                        COURT OF APPEALS
                        SECOND DISTRICT OF TEXAS
                             FORT WORTH

                             NO. 02-13-00169-CV

TEXAS FARMERS INSURANCE                                         APPELLANTS
COMPANY AND FARMERS
INSURANCE EXCHANGE

                                      V.

FRANK KUROSKY AND PAMELA                                          APPELLEES
RUST

                                   ----------

          FROM THE 236TH DISTRICT COURT OF TARRANT COUNTY
                    TRIAL COURT NO. 236-243367-10

                                   ----------

                       MEMORANDUM OPINION 1

                                   ----------

      Appellants Texas Farmers Insurance Company (Texas Farmers) and

Farmers Insurance Exchange (Farmers Exchange) appeal the trial court’s

summary judgment in favor of appellees Frank Kurosky and Pamela Rust. 2 We

reverse and render judgment in favor of Texas Farmers and Farmers Exchange.

      1
      See Tex. R. App. P. 47.4.
      2
      This case was originally submitted with oral arguments on
January 7, 2014, before a panel consisting of Justice Dauphinot, Justice Meier,
                              Background Facts

      Kurosky lives at 4325 Fossil Drive. He also owns a home at 4333 Fossil

Drive, which he rents to his daughter, Rust. Kurosky has homeowners insurance

on his home at 4325 Fossil Drive with Texas Farmers on which he is listed as the

sole insured. Texas Farmers also issued an insurance policy for 4333 Fossil

Drive that names both Rust and Kurosky as the insureds. Kurosky also has a

personal umbrella policy with Farmers Exchange.

      In June 2008, Rust was injured while riding a lawnmower in her backyard.

She sued Texas Farmers in the 153rd District Court for medical benefits under

both Fossil Drive insurance policies. Rust later added a negligence cause of

action against Kurosky in her second amended petition, filed October 23, 2009.

Rust never pleaded a cause of action against Farmers Exchange.                On

November 25, 2009, Texas Farmers sent a reservation-of-rights letter to Kurosky

to 4325 Fossil Drive, Fort Worth, Texas, as his address was listed on the policy.

Kurosky claimed never to have received the letter because his address is in

Haltom City. It is undisputed that he was represented by the attorney whom

Texas Farmers retained and paid.

and Justice Gardner. The court, on its own motion of February 13, 2015, ordered
this case reset with oral argument on March 17, 2015; assigned this case to a
new panel, consisting of Justice Dauphinot, Justice Meier, and Justice Gabriel;
and assigned the undersigned to author this opinion. On the appellants’ motion,
submission was reset for April 14, 2015.

                                       2
      Both Rust and Texas Farmers moved for summary judgment.                 On

January 12, 2010, the trial court granted Texas Farmers’s motion and denied

Rust’s. The El Paso Court of Appeals affirmed the trial court’s judgment on

April 20, 2011. See Rust v. Tex. Farmers Ins. Co., 341 S.W.3d 541 (Tex. App.—

El Paso 2001, pet. denied).

      Meanwhile, in March 2010, Rust and Kurosky entered into an agreed final

judgment against Kurosky for $300,000. The judgment states that it may not be

enforced against Kurosky until Rust attempted to collect from his insurance.

Texas Farmers claims that it had no prior knowledge of the agreed judgment and

that it did not consent to an agreed judgment.

      After the 153rd District Court granted Texas Farmers’s summary judgment,

but in the same month, Texas Farmers and Farmers Exchange filed a petition for

declaratory relief in the 236th District Court. In September 2010, Texas Farmers

and Farmers Exchange filed their first amended petition seeking a declaration

that because Kurosky entered into an agreed judgment with Rust, he assumed

an obligation at his own cost, and therefore Texas Farmers did not have a duty to

defend Kurosky. Rust filed counterclaims in the 236th action for violations of the

insurance code, for breach of the duty of good faith and fair dealing, and for a

declaration that Texas Farmers had a duty to indemnify Kurosky.

      Texas Farmers and Farmers Exchange filed a joint motion for summary

judgment. They filed a supplemental joint motion after the El Paso Court of

Appeals affirmed the judgment of the 153rd District Court. They filed a second

                                        3
supplemental joint motion after Rust amended her counterclaims to include

claims against Farmers Exchange and filed a response to their summary

judgment motion.

      Rust filed a motion for partial no-evidence and traditional summary

judgment. The motion stated, “This Motion is limited to the coverage provided by

Farmers Insurance Exchange and is thus partial in nature,” and it sought

summary judgment only on the issue that Kurosky’s Farmers Exchange umbrella

policy covered Rust’s injuries. Rust requested indemnity for the amount of the

agreed final judgment less the retained limit of $1,000.

      The trial court denied Texas Farmers and Farmers Exchange’s summary

judgment motions and granted Rust’s motion.          The trial court ordered that

Famers Exchange pay Rust $299,000.           The order granting Rust’s summary

judgment motion, signed on February 14, 2013, stated, “This Order is intended to

dispose of all claims and all parties and constitute a Final Judgment for all

purposes.”

      Texas Farmers and Farmers Exchange filed a motion for new trial and a

motion to correct, modify, or reform the judgment on March 11, 2013. Rust then

nonsuited her counterclaims against Texas Farmers on April 16, 2013. The trial

court granted the nonsuit the next day.      It then denied Texas Farmers and

Farmers Exchange’s post-judgment motion.           Texas Farmers and Farmers

Exchange then filed this appeal.

                                         4
                                Standard of Review

      We review a summary judgment de novo. Travelers Ins. Co. v. Joachim,

315 S.W.3d 860, 862 (Tex. 2010). We consider the evidence presented in the

light most favorable to the nonmovant, crediting evidence favorable to the

nonmovant if reasonable jurors could, and disregarding evidence contrary to the

nonmovant unless reasonable jurors could not. Mann Frankfort Stein & Lipp

Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). We indulge every

reasonable inference and resolve any doubts in the nonmovant’s favor.

20801, Inc. v. Parker, 249 S.W.3d 392, 399 (Tex. 2008). When both parties

move for summary judgment and the trial court grants one motion and denies the

other, the reviewing court should review both parties’ summary judgment

evidence and determine all questions presented. Mann Frankfort, 289 S.W.3d at

848; see Myrad Props., Inc. v. Lasalle Bank Nat’l Ass’n, 300 S.W.3d 746, 753

(Tex. 2009). The reviewing court should render the judgment that the trial court

should have rendered. Mann Frankfort, 289 S.W.3d at 848.

                                   Discussion

      Texas Farmers and Farmers Exchange bring twelve issues on appeal.

Because the disposition of the appeal turns on the summary judgment rulings,

we first address the issues concerning Rust’s summary judgment motion, then

the motions filed by Texas Farmers and Farmers Exchange.             See Mann

Frankfort, 289 S.W.3d at 848.

                                        5
I. Rust’s summary judgment motion

      Rust moved for partial summary judgment on no-evidence and traditional

grounds.   Rust’s motion noted that the motion was “limited to the coverage

provided by Farmers Insurance Exchange,” that is, the umbrella policy. When a

party moves for summary judgment under both rules 166a(c) and 166a(i), we will

first review the trial court’s judgment under the standards of rule 166a(i). Ford

Motor Co. v. Ridgway, 135 S.W.3d 598, 600 (Tex. 2004).

      A. No evidence summary judgment

      In Rust’s no-evidence section, she argued that there is no evidence that

Farmers Exchange reserved its rights to rely on policy exclusions.

      After an adequate time for discovery, the party without the burden of proof

may, without presenting evidence, move for summary judgment on the ground

that there is no evidence to support an essential element of the nonmovant’s

claim or defense. Tex. R. Civ. P. 166a(i). The motion must specifically state the

elements for which there is no evidence.       Id.; Timpte Indus., Inc. v. Gish,

286 S.W.3d 306, 310 (Tex. 2009). The trial court must grant the motion unless

the nonmovant produces summary judgment evidence that raises a genuine

issue of material fact. See Tex. R. Civ. P. 166a(i) & cmt.; Hamilton v. Wilson,

249 S.W.3d 425, 426 (Tex. 2008).

      When reviewing a no-evidence summary judgment, we examine the entire

record in the light most favorable to the nonmovant, indulging every reasonable

inference and resolving any doubts against the motion.         Sudan v. Sudan,

                                        6
199 S.W.3d 291, 292 (Tex. 2006). We review a no-evidence summary judgment

for evidence that would enable reasonable and fair-minded jurors to differ in their

conclusions.   Hamilton, 249 S.W.3d at 426 (citing City of Keller v. Wilson,

168 S.W.3d 802, 822 (Tex. 2005)).           We credit evidence favorable to the

nonmovant if reasonable jurors could, and we disregard evidence contrary to the

nonmovant unless reasonable jurors could not. Timpte Indus., 286 S.W.3d at

310 (quoting Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex. 2006)). If

the nonmovant brings forward more than a scintilla of probative evidence that

raises a genuine issue of material fact, then a no-evidence summary judgment is

not proper. Smith v. O’Donnell, 288 S.W.3d 417, 424 (Tex. 2009); King Ranch,

Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003), cert. denied, 541 U.S. 1030

(2004).

      Farmers Exchange attached to its response an affidavit from Toni

Johnson, who averred that she mailed a reservation of rights letter to Kurosky on

November 25, 2009. Attached to the affidavit was a copy of the letter. This is

more than a scintilla of probative evidence that Farmers Exchange reserved its

rights. See Commercial Union Ins. Co. of New York v. Rios, 473 S.W.2d 958,

959 (Tex. Civ. App.—Amarillo 1971, no writ) (“[T]he rule apparently is that in the

event the insured introduces evidence of non-receipt of notice of cancellation and

the insurer presents evidence of mailing of notice, then no presumption in law

prevails in either direction and a fact issue is presented for determination by the

trier of the facts.”) (citing Sudduth v. Commonwealth Cnty. Mut. Ins. Co.,

                                        7
454 S.W.2d 196, 197 (Tex. 1970)).           No-evidence summary judgment was

therefore not proper. See Smith, 288 S.W.3d at 424.

