Payment provision runs with the land

The issue in Fort Worth 4th Street Partners LP v. Chesapeake Energy Corp. was whether a payment provision in a “Surface Use Agreement,” signed at the same time as a mineral lease, created an obligation that ran with the land. On the element of whether the covenant “touched and concerned” the property, the Fifth Circuit observed that the benefit of the provision “is not merely the right to receive payment but also how the method of calculating this payment preserves the land’s value to its owner. By basing the payment due on the square footage occupied by the lessee, the terms of the provision operate to incentivize the lessee to use, and consequently, damage, as little of the surface land as possible. Critically, structuring the payment in this way does not merely compensate FWP for any such damage; it impacts how the lessee will
use the land, thereby preserving its value to its owner.” No. 17-10040 (Feb. 15, 2018).

No ERISA plan claim about Radio Shack stock.

Plaintiffs sued under ERISA about the handling of company stock in RadioShack employees’ 401K plans. The Fifth Circuit affirmed dismissal. As to the claims based on ERISA’s duty of prudence, the Court reminded: “Dudenoeffer establishes that for publicly-traded stocks, ‘allegations that a fiduciary should have recognized from publicly available information alone that the market was over- or undervaluing the stock are implausible as a general rule, at least in the absence of special circumstances.'” Here: “Plaintiffs argue that Dudenhoeffer addressses only allegations that public information showed that a stock was overvalued, not claims that the stock was excessively risky. This distinction between claims that stock is overvalued and claims taht stock is excessively risky is ‘illusory.’ In an efficient market, market price accounts for risk. Plan fiduciaries cannot be expected to outperform the market or predict future stock performance using publicly available information.” Singh v. RadioShack Corp., No. 16-11587 (Feb. 6, 2018) (applying Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014)).

Personal Jurisdiction: Walden trumps Calder

Sangha, the “master in command” of a merchant vessel, sued Navi8 Shipmanagement, his former employer, in Texas. To support personal jurisdiction, he cited a number of communications with him in Texas. Citing Walden v. Fiore, 134 S. Ct. 1115 (2014), the Fifth Circuit found those contacts inadequate: “Even though Navig8’s email communications happened to affect Cpt. Sangha while he was at the Port of Houston, this single effect is not enough to confer specific jurisdiction over Navig8.” And the Court found that “Cpt. Sangha’s reliance on the ‘effects’ test of Calder v. Jones, 465 U.S. 783 (1984), is unavailing” — “The proper question is not whether Cpt. Sangha experienced an innjury of effect in a particular location, but whether Navig8’s conduct connects it to the forum in a meaningful way.” Sangha v. Navig8 Shipmanagement, No. 17-20093 (Feb. 5, 2018).

Personal jurisdiction for tort, but not contract.

Trois owned a gun collection and contracted with Apple Tree, an auction center based in Ohio. The auction did not go as well as Trois hoped, and he sued in Texas for breach of contract and fraudulent inducement. The Fifth Circuit found no personal jurisdiction over the contract claim: “The only alleged Texas contacts related to contract formation or breach are Schnaidt [Apple Tree’s principal]’s . . . conference calls negotiating the agreement while Trois was in Texas.” But as to fraud: “Although Schnaidt did not initiate the conference call to Trois in Texas, Schnaidt was not a passive participant on the call. Instead, he was the key negotiating party who made representations regarding his business in a call to Texas.” Trois v. Apple Tree Auction Center, Inc., No. 16-51414 (Feb. 5, 2018). The Court went on to find venue was also proper in Texas over the tort claim.

No plan to return = No standing to sue.

Deutsch, who relies upon a wheelchair for mobility, contended that the parking lot of a local business did not comply with the ADA, and sought injunctive relief against the business. The trial court dismissed for lack of Article III standing and the Fifth Circuit affirmed. “Deutsch hoas not provided a description of any concrete plans to return to Travis County Shoe, and he also has not shown how the alleged ADA violations negatively affect his day-to-day life. Deutsch . . . had not been to Travis County Shoe before the day he alleges he encountered the ADA violations . . . [and] that he had not returned to the business since that day.” Deutsch v. Travis County Shoe Hospital, No. 16-51431 (Feb. 2, 2018, unpublished).

Absurdity at the ATM

The uncommon animal of an “absurd result” was not only sighted, but used as the basis for reversing summary judgment, in Star Financial Services v. Cardtronics USA, a dispute about the obligation to update account information associated with an ATM network. The Court reasoned: “R]eading the Contract to not impose an obligation upon Cardtronics to use correct account information after receiving updated Terminal Set-Up Forms leads to the absurd consequence that Star Financial can never make effective changes to a Terminal Set-Up Form despite an explicit provision to the contrary. Cardtronic’s obligation to deploy account information in an updated Terminal Set-Up Form is implicit in the contractual process for updating a Terminal Set-Up Form.” No. 17-30258 (Feb. 2, 2018).

