In Aviles v. Russell Stover Candies, the Fifth Circuit again engaged the issue of whether the unilateral power to change an arbitration clause makes it illusory and unenforceable. No. 12-11227 (April 4, 2014, unpublished). This time, however, the Court observed that the agreement subjected to arbitration “any and all claims challenging the validity or enforceability of the [Waiver and Arbitration] Agreement.” Accordingly, the Court affirmed the dismissal of her case in favor of arbitration, but vacated the magistrate judge’s resolution of the enforceability issue because it “should have declined to decide either of those two issues.”
The plaintiff in Sanders v. Flanders alleged legal malpractice arising from the handling of patent applications. The Fifth Circuit did not engage the question whether he had shown lost profits with reasonable certainty, noting: “[C]ounsel admitted during oral argument that [Plaintiff] did not make any offer of proof concerning the lost-profit evidence that he would have otherwise presented but for the district court’s hearsay ruling.” No. 13-50235 (April 22, 2014, unpublished).
In reviewing a motion to dismiss under Rule 12(b)(6), the district court “must limit itself to the contents of the pleadings, attachments thereto,” and “may also consider documents attached to either a motion to dismiss or an opposition to that motion when the documents are referred to in the pleadings and are central to a plaintiff’s claims.” Brand Coupon Network LLC v. Catalina Marketing Corp., No. 13-30756 (April 8, 2014). Here, without converting the Rule 12 motion into a summary judgment motion, the district court considered an affidavit “signed . . . a day before [plaintiff] filed its opposition to Defendants’ motion to dismiss, and weeks after the filing of the petition.” Accordingly, the Fifth Circuit reversed a dismissal under Rule 12 on limitations grounds.
At issue in Hess Management Firm, LLC v. Bankston were the damages arising from the termination of a contract about the operation of a gravel pit (sadly, not a magical gravel pit of rule-against-perpetuities lore). No. 12-31016 (April 18, 2014). The dispute was whether damages were capped at 180 days — the contract term for adequate notice of closure — or whether the closure of the pit was post-breach activity that is not relevant to damage calculation. The Fifth Circuit sided with the bankruptcy court and reversed the district court’s enlargement of the damages, concluding: “A contrary result would defeat the maxim of placing a non-breaching party in the same position they would have been had breach not occurred, and award [plaintiff] more than their expectation interest.”
1. Defendants’ Rule 59 motion was filed a day late, “therefore the district court did not abuse its discretion in denying the motion.”
2. Post-verdict, the defendant did not renew, under Fed. R. Civ. P. 50(b), an earlier Fed. R. Civ. P. 50(a) motion that challenged the sufficiency of the evidence for the plaintiff’s mental anguish claims. The Court “decline[d] to review” the issue, noting that the Fifth Circuit’s cases “are not entirely uniform” as to whether this oversight was a waiver or allows review under a plain error standard.
3. The Court found no plain error from the plaintiff’s closing argument, including the lawyer’s “odd tactic of handing his business card to the jury during argument, especially in light of the court’s curative instructions and [defendant's] failure to move for a mistrial.” McLendon v. Big Lots Stores No. 13-20338 (April 14, 2014, unpublished).
Class actions were filed about the effects of an explosion at a chemical plant. The Fifth Circuit agreed that CAFA jurisdiction had not been established. Citing Berniard v. Dow Chem. Co., 481 F. App’x 859 (5th Cir. 2010), the Court held: “[D]efendants ‘overstate the reach of the plaintiffs’ petitions by improperly equating the geographic areas in which potential plaintiffs might reside with the population of the plaintiff class itself. Further, the comparisons that the Defendants-Appellants make to damage recovery in similar cases is too attenuated to satisfy their burden.’” Perritt v. Westlake Vinyls Company, L.P., No. 14-30145 (April 14, 2014, unpublished). The Court also noted: “Bald exposure extrapolations are insufficient to establish the likely number of persons affected by the release or, for those affected, the severity of their harm.”
The parties’ letter agreement incorporated “AIA Document B51″ with respect to “the services provided . . . under this Agreement.” That document states that all claims shall be adopted under the AAA’s Construction Industry Arbitration Rules. Those Rules state that “the arbitrator shall have the power to rule on his or her own jurisdiction.” The Fifth Circuit found the agreement’s incorporation of the other documents to be effective, and accordingly the arbitrator had jurisdiction to determine arbitrability — including, whether the parties’ dispute involved “services.” RW Development, LLC v. Cunningham Group Architecture, P.A., 13-60010 (April 11, 2014, unpublished).
Congress amended the Fair Credit Reporting Act to have a limitations period of “2 years after the date of discovery by the plaintiff of the violation that is the basis for such liability.” The plaintiff in Mack v. Equable Ascent Financial, LLC argued that this amendment meant that “he could not have ‘discovered’ the violation until he had researched the statute.” No. 13-40128 (April 11, 2014). The Fifth Circuit disagreed, finding that the amendment was made to equalize the treatment of different types of claims, and that the plaintiff’s reading “would indefinitely extend the limitations period.”
Several operators of drug stores sued pharmacy chains for misappropriating confidential information. The defendants successfully compelled arbitration and the Fifth Circuit affirmed. Crawford Professional Drugs v. CVS Caremark Corp., No. 12-60922 (April 4, 2014). Specifically (applying Arizona law), the Court found that the plaintiffs’ allegations sufficiently invoked the terms of a contract that contained an arbitration agreement, allowing arbitration to be compelled against nonsignatories on an equitable estoppel theory. The Court went on to reject the plaintiffs’ argument that the contract, and its arbitration clause, were procedurally unconscionable contracts of adhesion. It also found insufficient evidence to support their argument that the clause imposed substantively unconscionable litigation costs.
The unfortunate plaintiff in Robinson v. Wal-Mart Stores LLC argued that her state court petition referenced a $23,500 medical bill, which was in fact only $235. No. 12-41411 (April 9, 2014, unpublished). The Fifth Circuit affirmed the denial of her motion to remand, reminding: “If at the time of removal it is facially apparent from the state-court petition that he amount in controversy exceeds $75,000, a plaintiff’s subsequent request to amend her petition to ‘clarify’ the amount in controversy cannot divest jurisdiction.” The Court also observed: “In addition, prior to removal, Wal-Mart proposed to Robinson that she stipulate to no more than $75,000 in damages in exchange for not removing the case to federal court,” and that the plaintiff had declined to make that stipulation.
In Haase v. Countrywide Home Loans, Inc., the district court dismissed the plaintiff’s RESPA claim, declined to exercise supplemental jurisdiction over the remaining state law claims, and remanded them to state court. No. 12-20806 (April 9, 2014). Appellees argued that “because this judgment remanded the remaining state claims to the state court without addressing their respective merits, it is not a final disposition of all claims in the case, and therefore not appealable under 28 U.S.C. § 1291.” The Fifth Circuit disagreed, concluding that “as a practical matter, remands end federal litigation and leave the district court with nothing else to do.” (applying Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (1996)).
Payne sued Progressive Financial for violations of fair debt collection statutes, seeking statutory damages, actual damages, attorneys fees, and costs. Payne v. Progressive Financial Services, No. 13-10381 (April 7, 2014). Progressive made a Rule 68 offer of $1,001 in damages and fees to the date of the offer, to which Payne did not respond. The district court reasoned that Payne had not pleaded a basis to recover actual damages, and that the unaccepted offer mooted her claim for statutory damages because it exceeded the amount she could recover. The Fifth Circuit reversed, finding that the district court’s analysis of the actual damages claim conflated jurisdiction with resolution of the merits; accordingly, Progressive’s offer was incomplete because it did not address actual damages. A footnote reminds that a complete Rule 68 offer can moot a case, and that the Court did not reach the argument that the offer was incomplete because it did not include post-offer fees and costs.
The stark facts of Bierwith v. Countrywide Bank, FSB are: “[A[ppellant's] notice of appeal was filed on August 16, 2013, thirty-one days after the district court’s entry of final judgment on July 16, 2013. Federal Rule of Appellate Procedure 4 provides that a notice of appeal ‘must be filed with the district clerk within 30 days after entry of the judgment or order appealed from.’ As the Supreme Court has made clear, a party’s failure to take an appeal within the prescribed time precludes our jurisdiction. Accordingly, [Appellants'] appeal is DISMISSED.” No. 13-50755 (April 3, 2014, unpublished) (footnotes omitted).
The State of Louisiana sued several insurers, alleging it was the beneficiary of assignments made by the insured in return for help rebuilding after Hurricane Katrina. The insurers removed to federal court under CAFA. After extensive proceedings, the district courts ultimately severed the actions by individual policy and ordered remand to state court. State of Louisiana v. American National Property & Casualty Co., No. 14-30071 (March 26, 2014). The Fifth Circuit reversed because “at the time of removal, these claims clearly possessed original federal jurisdiction as an integrated part of the CAFA class action.” Noting language in Honeywell International v. Phillips Petroleum that “a severed action must have an independent jurisdictional basis,” 415 F.3d 429, 431 (5th Cir. 2005), the Court limited that language as “appl[ying] only to severed claims that are based on supplemental jurisdiction.”
- How close does Twombly come to Fed. R. Civ. P. 9(b)? Consider Merchants & Farmers Bank v. Coxwell, affirming the dismissal of a pleading: “The complaint did not specify what court issued the order, when it was issued, or to whom it was directed; [and] the complaint did not describe what the order required . . . .” No. 13-60368 (5th Cir. Feb. 7, 2014, unpublished).
