Do not violate injunctions.

stopsignThe preliminary injunction said: “Plaintiffs may contact former and current . . . employees . . . of the Debtor if and only if a written request is made by Plaintiffs’ counsel to counsel for SkyPort, and counsel for SkyPort either a) agrees to the proposed contact or b) does not respond within 1 business day,” and: “Plaintiffs are temporarily enjoined from: pursuing any and all claims or causes of action, derivative or direct, against all of the Defendants.”

Nevertheless, the trial court found that Plaintiffs’ counsel and Plaintiffs’ financial advisor “continued to pursue evidence and witnesses―namely Cole [Skyport’s former president]. They encouraged Cole to pursue her own claims . . . in other courts by arranging for her counsel, providing for a “loan” for her counsel’s retainer, and pursuing financial support for the state court litigation.”

The Fifth Circuit affirmed a substantial award of sanctions, reflecting the attorneys fees incurred to rectify the situation. The Court rejected defenses based on whether (1) the award was civil or criminal in nature, (2) fees alone could be the basis of the sanction awarded, (3) the injunction no longer was in effect, (4) the alleged violations were inadvertent, and (5) the individuals sanctioned were not subject to the order. Goldman v. Bankton Fin. Corp., No. 15-2-243 (Oct. 12, 2016, unpublished).

No, your “computer fraud” policy does not cover that.

hacker-images-03Apache Corporation had an insurance policy for computer fraud, which said: “We will pay for loss of, and loss from damage to, money, securities and other property resulting directly from the use of any computer to fraudulently cause a transfer of that property from inside the premises or banking premises: (a) to a person (other than a messenger) outside those premises; or (b) to a place outside those premises.” (emphasis added) The Fifth Circuit, after a “detailed — albeit numbing — analysis of the cited authorities,” concluded that the weight of the case law did not create coverage under this policy for the following events:

  1. Apache received a call from a vendor (actually, a criminal posing as the vendor) asking that Apache change its payments to a new bank account.
  2. Apache asked for a formal request on the vendor’s letterhead; one arrived about a week later by email with an attachment on letterhead (from a domain used by the criminals to further pose as the vendor);
  3. Apache called the number on the letterhead to verify the request, and after thinking it had confirmed the authenticity of the request, began sending payments to a new bank account.

While computer use obviously played a role in the deception, the Court noted: “To interpret the computer-fraud provision as reaching any fraudulent scheme in which an email communication was part of the process would . . . convert the computer-fraud provision to one for general fraud.” Apache Corp. v. Great Am. Ins. Co., No. 15-20499 (Oct. 18, 2016, unpublished).

Refinery ownership not inherently undiscoverable

refinerypicThe parties in AIG Specialty Ins. Co. v. Tesoro Corp. disputed whether limitations had run on an insurance coverage claim involving the identity of the named insured (and in turn, whether that entity owned a refinery subject to difficult environmental remediation orders). As a matter of contract law, the Court agreed that mere receipt of an insurance policy does not necessarily bar a reformation claim. But under Texas limitations principles, the insured could not establish that the insurer had “specialized knowledge” about the subject of refinery ownership, or that the mistake in the policy was inherently undiscoverable — especially then “the mistake is evident from the face of the document.” No. 15-50953 (Oct. 17, 2016).

Be careful what you wish for . . .

carefulwishThe Romans sued Ford Motor Co. and a Houston AutoNation dealer. The dealer moved to compel arbitration; the district court denied the motion; and the dealer appealed. Unfortunately, the Fifth Circuit was “not satisfied, based on the record before it, that [the dealer] does not share citizenship with the Romans.” Reminding that the Federal Arbitration Act is not an independent basis for federal jurisdiction, the Court vacated the district court’s order and remanded for determination of subject matter jurisdiction — with instructions to dismiss if diversity was not established. Roman v. AutoNation Ford Gulf Freeway, No. 16-20047 (Oct. 13, 2016, unpublished).

How to avoid liability for alleged misrepresentations

vioxxThe plaintiff in Isner v. Seeger Weiss LLP alleged that counsel misrepresented the compensation that she would receive under a large Vioxx settlement. The defendants won; two features of the master settlement agreement were particularly important. First, it said that claimants would receive a payment under  “criteria to be determined by the Claim Administrator” and “according to guidelines to be established by the Claims
Administrator” — thus, “the method of calculation was . . . specifically reserved for

Rare bird – interlocutory discovery appeal

pidgeotInterlocutory appeal of discovery issues is largely foreclosed under the restrictive view of the “collateral order” doctrine adopted by Mohawk Industries v. Carpenter, 130 S. Ct. 599 (2009). Another, rarely-traveled path appears in Cazorla v. Koch Foods of Miss., in which the district court and Fifth Circuit agreed that an interlocutory appeal under 28 U.S.C. § 1292(b) of a difficult discovery issue TexasBarToday_TopTen_Badge_VectorGraphicinvolving parallel private employment litigation and immigration proceedings. The specific issue address is important but narrow; the procedural holding is notable for how unusual and important a discovery issue must be to come within the ambit of the interlocutory appeal statute. No. 15-60562 (Sept. 27, 2016).

Ja, ich habe ein Forum Klausel.

waving german flagIn April 2014, Burger King Europe sued on a guaranty to recover allegedly unpaid franchise fees (the “Personal Guarantee Litigation”). In September 2014, that guarantor and the franchise owners sued Burger King Europe for tortious interference and a declaratory judgment (the “Franchise Agreement Litigation”). Burger King asserted the defense of forum non conveniens, in favor of Germany, as specified in the parties’ agreement. Acknowledging some confusion about the applicable legal standard for waiver, the Fifth Circuit agreed with the district court that the filing of the Personal Guarantee Litigation did not waive Burger King’s ability to assert forum non conveniens in the later case against it. That said, the Court found an abuse of discretion in denying the plaintiffs’ leave to amend to add new defendants and new tort claims, noting that the motion was timely and not obviously moot. SGIC Strategic Global Investment Capital, Inc. v. Burger King Europe GMBH, No. 15-10943 (Oct. 10, 2016).

Construction trust fun

trust fundIn Monaco v. TAG Investments, the parties disputed the dischargeability of a $171,942.03 debt, based on the alleged misapplication of funds subject to Texas’s powerful Construction Trust Fund Act. The Fifth Circuit focused on a defense provided by that statute, which applies when “the trust funds not paid to the beneficiaries of the trust were used by the trustee to pay the trustee’s actual expenses directly related to the construction or repair of the improvement.” The Court accepted the explanation that “$124,053 went to salaries and overhead and an additional $50,400.00 went to superivision of this project,” noting that “payment of these sums as reasonable was approved by TAG’s architect.” Accordingly, the defense applied and the debt was dischargeable. No. 15-51085 (Oct. 6, 2016).

How not to do a differential diagnosis

diagnosis-memeThe plaintiffs in Sims v. Kia Motors brought products liability claims about the design of a fuel tank. Their main engineering expert “employed a ‘differential diagnosis approach, a scientific technique that essentially involves the process of elimination.” While a potentially reliable technique, the Fifth Circuit noted that it “has cautioned that “the results of a differential diagnosis are far from reliable per se..’ . . . “[M]erely “ruling out” other possible explanations is not enough to establish reliability; experts must also have some scientific basis for ‘ruling in’ the phenomenon they allege.” Here, where “the record does not reflect any reliable facts or data ‘ruling in'” the expert’s theory about how the fuel tank behaved in the accident, “the district court did not abuse its discretion in excluding it.” No. 15-10636 (Oct. 5, 2016).

