     Case: 16-20224   Document: 00514688013    Page: 1   Date Filed: 10/18/2018




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT      United States Court of Appeals
                                                     Fifth Circuit

                                                                         FILED
                                                                     October 18, 2018
                                No. 16-20224
                                                                      Lyle W. Cayce
                                                                           Clerk
JOHN M. O’QUINN, P.C., doing business as O’Quinn & Laminack; JOHN M.
O’QUINN & ASSOCIATES, L.L.P., doing business as O’Quinn & Laminack;
JOHN M. O’QUINN LAW FIRM, P.L.L.C.; O’QUINN & LAMINACK,

             Plaintiffs–Appellants,

v.

LEXINGTON INSURANCE COMPANY,

             Defendant–Appellee.




                Appeal from the United States District Court
                     for the Southern District of Texas


Before REAVLEY, OWEN, and SOUTHWICK, Circuit Judges.
PRISCILLA R. OWEN, Circuit Judge:
      This case arises from a fee dispute about litigation expenses that an
arbitration panel found attorneys had improperly allocated to their clients.
John M. O’Quinn P.C., doing business under the name of other law firms that
included the O’Quinn name (to whom we will refer collectively as “O’Quinn”)
represented many clients as plaintiffs in litigation against breast implant
manufacturers and obtained substantial awards for those clients through
settlements. Martha Wood and others were among those plaintiffs, and they
subsequently became embroiled in a dispute with O’Quinn regarding the
nature and amount of litigation expenses that O’Quinn deducted from the
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settlement amounts paid to each plaintiff.         The matter proceeded to
arbitration, a class was certified by the arbitration panel, and $41,465,950 was
awarded to the class (to whom we will refer as the “Wood plaintiffs”). A state
trial court affirmed the award. O’Quinn appealed but settled with the Wood
plaintiffs while that appeal was pending, paying them $46,500,000. O’Quinn
then sought to recover $15,000,000 of that amount from its primary and excess
professional liability insurance carriers. The primary insurer paid its full
policy limits of $5,000,000. This appeal concerns the claims against the excess
insurer, Lexington Insurance Company (Lexington), for $10,000,000 in policy
limits. In a lengthy and thorough opinion, the district court concluded that
there was no coverage under the terms of the excess policy. We affirm the
district court’s judgment.
                                       I
      O’Quinn represented plaintiffs in suits against breast implant
manufacturers on a 40% contingency fee basis. The Wood plaintiffs, their
expert witnesses who testified during the arbitration, and the arbitration panel
all agreed that “O’Quinn obtained extraordinary results” for the Wood
plaintiffs in the breast implant litigation.    O’Quinn’s contingency fee for
representing those plaintiffs, approximately $263.4 million, reflects that
success. The Wood plaintiffs have never contended that O’Quinn was negligent
or committed legal malpractice in the course of the breast implant litigation.
They have contended only that certain expenses incurred by O’Quinn should
not have been deducted by O’Quinn from their settlement proceeds and that as
an additional consequence, the contingency fees paid to O’Quinn were more
than 40% of their respective recoveries.
      The breast implant cases pursued by O’Quinn were consolidated for
pretrial and discovery purposes. O’Quinn deposed expert and other witnesses
whose testimony was relevant in each of the Wood plaintiffs’ cases and
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allocated those and a host of other costs and expenses that O’Quinn labeled as
Breast Implant General Expenses (BI General Expenses) among all clients by
deducting 1.5% from each client’s settlement.      Some of those clients sued
O’Quinn for failing to disclose in writing how it calculated and deducted BI
General Expenses from settlement proceeds. Ultimately, the Wood plaintiffs
asserted and prevailed upon breach-of-contract and breach-of-fiduciary claims
against O’Quinn in arbitration proceedings. We consider in more detail below
the nature of those claims and the arbitrators’ findings and awards.
      As noted above, a state trial court affirmed the arbitration award, and
more than two years after the arbitrators’ decision had issued, while an appeal
of the state court’s judgment was pending, O’Quinn settled with the Wood
plaintiffs, paying them $46.5 million. O’Quinn contends that it was motivated
to settle because its primary and excess professional liability insurers had
refused to provide coverage, and post-judgment interest on the state-court
judgment affirming the arbitration award was mounting at $11,000 per day.
O’Quinn asserts that $5 million of the $46.5 million of the settlement payment
was for post-judgment interest.
      While the Wood suit remained pending, the primary insurer brought a
diversity suit in federal district court seeking a declaratory judgment that it
had no duty to defend or indemnify O’Quinn in the Wood litigation. O’Quinn
counterclaimed seeking a defense from the primary carrier and indemnity from
both the primary and excess carriers. The district court ruled that the primary
carrier owed a defense and stayed the indemnity issues pending resolution of
the Wood litigation. After the Wood suit was settled, the litigation in federal
court between O’Quinn and its insurance carriers resumed. O’Quinn filed a
motion for summary judgment arguing that the insurance policies obligated all
“Insurance Companies” to indemnify O’Quinn for its “Losses” but in the section
of the motion addressing “Defense Costs” named only the primary insurer. The
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primary and excess insurers filed motions seeking summary judgment in their
favor. Before the district court ruled on any of the motions, O’Quinn settled
with its primary carrier, which paid its policy limits of $5,000,000.
      The district court denied O’Quinn’s motion for summary judgment and
granted Lexington’s summary judgment motion, determining that Lexington
had no duty to indemnify O’Quinn.               The court did not address whether
Lexington had a duty to defend. O’Quinn filed a motion to alter or amend the
district court’s judgment, arguing that Lexington had also breached a duty to
defend. The district court denied the motion. O’Quinn appealed the entry of
summary judgment and the order denying its motion to alter or amend that
judgment.
                                           II
      The parties agree that Texas law governs the excess insurance policy.
Under Texas law, if an insurance contract “is worded so that it can be given
only one reasonable construction, it will be enforced as written.” 1 “However, if
a contract of insurance is susceptible of more than one reasonable
interpretation, we must resolve the uncertainty by adopting the construction
that most favors the insured.” 2        “The insured bears the initial burden of
showing that there is coverage, while the insurer bears the burden of proving
the applicability of any exclusions in the policy.” 3
      “[T]he duty to defend and the duty to indemnify by an insurer are distinct
and separate duties,” 4 and the duty to defend is “broader” than the duty to