       B. Traditional summary judgment

      In Rust’s traditional summary judgment section of her motion, she argued

that her accident fell under the coverage of the umbrella policy, that Farmers

Exchange defended Kurosky without a reservation of rights, and that Farmers

Exchange was therefore bound to the agreed final judgment into which Kurosky

had entered. Farmers Exchange argued that by entering into the agreed final

judgment, Kurosky violated the policy’s provisions, thereby relieving Farmers

Exchange of any liability for Rust’s damages. Farmers Exchange further argued

that it did not waive and were not estopped from asserting its policy defenses.

      Rust cited Gilbert Texas Const., L.P. v. Underwriters at Lloyd’s London,

327 S.W.3d 118, 124 (Tex. 2010), which describes the burden shifting for

insurance coverage:

             Initially, the insured has the burden of establishing coverage
      under the terms of the policy. If the insured proves coverage, then
      to avoid liability the insurer must prove the loss is within an
      exclusion. If the insurer proves that an exclusion applies, the burden
      shifts back to the insured to show that an exception to the exclusion
      brings the claim back within coverage.

Id. (citations omitted). The insurer’s burden also applies to any other “avoidance

or affirmative defense that the Texas Rules of Civil Procedure require to be

affirmatively pleaded.” Tex. Ins. Code Ann. § 554.002 (West 2009). However,

an insured’s failure to meet conditions precedent is not an affirmative defense on

                                        8
which Farmers Exchange bears the burden of proof. See Lidawi v. Progressive

County Mut. Ins. Co., 112 S.W.3d 725, 729 & n.1 (Tex. App.—Houston [14th

Dist.] 2003, no pet.) (citing Trevino v. Allstate Ins. Co., 651 S.W.2d 8, 11 (Tex.

App.—Dallas 1983, writ ref’d n.r.e.)). Rust, as the third-party beneficiary, still

maintained the burden to show that the insured complied with the conditions

precedent and terms of the policy.          See State Farm Lloyds Ins. Co. v.

Maldonado, 963 S.W.2d 38, 40 (Tex. 1998). A cooperation clause is a condition

precedent to coverage. Progressive County Mut. Ins. Co. v. Trevino, 202 S.W.3d

811, 816 (Tex. App.—San Antonio 2006, pet. denied).                Likewise, other

contractual requirements that certain actions be performed before suit may be

brought against the insurer are conditions precedent. Centex Corp. v. Dalton,

840 S.W.2d 952, 956 (Tex. 1992) (“A condition precedent is an event that must

happen or be performed before a right can accrue to enforce an obligation.”).

      1. Violations of the policy provisions

      Under article VII, entitled “Conditions,” the umbrella policy contained the

following provisions:

      1. Duties After Occurrence, Claim or Suit.

             ....

            c. the insured must cooperate with us in the investigation,
      defense[,] and settlement of a claim or suit.

             ....

      4. Suit Against Us. No action shall be brought against us:

                                        9
            a. unless you and any involved insureds have complied with
      the policy provisions; and

             b. until an insured’s obligation has been determined by trial
      and final judgment or by agreement signed by us.

      By Kurosky’s own admission, he cooperated with Farmers Exchange until

Farmers Exchange filed the declaratory judgment action. He then “decided to

negotiate [his] own deal with Pamela Rust.” He averred, “Until Farmers filed suit

against me, I had fully cooperated with them in my defense.” Rust repeats the

admission in her motion for summary judgment, noting that Kurosky “cooperated

with Farmers until it sued him.”

      On appeal, Rust asserts that Kurosky cooperated with Farmers Exchange

because he “cooperated with the defense attorney representing him,” implying

that the attorney was a stand-in for the insurance company. Rust makes the

same argument regarding the policy language that an agreement be signed by

the insurance company:      that Kurosky’s attorney was the agent of Farmers

Exchange. We first note that Rust did not make this argument in the trial court,

and thus it could not have been the basis upon which the trial court granted

summary judgment. See State Farm Lloyds v. Page, 315 S.W.3d 525, 532 (Tex.

2010) (stating that a court cannot grant summary judgment on grounds not

presented in the motion).     And even if she had, there is no evidence that

Kurosky’s attorney was the agent of Farmers Exchange.

      Rust claims that Ranger County Mut. Ins. Co. v. Guin, 723 S.W.2d 656,

659 (Tex. 1987), stands for her proposition that the defense attorney is the agent

                                       10
of the insurance company. But Rust misreads the case. Ranger states, “We

held in Stowers that an insurer which, under the terms of its policy, assumes

control of a claim, investigates the claim[,] and hires an attorney to defend the

insured, becomes the agent of the insured and the attorney becomes the sub-

agent of the insured.”       Id. (citing G.A. Stowers Furniture Co. v. American

Indemnity Co., 15 S.W.2d 544, 547 (Tex. Comm’n App. 1929, holding

approved)). The language upon which Rust relies (“Ranger hired attorney Otto

Ritter to represent Peden and Guin, so Mr. Ritter became their sub-agent.” Id.

(emphasis added)) refers to the hired attorney as the sub-agent of the insureds,

not the insurer, as is clear by the use of “their” and not “its.”

      In oral argument, Rust also referenced Bradt v. West, 892 S.W.2d 56, 76

(Tex. App.—Houston [1st Dist.] 1994, writ denied), as authority for her argument

that the attorney was acting as the agent of Farmers Exchange. Bradt actually

says that the attorney is the agent of his client, which in this case is Kurosky, not

Farmers Exchange. See id. (citing Gavenda v. Strata Energy, Inc., 705 S.W.2d

690, 693 (Tex. 1986) (“The attorney’s acts and omissions within the scope of his

or her employment are regarded as the client’s acts.”)). Bradt specifically states,

“There is no attorney-client relationship between an insurer and an attorney hired

by the insurer just to provide a defense to one of the insurer’s insureds.” Id. at 77

(citing Empl’rs Cas. Co. v. Tilley, 496 S.W.2d 552, 558 (Tex. 1973) (holding that

an attorney hired and paid by an insurance company for an insured “becomes

the attorney of record and the legal representative of the insured, and as such he

                                           11
owes the insured the same type of unqualified loyalty as if he had been originally

employed by the insured”)). The attorney signed the final agreed judgment as

“Attorney for Defendant Frank Kurosky.” The attorney was acting for Kurosky

and no one else. See Tilley, 496 S.W.2d at 558. Famers Exchange therefore

cannot be bound to the agreed judgment through the principles of agency.

      We also note that the record is completely devoid of evidence that there

was any sort of trial from which the final judgment resulted. See U. Lawrence

Boze’ & Associates, P.C. v. Harris Cnty. Appraisal Dist., 368 S.W.3d 17, 33 (Tex.

App.—Houston [1st Dist.] 2011, no pet.) (“A ‘trial’ is a hearing in which the court

hears and receives evidence.”). Rust does not make a direct argument that the

judgment was the result of a trial, but she does attempt to distinguish the policy

language from that in the cases cited by Farmers Exchange. See Maldonado,

963 S.W.2d at 39–41; State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696

(Tex. 1996).

      In Maldonado, after State Farm did not accept a settlement offer from the

plaintiff, Adelfa Maldonado, he and the insured defendant, Curtis Robert, entered

into an agreement with one another before trial. 963 S.W.2d at 39. Robert’s

insurance policy required that there be “an agreed settlement or a final judgment

against an insured obtained after an actual trial.” Id. at 40. But at the bench trial,

Robert’s insurance-hired attorney presented no evidence, did not cross-examine

witnesses, and did not present opening or closing argument. Id. The supreme

court held that the hearing was not an “actual trial” as required by the policy. Id.

                                         12
Robert therefore had not complied with the condition precedent to recovery, and

he was prohibited from recovering under the policy. Id. at 41. In Gandy, the

supreme court held, “In no event . . . is a judgment for plaintiff against defendant,

rendered without a fully adversarial trial, binding on defendant’s insurer or

admissible as evidence of damages in an action against defendant’s insurer by

plaintiff as defendant’s assignee.” 925 S.W.2d at 714.

      Rust does not explain what she believes to be the difference between a

“trial” as required by the umbrella policy and Maldonado’s “actual trial” or

Gandy’s “fully adversarial trial.” We do not believe, however, that what difference

there may be would take the present situation out of the purview of either

Maldonado or Gandy. See Lawyers Lloyds of Tex. v. Webb, 137 Tex. 107, 110–

11, 152 S.W.2d 1096, 1097–98 (1941) (distinguishing the broad term “trial,”

which “includes every step taken in the determination of the issues between the

parties, and therefore includes the hearing on a motion for new trial,” from the

narrower term “actual trial,” “the hearing in open court, leading up to the rendition

of judgment”). As the insurer, Farmers Exchange was entitled to challenge the

reasonableness of any settlement to which it was to be bound. See U.S. Aviation

Underwriters, Inc. v. Olympia Wings, Inc., 896 F.2d 949, 955 (5th Cir. 1990) (“We

remain persuaded, however, that the Texas Supreme Court would reach the

same result we did in Rhodes and hold that the insurer which tenders a full

defense under a reservation of rights agreement is not bound by an

unreasonable settlement that is reduced to a consent judgment. In other words,

                                         13
such an insurer is not in privity with its insured for purpose of such a judgment.”);

Transp. Ins. Co. v. Heiman, No. 05-95-00482-CV, 1999 WL 239917, at *5–6

(Tex. App.—Dallas Apr. 26, 1999, no pet.) (following Olympia Wings) (“Because

the insured is generally the one seeking to recover the amount of the underlying

judgment from the insurer and the insurer is only liable for damages that were

reasonable, we think it clear that the burden of establishing reasonableness is on

the party seeking to recover on the judgment.”). Normally, this is can be done by

participation in settlement negotiations or in an adversarial trial. See Gandy,

925 S.W.2d at 713 (“In a subsequent action by P against I, P’s damages are

measured by the value of his claim against D. . . . If P and D settle after an

adversarial trial, the value of P’s claim can be taken to be the amount of the

judgment obtained.”).      But by entering the agreed final judgment without

Farmers Exchange’s participation or consent, Rust and Kurosky prevented

Farmers Exchange from making any challenge to the reasonableness of the

settlement. See id. (“But if settlement is before such a trial, an evaluation of P’s

claims becomes very difficult.”).   There is no evidence that any party put on

evidence in the trial court regarding the amount of Rust’s damages or the

reasonableness of the agreed judgment.