No confidentiality, but no damages.

sothebys-sale-of-the-red-rothko-via-wall-street-journalHoffman v. L&M Arts arose from the sale of a 1961 Rothko painting (right) by Sotheby’s in 2010; a previous owner alleged that this sale revealed facts about her own sale, in violation of a confidentiality provision in the sales contract that said: “All parties agree to make maximum efforts to keep all aspects of this transaction confidential indefinitely.” The Fifth Circuit ruled for the defense in all respects, concluding that:

  • The original owner did not state a fraud claim against the relevant gallery, based on its alleged misrepresentation of its authority to act on behalf of an unnamed buyer, or its alleged misrepresentation about representing an entity or individual.  (Notably, the owner did not argue in the district court that equitable relief could still be appropriate without proof of damage), or its claim that the piece would “disappear” into its client’s private collection.
  • The contract did not require secrecy about the fact of the sale, based on the plain meaning of the term “aspect,” other provisions in the agreement, and the Texas policy against restraints on alienability.
  • The questions about damages associated with the alleged breach either reflected speculative bargains, incorrect damages measures, or a disgorgement theory that is not well-supported as a Texas contract remedy.

No. 15-10046 (Sept. 28, 2016).

Never mind – class IS allowed about alleged pyramid scheme

pyramidIn Torres v. S.G.E. Management LLC, the en banc Fifth Circuit reversed a panel opinion about a class action involving an alleged pyramid scheme. The case alleged RICO claims about the multi-level marketing program associated with Stream Energy; the panel rejected class certification, finding that individual causation issues would predominate at trial.

The en banc court disagreed, reasoning: “The Defendants’ challenge to predominance rests on their belief that th[e] causation element will require individualized proof. But that premise . . . is at odds with recent decisions from the Supreme Court and this court emphasizing that RICO claims predicated on mail and wire fraud do not require first-party reliance to establish that the injuries were proximately caused by the fraud.” Accordingly, “[b]ecause pyramid schemes are per se mail fraud, which include inherent concealment about the deceptive payment scheme, one who participates in a pyramid scheme can be harmed ‘by reason of’ the fraud regardless of whether he or she relied on a misrepresentation about the scheme.” Additionally, the Court concluded that “if the Plaintiffs prove that Ignite is a fraudulent pyramid scheme, they may use a common inference of reliance to prove proximate causation under RICO.”

This is a significant ruling from a court that is generally considered hostile to class actions, in an area of the economy – multi-level marketing programs – that involves millions of participants. No. 14-20129 (Sept. 30, 2016) (en banc).


How an insurer can show prejudice

insurancepolicyThe unfortuante Noreen Johnson sought to recover from her insurer after her home suffered wind damage from Hurricane Isaac, and then caught fire roughly two years later. The insurer successfully defended against her claim based on her failure to cooperate as required by the policy. In addition to showing her failure to provide required information, the insurer was able to establish prejudice, in that (1) “by significantly altering the state of the house before GeoVera’s agent could appraise it, Johnson effectively negated GeoVera’s appraisal right, as GeoVera could no longer inspect the extent of the smoke damage,” and (2) “by refusing to sit for an examination under oath until over a year after the fire . . . [t]he delay caused Johnson to forget information vital to protect GeoVera from fraud during the claims process.” Johnson v. GeoVera Specialty Ins. Co., No. 15-30803 (Sept. 27, 2016, unpublished).

ERISA and prudent pleading

dear_prudence_-_the_beatles_sheet_musicERISA litigation about investment management presents a tension between the administrators’ fiduciary obligations, on the one hand, and discouraging needless litigation, on the other. After the Supreme Court’s most recent guidance about an ERISA fiduciary’s “duty of prudence” in Amgen Inc. v. Harris, 136 S. Ct. 758 (2016), the Fifth Circuit found that the plaintiffs in Whitley v. BP. PLC failed to meet their pleading burden: “The amended complaint states that BP’s stock was overvalued prior to the Deepwater Horizon explosion due to “numerous undisclosed safety breaches” known only to insiders. In other words, the stockholders theorize that BP stock was overpriced because BP had a greater risk exposure to potential accidents than was known to the market. Based on this fact alone, it does not seem reasonable to say that a prudent fiduciary at that time could not have concluded that (1) disclosure of such information to the public or (2) freezing trades of BP stock—both of which would likely lower the stock price—would do more harm than good. In fact, it seems that a prudent fiduciary could very easily conclude that such actions would do more harm than good.” No. 15-20282 (Sept. 26, 2016).

A well-tried case

perry-masonThe plaintiff in Cowart v. Erwin achieved the difficult result of winning a jury trial on an Eighth Amendment claim against a detention officer. The opinion details the proof that satisfied a sufficiency review — multiple favorable eyewitnesses (and multiple unfavorable ones as well) throughout the entire incident in question, along with helpful and contemporaneous photographs and medical records (among others). “Objective” video evidence was not dispositive when it “is not necessarily inconsistent with eye witness accounts of what transpired at the jail on the day in question.”  No. 15-10404 (Sept. 20, 2016).

No harm, no reversal.

what-me-worryGraves v. Colvin provides an exceptionally clear illustration of harmless error:

  1. Graves challenged the Social Security Administration’s determination that she was not disabled.
  2. A regulation governing ALJ hearings on such matters provides: “Occupational evidence provided by a VE or VS [vocational expert or vocational specialist] generally should be consistent with the occupational information supplied by the DOT [“Dictionary of Occupational Titles”] . . . At the hearings level, as part of the adjudicator’s duty to fully develop the record, the adjudicator will inquire, on the record, as to whether or not there is such consistency.”
  3. Graves lost, and argued in court that the ALJ failed to ask this required question.
  4. But — “‘Procedural perfection in administrative proceedings is not required’ as long as ‘the substantial rights of a party have not been affected.’ Graves does not even attempt to show that the vocational expert’s testimony was actually inconsistent with the DOT. Nor has she otherwise demonstrated prejudice. Hence, the ALJ’s procedural error was harmless and does not warrant reversal.”

No. 16-10340 (Sept. 21, 2016).

Twombly, Insurance Coverage, and The Odyssey

scylla-and-charybdisInsurance coverage litigation provided another example of the tension between the “Scylla” of pleading — the “plead more detail” command from Twombly and Iqbal — and its “Charybids” — the principle of insurance law that “[a]ll doubts regarding the duty to defend are resolved in favor of the insured.” Fed Ins. Co. v. Northfield Ins. Co., No. 14-20633 (Sept. 16, 2016). Here, ltigation about pollution liability led to a dispute about whether a “pollution exclusion” eliminated the duty to defend. The Fifth Circuit reversed a summary judgment in favor of the insurer, noting: “ExxonMobil’s petition does not attach any of the petitions in the Louisiana Litigation. ExxonMobil’s petition provides very little information about the nature of the claims made in the Louisiana Litigation, for which ExxonMobil seeks indemnity and defense costs from [the insured].” As a result, “because of the breadth and generality of the allegations in ExxonMobil’s state court petition, we cannot say that all of the claims fall clearly within the exclusion.”