      1   Nat’l Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991)
(citing Puckett v. U.S. Fire. Ins. Co., 678 S.W.2d 936, 938 (Tex. 1984)).
        2 Id.
        3 Guar. Nat’l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 193 (5th Cir. 1998).
        4 Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 821-22 (Tex. 1997).



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indemnify. 5 Under Texas law, the “factual allegations in the pleadings and the
policy language determine an insurer’s duty to defend,” 6 but “the facts actually
established in the underlying suit determine whether the insurer must
indemnify its insured.” 7        Texas courts “have long held that ‘an award of
arbitrators upon matters submitted to them is given the same effect as the
judgment of a court of last resort.’” 8
       This court “review[s] a grant of summary judgment de novo, applying the
same standard as the district court.” 9 Summary judgment is appropriate only
“if the movant shows that there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.” 10 We first consider
whether the district court erred in holding that Lexington had no duty to
indemnify O’Quinn for any part of the settlement with the Wood plaintiffs.
                                              A
       The excess policy “follow[ed] form” to the primary policy, meaning the
former incorporated the provisions from the latter.                  The policy obligates
Lexington to indemnify “Loss” arising from certain claims. “Loss” is defined as
       damages, judgments, settlements, and Defense Costs; provided,
       however, that Loss does not include fines, penalties, sanctions,
       taxes, punitive or exemplary damages, the multiplied portion of
       multiplied damages, reimbursement of legal fees, costs, or
       expenses, any amount for which the Insured is not financially
       liable or for which is without legal recourse to the Insured, or



       5Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 490 (Tex. 2008) (citation omitted).
       6Trinity Universal, 945 S.W.2d at 821 (citing Am. Physicians Ins. Exch. v. Garcia, 876
S.W.2d 842, 847-48 (Tex. 1994)).
      7 Zurich Am., 268 S.W.3d at 490 (citing GuideOne Elite Ins. Co. v. Fielder Rd. Baptist

Church, 197 S.W.3d 305, 310 (Tex. 2006)).
      8 CVN Grp., Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002) (quoting City of San

Antonio v. McKenzie Constr. Co., 150 S.W.2d 989, 996 (Tex. 1941)).
      9 Haverda v. Hays County, 723 F.3d 586, 591 (5th Cir. 2013) (citing Vaughn v.

Woodforest Bank, 665 F.3d 632, 635 (5th Cir. 2011)).
      10 Id. (quoting Fed. R. Civ. P. 56(a)).