      Kurosky’s testimony that he “negotiate[d] [his] own deal” establishes that

he breached the insurance policy by agreeing that a judgment be taken against

him without the consent of Farmers Exchange. Further, there is no evidence that

                                         14
the judgment was agreed to and signed by Farmers Exchange 3 or that it recited

an obligation determined by trial. Rust failed to show that the insured complied

with the conditions precedent and terms of the policy.            See Maldonado,

963 S.W.2d at 40.

      2. Prejudice to Farmers Exchange

      Kurosky’s failure to comply with all conditions precedent does not relieve

Farmers Exchange from liability for the underlying judgment unless it was

prejudiced by the noncompliance. See Harwell v. State Farm Mut. Auto. Ins. Co.,

896 S.W.2d 170, 174 (Tex. 1995). Courts have held that an insurer’s inability to

participate in the settlement of claims against it prejudices the insurer as a matter

of law. See Rodriquez v. Tex. Farmers Ins. Co., 903 S.W.2d 499, 509 (Tex.

App.—Amarillo 1995, writ denied) (holding that insurance was prejudiced as a

matter of law when insured made agreement without insurance’s participation);

see also Motiva Enters., LLC v. St. Paul Fire & Marine Ins. Co., 445 F.3d 381,

386 (5th Cir. 2006) (“An insurer’s right to participate in the settlement process is

an essential prerequisite to its obligation to pay a settlement. When, as in this

case, the insurer is not consulted about the settlement, the settlement is not

tendered to it[,] and the insurer has no opportunity to participate in or consent to

the ultimate settlement decision, we conclude that the insurer is prejudiced as a

      3
       Rust even notes in her supplemental response to Texas Farmers and
Farmers Exchange’s motion for summary judgment that Farmers Exchange was
not a party to the prior suit.

                                         15
matter of law.” ) (applying Texas law). Kurosky settled the underlying lawsuit

without giving Farmers Exchange the opportunity to participate or agree to the

judgment, and Rust now attempts to bind Farmers Exchange to that judgment.

Under these facts, Farmers Exchange was prejudiced by Kurosky’s breach of the

policy conditions as a matter of law.

       3. Waiver and estoppel

       Rust argued that Farmers Exchange either waived or was estopped from

asserting policy defenses against Kurosky because it failed to reserve its rights.

When an insurer assumes an insured’s defense without declaring a reservation

of rights or obtaining a non-waiver agreement, and with knowledge of facts

indicating noncoverage, all policy defenses, including those of noncoverage, are

waived, or the insurer may be estopped from raising them.            Farmers Texas

County Mut. Ins. Co. v. Wilkinson, 601 S.W.2d 520, 522 (Tex. Civ. App.—Austin

1980, writ ref’d n.r.e.).

       As the supreme court explained,

              [T]he doctrines of waiver and estoppel are frequently
       referenced together, but they are different. Waiver is the intentional
       relinquishment of a right actually known, or intentional conduct
       inconsistent with claiming that right. The elements of waiver include
       (1) an existing right, benefit, or advantage held by a party; (2) the
       party’s actual knowledge of its existence; and (3) the party’s actual
       intent to relinquish the right, or intentional conduct inconsistent with
       the right. Estoppel, on the other hand, generally prevents one party
       from misleading another to the other’s detriment or to the misleading
       party’s own benefit.

                                         16
Ulico Cas. Co. v. Allied Pilots Ass’n, 262 S.W.3d 773, 778 (Tex. 2008) (citations

omitted). “Regardless of whether the courts have discussed the issue in terms of

waiver or estoppel or both, they have generally required a showing that the

insured was harmed by the insurer’s conduct of assuming the insured’s defense

without a reservation of rights or non-waiver agreement.” State Farm Lloyds, Inc.

v. Williams, 791 S.W.2d 542, 552 (Tex. App.—Dallas 1990, writ denied); see also

Rodriquez, 903 S.W.2d at 510 (stating in context of inadequate reservation of

rights that “[e]stoppel requires a showing that the insured was prejudiced by the

conduct of the insurer”).

      Farmers Exchange provided the affidavit of Toni Johnson, in which she

states,

            Attached hereto is a true and correct copy of a reservation of
      rights letter which I prepared on November 19, 2009.            The
      reservation of rights letter is from Texas Farmers Insurance
      Company and Farmers Insurance Exchange to Frank Kurosky. On
      November 25, 2009, I placed the reservation of rights letter in an
      envelope addressed to Frank Kurosky at 4325 Fossil Drive, Fort
      Worth, Texas 76117, affixed proper postage to the envelope, and
      deposited the envelope in a United States Postal Service mailbox.

The attached letter states,

             We are referring this matter to the law firm of Carnahan
      Thomas located at 1190 N. Carroll Ave., Southlake, Texas 76092.
      Mr. Jason Thomas will be given instructions to enter an appearance
      on your behalf and file a timely answer with the court. However, we
      are providing you with a qualified defense under a reservation of
      rights while we are investigating this matter to determine if coverage
      will apply.

                                       17
The letter was addressed to Kurosky at the address in Fort Worth. The address

matched the address on both Kurosky’s homeowner’s policy and the umbrella

policy. 4

       Kurosky acknowledged that Texas Farmers and Farmers Exchange

retained counsel to defend him and that he allowed the attorney to represent him,

but he testified, “At no time[] did I ever receive a reservation of rights letter from

Farmers or ever agree to allow Farmers to defend me under a reservation of

rights.” Rust claims that Kurosky’s statement in his affidavit is sufficient to show

that Farmers Exchange “failed to carry its burden to show that it properly

reserved its right to raise policy defenses.”

       However, as the party asserting waiver and estoppel, it was Rust’s burden

to prove the elements of both defenses. See Enchilada’s Nw., Inc. v. L & S

Rental Props., 320 S.W.3d 359, 365 (Tex. App.—El Paso 2010, no pet.) (citing

Barfield v. Howard M. Smith Co. of Amarillo, 426 S.W.2d 834, 838 (Tex. 1968)

(“The party relying upon estoppel has the burden of proof, and the failure to

prove any element is fatal.”)); In re State Farm Lloyds, Inc., 170 S.W.3d 629, 634

(Tex. App.—El Paso 2005, no pet.) (“[Waiver] is an affirmative defense and the

party asserting it bears the burden of proof.”).

       4
      A previous homeowner’s policy in the record lists the address as Haltom
City. That policy was replaced with the Fort Worth-addressed policy in 2007.
There is no version of the umbrella policy in the record that lists Kurosky’s
address as Haltom City.

                                         18
            a. Waiver

      As stated above, waiver is the intentional relinquishment of a known right.

Ulico, 262 S.W.3d at 778. If a party’s conduct is consistent with claiming the

right, it cannot be the basis for a waiver. Sun Exploration & Prod. Co. v. Benton,

728 S.W.2d 35, 37 (Tex. 1987). When waiver is to be implied, it is the burden of

the party benefitting from a showing of waiver to produce conclusive evidence

that the opposite party made an unequivocal manifestation of its intent to no

longer assert its right.   G.H. Bass & Co. v. Dalsan Properties—Abilene,

885 S.W.2d 572, 577 (Tex. App.—Dallas 1994, no writ); Fed. Deposit Ins. Corp.

v. Attayi, 745 S.W.2d 939, 947 (Tex. App.—Houston [1st Dist.] 1988, no writ).

      Farmers Exchange mailed a reservation of rights letter to Kurosky at the

address on his policy. Kurosky accepted representation by the attorney provided

to him.   The supreme court has noted that it is customary to assume that

acceptance of defense is implied consent to reservation of rights. See Excess

Underwriters at Lloyd’s, London v. Frank's Casing Crew & Rental Tools, Inc.,

246 S.W.3d 42, 74 (Tex. 2008) (quoting W. Cas. & Sur. Co. v. Newell Mfg. Co.,

566 S.W.2d 74, 76 (Tex. Civ. App.—San Antonio 1978, writ ref’d n.r.e.) (“In

practice in an insurance context, insureds often communicate acceptance of an

offer by conduct, as in the case of an insured accepting a defense from an

insurer that reserves its right to deny coverage. In such cases, the insured’s

acceptance of the defense is an implied consent to the insurer’s reservation of

the coverage issues, ‘even in the absence of an express consent or acceptance

                                       19
of the offer.’”).   Thus, Farmers Exchange had no reason to believe from

Kurosky’s acceptance of its defense that its offer had not been communicated. It

then filed the declaratory action regarding coverage. None of these actions

demonstrate an unequivocal intent to surrender its rights under the insurance

policy, regardless of whether Kurosky ever received the letter.

             b. Estoppel

      An essential element of estoppel is that the insured was prejudiced by the

conduct of the insurer. Ulico, 262 S.W.3d at 778 (citing Johnson & Higgins of

Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 515–16 (Tex. 1998) (stating

that equitable estoppel requires detrimental reliance on concealments or false

representations); Am. Eagle Ins. Co. v. Nettleton, 932 S.W.2d 169, 174–75 (Tex.

App.—El Paso 1996, writ denied) (citing Tilley, 496 S.W.2d at 560). That is, the

insured must have changed his position for the worse by the fault of the insured.

Britt v. Cambridge Mut. Fire Ins. Co., 717 S.W.2d 476, 481 (Tex. App.—San

Antonio 1986, writ ref’d n.r.e.) (citing Wirtz v. Sovereign Camp W.O.W., 114 Tex.

471, 477 268 S.W. 438, 441 (1925)). In the trial court and her brief on appeal,

Rust made no argument that she or Kurosky had been prejudiced by Farmers

Exchange’s actions. 5 Rust did not show that Kurosky did anything upon the

mistaken belief that he was being unconditionally defended that he would not

      5
      When asked at oral argument, Rust stated that the prejudice was that
Kurosky had no notice that Farmers Exchange would file the declaratory action
seeking to establish lack of coverage.

                                        20
have otherwise done. There is no evidence that Kurosky would have denied the

proffered representation or that he was harmed by accepting it. Neither is there

evidence that Kurosky would have defended himself differently.       In fact, the

evidence is that he negotiated his own settlement without any influence from

Farmers Exchange. There is also no evidence of any injury resulting from any

lack of notice of the reservation of rights.   Thus, Farmers Exchange is not

estopped from asserting its defenses.