- Credibility questions create fact issues. See Vaughan v. Carlock Nissan of Tupelo, No. 12-60568 (5th Cir. Feb. 4, 2014, unpublished) (reversing a summary judgment about a manager’s “bad faith,” noting credibility questions about his claimed justifications for a firing, ambiguity in other statements, and the timing of the termination).
- Forum non conveniens factors – the “availability of witnesses” factor is reviewed by Royal Ten Cate USA, Inc. v. TT Investors, Ltd. No. 13-50106 (5th Cir. March 25, 2014, unpublished), and Indusoft, Inc. v. Taccolini, No. 13-50042 (March 19, 2014, unpublished).
- Conflicting documents about arbitration are harmonized in Lizalde v. Vista Quality Markets, ___ F.3d ___ (5th Cir. March 25, 2014) (enforcing an arbitration agreement despite a benefit plan with a broad termination right, noting that both agreements’ termination provisions “clearly demarcate their respective applications”).
- Settlement efforts as prerequisite for arbitration. This language — “the parties agree to negotiate in good faith toward resolution of the issues, and to escalate the dispute to senior management personnel in the event that the dispute cannot be resolved at the operational level” — does not create a requirement of negotiation by senior management before arbitration is invoked. 21st Century Financial Services v. Manchester Financial, ___ F.3d ____ (5th Cir. March 31, 2014).
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This language — “the parties agree to negotiate in good faith toward resolution of the issues, and to escalate the dispute to senior management personnel in the event that the dispute cannot be resolved at the operational level” — does not create (1) a requirement of negotiation by senior management before arbitration is invoked, or (2) a condition that any senior management negotiation fail before arbitratation is invoked. It simply requires negotiation at the operational level. 21st Century Financial Services v. Manchester Financial, No. 13-50389 (March 31, 2014).
The district court granted a dismissal in favor of New Zealand, on forum non conveniens grounds, in Royal Ten Cate USA, inc. v. TT Investors, Ltd. No. 13-50106 (March 25, 2014, unpublished). The Fifth Circuit remanded for further consideration of what it saw as a key private-interest factor — “whether two key witnesses who reside in Texas would be amenable to process in New Zealand.” The witnesses in question were former party employees living in Texas, and the parties disputed whether those individuals’ employment contracts obligated them to cooperate with litigation after their employment. Their importance was heightened because they were particularly significant to one side, while the other side did not appear to have comparable problems with its likely witnesses. The Court did not express an opinion about the proper result on remand, and noted that “[t]he decision regarding whether or not to take additional evidence is one that we leave to the sound discretion of the district court.”
A law firm appealed the disposition of its fee application. The district court affirmed the bankruptcy court in part, vacated in part, and remanded for the firm to make another fee request that provided more necessary information. Okin Adams & Kilmer v. Hill, No. 13-20035 (March 24, 2014). The firm appealed to the Fifth Circuit, which concluded it had no appellate jurisdiction because the order was not final: “Given that the bankruptcy court must perform additional fact-finding and exercise discretion when determining an appropriate attorney’s fee award, the district court’s order requires the bankruptcy court to perform judicial functions upon remand.” A detailed dissent concluded that, while the district court’s order required “more than a mechanical entry of judgment,” “it also involves only mechanical and computational tasks that are ‘unlikely to affect the issue that the disappointed party wants to raise on appeal.’” Accordingly, it warned that “refusing to hear this appeal undermines the long-recognized, salutary purpose of allowing appeals in discrete issues well before a final order in bankruptcy.”
In Lizalde v. Vista Quality Markets, the Fifth Circuit revisited the recurring issue of whether an arbitration agreement becomes illusory because of an employer’s right to amend the terms of employment. No. 13-50015 (March 25, 2014).The parties’ Arbitration Agreement gave the employer the power to terminate that agreement after following several procedural prerequisites, which made that agreement non-illusory. In contrast, the parties’ Benefit Plan had a “completely unrestrained” termination power. And, the Arbitration Agreement acknowledged: “this Agreement is presented in connection with the Company’s [Benefit Plan]. Payments made under the [Benefit Plan] also constitute consideration for this Agreement.” The district court found the arbitration agreement illusory, based on that connection. The Fifth Circuit reversed, nothing that both agreements’ termination provisions were limited to “this Agreement” and “this Plan” respectively and thus “clearly demarcate their respective applications.”
The plaintiffs in Moran v. Ocwen Loan Servicing LLC ran afoul of the holding in Priester v. JP Morgan Chase, 708 F.3d 667 (5th Cir. 2013), that “liens that are contrary to the requirements of § 50(a) [of the Texas Constitution] are voidable rather than void from the start.” No. 13-20242 (March 24, 2014, unpublished). They sought certification to the Texas Supreme Court to correct what they contended was an erroneous holding in Priester. The Fifth Circuit gave two valuable general reminders in this area. First: “It is a well-settled Fifth Circuit rule of orderliness that one panel of our court may not overturn another panel’s decision, absent an intervening change in the law, such as by a statutory amendment, or the Supreme Court, or our en banc court.” Second, “While the Texas Constitution allows this court to certify questions to the Texas Supreme Court, certification is not a proper avenue to change our binding precedent.”
Indusoft sued in the Southern District of Texas alleging theft of intellectual property. Two defendants moved to dismiss on the grounds of forum non conveniens (under Gulf Oil Corp. v. Gilbert, 330 U.S. 501 (1947), not 1404(a)). The Court affirmed dismissal, finding no error in (1) presuming that Brazil was an adequate alternate forum, (2) concluding that certain electronic data was more likely to be preserved in Brazil, (3) discounting the importance of one witness for whom compulsory process would not be available in Brazil, and (4) analyzing the interplay between the Texas case and related litigation in Brazil. Indusoft, Inc. v. Taccolini, No. 13-50042 (March 19, 2014, unpublished). The Court reversed dismissal of the other defendants’ counterclaims, finding that it was erroneous to do so sua sponte (citing Lozano v. Ocwen Federal Bank, 489 F.3d 636, 643 (5th Cir. 2007)).
After the Supreme Court’s reversal of the Fifth Circuit in Mississippi v. AU Optronics, which held that the case was not a “mass action” under CAFA, AU Optronics argued that federal courts still had jurisdiction over the matter as a “class action.” The Fifth Circuit disagreed, finding that it had addressed and rejected that argument in its prior panel opinion. Mississippi v. AU Optronics, No. 12-60704 (March 19, 2014, unpublished). Its treatment of the issue was not dicta because it was “an explication of the governing rules of law” that received the Court’s “full and careful consideration.” Because that analysis “was a proper holding, the law-of-the-case doctrine forbids its reconsideration.” Alternatively, the point was waived when AU Optronics did not appeal it to the Supreme Court. (While the distinction between holding and dicta is fundamental to the common law, much less appellate practice, a formal definition such as this is rare. A detailed analysis appears in Loud Rules, an article in the Pepperdine Law Review by this blog’s author and Professor Wendy Couture of the University of Idaho Law School.)
While a host of opinions have addressed basic problems with common plaintiffs’ theories in mortgage servicing cases, the recent case of Williams v. Wells Fargo is a useful guide to a wide range of them in a single opinion, including the statute of frauds and its exceptions, waiver, and basic TDCPA and RESPA violations. The Court also reminded that a good contract pleading should identify the specific ways in which a contract has been breached, and found waiver when the grounds were not sufficiently detailed until the appellate level.
Even by the standards of tax cases, BNSF Railway Co. v. United States is arcane, but the underlying statutory analysis is of broad general interest. No. 13-10014 (March 13, 2014). The first issue — the taxability of certain stock options — turned on whether a Treasury regulation about the meaning of the term “compensation” was entitled to Chevron deference. The Fifth Circuit held that it was — as to the first Chevron factor, the Court found the term ambiguous, noting (1) the lack of a similar statute using the term, (2) variation among dictionary definitions, and (3) ambiguity in business usage, such as there was, at the time the relevant statute was passed in the 1920s-40s. [Unintentional capitalist wit appears in footnote 63, which refers to the "Rand House Dictionary" rather than the "Random House Dictionary" in a citation about "capital or finance."] The Court then found the regulation reasonable, noting its general consistency with the goals and structure of the statute and its legislative history. A second holding illustrates the application of the “specific-general canon” and “the rule against superfluities.”
A law firm argued that the Texas “anti-SLAPP” statute protected its efforts to solicit former patients of a dental clinic as clients. NCDR, LLC v. Mauze & Bagby PLLC, No. 12-41243 (March 11, 2014). (This statute has led to a great deal of litigation about communication-related disputes, often in areas that the Legislature may not have fully anticipated — this blog’s sister details such litigation in the Dallas Court of Appeals.) In a detailed analysis, the Fifth Circuit agreed that the district court’s ruling against the firm was appealable as a collateral order. The Court then sidestepped an issue as to whether the anti-SLAPP statute was procedural and thus inapplicable in federal court, finding it had not been adequately raised below. Finally, on the merits, the Court affirmed the ruling that the law firm’s activity fell within the “commercial speech” exception to the statute: ”Ultimately, we conclude that the Supreme Court of Texas would most likely hold that M&B’s ads and other client solicitation are exempted from the TCPA’s protection because M&B’s speech arose from the sale of services where the intended audience was an actual or potential customer.”