Conspiracy conviction reversed – smoke, but no fire.

In United States v. Ganji, the Fifth Circuit reversed criminal convictions for conspiracy to commit health care fraud, noting (among other problems) these weaknesses in the government’s proof – weaknesses that could also appear in suits alleging civil conspiracies:

  • Witness perspective. “The Government’s dependence on these witnesses is almost as peculiar as the scheme’s discovery. Notably, these individuals worked in the Hammond area, while Dr. Ganji and Davis worked sixty miles away in the New Orleans area. . . . Unlike other salient cases involving conspiracy to commit health care fraud, here the Government presented eighteen witnesses, none of whom could provide direct evidence of their alleged co-conspirator’s actions because the witnesses never acted with the defendants to commit the specific charged conduct.”
  • Inference from job responsibilities. “The Government’s attempt to ascribe Davis with knowledge and agreement because of her position in the company falls far short of the necessary requirement for guilt beyond a reasonable doubt. One cannot negligently enter into a conspiracy.”
  • Plausible alternative explanations. “Finally, the Government points to the nefarious Ponchatoula meeting. It argues that Davis would not have otherwise asked Dr. Murray to meet her to sign documents that included certification forms had she not agreed to participate in a conspiracy to defraud Medicare. Again, here the direct evidence is not on the Government’s side. . . . [T]he record illustrates a different, reasonable explanation for the meeting.”

No. 16-31119-CR (Jan. 30, 2018).

No witnesses, no prejudice, no vacatur.

The Louisiana Department of Natural Resources complained that it was not able to call live witnesses at an arbitration with FEMA, conducted under federal regulations by the Civilian Board of Contract Appeals. Agreeing that the regulations allowed oral presentation of evidence, but also noting the fulsome written submission received without objection, the Fifth Circuit observed: “Vacatur . . . is warranted when the panel refuses to hear material, not just any, evidence; similarly, there is no indication oral presentation ‘might have altered the outcome of the arbitration.'” Louisiana Dep’t of Natural Resources v. FEMA, No. 17-30140 (Jan. 29, 2018, unpublished) (emphasis added).

How to compensate a Chapter 7 Trustee

The problem in LeJeune v. JFK Capital Holdings LLC was the following: “Two approaches for determining the appropriate ‘commission’ for Chapter 7 trustees have emerged in recent years. Under the first approach, some courts hold that Section 326(a) is not simply a maximum but also a presumptively reasonable fixed commission rate to be reduced only in rare instances.Other courts hold that the presumptively reasonable approach is nonetheless subject to adjustment in ‘extraordinary circumstances.’ Some courts similarly presume that the Section 326(a) percentages are reasonable, but perform a more in-depth review of the trustee’s services to ensure the presumption is justified.'” (citations omitted). After reviewing the applicable statutes, the Fifth Circuit aligned itself with the first approach and the analysis of Mohns, Inc. v. Lanser, 522 B.R. 594, 601 (E.D. Wis.), aff’d sub nom. In re Wilson, 796 F.3d 818 (7th Cir. 2015). No. 16-31151-CV (Jan. 26, 2018).

Hose rose? Nobody knows.

A textbook example of a deposition admission appears in Peters v. Jazz Casino Co.:

Peters also asserts that the hose was obstructing the walkway, which constituted an unreasonable defect. However, his testimony at the deposition does not support the assertion that the hose obstructed the walkway. In fact, when asked if he had any recollection of the red hose obstructing someone walking on the sidewalk, he responded: “I don’t recall that.” Thus, there is insufficient evidence to create a fact issue as to whether the hose obstructed the walkway.

No. 17-20625 (Jan. 22, 2018, unpublished).

Sort of final? Sort of preclusive.

A threshold issue in Hacienda Records LP v. Hacienda Records & Recording Studio, Inc. was whether a ruling about appellants’ standing, in another related action, was entitled to collateral estoppel effect. At the time of the district court’s decision, the other court’s ruling was not final for appeallate purposes. Finding that all elements but one were clearly established, and that the policies behind preclusion doctrines would be well-served by applying collateral estoppel here, the Fifth Circuit noted that with one notable exception, “our court has consistently followed the strict approach to finality, linking the availability of appeal for the prior decision with finality for collateral-estoppel purposes.” The Court then declined to address that issue, accepting and agreeing wiht the district court’s conclusion that “although . . . ‘the doctrine of collateral estoppel does not apply here,’ ‘the court nonetheless agree[s] with the reasoning and conclusions reached” by the other court. No. 16-41180 (Jan. 4, 2018).