      Considering the evidence in the light most favorable to the nonmovant, we

hold that Rust did not conclusively establish all essential elements of her claim

that Farmers Exchange must indemnify her for the amount of the agreed final

judgment in the 153rd action. See Tex. R. Civ. P. 166a(a), (c); Mann Frankfort,

289 S.W.3d at 848. Summary judgment was therefore improper on her claim.

We sustain Texas Farmers and Farmers Exchange’s ninth issue.

II. Texas Farmers and Farmers Exchange’s motions for summary judgment

      In their tenth issue, Texas Farmers and Farmers Exchange challenge the

denial of their motions for summary judgment.     Texas Farmers and Farmers

Exchange requested summary judgment on the following grounds:

      1. They had no duty to defend Kurosky in the underlying lawsuit.

      2. They had no duty to indemnify Kurosky as to the agreed final
      judgment.

      3. Rust’s counterclaims against Texas Farmers were barred by res
      judicata.

                                        21
      4. Rust’s counterclaims against Farmers Exchange were without
      basis.

Rust nonsuited all of her claims against Texas Farmers, the remaining claims

against Farmers Exchange on which she did not seek summary judgment, and

her requests for attorney’s fees. The determination of whether Texas Farmers

and Farmers Exchange had a duty to defend Kurosky is now moot because there

is a final judgment in that case and no party seeks attorney’s fees. See Mid-

Continent Cas. Co. v. Safe Tire Disposal Corp., 2 S.W.3d 393, 395 (Tex. App.—

San Antonio 1999, no pet.) (dismissing as moot that part of appeal regarding

duty to defend when the case had already settled); State Farm Mut. Auto. Ins.

Co. v. Carmichael, No. 05-96-00990-CV, 1998 WL 122409, at *2 (Tex. App.—

Dallas Mar. 20, 1998, no pet.) (not designated for publication) (“Once the

judgment in the underlying suit became final, State Farm’s duty to defend

terminated and whether there was a duty to defend in the first instance became a

moot issue.”). Thus, the only part of Texas Farmers and Farmers Exchange’s

motions that we address is the ground that they had no duty to indemnify

Kurosky as to the agreed final judgment. 6

      6
        Rust argues that we need not address Texas Farmers’s duty to indemnify
because she dismissed her claims against it. However, at the time of the
competing motions for summary judgment, Texas Farmers had a pending claim
seeking a declaration that it had no duty to indemnify. Texas Farmers moved for
summary judgment on its claim. In denying Texas Farmers and Farmers
Exchange’s motions for summary judgment in full, the trial court ruled on that
claim. See Fed. Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602, 611 (Tex. 2012)
(stating that we may review the denial of a summary judgment motion when the
trial court grants one competing motion and denies the other).

                                       22
      Just as it did in its response to Rust’s motion for summary judgment,

Farmers Exchange argues that it does not have to indemnify Kurosky for the

agreed final judgment because he breached the policy conditions. As explained

above, Kurosky did violate the policy provisions, Farmers Exchange was

prejudiced by the violations, and it did not waive and was not estopped from

asserting the violations in its defense. Farmers Exchange therefore conclusively

proved all essential elements of its claim that it does not have a duty to indemnify

Kurosky.      See Tex. R. Civ. P. 166a(a), (c).   And because it has no duty to

indemnify Kurosky, Rust, who stepped into Kurosky’s shoes, cannot recover

against Farmers Exchange.        See Maldonado, 963 S.W.2d at 40.          Farmers

Exchange was entitled to summary judgment on its claim.

      Turning to Texas Farmers, we note that it was not the insurance company

that issued the umbrella policy.         Texas Farmers only issued the two

homeowner’s policies. In the appeal of the 153rd action, the Amarillo Court of

Appeals held that Rust could not recover under the policy covering the 4333

Fossil Drive property. Rust, 341 S.W.3d at 551 (“Farmers showed that Rust

could not recover under the bodily injury provisions of the 33–Fossil policy

because she was an insured, and could not recover under the medical-payments

provisions of the 33–Fossil policy as she was both a named insured and a

resident of the property.”).

      As to the policy covering 4325 Fossil Drive, it contained the following

provisions:

                                        23
            3. Duties after loss.

            In case of an occurrence or claim for personal injury, an
      insured will perform the following duties:

            ....

            c. cooperate with and assist us in any matter relating to a
            claim or suit;

            ....

            5. Suit against us.

             No action can be brought against us unless there has been full
      compliance with the terms and conditions of this policy. . . . We may
      not be sued under Coverage C (Personal Liability) until the
      obligation of the insured has been determined by final judgment
      after actual trial or by agreement signed by us.

The same requirements that Kurosky cooperate and determine his obligation by

either trial or an agreement signed by the insurer that we discussed in the

umbrella policy are present in the 4325 Fossil Drive policy.      For the same

reasons Kurosky was barred from seeking indemnity from Farmers Exchange

under the umbrella policy, he is likewise prohibited from seeking indemnity from

Texas Farmers under the 4325 Fossil Drive policy. Texas Farmers was therefore

entitled to summary judgment on its claim.

      Considering the evidence in the light most favorable to the nonmovant, we

hold that Texas Farmers and Farmers Exchange conclusively established all

essential elements of their claim that they did not have a duty to indemnify

Kurosky for the amount of the agreed final judgment in the 153rd action.

See Tex. R. Civ. P. 166a(a), (c); Mann Frankfort, 289 S.W.3d at 848. They were

                                       24
therefore entitled to summary judgment on their claims, and we sustain their

tenth issue. Because our disposition of the ninth and tenth issues is dispositive

of the appeal, we do not need to reach their remaining issues. See Tex. R. App.

P. 47.1.

                                  Conclusion

      Having sustained Texas Farmers and Farmers Exchange’s ninth and tenth

issues, we reverse the trial court’s judgment and render judgment that Texas

Farmers and Farmers Exchange have no duty to indemnify Kurosky for the

agreed final judgment in the 153rd action and that Rust take nothing.

                                                  /s/ Lee Gabriel

                                                  LEE GABRIEL
                                                  JUSTICE

PANEL: DAUPHINOT, MEIER, and GABRIEL, JJ.

MEIER, J., dissents without opinion.

DELIVERED: July 2, 2015

                                       25


                           ILLINOIS OFFICIAL REPORTS
                                        Appellate Court

            Columbia Mutual Insurance Co. v. Herrin, 2012 IL App (5th) 100037

Appellate Court            COLUMBIA MUTUAL INSURANCE COMPANY, Plaintiff, v.
Caption                    ROGER HERRIN, Special Administrator of the Estate of Michael Herrin,
                           Deceased, KATHERINE DUNCAN, ROSS DUNCAN, and JARED
                           HEAD, ENCOMPASS INSURANCE, HARRISBURG MEDICAL
                           CENTER, BRIAN W. BRAMLET, and ROBERT BRAMLET,
                           Defendants (Roger Herrin, Special Administrator of the Estate of Michael
                           Herrin, Deceased, Counterplaintiff-Appellee, and Martha Head, as
                           Mother and Next Friend of Jared Head, a Minor, and Martha Head and
                           Wayne Head, Individually and as Parents of Jared Head, a Minor,
                           Counterplaintiffs-Appellants, v. Columbia Mutual Insurance Company,
                           Monroe Guaranty Insurance Company, and Encompass Insurance
                           Company, Counterdefendants, and Katherine Duncan, Ross Duncan, and
                           Russell Duncan, Counterdefendants-Appellants, and Roger Herrin,
                           Special Administrator of the Estate of Michael Herrin, Deceased,
                           Counterdefendant-Appellee).

District & No.             Fifth District
                           Docket No. 5-10-0037
Filed                      January 12, 2012
Rehearing denied           April 24, 2012
Held                       In complex litigation arising from an automobile accident that resulted in
(Note: This syllabus       a fatality and multiple injuries, the trial court erred in applying a ratio
constitutes no part of     method of distributing the underinsured-motorist coverage proceeds
the opinion of the court   without considering the amounts available exclusively to certain
but has been prepared      occupants before distributing the host vehicle’s underinsured-motorist
by the Reporter of         coverage, since James requires that the trial court take into account the
Decisions for the          presence of separate underinsured-motorist coverage exclusive to
convenience of the         individual passengers and give each passenger credit with the amount of
reader.)
                           those benefits available exclusively to them, but the valuations of each
                           occupant’s injuries previously set forth in a bench trial would be
                           controlling.
Decision Under             Appeal from the Circuit Court of Saline County, No. 02-MR-42; the Hon.
Review                     Ronald R. Eckiss, Judge, presiding.

Judgment                   Affirmed in part and reversed in part; cause remanded with directions.

Counsel on                 Douglas N. Dorris, of Howerton, Dorris & Stone, of Marion, for
Appeal                     appellants Jared Head, Martha Head, and Wayne Head.

                           Mark D. Prince, of Prince Law Firm, of Marion, for appellants Katherine
                           Duncan, Ross Duncan, and Russell Duncan.

                           James B. Bleyer, of Bleyer & Bleyer, of Marion, for appellees Brian W.
                           Bramlet and Robert Bramlet.

                           John Womick, of Womick Law Firm, Chtrd., of Herrin, for appellee
                           Roger Herrin.

Panel                      JUSTICE GOLDENHERSH delivered the judgment of the court, with
                           opinion.
                           Justices Welch and Wexstten concurred in the judgment and opinion.