Taylor sued his employer in state court for violations of Texas law. Taylor v. Bailey Tool & Manufacturing Co., No. 13-10715 (March 10, 2014). Later, he amended his pleading to add federal claims. Defendant removed and moved to dismiss on limitations grounds. Under Texas law, Taylor’s new claims would not relate back because the original state law claims were barred by limitations when suit was filed. Under Fed. R. Civ. P. 15(c), however, the claims would relate back because they “arose out of the conduct, transaction, or occurrence set out” in the original pleading. Noting that Rule 81(c) says the Federal Rules “apply to a civil action after it is removed,” the Fifth Circuit concluded that they did not “provide for retroactive application to the procedural aspects of a case that occurred in state court prior to removal to federal court.” Accordingly, it affirmed dismissal.
When a homestead is permanently exempted from a bankruptcy estate, are any proceeds from a subsequent sale of the homestead also permanently exempt? Viegelahn v. Frost found they were not. No. 12-50811 (March 5, 2014). Frost argued that In re Zibman, 268 F.3d 298 (5th Cir. 2001), was distinguishable because he sold his homestead after petitioning for bankruptcy, when the homestead was already exempted, while Zimban concerned homestead proceeds obtained before bankruptcy. The Fifth Circuit found that distinction immaterial, concluding that once a debtor sells his homestead the essential character of the homestead changes from “homestead” to “proceeds,” placing it under a more limited six month exemption. Accordingly, when a debtor does not reinvest the proceeds within that period, they are removed from the protection of Texas law and are no longer exempt from the estate.
In Naquin v. Elevating Boats, LLC, the Fifth Circuit found that the verdict and resulting judgment in a Jones Act case erroneously included compensation for mental anguish from seeing the death of another person. No. 12-31258 (March 10, 2014). The Court disposed of the case as follows: “[S]erious practical problems would be presented at trial if we were to save some elements of the damage award and retry only other elements of damage. ’Where, as here, the jury’s findings on questions relating to liability were based on sufficient evidence and made in accordance with law, it is proper to order a new trial only as to damages.’ We therefore retain the jury’s liability finding but order a new trial on damages.” (quoting Hadra v. Herman Blum Consulting Engineers, 632 F.2d 1242, 1246 (5th Cir. 1980)).
Plaintiffs alleged that the members of MERS violated RICO by making fraudulent statements about the legal effect of mortgages nominally recorded in the name of MERS. Welborn v. Bank of New York Mellon, No. 13-30103 (March 5, 2014, unpublished). The district court dismissed under Rule 12(b)(6) on the ground that Plaintiffs impermissibly sought to enforce the Trust Indenture Act by way of a RICO action. The Fifth Circuit affirmed, but on the alternative ground that Plaintiffs had not pleaded a RICO injury to their “business or property.” The alleged injuries — “loss of recording fees and general damage to the integrity of public records” arose “not . . . from commercial activity, but rather from the provision of a public service — that is, a governmental function.”
BP’s continuing efforts to reduce the scope of its Deepwater Horizon settlement program again produced three separate opinions from a panel in In re Deepwater Horizon (several cause numbers, March 3, 2014). Judge Southwick found that the plan’s requirement of a “certification on the document that the claimant was injured by the Deepwater Horizon disaster” resolved any lingering jurisdictional issues. Judge Dennis concurred in a shorter opinion. Judge Clement dissented, arguing: “This agreement, as implemented, is using the powers of the federal courts to enforce obligations unrelated to actual cases or controversies.”
The Fifth Circuit reversed a summary judgment on a construction subcontractor’s promissory estoppel claim in MetroplexCore, LLC v. Parsons Transportation, No. 12-20466 (Feb. 28, 2014). The Court noted the specificity of the statements made to it by representatives of the general contractor, the parties’ relationship on an earlier phase of the project, and specific communications describing reliance. The Court relied heavily on the analysis of a similar claim in Fretz Construction Co. v. Southern National Bank of Houston, 626 S.W.2d 478 (Tex. 1981).
Duoline Technologies v. Polymer Instrumentation presents an unusual appellate review of a discovery order, arising from an ancillary proceeding to enforce a subpoena for a Pennsylvania case. No. 13-50532 (March 5, 2014, unpublished). Plaintiff Duoline sought to depose Joseph Schwalbach, a former employee, about the business dealings between his new company and Defendant Polymer. Among other rulings, the district court limited the document requests and deposition scope to events during Schwalbach’s employment by Duroline. The Fifth Circuit noted that some evidence supported the plaintiff’s theory of a connection between the businesses, and that logically, plaintiff’s theory relied upon events after Schwalbach left his job at Duoline. The Court did not find an explanatory affidavit from Schwalbach to be dispositive.
Several Louisiana parishes sought damages under a state statute for damages arising from the Deepwater Horizon incident. In re Deepwater Horizon, No. 12-30012 (Feb. 24, 2014). Condensing a much more nuanced opinion — the Fifth Circuit held that the claims were preempted by the Clean Water Act under International Paper v. Oulette, 479 U.S. 481 (1987), because the pollution arose from a source outside Louisiana. The Court rejected arguments that the Oil Pollution Act of 1990 (prompted by the Valdez disaster) changed that analysis, and concluded that the Supreme Court ruled consistently with this result in Arkansas v. Oklahoma, 503 U.S. 91 (1992).
Rowland Trucking’s insurance policy required that it maintain a fence around the entirety of its property. The fence had gaps on the south and west side. Thieves entered on the east side and stole $350,000 in videogame consoles. The Fifth Circuit affirmed judgment for the insured under the Texas Anti-Technicality Statute, which provides: “Unless the breach or violation contributed to cause the destruction of the property, a breach or violation by the insured of a warranty, condition, or provision of a fire insurance policy or contract of insurance on personal property, or of an application for the policy or contract: (1) does not render the policy or contract void; and (2) is not a defense to a suit for loss.” W.W. Rowland Trucking Co. v. Max America Insurance, No. 13-20341 (Feb. 24, 2014, unpublished). The Court sidestepped an argument that the statute did not reach liability policies, finding that the policy here was a property policy notwithstanding its occasional use of the word “liability.”
Plaintiff Jongh sued “State Farm Lloyds” and Johnson, a local insurance adjuster, relating to the handling of her property insurance claim for storm damage. Jongh v. State Farm Lloyds, No. 13-20174 (Feb. 20, 2014, unpublished). State Farm answered and removed, arguing that (1) Johnson was improperly joined to destroy diversity; (2) Jongh had improperly named Lloyds, a separate entity; and (3) State Farm and Jongh were diverse. The trial court ruled for the defendants after a 1-day bench trial. The Fifth Circuit agreed with Plaintiff — who appears to have raised subject matter jurisdiction for the first time on appeal — that “State Farm never became a party in this action. Jongh did not name State Farm as a defendant in her original petition; although it asserted in its answer and notice of removal that Jongh incorrectly named Lloyds as a defendant, State Farm did not move to intervene or otherwise request that the district court substitute it as the proper party in interest.” The Court noted that Plaintiff, the “master of her complaint,” consistently asserted that her claim was against Lloyds and not State Farm. The judgment was vacated and the case remanded.
In Star-Tex Resources, LLC v. Granite State Ins. Co., the parties disputed whether an “auto exclusion” barred coverage in a personal injury case. No. 13-50469 (Jan. 8, 2014, unpublished) The Fifth Circuit concluded that it was not possible to determine coverage form the plaintiff’s pleading: “The complaint contains only one, brief sentence describing the facts of the accident. Importantly, it contains no description of how Esquivel caused the collision.” Therefore, it was appropriate to consider extrinsic evidence (beyond the “eight corners” of the pleading and policy) that the insured was driving a car at the time of the accident, as it was relevant to coverage and by itself did not go to liability, citing Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523 (2004).
In Grimes v. BNSF Railway, the district court applied collateral estoppel to a Federal Railway Safety Act (“FRSA”) suit, based on a fact finding made by a type of arbitral panel called a Public Law Board (“PLB”) after an investigation and hearing by railroad personnel. No. 13-60382 (Feb. 17, 2014). The Fifth Circuit reversed, noting: (1) the hearing was conducted by the railroad; (2) the plaintiff was represented by the union rather than an attorney; (3) the termination decision was made by a railroad employee, not by “an impartial fact finder such as a judge or jury”; (4) the rules of evidence did not appear to have controlled in the arbitral proceedings; and (5) “most crucially,” the PLB’s affirmance was based solely on the record developed at the hearing administered by the railroad. The Court noted authority that rejects res judicata in this context, but also noted that “estoppel may apply in federal-court litigation to facts found in arbitral proceedings as long as the court considers the ‘federal interests warranting protection.’”
After recent opinions finding that credibility determinations led to fact issues in cases about whether a barge hit a bridge and a prison fight, the Fifth Circuit again so held in Vaughan v. Carlock Nissan of Tupelo, No. 12-60568 (Feb. 4, 2014, unpublished). Vaughan alleged that a car dealership unlawfully terminated her after she reported several irregularities there to Nissan. The Fifth Circuit affirmed summary judgment for the dealership as to Mississippi’s “illegal act” exception to at-will employment, but reversed as to her tortious interference claim against the supervisor who terminated her. That claim requires proof of bad faith, which Vaughan sought to establish by showing that she was not fired until making a complaint that specifically named the supervisor. The supervisor admitted that, at the time of termination, he knew Vaughan had complained to Nissan but said “he did not know the contents of the complaint.” The Fifth Circuit found that credibility issues about his claimed justifications for the firing, coupled with the ambiguity of his statement that Vaughn had “no right to report these things to Nissan,” and the timing of the termination, created a fact issue that made summary judgment unwarranted.
