In Harris v. Viegelahn, No. 14-400 (May 18, 2015), the Supreme Court resolved a split between the Third and Fifth Circuits and held 9-0 (contrary to the Fifth’s position) that “by excluding postpetition wages from the converted Chapter 7 estate (absent a bad-faith conversion), 11 U.S.C. § 348(f) removes those earnings from the pool of assets that may be liquidated and distributed to creditors.”
Husky, a seller of electronic components, sued Ritz, a director of a company that owed Husky $163,999.38. Ritz was denied a bankruptcy discharge as to that debt based on 11 U.S.C. § 423(a)(2)(A), which excludes from discharge “any debt . . . for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation, or actual fraud[.]” The Fifth Circuit reversed, finding that this statute did not apply “where, as here, the debtor made no false representation ot the creditor.” Husky International Electronics v. Ritz, No. 14-20526 (May 22, 2015).
Specifically, the Court rejected the Seventh Circuit’s contrary reasoning in McClellan v. Cantrell, 217 F.3d 890 (7th Cir. 2000), both as inconsistent with Fifth Circuit precedent, and with the Supreme Court’s reasoning about the level of reliance required by this section in Field v. Mans, 516 U.S. 59 (1995). The Court acknowledged the argument that “actual fraud” is one of three scenarios listed in the statute, but found that the canon of construction supporting this argument was a “guide that need[s] not be conclusive.” The Court also noted that the fraudulent transfer provisions of the Code addressed situations where the debtor did not make a direct misrepresentation.
In a 2-1 decision, the Fifth Circuit has denied the federal government’s request to stay the district court’s injunction against key elements of President Obama’s immigration policy. Texas v. United States, No. 15-40238 (May 26, 2015). Judge Higginson’s dissent concludes that the issues before the Court are nonjusticiable. Judge Smith’s majority (joined by Judge Elrod), made these key points:
- On standing — “Texas’s forced choice between incurring costs and changing its fee structure is itself an injury: A plaintiff suffers an injury even if it can avoid that injury by incurring other costs. And being pressured to change state law constitutes an injury,”‘
- On the statutory merits — “[E]ven granting ‘special deference,’ the INA provisions cited by the government for that proposition cannot reasonably be construed, at least at this early stage of the case, to confer unreviewable discretion,” and
- On the APA issue — “But a rule can be binding if it is ‘applied by the agency in a way that indicates it is binding,’ and the states offered evidence from DACA’s implementation that DAPA’s discretionary language was pretextual.”
More mandamus news of Trinity Industries, the Fifth Circuit, and the Marshall Division of the Eastern District of Texas. Recall that last October, the Fifth Circuit issued an unusual mandamus ruling that denied Trinity’s request for relief on the eve of trial in a high-profile qui tam case, but expressed concern that the federal government had “found the defendant’s product sufficiently compliant with federal safety standards and therefore fully eligible, in the past, present and future, for federal reimbursement claims.” The case went forward, the jury returned a large verdict against Trinity, and a later mandamus petition by Trinity was unavailing. Judgment has not yet been entered.
The same players have returned to a similar stage. In January 2015, in a product liability case arising from a North Carolina automobile accident, Trinity moved to transfer venue from the Marshall Division. As discovery deadlines approached, Trinity filed an emergency stay application on May 6, and after hearing no response, sought mandamus relief from the Fifth Circuit on May 15. Later that day, the trial court ordered a transfer to North Carolina, mooting the mandamus petition.
Now it was the trial court’s turn to comment, adding an unusual “addendum” to its opinion. The trial court pointed out that it was already in the process of drafting an order to transfer venue when Trinity filed its mandamus petition. The court further noted that “Trinity has stumbled in its race for credibility” by seeking mandamus intervention, and counseled greater patience from litigants in the future in light of crowded docket conditions.
These events, aside of their dramatic nature, highlight a practical and important challenge of “rocket dockets.” Busy dockets, coupled with tightly compressed discovery schedules, can force counsel into “Catch-22” situations. Counsel either advises their clients to endure extensive, fast-paced litigation activity that they believe is in the wrong place, or risk the ire of courts by “bugging” them for dispositive rulings.
(This blog’s author represents Trinity but not in either matter referred to above.)
In declining to hear Crutchfield v. Sewerage & Water Board, the Fifth Circuit offered some rare guidance about what guides its discretion in accepting a petition to appeal under CAFA: “[N]o CAFA-related issues are raised in the petition for permission to appeal. See Alvarez v. [Midland Credit], 585 F.3d [890,] 894 [5th Cir. 2009] (vacating initial grant of permission to appeal under Section 1453(c), as the appeal no longer involved “unique issues under CAFA”); id. (“[Section 1453(c)] was intended to facilitate the development of a body of appellate law interpreting [CAFA] without unduly delaying the litigation of class actions.” (internal quotation marks omitted)); see also Perritt v. Westlake Vinyls Co., L.P.., 562 F. App’x 228, 230 (5th Cir.2014) (unpublished) (per curiam) (““[Section] 1453(c) tethers our discretionary review to CAFA determinations.”).” No. 15-90014 (May 19, 2015, unpublished).