                                            OPINION

¶1          The instant appeal involves a dispute about the distribution of underinsured-motorist
        proceeds following a tragic accident involving a group of teenage boys who were riding
        together in a Jeep Cherokee being driven by one of the boys’ mothers, Katherine Duncan.
        Defendants-counterplaintiffs, Jared Head, Martha Head and Wayne Head, individually and
        as parents of Jared Head, a minor (hereinafter Jared), who has since attained the age of
        majority, and Katherine Duncan, Ross Duncan, and Russell Duncan, appeal the order of the
        circuit court of Saline County which distributed the underinsured-motorist proceeds. Jared
        and the Duncans will collectively be referred to as appellants. Appellee is the other
        defendant, Dr. Roger Herrin, special administrator of the estate of Michael Herrin. Michael
        Herrin died as a result of the accident, and Dr. Herrin was his father. While appellants and
        appellee both recognize that the formula set forth in Janes v. Western States Insurance Co.,
        335 Ill. App. 3d 1109, 783 N.E.2d 37 (2001), controls, appellants argue the trial court
        incorrectly applied the formula. Appellants contend the misapplication of Janes resulted in

                                                -2-
     appellee receiving a disproportionately large share of the host vehicle’s underinsured-
     motorist coverage, specifically arguing: (1) the ratio method is not the method of distribution
     Janes requires when distributing a common pool of underinsured-motorist coverage available
     upon a host vehicle; (2) the trial court erred when it used the value of the amounts actually
     received by appellee from separate underinsured-motorist coverage available exclusively to
     it instead of the total limits of underinsured-motorist coverage which were available
     exclusively to it; and (3) the trial court erred when it used as the valuations for each
     occupant’s injuries the amounts set during a prior bench trial which distributed the bodily
     injury liability proceeds of $100,000 from the driver of the at-fault vehicle’s insurance policy
     instead of requiring that the valuation of injury awards for use in distributing underinsured-
     motorist proceeds be set by arbitration. We affirm in part, reverse in part, and remand for
     further proceedings.

¶2                                      BACKGROUND
¶3        On June 14, 2001, Michael Herrin, Jared Head, and Ross Duncan were passengers in a
     Jeep Cherokee being driven by Katherine Duncan when they were hit by a truck being driven
     by Brian Bramlet, who failed to stop at an intersection. Michael Herrin was killed in the
     accident while Katherine Duncan, Ross Duncan, and Jared Head all received injuries. All
     occupants of the Jeep Cherokee filed separate personal injury claims against Brian Bramlet,
     the at-fault driver. Bramlet’s truck was insured by Columbia Mutual Insurance Company
     (Columbia Mutual) with policy limits of $100,000 per occurrence. Columbia Mutual
     tendered its $100,000 policy limits.
¶4        An issue arose as to how to divide the $100,000 in liability insurance proceeds provided
     by the Columbia Mutual policy. Accordingly, the trial court conducted a consolidated bench
     trial in December 2007 in order to establish values for each of the claims. After hearing all
     the evidence, the trial court found the following values for the claims of the occupants of
     Katherine Duncan’s vehicle:
              Estate of Michael Herrin       $10,010,953.61
              Jared Head                     $ 633,804.70
              Katherine Duncan               $ 155,855.11
              Ross Duncan                    $ 125,892.50
              Russell Duncan                 $     40,000.00
              Total                          $10,966,505.92
¶5        Dr. Herrin owned several nursing homes and purchased business insurance on the nursing
     homes and insurance on certain vehicles owned through the nursing homes. Two policies
     specifically provided automobile insurance coverage on certain listed vehicles and provided
     underinsured-motorist coverage not only on Dr. Herrin but also on relatives who resided with
     him, including Michael. The policies were issued by Monroe Guaranty and Cincinnati
     Insurance. After litigation, it was determined that Dr. Herrin’s nursing home policies
     provided his family with $5 million of underinsured-motorist coverage and specifically
     covered the accident in which Michael was killed on June 14, 2001. Dr. Herrin was also

                                               -3-
     covered by an automobile policy through Encompass Insurance Company (Encompass),
     which provided an additional $500,000 in underinsured-motorist coverage for appellee’s
     wrongful-death claim for a total of $5.5 million in underinsured-motorist coverage. This $5.5
     million is exclusive to appellee’s claims, and appellants can make no claim against the $5.5
     million pool of appellee’s underinsured-motorist coverage.
¶6       After mediation, the Herrin estate settled its wrongful-death claim for $1.65 million out
     of the $5.5 million in underinsured-motorist coverage available exclusively to the Herrin
     estate. A total of $1.25 million was paid by Monroe Guaranty and $400,000 was paid by
     Cincinnati Insurance. The trial court approved the $1.65 million settlement.
¶7       At the time of the accident, Jared’s family carried underinsured-motorist coverage on
     their vehicles totaling $100,000; however, because the driver of the at-fault vehicle, Brian
     Bramlet, was carrying $100,000 in personal liability insurance through Columbia Mutual,
     Bramlet was not an underinsured motorist for purposes of Jared’s family’s automobile
     insurance carrier. The Duncan family carried automobile insurance through Encompass on
     numerous vehicles. After extended stacking litigation, including an appeal to this court, it
     was determined that the Duncans’ underinsured-motorist coverage aggregated to $900,000.
     Encompass was given a setoff for the $100,000 in tortfeasor liability insurance on the basis
     that those funds will be distributed to the parties injured by the tortfeasor Bramlet, leaving
     a total of $800,000 available from the underinsured-motorist coverage provided by
     Encompass. See Columbia Mutual Insurance v. Herrin, No. 5-04-0575 (2007) (unpublished
     order under Supreme Court Rule 23 (eff. July 1, 1994)).
¶8       On April 21, 2009, Encompass filed a motion for leave to deposit $800,000 of
     underinsured-motorist benefits with the court with a request that Encompass be discharged
     from liability upon deposit of those funds and a request that the occupants of the Duncan
     vehicle be ordered to settle between themselves their rights or claims to the underinsured
     benefits available under the Encompass policy. While not objecting to $800,000 being paid
     into the court, appellants objected to Encompass’s motion on the basis that the amounts to
     be distributed to the occupants of the Duncan vehicle were issues that needed to be arbitrated
     and they should not be “ordered to settle” their rights and claims to the common pool of host
     vehicle underinsured-motorist coverage when a good-faith disagreement existed on that
     issue.
¶9       On December 1, 2009, the trial court conducted a hearing on Encompass’s motion and
     appellants’ objections thereto. The trial court found that the arbitration clause of the
     Encompass policy would not be followed because the court previously set the amounts of
     each claim in a bench trial which determined the value of the claims when considering how
     the $100,000 in liability insurance coverage carried by the tortfeasor should be distributed.
     The trial court noted that the Herrin estate already received $1.65 million in underinsured-
     motorist settlement proceeds from policies which were only available to the Herrin estate and
     that it would apply the principles of Janes when distributing the Encompass underinsured-
     motorist funds. The trial court used a ratio method and, ultimately, distributed the Encompass
     funds as follows:

                                              -4-
              Herrin Estate         $677,851.06
              Jared Head            $147,368.96
              Katherine Duncan      $ 36,228.77
              Ross Duncan           $ 29,286.12
              Russell Duncan        $ 9,265.09
              Total                 $900,000.00
       Jared Head and the Duncans filed separate motions to reconsider or modify. The trial court
       denied the motions. Appellants filed timely notices of appeal.

¶ 10                                        ANALYSIS
¶ 11       We first address appellee’s argument that this case is moot because the $800,000 of
       Encompass funds have already been distributed. According to appellee, the trial court has
       already paid out Encompass’s underinsured-motorist funds to the administrator of the Herrin
       estate, who has already paid them out from the probate estate, and, thus, no funds remain in
       the estate of Michael Herrin. We point out that an issue is only moot if no actual controversy
       exists or where events occur which make it impossible for the court to grant effectual relief.
       Wheatley v. Board of Education of Township High School District 205, 99 Ill. 2d 481, 484-
       85, 459 N.E.2d 1364, 1366 (1984). Here, we agree with appellants that the early distribution
       of any of the Encompass insurance proceeds, which was done over the objection of Jared
       Head, does not make the issues in this appeal moot. There is nothing in the record to indicate
       that the funds distributed to the estate of Michael Herrin through the administrator of the
       estate, Dr. Roger Herrin, Michael’s father, have been spent. In any event, even if the funds
       have been spent, Dr. Herrin can be required to make restitution. See First National Bank of
       Jonesboro v. Road District No. 8, 389 Ill. 156, 162-63, 58 N.E.2d 884, 887 (1945). We turn
       now to the issues raised by appellants.

¶ 12                             I. METHOD OF DISTRIBUTION
¶ 13       Appellants first contend the trial court erred by employing the ratio method of
       distribution. Appellants insist that Janes requires the host vehicle occupants with separate
       sources of underinsured-motorist coverage exclusive to them access their own sources of
       underinsured-motorist coverage before participating in the host vehicle’s common pool of
       underinsured-motorist coverage and that the common pool coverage should be used initially
       to satisfy the claims of occupants with no outside source of underinsured-motorist coverage.
       We agree.
¶ 14       In Janes, the plaintiff, Linda Janes, and her husband were involved in a car accident in
       their van. Her husband was driving and was killed. Linda survived but incurred medical bills
       in the amount of $162,226. Four other van passengers, two married couples, Cleo and Jerry
       Harris and Connie and Charles Church, were also killed. Alice Phelps was driving a car that
       crossed the centerline and caused the collision. Phelps had $50,000 in bodily injury liability
       coverage that was tendered by her insurance company.
¶ 15       The plaintiff and her husband had two separate auto insurance policies. One issued by

