When does a preferential transfer happen?

In Flooring Systems, Inc. v. Chow, these events led to a dispute about whether a preferential transfer occurred:

  • June 2007: Flooring Systems, Inc. obtains a Texas state court judgment against Eric Poston.
  • October 26, 2007: State court appoints a receiver to collect assets to satisfy the judgment.
  • November 20, 2007: Flooring Systems serves Plain Capital Bank with a certified copy of the receivership order.
  • December 18, 2007: Bank turns over $22,923.05 check.
  • January 15, 2008: Receiver pays Flooring Systems $18,529.64
  • January 31, 2008.  Poston files for bankruptcy, Chow appointed as trustee.

If the transfer was made on October 26, it did not implicate the 90-day preferential transfer period in the Bankruptcy Code; if made on the 20th, it did.  Citing a Texas statute that provides: “[T]he rights of a receiver . . . do not attach until the financial institution receives service of a certified copy of the order of receivership . . . ,” the Fifth Circuit held that the transfer did not occur until the date of service on the bank, and affirmed.  No. 13-41050 (Aug. 28, 2014).

O brave new bankruptcy, which has such people in’t . . .

In Galaz v. Galaz, a bankruptcy debtor sued her ex-husband for the fraudulent transfer of a royalty interest in the works of the Ohio Players, a popular funk band in the 1970s. Nos. 13-50781, 50783 (Aug. 25, 2014).  Her ex-husband brought third-party claims against a music producer, who in turn brought counterclaims.  The resulting litigation produced judgments in favor of both the debtor and the producer against the ex-husband.  On appeal, in a landscape formed by the legacy of Stern v. Marshall, 131 S. Ct. 2594 (2011), the Fifth Circuit held:

1.  While the debtor’s fraudulent transfer claim was not the “paradigmatic” case where assets are transferred out of the estate, it could still “conceivably” affect the estate, and the bankruptcy court thus had statutory jurisdiction because these non-core claims related to her bankruptcy;

2.  The producer’s counterclaims, however, had no connection to the estate and the bankruptcy court had no statutory jurisdiction over them;

3.  Under Stern, in light of the present posture of cases from this Circuit and one awaiting Supreme Court review, the implied consent of the parties cannot confer constitutional jurisdiction on the bankruptcy court to enter final judgment such as the debtor’s claim here.

Accordingly, the Court reversed and remanded, hinting that the bankruptcy court could prepare proposed findings of fact and conclusions of law for the district court as to the debtor’s claims.  The Court also noted that the debtor had standing as a creditor under the Texas Uniform Fraudulent Transfer Act even though her personal interest in the royalties flowed through a business she partly owned.

Disbelief of the untruth

The bankruptcy debtor in McClendon v. Springfield had lost a defamation judgment for $341,000.  No. 13-41030 (Aug. 26, 2014, unpublished).  Because “the jury’s verdict could be sustained either on intentionality or recklessness,” the bankruptcy court held an evidentiary hearing to determine whether the claim resulted from a “wilful and malicious” injury.  Concluding that it did, the court denied discharge of that claim.  On appeal, the debtor argued that “a trial judge may not use his disbelief of a witness as affirmative support for the proposition that the opposite of the witness’s testimony is the truth.”  (citing Seymour v. Oceanic Navigating Co., 453 F.2d 1185, 1190-91 (5th Cir. 1972)) (Texas state practitioners are familiar with similar sufficiency principles from City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005)).  The Fifth Circuit rejected this argument, both in light of the entire record received by the bankruptcy court, and because:  “[H]here, the factual inquiry was binary, a question whether [the debtor] acted willfully and maliciously or not.  . . . [T]he bankruptcy court’s disbelief of [the debtor's] statements that he did not know the statements were false leaves only the alternative that he did know . . . .”

Payment excused, unambiguously

CAP agreed to sell a security to VPRO.  Their contract said: “The purchase price is $400,000 and this amount is to be paid to you within 10 business days from the date of transfer of the [security t]o: CITIBANK NY DTC 908 Account 089154 CSC73464, Further Credit to: [CAP], Beneficiary Deposit Account NR. 840 BSI SPA San Marino.” Collective Asset Partners, LLC v. Vtrader Pro, LLC, No. 13-20619 (Aug. 15, 2014, unpublished).

CAP hired a broker, who successfully transferred the security to the DTC account but, because the broker provided inaccurate information, failed to transfer it on to the San Marino account.  VPRO refused to pay.  CAP sold the security to another buyer for $175,069.41 and sued VPRO for the difference.

Applying Texas law, the Fifth Circuit agreed with the district court that VPRO unambiguously had no payment obligation until both transfers occurred, noting both the “Further Credit to” language in the contract, and the fact that the broker in fact tried to make both transfers.


Oil drilling, claims for waste, and Rule 12

Plaintiffs own and operate a mineral lease in the Gulf of Mexico; they allege that their neighbors drilled so as to deplete the value of their lease.  Specifically, they pleaded claims for “waste” and “unlawful drainage and trespass” under Louisiana law, as adopted by the Outer Continental Shelf Lands Act.  Breton Energy LLC v. Mariner Energy Resources Inc., No. 13-20307 (Aug. 12, 2014).   As to the waste claims, after a detailed review of the specific allegations and precedent, the Fifth Circuit found a cognizable waste claim pleaded against the defendant alleged to have perforated the relevant oil sands.  The Court affirmed, however, the dismissal of claims against the non-perforating defendants, finding “equivocat[ion]” in a key allegation that those defendants could have caused the Minerals Management Service to “take[] other steps to protect the correlative rights of adjacent lessees.”  The Court also rejected claims for drainage losses and trespass, describing the interplay of those claims with a waste claim under Louisiana law.

On wings of eagles . . .

McAllen Grace Brethren Church v. Salazar presents a fascinating conflict between Native American religious practice and the preservation of endangered eagle species.  No. 13-40326 (Aug. 20, 2014)  Robert Soto, a member of the Lipan Apache Tribe, sought to use eagle feathers in a tribal religious ritual.  All parties agreed that his beliefs were sincere and that the lack of the feathers would substantially burden his ministry.  The Lipan Apaches, while recognized by Texas authorities since the 1838 Live Oak Treaty between the Tribe and the Republic of Texas, are not a “federally recognized tribe” as understood by the Interior Department.  Accordingly, under the Department’s regulations that implement various statutes about the protection of eagles, he was not entitled to the feathers.

Assuming that the Department’s stated goals — eagle protection and protection of federally-recognized tribes — served compelling interests, the Fifth Circuit held that the record did not show that the regulations used the least-restrictive means to advance those interests.  The Court found the Department’s evidence of harm to be inconclusive and subject to more than one interpretation, and also found inadequate consideration of potential alternative approaches.  Acknowledging that other courts have accepted similar arguments by the Department, the Court observed: “Soto does not seek to make the practice of his religion ‘easier,’ he seeks to avoid roadblocks of the government’s own making which have made the practice of his religion not just ‘not easier’” but impossible.”  Accordingly, it reversed a summary judgment for the Department and remanded.

Phantom Guaranty

The Fifth Circuit, which in recent years has shown a healthy skepticism about suits to enforce guaranty obligations, again reversed a judgment against a guarantor in JRG Capital Investors I, LLC v. Doppelt, No. 13-20418 (Aug. 5, 2014, unpublished).  The underlying note was “generally a nonrecourse debt, meaning that the borrower could not be held personally liable for any deficiency.”  While the note had several exceptions that triggered personal liability, the parties agreed that none had occurred.  The Court found that the guaranty was only for “the prompt, complete and full payment and performance when due . . . of Borrower’s Recourse Obligations,” and contrasted language involving similar guaranty documents in other cases that was not so limited.


Keep an eye on the proposed amendments to the FRCP, which will be considered by the Judicial Conference in September and then forwarded on to the Supreme Court and Congress if approved.  Two major features are:

  • –A redefined scope for permissible discovery in Fed. R. Civ. P. 26(b)(1) [page 10 of the linked document above]
  • –Revised sanctions rules about the spoliation of electronic evidence in Fed. R. Civ. P. 37(e)(1) and (2) [page 37 of the above]

The Advisory Committee notes, while lengthy, are particularly informative about the reasons for these revisions and how they are intended to work in practice.

Personal Jurisdiction 101

Two classic jurisdictional issues were presented in Special Industries, Inc. v. Zamil Group Holding Co., No. 13-20231 (Aug. 5, 2014, unpublished), which affirmed a dismissal on personal jurisdiction grounds in a forum dispute between Texas and Saudi Arabia.

First, citing Moncrief Oil Int’l, Inc. v. OAO Gazprom, 481 F.3d 309 (5th Cir. 2007), the Fifth Circuit emphasized the importance of the “hub” of contract performance, finding: “The foreseeability that [plaintiff] would perform part of its obligations under the contract in Texas, and that the parties did in fact engage other Texas companies for work on the project, is not enough for a finding of specific jurisdiction over the . . . defendants.  The contracts were formed outside of Texas, did not expressly provide for work to be done in Texas, the [plaintiff] individuals performing work under the contract did not do so solely from Texas, Texas was not the hub of the parties’ activities, the contracts’ choice of law provisions did not provide for Texas law, and payments under the contract were not made to Texas.”

Second, as to an “alter ego” theory of jurisdiction over another defendant, the Court held: “We find no authority allowing for the assertion of general jurisdiction over a foreign parent corporation premised only on the foreign corporation’s ownership of subsidiaries in the forum and representations by the foreign parent of its ‘unified’ corporate structure. The assertion of jurisdiction must be premised either on sufficient minimum contacts of the foreign parent with the forum or on some evidence demonstrating the parent company’s actual control over the internal business operations and affairs of the subsidiary.” (distinguishing Daimler-Benz AG v. Olson, 21 S.W.3d 707 (Tex. App.–Austin 2000, pet. dism’d w.o.j.)

Civil penalties capped at — zero.

In Forrte v. Wal-Mart Stores, Inc., the Fifth Circuit affirmed a finding of liability under the Texas Optometry Act, based on dealings between Wal-Mart and optometrists who leased space in its stores.  No. 12-40854 (revised, Aug. 25, 2014).  While the plaintiff optometrists did not claim actual damages, they obtained judgment for over $1,000,000, plus attorneys fees, based on mandatory statutory penalties.  Noting that the Act used the phrase “civil penalty,” the Fifth Circuit found that the damages fell within the cap set by Section 41.008(b) of the Civil Practice & Remedies Code  – “two times the amount of economic damages [plus] economic damages.”  In this case, that was zero, since the plaintiffs sought no other recovery.  The Court distinguished Vanderbilt Mortgage v. Flores, 692 F.3d 358 (5th Cir. 2012), based on the terms of the statutes at issue.  As the Texas Lawbook notes, this opinion has the potential to introduce uncertainty into other “Private Attorney General” statutes in Texas.

More mortgage reminders

Chavez v. Wells Fargo Bank, N.A., No. 13-11325 (Aug. 13, 2014, unpublished) reminds of 2 black-letter principles in mortgage servicing litigation:

1.  A claim under section 392.304(a)(19) of the Texas Finance Code requires proof of a misleading affirmative statement.  “Chavez does not allege that Wells Fargo ever affirmatively represented that he qualified for the modification program.  Here, even assuming that Wells Fargo told Chavez ‘not to worry’ about whether he qualified, this is not an affirmative statement.”

2.  As to negligent misrepresentation, “Chavez argues that Wells Fargo made negligent misrepresentations that it would not foreclose on Chavez during the loan modification process and that it he should not make payments during the process.  However, ‘representations regarding future loan modifications and foreclosure constitute promises of future action rather than representations of existing fact.”  .

