No liquidated damages for payment default

The plaintiff in International Marine LLC v. FDT proved 33 breaches of the noncompete provisions of a contract related to the chartering of tugboats.  The district court and Fifth Circuit agreed that a liquidated damages clause applied to the last several breaches. As to the first five, however, the Court reasoned that the clause “would impose an unreasonable penalty, because due to the parties’ conduct, we know the extent of damages [Plaintiff] suffered from each of these breaches.”  It noted: “For over a century, courts have refused to award liquidated damages for contractual breaches solely involving default on payment obligations.” No. 14-31192 (Aug. 10, 2015, unpublished).

“Related to” and arbitration

Vocada sued Nuance for securities fraud.  They had a merger agreement in which they agreed to arbitrate “any . . . dispute relating to the Earnout Consideration.”  The Fifth Circuit found that this claim had to be arbitrated, noting: “Although the arbitration clause as a whole is narrow, the ‘relates to’ language is broad.  The clause does not require that the remedy sought in arbitration be the earnout consideration or that the claim relate to how the earnout consideration is calculated or distributed.”  Accordingly, “this securities fraud ‘dispute’ is arbitrable because it ‘relates to’ the representations that Nuance made about how to achieve the Earnout Consideration.”  Murchison Capital Partners, L.P. v. Nuance Communications, Inc., No. 14-1819 (Aug. 11, 2015).

Bankruptcy schedule = judicial estoppel of FCA claim

Johnny Long, a former bankruptcy debtor, sought to bring FCA claims against his former employer.  The defendant successfully obtained dismissal on the ground of judicial estoppel  because the claim was not listed on Long’s bankruptcy schedules.  After reminding that judicial estoppel, as a flexible and equitable doctrine, does not automatically compel dismissal in such a situation, the Fifth Circuit affirmed.  The elements are that “(1) the party against whom judicial estoppel is sought has asserted a legal position which is plainly inconsistent with a prior position, (2) a court accepted the prior position, and (3) the party did not act inadvertently.”  The specific issue was the third element, and whether Long had a motivation to conceal.  The Court noted three advantageous features the payment terms in Long’s Chapter 13 plan, which disclosure could have endangered — and further noted that after judicial estoppel was raised, Long sought to reopen his case so “he may pay interest to his creditors” if he recovered on his FCA claim.  United States ex rel Long v. GSD&M Idea City, LLC, No. 14-10999 (Aug. 13, 2015).

How not to prove agency

agent-matrixIn resolving a personal jurisdiction issue that turned on a party’s agency, the Fifth Circuit observed:

  • While a statement by a purported agent may not be hearsay, it is not admissible to establish “the existence or scope” of agency; and
  • Correspondence that was not specifically directed to the plaintiffs does not establish agency by estoppel.

Sealed Appellant v. Sealed Appellee, No. 14-20204 (Aug. 17, 2015, unpublished).


ERISA allows many removals, but not this one

A medical group sued a payor for underpayments.  The payor removed under ERISA complete preemption, contending that “about 98% of [Plaintiff’s] claims are claims for ERISA plan benefits.”  The district court kept the case and entered judgment for the payor; the Fifth Circuit reversed: “a claim that implicates the rate of payment as set out in the Provider Agreement, rather than the right to payment under the terms of the benefit plan, does not run afoul of [Aetna Health, Inc. v. Davila, 542 U.S. 200 (2004)] and is not preempted by ERISA.”  Kelsey-Seybold Medical Group v. Great-West Healthcare of Texas, No. 14-20506 (Aug. 10, 2015, unpublished).

Personal jurisdiction over Hong Kong business

HongKongFlagImage1A company sued a Hong Kong business in Texas for unpaid consulting fees.  The Fifth Circuit reversed the dismissal of the business for lack of personal jurisdiction, finding that “the nature of the relationship” between it and the plaintiff, as well as both parties’ “joint connection” to a transaction involving BP’s Houston office, made it “foreseeable that the hub of [plaintiff’s] consulting activity would be in Texas.”  It also found no “unique” burden on the business of having to litigate in the U.S.  The Court affirmed the dismissal of an in-state defendant (and thus the removal of the case based on diversity/improper joinder) for failure to state a contract, quantum meruit, or fraud claim against him. International Energy Ventures Management, LLC v. United Energy Group, Ltd., No. 14-20552 (Aug. 21, 2015).