                                                -5-
       Western States Insurance Company (Western States) provided $50,000 in underinsured-
       motorist coverage, and the other issued by Transamerica Indemnity Company (Transamerica)
       stacked to provide $300,000 in underinsured-motorist coverage for a total of $350,000. That
       amount was reduced to $300,000 because of the $50,000 in tortfeasor liability coverage
       already paid into the court. Cleo and Jerry Harris received $50,000 each from their own
       insurance policy for a total of $100,000 in underinsured-motorist benefits exclusive to them.
       Connie and Charles Church each received $100,000 from their own insurance policy for a
       total of $200,000 in underinsured-motorist benefits exclusive to them.
¶ 16        One of the issues in Janes was how to divide the $300,000 in underinsured-motorist
       benefits provided by the Janes’s two insurance policies among the six passengers of the van.
       The trial court ruled that the $300,000 should be divided equally among the six occupants
       of the Janes’s van. The trial court awarded each of the six claimants $8,333.33 from the
       Western States policy and $41,666.66 from the Transamerica policy. Janes, 335 Ill. App. 3d
       at 1114, 783 N.E.2d at 40-41. Plaintiff appealed the trial court’s distribution of the host
       vehicle underinsured-motorist coverage in equal amounts. The Janes court found that the
       trial court’s distribution of the host vehicle’s underinsured-motorist benefits to the occupants
       of the insured vehicle in equal shares failed to fill the gap between the tortfeasor’s policy and
       the insured’s policy because the trial court failed to consider payments of underinsured
       benefits to the occupants individually and failed to adjust payments of underinsured-motorist
       benefits payable on the van to equalize the funds received by each occupant. Janes
       specifically stated:
                “If a court decides that the passengers are equally entitled to recover damages, the
            ‘gap’ should be filled first by the policies specific to a policyholder and then by policies
            general to all occupants. Assuming plaintiff has correctly assessed the limits of the other
            injured parties’ policies, plaintiff would be entitled to the first $100,000 to become equal
            to the Harrises, and then the funds of the Janes policy would be equally distributed with
            the Harrises until all parties are equal to the Churches. Upon remand, a hearing will be
            required to allow plaintiff to prove that the Harrises and the Churches had other
            coverage.” Janes, 335 Ill. App. 3d at 1123-24, 783 N.E.2d at 48.
       The result of the Janes decision was that all occupants of the vehicle would ultimately
       receive $100,000 in underinsured-motorist coverage.
¶ 17        The Janes court rejected the ratio method employed by the trial court because it did not
       take into account the separate sources of underinsured-motorist coverage the Churches and
       the Harrises had available exclusively to them before dividing the common pool of
       underinsured-motorist coverage. Pursuant to the holding in Janes, the Churches were not
       entitled to any additional underinsured-motorist funds available through the host vehicle’s
       common pool of underinsured-motorist proceeds because the Churches’ own underinsured-
       motorist coverage available exclusively to them already provided them with $100,000 each.
       The Harrises were entitled to another $50,000 each from the host vehicle policy, which
       combined with their own underinsured-motorist coverage of $50,000 each resulted in a total
       of $100,000 each. Plaintiff and her deceased husband would take $100,000 for a total of
       $200,000.

                                                 -6-
¶ 18       Here, as in Janes, the trial court erred in applying a ratio method without considering the
       amounts of underinsured-motorist coverage which the occupants of the Duncan vehicle had
       available exclusively to them before dividing up the host vehicle’s underinsured-motorist
       coverage provided by the Encompass policy. Janes requires a court to take into account the
       presence of separate underinsured-motorist coverage exclusive to individual passengers and
       give each passenger credit with the amount of underinsured-motorist benefits available
       exclusively to them. Therefore, we reverse that portion of the trial court’s order which
       apportioned the Encompass policy between the occupants of the host vehicle and remand
       with directions that when determining the apportionment of an $800,000 pool of host vehicle
       underinsured-motorist coverage available through Encompass, the trial court give credit for
       the underinsured-motorist coverage available exclusively to the estate of Michael Herrin.

¶ 19                     II. SETTLEMENT VS. COVERAGE AVAILABLE
¶ 20        Appellants next contend that the trial court erred by crediting only the amount of the
       settlement received ($1.65 million) rather than the amount of the coverage available to the
       estate of Michael Herrin ($5.5 million). After careful consideration, we find that this issue
       need not be decided because using either figure, it is clear that the value of the claims of the
       occupants in the Duncan host vehicle who did not have outside sources of underinsured-
       motorist insurance exceeds the $800,000 available under the Encompass policy.
¶ 21        In the instant case, a bench trial was conducted to determine the value of the claims of
       the occupants of the Duncan vehicle when considering how the $100,000 in liability
       coverage carried by the tortfeasor should be distributed. All parties participated in the bench
       trial, and no party appealed the trial court’s findings. The trial court specifically valued
       appellants’ claims as follows:
                Katherine Duncan            $155,855.11
                Ross Duncan                 $125,892.50
                Russell Duncan              $ 40,000.00
                Jared Head                  $633,804.70
                Total                       $955,552.31
       Thus, the sum of appellants’ claims exceeds the amount of underinsured-motorist coverage
       available under the Duncans’ Encompass policy. Because the Herrin estate has already
       received $1.65 million in underinsured-motorist benefits available exclusively to the estate,
       which far exceeds the $800,000 of underinsured-motorist coverage available on the host
       vehicle, it is clear that under either computation ($1.65 million or $5.5 million), the Herrin
       estate will not be able to recover any additional funds.

¶ 22                                   III. ARBITRATION
¶ 23       Finally, appellants contend the trial court erred when it used as valuations for each
       occupant’s injuries the amounts set during the prior bench trial which distributed the bodily
       injury liability proceeds of $100,000 from the at-fault driver’s insurance policy instead of
       requiring the valuation of the injury awards for use in distributing underinsured-motorist

                                                 -7-
       proceeds under the Duncans’ Encompass policy be set by arbitration as per the language of
       the Encompass policy. We disagree.
¶ 24        The instant case presents a tragedy where neither the appellants nor the appellee can
       really ever be declared a winner. The best we can hope for is that sooner rather than later this
       complex litigation will come to a logical conclusion, and the appellants and the appellee will
       receive equitable compensation for their grave losses. While appellants contend that they are
       entitled to arbitration on the issue of damage awards, we find that the damage awards decided
       by the trial court during the bench trial to determine the distribution of the tortfeasor’s bodily
       injury liability should control.
¶ 25        It is well settled that the fixing of damages is a function of the trier of fact and should not
       be disturbed upon review unless there is no evidence to support the finding or the award does
       not bear a reasonable relation to plaintiffs’ loss. Netzel v. United Parcel Service, Inc., 181
       Ill. App. 3d 808, 817, 537 N.E.2d 1348, 1354 (1989). Here, appellants did not object to these
       damage awards at the time they were decided by the trial court, nor did they file an appeal
       on that issue. Appellants had an opportunity to present their evidence and cross-examine
       witnesses.
¶ 26        Appellants argue that because they believed that the evidence during the bench trial was
       only being used to set the damage awards affecting the distribution of the $100,000 from the
       tortfeasor’s policy, no party had much desire to strike an adversarial position. However,
       during this appeal, appellants have failed to show us how the valuations are flawed or
       unreasonable. Even though the parties were not initially aware that these valuations would
       be used, considering the totality of the circumstances, we find the trial court’s decision to use
       the valuations for each occupant’s injuries previously set during the bench trial distributing
       the bodily injury liability proceeds from the at-fault driver’s policy not to be an abuse of its
       discretion.

¶ 27                                      CONCLUSION
¶ 28       For the foregoing reasons, the judgment of the circuit court of Saline County is hereby
       affirmed in part and reversed in part, and the cause is remanded with directions consistent
       with this opinion to distribute to each of the injured occupants of the host vehicle from the
       $800,000 of common pool Encompass underinsured-motorist coverage by properly applying
       the formula for distribution mandated in Janes. The valuations for each occupant’s injuries
       previously set forth in the bench trial are controlling and arbitration is unnecessary.

¶ 29       Affirmed in part and reversed in part; cause remanded with directions.

                                                   -8-


399 F.2d 326
68-2 USTC  P 9516, 159 U.S.P.Q. 385
Jack P, STANTON and Virginia G. Stanton, Petitioners,v.COMMISSIONER OF INTERNAL REVENUE, Respondent.
No. 25432.
United States Court of Appeals Fifth Circuit.
Aug. 8, 1968.

Jack P. Stanton, Houston, Tex., pro se.
Mitchell Rogovin, Asst.Atty.Gen., Lee A. Jackson, Richard C. Pugh, William A. Friedlander, Kenneth L. Gross, Frank X. Gross, Attys., Dept. of Justice, Washington, D.C., Lester R. Uretz, Chief Counsel, I.R.S., Ronald R. Cresswell, Atty., I.R.S., Washington, D.C., for respondent.

1
Before COLEMAN and GODBOLD, Circuit Judges, and RUBIN, District Judge.

RUBIN, District Judge:

2
A taxpayer appearing in his own befalf, who has struggled unsuccessfully with the Commissioner of Internal Revenue, seeks review of a Tax Court decision denying him and his wife the right to deduct expenses incurred by them in 1962 and 1963 while seeking to perfect the invention of a storm proof boat.  The amounts involved are not large,1 but the taxpayer considers that the issues present questions of major economic significance, and he thinks that a correct decision can be reached only if the case is remanded to the Tax Court.  Although we consider the taxpayer conscientious in his convictions, we find that he is mistaken in his understanding of the legal principles applicable to his case, and we affirm the decision of the Tax Court.

3
The taxpayer challenges a number of the findings of fact made by the Tax Court, urges that they are in error, and requests an opportunity to produce evidence to correct them.  Part of the error, he contends, results from the fact that the government's brief was not filed until after the hearing in the Tax Court was completed and, until then, he was not aware of the assumptions on which the government was proceeding, hence had no opportunity to correct them.

4
But even if Mr. Stanton could prove that the Tax Court was wrong in all of the factual determinations that he sets forth in his brief, he could not prevail.  Mr. Stanton claims that he has been engaged in inventing things and in thinking about possible inventions for over 25 years; he was 'serious' in his efforts to develop and exploit the 'Storm Safe' boat and other inventions; his work on the boat was not a hobby; he was employers as an inventor for one of his employers and received a total of $107 from two employers as awards for inventions, in addition to his salary; he received a salary and stock from other companies for his work as an officer or employee and this work included the work of inventing; he and his wife are the sole stockholders of a company that not only manufactures and markets chemicals but also does research, development and inventing; over the years he has listed many inventive ideas in a notebook from time to time and several of these were later developed by others (on their own initiative) as inventors; his boat is based on a truly inventive idea; and the only reason he has not applied for a patent on it is that the project is still incomplete.  He concludes that these facts would show that he is in 'the continuing business of exploiting * * * research, development and inventive capabilities for personal gain.'  He contends that the expenses incurred on the boat 'constitute research and development in a continuing business endeavor of inventing-for-profit.'

5
The Internal Revenue Code imposes a tax on 'all income from whatever source derived.'  Section 61, Internal Revenue Code of 1954; 26 U.S.C.A. 61.  It allows 'as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business * * *.'  Section 162, Internal Revenue Code of 1954; 26 U.S.C.A. 162.  Therefore, a taxpayer may not deduct expenses merely because they are incurred in the hope of gain; he may deduct against his ordinary income only those expenses that the Internal Revenue Code allows him to deduct.2  Prior to 1954, it had been held that the costs incurred in inventing new products and in developing new ideas were capital expenditures.3  Hence they could not be deducted from ordinary income as 'expenses paid or incurred * * * in carrying on any trade or business.'  The inventor could use them only to offset income from the invention if and when he received such income.