Villanueva worked for a Colombian affiliate of a publicly-traded entity subject to Sarbanes-Oxley. He alleged that he was terminated after reporting a scheme by his employer to understate revenue to Colombian tax authorities. Villanueva v. U.S. Department of Labor, No. 12-60122 (Feb. 12, 2014). The Fifth Circuit affirmed the DOL’s rejection of his claim for whistleblower protection under SOX, concluding: “Villanueva did not provide inforotmation regarding conduct that he reasonably believed violated one of the six provisions of U.S. law enumerated in § 806; rather, he provided information regarding conduct that he reasonably believed violated Colombian law.” (Footnote 1 notes that the Court did not reach the broader issue whether section 806 applies extraterritorially.) Law 360 has reported on the case and collected opinion from both sides of the employment bar.
The Fifth Circuit found that a subcontractor’s CGL carrier had no duty to defend a construction defect claim against the general contractor. Carl E. Woodward LLC v. Acceptance Indemnity Ins. Co., No. 12-60561 (Feb. 11, 2014). The pleading alleged that the general contractor, through its subcontractor, “built the foundation piers in non-conformity with plans and specifications.” An accompanying engineer’s report provided detail about related drainage problems. The Court concluded that the policy language meant that “claims for liability can be brought after ongoing operations are complete, but the underlying liability cannot be due to the ‘completed operations.’” A contrary holding, reasoned the Court, “effectively converts a CGL policy into a performance bond.” Here, “[e]ven accepting the district court’s factual finding that damage had occurred during ongoing operations, the only ‘damage’ supported by allegation is the construction that was not in conformity with plans and specifications,” and “[l]iability for such damages arising out of completed operations . . . .” Law360 has recently published an analysis of this opinion. An opinion denying rehearing elaborates on the role of the engineering report.
Babalola and Adetunmbi alerted authorities to Medicare fraud by the clinic they worked for. Federal authorities investigated and the clinics’ operators, the Sharmas, were indicted and pleaded guilty, accepting a criminal restitution obligation of over $40 million. United States ex rel Babalola v. Sharma, No. 13-20182 (Feb. 14, 2014). During the criminal proceedings, the whistleblowers filed a FCA suit against the Sharmas. The Sharmas asserted an interest in the restitution proceeds, arguing that it was an “alternate remedy” within the meaning of the FCA that would give them “the same rights in such proceeding as [they] would have had if the action had continued under this section.” The Fifth Circuit disagreed, finding that other Circuits’ authorities “implicitly recogniz[e] that a qui tam suit must be filed before there is an alternate remedy.” A dissent conceded that this reading of the FCA was correct, but called for Congressional intervention in situations like this where the plaintiffs “took the path of the Good Samaritan and without delay provided the government with the evidence needed to pursue the defrauders.”
The company’s Collective Bargaining Agreement said: “Discharge for a confirmed positive test under the substance abuse policy shall not be subject to grievance or arbitration. However, relative to such discharge the union continues to maintain the right to grieve and arbitrate issues around the integrity of the chain of custody.” The union began an arbitration to challenge an employee’s termination for failing a drug test. ConocoPhillips, Inc. v. Local 13-0555 United Steelworkers Int’l Union, No. 12-31225 (Jan. 30, 2014). The arbitrator concluded that he had jurisdiction over that claim. The company successfully opposed confirmation on the ground that he lacked power to decide jurisdiction, and the Fifth Circuit affirmed, finding no provision that “clearly and unmistakably” granted such authority.
The “ART entities” sued the “Clapper entities” for fraud about a real estate transaction, and they countersued for breach of fiduciary duty. A jury found against both sides. The Clapper entities appealed; the Fifth Circuit reversed on a legal issue and remanded for new proceedings on liability and damages. The ART entities then sought to raise the fraud claim again; the district court found it barred by the mandate rule, and on appeal from the second trial, the Fifth Circuit affirmed. ART Midwest Inc. v. Clapper, No. 11-11140 (Feb. 3, 2014). It reasoned: “We hold that the ART entities’ decision not to cross-appeal the jury’s fraud findings in the first district court proceeding prevented them from raising the same rejected fraud claims in the second district court proceeding. Even though they prevailed on many of their claims in the first district court proceeding, the consensus of circuit authority supports that the ART entities could have filed a ‘protective’ or ‘conditional’ cross-appeal of the adverse fraud finding.” The Court otherwise affirmed, reversing as to one issue relating to “double-counting” of damages in light of the parties’ correspondence.
The Fifth Circuit released a revised opinion in James v. State Farm, which continues to affirm in part and reverse in part a summary judgment for the defendant in an insurance bad-faith case based on delays in handling the claim. The majority tightens its description of the requirements for punitive damages under Mississippi law, the dissent heightens its criticism of the majority’s reasoning as to the applicable standard and analytical framework.
Mississippi law allows a “bad faith” claim relating to handling of workers’ compensation; Alabama law does not. Williams, a Mississippi resident, was injured in Mississippi while working for an Alabama resident contract. Williams v. Liberty Mutual, No. 11-60818 (Jan. 28, 2014). The Fifth Circuit reversed the choice-of-law question, finding that section 145 of the Restatement (governing tort claims) applied rather than other provisions for contract claims. Under that framework, Mississippi would give particular weight to the place of injury, and thus apply Mississippi law. The opinion highlights the importance of the threshold issue of properly characterizing a claim before beginning the actual choice-of-law analysis.
The Fifth Circuit provided its most thorough recent review of the pleading requirements of Twombly and Iqbal in Merchants & Farmers Bank v. Coxwell, No. 13-60368 (Feb. 7, 2014, unpublished). The issue was whether the plaintiff pleaded a conversion claim relating to an attorney’s distribution of certain funds in alleged violation of a court order. The Fifth Circuit noted that such a claim was cognizable under Mississippi law, and that the plaintiff’s pleading might have satisfied Conley v. Gibson. Under Twombly and Iqbal, however: ”The complaint did not specify what court issued the order, when it was issued, or to whom it was directed; the complaint did not describe what the order required and therefore whether the allegation of a violation is plausible or merely fantastical. Further, merely alleging a perfected security interest is insufficient to establish ownership, and the complaint did not describe whether the court order established M&F’s possessory interest in the funds by reducing its claim to judgment.” (citing Funk v. Stryker Corp., 631 F.3d 777, 782 (5th Cir. 2011)).
In Credit Union Liqudity Services, LLC v. Green Hills Devel. Co. LLC, the Fifth Circuit found that a creditor lacked standing under section 303(b) of the Bankruptcy Code to file an involuntary bankruptcy proceeding, because the creditor’s debt was subject to a ‘bona fide dispute.’ No. 12-60784 (Feb. 3, 2014). The Court first held that the debtor had not waived arguments about 303(b) by failing to file a conditional cross-appeal from the district court’s dismissal order, finding that the arguments fell under the rule allowing affirmance on any argument supported by the record. In reaching its conclusion, the Court noted that the claim had been subject to “unresolved, multiyear litigation.” The Court also observed that 2005 amendments to the Code defined a bona fide dispute as one “to liability or amount,” a change which drew into question earlier authority that focused only on liability. That change can allow consideration of counterclaims related to the creditor’s claim.
In Wells Fargo Capital Finance v. Noble, Wells Fargo faced a class action in California. It attempted to get an antisuit injunction from a Texas bankruptcy court, which was denied. No.13-10468 (Feb. 5, 2014, unpublished). The Fifth Circuit found the appeal moot, because Wells’s briefing focused on a consolidated complaint in the class case that was amended after the appeal began. While the Court noted: “An amended complaint supersedes the original complaint and renders it of no legal effect unless the amended complaint specifically refers to and adopts or incorporates by reference the earlier pleading,” it did not resolve the appeal on that basis, simply finding that the new complaint significantly changed the relevant issues.
The Chinese defendant in Baldwin v. Taishan Gypsum Co., Ltd., part of the “Chinese Drywall” MDL proceeding, sought to set aside a default judgment for lack of personal jurisdiction. Nos. 10-30568 & 12-31017 (Jan. 28, 2014). Applying Fourth Circuit law, which the Court characterized as taking a “more conservative” approach to recent Supreme Court decisions than the Fifth (see Ainsworth v. Moffett Engineering, 716 F.3d 174 (5th Cir. 2013). The Court found jurisdiction under that Circuit’s “stream-of-commerce plus” test, noting that the defendant sold directly into Virginia, made markings on its product specific to the Virginia customer, modified the design specifically for that customer, and had a plan to expand sales by leveraging the relationship with the customer. The Court also found a lack of excusable neglect, noting that service was proper under the Hague Convention and that the defendant delayed seeking legal counsel for many months.
In 2012, the Fifth Circuit held that for purposes of the duty to defend, a mishap while loading a patient into an ambulance was “use” of an auto. Litigation continued, and the district court concluded that for purposes of the duty to indemnify (where the inquiry is not limited to the “eight corners”), the injury did not arise from auto use. National Casualty Co. v. Western World Ins., 12-50652 (Jan. 15, 2014, unpubl.) The Fifth Circuit reaffirmed its earlier conclusion that it did, and also remanded for further review of a potentially applicable exclusion about auto use: “If the EMTs in fact failed to properly secure Rigsby to the gurney before they began to move her toward the ambulance, and if Rigsby’s injury resulted from this failure, Western World’s auto exclusion is inapplicable.” The facts of this case illustrate some awkwardness in common form insurance provisions in this area.