“Reasonable belief” must be legally permissible

Calderone alleged that he was terminated, in retaliation for reporting a car dealership’s alleged refusal to finance cars for racial minorities, in violation of the Consumer Financial Protection Act.  Unfortunately for Calderone, no matter how reasonable his belief may have been, car dealers are exempt from the CFPA by its plain terms, as other agencies have regulatory authority in that sector of the economy. “Under the CFPA, a plainitff may have a reasonable, but mistaken, belief of fact or law that a statute has been violated. But the CFPA does not permit a plaintiff’s reasonable beliefs to expand the CFPB’s jurisdiction.” Calderon v. Sonic Houston JLR, L.P., No. 17-20029 (Jan. 9, 2018).

Sorry, that’s taxable.

“[A]lthough a loan provides money to the borrower that can be used for temporary economic gain, it is offset by a future obligation to repay. As there is no overall
improvement in the borrower’s economic situation, there is no gain to be taxed. This contrasts with the taxable treatment of embezzled or misappropriated
funds. A leading tax treatise calls this the ‘theft-loan dichotomy’ that James [v. United States, 366 U.S. 213 (1961)]s] ‘no consensual recognition of an obligation to repay’ requirement seeks to enforce.” (other citations omitted). Accordingly: “‘A mutual understanding that Sun would ‘return some money to Mr. Cheung at some point’ is thus not enough to constitute the bona fide loan that would allow Sun to avoid reporting as income the millions he used to gamble, to bolster the financial condition of his
company, and to produce investment returns that he retained and commingled
with his other funds.” Sun v. Commissioner, No. 16-60270 (Jan. 18, 2018).

Posted in Tax

Don’t cry for me, San Antonio . . .

The White House has announced President Trump’s intent to nominate Judge Edward Prado as Ambassador to Argentina, after thirty-five years of dedicated service in the federal judiciary. This appointment means that President Trump will name six judges to the Fifth Circuit – Judges Willett and Ho have taken office, two nominations are currently pending, and Judge Prado’s departure will mean two open seats.

A sham, at any other time, is still a sham.

Ramos contended that the trial court should not have excluded some of his testimony under the “sham-affidavit rule,” observing that his declaration was given before his deposition. The Fifth Circuit disagreed: “It is the competency, rather than timing, of evidence with which the sham-affidavit rule is concerned.” And it agreed with the district court that the testimony was in fact inconsistent, noting as an example that “Ramos the declarant stated Hacienda ‘never paid him any monies or royalties,’ but Ramos the deponent admitted he couldn’t remember whether he had been paid. Memories, of course, may fade over time; but, that is a far cry from Ramos,at his deposition, being unable to recall many of the events he had stated as fact in his declaration, just four days prior.” Hacienda Records LP v. Hacienda Records & Recording Studio, Inc., No. 16-41190 (Jan. 4, 2018).

Consolidation of two cases = CAFA removal as “mass action”

Plaintiffs, represented by the same counsel, sought to consolidate two actions in state court; the defendant removed under CAFA’s “mass action” provision. A Fifth Circuit panel majority affirmed the denial of Plaintiff’s motion to remand, rejecting arguments about timeliness, retroactivity, and CAFA’s text. The majority reasoned that “it is the mass action, not claims against particular defendants, that is removable,” and that the plaintiff’s motion satisfied the CAFA requirement of “100 or more persons . . . proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law or fact.” A dissent would remand based on CAFA’s “not-retroactivity” language, as one of the state cases was filed before CAFA took effect. Lester v. Exxon Mobil Corp., No. 14-31383 (Jan. 9, 2018).

No attorneys’ fees under form JOA

U.S. Energy Devel. Corp. v. CL III Funding Holding Co. applied the attorneys’ fees provision of the form Joint Operating Agreement in Texas, which says: “Costs and Attorneys’ Fees: In the event any party is required to bring legal proceedings to enforce any financial obligation of a party hereunder, the prevailing party in such action shall be entitled to recover all court costs, costs of collection, and a reasonable attorney’s fee, which the lien provided for herein shall also secure.” The Fifth Circuit concluded that none of the four legal actions involved in the fee request involved a “financial obligation” within the meaning of the provision. No. 17-50217 (Jan. 10, 2018, unpublished).