Copied right, but not copyright.

copyright_symbol_9The plaintiff in GlobeRanger Corp. v. Software AG won a $15 million judgment for misappropriation of trade secrets. The Fifth Circuit affirmed, holding:

  1. After a thorough review of Circuit precedent – not all entirely consistent – “that GlobeRanger’s trade secret misappropriation claim requires establishing an additional element than what is required to make out a copyright violation: that the protected information was taken via improper means or breach of a confidential relationship. Because the state tort provides substantially different protection than copyright law, it is not preempted.”
  2. Recognizing the “jurisdictional Catch-22” created by that ruling, and referring back to an earlier panel opinion from the time of the case’s removal: “As the complaint [then] alleged only conversion of intangible property for which there is equivalency between the rights protected under that state tort and federal copyright law, complete preemption converted the conversion claim into one brought under the Copyright Act that supported federal question jurisdiction at the time of removal and supplemental jurisdiction after it was dismissed.”
  3. Found that GlobeRanger had offered sufficient evidence of: (1) what specifically constituted its claimed trade secrets; (2) whether Software AG acquired trade secrets improperly or with notice of impropriety, particularly in light of federal contracting regulations; and (3) whether Software AG “used” any trade secret.

The opinion concluded with an unfortunately apt observation about the business litigation that is the focus of this blog: “This case demonstrates the unfortunate complexity of much of modern civil litigation. A trial involving a single cause of action—misappropriation of trade secrets (plus a derivate conspiracy claim)—has resulted in an appeal raising numerous issues that span the lifecycle of the lawsuit: jurisdiction; preemption; federal contracting regulations; expert testimony on damages; and jury instructions.

The “light most favorable” is not a searchlight.

guidinglightIn response to a summary judgment motion in a suit for unpaid overtime, plaintiff Garcia offered affidavit testimony that he “was told” certain favorable salary information. The record was unclear as to who told him that information. On appeal from an adverse ruling, the Court noted: “Garcia first argues that the district court erred by discounting, as hearsay, Garcia’s statement in his affidavit about what he was ‘told,’ because ‘taking the evidence in the light most favorable to Garcia, a party-opponent told Garcia this information.’ However, courts are not required to view evidence presented at summary judgment in the light most favorable to the nonmoving party on the question of admissibility; rather, ‘the content of summary judgment evidence must be generally admissible,’ and ‘[i]t is black-letter law that hearsay evidence cannot be considered on summary judgment’ for the truth of the matter asserted.” Garcia v. U Pull It Auto Truck Salvage, Inc., No. 16-20257 (Sept. 15, 2016, unpublished).

How not to argue about extrinsic evidence

breach-of-contractIn Smith Group JJR, PLLC v. Forrest General Hospital, a dispute about an architect’s fee, the appellant argued that “the district court erred by considering extrinsic evidence bearing on the meaning of the term ‘actual contstruction cost’ in the parties’ agreement. This issue – the proper role of extrinsic evidence in determining the meaning of a contract, produces frequent litigation and frequent differences of opinion between district courts and the Fifth Circuit. Here, the TexasBarToday_TopTen_Badge_VectorGraphiccourt found a waiver of these arguments before the trial court, reminding that “citing cases that may contain a useful argument is simply inadequate to preserve that argument for appeal; ‘to be preserved, an argument must be pressed, and not merely intimated.'” No. 16-60134 (Sept. 9, 2016, unpublished). (This post was picked as one of the top five of the week by the Appellate Advocacy blog on the Law Professor Blogs Network!)

Delaware corporation, Delaware law.

citgo signAn Italian company sued the American subsidiary of the Venezuelan national oil company in Louisiana over a contract obligation. “Why did the Italian company file suit in a forum located many thousands of miles away from both where it is headquartered and where it performed the contracts? To try and take advantage of the single business enterprise theory under which Louisiana courts have allowed companies in certain circumstances to be held liable for the acts of their affiliates.” This manuever did not succeed, as the American subsidiary was incorprated in Delaware: “Applying Louisiana law to hold a Delaware corporation responsible for its foreign affiliate’s alleged breach of a contract in Venezuela would substantially undermine the high bar Delaware sets for disregarding corporate separateness. It would also be at odds with the expectations of the parties. Given the provision in its contract providing that Venezuelan law would govern any disputes, Energy Coal had no reasonable expectation that it could seek recourse under the laws of Louisiana.” Energy Coal SPA v. Citgo, No. 15-30863 (Sept. 1, 2016, unpublished).

Whiskey river, take my trade dress —

regular_purple_cr_bag_1In trademark and trade dress litigation betexas crown with bag2tween Diageo, the maker of Crown Royal (left) and Mexcor, who makes Texas Crown Club (right), Diageo stipulated that “Mexcor did not infringe its marks until Mexcor sold its very first Texas Crown Club bottle in a bag bearing the Texas Crown Club logo” during the fourth quarter of 2011. Despite this concession, the Fifth Circuit concluded that Mexcor was not entitled to judgment on related issues when it “failed to urge that these counterclaims be presented to the jury after the district court denied its motions for JMOL.” The Court went on to remand the permanent injunction against Mexcor for revisoin, noting that the injunctoin could not extend to a type of bag that Mexcor had established its legal entitledment to use, and observing as to the last, “catch-all” provision of the injunction: “We are hesitant to approve such open-ended language, particularly because in other contexts this court whiskeyhas held that such ‘obey the law’ injunction orders are not permitted.” Diageo North America, Inc. v. Mexcor, Inc., No 15-20630 (Sept. 2, 2016, unpublished). (The opinon also notes TexasBarToday_TopTen_Badge_VectorGraphicthe distinction between “whisky” (distilled in Scotland) and “whiskey” (distilled in the U.S. or Ireland), although none of these countries are the source of the liquor in this case, which the parties spelled “whisky.”)

Musings on the recent en banc vote

conservative snapshotA recurring theme in my CLE presentations about the Fifth Circuit is that the phrase “a conservative court” is largely meaningless. To be sure, a majority of Fifth Circuit judges were appointed by Republican presidents, and many judges on the court have “conservative” philosophies, but what that actually means in a specific case about separation of power between judge and jury, trial and appellate courts, branches of government, etc. can vary a great deal.

Consider the recent 8-7 vote against en banc rehearing in Passmore v. Baylor Health, discussed in yesterday’s post, which involved a close Erie question about state law pre-suit requirements. In a slide I just prepared for the upcoming Advanced Civil Appellate course in Austin, you can see the nominees of Republican presidents in red and those of Democratic presidents in blue — the “for” vote was 5-2 and the “against” vote was 5-3. (The judges with stars by their names joined a dissent.) Perhaps that split just shows that this technical issue is not ideological, but I think it also shows that there is far more to judicial philosophy than the simple label of “conservative.”

The Erie Railway keeps a-rollin’

erie railwayThe Fifth Circuit recently denied en banc review — by a “photo finish” 8-7 vote — of Passmore v. Baylor Health System, which concluded that Texas’s expert report requirements for medical malpractice cases were procedural and did not apply in federal court under the Erie doctrine. A dissent argued that this vote was inconsistent with the recent en banc opinion in Flagg v. Stryker Corp. that analyzed a comparable requirement of Louisiana law.

Removal, remand, and post-removal developments

remove stampJefferson v. Certain Underwriters at Lloyds visited the intricate rules surrounding appellate review of remand orders. Here: “Dismissals of non-diverse parties allow for the exercise of diversity jurisdiction, and the propriety of remand in a properly removed case is judged on the basis of the district court’s jurisdiction over the claims remaining at the time of remand, not the time of removal.” Accordingly, “the district court had no discretion to remand this case if the remaining parties were diverse at the time of removal.” No. 15-30211 (Aug. 15, 2016, unpublished).