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      matters which may be deemed uninsurable under the law
      pursuant to which this policy is construed.
      The policy also requires that “Loss” be “for any actual or alleged
Wrongful Act” when the act “has been committed by . . . any other person or
entity in the rendering or failing to render Professional Legal Services.” The
policy defines “Professional Legal Services,” as pertinent here: “legal services
and activities . . . performed as a lawyer . . . [or] Fiduciary.” The policy defines
“Wrongful Act” to include “an act, error, or omission, including but not limited
to breach of contract or duty (including but not limited to Fiduciary duty).”
      The arbitration panel found that O’Quinn’s fee agreements with each of
the Wood plaintiffs “do not allow for the deduction of BI General Expenses and
that certain of the BI General Expenses charged to Plaintiffs were
inappropriate.” In the latter category, an attorney with an O’Quinn firm
conceded that “charging clients for items such as professional association dues,
other lawyer’s fees, flowers, fundraising, [and] office overhead” was improper,
and that the O’Quinn firms had intended at some point to remove any
inappropriate charges such as these. However, at the time of the arbitration,
they had not done so. O’Quinn’s expert also found additional expenses included
in BI General Expenses that should not have been included, and testified that
more than $1,000,000 should be removed from BI General Expenses. But more
broadly, the arbitration panel concluded that legitimate BI General Expenses
could not be deducted from the Wood plaintiffs’ settlement proceeds because
“the Fee Agreements do not allow for the deduction of BI General Expenses,”
and “O’Quinn’s actions were not authorized by the Fee Agreements” for such
deductions.
      The arbitration panel awarded breach of contract damages to the Wood
plaintiffs in the amount of $9,979,364 based on the BI General Expenses
deductions and the deductions that were not, in fact, BI General Expenses.

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The panel also awarded “attorneys’ fees on the breach of contract claim” in the
amount of $2,494,841, and pre-judgment interest in the amount of $3,991,745
“on the breach of contract damages.”
      The excess policy’s definition of a “Wrongful Act” includes “breach of
contract.” But the district court held that other of the policy’s provisions
expressly state that there is no coverage for the type of breach of contract found
by the arbitrators. We agree with the district court.
      The     definition    of   “Loss”       says     that     “Loss    does     not
include . . . reimbursement of legal fees, costs, or expenses.” The arbitration
panel concluded that “an appropriate remedy [for the breach of contract] is the
return by O’Quinn of all BI General Expenses improperly deducted from the
Class Members’ settlement distributions.” O’Quinn was required to reimburse
“costs or expenses” that had been charged to the Wood plaintiffs. But even if
the policy does not cover reimbursements made by O’Quinn, but instead only
applies to reimbursements sought by O’Quinn, the policy language means that
O’Quinn could not seek “reimbursement” from its insurer for out-of-pocket
costs and expenses incurred in the breast implant litigation that none of the
Wood plaintiffs were obligated to bear.
      Other policy provisions, independent of the “Loss” definition, foreclose
O’Quinn’s claim that the judgment against it for breach of contract is covered.
An exclusion applies that precludes coverage.           Exclusion B of the policy
“excludes coverage for any Loss in connection with a Claim”
      arising out of, based upon, or attributable to a criminal,
      fraudulent, malicious (other than malicious prosecution), or
      dishonest Wrongful Act on the part of any Insured, or the gaining
      of any profit or advantage to which an Insured was not legally
      entitled. This exclusion will not apply to Defense Costs incurred
      in defending any such Claims.