Home Alone

The Baptists bought a home insurance policy from Nationwide in 2006.  In 2008, they lost their home to foreclosure.  They remained in the house, however, until December 2011 — before a court-ordered eviction date of January 13, 2012, but after fire did serious damage to the house in December.  They made a claim on the Nationwide policy, which discovered that they no longer owned the house as part of its post-loss investigation. Nationwide Mut. Ins. Co. v. Baptist, No. 13-60726 (Aug. 7, 2014).  While Nationwide won a summary judgment about coverage on the ground that the Baptists no longer had an insurable interest by the time of the fire, the Fifth Circuit affirmed because the Baptists’ “renewals of their policy constituted their affirmations to Nationwide of their initial application for insurance, material portions of which were no longer true.”  Those misstatements allowed Nationwide to rescind the policy under Mississippi law.

Tax shelter case, featuring a cameo by Oliver Wendell Holmes

The question in Salty Brine I, Ltd. v. United States was whether a complicated transaction involving an oil and gas project was an inappropriate assignment of income to avoid income tax.  No. 13-10799 (July 31, 2014).  Reviewing the basic principles of the “assignment of income” doctrine, the Fifth Circuit found no clear error in the district court’s findings that the taxpayers “were in control of the entire transaction.”  In summarizing the doctrine, the Court quoted a metaphor from a 1930 opinion by Justice Holmes — that income tax may not be avoided through an “arrangement by which the fruits are attributed to a different tree from that on which they grew.”  The court also found that the transaction lacked economic substance, again noting the taxpayer’s control of the entities and money flow.

Posted in Tax

“Public disclosure” defeats qui tam case

Relators, displeased with their treatment by the City of Dallas in connection with the redevelopment of a downtown office building, “embarked on a fifteen-month investigation that involved compiling data and performing analyses of DHA properties, Low-Income Housing Tax Credit project locations, and City plans and reports.”  United States ex rel Lockey v. City of Dallas, Nos. 13-10884 & 14-10063 (Aug. After proceedings before HUD, they filed a qui tam lawsuit, alleging that the City and the Dallas Housing Authority submitted false claims that were not in compliance with their obligations under civil rights and fair housing laws.  The Fifth Circuit affirmed dismissal, noting that “[t]he overwhelming majority of the complaint is . . . based, not on the Relators’ personal experiences with the City, but on their research of publicly disclosed information.”  (applying United States ex rel. Reagan v. East Texas Medical Center, 385 F.3d 168, 177-78 (5th Cir. 2004)).

Jurisdiction Here About Jurisdiction There.

A bankruptcy court entered judgment against Defendants, who the filed a new federal lawsuit for a declaratory judgment that the bankruptcy court lacked jurisdiction.  Jacuzzi v. Pimienta, No. 13-41111 (August 5, 2014).  The district court found that it lacked jurisdiction over that suit, and the Fifth Circuit reversed.  Noting that as a general matter, it is procedurally proper to attack a judgment for lack of jurisdiction in a collateral proceeding, the Court found that the lawsuit raised federal questions about due process rights and compliance with the federal rules for service of process.  Accordingly, there was federal jurisdiction to hear the challenge to the bankruptcy court judgment.

Trifecta for Mortgage Servicers

1.  No “split-the-note” claims — we mean it.  Echoing recent opinions about efforts to revisit Priester v. JP Morgan Chase, 708 F.3d 667 (5th Cir. 2013), in Paulette v. Lozoya the Fifth Circuit declined to distinguish, rehear, or certify the holding of Martins v. BAC Home Loans Servicing, LP, 722 F.3d 249 (5th Cir. 2013).  No. 14-50111 (Aug. 6, 2014, unpublished).

.2.  Plead fraudulent lien claims correctly — we mean it.  In Reece v. U.S. Bank, N.A., the Fifth Circuit reiterated, and this time published, a holding from a previous unpublished opinion — that a claim based on the Texas fraudulent lien statute requires “inten[t] to cause the plaintiff physical injury, financial injury, or mental anguish.” No.14-10176 (Aug. 5, 2014).  [Cf. rejection of such a claim for other reasons in Kramer v. JP Morgan Chase Bank, No. 13-50920 (June 25, 2014, unpublished)].

3.  Priester is here to stay.  And, at the district court level, sanctions were recently imposed for failure to acknowledge the Fifth Circuit’s holding in Priester.  Some years ago, this blog’s author co-wrote an article, with Professor Wendy Couture of the University of Idaho Law School, about how courts warning litigants about continuing to press arguments perceived as weak — a topic definitely raised by these recent cases. Loud Rules34 Pepperdine L. Rev. 715 (2007).

Can’t remove issues about workers compensation

The issue does not come up every day, but it can be critical when it surfaces.  “A civil action in any State court arising under the workmen’s compensation laws of such State may not be removed to any district court of the United States.”  28 U.S.C. § 1445(c).  The defendant argued for removal based on common-law bad faith claims — an argument that once worked — but amendments to Texas law meant that “claims of bad faith no longer arise outside of the workers’ compensation laws.”  Trahan v. Liberty Mutual Ins. Co., No. 13-20717 (June 10, 2014, unpublished) (citing Tex. Mut. Ins. Co. v. Ruttiger, 381 S.W.3d 430 (Tex. 2012)).  Accordingly, the case returned to state court.

Defense win affirmed on billion-dollar bankruptcy trustee claim

The trustee of a litigation trust formed from the bankruptcy of Idearc, Inc. sued its former parent, Verizon, alleging billions of dollars in damages in connection with its spinoff.  After a bench trial and several other orders, the district court ruled in favor of defendants, and the Fifth Circuit affirmed in U.S. Bank, N.A. v. Verizon Communications, Inc., No. 13-10752 (July 30, 2014).

The opinion, while lengthy, still only hints at the complexity of the case, and much of its analysis is fact-specific.  Some of the issues addressed include:

1.  A bankruptcy litigation trust does not have a right to jury trial on a fraudulent transfer claim, when the defendant creditor has filed a proof of claim in the bankruptcy, and the bankruptcy court must resolve whether a fraudulent transfer occurred to rule on that claim (analyzing and applying Langemkamp v. Culp, 498 U.S. 42 (1990), in light of Stern v. Marshall, 131 S. Ct. 2594 (2011)).

2.  In the context of determining whether the district court reviewed an earlier ruling correctly, on pages 26-27, the Court provided crisp definitions of the basic concepts of dictum and holding.

3.  In the course of rejecting an argument about the refusal to admit several pieces of evidence, the Court noted that the trustee “does not discuss how each specific piece of evidence was likely to affect the outcome of the trial, in light of all the evidence presented.”

4.  A defense expert, without experience in the particular industry, was still qualified to speak to valuation methodology in the bench trial, and “we cannot reverse the district court for adopting one permissible view over the other.”

5.  The Court thoroughly reviewed the fiduciary duties owed from a parent to a subsidiary under Delaware law, while affirming the district court’s conclusions about causation associated with their alleged breach.



Did emails about payment modify the settlement agreement?

One party to a settlement made the last installment payment several weeks late, triggering an acceleration clause that led to more liability.  Celtic Marine Corp. v. James C. Justice Co., No. 13-30712 (July 29, 2014).  The parties had this email exchange after the last payment was due and before it was made, which the party in default said modified the agreement:

A (1-5-2013):  Are we being paid the $91,666.66 to settle this once and for all?  I have lost faith in the agreement from your side.

A (1-7-2013): Are you paying us the $91,666.66 today?

B(1-7-2013): Fri

A (1-7-2013): o/n check correct and can’t u do it Thurs for Friday devl?

The Fifth Circuit held that this exchange did not modify the agreement, for several reasons: (1) the parties had not agreed to conduct transactions by electronic means [citing Louisiana's version of the Uniform Electronic Transactions Act], (2) prior contracts had been “typed agreements physically signed,” and (3) factually, the email that talks about payment “to settle this for once and for all” was 1 of 15 demands for payment in a “one-sided” set of communications.

ERISA can irritate ya.

The Fifth Circuit sees many challenges to decisions under ERISA about benefits.  In McCorkle v. Metropolitan Life Ins. Co., the Court reminded that “district courts hearing complaints from disappointed ERISA plan members or their beneficiaries for the administrative denial of benefits are not sitting, as they usually are, as courts of first impression.  Rather, they are serving in an appellate role.”  No. 13-30745 (July 3, 2014). After summarizing the deferential standard of review in that capacity, the Court then emphasized: “We had thought that by now this was understood and accepted by all district judges of this circuit.  But, as this case demonstrates that we were wrong, at least as to one of them, we try yet again to drive that message home.”

2 dismissals = 0 lawsuit.

A little-known but powerful part of Fed. R. Civ. P. 41(b) provides: “[I]f the plaintiff previously dismissed any federal- or state-court action based on or including the same claim, a notice of dismissal operates as an adjudication on the merits.”   The Fifth Circuit affirmed a dismissal under this rule in Cabot Golf CL-PP 1, LLC v. Nixon Peabody, No. 13-40912 (July 7, 2014, unpublished).  It began by noting that, in this context, the distinction between Rule 12 and Rule 56 was immaterial, where “the material facts are undisputed, and we address a pure question of law.”  On the merits, Plaintiff had filed a state lawsuit, filed a federal lawsuit, dismissed the state action, and then dismissed the federal case with a unilateral notice.  Plaintiff argued that the 2-dismissal rule “should apply only to serial litigation (i.e., suits which are filed after the earlier suits were dismissed), not to parallel/tandem litigation as in this case (i.e., suits which were already pending when the earlier suits were dismisssed).”  The Court rejected that argument as unsupported by case law or the plain terms of the Rule.

Door swings shut on a “gateway arbitration”

1.  In 2002, Douglas opened a checking account with Union Planters Bank and signed a signature card with an arbitration provision.  That clause included a “delegation provision,” delegating the question of a dispute’s arbitrability to an arbitrator.  She closed the account a year later.  Douglas v. Regions Bank, No. 12-60877 (July 7, 2014).

2.  In 2007, Douglas was injured in a car accident, after which she brought suit against her lawyer and his bank for allegedly embezzling her settlement funds.  That bank – Regions Bank – had acquired Union Planters in a 2005 transaction.

3.  Regions Bank moved to compel arbitration.  The district court denied the motion on a “successor-in-interest” theory that Douglas did not defend on appeal.  She argued that the delegation provision was not relevant to this dispute, and the Fifth Circuit agreed, adopting a standard under which Douglas would “only . . . bind herself to arbitrate gateway questions of arbitrability if the argument that the dispute falls within the scope of the agreement is not wholly groundless.”  A dissent argued that this test was foreclosed by recent Supreme Court authority on related issues about an arbitrator’s authority.

Compulsory Coverage Counterclaim

A vessel sank while in the harbor for repairs.  Afterwards, the insurer sued its insured (the harbor operator) and the vessel owner, to dispute coverage.  National Liab. & Fire Ins. Co. v. R&R Marine, Inc., No. 10-20767 (June 30, 2014).  The insurer argued that the vessel owner had no standing under Texas law when it made a claim against the insurer, as there was no final judgment establishing the insured’s liability at that time.  The plaintiff countered that it was “forced” to assert its claim as a compulsory counterclaim under the Federal Rules.  The Fifth Circuit concluded that — although Texas state law barred the timing of the vessel owner’s counterclaim, it arose out of the same occurrence as and had a logical relationship to the coverage dispute.  Accordingly, the counterclaim was compulsory.  Treating it as such also “permitted the district court to efficiently address all disputes arising from the litigation” and was consistent with the Rules’ goal of only “alter[ing] the mode of enforcing state-created rights.”

Mortgage Servicing Reminders

Recent Fifth Circuit cases have curtailed many arguments employed by plaintiffs in litigation with mortgage servicers, and the most recent opinions in the area tend to simply refer back to those cases.  Here are a handful that make useful reminders or address variations of the older arguments:

1.  While potentially viable as legal theories, unsupported allegations of “forgery” and a “false lien” do not survive Rule 12.  And, because a party in breach of a contract may not itself sue for breach, a failure to allege that the plaintiff has performed or tendered performance does not survive Rule 12 either.  Ybarra v. Wells Fargo Bank, No. 13-50881 (July 21, 2014, unpublished).