Scott v. Carpanzano affirmed two default judgments and vacated a third, applying the basic federal standard: “whether the defendant willfully defaulted, whether a meritorious defense is presented, and whether setting aside the default judgment would prejudice the plaintiff.” No. 13-10096 (Jan. 24, 2014, unpublished). Footnote 3 notes that the standards under Rule 60(b)(1) and Rule 55 may diverge after a 2007 stylistic revision to Rule 55, but concludes they have not yet and did not on the facts of this case.
The question in Bank of New York Mellon v. GC Merchandise Mart LLC was whether the acceleration of a note triggered a $1.8 million prepayment penalty, when the debtor had ceased making payments on the note. No. 13-10461 (Jan. 27, 2014). The Fifth Circuit affirmed judgment in favor of the debtor: “The plain language of the contract does not require the payment of the Prepayment Consideration in the event of mere acceleration. Quite the opposite, in fact: the plain language plainly provides that no Prepayment Consideration is owed unless there is an actual prepayment, whether voluntary or involuntary.”
This week, the Texas Lawbook has posted an excellent profile of Chief Judge Carl Stewart, titled “Meet Chief Judge Carl Stewart: ‘A Brilliant Legal Mind Housed in a Very Nice, Regular Person.’” The ABA Journal will publish the profile later this week.
Boyett v. Redland Ins. Co. examined whether a forklift is a “motor vehicle” within the meaning of Louisiana’s uninsured motorist statute, and concluded that it is one. No. 12-31273 (Jan. 27, 2014). Its Erie analysis illustrates a feature of Louisiana’s civil law system that bedevils outsiders. On the one hand, a court “must look first to Louisiana’s Constitution, its codes, and statutes, because the ‘primary basis of law for a civilian is legislation, and not (as in the common law) a great body of tradition in the form of prior decisions of the courts.’ Unlike in common law systems, ‘[s]tare decisis is foreign to the Civil Law, including Louisiana.’” On the other hand, “[W]hile a single decision is not binding on [Louisiana's] courts, when a series of decisions form a constant stream of uniform and homogenous rulings having the same reasoning, jurisprudence constante applies and operates with considerable persuasive authority.”
In Lawyers Title Ins. Corp. v. Doubletree Partners, L.P., the title insurance company mistakenly left key provisions out of a policy due to a software problem, while the insured’s surveyor erroneously measured the extent of a “flowage easement” held on the development property by Lake Lewisville. No. 12-40692 (Jan. 14, 2014). The Fifth Circuit held: (1) reformation was justified, because the insured had reason to know of the title company’s unilateral mistake; (2) both sides had reasonable interpretations of (a) the scope of coverage for survey error, (b) the ‘flowage easement exception,’ (c) and the ‘created, suffered, assumed, or agreed to’ exception, so coverage appeared likely. Summary judgment for the insurer was reversed and the case remanded for further proceedings. A sanctions award against the insured’s counsel under 28 U.S.C. § 1927 in connection with extracontractual claims was reversed for lack of bad faith by the attorneys.
In Richardson v. Wells Fargo, a mortgage servicer sought recovery of attorneys fees pursuant to a provision in the deed of trust that referred to “paying reasonable attorneys’ fees to protect its interest in the Property and/or rights under this Security Instrument.” No. 13-10002 (Jan. 24, 2014). The issue was whether a Rule 54(d)(2) motion was an appropriate vehicle to make its claim, which turned on “whether the fees are an element of damages or collateral litigation costs.” The Fifth Circuit concluded this provision defined legal fees as collateral costs, not “an independent ground of recovery” where Rule 54 might become inapplicable. The Court went on to hold that “motions for attorney’s fees provided by contract are permissible under Rule 54(d)(2)” after reviewing and rejecting authority that suggested otherwise. (For thorough review of when fees become damages in their own right under Texas law, and other key points about fee awards, please consult “How to Recover Attorneys Fees in Texas” by my colleagues Trey Cox and Jason Dennis.)
A painstaking panel issued two detailed tax opinions on the same day. In the first, “substantial underpayment” penalties were found appropriate, in a partnership-level proceeding, where substantial authority did not support the taxpayer’s position as to a well-known inappropriate tax shelter. NPR Investments LLC v. United States, No. 10-41219 (Jan. 23, 2014). In the second, the Court affirmed a finding that certain claimed tax credits were not “qualified research expenses” within the meaning of the Internal Revenue Code, while also remanding to enforce a stipulation made by government before the Tax Court, In an evidentiary holding of broader interest, the court found no abuse of discretion in the exclusion under Rule 403 of the taxpayers’ alleged lab records, agreeing that they were voluminous and not pertinent to the specific tax law issues at hand. Shami v. Commissioner of Internal Revenue, No. 12-60727 (Jan. 23, 2014). Both opinions discuss the appropriate standards of review for appeal from the U.S. Tax Court.
BAL Metals stored roughly $500,000 of copper in a warehouse operated by Mundell Terminal Services. Thieves stole the copper. BAL Metals’ insurance carrier paid the claim and then sued the warehouse as BAL’s subrogee. United Nat’l Ins. Co. v. Mundell Terminal Servs., Inc., No. 13-50052 (Jan. 23, 2014). The warehouse asked its carrier for defense and indemnity, coverage litigation ensued, and the district court granted summary judgment for the warehouse’s carrier. It reasoned that because a bailor is presumed to insure a bailee’s interest as well as its own under Texas law, the policy was “other insurance” to BAL’s coverage. The Court noted that the warehouse had a first-party property damage policy rather than liability coverage. The Court also concluded that another coverage argument, about the characterization of the metal under the policy’s definition of “property,” had been waived because it was not presented with enough specificity to the district court.
The City of Alexandria settled a lawsuit with an electricity supplier for a $50 million recovery. A sordid dispute then broke out among the City and various lawyers who worked on the case and asserted a contingency interest in the recovery. City of Alexandria v. Brown, No. 12-30823 (Jan. 15, 2014). The opinion, which affirms the district court’s resolution of the dispute, provides an overview of when “quantum meruit” principles control over the terms of a contingent fee agreement. As to one lawyer, relevant factors included the end of her involvement relatively early in the matter, and seemingly unreliable time records during that involvement. As to another, the court noted that the contract created a “joint obligation” between him and another lawyer that became impossible of performance after he was disbarred, requiring a quantum meruit analysis.
During 2013, this blog had a feature that tracked the M/V OCEAN SHANGHAI — in Farenco Shipping Co. v. Farenco Shipping PTE, Ltd., an appeal about an attachment order on that vessel became moot when the ship sailed from Fifth Circuit waters, apparently never to return. Now under new ownership, the ship is reflagged as the M/V CALHOUN, so the SHANGHAI is no more.
The plaintiff in Diggs v. Citigroup, Inc. sought to resist arbitration of an employment dispute, relying upon a study by Cornell professor Alex Colvin that concluded: “there is a large gap in outcomes between the employment arbitration and litigation forums, with employees obtaining significantly less favorable outcomes in arbitration.” No. 13-10138 (Jan. 8, 2014, unpublished). The Fifth Circuit affirmed the district court’s decision to exclude the study under Daubert, noting that the study was not connected to this dispute and examined data from 5 years before its initiation. The Court also questioned — without resolving — the validity of comparing arbitration statistics from 2003-07 with litigation statistics from the late 1990s.
After WaMu failed, the FDIC conveyed its assets and liabilities to Chase. Several landowners sought to enforce lease terms against Chase by virtue of that conveyance. The Fifth Circuit affirmed summary judgment for them in Excel Willowbrook LLC v. JP Morgan Chase Bank, NA, No. 12-20367 (Jan. 10, 2014). First, the Fifth Circuit “reluctantly” followed two other Circuits which found that a “no-beneficiaries” clause in the FDIC’s assignment extinguished the landlords’ rights, noting its own belief that the lease requirements were more in the nature of primary obligations. But the Court then agreed with the district court that the landlords were in privity of estate with Chase and could enforce the leases for that reason, characterizing the FDIC’s argument to the contrary as “ignor[ing] eight centuries of legal history,” and expressly disagreeing with an Eleventh Circuit case to the contrary. As for concerns about expansive liability for FDIC assignees, the Court observed: “The FDIC can avoid its present plight in future cases by drafting contractual provisions for the right it seeks to claim.”
9-0, the Supreme Court reversed the Fifth Circuit’s panel opinion in Mississipi ex rel. Hood v. AU Optronics Corp., 571 U.S. ___ (Jan. 14, 2014). After review of CAFA’s language and structure, that Court concluded that an action brought on behalf of consumers by a state was not a “mass action” that could allow removal, since it has only one plaintiff, and the claims of the relevant consumers cannot be counted without “unwieldy inquiries.” The Supreme Court characterized the “mass action” provision of CAFA as a “backstop” to prevent the repackaging of a class action.