Lincoln Insurance sued several defendants, who it accused of charging excessive fees and otherwise engaging in self-dealing to the detriment of Lincoln. Lincoln won a $16.5 million judgment against two of them for tortious interference. In a “grab bag” of holdings after both sides appealed, the Fifth Circuit held:
- It did not need to reach a difficult Erie issue about when a tortious interference claim accrues under Texas law, where some of the conduct occurs outside the limitations period, because the trial court found sufficient facts to establish that the discovery rule applied;
- Voluntary dismissal of a claim in amended pleading, in response to a dismissal order “based on a technical defect or withdrawal,” waives the right to appeal that order;
- The economic loss rule barred conversion claims where contract provisions dealt with the underlying rights and responsibilities; and
- When a contract provision expressly created a fiduciary duty as to the handling of funds in a particular account, that duty necessarily extended that duty to the handling of those funds before their deposit (and the trial court erred in holding otherwise, requiring a remand).
The Court noted: “[A] litigation strategy with a narrower focus on certain claims and Defendants might reduce the complications, both procedural and substantive, that arose the first go-around.” Lincoln General Ins. Co. v. U.S. Auto Ins. Servcs., Inc., No. 13-10589 (May 18, 2015).
Johnson submitted a claim about his personal injuries to the “Gulf Coast Claims Facility,” an entity created to facilitate the resolution of claims against BP about the Deepwater Horizon accident. The GCCF recommended a settlement of roughly $2.7 million. Johnson accepted the proposal and BP allowed its 14-day appeal period to run. During that period, however, BP made an indemnity demand on another company, who raised serious questions about the veracity of Johnson’s claim. BP sought to set aside the settlement, and the case of Johnson v. BP Exploration & Production, Inc. ensued. No. 14-30269 (May 15, 2015).
As to contract formation, the Fifth Circuit found that: (1) “Johnson accepted the offer in the [GCCF] Determination Letter by its own terms by timely submitting the Final Payment Election Form and agreeing to subsequently sign the Release, and because BP declined to appeal that offer within the fourteen-day period, both an offer and acceptance occurred”; and (2) the actual terms of the release were not material to the formation of the settlement agreement, and neither was its actual delivery. However, after acknowledging the general rule that “simply couching . . . prior litigation as ‘fraudulent,'” will not support a fraudulent inducement claim, the Court concluded that BP had raised a question as to whether an exception applied when “the defendant subsequently uncovers previously unavailable evidence that the plaintiff was in fact not injured at all, or sustained only de minimis injuiries.” Accordingly, the Court remanded for an evidentiary hearing about the issue of fraudulent inducement.
A medical practice hired an employment agency, which recommended an office manager who then embezzled $60,000. The practice sued the agency and lost. The Fifth Circuit observed that under the Texas definition of a “producing cause”:
- “when boys meet a man because he volunteers with their Boys Club, but the boys and their family then befriend the man outside of the club context, the club’s misrepresentation that it thoroughly checks the background of its volunteers is not a producing cause of the man’s later molestation of the boys outside of the club,” and
- “when a church advertises a teenage boy as a babysitter and parents hire him, the
church’s advertisement is not the producing cause of his later molestation of
their children because the parents themselves chose to hire the teenager as a
Accordingly, “[b]ecause the doctors of the Medical Group decided to hire Brown based upon their own observations, we conclude that [the agency’s] conduct was not the producing cause of the Medical Group hiring Brown and its resulting injuries.” Cox, Chanez & Williams v. Howroyd-Wright Employment Agency, Inc., No. 14-10799 (May 14, 2015, unpublished).
The latest appeal about BP’s class settlement of Deepwater Horizon claims — a long and winding path — involved the rights of claimants to appeal a benefit decision to the Fifth Circuit, after review in the district court. While the Court’s ultimate holdings turn on the specific parts of the settlement at issue, on the threshold issue of the claimants’ appeal right, the Court held: “We choose to follow these other circuits’ decisions in similar cases involving consent decrees to hold that, where a settlement agreement does not resolve claims itself but instead establishes a mechanism pursuant to which the district court will resolve claims, parties must expressly waive what is otherwise a right to appeal from claim determination decisions by a district court. Given that there has been no such express waiver in the instant case, the parties have preserved their right to appeal from the district court to this court.” Lake Eugenie Land & Development v. BP Exploration & Production, No. 13-30843 (May 8, 2015).
Heritage and OMG disputed their commissions related to the auction of high-end firearms (such as Colt’s Texas Paterson, right). They arbitrated and Heritage won. OMG successfully opposed confirmation in the district court, which concluded: “By finding that the [parties contracts] never came into existence, the arbitrator intruded on an issue that was reserved for an alternative decision-maker and thereby exceeded his authority.” OMG, LP v. Heritage Auctions, Inc., No. 14-10403 (May 8, 2015, unpublished).