6
When the Internal Revenue Code of 1954 was adopted, it included a new provision dealing with the costs incurred in research and experimental expenditures.  This was intended to change existing law so as to provide incentive for experimentation and invention.  100 Cong.Rec. 3425 (1954).  However, in order for a taxpayer to obtain the benefit of this section, he must show that he meets its requirements.

7
Insofar as it is pertinent here, Section 174 provides:

8
'A taxpayer may treat research or experimental expenditures which are paid or incurred by him * * * in connection with his trade or business as expenses which are not chargeable to capital account.'

9
The sums paid by the taxpayers in an effort to develop their boat are clearly embraced in the term 'research or experimental expenditures.'  The regulations adopted by the Treasury Department state:

10
'The term includes generally all such costs incident to the development of an experimental or pilot model, a plant process, a product, a formula, an invention, or similar property, and the improvement of already existing property of the type mentioned.'  Treas.Reg. 1.174-2(a)(1).

11
But the statute permits such expenditures to be deducted only if they are 'incurred * * * in connection with (the taxpayer's) trade or business.'

12
The Internal Revenue Code does not contain a definition of what constitutes a 'trade or business.'4 But the United States Supreme Court has held that the question of whether the taxpayer is engaged in a trade or business is one of fact.  Higgins v. Commissioner of Internal Revenue, 1941,312 U.S. 212, 61 S.Ct. 475, 85 L.Ed. 783.

13
The conduct of a trade or business necessarily implies that the businessman seeks to make a profit.  As Judge Lumbard stated in Lamont v. Commissioner of Internal Revenue, 2 Cir., 1964, 339 F.2d 377, 380:

14
'While the expectation of profit need not be a reasonable one, and the business need not realize an immediate profit, the activities must be entered into and carried out in good faith for the purpose of making a profit.'

15
Although the taxpayer's stated intent is to be considered 'in determining (the) subjective question (of intent), his overt actions and efforts to make the activities profitable are often more convincing to the trier of the facts.'  Myron E. Cherry, 1967, 26 T.C.M. 557, 561.

16
However, 'the phrase 'trade or business' (as used in the Tax Code) connotes something more than an act or course of activity engaged in for profit. * * *  The phrase * * * must refer not merely to Acts engaged in for profit, but to extensive activity over a substantial period of time during which the Taxpayer holds himself out as selling goods or services.'  McDowell v. Ribicoff, 3 Cir., 1961, 292 F.2d 174, 178 (Biggs, C.J.).  A taxpayer can show that his activities are a 'business' by demonstrating that he devotes a substantial portion of his time to the activities, Austin v. Commissioner, 1960, 35 T.C. 221, aff'd, 2 Cir., 1962, 298 F.2d 583, or that there has been extensive or repeated activity over a substantial period of time, Wright v. Commissioner, 1959, 31 T.C. 1264, aff'd, 6 Cir., 1960, 274 F.2d 883.

17
The phrase 'trade or business' presupposes an existing trade or business.  Koons v. Commissioner, 1961, 35 T.C. 1092, 1101; Frank v. Commissioner, 1953, 20 T.C. 511, 514.  Thus, expenditures incurred in investigating a potential new trade or business or in preparation for the possibility of entering into a new trade or business have been held not to have been incurred in connection with a trade or business so as to be deductible in computing taxable income.  Frank v. Commissioner, supra; 4A Mertens, Law of Federal Income Taxation, 25.08, p. 34; cf. McDonald v. Commissioner of Internal Revenue, 1944, 323 U.S. 57, 65 S.Ct. 96, 89 L.Ed. 68.  See generally Fleischer, The Tax Treatment of Expenses Incurred in Investigation for a Business or Capital Investment, 14 Tax L.Rev. 567 (1959).

18
A taxpayer can doubtless engage in the trade or business of doing research and experimentation.  There is no inherent reason why inventing new products may not be as much a trade or business as manufacturing, selling, and improving existing products.  The question, however, is not merely one of determining whether, as Mr. Stanton says, he was interested in inventing so that he could make money; it is one of determining whether he was engaged in the trade or business of inventing.

19
It has been recognized that this limitation in the statute 'does have serious implications in the case of the amateur inventor and the independent financier.'  BNA Tax Management Portfolio, Research and Development Expenses, p. 7.  Several cases have held that individuals whose activities were similar to Mr. Stanton's were not engaged in a trade or business.  See, e.g., under prior law, Beach v. Shaughnessy, N.D.N.Y., 1954, 126 F.Supp. 771; and under The Internal Revenue Code of 1954, Best Universal Lock Co. v. Commissioner, 1965, 45 T.C. 1.  See also Mayrath v. Commissioner, 1964, 41 T.C. 582, aff'd, 5 Cir., 1966, 357 F.2d 209; Schafer v. Commissioner, 1964, 23 T.C.M. 927; Scull v. Commissioner, 1964, 23 T.C.M. 1353.  But see Reiner v. Commissioner, 1965, 24 T.C.M. 1005.

20
Taking into account all that Mr. Stanton urges, the expenditures paid by the taxpayers in 1962 and 1963 were not incurred in connection with a trade or business.  Mr. Stanton's inventive efforts in the past as a salaried employee of a corporation do not make inventing his business.  His employer's trade or business may have been inventing, but Mr. Stanton's occupation (or 'business') was being a corporate employee or executive.  Cf. Industrial Research Products, Inc. v. Commissioner, 1963, 40 T.C. 578.  His efforts as an inventor were doubtless inspired by the hope of profit, but they lacked that degree of continuity and regularity that is essential before an activity can be found to constitute a trade or business.  McDowell v. Ribicoff,supra.  This does not mean that a business must produce a profit; and inventor may do business at a loss, like any other businessman.  Nor does it mean that an individual may have only one trade or business: he may have several at the same time.  But Mr. Stanton's activities with respect to his boat in 1962 and 1963 did not entail the amount of time and effort that would make inventing his trade in those years.

21
Nor were Mr. Stanton's activities in prior years sufficient to alter the matter.  His efforts, spread over a period of 25 years, were irregular and sporadic.  His revenue was negligible.  Although inventiveness may have played a large part in his life and in his aspirations, inventing was not his trade.

22
The government's brief points out that, if Mr. Stanton's invention ever becomes marketable, he may decide to take his economic reward in the form of a sale of the rights in the boat (whether as a patent or otherwise) at capital gain rates.  This suggests at least one reason why Section 174 allows expenditures to be deducted only if they are incurred in connection with a going business.  Cf. Alphaco, Inc. v. Nelson, 7 Cir., 1967, 385 F.2d 244, 245; Spangler v. Commissioner of Internal Revenue, 9 Cir., 1963, 323 F.2d 913, 918; Munson v. McGinnes, 3 Cir., 1960, 283 F.2d 333, 337.

23
The taxpayers' real argument is with the policy adopted by Congress.  Their brief says, 'The law makers failed to contemplate the special problems of independent researchers in the profession of inventing for profit. * * *'  If the Tax Court ruling is sustained, it will be 'very discouraging to independent research and inventing.'  Both of these observations may be true; but, absent constitutional issues, it is the duty of the courts to apply the tax statutes in accordance with the words and intentions of Congress.  If there is to be a change in national tax policy designed to encourage inventors-for-profit by making their expenditures tax deductible whether or not they are engaged in a trade or business, this change must come from Congress.

24
Hence, we think that the Tax Court's determination was correct.  However, in order that this opinion may not be misunderstood, we mention also that we would be obliged to affirm the Tax Court's determination even if we thought the facts pointed to a different conclusion since it has substantial support in the record.

25
'The question of whether the taxpayer is engaged in a trade or business is one of fact, Higgins v. Sommissioner (of Internal Revenue), 312 U.S. 212, 61 S.Ct. 475, 85 L.Ed. 783 (1941), and the lower court's finding on this question will not be disturbed unless clearly erroneous.  Loco Realty Company v. Commissioner of Internal Revenue, 306 F.2d 207 (8th Cir. 1962).'  Mayrath v. Commissioner of Internal Revenue, 5 Cir., 1966, 357 F.2d 209, 212-213.

The decision of the Tax Court is therefore

26
Affirmed.

1
 The tax deficiency was $99.60 in 1960 and $1,154.82 in 1962

2
 E.g., New Colonial Ice Co. v. Helvering, 1934, 292 U.S. 435, 54 S.Ct. 788, 78 L.Ed. 1348; Edwards v. Phillips, 10 Cir., 1967, 373 F.2d 616; Smith v. Commissioner of Internal Revenue, 6 Cir., 1966, 370 F.2d 178.  It is not relevant here to inquire about the constitutional limitations, if any, on taxing gross income as if it were net income.  In this regard see, e.g., Green Lawn Memorial Park, Inc. v. McDonald, M.D.Pa., 1958, 164 F.Supp. 438, aff'd, 3 Cir., 1959, 262 F.2d 588; Safe Deposit & Trust Co. of Baltimore v. Magruder, D.Md., 1940, 34 F.Supp. 199, rev'd on other grounds, 4 Cir., 1941, 121 F.2d 981.  See also Commissioner of Internal Revenue v. Weisman, 1 Cir., 1952, 197 F.2d 221, 224-226 (Magruder, C.J., concurring); Sullenger v. Commissioner, 1948, 11 T.C. 1076

3
 E.g., Hart-Bartlett-Sturtevant Grain Co. v. Commissioner of Internal Revenue, 8 Cir., 1950, 182 F.2d 153; Dempster Mill Mfg. Co. v. Burnet, 1931, 60 App.D.C. 23, 46 F.2d 604
Under present law, 'research or experimental expenditures which are neither treated as expenses nor deferred and amortized * * * must be charged to capital account.'  Treas.Reg. 1.174-1.