After a recent panel remanded an appeal about the Deepwater Horizon settlement for further proceedings about its payment formula, another panel examined challenges to the settlement based on the guidelines of Rule 23, the Rules Enabling Act, and Article III. In re Deepwater Horizon — Appeals of the Economic and Property Damage Class Action Settlement, No. 13-30095 (Jan. 10, 2014). The panel found that, at the stage of certifying a settlement class, it did not violate those guidelines to have class members who may not be able to prove causation or damages on the merits: “It is sufficient for standing purposes that the plaintiffs seek recovery for an economic harm that they allege they have suffered, because we assume arguendo the merits of their claims at the Rule 23 stage.” In particular, the panel found that outcome consistent with Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011), as it requires evidence “that a particular contention is common, but not that it is correct.” The panel also found no abuse of discretion in the district court’s handling of subclasses or damage calculations. A dissent contended: “Absent an actual causation requirement for all class members, Rule 23 is not being used to simply aggregate similar cases and controversies, but rather to impermissibly extend the judicial power of the United States into administering a private handout program.
From recent cases described on this blog, here are three basic tips for business cases in 2014:
1. Plead like a mystery writer. Like a skilled crime novelist, the civil rights plaintiff in Jabaray v. City of Allen survived a Rule 12 motion by detailing motive and opportunity – the mayor’s alleged personal investment in the real estate at issue, and his role and involvement in the relevant city agencies. No. 12-41054 (Nov. 25, 2013, unpubl.)
2. Eyewitnesses help make fact issues. Plaintiff claimed a barge came loose during Hurricane Katrina and damaged a bridge. Defendant said that Plaintiff’s theory required the impossible – that the barge move upstream against hurricane-force wind. The Fifth Circuit found a fact issue from eyewitnesses who saw and heard things consistent with Plaintiff’s theory. “There is a great deal of testimony supporting Lafarge’s position, to be sure, and little to support the Parish’s, but we are mindful of the summary judgment standard.” St. Bernard Parish v. Lafarge North America, No. 13-30030 (Dec. 19, 2013, unpubl.) This reasoning could extend to admissible testimony about the commercial context of an agreement, or its course of performance.
3. Keep experts on Earth. The Court found that an expert in a toxic tort case made unsupported assumptions about (a) the plaintiff’s work hours, (b) what he did at work, (c) where he worked, and (d) whether the ventilation worked. ”To be sure, reliable expert testimony often involves estimation and reasonable inferences from a sometimes incomplete record. . . . Here, however, the universe of facts assumed by the expert differs frequently and substantially from the undisputed record evidence.” Moore v. International Paint LLC, No. 13-30281 (Nov. 15, 2013, unpubl.)
A recurring issue in federal litigation arises from cases that “overstay their welcome” in the federal courthouse; for example, where only state law claims remain after dismissal of federal claims. A variation of that situation arose in Energy Management Services LLC v. City of Alexandria, where a city sued its electricity provider. After that litigation was removed to federal court, the city then removed a second suit, brought by its utility consulting firm, on the ground of supplemental jurisdiction — after the first case had been settled. 12-31184 (Jan. 9, 2014). The remand order was certified for interlocutory appeal and the Fifth Circuit reversed, finding that there was no original jurisdiction over the second case as required by the removal statute. The Court acknowledged that the district court could have continuing jurisdiction over matters related to the original settlement, which could potentially even extend to such matters involving third parties — but here, the second case had no connection to those settled matters.
Su, a citizen of Taiwan, served on the board of Vantage, an offshore drilling contractor. Vantage is incorporated in the Cayman Islands with its principal place of business in Texas. Vantage sued Su in Texas state court for breach of fiduciary duty and related claims. Su removed, remand was denied, and the district court certified the jurisdictional issue for interlocutory appeal. Vantage Drilling Co. v. Su, No. 13-20379 (Jan. 7, 2014). The Fifth Circuit reversed and ordered remand, relying primarily upon Chick Kam Choo v. Exxon Corp., 764 F.2d 1148 (5th Cir. 1985). Section 1332(a)(2) requires complete diversity, and section 1332(c)(1) deems a corporation a citizen of “every State and foreign state” in which it is incorporated — thus, “there are aliens on both sides of the litigation, complete diversity is lacking, and there can be no diversity jurisdiction.” Su argued that Choo could be read to allow federal jurisdiction to protect against local bias, but the Court rejected that argument as inconsistent with the statute.
Federal Rule of Bankruptcy Procedure 8002(a) says that the notice of appeal from bankruptcy to district court must be filed within 14 days of the judgment or order at issue. Here, Smith filed his notice of appeal to district court thirty days after entry of final judgment. Smith v. Gartley, No. 13-50154 (Dec. 16, 2013). After reviewing the continuing validity of its older precedent of In re Stangel, 219 F.3d 498 (5th Cir. 2000), which held that this deadline is jurisdictional, the Fifth Circuit looked to In re Latture, 605 F.3d 830 (10th Cir. 2010), which reached the same conclusion. Because “the statute defining jurisdiction over bankruptcy appeals, 28 U.S.C. § 158, expressly requires that the notice of appeal be filed under the time limit provided in Rule 8002,” the time limit is jurisdictional.
In Coleman v. H.C. Price Co., a toxic tort case, the Fifth Circuit certified to the Louisiana Supreme Court the question whether that state’s one-year limitations statute for survival actions is “prescriptive” (limitations does not run until the cause of action accrues, based on the plaintiff’s actual or constructive knowledge), or or “preemptive” (the cause of action is extinguished even if it has not accrued). No. 13-30150 (Dec. 18, 2013, unpublished). The issue is significant, as the opinion says: “the answer will define the time period governing all survival actions brought in Louisiana . . . .”
Venable had a heart attack on a drilling barge; he and its owner agreed to settle for $350,000. The Louisiana Workers’ Compensation Corporation initially indicated its agreement, but withdrew consent when it became evident that he would need a heart transplant. Venable v. Louisiana Workers’ Compensation Corporation, No. 12-30965 (Dec. 30, 2013). Litigation ensued as to whether the LWCC could rely upon section 933 of LHWCA, which gives a carrier such as LWCC a veto right with substantial procedural safeguards. The Fifth Circuit reversed summary judgment for Venable. After a thorough and succinct review of the black-letter law on federal question jurisdiction, the Court found that section 933 gave the LWCC a defensive right that did not implicate Venable’s “well-pleaded complaint.” It also found that the tentative nature of the LWCC’s alleged consent foreclosed ancillary jurisdiction over the claimed settlement under Kokonnen v. Guardian Life, 511 U.S. 375 (1994).
This blog’s author is giving the Fifth Circuit Update at the State Bar’s Annual Litigation Update Institute in Austin on January 10; here is a draft of the anticipated PowerPoint.
He will also be in an audience debate (open to the public) on the afternoon of January 8 at SMU, hosted by the SMU Communications Department and the Bush Institute. The topic will be presidential power, the other participants are the debate coaches at the Universities of Houston and North Texas and the director of the Dallas Urban Debate Association.
The lower courts agreed that the sale of a pipeline system from a bankruptcy estate was free and clear of an obligation to pay certain fees to “Newco.” Newco Energy v. Energytec, Inc., No. 12-41162 (Dec. 31, 2013). The Fifth Circuit reversed, finding that the obligations arose from a covenant that ran with the land. First, the Court found that the lower courts’ reservation of the “free and clear” issue was sufficient to avoid section 363 of the Bankruptcy Code, which would otherwise moot the appeal for failure to get a stay. On the merits, the Court focused on “horizontal privity” between the parties at the time the covenant was created, expressing doubt that Texas in fact imposed such a requirement, but finding it satisfied in the conveyances here. (discussing Wayne Harwell Props. v. Pan Am. Logistics Center, Inc., 945 S.W.2d 216, 218 (Tex. App.–San Antonio 1997, writ denied)). The Court also concluded that the payment obligation ran with the land, as it related to transportation from the land and was secured by a lien on the entire pipeline. (distinguishing El Paso Refinery, LP v. TRMI Holdings, Inc., 302 F.3d 343 (5th Cir. 2002)).
Waltner v. Aurora Loan Services LLC welcomes the New Year with three bread-and-butter issues in business litigation. No. 12-50929 (Dec. 31, 2013, unpublished). First, a party’s failure to answer on time does not require the “drastic remedy” of a default judgment, especially when a plaintiff shows no prejudice from the failure to timely answer. The granting of a default judgment is a discretionary ruling by the district court. Second, damages for lost use of property are not reliance damages that can be recovered with a promissory estoppel claim. Rather, they are consequential losses — a form of expectation damages. Finally, while Fed. R. Civ. P. 26(g)(2) says that a court “must strike” unsigned discovery responses “unless a signature is promptly supplied” after the error is identified, the district court has discretion in determining what is “prompt” and in what weight to give the lack of prejudice to the opposing party.
After a recent example of attorneys fees that were not “inextricably intertwined” under Texas law, the Fifth Circuit followed this month with a practical example of the Texas requirement of “presentment” of a contract claim before fees may be recovered. In Playboy Enterprises, Inc. Sanchez-Campuzano, the Court reminded that the pleading of presentment is procedural, and thus not a requirement in the federal system. No. 12-40544 (Dec. 23, 2013, unpublished). It is, however, a substantive requirement. In this case, sending a “Notice of Default” under a primary obligation was enough to “present” a claim for liability on a guaranty, noting the “flexible, practical understanding” of the requirement by Texas courts. The Court distinguished Jim Howe Homes v. Rodgers, 818 S.W.2d 901 (Tex. App.-Austin 1991, no writ), which found that service of a DTPA complaint was not presentment of a later-filed contract claim, on the ground that the “Notice” here went beyond mere service of a pleading. For thorough review of this principle, and other key points about fee awards, please consult the book “How to Recover Attorneys Fees in Texas” by my colleagues Trey Cox and Jason Dennis.)