Untimely intervention

M300_HiRes_3qtrView_0114Jones, the sole shareholder of a bankrupt business, moved to intervene in a lawsuit between the trustee for the business and Bank of America — two weeks after the parties had filed a stipulation of dismissal that the district court accepted. The district court denied Jones’s motion; he appealed, and the Fifth Circuit affirmed. As to the stipulation of dismissal, the appeal was untimely; as to the intervention, while Jones’s late arrival did not bar his motion outright, it heavily influenced the relevant factors against him. Sommers v. Bank of America, No. 15-20775 (Aug. 26, 2016).

Standing, by any other name, would be standing.

scarfaceCotton v. Certain Underwriters at Lloyds, a dispute about payment for wind damage from Hurricane Isaac, presented an issue about who was entitled to sue. The Fifth Circuit reminded that “‘Standing’ . . . is a label used to describe different things in the law.” One use is “whether a party has a right to sue under a contrTexasBarToday_TopTen_Badge_VectorGraphicact.” That use, which presents “an issue of ‘contract interpretation,'” is “entirely distinct from ‘standing’ for purposes of Article III” and its jurisdictional consequences. No. 15-31005 (Aug. 1, 2016).

More qualified immunity for attorneys

truemmunity-8Continuing a theme in cases involving attorney liability (most notably the recent Stanford-related opinion in Troice v. Proskauer Rose, 816 F.3d 341 (5th Cir. 2015)), the Fifth Circuit affirmed summary judgment for the law firm involved in a disputed foreclosure: “Under Texas law, the doctrine of qualified immunity has ‘long authorized attorneys to practice their profession, to advise their clients and interpose any defense or supposed defense, without making themselves liable for damages.” Lassberg v. Bank of America, No. 15-40196 (Aug. 23, 2016, unpublished).

Fore! Golf Channel returns to the Fifth Circuit.

foreFor some time, the Golf Channel and the receiver for Allen Stanford’s affairs have disputed whether the Channel gave value in exchange for the purchase of roughly $6 million in advertising. The Channel contended that it did by giving exactly the advertising that Stanford ordered; the receiver disagreed, noting that Stanford was running a valueless Ponzi scheme. On certification from the Fifth Circuit, the Texas Supreme Court sided with the Channel, holding that under the Texas version of the Uniform Fraudulent Transfer Act, the Channel gave value from an objective perspective. The Fifth Circuit accepted that holding as to this case, but noted: “The Supreme Court of Texas’s answer interprets the concept of ‘value’ under TUFTA differently than we have understood ‘value’ under other states’ fraudulent transfer laws and under section 548(c) [of] the Bankruptcy Code.” Janvey v. Golf Channel, No. 13-11305 (Aug. 22, 2016).

Twombly – remember what the substantive claim requires.

One-Does-Not-SimplyWhitlock, a truck driver, sued his employer for racial discrimination, alleging that the stated reason for discharge (running a red light at a loading dock) was pretextual. As to discriminatory discharge, “[t]he complaint fails to specify the [comparable] white employees’ work violations” and “fails to allege the white employees’ jobs” with the employer. As to hostile work environment, the complaint alleged that the workplace “was difficult [to] endure,” “caused stress related problems,” and that “[a] white employee was allowed to ride around in a pickup ruck without doing his job but given credit for the work done by African-American employees. The Fifth Circuit affirmed dismissal on the pleadings; this case illustrates a straightforward application of Rule 12 where the substantive law clearly dictates a certain level of detail about the claim. Whitlock v. Lazer Spot, Inc., No. 16-30139 (Aug. 15, 2016, unpublished).

Points to notice about notices of appeal

checklistIn Wilson v. Navika Capital Group LLC, the appellants filed this notice of appeal  from adverse rulings in an FLSA dispute. The Fifth Circuit found that the reference in the notice to “Plaintiffs Wilson et al.” did not satisfy the requirements of Fed. R. Civ. P. 3 in light of the entire record — a case in which “the plaintiffs  .. were in ‘continual flux’ at the district court, as various groups of plaintiffs were dismissed at different times.” The notice was sufficient as to two plaintiffs specifically named in named in the style of the case as shown on the notice, as Rule 3 says — “The notice of appeal must: specify the party or parties taking the appeal by naming each one in the caption or body of the notice.” No. 15-20204 (Aug. 8, 2016, unpublished).

New Orleans snowball fight. Yes, that’s right.

1264570-mr_freeze_06Icy litigation about the “sno-ball” market in New Orleans led to a series of sanctions motions, requiring the Fifth Circuit to evaluate the potential chilling effect of sanctions. (The opinion cites this informative article about the technical development of shaved-ice treats.) The Court held:

  1. “If SnoWizard made material misrepresentations about the validity of various trademarks and patents [in other litigation], Southern Snow should have introduced those claims during its litigation over the validity of those trademarks and patents during the trial”;
  2. Alleged “obstructive acts” during those proceedings “are not criminal conduct” and thus “cannot act as a predicate offense for a civil-RICO claim”;
  3. Dismissal without prejudice is not a sufficient predicate for a later malicious prosecution claim; and
  4. Conversely, the various sanctions and damages theories advanced were “no so obviously foreclosed by precedent as to make them legally indefensible.”

TexasBarToday_TopTen_Badge_SmallThe Court concluded: “”The parties could have shaved down the overwhelming costs in time, expense and scarce judicial resources that this litigation has consumed it they could have abandoned their unrelenting desire to crush the opposition.” Snow Ingredients, Inc. v. Snowizard, Inc., No. 15-30393 (Aug. 15, 2016). (The opinion echoes the similiarly frosty relations between the parties in the recent case of  Yumilicious v. Barrie, involving a dispute about frozen yogurt franchises.)

Fact issue raised about boat repairs

boatOTM, the owner of two boats, alleged a poor repair job by Diversified. The district court granted summary judgment for the defendant and the Fifth Circuit reversed, observing: “OTM concedes it has not attempted to prove the ‘precise cause’ of the engines’ malfunction; instead, it maintains it presented sufficient evidence to create the requisite
genuine dispute of material fact for whether the claimed substandard overhauls by Diversified caused the engines’ breakdown. . . . [A]t this stage, OTM is not required to prove exactly which part failed, or disprove that ‘the vessels’ other deteriorating parts or operator error’ was not the cause of the vessels’ breakdown . . . . ” Operaciones Tecnicas Marinas, SAS v. Diversified Marine Services, LLC, No. 15-30932 (Aug. 5, 2016, unpublished). The opinion illustrates the interaction between the requirements of Rule 56 and the requirement of Daubert case law that an expert adequately exclude alternative causes.

ARR! The pleadings adequately allege duty!

Pirate-PNG-HDThomas v. Chevron USA involved a suit for damages after a pirate attack off the shore of Nigeria. The Fifth Circuit reversed the districr court’s denial of leave to amend; on the key issue of duty, the Court observed: “Thomas alleged that Chevron knew about of the real risk of piracy in the region and of the specific threats received by the [ship]. He alleged that despite its knowledge, Chevron requested that the [ship] take an unaccompanied support trip that would pass by the source of the recent threats. Finally, he alleged that Chevron broadcast his route information and locations over easily-accessible VHF radios, through which they could be heard by pirates known to be in the area. These allegations are sufficient to suggest that the harm suffered by Thomas was reasonably foreseeable to Chevron and that Chevron consequently owed him a duty not to subject him to the conditions he encountered . . . .” No. 15-20490 (Aug. 11, 2016).