4
 The definitions in Sections 1402(c), relating to net income derived from selfemployment, and in 7701(a)(26), relating to inclusion of public office holding as a trade or business, are not pertinent here


206 Ga. 348 (1950)
57 S.E.2d 199
MOULTRIE MILK SHED INC.
v.
CITY OF CAIRO et al.
16865.
Supreme Court of Georgia.
January 12, 1950.
*350 Edwin A. Carlisle, Bell & Baker, Gibson & DeLoache, and Sam J. Gardner Jr., for plaintiff.
George T. Smith, for defendants.
DUCKWORTH, Chief Justice.
(After stating the foregoing facts.) 1. The defendants in error contend that the present action is in essence an attempt to enjoin criminal prosecutions, and cite many decisions of this court in support of the statement that equity will not interfere with the administration of criminal law. In Great Atlantic & Pacific Tea Co. v. Columbus, 189 Ga. 458 (6 S. E. 2d, 320), and again in City of Albany v. Lippitt, 191 Ga. 756 (13 S. E. 2d, 807), we undertook to put at rest all uncertainty as to the circumstances under which equity would enjoin a criminal prosecution. It was there pointed out that an exception to the general rule is when injury to property is *351 threatened, and when this is true, injunction will lie notwithstanding the fact that in the process a criminal prosecution is enjoined. The facts in the present case bring it squarely within that exception. It is alleged and admitted that the defendants threatened prosecution of all employees and agents of the petitioner for each and every sale or delivery of milk made within the city. There was also an allegation that, because of this expressed intention, the petitioner is unable to secure the necessary employees for the operation of its business. A plainer case of injury to property could hardly be shown.
There was much evidence touching on the question of profits resulting from the petitioner's business in Cairo. Counsel for the defendants in error contends that the judge was authorized to find that no profits were being realized. The threats of destruction of the petitioner's entire business render inapplicable the rule requiring proof of loss of profits, as stated in Fleisher v. Duncan, 195 Ga. 309 (24 S. E. 2d, 15), and Wallace v. Atlanta, 200 Ga. 749 (38 S. E. 2d, 596). Hence, we are not primarily concerned here with the size of the petitioner's profits, but we are concerned with the right of the petitioner to freely engage in a lawful business irrespective of profits.
It is also contended by the defendants in error that certiorari is the sole available remedy, and for that reason the petitioner was not entitled to equitable relief. In support of this contention the cases of Calhoun, ex rel. Chapman v. Gulf Oil Corp., 189 Ga. 414 (5 S. E. 2d, 902), and Ballard v. Carrollton, 194 Ga. 489 (22 S. E. 2d, 81), are cited. As to the specific matters embraced in cases that are being reviewed by certiorari, the position of counsel is sound; but as to the injuries subsequent thereto resulting from the acts or threatened acts of the defendants, the petitioner is entitled to relief in equity. Fairview Cemetery Co. v. Wood, 164 Ga. 85 (137 S. E. 761). We therefore hold that a proper case for equitable relief is shown, provided it be held that the ordinance in question is void.
2. It may be reasonably questioned whether or not the City of Cairo under its charter has authority to adopt by reference a document not immediately before the council as a valid ordinance, as was done here with respect to an ordinance of which the ordinance here in question is by express terms an amendment. *352 But in the view we take of the case a decision on the validity of the substance of the ordinance in question will be decisive. Since it is more important that the latter question be settled than the former, which is merely one of procedure, we assume for the purpose of this decision that the adoption procedure was valid, and proceed at once to a decision on the validity of its substance.
The city is given express authority by its charter to adopt ordinances to protect the public health. This authority enjoins upon the city a duty to adopt such ordinances. To be effective and accomplish its purpose, an ordinance to protect against contaminated food must prevent its sale and consumption. It is too late after the consumer has become a victim of contaminated food to protect him. Prosecutions and penalties for the sale of such food are inadequate to protect the victimized consumer.
On the other hand, human dignity and individual freedom demand that one engaged in a lawful business injurious to no one must not be arbitrarily prevented from the legitimate prosecution of his business by city ordinances which set up trade barriers solely for the purpose of protecting a resident against proper competition. If free enterprise is to mean more than mere words, it must not become the victim of arbitrary and discriminatory legislation.
We have presented above a brief glimpse of the tremendous importance of the question this court is called upon to decide. Where shall the line marking the limit to which legislation to protect the public health may encroach upon freedom of the individual to engage in competitive and legitimate business be drawn? Our decision here will constitute a precedent; a yardstick by which future similar questions must be decided. If this city is held by this court to be justified in restricting the trade in milk as is here done, it would constitute a precedent requiring a holding by this court tomorrow that all other cities could lawfully, upon the theory of protecting the public health, exclude foods such as syrup and pickles produced in Cairo from the markets in other cities unless they were processed in a plant situated within the county in which such cities are located. The most destructive enemy to free enterprise and individual liberty comes dressed in attractive garments, and is covered with a sugar *353 coating in order that the victim will accept it unaware of its future destruction of his own freedom.
Similar ordinances have been held void in the following cases: La Franchi v. Santa Rosa, 8 Cal. 2d, 331 (65 Pac. 2d, 1301, 110 A. L. R. 639); State ex rel. Larsen v. Minneapolis, 190 Minn. 138 (251 N. W. 121); Sheffield Farms Co. v. Seaman 114 N. J. L. 455 (177 Atl. 373); Prescott v. Borger (Tex. Civ. App.), 158 S. W. 2d, 578. On the other hand, in principle, such an ordinance was upheld in Adams v. Milwaukee, 144 Wis. 371 (129 N. W. 518).
Our own court in Wright v. Richmond County Dept. of Health, 182 Ga. 651 (186 S. E. 815), upheld an ordinance prohibiting the sale of ice cream manufactured beyond a radius of 60 miles, upon the theory that it was a milk product, was human food, and was easily contaminated. We think that decision is distinguishable from the present case on its facts. It does not appear that the process referred to purported in any manner to purify the food and to free it from contamination, while here the process referred to is for the sole purpose of removing bacterial impurities from the milk. There, it did not appear that any tests beyond that of mere casual inspection were employed to discover impurities. Here, the tests are made by State officials, and are precisely the same irrespective of what inspector takes the sample, or the location of the milk when the sample is taken. Because of this difference in facts, that decision is no authority for upholding the ordinance here assailed.
The fact that the pasteurizing plant of the petitioner is located outside of Grady County has no reasonable relation to the matter of protecting the public health which would justify a classification of the petitioner different from that given another whose pasteurizing plant is located in Grady County. No valid basis for a different classification and discrimination between them as made by the ordinance exists, and there is a denial of equal protection which is guaranteed by both the State and Federal Constitutions.
In view of the evidence showing that the requirements of the ordinance would in no wise afford protection to the health of consumers, and the fact that the location of the pasteurizing plant has nothing whatever to do with the purity of milk, it is *354 unreasonable to require this petitioner to locate a plant within the County of Grady in order to be permitted to sell milk to the residents of the City of Cairo. It is commendable in a community to support local enterprise, but this must be done in free and open competition without aid from arbitrary and discriminatory legislation.
The ordinance is void for the reasons stated above, and the court erred in denying the interlocutory injunction. This ruling makes it unnecessary to rule upon the exceptions to the disallowance of evidence offered by the petitioner.
Judgment reversed. All the Justices concur.


96 F.3d 1442
Kelleyv.Handorf**
NO. 96-40025
United States Court of Appeals,Fifth Circuit.
Aug 20, 1996
Appeal From:  E.D.Tex., No. 6:93-CV-250

1
AFFIRMED.

**
 Conference Calendar


                            UNPUBLISHED

                   UNITED STATES COURT OF APPEALS
                       FOR THE FOURTH CIRCUIT

                            No. 98-2094

USMV RIGHTS OF MAN, Thales Biddle Davidson,
Master,

                                            Plaintiff - Appellant,

          and

PETER M. DAVIDSON, Mate; JOHN D. WILLARD, the
Vessel’s Owners; ALBERT B. HOUSE; ANDREW J.
KAELIN,

                                                      Plaintiffs,

          versus

CITY OF ANNAPOLIS,

                                             Defendant - Appellee,

          and

EDWARD C. HARTMAN, II; CHESAPEAKE CHARTERS;
PORT OF ANNAPOLIS; THE STATE OF MARYLAND;
CHESAPEAKE   MARINE    TOURS   AND   CHARTERS;
ANNAPOLIS BOAT SHOWS, INCORPORATED; THE BALTI-
MORE SUN; CAPITAL GAZETTE COMMUNICATIONS, IN-
CORPORATED; PAUL GOETZKE; JOHN C. PATMORE;
EILEEN FOGARTY; RUSSELL MORGAN; TERESA DE
GRAFF; WAYNE TURNER; SHEPARD TULLIER; LOUISE
HAMMOND; EMORY HARRISON; F. WILLIAM SIELING,
III; MARYLAND WATERMEN'S ASSOCIATION,

                                                      Defendants.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. Joseph H. Young, Senior District Judge.
(CA-97-3354-Y)

Submitted:   April 30, 1999                 Decided:   May 25, 1999

Before WILKINS and MOTZ, Circuit Judges, and HALL, Senior Circuit
Judge.

Dismissed by unpublished per curiam opinion.

Thales Biddle Davidson, Appellant Pro Se.

Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).

                                2
PER CURIAM:

     Appellant filed an untimely notice of appeal.    We dismiss for

lack of jurisdiction.    The time periods for filing notices of

appeal are governed by Fed. R. App. P. 4.    These periods are “man-

datory and jurisdictional.”   Browder v. Director, Dep’t of Correc-

tions, 434 U.S. 257, 264 (1978) (quoting United States v. Robinson,

361 U.S. 220, 229 (1960)).    Parties to civil actions have thirty

days within which to file in the district court notices of appeal

from judgments or final orders.   Fed. R. App. P. 4(a)(1).    The only

exceptions to the appeal period are when the district court extends

the time to appeal under Fed. R. App. P. 4(a)(5) or reopens the

appeal period under Fed. R. App. P. 4(a)(6).

     The district court entered its order on May 20, 1998; Appel-

lant’s notice of appeal was filed on July 20, 1998, which is beyond

the thirty-day appeal period. Appellant’s failure to note a timely

appeal or obtain an extension of the appeal period leaves this

court without jurisdiction to consider the merits of Appellant’s

appeal.   We therefore dismiss the appeal.    We dispense with oral

argument because the facts and legal contentions are adequately

presented in the materials before the court and argument would not

aid the decisional process.

                                                             DISMISSED

                                  3