New York Life v. Cannatella involved the interpleader of life insurance benefits. The Fifth Circuit affirmed the award of $750 in attorneys fees to the insurance company who filed the action, agreeing that the company was “disinterested,” and identifying these factors about a fee award to a party in its position: “1) whether the case is simple or involved; 2) whether the stakeholder performed any unique services for the claimants or the court; 3) whether the stakeholder acted in good faith and with diligence; 4) whether the services rendered benefited the stakeholder; and 5) whether the claimants improperly protracted the proceedings.” No. 12-30663 (Dec. 23, 2013, unpublished).
Gregg Costa, a recent appointee to the Galveston division of the Southern District of Texas, has been nominated by President Obama to the Fifth Circuit. A Rehnquist clerk and the lead prosecutor in the Allen Stanford case, Judge Costa enjoys substantial bipartisan support for his intellect and abilities.
A barge moored at a facility operated by Lafarge came loose during Hurricane Katrina and caused extensive damage. The district court granted summary judgment to Lafarge, finding that the plaintiff’s damage theory was not scientifically credible in light of the observed weather conditions at the time. St. Bernard Parish v. Lafarge North America, Inc., No. 13-30030 (Dec. 19, 2013, unpublished). The Fifth Circuit agreed that “[t]here is a great deal of testimony supporting Lafarge’s position, to be sure, and little to support the Parish’s, but we are mindful of the summary judgment standard.” It reversed, however, noting eyewitness testimony that was not consistent with the defendant’s expert analysis. The Court distinguished and limited Ralston Purina v. Hobson, 554 F.2d 725 (5th Cir. 1977), which involved an unusual theory about the behavior of starving chickens, on the ground that its plaintiff could not prove the facts that his theory required.
The parties’ agreement said: “Upon payment of the Lease Termination Fee, TTE will not longer have any obligations under Section 9.1A.” The district court found that the structure of the agreement meant that provision did not apply to all of the relevant buildings. The Fifth Circuit disagreed: “While such a divisions may be analytically satisfying, it is unsupported by any other language in the MOU, such as, for example, a paragraph heading identifying a particular provision as only relating to one warehouse.” APL Logistics Americas, Ltd. v. TTE Technology, Inc., No. 13-10352 (Dec. 13, 2013, unpublished).
Among other issues in Farkas v. GMAC Mortgage LLC, a borrower disputed whether he had received proper notice of the servicer’s identity, arguing that only the current mortgagee could send effective notice. No. 12-20668 (Dec. 2, 2013, unpublished). The Fifth Circuit affirmed a judgment against him on the grounds of quasi-estoppel, noting: “The duration and regularity of these continued payments to mortgage servicers who had not been identified by current mortgagees constitute acquiescence to the validity of notice of transfer from one mortgage servicer to the next. The equitable relief afforded by quasi-estoppel assures that a party’s position on a given issue is more than a matter of mere convenience but is instead a stance to which it is bound.”
Alphonse lost his home to foreclosure. He then sued in federal court, alleging unfair trade practices. Alphonse v. Arch Bay Holdings LLC, No. 13-30154 (Dec. 11, 2013, unpublished). The district court dismissed based on the Rooker/Feldman doctrine, but by the time the Fifth Circuit took up the case, all parties conceded that ruling was incorrect because of Truong v. Bank of America, 717 F.3d 377, 381-83 (5th Cir. 2013). The appellees urged affirmance based on res judicata from the foreclosure proceeding, but the Fifth Circuit remanded for further factual development. The party to the foreclosure proceeding was a “Series 2010B” that owned the mortgage; the parties to the federal case were that entity’s parent and its mortgage servicer; and the Court was not convinced that the pleadings — standing alone — established the right relationships to find preclusion. The Court also remanded for further consideration of whether Delaware law about 2010B entities applied to third party claims, noting a potential exception the “internal affairs” doctrine in choice-of-law analysis.
A business taxpayer claimed a deduction for a loan. The Fifth Circuit affirmed the Tax Court’s finding that the transaction was not a loan. DF Systems v. Commissioner of Internal Revenue, No. 13-60322 (Dec. 10, 2013, unpublished). Noting that “the absence of a formal loan agreement is not determinative,” and acknowledging board minutes and the taxpayer’s testimony supporting the conclusion that it was a loan, the Court stressed the “absence of . . . objective economic indicia of genuine debt” — determinable sum to be repaid, specified interest rate, repayment schedule, maturity date, or collateral. The Court’s analysis is of general interest in other business situations involving arguments about “form over substance.”
In Croft v. Lowry, the debtor filed for bankruptcy after judgment was entered against him for attorneys fees and sanctions in two lawsuits. No. 13-50020 (Dec. 10, 2013). The debtor sought to lift the stay to pursue appeals of those judgments; the adverse parties in the lawsuits opposed, arguing that the debtor’s defensive appellate rights were estate property and could be sold. The district court ruled for the debtor and the Fifth Circuit reversed. Noting that only two courts have addressed this issue, and reached different results, the Court concluded that the rights had quantifiable value and were thus “property” under Texas law. The Court noted that the rights had value to the estate, since appellate success would reduce liability, as well as the judgment creditors, who may be willing to pay some amount to avoid litigation expense and reversal risk. ”Whether the defensive appellate rights are sold depends upon whether the parties can agree on the value of those rights, not whether they have any value at all.” (emphasis in original)
Seventy property owners sued St. Bernard Parish, alleging that it wrongfully demolished their properties in the wake of Hurricane Katrina (which flooded virtually every structure in that hard-hit area). The Parish’s insurer disputed coverage. Lexington Ins. Co. v. St. Bernard Parish Gov’t, No. 13-30300 (Dec. 6, 2013, unpublished). Among other arguments, the insurer argued that there was no coverage because the policy had a $250,000 retention limit per occurrence, and each demolition (none of which involved more than that amount) should be viewed as a separate occurrence. The district court and Fifth Circuit ruled for the Parish. The Fifth Circuit noted that the limit applied “separately to each and every occurrence . . . or series of continuous, repeated, or related occurrences,” and that the phrase “related” has a broad meaning in the insurance context, covering logical or causal connections between acts or occurrences. Here: “[T]he acts alleged in the underlying actions are related because they all resulted from St. Bernard’s ordinance condemning those properties that remained in disrepair following Hurricane Katrina. The fact that the properties in the underlying action were demolished at different times, in varying degrees, and at different locations, does not mean that these acts are not related.”
The plaintiff in Weeks Marine Inc. v. Standard Concrete Products Inc. fell from a crane during a bridge construction project. No. 12-20610 (Dec. 6, 2013). He sued Weeks Marine, the general contractor, who in turn sought indemnity from Standard Concrete, the manufacturer of the “concrete fender modules” for the project. The district court granted summary judgment for the manufacturer and the Fifth Circuit affirmed. A broader indemnity obligation in the original purchase order was limited by the additional terms and conditions to “actual damages relating to workmanship of Seller’s (Standard Concrete) product.” Accordingly, the plaintiff’s claims, related to a steel component of the product made by another company, were not covered: “The steel modules are a component that Standard Concrete used to make its product; they are not the product itself. Standard Concrete’s products are the pre-cast concrete fender modules. The common usage of ‘product’ distinguishes this term from components, tools, and equipment used in the manufacturing process.”
Mississippi brought six parens patriae actions alleging inappropriate charges for credit card “ancillary services” in violation of state law. Defendants removed under CAFA and on the ground of complete preemption, and the district court denied remand. Hood v. JP Morgan Chase & Co. (Dec. 2, 2013). The Fifth Circuit reversed. As to CAFA, it found that defendants (who have the burden) did not establish that any plaintiff had a claim of $75,000 – especially when Mississippi offered evidence that the average yearly charge at issue was around $100. The Court also observed that the defendants likely had similar information in their records. The Court acknowledged that federal usury laws have the effect of complete preemption, but found that the charges at issue in these cases could not be characterized as “interest” within the meaning of those laws.
In Ortega v. Young Again Products, the plaintiff sued a judgment creditor and its counsel, claiming that they took assets that belonged to him rather than the judgment debtor. No. 12-20592 (Nov. 27, 2013, unpublished). The Fifth Circuit recognized that Texas extends qualified immunity to claims by a third-party against an attorney for conduct requiring the “office, professional training, skill, and authority of an attorney.” The focus is on the type of conduct, not its merit. Accordingly, removal of the case was proper because the attorney was fraudulently joined, and dismissal for various reasons was affirmed.
In D.R. Horton Inc. v. NLRB, the Fifth Circuit reviewed an NLRB decision that invalidated an arbitration agreement as to collective or class claims related to employment. No. 12-60031 (Dec. 3, 2013). The court deftly sidestepped a difficult constitutional issue, presently before the Supreme Court, about President Obama’s “recess appointments” to the NLRB. On the merits, the Court reversed the NLRB. The Board relied upon Section 7 of the NLRA, which guarantees the right “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The Court found that this statute did not create a right to pursue collective or class claims in court that trumped the language and policy goals of the Federal Arbitration Act. A recent Texas Lawbook article discusses the significance of this opinion for employers.