2.  The restructuring of a Texas home equity loan is a modification, not a refinancing, and thus does not implicate the substantial protections for home equity borrowers provided by the Texas Constitution.  Green v. Wells Fargo Bank No. 14-10254 (July 11, 2014, unpublished) (applying Sims v. Carrington Mortgage Services, LLC, ___ S.W.3d ___, No. 13-0638 (Tex. May 16, 2014)).

3.   Under Texas law, a co-owner who is not a borrower is not entitled to notice of default; a claim of unfair debt collection fails when “there is no evidence that [the servicer] phoned outside of regular business hours or that [its] debt collection efforts included any threats of violence against the [borrowers]“; and an an alleged misrepresentation about future activity by a debt collector is not actionable absent intent not to perform at the time of speaking. Robinson v. Wells Fargo Bank, No. 13-11236 (July 28, 2014, unpublished).

Limit to the FCA’s reach

Characterizing the False Claims Act as “a statute that shadows every aspect of the administrative state,” the Fifth Circuit decided in United States ex rel. Shupe v. Cisco Systems, Inc. this issue: “[W]hen the Government ‘provides any portion of’ requested money” so as to trigger its protections.  No. 13-40807 (July 7, 2014).  After an extensive review of the statute and precedent, the Court concluded: “[That the FCC maintains regulatory supervision over the E-Rate program does not affect the Congress' decision, embodied in the program's independent structure, to externalize the cost of administering the program to a private entity.  Because there are not federal funds involved in the program, and USAC [an independent nonprofit charged with its administration] is not itself a government entity, we agree that the Government does not ‘provide[] any portion of’ the requested money under the FCA.”

Return to Royalties

After recently reviewing the phrase “computed at the mouth of the well,” the Fifth Circuit returned to oil royalties in Potts v. Chesapeake Exploration LLC, No. 13-10601 (July 29, 2014).  The lease fixed the royalty as a percentage of “the market value at the point of sale,” and would be “free and clear of all costs and expenses related to the exploration, production and marketing of oil and gas production . . . ”  Since Chesapeake’s sales of gas occured at the wellhead, this language allowed it to deduct a reasonable post-production cost for delivering the gas from the wellhead under Heritage Resources, Inc. v. NationsBank, 939 S.W.2d 118 (Tex. 1996).  The Court said that its conclusion was not affected, under the terms of this lease, by the fact that Chesapeake sold to an affiliate.  The Court also rejected a procedural argument about whether Heritage was binding precedent after the Texas Supreme Court’s 4-4 vote on rehearing.   


In Department of Texas, Veterans of Foreign Wars v. Texas Lottery Commission, the en banc Fifth Circuit reversed a 2013 panel opinion and reinstated a permanent injunction against the Texas Bingo Enabling Act, which “allow[ed] charitable organizations to raise money by holding bingo games on the condition that the money is used only for the organizations’ charitable purpose.”  No. 11-50932 (July 28, 2014).  The Court found that this restriction imposed an unconstitutional condition on those organizations’ First Amendment rights, and distinguished Rust v. Sullivan on the grounds that “the government  may attach certain speech restrictions to funds linked to the public treasury — when either granting cash subsidies directly from the public coffers or approving the withholding of funds that would otherwise go to the public treasury. . . . The bingo program in Texas is wholly distinguishable . . . simply because no public monies or ‘spending’ by the state are involved.”  (citations omitted).

A “federal question,” but not a federal question.

“The central issue in this case is whether a district court has jurisdiction over an inventorship dispute where the contest patent has not yet issued.”  Camsoft Data Systems v. Southern Electronics Supply, Inc., No. 12-31013 (June 19, 2014).  After a removal based on patent jurisdiction, the plaintiff amended to add federal antitrust and RICO claims.  The Fifth Circuit held: “where — as here — a plaintiff [timely] objects to jurisdiction at removal, that plaintiff does not waive her jurisdictional arguments via post-removal amendment to her complaint.”  Then, as to patent jurisdiction — acknowledging some uncertainty in the law on this specific topic — the Court found that the Patent & Trademark Office had “sole discretion” over a pending patent, not the federal courts. Returning to the other federal claims, because those claims had not proceeded to trial, a potential argument against remand based on Caterpillar, Inc. v. Lewis, 519 U.S. 61, was unavailable.  Accordingly, the district court’s order of remand to state court was affirmed.

Declaratory judgment appeal not ripe

A large group of Dallas firefighters and police officers, involved in class action litigation against the City, filed a declaratory judgment action in the bankruptcy case of a law firm that had once represented them.  They sought a declaration that neither the firm, nor the bankruptcy trustee, continued to represent them in their litigation or was entitled to any fee in that litigation.  Caton v. Payne, No. 13-41182 (July 16, 2014, unpublished).  After reminding in a lengthy footnote one that the final judgment rule for bankruptcy appeals is viewed “in a practical, less technical light,” the Fifth Circuit nevertheless agreed that the appeal from the ruling on that declaration was not ripe: “It is undisputed that the Class Action Lawsuits remain pending, that no recovery has been made, and that there may never be a recovery, which would preclude any contingent fee award as to which [bankrupt firm] (through the Trustee) may or may not be entitled to a share.  Moreover, the Trustee has not yet demanded a fee, or threatened legal action to recover a fee.”

Remand to arbitration panel not appealable, dissent warns of “mischief”

In Muchison Capital Partners, L.P. v. Nuance Communications, Inc., the district court remanded a case to an arbitration panel for further consideration of damages, making clear that it was not vacating the award.  No. 13-10852 (July 25, 2014).  Appeal ensued. Acknowledging that an order vacating an award and remanding is final, the majority concluded that this order was not final (and thus not appealable) as a matter of precedent and the general policy favoring arbitration and discouraging piecemeal appeals.  A dissent warned that “mischief will come of this error,” pointing out that the district judge closed the case, issued a final judgment, and did not stay or retain jurisdiction over the case after the remand.  The dissenting judge would take the appeal, reach the merits, and affirm the award.  A main point of difference between the majority and dissent was the holding of of Green Tree Financial Corp. v. Randolph, 531 U.S. 79 (2000).

Arbitrator authority

The Fifth Circuit revisited the issue of an arbitrator’s authority to fashion a remedy — nominally an issue of labor union law, but of broader general interest — that it recently addressed in Albermarle Corp. v. United Steel Workers, 703 F.3d 821 (5th Cir. 2013). Observing that the parties’ CBA “did not establish criteria for determining cause to discharge,” it found that the arbitrator’s decision to suspend rather than discharge was within the bounds of an arguable construction of the contract.  United Steel v. Delek Refining, Ltd., No. 12-41119 (July 14, 2014, unpublished).

Be careful settling claims covered by insurance.

A 1404(a) dispute was affirmed in Empire Indemity Ins. Co. v. N-S Corp., where “almost all non-party witnesses and all sources of proof needed to determine whether damages were covered by Empire’s policy are in, or around, Texas, and subject to the district court’s compulsory subpoena power.”  No. 13-40426 (June 12, 2014, unpublished).  On the merits, an aggrieved car wash operator sued its parts supplier and won a verdict for over $3 million.  Several months later, the parts supplier and its primary carrier settled with the plaintiff, all parties mutually released all claims against each other, and the parts supplier assigned its claims against its excess carrier to the plaintiff.  The excess carrier won summary judgment and the Fifth Circuit affirmed: “Following a release, the releasor cannot sue the releasee’s insurer ‘because the release precludes the prerequisite determination of [releasee’s liablity.’”  (quoting Angus Chem. Co. v. IMC Fertilizer, Inc., 939 S.W.2d 138 (Tex. 1997)).

What ends a malicious prosecution?

In Lemoine v. Wolfe, the Fifth Circuit certified an important question of malicious prosecution law to the Louisiana Supreme Court; namely, whether dismissal of a prosecution constitutes a “bona fide termination in his favor” as required by that tort.  No. 13-30178 (July 18, 2014, unpublished).  “For example, in a case such as this one, the dismissal served almost as a determination of the merits.  The dismissal of [the] cyberstalking charge was expressly based on the fact that the district attorney had determined that there was ‘insufficient credible, admissible, reliable evidence remaining to support a continuation of the prosecution.’”

When is title insured?

“It would . . . be an unreasonable interpretation of the policies to say that they provide for valuation as of the date of . . . discovery since no loss occurs at that point.  The most appropriate date to use in calculating [plaintiff's] losses is that date of the foreclosure sales, as that is when [plaintiff] incurred covered losses.”  First American Bank v. First American Transportation Title Ins. Co., No. 13-30888 (July 16, 2014)

167 plaintiffs + 1 oil well = remand to state court.

The defendants in Rainbow Gun Club, Inc. v. Denbury Onshore, LLC removed to federal court under CAFA, arguing that the 167 plaintiffs’ claims based on mineral leases were a “mass action.”   No. 14-30514 (July 23, 2014).  The dispute centered on whether those claims, which alleged negligent operation of the relevant well, arose from “an event or occurrence in the State” within the meaning of that statute.  The Fifth Circuit concluded that the ordinary meaning of those terms, CAFA’s legislative history, and case law from other circuits supported the plaintiffs’ position that “the exclusion applies to a single event or occurrence, but the event or occurrence need not be constrained to a discrete moment in time.”  Drawing an analogy to the Deepwater Horizon accident, the Court also rejected an argument based on allegations of multiple acts of negligence, as such an incident “was the event that resulted from a number of individual negligent acts related to each other . . . .”  Accordingly, the Court affirmed the remand of the case to Louisiana state court.

Settlement Credit Twofer

The Fifth Circuit addressed the Texas rules about settlement credits in two cases this summer:

1.   Credit.  An employee stole a number of checks by endorsing them to himself.  The Court found “that the one satisfaction rule obtains  . . ., for while there are multiple checks at issue, there is but a single injury.”  Coastal Agricultural Supply, Inc. v. JP Morgan Chase Bank, N.A., No. 13-20293 (July 21, 2014).  It then remanded for analysis of the appropriate allocation; a dissent would have dismissed this interlocutory appeal into a complex area of Texas law.  The Court also affirmed that section 3.405 of the UCC — the “padded payroll” defense — provided an affirmative defense for the relevant bank to a common law claim for “money had and received.”

2.  No credit.  The victim of a fraudulent scheme sued the seller of the relevant business for breach of warranty, and the participants in the scheme for a fraudulent transfer.  It settled with the seller and recovered a multi-million dollar judgment against the bank that participated in the transfer.  Held, no credit for the bank: “Citibank’s alleged contractual breach and the TUFTA action against Worthington may share common underlying facts—the three fraudulent transfers from CitiCapital to Worthington totaling $2.5 million, induced by Wright & Wright. But such factual commonality does not suffice to count the contractual dispute’s settlement against TUFTA’s limit on recovery for a single avoidance ‘claim,’ Tex. Bus. & Comm. Code § 24.009(b), or to render Citibank a joint tortfeasor for one-satisfaction rule purposes.”  GE Capital Commercial, Inc. v. Worthington National Bank, No. 13-10171 (June 10, 2014).  The Court also held that Texas would apply an objective “good faith” test under its fraudulent transfer statute rather than a subjective test referred to in an older Texas Supreme Court opinion.  (LTPC and this blog’s author represented the successful plaintiff/appellee in this case.)

PSLRA satisfied

Plaintiffs sued for securities fraud, alleging misrepresentations about a company’s capabilities and plans about drilling for oil.  Spitzberg v. Houston American Energy Corp.. No. 13-20519 (July 15, 2014).  Emphasizing the plaintiffs’ arguments about “the industry definitions of . . . terms” and the timing of events giving rise to an inference of scienter, the Fifth Circuit reversed the dismissal of their claims under the PSLRA,.  The Court also found adequate pleading of loss causation.  (The significance of industry terminology echoes the reversal of a Rule 12 dismissal about the sale of a loan in Highland Capital Management LP v. Bank of America, although that claim ultimately lost at the summary judgment stage.)

Drug claims preempted.