Deposition transcript is “other paper” for removal clock

While both sides made cogent policy arguments, plain meaning triumphed in Morgan v. Huntington Ingalls, and the Fifth Circuit held that the thirty-day removal deadline begins to run from receipt of a deposition transcript that may create a basis for removal, rather than the oral testimony itself.  “[P]aper” is defined as “[a] written or printed document or instrument.” “[R]eceipt” is defined as the “[a]ct of receiving; also, the fact of receiving or being received; that which is received.” “Copy” is defined as “[t]he transcript or double of an original writing.” “‘Ascertain’ means ‘to make certain, exact, or precise’ or ‘to find out or learn with certainty.’” No. 17-30523 (Jan. 11, 2018).

No standing, no jurisdiction, no dismissal with prejudice

As a further reminder that “standing,” in all of the forms that idea takes, is a complicated set of doctrines, the Fifth Circuit held in Nevarez Law Firm v. Dona Ana Title Co.: “The district court relief on Rule 12(b)(1) when it dismissed Nevarez’s [RICO and state tort] claims with prejudice after concluding that there was no standing. That was error. ‘A dismissal with prejudice is a final judgment on the merits.’ We agree with an earlier opinion of this court that ‘to dismiss with prejudice under Rule 12(b)(1) is to disclaim jurisdiction and then exercise it.'” No. 17-50053 (Jan. 3, 2018, unpublished) (citations omitted).

New test for maritime contract – UPDATED

A unanimous en banc opinion simplified the Fifth Circuit’s test for “whether a contract for performance of specialty services to facilitate the drilling or production of oil or gas on navigable waters is maritime.” The Court now asks: “First, is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters? . . . Second, if the answer to the above question is ‘yes,’ does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract?” Larry Doiron, Inc. v. Jackson , No. 16-30217 (revised Jan. 11, 2018).

What exactly gets exempted?

The question in Peake v. Ayobami was whether a bankruptcy debtor, who asserts a 100% exemption as to a particular estate asset, is asserting that exemption as to the asset itself or its value. The practical consequence is whether “claiming a 100% interest in an asset as exempt allows the debtor to ‘walk away’ with the asset itself and potentially benefit from any post-petition appreciation of it.” The Fifth Circuit gave a limited answer, noting that the statute allows the debtor to claim “a 100% interest in an asset,” and also noting Supreme Court precedent that expressed skepticism about whether a debtor could use this ability to get clear title to a valuable asset, but not providing an ultimate answer to the question. Ni. 16-20589 (Jan. 3, 2018).

Arbitration: “except for actions seeking injunctive relief” means – just that.

Plaintiffs alleged antitrust violations by distributors of dental equipment; seeking damages and injunctive relief. The defendants sought to compel arbitration, based on this arbitration clause in a relevant contract:

Disputes. This Agreement shall be governed by the laws of the State of North Carolina. Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of Pelton & Crane), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association [(AAA)]. The place of arbitration shall be in Charlotte, North Carolina.

The issue was whether arbitrability was for the courts to decide or the arbitrator. The Fifth Circuit applied “the two-step inquiry adoped in Douglas v. Regions Bank[, 757 F.3d 460 (5th Cir. 2014),] under which the first question is whether the parties “clearly and unmistakably” intended to delegate the question of arbitrability to an arbitrator. Finding that “the interaction between the AAA Rules and the [injunctive relief] carve-out is at best ambiguous,” the Court chose not to resolve that issue, concluding that the second Douglas question was dispositive. That question asks whether the “assertion of arbitrability is wholly groundless,” which the Court found to be the case:

The arbitration clause creates a carve-out for ‘actions seeking injunctive relief.’ It does not limit the exclusion to ‘actions seeking only injunctive relief,’ nor ‘actions for injunction in aid of an arbitrator’s award.’ Nor does it limit itself to only claims for injunctive relief. . . . The mere fact that the arbitration clause allows Archer to avoid arbitration by adding a claim for injunctive relief does not change the clause’s plain meaning.

Archer & White Sales v. Henry Schein, Inc., No. 16-41674  (Dec. 21, 2017) (emphasis added).

Statements about financial condition = no discharge.

A Chapter 7 debtor was denied a discharge for fraud claims arising from statements about a business’s financial condition, based on secion 523(a)(2)(A) of the Bankruptcy Code. The Fifth Circuit affirmed, rejecting his argument that the statements were not sufficiently detailed: “As we noted in In re: Bandi[, 863 F.3d 671, 674 (5th Cir. 2012))], a statement respecting financial condition ‘need not carry the formality of a balance sheet, income statement, statement of changes in financial position, or income and debt statement.’ The information regarding ‘overall net worth or overall income flow’ contained within such a statement – not the formality of the statement – is what is important.”  Haler v. Boyington Capital Group, LLC, No. 17-40229 (Dec. 29, 2017, unpublished).