In a 9-0 opinion, the Supreme Court reversed a Fifth Circuit panel about the enforcement of a forum selection clause. Atlantic Marine Construction v. U.S. District Court for the Western District of Texas, 571 U.S. ___ (December 3, 2013). The panel opinion questioned enforceability when the district of suit was otherwise proper under the federal venue statutes; a strong dissent by Judge Catharina Haynes argued otherwise. The Supreme Court endorsed her position: “When the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause. Only under extraordinary circumstances unrelated to the convenience of the parties should a §1404(a) motion be denied. And no such exceptional factors appear to be present in this case.” Procedurally, while the Supreme Court noted in its introduction that the case arose in a mandamus context, it nowhere discusses how that posture affects the analysis — a significant point that divided the Fifth Circuit’s recent en banc vote in the case of In re Radmax.
Two new briefing rules took effect in the Fifth Circuit on December 1. The first eliminates the requirement of a separate statement of the case, and consolidates a matter’s procedural and substantive history into a single statement of facts. The second standardizes record citations. ”For multiple record cases, parties will cite ‘ROA’ followed by a period, followed by the Fifth Circuit appellate case number of the record they reference, followed by a period, followed by the page of the record. For example, ‘ROA.13 12345.123.’ In single record cases, parties cite the short citation form, ‘ROA,’ followed by a period, followed by the page number. For example, ‘ROA.123.’” This standardized form should help the Court in electronically matching record citations and the actual record.
The case of Carey Salt Co. v. NLRB dealt with a technical labor law question as to when negotiations between management and a union had reached an impasse. No. 12-60757 (Nov. 21, 2013). The general framework it uses, though, is of broad interest in court-ordered mediation, contractual dispute resolution clauses, and other situations where a party’s good faith in negotiation can come into question. The opinion is centered on the factors identified in Taft Broadcasting Co., 163 N.L.R.B. 475, 478 (1967): “(1) the parties’ bargaining history; (2) the parties’ good faith; (3) the duration of negotiations; (4) the importance of issues generating disagreement; and (5) the parties’ contemporaneous understanding of the state of negotiations.” That NLRB case also noted the general importance of overall “good faith.”
Borrowers alleged that their lender knowingly accepted an inaccurate fair market value of their home, for purposes of a home equity loan, in violation of the Texas Constitution. Gonzalez v. U.S. Bank, N.A., No. 13-10342 (Nov. 29, 2013, unpublished). The lender won summary judgment and the Fifth Circuit affirmed. The borrowers first pointed to a tax appraisal, which the Court rejected because “under Texas law, tax valuations are legally insufficient evidence of fair-market value.” Second, the borrowers pointed to one of their affidavits, which the Court also rejected as “conclusory and unsubstantial” and insufficient to prove notice to the lender. The Court briefly reviewed other summary judgment cases involving similar “self-serving” affidavits.
“The Daubert reliability analysis applies to, among other things, ‘the facts underlying the expert’s opinion.’” Moore v. International Paint LLC, No. 13-30281 (Nov. 15, 2013, unpublished). In this case, the Fifth Circuit affirmed the exclusion of expert testimony about a plaintiff’s cumulative benzene exposure, citing these problems with his assumed facts: (1) assuming an hourly rate of $6,00, when his rates were in fact $6.99, $7.44, and $8.00; (2) assuming, contrary to the plaintiff’s deposition testimony, that he always worked with paint indoors, that his respirator always failed within an hour, and he never received a replacement; (3) assuming, contrary to other deposition testimony, that the indoor spaces where the plaintiff worked were always unventilated; and (4) assigning an arbitrary number, with no record support, to the amount of time the plaintiff worked as a sandblaster rather than a painter. ”To be sure, reliable expert testimony often involves estimation and reasonable inferences from a sometimes incomplete record. . . . Here, however, the universe of facts assumed by the expert differs frequently and substantially from the undisputed record evidence.”
Due to the nature of its case load, the Fifth Circuit does not often give practical advice on how to plead under Twombly and Iqbal. It has written a handful of cases in the area, though, and the new opinion of Jabaray v. City of Allen adds to that group. No. 12-41054 (Nov. 25, 2013, unpublished). Jabary alleged constitutional claims arising from the revocation of the Certificate of Occupancy for his business (a “restaurant, hookah bar, and tobacco store” that also sold “K2″ for a time.) The Fifth Circuit affirmed the Rule 12 dismissal of most defendants, but reversed as to two. The holding of general interest relates to the pleading of the mayor’s involvement in the decision, which was found adequate — the court specifically noted that the pleading said the mayor had suggested to Jabary that he move his business, and that the mayor had a potential financial motive because he owned another business in the relevant mall.
After a recent merciful reception for an untimely notice of appeal, the Fifth Circuit reacted differently in M.D. v. Perry, No. 13-90045 (Nov. 19, 2013, unpublished). The district court certified a large class of children in the Texas foster care system. The State of Texas filed a petition for leave to appeal under Fed. R. Civ. P. 23(f), a day late. Sidestepping the technical question whether the deadline was “jurisdictional” or simply “claims-processing,” the Court found it binding, noting that the “narrow window” set by the rule reflected a careful balance of policies. The Court also rejected a request to suspend the deadline under Fed R. App. P. 2, noting that Fed. R. App. P. 26 expressly prohibits deadline suspension as to a petition for permission to appeal.
The Fifth Circuit continued its conservative approach to the construction of guaranties in McLane Foodservice Inc. v. Table Rock Restaurants, LLC, No. 12-50980 (Nov. 15, 2013). In 1997, an investor in a restaurant chain guaranteed the chain’s debts to PFS, a division of Pepsioco. Years later, McLane became the owner of PFS’s operations after a series of sales transactions. In 2010, a customer of McLane called Table Rock went out of business, owing McLane over $400,000, and sought to collect on the original guaranty. The Fifth Circuit agreed with the district court that the guaranty only reached credit extended by PFS, that McLane was not an “affiliate” of PFS, and that “successors and assigns” language in the guaranty could not expand the scope of the underlying guaranty obligation.
A REIT sued the City of College Station, alleging that its zoning decisions were unconstitutionally irrational and unfair. The City’s CGL policy covered liability arising from “wrongful act[s]” of city officials, with an exclusion for liability arising from eminent domain or condemnation proceedings. City of College Station v. Star Insurance, No. 12-20746 (Nov. 14, 2013). The district court granted summary judgment for the insurer and the Fifth Circuit reversed: “As [the REIT's] constitutional and tortious interference claims may produce liablity that does not ‘arise out of’ [its] inverse condemnation action, [the insurer] is liable for the City’s defense costs.”
Twenty-four plaintiffs sued Citgo for alleged violations of the overtime pay laws. The court’s second discovery order warned against destruction of personal emails by the plaintiff. Then, after two evidentiary hearings, the court dismissed the claims of seventeen plaintiffs for violating that order (but not of an eighteenth), entering specific factual findings for each plaintiff. Four more were then dismissed after another hearing and sets of findings. Moore v. Citgo Refining & Chemicals Co., Nos. 12-41175 and 12-41292 (Nov. 12, 2013, unpublished). The Fifth Circuit found no abuse of discretion, noting the clarity of the discovery order, the hearing of live testimony, and prejudice to Citgo (loss of the ability to show that the plaintiffs were sending personal emails “on the clock,” which had proven relevant in one of the cases that was not dismissed). The Court also reversed and rendered for $50,000 in costs, finding that the district court’s reduction of taxable costs to $5,000 because of Citgo’s size and resources was not grounded in the applicable rule.
A classic problem in restitution law involves how to disgorge profits that result in part from wrongful conduct (i.e., taking a client) and in part from lawful action (i.e., doing quality work for that stolen client). In Gulf & Mississippi River Transp. Co. v. BP Oil Pipeline Co., the Fifth Circuit addressed the profits of a pumping station located on a disputed tract of land. No. 12-30741 (Sept. 18, 2013). Under the distinctive terminology of Louisiana law, the landowner argued that the profits were the “civil fruit” of the tract, and the pump operator argued that they came solely from the operation of the pumping business. The Fifth Circuit remanded for clarification of “whether [the district court] was referring to natural fruits, civil fruits, or both” in its analysis of this point. The discussion of the civil law in this area is difficult to follow because of the unusual vocabulary, but it provides an interesting perspective on a recurring remedies issue.
Plaintiffs sued Blackburn for breach of contract with respect to three promissory notes and for fraud in a stock transaction. Highground, Inc. v. Blackburn, No. 13-30248 (Sept. 25, 2013, unpublished). Plaintiffs recovered on the notes but not the fraud claim, and the bankruptcy court awarded $25,000 as a “fair fee” for that result. Plaintiffs appealed, seeking fees for the fraud claim as well, arguing that their litigation was “inextricably intertwined” with the note claims. Applying Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299 (Tex. 2006), the Fifth Circuit agreed with the lower court: “Appellants prevailed on the notes claim because Blackburn signed the notes without authority to do so, not because of the allegations of fraud relating to other aspects of the purchase agreement . . . .” The case presents a clean example of claims against the same party that are nevertheless not “inextricably intertwined” for purposes of an attorneys fee award. (For thorough review of this principle, and other key points about fee awards, please consult the book “How to Recover Attorneys Fees in Texas” by my colleagues Trey Cox and Jason Dennis.)