No, that’s not disqualifying.

4.5.SomePeopleDisQualified_439557577The losing party in an arbitration opposed confirmation on, among other grounds, a challenge to the disclosures made by JAMS. Specifically, the party complained that JAMS had not disclosed a relationship between the other side and another JAMS-affiliated arbitrator. This complaint did not meet the demanding standard for a disqualifying bias: “Here, the Arbitrator explicitly stated that he and Bates had never discussed this arbitration and that Bates did not know the Arbitrator was even at this hearing. In fact, there is no evidence that Bates had any relationship with the Arbitrator other than the fact that both serve as JAMS arbitrators. Most importantly, Cooper points to nothing in the record that would indicate that the Arbitrator had any prejudice against him.” Cooper v. WestEmd Capital Management LLC, No. 15-31068 (Aug. 9, 2016).

But it wasn’t published!

lawbooksIn a case about the scope of a “drilling rig” exclusion in an insurance policy, a party asked the Fifth Circuit to not follow a previous unpublished opinion because it was not binding precedent. The Court disagreed, stating: “While [Appellant] is correct, we find Cash’s reasoning compelling,” and then applying the precedents cited by the opinion. Nonbinding precedent has persuasive power. Richard v. Dolphin Drilling Ltd., No. 16-30003 (Aug. 1, 2016).

Welcome to Kuwait

kuwait mapA former employee of a defense contractor sued for unpaid benefits; the forum selection clause said: “This Contract shall be governed by and interpreted exclusively under the laws of Kuwait and all disputes between the Parties shall be resolved exclusively in Kuwait.” Noting a potential threshold issue as to whether federal or Texas law governs the “validity” of a forum selection clause (while federal law clearly governs their “enforceability”), the Fifth Circuit found it enforceable under either standard. Kuwait – where the work was done – had a stronger interest in application of its laws than Texas, and the most relevant law was a statute of repose rather than limitation, which “operates as ‘a substantive definition of, rather than a procedural limitation on, rights.'” Barnett v. Dyncorp Int’l LLC, No. 15-10757 (July 26, 2016).

Surely, you’re a surety.

shirleyAmerican Construction, the general contractor on a hotel construction project, signed a “joint check” agreement, by which it would pay its subcontractor (Cratus Development) and its supplier (Shelter Products) jointly for building materials. American’s agreement also included this term: “If Cratus Development does not start or complete work on this project, and/or becomes past due with Shelter Products, Inc. to the extent that Shelter Products, Inc. can no TexasBarToday_TopTen_Badge_Smalllonger extend credit to Cratus Development[,] American Construction will make payments directly to Shelter Products, Inc. for all outstanding and unpaid invoices for materials delivered to the jobsite . . . . ” The Fifth Circuit affirmed the district court’s conclusion that this language, in the overall context of the parties’ business dealings, created a suretyship by American. Shelter Products Inc. v. American Construction Hotel Corp., No. 16-30001 (July 27, 2016, unpublished).

No causation, no theft coverage.

Pink-PantherTesoro, an oil refiner and marketer, submitted a claim to National Union under its commercial crime insurance policy, involving the forgery of key documents by a Tesoro employee about the account of Enmex, a substantial Tesoro customer. The Fifth Circuit reasoned that the “Employee Theft” provision of the policy required a showing of an unlawful taking, and that Tesoro failed to show had “the forged letters of credit and security agreement induced Tesoro to continue selling fuel to Enmex or what evidence supports this assertion . . . In sum, Tesoro failed to offer any evidence that it would have acted differently had it known the Enmex account was actually not secured.” Tesoro Refining v. National Union, No. 15-50405 (July 29, 2016).

Duty to indemnify? Too early to tell.

insurance community chestLitigation about the failed drilling of an oil well led to insurance litigation under Louisiana’s Direct Action Statute. The district court granted summary judgment to the insured as to its insurers’ duty to indemnify, and the Fifth Circuit reversed, finding that the indemnity issue was not yet justiciable: “[I]t is readily apparent that ‘facts can be developed’ at trial that would support a finding that at least some of [the insured’s] conduct related to the failed directional drilling project triggered coverage under the relevant policies. Beyond the already existing testimony . . . [the insured] points to a number of witnesses who were not deposed but who could testify at trial on relevant issues such as subcontractors, surveyors, and consultants.” Solstice Oil & Gas LLC v. Seneca Ins. Co., No. 15-30874 (July 21, 2016).

Tax-iing Jets

Private-jet-above-city1-264x176A detailed review of tax statutes and other authorities resulted in affirmance of a judgment against Bombardier related to the taxation of its “Flexjet” program; the Court summarized: “Because the law and its application to the real world is continually evolving, it is only natural that guidance in Revenue Rulings evolves too. We find a consistent theme, though, in the IRS’s guidance from the earliest Revenue Rulings grappling with this issue: where an entity is responsible for nearly every service and precondition necessary to transport persons in an aircraft, and it charges for those services, it is providing taxable transportation – even if the bona fide owner of the aircraft itself is the person traveling.” Bombardier Aerospace Corp. v. United States, No. 15-10468 (July 25, 2016).

Timely Notices of Appeal and ECF Filing Requirements

cloekThe ECF records for the Western District of Texas showed that the appellant in Sudduth v. Texas Health & Human Services Commission filed her notice of appeal on August 31 — one day late. Following Franklin v. McHugh, 804 F.3d 627 (2d Cir. 2015), the Fifth Circuit found the ECF notices dispositive and dismissed for lack of jurisdiction. The Court observed that the Western District local rules and Fed. R. App. P. 4(a)(5) allow a party to seek relief from the district court in the event of technical problems with the ECF filing, which the appellant did not do here. Finally, “Sudduth argues that she was not made aware of any jurisdictional defect until this court requested briefing on this issue and that, at the very least, Franklin should not be retroactively applied to her case because it is new law. But, as previously discussed, the local rules and procedures here were sufficiently clear as to the requirements for timely filing, and the onus is on Sudduth, not the court, to be aware of and cure any deficiencies in the notice of appeal.” No. 15-50764 (July 18, 2016).

Insurance Staredown

staredownExtensive tornado damage to a building at the University of Southern Mississippi led to a hard-fought dispute among insurers. The Fifth Circuit’s detailed affirmance of the district court’s opinion turned on this observation about the losing insurer’s postition: “Were this construction adopted, insurers who covered the same risk would be incentivized to enter into a stare-down, each waiting for the other to blink first in order to seize the opportunity to deny coverage. Such an outcome is neither reasonable nor commercially practicable.” Southern Ins. Co. v. AffiliateTexasBarToday_TopTen_Badge_Smalld FM Ins. Co., No. 15060742 (July 21, 2016). (The opinion also features a rare appellate shout-out to T.S. Eliot’s The Hollow Men.)

Fact issue in employment dispute

scintilla posterNicholson worked for Securitas, a security staffing company. She sued about her reassignment from a position as a receptionist at a Securitas customer. The Fifth Circuit partially reversed a summary judgment for Securitas, noting: “If Securitas failed to follow its usual practices in responding to a client’s desire to have an employee removed, such a deviation can support Nicholson’s claim that the company should have known of the alleged discrimination.” Nicholson v. Securitas, No. 15-10582 (July 18, 2016).