Various products liability claims against both generic and brand-name drug manufacturers were found to be preempted in Johnson v. Teva Pharmaceuticals, No. 12-31011 (July 11, 2014).  The Court relied on recent Circuit precedent after the Supreme Court’s opinion in Pliva, Inc. v. Mensing, 131 S. Ct. 2567 (2011).  As to the brand defendants, the Court declined to certify “the question of whether a brand-name manufacturer can be held liable for injuries caused by a plaintiff’s ingestion of a generic product that was neither manufactured nor distributed by the brand-name manufacturer, reviewing several relevant considerations and authorities.  A dissent would certify, seeing the issue as having “potentially grave ramifications” and taking a different view of the strength of the relevant authority.

ERISA resurrection

After the Deepwater Horizon disaster, BP’s share price declined and several employee benefits sustained major losses. An ERISA lawsuit on behalf of the beneficiaries was dismissed, noting that an ERISA fiduciary’s to maintain an investment in company stock receives a “presumption of prudence,” sometimes referred to as the Moench presumption. Whitley v. BP, P.L.C., No. 12-20670 (July 15, 2014, unpublished).  In June 2014, the Supreme Court eliminated that presumption and held that ERISA fiduciaries managing a plan invested in company stock are subject to the same duty of  prudence as any other ERISA fiduciary, “except that they need not diversify the fund’s assets.” Fifth Third Bancorp v. Dudenhoeffer, No. 12-751 (U.S. June 25, 2014).   Accordingly, the Fifth Circuit vacated the district court’s dismissal and remanded the appeal for reconsideration in light of that opinion.

Wrong kind of negligence

The coverage dispute in Wiszia Co. v. General Star Indemnity Co. involved a lawsuit in which “Jefferson Parish essentially asserted Wisznia improperly designed a building and did not adequately coordinate with the builders during its construction.” No. 13-31125 (July 16, 2014).  Reviewing the allegations under Louisiana’s eight-corners rule, and summarizing the extensive Louisiana jurisprudence on the topic, the Fifth Circuit found that the claim fell within the policy’s professional services exclusion.   Under those authorities, mere use of the word “‘negligence’ is insufficient to obligate a professional liability insurer to defend the insured,” and “the factual allegations in the Jefferson Parish petition here do not give rise to an ordinary claim for negligence—such as an unreasonably dangerous work site.”

Expensive royalties

Chesapeake’s lease obliged it to pay the Warrens a royalty based on “the amount realized by Lessee, computed at the mouth of the well.”  A lease addendum said the royalty “shall be free of all costs and expenses related to the exploration, production, and marketing . . . including, but not limited to, costs of compression, dehydration, treatment and transportation.”  Warren v. Chesapeake Exploration LLC, No. 13-10619 (July 16, 2014).

The addendum went on to say that “Lessor will, however, bear a proportionate part of all those expenses imposed upon Lessee by its gas sales contract to the extent incurred subsequent to those that are obligations of Lessee.”  The Warrens contended that this sentence defined certain shared expenses which should not have been deducted from the royalty.  The Fifth Circuit disagreed and affirmed the Rule 12 dismissal of their complaint, finding that the sentence only referred to “the cost of delivering marketable gas to a sales point other than the mouth of the well.”  (distinguishing Heritage Resources, Inc. v. NationsBank, 939 S.W.2d 118 (Tex. 1996)).

The Court reversed, however, as to another pair of plaintiffs with a different lease addendum.  Noting simply that it was different, the Court found that their claim should not have been dismissed, as “[i]t is not apparent from the face of the complaint or its attachments that they could not conceivably state a cause of action.”

Hindsight is 330.

A law firm appealed the partial denial of its bankruptcy fee application.  The bankrupty court said “its ruling was informed by the bad conduct of the Debtors themselves, which should have lead [the firm] to withdraw from the case sooner than it ultimately did.”  The district court said the record showed that “this bankruptcy proceeding was doomed at the outset, and arguably could not have been filed in good faith under Chapter 11.”   Barron & Newburger, P.C. v. Texas Skyline, Ltd., No. 13-50075 (July 15, 2014).  The Fifth Circuit affirmed, noting that its earlier opinion of  In re: Pro-Snax Distributors, Inc., 157 F.3d 414 (5th Cir. 1998) rejected a “reasonableness” test in the application of Bankruptcy Code § 330 — which would have asked “whether the services were objectively beneficial toward the completion of the case at the time they were performed” — in favor of a “hindsight” approach, asking whether the professionals’ work “resulted in an identifiable, tangible, and material benefit to the bankruptcy estate.”  That said, all three panel members joined a special concurrence asking the full Court to reconsider Pro-Snax en banc, observing that its outright rejection of forward-looking reasonableness “appears to conflict with the language and legislative history of § 330, diverges from the decisions of other circuits, and has sown confusion in our circuit.”

“Unsupported . . . irrelevant . . ., and legalistic gibberish”

Appellant did not fare well in Bell v. Bell Family Trust, where the Fifth Circuit observed: “The inadequacy of her briefing on appeal does not fall far from her pleadings below, upon which the magistrate judge reflected: ‘The undersigned spent a significant amount of time parsing through the morass of Bell’s voluminous, rambling, and unintelligible pleadings, which proved to be a substantial waste of time and resources. They contain a “hodgepodge of unsupported assertions, irrelevant platitudes, and legalistic gibberish.” As succinctly stated by the late Judge Alvin B. Rubin: “[t]he ability to fill more than 36 pages with no more than legal spun sugar does not make an argument substantial.”’  Construing liberally Bell’s continued hodgepodge of assertions, we discern only one issue for review . . . . .”  No. 13-31219 (July 8, 2014, unpublished)

A double-header win for bankruptcy creditors

1.  Creditors get the money.  Debtor filed for Chapter 13 personal bankruptcy.  He made payments to the Trustee for some time.  He then converted to Chapter 7, leaving the Trustee holding money paid under the Chapter 13 plan.  “[W]ages paid to the trustee pursuant to the Chapter 13 plan should be distinguished from the debtor’s other property acquired after the date of filing.”  Viegelahn v. Harris, No. 13-50374 (July 7, 2014)

2.  Creditors get the money.  The stay lifted.  Secured Creditor foreclosed.  Under federal law, its attorneys fees were subject to the customary review under the Bankruptcy Code.  Under state law, its attorneys fees were fixed by contract.  Held: federal law controls, and the case was remanded for review under federal standards.  In re 804 Congress LLC, No. 12-50382 (June 23, 2014)

Race is a difficult issue.

On Monday the 14th, a 2-1 Fifth Circuit opinion affirmed the free speech rights of the Sons of Confederate Veterans.  On Tuesday the 15th, a 2-1 Fifth Circuit opinion rejected a constitutional challenge to the “top ten percent” admissions policy of the University of Texas: “[T]he backdrop of our efforts here includes the reality that accepting as permissible policies whose purpose is to achieve a desired racial effect taxes the line between quotas and holistic use of race towards a critical mass. We have hewed this line here, persuaded by UT Austin from this record of its necessary use of race in a holistic process and the want of workable alternatives that would not require even greater use of race, faithful to the content given to it by the Supreme Court.”  Fisher v. University of Texas, No. 09-50822.  Both opinions — and the dissents — offer thoughtful analyses of the institutional, historical, and precedential structure of the law governing highly sensitive issues of race, in the geographic area that was once the western portion of the Confederacy. Ideological sound bites will fly about both cases, as the First Amendment allows and encourages, but their reasoning deserves respect and study.

A corporation, by any other name, would be as diverse.

While resolved on other grounds, a part of the diversity-of citizenship question in Tewari De-Ox Systems, Inc. v. Mountain States-Rosen, LLC was whether a business entity — charted as a corporation in Wyoming — should nevertheless be treated as an unincorporated association because it called itself a “cooperative.”  No. 13-50956 (July 9, 2014).  On that point, the Court noted: “Other circuits have rejected similar arguents: ‘For purposes of diversity jurisdiction, the Cooperative is to be treated as a corporation simply because it has been incorporated under [state] law, regardless of the Cooperative’s individual structure, purpose, operations, or name.”  (quoting Kuntz v. Lamar Corp., 385 F.3d 1177, 1183 (9th Cir. 2004), and also citing Pastor v. State Farm Mut. Auto Ins. Co., 487 F.3d 1042, 1048 (7th Cir. 2007)).

To license plate in Dixie . . .

“We understand that some members of the public find the Confederate  flag offensive. But that fact does not justify the Board’s decision; this is exactly what the First Amendment was designed to protect against.”  Accordingly, the Fifth Circuit found that the Texas Department of Motor Vehicles Board violated the free speech rights of the Texas Sons of Confederate Veterans when the Board denied the group’s application for a specialty license plate featuring the Confederate battle flag.  Texas Division, Sons of Confederate Veterans, Inc. v. Vandergriff, No. 13-50411 (July 14, 2014).  The Court rejected a jurisdictional challenge under the Tax Injunction Act, finding that the plaintiff organization was not a taxpayer raising taxation issues.  A dissent found the matter controlled by a Supreme Court case about public monuments.  Initial coverage of the case has appeared in the Dallas Morning News and Times-Picayune.

How taxing is it to enter the Ritz?

The unfortunate taxpayer in Whitehouse Hotel Limited Partnership v. Commissioner of Internal Revenue lost a multi-million dollar dispute about the value of an easement, related to the spectacular Ritz-Carlton on Canal Street in New Orleans, and as a result faced a substantial penalty.  No. 13-60131 (June 11, 2014).  The Fifth Circuit affirmed the Tax Court on the merits but reversed as to the penalty, noting: “We are particularly persuaded by [Taxpayer's] argument that the Commissioner, the Commissioner’s expert, and the tax court all reached different conclusions” on the core valuation issue.  Acknowledging that this area is fact-specific, the Court held as to the taxpayer’s conduct: “Obtaining a qualified appraisal, analyzing that appraisal, commissioning another appraisal, and submitting a professionally-prepared tax return is sufficient to show a good faith investigation as required by law.”

Only consider parol evidence when you consider it.

In Bluebonnet Hotel Ventures, LLC v. Wells Fargo Bank, N.A., the Fifth Circuit considered whether there had been an “[e]rror that vitiates consent” because of a “failure of cause” about an interest rate swap agreement, so as to allow its cancellation under Louisiana contract law.  No. 13-30827 (June 6, 2014).  In the course of affirming summary judgment for the bank, the Court declined to consider emails written around the time of contracting, noting: “Under Louisiana law, courts may only consider parol evidence when a contract is ambiguous.” To illustrate the sharp edge that separates holdings in the area of extrinsic evidence, cfFruge v. Amerisure663 F.3d 743 (5th Cir. 2011) ( applying Louisiana law and holding: “Parol evidence is admissible to show mutual error even though the express terms of the policy are not ambiguous.”) (citations omitted).

Insurance Twofer

1.  No conflict-of-interest.  In Graper v. Mid-Continent Casualty Co., No. 13-20099 (June 24, 2014), the Fifth Circuit revisited the potential conflict-of-interest issues relating to counsel selected by an insurance carrier, previously addressed in Downhole Navigator LLC v. Nautilus Insurance686 F.2d 325 (5th Cir. 2012).  Reminding that a problematic conflict would only arise if “the facts to be adjudicated in the underlying lawsuit are the same facts upon which coverage depends,” the Court found no disqualifying conflict in either: (a) the facts of when a claim accrued for limitations purposes, as opposed to when it occurred under the policy, or (b) the facts about an alleged willful copyright infringement occurs, as opposed to a “knowing” act for coverage purposes.  

2.  No exhaustion.  The excess carriers in Indemnity Ins. Co. of N. Am. v. W&T Offshore, Inc. contended that they had no coverage obligation when the underlying policies had been exhausted.  No. 13-20512 (June 23, 2014).  Distinguishing Westchester Fire Ins. Co. v. Stewart & Stevenson Services., Inc., 31 S.W.3d 654 (Tex. App.–Houston [1st Dist.] 2000, pet. denied), the Court disagreed, finding that the policy “merely outlines what will happen if the underlying insurance is entirely exhausted by claims covered under the policy; it says nothing about what will happen if the Retained Limit is exhausted by non-covered claims.” A deftly-written footnote 5 explains how the excess carriers’ argument relies on the logical fallacy of “affirming the consequent.”