Don’t dismiss sua sponte

75thrngrgt-suasponteIn Century Surety Co. v. Blevins, the district court dismissed two causes of action related to handling of insurance claims, and then sua sponte dismissed three other related causes of action — breach of contract, estoppel, and vicarious liability.  The Fifth Circuit reversed, reminding: “While the district court has great discretion in how it manages its cases, in the Fifth Circuit litigants must — with certain exceptions – be given notice and an opportunity to respond before a district court dismisses claims sua sponte.”  No. 14-31131 (Aug. 18, 2015).

No Pox on Blake Box

mexicanflagIn the case’s second trip to the Fifth Circuit, the Court considered whether – after an earlier remand for “limited discovery” on jurisdictional facts related to the contract-making authority of the Mexican consulate – the district court erred by reconsidering its earlier substantive ruling about the basis for subject matter jurisdiction.  Blake Box v. Dallas Mexican Consultate General, Nos. 14-10744 & 14-10954 (Aug. 19, 2015, unpublished).

Reviewing both the law-of-the case doctrine and the “mandate rule,” the Court found error and reversed: “[W]hether the Consulate [o]fficials had authority from the Mexican government to form a joint venture is a separate question from whether they exercised that authority in their dealings with [plaintiff].  Simply put, here, the first question was answered by the district court on remand in Box I and the second question was defaulted by the Consulate” when it failed to answer after service.  Accordingly, a $3 million default judgment was reinstated.  Congratulations to my LTPC colleagues Jason Dennis and Sam Hardy on this win!

Illegal, but admissible?

pharmacy_logo_for_webThe issue in Kovaly v. Wal-Mart was whether a pharmacist was negligent in not providing a 72-hour emergency supply of a patient’s medicine, despite some confusion about the quantity in the prescription issued by the patient’s physician.  No. 14-20697 (Aug. 12, 2015, unpublished).  The district court found that Brooke, the plaintiff’s expert, was well-qualified by experience and training to testify about the standard of care.  The district court went on to hold, however, that “nothing in the regulations definitively authorizes a pharmacist to provide a 72-hour emergency supply for an original prescription, and it concluded that doing so would actually violate Texas law,” and thus excluded his opinions as unreliable.  The Fifth Circuit reversed, concluding: “Even if Brooke’s opinion that the pharmacist legally could have filled the emergency supply is an incorrect interpretation of Texas law, that does not render it unreliable in light of his qualifications, experience, and foundation for the opinion.”  In support, the Court cites several cases about the ultimate “correctness” of an expert’s factual conclusion.

The building blocks of pleading SOX

bricks blocksWallace sued Tesoro Corporation for retaliation, alleging he was fired for activity protected by the Sarbanes-Oxley Act.  he district court dismissed.  The Fifth Circuit affirmed in part, finding that Wallace had not exhausted his administrative remedies as to his claims about Tesoro that he did not present to OSHA.  Wallace v. Tesoro Corp., No. 13-51010 (July 31, 2015).  The Court reversed as to other claims dismissed on the pleadings, holding:

  • As to the objective reasonableness of Wallace’s belief about an accounting practice — “The basis for that belief in this case, including the level and role of Wallace’s accounting expertise and how that should weigh against him, are grounded in factual disputes that cannot be resolved at this stage of the case.”
  • As for Wallace’s reasonable belief that a fraud was occurring, Rule 9(b) is not implicated because “an employee who is providing information about potential fraud or assisting in a nascent fraud investigation might not know who is making the false representations or what that person is obtaining by the fraud; indeed, that may be the point of the investigation.”
  • Wallace adequate pleaded the basis for his reasonable belief that Tesoro was not making proper SEC disclosures, and that Tesoro acted with the requisite mental state (primarily by detailing the steps he took to inform Tesoro management).  The opinion provides more detail about the specific allegations made by Wallace.

Put in the good word for 600Camp

abajournal_weblogo_2015The ABA Journal sponsors a “Blawg 100″ list that recognizes legal blogs. Unlike the various top lawyer lists, the ABA encourages campaigning: (“Bloggers, by all means tell your readers about Blawg 100 Amici and invite them to send us messages on behalf of your blog.”) So if you enjoy 600Camp (or its sister blog, 600 Commerce about the Dallas Court of Appeals), please click here and fill out the ABA’s short form.  Shouldn’t take but a minute, and much appreciated.

