U.S. Court of Appeals for the Fifth Circuit, Universal Truckload, Inc., v. Dalton Logistics, Inc., Docket No. 17-20725

Equitable Subrogation

Subrogation

Equity

Contract Law

Unjust Enrichment

Texas Law

Universal Truckload argues that it should have prevailed on its theory of equitable subrogation because it has non-voluntarily paid a debt—payment to subcontractors—that H&P was “primarily liable for” and that “in equity” H&P should have paid. “Equitable subrogation is the legal fiction through which a person or entity, the subrogee, is substituted, or subrogated, to the rights and remedies of another by virtue of having fulfilled an obligation for which [another] was responsible.” Gen. Star Indem. Co. v. Vesta Fire Ins., 173 F.3d 946, 949 (5th Cir. 1999). It applies when “one person, not acting voluntarily, has paid a debt for which another was primarily liable and which in equity should have been paid by the latter.” Frymire Eng’g Co. v. Jomar Int’l, Ltd., 259 S.W.3d 140, 142 (Tex. 2008) (quoting Mid-Continent Ins. v. Liberty Mut. Ins., 236 S.W.3d 765, 774 (Tex. 2007)).

In Frymire, a subcontractor installed a faulty valve that caused damage to a property when a water line ruptured. Id. The subcontractor’s insurance company paid for it, but then sued the valve manufacturer to recover this cost. Id. The valve manufacturer was liable because the damage was caused by the valve manufacturer’s error through no fault of the subcontractor and therefore “in equity should have been paid by” the manufacturer. Id.

Here, Universal Truckload, on its own initiative, entered into a contract with third-party motor carriers to move a portion of H&P’s freight. The contract specifically provided that the motor carriers would be paid by Universal Truckload. Unlike in Frymire, where the subcontractor was supplied with a faulty valve, no error of another party created Universal Truckload’s obligation to the subcontractor. Universal Truckload created its own, independent contractual obligation to pay the subcontractor. And, as the district court noted: “Universal [Truckload] specifically conditioned its contract with the motor carriers seeking payment exclusively from Universal Truckload. Payment under such circumstances cannot be characterized as involuntary.”

(U.S. Court of Appeals for the Fifth Circuit, January 3, 2020, Universal Truckload, Inc., v. Dalton Logistics, Inc., Docket No. 17-20725)