Does “based on the attached” mean “we agree to arbitration”?

The parties’ contract said: “Terms and conditions are based on the general conditions stated in the enclosed ORGALIME S200.”  The ORGALIME, in turn, had an arbitration clause.  The Fifth Circuit found that the above language incorporated the arbitration clause into the contract, acknowledging that “multiple interpretations of ‘based on’ might be possible in the abstract,” the length and scope of the ORGALIME compared to the contract showed the parties’ intent to incorporate its terms.  Rushaid v. National Oilwell Varco, Inc., No. 13-20159 (July 2, 2014).  The Court also rejected a waiver argument, finding that the acts of the party’s co-defendants could not be imputed to it absent a reason to pierce the corporate veil.  Here, “there is no evidence in the record that [the party] has abused its corporate form.  It merely declined to become a party to litigation without being formally served.”  The Court also rejected an argument, based on equitable estoppel, to stay the ongoing litigation until the conclusion of the arbitration.

Limitations for home equity loan claims in Texas — a wrinkle

The Fifth Circuit held in Priester v. JP Morgan Chase Bank, 708 F.3d 667 (5th Cir. 2013), that the Texas “residual” 4-year statute of limitations applied to claims based on the home equity loan provisions of the state Constitution, running from the time the loan closed.  Various requests to reconsider, certify, or otherwise retreat from that holding have been uniformly rejected.  Kramer v. JP Morgan Chase Bank presented a fresh attack on Priester, arguing that the discovery rule applied to a claim based on the Texas statute against the filing of false liens, and citing Vanderbilt Mortgage v. Flores, 692 F.3d 358 (5th Cir. 2012).  No. 13-50920 (June 25, 2014, unpublished).  The Court sidestepped this argument by finding the issue moot because plaintiff did not seek damages based on this statute before the district court.

Out of the frying pan of Rule 12, into the fire of Rule 56

First case: Highland Capital sued Bank of America for the alleged breach of an oral contract to sell a $15.5 million loan.  After the Fifth Circuit reversed the dismissal of this claim under Rule 12(b)(6), it affirmed summary judgment for the defendant in Highland Capital Management LP v. Bank of America, No. 13-11026 (July 3, 2014). Highland relied upon standard terminology promulgated by an industry association, while the Bank pointed to evidence showing that, in this specific transaction, the Bank was not familiar with that terminology and not want it to control.  “Although industry custom is extrinsic evidence a factfinder can use to determine the parties’ intent to be bound, its value is substantially diminished where, as here, other evidence overwhelmingly shows that the persons involved in the dealings were unaware of those customs.”    The Court also rejected an alternative theory that a prior transaction that involved the terminology continued to govern the parties’ relationship, noting: “Whether a prior contract had a binding effect on the procedures available for future contract-formation is a legal question.”

Second case:  As with the previous case, WH Holdings LLC v. Ace American Ins. Co. was remanded for development of a factual record, this time for extrinsic evidence about a contract ambiguity.  No. 13-30676 (June 26, 2014, unpublished).   And as with the previous case, the Fifth Circuit affirmed a summary judgment, finding that seven pieces of extrinsic evidence were either not relevant to the specific contract issue, or “equally consistent with both” readings.

The rain, in main, did not fall on the cranes

Aransas Project v. Shaw presented a challenge to an injunction against the Texas Commission on Environmental Quality, prohibiting the TCEQ from issuing new permits to withdraw water from rivers that feed the estuary where whooping cranes live.  No. 13-40317 (June 30, 2014).  The whooping crane, described in the opinion as a “majestic bird that stands five feet tall,” is an endangered species, and the only known wild flock lives in Texas during winter.

The Fifth Circuit first rejected an argument for Burford abstention, finding that this case presented a “broader grant of administrative and judicial authority by state law to remedy environmental grievances” than a prior opinion where it allowed abstention in a similar sort of environmental dispute.  Cf. Sierra Club v. City of San Antonio, 112 F.3d 789 (5th Cir. 1997).

The Court then reversed the injunction, finding no causation “in the face of multiple, natural, independent, unpredictable and interrelated forces affecting the cranes’ estuary environment.”  While couched in language about proximate causation and environmental law, the Court’s analysis is a classic illustration of the recurring Daubert problem of excluding alternate causes.  (In the course of this discussion, the butterfly effect theory makes a cameo appearance in footnote 10.)

Construction work and CGL coverage, redux –

The plaintiffs in Crownover v. Mid-Continent Casualty Co. won an arbitration claim based on the “breach of the express warranty to repair” in their contract with an HVAC installation company.  No. 11-10166 (June 27, 2014).  The Fifth Circuit, applying Gilbert Texas Construction LP v. Underwriters of Lloyd’s London, 327 S.W.3d 118 (Tex. 2010) and the recent response to a certification request in Ewing Construction Co. v. Amierisure Ins. Co., 420 S.W.3d 30 (Tex. 2014), concluded that CGL coverage was not available: “Whereas contractually agreeing to repair damage resulting from a failure to exercise reasonable care in performing the work or agreeing to perform work in a good and workmanlike manner would mirror a contractor’s duty under general law . . . contractually agreeing to repair damage resulting from a failure to comply with the requirements of the contract would not.”  Law360 has a good article about the development of this important insurance coverage issue over the last several months.

Analytical GAAP

At issue in Meadaa v. K.A.P. Enterprises LLC was the relative liability of three defendants for a $3.5 million claim.  No. 12-30918 (July 1, 2014).  In a summary judgment affidavit, an expert opined that transactions of Defendant 1 had not resulted in unfair advantage to Defendants 2 and 3, and had kept its affairs separate from those of Defendant 4.  The expert had reviewed financial documents from Defendant 1 and tax returns from Defendant 4.  The Fifth Circuit found no clear error in the district court’s striking of this affidavit for a lack of personal knowledge.  Because “[i]t is by no means clear how a [CPA] can obtain personal knowledge of the effects of the actions of one entity on other parties without reviewing the latter’s financial documents,” it was “incumbent upon him to explain how he acquired such knowledge.”  As a procedural matter, the Court also found that a notice of appeal from a final judgment encompassed a later ruling on a Rule 59 motion.

3 Fifth Circuit cases to know from 2Q 2014

In the second quarter of 2014, the Fifth Circuit said how to . . .

1. . . . enforce an Agreed Protective Order.  Two judges, finding “written notice” ambiguous, found that Ford did not waive confidentiality designations by having a lengthy email exchange rather than moving for protection.  The dissent would construe the ambiguity against Ford and faults the majority for encouraging “vague, non-responsive answers.”  Moore v. Ford Motor Co., ___ F.3d ___ (June 20, 2014).

2. . . . . remove based on federal question jurisdiction.  A petition raised a sufficient federal question for removal when it incorporated this allegation from an EEOC complaint: “I have been and continue to be discriminated against, in violation of Title VII of the 1964 Civil Rights Act, as amended, [and] the Texas Commission on Human Rights Act, as amended, because of my national origin (Iranian).”   Davoodi v. Austin ISD, ___ F.3d ___ (June 16, 2014).

3.  . . . protect in-house counsel’s attorney-client privilege.  Addressing the common question of “business or legal advice?” the court found a memo privileged because it “deal[t] with any legal liability that may stem from under-disclosure of data, hedged against any liability that may occur from any implied warranties during complex negotiations.”  Exxon Mobil Corp. v. Hill, 751 F.3d 379 (2014).

How to (not) litigate “CONFIDENTIAL” designations under an agreed protective order

The agreed protective order said:  “At any time after the delivery of documents designated ‘confidential,’ counsel for the receiving party may challenge the confidential designation of any document or transcript (or portion thereof) by providing written notice thereof to counsel for the opposing party.”  The producing party then has 15 days to seek protection; if it does not do so, “then the disputed material shall no longer be subject to protection as provided in this order.”  Moore v. Ford Motor Co., No. 13-40761 (June 20, 2014).

Pursuant to the order, Ford produced four boxes of documents related to Volvo safety issues.  These communications ensued:

  • On May 11, 2004, plaintiffs’ counsel emailed to challenge the confidentiality designations of several documents.
  • On June 4, Ford’s counsel asked for Bates numbers.
  • On June 23, plaintiffs’ counsel responded, expanded on the confidentiality argument, and said it “will begin passing them out to any and everyone that is interested”
  • In July, plaintiffs’ counsel asked: “what’s the word . . . on confidentiality?”
  • The next day, Ford’s counsel withdrew its designations as to some documents, said it was “evaluating your claims” as to others, and “expects you to abide by the terms of the Protective Orders in the meantime”
  • Plaintiffs’ counsel responded: “I gave Ford adequate time.  I am sending the materials out.  Thanks for trying.”  (He did not specify what “materials”)
  • On February 22, 2005, plaintiffs’ counsel asked for an update on the “confidentiality issue”
  • On March 8, 2005, Ford responded that “in the spirit of cooperation” it would “officially de-designate from the Protective Order” specified other documents.

In 2012, documents surfaced in other litigation that Ford had produced pursuant to the above protective order; while the opinion does not specify what they were, it seems clear that they were documents which Ford had not formally “de-designated.”  Ford moved to enforce the protective order and the district court agreed, finding no “clear written notice . . . challenging the confidential designation of these documents.”

On appeal, plaintiffs argued that the 15-day period ran from the first email, and Ford thus waived its designations by not moving for protection.  The Fifth Circuit disagreed, finding the protective order ambiguous on this issue, and stating: “This interpretation may well be the better reading without more, but the parties understanding of these agreed orders bears upon the interpretation, and the actions of both parties strongly suggest” otherwise, noting the lengthy dialogue between the parties.    Noting that “[a]lthough on de novo review a different outcome may obtain,” the Court found the district court’s conclusion that no waiver occurred to not be clearly erroneous.

A dissent, among other arguments, noted that (1) the 15-day provision only requires that confidentiality be “in dispute,” (2) Ford drafted the agreement so any ambiguity should be construed against it, and (3) Ford had the burden to establish confidentiality.  The dissent concluded the majority opinion undermined “efficient resolution of discovery disputes” by allowing “Ford . . . to undermine this purpose through vague, non-responsive answers.”

Law school exam on diversity . . .

  1. Thompson sued Defendants in Arkansas in 2011, alleging he was a citizen of Arkansas.  That lawsuit was dismissed for improper venue.
  2. Thompson sued Defendants again in Florida in 2012, and voluntarily dismissed that action after the magistrate concluded that diversity was lacking.
  3. Thompson sued Defendants again in Alabama in 2012, alleging that he was a citizen of Arkansas.  That action was transferred to Mississippi.   It was then dismissed for lack of jurisdiction because Thompson and one of the citizens were both Florida citizens at the time of filing in 2012.

Thompson argued that the relevant facts related to the original 2011 filing, not the 2012 re-filing.  HELD: “[T]he [Alabama] complaint does not relate back to the [Arkansas] complaint because the second complaint was not an amendment, but rather the commencement of a separate action.”  Dismissal affirmed.

No fact issue

A subtle Erie issue flashed by when Andrews alleged premises liability claims against BP, and the Fifth Circuit affirmed summary judgment for BP under a Texas statute. Terry v. BP Amoco, No. 12-40913 (June 27, 2014, unpublished).  BP won summary judgment: “Exhibits C and D are the only evidence that Andrews identified as raising a material issue of fact as to BP’s responsibility for the explosion. Those exhibits are a Safety Bulletin issued by the United States Chemical Safety and Hazard Investigation Board (CSB) and a CSB press release discussing the bulletin. The statute creating the CSB, however, prohibits Andrews from using the documents as evidence in this case.  Additionally, both CSB documents also likely constitute inadmissible hearsay under the Federal Rules of Evidence.”  The question not raised is how much substantive effect this type of federal statute must have in a state law tort claim, removed to federal court under diversity jurisdiction, so as to raise an Erie issue.