Mooting a Class Action With a Rule 68 Offer – 5th Enters Circuit Split

accept-refuseHooks sued Landmark Industries, the operator of an ATM, as the representative of a putative class alleging that Landmark failed to give proper notices under the Electronic Funds Transfer Act about withdrawal fees.  Hooks v. Landmark Industries, Inc., No. 14-20496 (Aug. 12, 2015).  Pursuant to Fed. R. Civ. P. 68, Landmark offered $1,000 (the maximum allowable statutory damages) and costs and fees “through the date of acceptance of the offer, as agreed by the parties, or to be determined by the court if agreement cannot be reached.”  Hooks did not accept it, and the district court dismissed, finding the action mooted by the unaccepted Rule 68 offer.

Sidestepping the thorny question of whether this offer was “complete” under Rule 68, the Fifth Circuit  reversed.  It reasoned: “[i]t is hornbook law that the rejection of an offer nullifies the offer,” and expressed concern that “[a] contrary ruling would serve to allow defendants to unilaterally moot named-plaintiffs’ claims in the class action context — even though the plaintiff, having turned the offer down, would receiver no actual relief.  This holding places the Fifth Circuit in the minority of a 6-3 circuit split on the issue of whether an unaccepted offer of judgment can moot a named plaintiff’s claim in a putative class action.

No repose from the FDIC

fallenwarriorThe Texas Securities Act has a five-year statute of repose.  The issue in FDIC v. RBS Securities was whether that statute was preempted by a 3-year “extender” provision in FIRREA, which “works by hooking any claims that are alive at the time of the FDIC’s appointment as receiver and pulling them forward to a new, federal, minimum limitations period — six years for contract claims, three years for tort claims.”  No. 14-51055 (Aug. 10, 2015).

The Fifth Circuit concluded that the Texas statute of repose was preempted, and reversed a judgment on the pleadings in a securities fraud suit arising out of the failure of Guaranty Bank, holding: “The text, structure, and purpose of the FDIC Extender Statute all evince a Congressional intent to grant the FDIC a three-year grace period after its appointment as receiver to investigate potential claims. Therefore, the statute displaces any limitations period that would interfere with that reprieve — whether characterized as a statute of limitations or as a statute of repose.”   The Court distinguished the analysis of a CERCLA limitations provision in CTS Corp. v. Waldburger, 134 S. Ct. 2175 (2014), finding that “many of the considerations that the [Supreme] Court found disfavored preemption in CTS suggest preemption when applied to the FDIC Extender Statute.”

Evidentiary standard key to disciplinary proceeding

The Eastern District of Texas suspended attorney Robert Booker for three years.  While a magistrate issued a report, which was reviewed and adopted unanimously by the Eastern District Judges, the Fifth Circuit held: “[W]e cannot discern from the record whether the district court specifically found that Booker acted in bad faith under the clear and convincing evidence standard.”  Accordingly, the Court remanded for the district court to “specify whether it finds that Booker has committed any ethics violation based on clear and convincing evidence and whether Booker acted in bad faith in committing any such violations.”  In re: Booker, No. 14-41194 (Aug. 3, 2015, unpublished).

Lemurs and zebras and deer, oh my.

zooThe Department of Agriculture fined Bodie Knapp (d/b/a “The Wild Side”) $395,000 for violations of regulations about the purchase and sale of exotic animals.  The Fifth Circuit largely affirmed, reviewing several basic concepts of administrative law in the process:

  • A clear regulation about a regulatory exemption trumps an arguably inconsistent summary of the regulation in an agency publication.
  • Even in an environment of considerable deference, an agency ALJ must provide enough explanation so the appellate court can “reasonably discern the reason” for his ruling.  Accordingly, the Court remanded for further findings as to whether “aoudad, alpaca, and miniature donkeys are ‘animals’ . . . and not ‘farm animals,'” and about the purchasers’ intentions to display “one alpaca, one auodad, two zebras, one wildebeest, two addax, seven buffalo, three nilgai, four chinchilla and one axis deer.”  (No partridge in a pear tree was involved in the case.)
  • It is a “heavy burden” to prove estoppel from statements made by an agency employee, and proof of a misrepresentation is only one element of that defense.
  • A sale of two lemurs (as opposed to a donation) can be proven with evidence of the receipt of two zebras shortly after the delivery of the lemurs.

The opinion also affirmed on several challenges to the penalties, finding the agency’s position to not be unreasonable.  Knapp v. U.S. Dep’t of Agriculture, No. 14-60002 (July 31, 2015).