment of his rights against the carrier. According to the opinion, that agreement transferred to the Rosses Mathews’ right to collect from Allstate under his insurance contract and his right to collect under any claim he may have based on the insurer’s refusal to settle within policy limits. With regard to Hoyt’s holding that Kent Mathews was indirectly liable for his son’s conduct, Higginbotham noted in the opinion that Kent Mathews’ testimony at trial demonstrated he intended for his son to send his friends home when he said “wrap things up.” “Any suggestion that he implicitly gave Wayne authority to construct a wooden cross on his lawn, transport that cross to the home of an African-American family and set it on fire is the height of absurdity,” Higginbotham wrote. Wendell Hall, who often represents insurance companies but is not representing a party in Ross, says the case should have ended with Wayne Mathews’ criminal prosecution. “It is more of a criminal act than a civil action,” says Hall, a partner in Fulbright & Jaworski in San Antonio. “Based on what the father told the son to do, I don’t think any reasonable person could conclude that the father was saying go out and build a cross and burn it on the lawn of an African-American family,” Hall says. Holman says the Ross family will file a motion for rehearing en banc at the 5th Circuit and will take the case to the U.S. Supreme Court if necessary. “It’s one of the cases which give meaning to the phrase, “Bad facts make bad law,’” Holman says. “This is real bad law, and we’re going to ask the 5th Circuit and the U.S. Supreme Court to change it.” Restrepo also says Ross exemplifies the adage, “Bad facts make bad law.” However, “the difficult facts of the case made it difficult to address the legal issues,” he says.

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