How to get hit with punitive damages

Plaintiff recovered $12,200 in actual damages and $40,000 in punitives on his claim for race discrimination, and the Fifth Circuit affirmed in all respects.  Rhines v. Salinas Construction Technologies, Ltd. (June 25, 2014, unpublished).  On the punitive damages award, the Court noted this evidence: (1) the employer falsely told the EEOC that plaintiff had not complained about the workplace; (2) an employee admitted at trial that he signed a false affidavit about the use of racial slurs in the workplace; and (3) “the person who allegedly performed the [employer's] investigation testified before the jury that he did not investigate.”  As the Court dryly summarized: “There was sufficient evidence to support the jury’s award of punitive damages.”

The decedent’s ashes, Louisiana process servers, and personal jurisdiction

Defendant was personally served in Louisiana; the question was whether the plaintiffs fraudulently induced her to come there.  Gatte v. Dohm (June 23, 2014, unpublished). More specifically, Defendant (part owner of a Mexican clinic where the plaintiffs’ relative had died) alleged she had been duped into travelling to Louisiana to return the decedent’s ashes and personal effects to family members, as they were too distraught to travel themselves.  The district court found fraudulent inducement; the Fifth Circuit reversed, noting a conflict between the affidavits submitted by the parties and applying the principle: “Conflicts between the facts contained in the parties’ affidavits must be resolved in the plaintiff’s favor for purposes of determining whether a prima facie case for personal jurisdiction exists.”  (citing D.J. Investments, Inc. v. Metzeler Motorcycle Tire Agent Gregg Inc., 754 F.2d 542, 546 (5th Cir. 1985).

No “sign-off mid-litigation” to “tinker with ongoing cases” . . .

In Tetra Technologies, Inc v. Continental Ins. Co., the district court ruled on several key issues in an insurance coverage dispute, declined to certify the rulings for immediate appeal under 28 U.S.C. § 1292(b) because it found no substantial ground for difference of opinion, and entered judgment on those matters pursuant to Fed. R. Civ. P. 54(b).  No. 13-30516 (June 10, 2014).  The Fifth Circuit found that judgment improper, and thus dismissed on jurisdictional grounds for lack of a final and appealable order. Rather than sounding the “death knell” of claims as required by Rule 54, the Court concluded that the rulings would allow “Tetra and Maritech to prevail completely nor not at all on their indemnification claim against Continental, depending on the resolution of certain ‘factual issues.’”  “Thus, what we are presented with here is a request by the district court for us to sign off mid-litigation on legal questions it considers non-contentions.  Since the inception of the federal judiciary, however, our role has been to review final decisions of trial courts, not to tinker with ongoing cases through piecemeal appeals . . . “

Federal question? Where to look . . .

In the published opinion of Davoodi v. Austin ISD, the Fifth Circuit revisited the recurring question of how substantial a federal question must be to create jurisdiction (and thus, allow removal). No. 13-50823 (June 16, 2014).  Notably, the Court did not analyze whether the plaintiff stated a claim under federal law in the causes of action alleged in his pleading.  Rather, the decision turns on how much the pleaded facts involved violation of federal law.  This focus contrasts with the framework of Howery v. Allstate Ins. Co., which rejected jurisdiction because “[f]rom its context, it appears that Howery’s mention of federal law merely served to describe types of conduct that violated the DTPA, not to allege a separate cause of action under the FCRA,” and because a violation of federal law was not an “essential element” of Howery’s state law claims.  243 F.3d 912, 918-919 (5th Cir. 2001).  

Davoodi sued in Texas state court, alleging state law claims for “national origin discrimination” and intentional infliction of emotional distress, and a claim for “retaliation” without a specified basis in state or federal law. The first of the two paragraphs in the “Facts” section of the petition said:

“On or about June 2, 2011 Plaintiff filed a Charge of Discrimination with the EEOC and the Texas Human Rights Commission.  (See Charge attached as Exhibit ‘A’ and fully incorporated herein).  This charge alleged that Defendant discriminated against Plaintiff based on his National Origin (Iranian).  On February 3, 2012 the EEOC issued a Dismissal and Notice of Rights.  The Texas Human Rights Commission did not issue a dismissal/right to sue.”  

The Court noted that the incorporation of the Charge made it “part of [plaintiff's] complaint for all purposes,” and created federal jurisdiction because the Charge contained the averment and claim: “I have been and continue to be discriminated against, in violation of Title VII of the 1964 Civil Rights Act, as amended, [and] the Texas Commission on Human Rights Act, as amended, because of my national origin (Iranian).”  The Court remanded as to the Rule 12 dismissal of the case, however, to allow the plaintiff a chance to replead under Lozano v. Ocwen Federal Bank, 489 F.3d 636 (5th Cir. 2007).

The movant’s Rule 12 arguments, as reflected in the appellate record excerpts, address whether the plaintiff’s pleading stated a claim for “retaliation” under either state or federal law.  The Fifth Circuit did not engage the basis for that claim in its analysis of federal question jurisdiction, focusing entirely on the fact allegations described above and the statement made to the EEOC.  Allstate can be reconciled with Davoodi  because the mention of federal law in the Allstate pleading is substantially smaller, as a percentage of the overall allegations.  That analytical framework — different than Allstate‘s focus — may invite new removals based on a “percentage-based” analysis of a pleading’s factual allegations.

When does an administrative action trigger the duty to defend?

A company received “PRP” (Potentially Responsible Party) letters from the EPA, followed by a “Unilateral Administrative Order” requiring the company to do remedial work.  Its CGL insurer denied coverage, contending that these administrative communications under CERCLA were not a “suit” that triggered the duty to defend.  McGinnes Industrial Maintenance Corp. v. Phoenix Ins. Co., No. 13-20360 (June 11, 2014, unpublished).  The insured argued that the word “suit” was ambiguous and thus led to coverage; the insurer argued that a broad reading of “suit” was inconsistent with the word “claim” in the policy and the word “petition” in the usual phrasing of the Texas “eight corners” rule.  Finding the issue important and that “the parties each make reasonable arguments” about it, the Fifth Circuit certified this question to the Texas Supreme Court: “Whether the EPA’s PRP letters and/or unilateral administrative order, issued pursuant to CERCLA, constitute a ‘suit’ within the meaning of the CGL policies, triggering the duty to defend.”

TILA and the “no good deed goes unpunished” principle

The Leas joined a wholesale membership club, and made a $100 payment that day as part of the down payment.  Their contract did not include the starting date, interval, or date of the month when their installment payments would be due over the next 3 years for the $4,000 membership fee.  Lea v. Buy Direct LLC, No. 13-20281 (June 12, 2014).  The Fifth Circuit found that TILA applied because the Leas had entered a credit transaction, even if they had not bought any goods yet.  Then, recognizing that “[Defendant's] decision to leave the contract blanks unfilled was, at least in part, an accomodation to the Leas,” the Court nevertheless reversed the district court’s summary judgment for the club on the Leas’ TILA claim.  “Perhaps our reversal falls into the category of letting no good deed go unpunished.  Another perspective, though, is that TILA provides an unvarying set of rules that protect consumers who might otherwise voluntarily waive what they should not.”  Thus, although “[w]e do not perceive any harm here . . . harm is not a prerequisite for [TILA] relief.”

What to consider under Rule 12(b)(6)

Adding to an April opinion about the proper scope of review for a Rule 12(b)(6) motion, the Fifth Circuit reminded that — In addition to the pleading itself — a court may consider “the documents attached to the complaint, the documents attached to the motion to dismiss which were referred to in the complaint and central to Plaintiffs’ claim, as well as taking judicial notice of matters of public record.”  Mitchem v. Fannie Mae, No. 13-10904 (June 9, 2014, unpublished).  Mitchem provides citations to published Fifth Circuit authority for each of these points.

Preservation Twofer

1.  Request a limiting instruction to help preserve evidentiary error:  “Moreover, even if there is merit to this distinction, [Defendant] never requested a limiting instruction during trial that would have enabled the jury to consider the evidence regarding insurance only for permissible purposes. Where ‘counsel never requested a more complete limiting instruction,’ the district court ‘cannot [be] fault[ed] . . . for failing to give one spontaneously.” Eagle Suspensions, Inc. v. Hellmann Worldwide Logistics, Inc. (June 9, 2014, unpublished).

2.  Renew earlier issues to help preserve charge error: “Essentially, [Defendant] now argues that the district court should have recalled [Defendant's] federal preemption argument from January and February 2013 when drafting the final jury instructions on March 20, 2013, even though [Defendant] itself never referenced this federal preemption argument in [Defendant's] objections to the proposed jury instructions. . . . [A]  party cannot merely rely on ‘‘the fact that the court is already aware of its position as an excuse for a failure to make a specific, formal objection at the charge conference.’  Rule 51 specifically requires parties to make their objections after the proposed jury charge has been drafted and distributed for comment.”  Id. (quoting Jimenez v. Wood County, 660 F.3d 841, 845-46 (5th Cir. 2011) (en banc)).

Any port in a storm

Two boats collided.  The district court dismissed the resulting tort litigation in favor of Mexico on forum non conveniens grounds.  Cotemar S.A. de C.V. v. Hornbeck Offshore Services, No. 13-20230 (May 21, 2014, unpublished).  After that dismissal, the plaintiff seized the offending vessel in Louisiana (still there at the time of this writing).  The Fifth Circuit reversed and remanded for further analysis.  The first point dealt with a potential time bar in the Mexican system.  “If access to relief in the Mexican courts has become time-barred for reasons not of Appellants’ ‘own making,’ then the Mexican courts are no
longer an available alternative forum.”  (citing Veba-Chemie AG v. M/V Getafix, 711 F.2d 1243, 1248 n.10 (5th Cir. 1983)).   Second, the “supervening change of circumstances” arising from the vessel seizure may affect the balancing of private and public factors, because a transfer to Mexico would now likely result in duplicative proceedings.

600 Camp Goes Seriously High-Tech

At the recent University of Texas Conference on State and Federal Appeals, Fifth Circuit Clerk Lyle Cayce gave a  presentation about the Court that included a demonstration of a remarkable new technology.  After an attorney files a brief, the Court has software that quickly adds hyperlinks for all case and record citations (which is the reason for the recent local rule change to standardize the form for record references).  Those links are then available to the judges and staff on their computers and tablets.  Among other implications, this new technology means that pre-argument, review of the record is no longer limited to the parties’ record excerpts.

Texas garnishment: unchanged after 112 years

The district court held that under Texas law, a creditor may not garnish on a judgment, after entry of judgment but prior to the filing of an appeal.  The Fifth Circuit affirmed, relying upon Waples-Platter Grocer Co. v. Texas & Pacific Railway Co., 68 S.W. 265 (Tex. 1902) [a case from the court of Chief Justice Reuben Gaines and the governorship of Joseph Sayers, a period "notable for the number of disasters that the state faced" such as the Galveston Hurricane and the invasion of the boll weevil].  JGM Holdings LLC v. T-Mobile USA, Inc., No. 13-10678 (May 19, 2014, unpublished).  The Fifth Circuit rejected an argument that the later overruling of a holding in Waples about res judicata implicitly overruled this holding about garnishment.

Known unknowns

Placid Oil filed for bankruptcy and the claim bar date, published in the Wall Street Journal, passed in 1987. “By the early 1980s, Placid was aware, generally, of the hazards of asbestos exposure and, specifically, of Mr. Williams’s exposure in the course of
his employment. Prior to the Plan’s confirmation, no asbestos-related claims
had ever been filed against Placid, and the Williamses did not file any proof of
claim.”  Williams v. Placid Oil Co., No. 12-11120 (May 27, 2014).  Applying In re: Crystal Oil, 158 F.3d 291 (5th Cir. 1998), the Fifth Circuit affirmed summary judgment in the Williamses subsequent tort suit against Placid: “Although Placid knew of the dangers of asbestos and Mr. Williams’s exposure, such information suggesting only a risk  to the Williamses does not make the Williamses known creditors. Here, Placid had no specific knowledge of any actual injury to the Williamses prior to its bankruptcy plan’s confirmation.”  (Donald Rumsfeld’s 2002 discussion of the broader philosophical point is reviewed here.)

