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 DF Systems v. Commissioner of Internal Revenue, No. 13-60322 (Dec. 10, 2013, unpublished).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 Co. v. St. Bernard Parish Gov’t, No. 13-30300 (Dec. 6, 2013, unpublished).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.”