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      The arbitration panel concluded in connection with the breach of contract
claim that in deducting BI General Expenses from the Wood plaintiffs’
settlement proceeds, O’Quinn obtained a gain and a benefit to which it was not
legally entitled. As noted, the arbitration panel concluded that “O’Quinn’s
actions were not authorized by the Fee Agreements,” and therefore, O’Quinn
was not legally entitled to the advantage of having the Wood plaintiffs absorb
the cost of the BI General Expenses.
                                        B
      The arbitration panel additionally found that O’Quinn had breached its
fiduciary duty by the actions it took regarding the BI General Expenses. The
district court concluded, and we agree, that the definition of “Loss” does not
cover the remedy that the arbitration panel imposed as a consequence of the
breach of fiduciary duty. The definition of “Loss” says that “Loss does not
include fines, penalties, sanctions, . . . [or] reimbursement of legal fees.” The
arbitration panel’s award is either a fine, penalty, sanction, reimbursement of
legal fees, or each of these.
      The “Loss” that O’Quinn suffered is that it was required to pay back to
the Wood plaintiffs $25,000,000 of the $263,400,000 in contingency fees it had
retained from settlement proceeds in the breast implant litigation. This is
either a “reimbursement of legal fees” to the Wood plaintiffs, or O’Quinn is
seeking reimbursement from the excess carrier for $25,000,000 in legal fees
that it incurred in pursuing recoveries from breast implant manufacturers for
itself and its clients for which it cannot recover.
      The arbitration panel’s decision makes clear, in any event, that the
$25,000,000 is a penalty or sanction that the panel assessed for O’Quinn’s “very
serious” misconduct, not damages that O’Quinn was required to pay to the
Wood plaintiffs. The arbitration panel extensively explained the nature of the
remedy that it imposed for the breach of fiduciary duty. The panel cited the
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seminal decision of the Supreme Court of Texas regarding an attorney’s breach
of fiduciary duty and fee forfeiture, which is Burrow v. Arce. 11 The panel
observed that under this decision, “fee forfeiture is an appropriate remedy
when an attorney commits a clear and serious breach of fiduciary duty to his
client.”
      The arbitration panel applied six non-exclusive factors set forth in
Burrow, among them being the effect of the violation on the lawyer’s work.
“The panel does not believe that the withholding of BI General Expenses had
any effect on the value of the work O’Quinn did for the Class Members. To the
contrary, the evidence is that O’Quinn obtained extraordinary results for
Plaintiffs.” The panel’s decision also stated that “[m]oreover, even though not
allowed by the Fee Agreements, the expenses charged to the Class Members
were exceedingly low compared to what clients would have otherwise been
charged, and were, for the most part, used for the benefit of the Class
Members.”
      With regard to another of the Burrow factors, the arbitration panel
concluded that “[o]ther than loss of the money that was improperly deducted
and withheld from them, the Panel heard no evidence that O’Quinn’s deduction
of BI General expenses resulted in any other threatened or actual harm to the
Class Members themselves.” Why, then, did the arbitration panel require
O’Quinn to forfeit $25 million of its $263.4 million contingency fee?
      The panel’s answer is that it was necessary in order to send an important
message not only to O’Quinn but to attorneys in general and to the public. The
panel reasoned that “the central purpose of forfeiture is to protect relationships
of trust by discouraging agents’ disloyalty.          Accordingly, the Panel firmly
believes that requiring a partial fee forfeiture in this case is necessary to


      11   997 S.W.2d 229, 241 (Tex. 1999).
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encourage and underscore the critical objective of protecting the trust between
an attorney and client.”
      Relatedly, the arbitration panel explained that “[q]uite simply, if
O’Quinn is allowed to improperly withhold client funds with impunity, other
lawyers may believe that they can do likewise. Such a result would destroy
the very integrity of the special and unique relationship that exists between
an attorney and client.” It could not be clearer that the panel was imposing a
“penalty” or “sanction” on O’Quinn. That is not a “Loss” within the meaning of
the policy.
                                       C
      O’Quinn asserted at oral argument in our court that the district court
erred in its consideration of the arbitration panel’s findings and that we should
not consider those findings, either. First, O’Quinn argued that the district
court improperly indulged factual presumptions in favor of the arbitration
award instead of making factual presumptions in favor of O’Quinn, the
nonmovant, under the summary judgment standard. Second, O’Quinn argued
that the arbitration award should not be considered because the settlement
between O’Quinn and the primary insurer vacated the arbitration award.
O’Quinn made neither argument in its briefing, giving Lexington no
opportunity to respond.     Instead, O’Quinn’s briefing pursued an entirely
different theory by relying extensively on the arbitration award and relying
upon language in the award in support of its contentions that Lexington is
liable.
      An appellant’s brief must contain “appellant’s contentions and the
reasons for them, with citations to the authorities and parts of the record on




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which the appellant relies.” 12         Though we “liberally construe briefs in
determining what issues have been presented for appeal,” 13 we cannot find any
indication in O’Quinn’s briefing that it intended to assail the district court’s
consideration of the arbitration panel’s decision. As a “[f]ailure to satisfy the
requirements of Rule 28 as to a particular issue ordinarily constitutes
abandonment of the issue,” 14 we conclude that O’Quinn waived these
arguments.
                                            III
       O’Quinn contends that even if Lexington is not obligated under the policy
to indemnify O’Quinn, Lexington is liable for “Defense Costs.” O’Quinn seeks
coverage for two categories of defense costs: $5 million in post-judgment
interest and attorneys’ fees, costs, and expenses O’Quinn incurred in defending
the Wood plaintiffs’ claims. The policy defines “Defense Costs” as
       1.    reasonable and necessary fees, costs, and expenses incurred
       by the [Insurer], or incurred by the Insured with the written
       consent of the [Insurer] . . . resulting from the investigation,
       adjustment, defense, or appeal of a Claim against any
       Insured . . . .
       2.    all costs taxed against an Insured in a Claim defended by the
       [Insurer] and interest which accrues after the entry of a judgment
       and before the [Insurer] has tendered or deposited in court, or
       otherwise, such judgment amount covered by the terms of this
       policy and for which the insured is legally liable.
Lexington contends that O’Quinn waived its arguments regarding defense
costs, but in the interest of brevity, we do not address those issues because, on
the merits, O’Quinn is not entitled to recover either post-judgment interest or
attorneys’ fees under the terms of the excess policy.