Trade secret grab bag

Aspen Technology Inc v. M3 Technology Inc. affirmed an $11 million judgment in a suit to enforce a noncompetition agreement.  Nos. 12-20388 & 13-20268 (May 29, 2014, unpublished).  Most of the grounds are fact-specific and substantially influenced by spoliation matters.  On a key copyright issue, the Court held: “Aspen’s registration of its derivative materials permits Aspen to bring a claim that M3 had infringed preexisting versions of its software,” aligning the Fifth Circuit with several other courts that have addressed the point.  The Court removed roughly $500,000 in attorneys fees arising in prior litigation from the award for tortious interference, noting that the opposing party in that litigation was also a party in this case, removing the fee claim from the “equitable exception” to the rule that a contract or statute must allow recovery of fees.

Expert should rule out other causes.

Ayala was killed by a propane heater explosion; his estate sued the manufacturer for damages.  Ayala v. Enerco Group, 13-30532 (May 28, 2014, unpublished).  Ayala’s wife testified that he was generally careful with the heater, although she did not observe him at the time of the accident.  An expert identified several possible defects with the heater, but: “[There was no evidence to suggest the Ayalas’ heater itself was defective. He did not perform a structural analysis of the Mr. Heater or destructive testing of an example unit. His conclusions supporting that there could be a leak were based solely on the nature of the item itself. McPhate also admitted that he could not rule out other potential sources of a propane leak other than a defect in the heater, such as a faulty propane bottle or a failure by Mr. Ayala to secure the valve properly on the heater.”  Accordingly, the estate’s claims failed.  A sanctions award against the plaintiff’s counsel under 28 U.S.C. § 1927 for filing a second lawsuit was reversed because that filing did not show a “persistent” pattern of vexatious litigation as required by that statute.

Fatal omission.

Two cases warn against skipping foundational steps (or “not showing your work”):

1.  The dismissal of Garcia v. Jenkins Babb, LLP was affirmed for failure to allege facts sufficient under Iqbal to show that an FDCPA claim arose from a consumer transaction; more specifically, “giv[ing] no indication what item was purchased or what service was paid for, much less explain how the item or service was intended for personal or family use.”  No. 13-10886 (May 29, 2014, unpublished).

2.  An award of sanctions was reversed and remanded in Arnold v. Fannie Mae when “the
district court abused its discretion by failing to adequately articulate the authority, the basis, and the reasoning for the sanctions” under Rule 11, inherent power, or 28 U.S.C. § 1927.

Blogging about logging . . .

The plaintiffs in Garziano v. Louisiana Log Home, Inc. made 88 percent of the installment payments for a build-it-yourself log cabin kit, and then defaulted.  No. 13-60291 (May 29, 2014, unpublished).  The log cabin company won summary judgment against several contract and tort claims by the purchasers.  Before final judgment was entered, however, it came to light that the company had resold several of the logs and actually was ahead on the transaction overall.  The district court denied a Rule 59(e) motion about this information and entered judgment.  The Fifth Circuit reversed, finding that the district court should not have focused on plaintiffs’ erroneous characterization of the issue as “unjust enrichment,” and by doing so, “essentially granted LLH an impermissible double recovery—making the earnest money provision an unenforceable penalty.”  The Court remanded “with instructions for the district court to make findings on the amount of actual damages that LLH suffered and to amend the judgment to remit to the Garzianos any monies paid to LLH under the contract that were in excess of LLH’s actual damages.”  (The defendant offers several packages for log homes, all of which look elegant and cost-effective to this author.)

Still preempted.

The plaintiff in McKay v. Novartis, Inc. challenged the dismissal on preemption grounds, by an MDL court in Tennessee, of products liability claims about drugs made by Novartis. No. 13-50404 (May 27, 2014).  The Fifth Circuit rejected an argument about inadequate time to get certain medical records, noting that the plaintiffs “sought formal discovery of evidence that was available to them through informal means” (citing other cases from the Court on that general topic), and also observing that two years passed from the filing of suit until Novartis sought summary judgment.  The Court also affirmed the MDL court’s grant of summary judgment on Texas state law grounds about a breach of warranty claim, finding inadequate notice; as an Erie matter: “the majority of Texas intermediate courts have held that a buyer must notify both the intermediate seller and the manufacturer.”


Burnett Ranches, Inc. operates the sprawling Four Sixes and Dixon Creek ranches in the Texas Panhandle; its history runs to Captain Samuel “Burk” Burnett’s land dealings in the 19th Century with Comanche chief Quanah Parker.  The IRS contended that its current owner (Captain Burnett’s great-granddaughter) was subject to accrual rather than cash accounting pursuant to a law against “farm syndicate” tax shelters.  Burnett Ranches v. United States, No. 13-10403 (May 22, 2014).  The Fifth Circuit affirmed summary judgment for the ranch as to an exception to that law for active farm operators: “To accept the government’s overly expansive reading of § 464 by crediting its overly narrow reading of the Active Participation Exception would be to sanction ‘administrative legislation’ by an Article II executive agency.  This we decline to do, agreeing instead with the district court that the government’s efforts fail, grounded as they are in nothing more than the fact that legal title to Ms. Marion’s interest in Burnett Ranches stands in the name of her S corp.” Of general interest, the Court concluded that “interest” has a broad, nontechnical meaning so long as it does not have a “narrowing modifier.”

Tugging and barging into judicial estoppel

A barge accident caused a large oil spill in the Mississippi River.  In the first lawsuit about the incident, the district court placed liability solely on the tugboat operator, noting the (valid and enforceable) charter agreement between it and the barge owner.  In a later case, the barge owner contended that the agreements were void ab initio because the tugboat operator entered without intent to perform.  Gabarick v. Laurin Maritime (America) Inc., No. 13-30739 (May 21, 2014).  The Fifth Circuit agreed that the new position was barred by judicial estoppel. Key to its analysis was that while the barge owner’s positions were in the alternative in the first action, which would not create estoppel: “Once a court has accepted and relied upon one of a party’s several alternative positions, any argument inconsistent with that position may be subject to judicial estoppel in subsequent proceedings.”  The Court also concluded that the district court’s decision to stay the second case so the first could proceed did not compel an argument choice in that case that would make the application of judicial estoppel inequitable.

Pleading and the duty to defend — the anti-Twombly . . .

The Twombly line of cases emphasizes the importance of detail in pleading.  In the insurance context, however, too much detail can defeat coverage.  In State Farm v. Moseley, the Fifth Circuit affirmed a summary judgment for an automobile insurer as to the duty to indemnify, concluding that a “volunteer driver” for a healthcare provider fell within the policy’s “for a charge” exclusion.  The driver received compensation that, while focused on reimbursement for expenses, could yield profit depending on the route taken and the number of passengers.  As to the duty to defend, however, the Court reversed, finding that the following pleading did not unambiguously trigger the exclusion, as it did not allege that “(1) [Plaintiff] gave [Defendant] any payment for transporting her; (2) [Defendant] was operating a taxi service; or (3) the specific amount of compensation [Defendant] received for transporting [Plaintiff]“:

“11.  Upon information and belief, Defendant Elizabeth W. Mosley, owned, operated, and controlled, or in the alternative, was doing business as Mosley’s Transportation. Upon information and belief, the Defendant, Elizabeth W. [Mosley], owned, operated, and controlled, or in the alter- native, was doing business as LogistiCare of MS. Further, upon infor- mation and belief, the Defendant, Elizabeth W. Mosley . . . is in the business of transporting patients to and from their medical treatment facilities.

12. The Defendant, LogistiCare Solutions, LLC, in the regular course of business, operates and maintains a non-emergency medical transportation services business . . . .

13. That on or about March 19, 2010, the Deceased, Pearlie Graham, was being transported by the Defendant, Elizabeth W. Mosley, and riding as a guest passenger in a vehicle being driven and operated by the Defendant, Elizabeth W. Mosley, Individually and d/b/a Mosley’s Transportation and/or d/b/a LogistiCare of MS, or in the alternative, [] was acting in furtherance of and within the course and scope of her employment with Defendant, LogistiCare Solutions, LLC . . . . “

More drywall, more contacts, more jurisdiction.

“Picking up where we left off in Germano v. Taishan Gypsum Company, Ltd., 742 F.3d 576 (5th Cir. 2014),” the Fifth Circuit affirmed personal jurisdiction in three other suits involving default judgments arising from the “Chinese Drywall” MDL litigation.  In re: Chinese-Manufactured Drywall Products Liability Litig., No. 12-31213 (May 20, 2014).  Again, the Court found jurisdiction for the same basic reasons related to the “stream of commerce.” Applying Florida and also Louisiana law, this opinion also features a detailed discussion of when an agency relationship can give rise to jurisdiction, applying the recent Supreme Court case of Daimler AG v. Bauman, 134 S. Ct. 746 (2014).

Aristotle on BP’s Deepwater Horizon settlement: “[T]he structure of the best tragedy should not be simple but complex . . . “

The Fifth Circuit has now resolved the challenges to BP’s Deepwater Horizon settlement, as follows:

1.  In October 2013, in three separate opinions, First Panel remanded for more fact findings as to accounting issues about the settlement.

2.  In January 2014, in a 2-1 decision, Second Panel affirmed the settlement over challenges based on Rule 23 and related standing issues.

3.  In March 2014, satisfied with the results of the remand, First Panel affirmed the mechanics of the settlement in a 2-1 decision.

4.  On May 19, 2014:

A.    First Panel denies panel rehearing, concluding in a 2-1 opinion: “In settling this lawsuit, the parties agreed on a substitute for direct proof of causation by a preponderance of the evidence.  By settling this lawsuit and agreeing to the evidentiary framework for submitting claims, the claimants did not abandon their allegations of Article III causation.”

B.  Second Panel also denies panel rehearing, also in a 2-1 opinion, noting its “complete agreement” with the denial of panel rehearing by First Panel.

C.  The full court denied en banc rehearing as to First Panel and also as to Second Panel, both over dissents that stressed Article III issues.

That’s all folks!

Generic drug claims preempted

Eckhardt v. Qualitest Pharmaceuticals reviewed tort claims under Texas law against generic drug manufacturers.  No. 13-40151 (May 15, 2014).   The Fifth Circuit found that labeling claims were preempted under PLIVA, Inc. v. Mensing, 131 S. Ct. 2567 (2011), and products liability claims were preempted under Mutual Pharmaceutical Co. v. Bartlett, 133 S.Ct. 2466 (2013).  Misrepresentation claims against brand-name drug manufacturers were rejected under state law for lack of a duty from them to generic-drug users. Law360 provides some further discussion.

Costa Confirmed

The full Senate confirmed Judge Gregg Costa’s appointment to the Fifth Circuit yesterday. While great news for the Court and bar, it bears mention that the seat was open for 837 days, and two vacancies still remain on the Fifth Circuit.  Just as it is difficult to balance the sound of an orchestra missing musicians, it is hard to balance the powers of a government missing key officials.

Posttrial, focus with the right lens

In Songcharoen v. Plastic & Hand Surgery Associates, the district court denied cross-motions for summary judgment about the meaning of a contract and had a trial as to the terms it believed to be ambiguous.  No. 13-60315 (April 2, 2014, unpublished).  Even though both matters present a common issue of law, because “the ‘evidence’ presented at pretrial may well be different from the evidence presented at trial,” the Court reviewed the issue through review of the denial for judgment as a matter of law.  The Court reminded: “because Rule 50 motions for judgment as a matter of law are not required following a bench trial, reviewing a district court’s denial of summary judgment is appropriate following a bench trial.”  (citing Black v. J.I. Case Co., 22 F.3d 568, 570 (5th Cir. 1994), and Becker v. Tidewater, Inc., 586 F.3d 358, 365-66 n.4 (5th Cir. 2009)).