Arbitration: delegation means delegation.

1DelegationIn Kubala v. Supreme Production Services, the parties disputed whether an arbitration agreement reached an employment claim that arose before entry into the agreement. The district court found that it did not and denied the motion to compel arbitration. The Fifth Circuit reversed, finding this delegation clause “strikingly similar” to the one at issue in Rent-A-Center v. Jackson, 561 U.S. 63 (2010): “The arbitrator shall have the sole authority to rule on his/her own jurisdiction, including any challenges or objections with respect to the existence, applicability, scope, enforceability, construction, validity and
interpretation of this Policy and any agreement to arbitrate a Covered Dispute.” The Court summarized: “The court appears to have thought that the question at the first step of the analysis is whether there is an agreement to arbitrate the claim currently before the court. But as we have explained, the only issue at the first step is whether there is any agreement to arbitrate any set of claims.” No. 15-41507 (July 20, 2016).

No litigation about HUD regulation.

HUDWe now make explicit what we have held in unpublished, nonprecedential opinions.  HUD regulations govern the relationship between the reverse-mortgage lender and HUD as insurer of the loan.  HUD regulations do not give the borrower a private cause of action unless the regulations are expressly incorporated into the lender-borrower agreement.” Johnson v. World Alliance Financial, No. 15-50881 (July 18, 2016).

EPA dismays; haze stays.

Big Brown PlantIn an uncommon example of a successful application for an appellate stay, the Fifth Circuit stayed the EPA’s rulings about Texas’s haze reduction plans. The Court found a likelihood of success on the merits, based on, inter alia, the degree of deference required by EPA, the lack of on-point authority supporting its position, and statutory limits on its power. As to irreparable injury, the Court noted the substantial compliance costs faced by power companies (to the point of risking TexasBarToday_TopTen_Badge_Small“unemployment and the permanent closure plants”), and the lack of any mechanism for them to recover those costs if the EPA’s rule was invalidated.  The Court also noted “the threat of grid instability and potential brownouts,” as well as the potential injury from a violation of the federalism principles in the Clean Air Act. Finally, the court “agree[s] with Petitioners that the public’s interest in ready access to affordable electricity outweighs the inconsequential visibility differences that the federal implementation plan would achieve in the near future.” Texas v. EPA, No. 16-60118 (July 15, 2016).

No class action about New Orleans flood control

flood signA putative class of New Orleans landowners sought damages arising from the construction of a flood-control canal. The Fifth Circuit affirmed the denial of class certification, noting: “This lawsuit seeks to recover different damages caused by different acts committed by different defendants at different times over a five year period.” Even under Louisiana state law theories that arguably reduced the proof problems, the Court still found fatal problems as to “individual questions regarding causation” (and the exclusion of other potential causes), as well as damages: “Any . . . formula would at a minimum need to take account of the variances in age, size, type, construction, condition, soil composition, and location of the properties.” The Court distinguished other cases that affirmed class certifications as involving “single episodes of tortious conduct usually committed by a single defendant.” Crutchfield v. Sewerage & Water Board, No. 15-30709 (July 13, 2016).

Twombly comes to Texas — UPDATED

In a fraudulent joinder analysis, the Fifth Circuit observed: “The Mastronardis’ claims against Estrada and Marin are insufficiently pled under either the federal standard or the revised Texas standard, which now tracks the federal standard.” Mastronardi v. Wells Fargo Bank, N.A., No. 15-11028 (June 29, 2016) (citing, inter alia, Tex. R. Civ. P. 91a.1). See also Int’l Energy Ventures v. United Energy Group, No. 14-20552 (March 31, 2016).

“Who knew? A puddle?!”

slipGranados slipped and fell on a puddle in Wal-Mart. The evidence showed that “[p]rior to the slip, a Wal-Mart employee named Mercedes Acosta had been mopping the store’s checkout area. According to video surveillance of the incident, she briefly mopped the entrance of the aisle in which Granados slipped about five minutes prior to the incident, coming within approximately five feet of the puddle’s location with her torso generally facing it. At her deposition, Acosta testified that although she normally looks for puddles and other hazards while cleaning, she did not see the puddle in which Granados slipped when she mopped the aisle. No other witness testified to seeing the puddle. However, an assistant manager at the store who viewed the puddle after Granados slipped testified that someone actively looking for hazards ‘should have noticed the puddle from approximately five feet away if it were present.” Unfortunately for Granados, this evidence did not establish actual knowledge of the puddle, and also did not establish constructive knowledge under Texas law, which emphasizes how long the puddle has been in place (a fact as to which she had no proof). Granados v. Wal-Mart Stores, Inc., No. 15-10837 (June 30, 2016, unpublished).

Arbitration award affirmed over procedural objections

arbpictureThe unsuccessful parties in the arbitration of a real estate dispute challenged confirmation of the award. The Fifth Circuit rejected the argument that the phrase “any other misbehavior by which the rights of any party have been prejudiced in 9 USC § 10(a)(3) could be read as applying to the district court. It also rejected a discovery-related argument when “[t]he arbitrator decided not to issue subpoenas when the Investors failed to answer his questions about what evidence they needed from the two witnesses, who were outside the legal subpoena range, and who were less involved in the relevant transactions than the two Rainier witnesses who testified live at the hearing.” Rainier DSC 1 LLC v. Rainier Capital Management LP, No. 15-20383 (July 7, 2016).

Causation proved.

causationmemeIn the trial of a dispute about the handling of another lawsuit, the plaintiffs’ lawyer in that other suit testified that he would not have settled for less than $3 million. On appeal, two expert reports were cited in opposition to that testimony, and the Fifth Circuit rejected them. It noted that the trial court was within its rights to credit the lawyer’s testimony, and that the reports had been prepared pretrial and thus could not have addressed that testimony. RSUI Indemnity Co. v. American States Ins. Co., No. 15-30976 (July 8, 2016, unpublished).

Maybe a fact issue, but not a material one.

lienFannie Mae foreclosed on an apartment complex, in part because its management allowed six liens to attach to the property in breach of the loan documents. Self, a guarantor sued for the remaining deficiency, sought discovery about the validity of the liens. The Fifth Circuit agreed with the district court that this request was not a reason for continuance of a ruling on Fannie Mae’s summary judgment motion: “[E]ven if Self could establish that the liens were paid off or expired, such information would not negate his failure to timely secure the release of record of the liens or otherwise timely cure the liens as required under the plain and unambiguous language in the parties’ loan documents.” Fannie Mae v. Self, No. 15-20466 (July 6, 2016, unpublished).

Produce the texts.

yunomemeThe district court required the plaintiff in an FLSA case to submit her phone to a forensic examiner. It then awarded significant sanctions when the defendants’ “inspection revealed that the text messages in question were not on [Plaintiff’s] phone, that the mobile application allegedly containing such text messages was not on the phone, and that the phone appeared to have been reset or newly activated only three days before the forensic inspection.” The Fifth Circuit found no abuse of discretion; footnote 2 of the opinion details several unsuccessful explanations and counterarguments offered by the plaintiff, which had no traction here but could be of interest in a future e-discovery dispute involving similar issues. Timms v. LZM, LLC, No. 15-20700 (July 5, 2016, unpublished).