       12 Fed. R. App. P. 28(a)(8)(A).
       13 United States v. Miranda, 248 F.3d 434, 444 (5th Cir. 2001) (citing SEC v. Recile,
10 F.3d 1093, 1096 (5th Cir. 1993)).
       14 Id. at 443 (citing United States v. Beaumont, 972 F.2d 553, 563 (5th Cir. 1992)).

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                                              A
       With regard to post-judgment interest, the policy defines “Defense Costs”
to include
       interest which accrues after the entry of a judgment and before the
       [Insurer] has tendered or deposited in court, or otherwise, such
       judgment amount covered by the terms of this policy and for which
       the insured is legally liable.
O’Quinn contends that, under this definition, the insurer is obligated to pay
post-judgment interest even if the insurer is not obligated to indemnify the
insured for any of the judgment. O’Quinn cites cases that hold insurers liable
for interest on the entire judgment, not just interest on the portion of the
judgment for which the insurer is liable. 15 In each case O’Quinn cites, the
insurer was liable for at least some portion of the judgment.
       We need not decide whether an insurer would owe post-judgment
interest, or how much post-judgment interest, if it were liable for only a portion
of the judgment because the excess insurer is not liable for any part of the
judgment, and the policy expressly contemplates coverage for post-judgment
interest only when the insurer is liable for the judgment. The policy specifies
that the insurer is liable for interest between the time a judgment is entered
and the insured pays “such judgment amount covered by the terms of this
policy.” Under O’Quinn’s reading of the policy, even if the insured is not
required to pay any of “such judgment amount covered by the terms of this
policy,” it is liable virtually in perpetuity for interest on the judgment. This
construction of the policy borders on the absurd.
       As we have held, Lexington is not liable for any portion of the judgment.
It is therefore not liable for any post-judgment interest.


       15 See Safeway Ins. Co. of Ala. v. Amerisure Ins. Co., 707 So. 2d 218, 221, 223 (Ala.
1997); In re Tichota’s Estate, 215 N.W.2d 885, 886-87 (Neb. 1974); Plasky v. Gulf Ins. Co., 335
S.W.2d 581, 582-83 (Tex. 1960).
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                                                B
         As to attorneys’ fees O’Quinn expended in defending the claims asserted
by the Wood plaintiffs, Lexington, the excess carrier, had no duty to defend
O’Quinn against those claims until the policy limits of the primary policy had
been exhausted. The excess policy provided that “Liability is [sic] to pay under
this Policy shall not attach unless and until the Underwriters of the
Underlying Policy/ies shall have paid or have admitted liability or have been
held liable to pay, the full amount of their indemnity inclusive of costs and
expenses.” Texas courts have held that an excess insurer is not obligated to
participate in the defense of the insured until the primary policy limits are
exhausted. 16
         The primary carrier defended the claims against O’Quinn until O’Quinn
settled with the Wood plaintiffs. O’Quinn’s expert testified that O’Quinn’s
costs for defending the Wood suit totaled $4,676,058.70.                   Accordingly, the
defense costs had not exceeded the primary coverage at the time of the Wood
settlement. At the time that O’Quinn’s defense costs ceased, the primary
insurance carrier had not paid the full limits of its policy, had not admitted
liability, and had only been held liable by the district court to provide a defense.
Lexington’s obligation to assume defense obligations or to pay defense costs in
excess of the primary policy limits had not been triggered when the Wood suit
ended.         Additionally, the primary carrier was not obligated to indemnify
O’Quinn for the judgment obtained by the Wood plaintiffs for the reasons set
forth above. The primary policies limits were not exhausted until the primary
carrier settled with O’Quinn and paid its policy limits, long after the Wood suit




         16   See, e.g., Schneider Nat’l Transp. v. Ford Motor Co., 280 F.3d 532, 538 (5th Cir.
2002).
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had been settled. Accordingly, Lexington, the excess carrier, is not liable for
any attorneys’ fees as defense costs expended in the Wood litigation.
                               *        *         *
      For the foregoing reasons, the judgment of the district court is
AFFIRMED.




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