The defendant in Advanced Nano Coatings, Inc. v. Hanafin “entered into an employment agreement with [plaintiff] in which [defendant] agreed to devote 100% of his professional time and effort to [plaintiff] or its subsidiary . . . .”  No. 13-20109 (Feb. 19, 2014, unpublished).  “The district court . . . found that Hanafin breached his fiduciary obligations . . . a finding Hanafin does not dispute on appeal.”  Quoting ERI Consulting Engineers v. Swinnea, 318 S.W.3d 867, 872 (Tex. 2010), the Fifth Circuit noted that under Texas law, “if the fiduciary . . . acquires any interest adverse to his principal, without a full disclosure, it is a betrayal of his trust and a breach of confidence, and he must account to his principal for all he has received.” The Court then held: “Accordingly, [defendant's] breach of fiduciary duties obligates him to repay everything he gained by virtue of his position, including payments for his salary and any expenses he may have incurred.”

Parties here, parties there. Jurisdiction? Know not where.

Chesapeake sued two defendants to recover a large overpayment.  Harleton Oil & Gas intervened to claim a share of that payment.  Chesapeake Louisiana L.P. v. Buffco Prod., Inc., No. 13-40458 (May 7, 2014, unpublished).  The Fifth Circuit ruled: (1) Harleton should have been aligned as a plaintiff rather than a defendant, since it “intervened to seek affirmative relief, not to protect its interests . . . .”; (2) that change destroyed diversity and mooted a summary judgment granted by the district court; (3) the case should then be remanded for the district court to consider whether Harleton is indispensable and its joinder requires dismissal of the entire action; but (4) the district court had jurisdiction over the defendants’ counterclaims against Chesapeake, which involved different wells than the one relevant to Harleton.  “When an independent basis for jurisdiction exists with respect to a counterclaim, a federal court may adjudicate the claim even if the original claim was dismissed for lack of subject-matter jurisdiction.”

Of Terrebonne Bay, LA and Marshall, TX

The short opinion in Navigators Ins. Co. v. Moncla Marine Operations LLC rejected the appeal of a decision to continue a stay of court proceedings, involving the proceeds from the sale of a barge, in favor of arbitration.  No. 13-30975 (May 8, 2014, unpublished).  The Court reminded: (1) a stay is not an appealable final order (citing Apache Bohai Corp. v. Texaco China, B.V., 330 F.3d 307 (5th Cir. 2003)); (2) absent a clear identification of an “important issue . . . completely separate from the merits,” the collateral order doctrine does not allow appeal either; and (3) neither does mandamus, distinguishing a D.C. Circuit case involving a court’s statutory authority over enforcement of a foreign arbitral award.  In a footnote, the Court noted a citation by the movant to In re Radmax, 720 F.3d 285 (5th Cir. 2013), and made the understated observation: “The factors that must be demonstrated to obtain mandamus relief in a venue transfer case are not the same as the factors in an arbitration case.”

Is payment an affirmative defense for a guarantor?

In the earlier case of Levy Gardens Partners v. Commonwealth Land Title Ins. Co., the Fifth Circuit concluded that a pleading about the extent of coverage was “fundamental to the complaint” and “did not raise a new matter outside of the complaint”; accordingly, it did not implicate the rules about the pleading of affirmative defenses.  706 F.3d 622, 633 (5th Cir. 2013).  In contrast, in LSRef2 Baron LLC v. Tauch, the Court held that a guarantor’s defense of payment by the primary obligor was an affirmative defense.  After a review of Louisiana law on the topics of offset and setoff, which characterizes those matters as defenses, the Court concluded that “[Plaintiff] simply had to allege in its complaint that there was an event of default, which is defined in the Loan Agreement, not in the Guaranty.”  The Court also agreed that the issue had not been raised in a “pragmatically sufficient time,” as “all of the critical pretrial deadlines had passed or were about to expire.”

No reinstatement of voluntarily-dismissed appeal

Colbert v. Brennan arises from the difficult litigation involving the Brennan family, the noted New Orleans restaurateurs.  No. 13-30069 (May 9, 2014, unpublished).  Ted Brennan filed an unopposed motion to dismiss an appeal, pursuant to a settlement agreement [the finality of the agreement is not clear from the opinion].  (Pursuant to Fed. R. App. P. 42(b), “an appeal may be dismissed on an appellant’s unopposed motion if the parties agree about costs.”)  Two months later, he sought to reinstate the appeal.  Citing Williams v. United States, 553 F.2d 420 (5th Cir. 1977), the Fifth Circuit held that the voluntary dismissal “voided” the notice of appeal, noting that “[h]e failed to file a new notice of appeal within the time limits required by Ruel 4(a) or to seek relief in the district court as provided by Rule 4(a).”  Citing Bowles v. Russell, 551 U.S. 205 (2007), the Court declined to apply any “equitable exception” to the rule that a notice of appeal is jurisdictional.  The Court also held it was not bound, on this jurisdictional question, by a previous single-judge ruling that reinstated the appeal.

Bankruptcy disclosure of debtors’ potential (although losing) FCA claim

In United States ex rel Spicer v. Navistar Defense, LLC, the Fifth Circuit found that bankruptcy debtors failed to make adequate disclosure of a potential False Claims Act claim as an estate asset.  No. 12-10858 (May 5, 2014).  Accordingly, the trustee was the real party in interest and was able to take over the administration of the claim, even though he did not learn of it until after the bankruptcy closed and long after suit was filed on the claim.  The review of the debtors’ disclosure is of broad general interest.  As to the merits, the Court affirmed dismissal, reminding that “a false certification of compliance, without more, does not give rise to a false claim for payment unless payment is conditioned on compliance.”

How to protect the privilege with in-house counsel

Legal advice or business discussion?  This question is the key issue in most privilege disputes about in-house counsel.  The Fifth Circuit addressed that question and offers practical guidance for in-house counsel in Exxon Mobil Corp. v. Hill, No. 13-30830 (May 6, 2014).

ExxonMobil intervened in tort litigation to contend that the attorney-client privilege protected a short 1988 memo by an in-house lawyer. The lawyer created the memo during negotiations between Exxon Mobil and ITCO, a company that would store oil production equipment for it.  The memo recommended that Exxon Mobil, in response to an information request by ITCO, make a limited disclosure from a report it had about radioactivity associated with the equipment. As the Fifth Circuit summarized: “Stein [the lawyer] suggested that Guidry [the client] disclose only Table IV [of the report], because it contained the only data that ITCO specifically had requested, and that Guidry remove the caption ‘Table IV’ so as not to flag the existence of other tables.”   (The memo identifies the sender as “Counsel,” but does not otherwise say that the contents are privileged.)

Plaintiffs contended that the effect of this advice was to conceal information about dangerous levels of radiation.  The district court opinion [page 61 of the attached] rejected ExxonMobil’s position about privilege, reasoning that it had not shown that the “primary or predominant” purpose for consultation with the lawyer was for legal advice, “particularly in light of the fact that the [memo] itself does not contain any reference to a legal justification for Stein’s advice, or legal concerns prompting Guidry to seek such advice. . . . [I]t appears from the face of the document that the primary purpose of Stein’s advice to Guidry was to help secure more favorable contract terms . . . .”

The Fifth Circuit reversed.  Stating that its conclusion would be the same under de novo or clear error review, the Court held: “The manifest purpose of the draft [attached to the memo] was to deal with what would be the obvious reason Exxon Mobil would seek its lawyer’s advice in the first place, namely to deal with any legal liability that may stem from under-disclosure of data, hedged against any liability that may occur from any implied warranties during complex negotiations.”

This opinion offers practical guidance for maintaining privilege as to in-house counsel. First, the memo is focused.  Written in 1988, before long email chains became common, it presents a short exchange on a specific topic.  Second, it has a specific audience — it is written to a specific person rather than a large group — or a “reply all.”  Finally, it is clear. The memo refers directly to legal concepts such as warranty liability and property interests.  The memo’s focus, audience, and clarity appear to have been critical for the Court’s analysis and the preservation of Exxon Mobil’s privilege with its in-house counsel.

“Strikeout” in antitrust suit against NCAA bat standards

The plaintiff in Marucci Sports LLC v. NCAA alleged that the “Bat-Ball Coefficient of Restitution Standard” — a testing protocol “to ensure that aluminum and composite bats perform like wood bats” — was in fact an anticompetitive device calculated to protect the NCAA’s relationship with large bat manufacturers.  No. 13-30568 (May 6, 2014).  The Fifth Circuit affirmed dismissal, finding: (1) inadequate pleading of a conspiracy under Twombly; (2) inadequate pleading of an injury to “competition among non-wood baseball bat manufacturers” as opposed to its own; and (3) that the standard could fairly be called a procompetitive “rule and condition” of athletic competition.  Denial of leave to amend was also affirmed.

Hangover from Wal-Mart v. Dukes

Odle v. Wal-Mart Stores, Inc. presents an interesting, if unlikely to recur, issue about the tolling of limitations during appellate review of class certification.  No. 13-10037 (April 1, 2014).  The question was whether one of the plaintiffs in the original Wal-Mart v. Dukes class action was barred by limitations, when the Ninth Circuit’s en banc ruling had remanded the “former employee” claims (which included hers) for further consideration under a different part of Rule 23 that what the district court used.   The Fifth Circuit concluded that, under the considerations detailed by American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) and later Circuit cases applying it, the claim was not time-barred: “To rule otherwise would frustrate American Pipe‘s careful balancing of the competing goals of class action litigation on the one hand and statutes of limitation on the other, by requiring former class members to file duplicative, needless individual lawsuits before the court could resolve the class certification issue definitively.”

How much to pay-per-view

A restaurant showed the pay-per-view broadcast of a boxing championship without the approval of the holder of the licensing rights.  J&J Sports Productions, Inc. v. Mandell Family Ventures, LLC, No. 13-10485 (May 2, 2014).  The licensor sued the restaurant under the Federal Communication Act, and the district court granted summary judgment to the licensor for $350 in statutory damages and $26,730.30 in attorneys fees.  The Fifth Circuit reversed, reviewing two issues.  First, as to the licensor’s claim under section 553 of the Act, the Court found a fact issue as to whether the restaurant had been “specifically authorized . . . by a cable operator” to make the showing, which would bring the restaurant within a statutory safe harbor.  The Court reviewed affidavit testimony of the cable company that at least showed “the Defendants did not steal, intercept, or obtain the broadcast under false pretenses.”  Second, the Court rejected a claim based on section 605 of the Act, finding it limited to radio communications only (thereby siding with the Third Circuit in a split with the Seventh about the applicability of that section to cable television).


Prudential standing previewed . . .

The Fifth Circuit released a slightly revised opinion in Excel Willowbrook LLC v. JP Morgan Chase Bank, No. 12-20367 (revised April 24, 2014), a dispute about the FDIC’s rights upon assigning the assets of a failed bank.  Of particular interest is the new footnote 34, which observes: “[T]he continued vitality of prudential ‘standing’ is now uncertain in the wake of the Supreme Court’s recent decision in Lexmark International, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014).  See id. at 1388 (‘[A] court . . . cannot limit a cause of action . . . merely because “prudence” dictates.’).”

Fees about fees

At issue in Asarco v. Baker Botts. L.L.P. was a fee enhancement associated with an exceptional recovery in fraudulent transfer litigation for a bankruptcy estate.  No. 12-40997 (April 30, 2014).  The Fifth Circuit credited the bankruptcy court’s detailed findings about the quality of the law firms’ work and the “rare and extraordinary” result.  In so doing, the Court reminded that “[b]ecause this court, like the Supreme Court, has not held that reasonable attorneys’ fees in federal court have been ‘nationalized,’ the bankruptcy court’s charts comparing general hourly rates of out-of-state firms and rates charged in cases pending in other circuits are not relevant.”  The Court rejected the firms’ request for compensation from the estate for defending their fee applications, reasoning that the Code had sufficient protections against vexatious litigation, and declining to further expand the American Rule about defendants’ fees.