No, that’s not an FCRA claim

fcra logoBacharach, upset by the handling of credit reporting by SunTrust, sued it under the FCRA. The Fifth Circuit affirmed summary judgment for SunTrust, noting:

  • Reporting about a failed “flip” of commercial property — especially when the alleged losses involved lost rental income — did not fall within the scope of the FCRA;
  • Evidence of other, unrelated payment problems during the relevant period negated the element of causation; and
  • “Vague and conclusory deposition testimony” does not establish actionable emotional distress under the FCRA.

Bacharah v. Suntrust Mortgage, No. 15-31009 (June 30, 2016).

“Professional services” exclusion applies, except when it does not.

one hand clappingIndividuals injured in an industrial accident sued DP Engineering; the resulting insurance coverage litigation turned on whether the policies’ “professional services” exclusion applies. As to the duty to defend, after careful review of the underlying pleadings, the Fifth Circuit found that “[t]he facts alleged do not include administrative, non-professional activities,” but rather all involved “injuries that ‘arise out of’ DP Engineering’s . . . allegedly negligent engineering services.” However, the Court found error in resolving the duty to indemnify on the pleadings, as “[t]he allegations in the underlying lawsuits . . . do not conclusively foreclose that facts adduced a trial may show DP Engineering also provided non-professional services, which would be covered under the policy.” Hartford Casualty Ins. Co. v. DP Engineering LLC, No. 15-10443 (June 29, 2016).

Not a promise, but a fact.

monopoly hotelsAt issue in Meadaa v. Karsan (a case on a return trip to the Fifth Circuit) was whether investors were misled into believing they would acquire an ownership interest in a hotel, or whether the relevant statements were “an unfulfilled future promise.” The Fifth Circuit affirmed a finding that the statements were false and actionable under Louisiana law, noting the combined force of the sellers’ oral representations and followup letters to investors “specifying their individual interests in” the relevant company. No. 15-30413 (May 18, 2016).

Residence restriction reviewed.

little houseIn Harris v. Hahn, the Fifth Circuit addressed a challenge to a “residence requirement” – a common feature of public benefit and employment programs, not often challenged in court. This challenge addressed “the constitutionality of the residency requirements in the Hazlewood Act, which provides tuition waivers at public universities for certain Texas veterans who enlisted in Texas or were residents of Texas at the time they enlisted.” The Fifth Circuit found that Texas had rational reasons for the requirement, in that “the prospective benefit advances two interests—education and security—by offering a benefit to residents considering enlistment.” It noted in particular that this benefit was prospective, rather than retroactive; distinguishing it from some other situations that had been more problematic. The Court also found no impermissible restriction on the right to travel, noting that the program affected a relatively small percentage of the population and did not impose a penalty. No. 15-20105 (June 23, 2016).

Tie goes to the Fifth Circuit

  • cobb slidingBy short per curiam orders resulting from 4-4 votes, the Supreme Court affirmed the Fifth Circuit’s opinion that upheld an injunction of major parts of President Obama’s immigration program, Texas v. United States, 809 F.3d 134 (5th Cir. 2015), and an important opinion about the jurisdiction of Indian tribal courts, Dolgencorp v. Mississippi Band of Choctaw Indians, 746 F.3d 167 (5th Cir. 2014).
  • These rulings are a “split decision” for Judge Jerry Smith, who wrote for the panel majority in Texas while dissenting in Dolgencorp.
  • It is unfortunate that the political process has not produced a ninth Supreme Court Justice, so that the voice of the nation’s highest court could be heard on these important questions of public policy.

Objections 101

objectionBankruptcy debtors complained that the district court erred erred in overruling their objections to the bankruptcy court’s proposed findings of fact, noting that no responses were filed to those objections. The Fifth Circuit disagreed: “No statute or rule prohibits the district court from considering or ruling on the merits of an unopposed motion just because it is unopposed.”  (Of course, “[b]y failing to file objections or respond . . . [the adverse parties] have waived their right to appeal the proposed findings and to present any legal issues in opposition to them,” but “[t]hat waiver . . . has no impact on the district court’s authority to consider the merits of the objection.” Monge v. Rojas, No. 15-50180 (June 14, 2016, unpublished).

Remanded, to fight another day

RemandIn Wright v. ANR Pipeline, the Fifth Circuit concluded that the plaintiff had not stated a plausible claim against a (nondiverse) employee of a pipeline company, and affirmed the remand of the matter to state court. It changed the disposition of the merits, however, reminding that because the improper joinder “inquiry does not concern the merits, where the court determines that defendant has been improperly joined and should be dismissed, that dismissal must be without prejudice.” No. 15-30741 (June 14, 2016, unpublished).

Class Control

herding catsIn EEOC v. Bass Pro Outdoor World LLC, the Fifth Circuit addressed a “pattern or practice” suit by the EEOC, which is related to a traditional class action certified under Fed. R. Civ. P. 23, but has additional features by statute. The Court observed several features of the Federal Rules that can reduce the risk of unfair prejudice in such a large-scale case — EEOC or otherwise — including bifurcation, sequenced special interrogatories during the liability phase, and careful attention to the availability of injunctive remedies. No. 15-20078 (

Schedler’s List

voter graphicContinuing a line of cases involving careful scrutiny of injunctions by the Fifth Circuit, the Court again took issue with an order in Scott v. Schedler. The district court required Tom Schedler, Louisiana’s Secretary of State, to “maintain in force and effect his or her policies, procedures, and directives, as revised, relative to the implementation of the [National Voter Registration Act of 1993] with respect [to] coordination of the [Act] within Louisiana.” Schedler objected that the order was not sufficiently specific and the Fifth Circuit agreed: “[T]he injunction refers generally to the defendant’s policies without defining what those policies are or how they can be identified.” Noting that “[w]e are sensitive, of course, to the district court’s difficult position” in drafting a specific injunction without “dictating with intricate precision” state policy, the Court reviewed case law in the area and offered some guidance for remand. No. 15-30652 (June 15, 2016). While arising in the civil rights context, and not involving an effort to hold the Secretary in contempt, this opinion follows naturally from several other recent cases (link above) that have found insufficient specificity to justify sanctions.

From Russia Without Love

russia_008Patterson sued Aker Subsea, in the Eastern District of Louisiana, for injuries he suffered while working on a boat off the coast of Russia. He asserted general personal jurisdiction under Fed. R. Civ. P. 4(k)(2) (which measures contacts in federal question cases with reference to the entire U.S., not just a single state), based on several secondment agreements by which Aker assigned its employees to an affiliate in Houston. Relying principally on Bowles v. Ranger Land Systems, 527 F. App’x 319 (5th Cir. 2013), the Fifth Circuit affirmed Aker’s dismissal, noting: “This court has declined to exercise general personal jurisdiction over a corporation where its most significant and continuous contact with the forum was having employees located there.” Patterson v. Aker Solutions Inc., No. 15-30690 (June 13, 2016).

The farmer in the “sell”

farmer tractorWalker, a farmer, received a loan from Guaranty Bank, which acquired a production-money security interest in his crops. Walker then sold the crops to Agrex. Agrex applied a setoff to the sales price, based on problems in other dealings between Walker and Agrex. Guaranty then sued Agrex to recover the entire — pre-setoff — sales price. The Fifth Circuit affirmed judgment for Guaranty, reviewing the applicable UCC section and commentary, under which there is “no requirement that property by ‘received’ . . . for the property qualify as proceeds,” but only “that the property be traceable, directly or indirectly, to the original collateral.” Guaranty Bank & Trust Co. v. Agrex, Inc., No. 15-60445 (revised June 6, 2016).