The Fifth Circuit disagreed. It reminded: “By submitting issues for an arbitrator’s consideration, parties may expand an arbitrator’s authority beyond that provided by the original arbitration agreement such that we need not address whether the original agreement encompassed such authority.” Here, “the parties agreed to arbitrate the issue of contract formation by submitting, briefing, and generally disputing that issue throughout the arbitration proceedings, with the plaintiffs never contesting the arbitrator’s authority to decide contract formation until he issued an adverse award.”
Among several issues addressed in the complicated bankruptcy appeal of Templeton v. O’Cheskey, the Fifth Circuit considered whether the “ordinary course of business” defense applied to alleged preferential transfers. The Court noted that a “true” Ponzi scheme is one with “operations build on the collection of funds from new investments to pay off prior investors.” Here, “only a portion of the funds controlled by [Debtor] ([Creditor] estimates 9%) was used to pay Ponzi-like returns to investors,” and the “record is clear that [Debtor] engaged in substantial legitimate business–owning or controlling approximately 14,000 housing units.” Therefore, the defense could apply, and these transfers were remanded for further consideration. No. 14-10563 (revised May 12, 2015).
Amerisure and Arch disputed whether Arch exhausted its policy limits. The Arch policy had an endorsement that said the coverage section “is amended as follows: The provision: ‘These payments will not reduce the limits of insurance. is deleted in its entirety and is replaced with the following provision: ‘These payments will reduce the limits of insurance.’”
Amerisure argued that the “expenses” referred to by the endorsement could not be read as including attorneys fees without contradicting another, more specific portions of the policy: ” Our right and duty to defend end[s] when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverages A or B or medical expenses under Coverage C.”
The Fifth Circuit disagreed, reasoning: “This construction reads the endorsement out of the policy as, logically, there can never be an end to the duty to defend unless the insurer
pays the policy limits in indemnity payments.” Accordingly, Arch had an “eroding” policy with the insured, and its payments of attorneys fees had exhausted the policy limits. Amerisure Mutual Ins. Co. v. Arch Specialty Ins. Co., No. 14-20239 (April 21, 2015).
Chevron’s “Genesis Spar” offshore rig (right) was damaged by the installation of substandard bolts. Chevron sued Aker Maritime and won; Aker in turn sued Oceaneering for indemnity and won; Oceaneering settled and sued its insurer. Sidestepping whether a “sistership” exclusion barred coverage, the Fifth Circuit found that Oceaneering had not proven “property damage” within the meaning of the policy.
To be sure, a Fifth Circuit panel used that phrase in the original Chevron litigation, and a second panel discussed the type of damage at issue in the indemnity case. But because those panels wrote about distinct issues from the coverage question in this case, and because “Oceaneering rests its argument that there was coverage . . . on these two prior opinions,” the Court affirmed judgment for the insurer. American Home Assurance Co. v. Oceaneering Int’l Inc., No. 14-20222 (April 27, 2015, unpublished).
See generally Towne v. Eisner, 245 U.S. 418 (1918) (Holmes, J.) (“A word is not a crystal, transparent and unchanged; it is the skin of a living thought and may vary greatly in color and content according to the circumstances and time in which it is used.”); Lewis Carroll, Through the Looking Glass (“”‘When I use a word,’ Humpty Dumpty said, in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.'”)
To oppose a summary judgment motion in a mortgage servicing case, Plaintiffs sought to introduce two documents: (1) “a printoff from the HOPE Loan Portal, an online log maintained by Impact [a consultant hired by Plainitffs] to catalogue any updates with the [Plaintiffs’] loan-modification application,” and (2) a handwritten call log seemingly created by Impact employees as they contacted BOA for updates by telephone. The Fifth Circuit affirmed their exclusion in Thompson v. Bank of America, N.A., No. 14-10560 (April 21, 2015).
Noting that “[i]n the case of an exhibit purported to represent an electronic source, such as a website or chat logs, testimony by a witness with direct knowledge of the source, stating that the exhibit fairly and fully reproduces it, may be enough to authenticate,” the Court observed: “At no point does [Plaintiffs’] affidavit say that they have personal knowledge of the online log or that it represents an unaltered version of the website. . . . That is likely because, by all indications, those logs were created and maintained by Impact, not the Thompsons. Nor do the logs have characteristics that would authenticate them from their own appearance under Rule 901(b)(4).” The opinion summarizes some other federal authority about the authentication of evidence obtained from the Internet.
In State of Veracruz v. BP, P.L.C., the Fifth Circuit reviewed the dismissal of claims brought by the Mexican states of Veracruz, Tamaulipas, and Quintana Roo, against several corporate defendants, seeking to recover damages related to the effects of the Deepwater Horizon disaster on the environment, fishing industry, and tourism. No. 13-31070 (May 1, 2015). The Fifth Circuit agreed with the district court’s conclusion that the states “lacked a proprietary interest to overcome application of the rule, announced in Robins Dry Dock & Repair Co. v. Flint[, 275 U.S. 303 (1927)], precluding recovery for economic loss absent a proprietary interest in physically damaged property. In a thorough review of Mexican law on this point, featuring analysis by many leading experts in the field, the Court found this article of the Mexican Constitution dispositive: “The Nation has full ownership over all natural resources of the continental shelf and the seabed . . . .”