An assignment in time –

Among other points raised in a challenge to a foreclosure on a Texas home equity loan, the trial court observed: “the curious backPaul Nigh's '' Back to the Future DeLorean Time Machinedating of the [assignment] confirms the suspicion that this document was generated to obscure the chain of title inquiry rather than to illuminate it.” In reversing the judgment below, on this point the Fifth Circuit held: “At least two Texas Courts of Appeals have considered this very question, and both have held that an assignment may have a retroactive ‘effective date.'”  Deutsche Bank v. Burke, No. 15-20201 (June 9, 2016, unpublished).

Not a running royalty

running manTo acquire rights to use patented check processing technology, Chase paid for a license which contained a “Most Favored Licensee” clause. The licensor granted a similar license to another entity for what Chase contended was a significantly lower royalty. Chase sued and won judgment for roughly $70 million. The Fifth Circuit affirmed, agreeing with Chase’s characterization of the royalty as “paid-up lump sum” rather than “running,” and thus concluding that the MFL clause could apply retroactively and require a refund. A dissent saw the clause as only applying prospectively. The opinions identify a number of practical problems that can arise in drafting sophisticated royalty agreements about intellectual property. JP Morgan Chase Bank NA v. Dixon, No. 15-40905 (May 19, 2016).

Time and benefit –

cloekIn a significant and technical dispute about Clean Air Act liability related to emissions at Exxon’s complex in Baytown Texas, the Fifth Circuit touched on a matter of broader interest about restitution/calculation of “benefit.” In its analysis of a proper civil penalty, the Court noted that “the effect of spending money to achieve compliance is often not mitigation of economic benefit — rather, plaintiffs may point to such expenditures as evidence of the regulated entity’s economic benefit to the extent the delay in making those expenditures allowed the regulated entity to use the money it saved productively.” Environment Texas Citizens Lobby v. ExxonMobil Corp., No. 15-20030 (May 27, 2016).

Yes, inherent power does reach that –

bplogoAfter an investigation by special master Louis Freeh, the district court administering the Deepwater Horizon claims process imposed sanctions on a law firm that had exploited a relationship with a former staff attorney for the program. Among other arguments, the firm argued that the district court could not invoke its inherent power, because the program was not a court proceeding. The Fifth Circuit disagreed, noting that the district court had retained jurisdiction over administration of the program in the order that created it, so its “inherent authority to police seroius misconduct before it extended to the [program] over which it retained continuing and exclusive jurisdiction.” The Court distinguished Positive Software Solutions v. New Century Mortgage Corp., 619 F.3d 458 (5th Cir. 2010), which reversed a sanctions award about an arbitration, and FDIC v. Maxxam, Inc., 523 F.3d 566 (5th Cir. 2008), which involved “a proceeding that was not before the district court and did not challenge [its] authority.” In re Deepwater Horizon, No. 15-30265 (June 2, 2016).


speculation signThe Fifth Circuit reversed an ALJ ruling in a labor dispute in DirecTV Holdings v. NLRB. The panel majority, noting that “the NLRB makes much of the fact that [the employee’s] initial suspension was transformed into a termination,” gave no weight to “unsupported speculation” as to why that change occurred. The dissent noted the timing of relevant events around the date of that decision, and gave weight to the ALJ’s credibility determinations as to the relevant witness. This exchange is a classic illustration of how reasonable minds can differ as to when an “inference” becomes impermissible “speculation.” No. 15-60257 (May 31, 2016, unpublished).

No Mo.

missouriIn Wills v. Arizon Structures, the parties disputed whether a Missouri judgment about arbitrability precluded a later motion to compel arbitration. The petitioners had been involved in the Missouri proceedings but obtained dismissal for lack of personal jurisdiction. The Fifth Circuit found that the judgment entered in Missouri against the business that employed them did not create a collateral estoppel bar. Privity, for purposes of claim or issue preclusion, does not ordinarily arise “based solely on an employment or corporate relationship.” And “[a] shared interest in compelling arbitration, by itself, does not warrant the conclusion that the parties are in privity such that the judgment denying [Employer’s] motion to compel arbitration binds Employees.” No. 15-41166 (May 27, 2016).

Manifest disregard of manifest disregard

touched up signAfter Hall Street Associates LLC v. Mattel, Inc., 552 U.S. 576 (2008), the Fifth Circuit concluded that “manifest disregard of the law” was no longer available as a nonstatutory ground for vacatur of an arbitration award under the FAA. Since then, other circuits have considered whether “manifest disregard” can be a statutory basis for vacatur. In McKool Smith PC v. Curtis Int’l, the losing party in an attorneys fee dispute TexasBarToday_TopTen_Badge_Smallmounted such a challenge to the arbitrator’s award in favor of the firm, but the Court sidestepped the issue, finding support for the arbitrator’s rulings in the applicable Texas case law. No. 15-11140 (May 23, 2016, unpublished) (Almost simultaneously, the Texas Supreme Court rejected the “statutory basis” argument in Hoskins v. Hoskins, No. 15-0046 (May 20, 2016)).

No insurance coverage for ecstasy overdose

rave pictureRonald Crose, an overly enthusiastic raver, took ecstasy and suffered a stroke not long after. A suit on his health insurance policy followed; at issue was an exclusion for “[l]oss due to being . . . under the influence of any narcotic.” The Fifth Circuit agreed that ecstasy was a “narcotic” within the meaning of the exclusion, rejecting as overly technical the argument that “narcotic” refers only to “drugs derived from a plant” (as opposed to a “hallucinogen” such as ectasy). The Court went on to find that under applicable Texas law, “due to” required more than “but for” causation, but did not require proof that the narcotic was the sole cause of injury. Crose v. Humana Ins. Co., No. 15-50559 (May 23, 2016).

Twombly satisfied – despite too much detail –

detailsBuilding on Wooten v. McDonald Transit Associates, Inc., 788 F.3d 490 (5th Cir. 2015), the Fifth Circuit found that a pro se plaintiff had adequately pleaded an ADEA claim in Haskett v. T.S. Dudley Land Co., No. 14-41459 (May 20, 2016, unpublished). Haskett attached his employer’s response to his EEOC charge as an exhibit to his complaint, and the employer argued that the statements in that response negated Haskett’s claim. The Court disagreed: “Haskett clearly did not adopt [his employer’s] allegations to the EEOC as his own for purposes of his complaint. They are therefore still ‘unilateral’ and to the extent they are in tension with the complaint itself, they cannot control.” (citing Bosarge v. Mississippi Bureau of Narcotics, 796 F.3d 435, 440 (5th Cir. 2015)).

Erie Railroad collides with tort reform

erie railwayPresenting a textbook Erie problem, Passmore sued Baylor Regional Medical Center about his back surgeries in federal court based on bankruptcy jurisdiction. The defendants obtained dismissal on the expert report requirements in section 74.351 of the Texas Civil Practice & Remedies Code. Reviewing the requirements of that statute, the requirements of the Federal Rules of Civil Procedure governing discovery, and district court opinions on the matter, the Fifth Circuit reversed, holding: “Section 74.351’s regulation of discovery and discovery-related sanctions sets it apart from the pre-suit requirements in the cases cited by the defendants and brings it into direct collision with Rules 26 and 37.”   Passmore v. Baylor Health Care System, No. 15-10358 (May 19, 2016).