After the storm – preparing for Harvey litigation

Five Tips for Hurricane Harvey Litigation (a version of this article is in this week’s Texas Lawbook)

In the course of reviewing the Fifth Circuit’s commercial cases for this blog, I have read many opinons about disputes arising from Hurricane Katrina cases. In light of the havoc recently created by Hurricane Harvey, I wanted to share five observations  to prepare for the litigation that will inevitably result.

  1. Record the facts.

Any lawsuit creates tension between the past and the future. The parties want to move on, and put the expense and stress of litigation behind them. But the legal case forces them to revisit the past.

That tension is particularly acute after a disaster such as Harvey, which forced people and businesses to endure incredible stress, while making them then revisit that trauma to protect their legal rights in court. The – entirely understandable – desire to move on, must be squared with the need to take the time to preserve evidence.

Consider St. Bernard Parish v. Lafarge North America, a case about the destruction of a bridge during Hurricane Katrina. While the parties offered extensive expert testimony about what caused the damage, the summary judgment proceedings turned in no small part on the facts of what happened during the storm, including facts established by photographs.

A party facing litigation should consider – as awkward as it can be while recovering from a life-disrupting event – what facts seem obvious now but may fade from memory as time goes on. To the extent possible, some thought should be given to:

  • maintaining electronic records, even if the hardware appears damaged at first blush;
  • writing down a “log” of relevant conversations and events about important events;
  • storing any relevant physical objects, for potential future analysis by experts; and
  • simply writing down basic information about names, addresses, phone numbers, and the like.

In a case arising from a natural disaster, courts will likely be forgiving as to claims of spoliation. But lost information is lost, and its absence can later effect the resolution of a legal case.

  1. Help the people.

The fact evidence in the Lafarge case also included eyewitness testimony, which proved critical to defeating the defendant’s summary judgment motion. Just as a photograph can deteriorate, a person’s memory can fade. And the likelihood of that occurring can only increase when the person is placed under the severe stress of a natural disaster.

Any “team” confronted with a legal challenge by Harvey ­– a business, a professional organization, or even a family – should be mindful of the psychological effects of that stress, and encourage counseling for depression, substance abuse, and other such problems when their first signs appear. Of course, that is a good practice in any event. But its potential side benefit to a legal case is real and worth remembering.

  1. Remember three definitions.

The factual and legal issues that will ultimately go to trial in cases about Harvey simply cannot be predicted with any specificity. But in the short run, three basic legal concepts are likely to pervade business dealings related to the storm:

  • The Texas pattern jury instruction about “duress” defines it as “the mental, physical, or economic coercion of another, causing that party to act contrary to his free will and interest.”
  • While “force majeure” is ordinarily defined by a specific contract, it generally refers to an “extraordinary event or circumstance beyond the control of the parties,” and often does not excuse a party’s non-performance entirely, but only suspends it for the duration of the event.
  • Impossibility of performance” is defined by the Restatement (Second) of Contracts as occurring “[w]here, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.”

Awareness of these concepts can potentially avoid problems down the road, as well as identify topics and issues that require special attention today.

  1. “Two-deep leadership.”

The Boy Scouts of America strictly follows a policy of “two-deep leadership,” under which two adults should be present at all times when interacting with youth. One benefit of that policy is to avoid “he-said, she-said” disputes between two eyewitnesses with no third–party corroboration. In the stress of dealing with the aftermath of Harvey, involving a business colleague or a friend in important discussions may help the future resolution of a legal matter, if a dispute arises about what was said in those discussions.

  1. Crowdsource, wisely.

For good or ill, social media has come a long way since Hurricane Katrina. Used judiciously, it can be a good source of information about late-breaking news or the reputation of a particular business. And it can provide a valuable outlet for self-expression after the trauma of Harvey.

But social media posts can survive much longer than the thoughts that prompted them, and rash comments about people or events can come back to haunt the person who makes an ill-advised post. Social media is a valuable conduit for information, and at the same time, it is a reliable creator and collector of potential evidence.

Conclusion

Faced with the reality of recovery from one of the worst storms in the nation’s history, planning for future litigation may seem to be a distant worry. But the foundation for that litigation is being put in place today, intentionally or unintentionally. These five basic ideas may provide ways to place that foundation in a more orderly manner, resulting in a stronger end product.

 

 

Yahoo! The contract incorporates the invoices!

Yahoo cancelled its contract with SCA related to a billion-dollar “perfect bracket contest” for 2014’s March Madness. The parties disputed the appropriate termination payment, defined in the contract as “50% of the fee” – Yahoo contending the “fee” was 50% of the $1.1 million deposit that it already paid SCA; SCA contending that the “fee” was the rull $11 million contract fee, credited for the deposit. The Fifth Circuit reversed and rendered judgment for SCA, noting that the contract “clear[ly] incorporated by reference two invoices that specified the $11 million figure,” and identifying several other contract provisions consistent with SCA’s reading. The issue of what documents comprise a contract, and the related legal issue of when a court may consider “parol” evidence, continues to be a frequent – if not the most frequent – point of disagreement between the Fifth Circuit and trial courts. SCA Promotions v. Yahoo!, No. 15-11254 (Aug. 21, 2017).

For your next mock argument of Marbury v. Madison –

I recently participated in a mock reargument of Marbury v. Madison (right), albeit changed from the original to (1) actually have discussion about judicial review (2) actually have participation by my character, Attorney General Levi Lincoln, who in “real life” was ordered to stay silent by a highly irritated President Jefferson. In case you should ever need such a thing, here are my notes about the case against judicial review, which rely heavily upon an outstanding 1969 Duke Law Journal article by Professor William Van Alstyne.

Reminder about FRAP 28(j) submissions –

The Fifth Circuit website has recently posted an “Important Note Regarding FRAP 28(j) Filings,” which reminds: “Counsel sometimes file a FRAP 28(j) letter after oral argument, ostensibly to provide information requested by the court, but make supplemental argument in the filing. . . . [U]nless authorized or requested by the panel, it is improper to make supplemental argument in the letter.”

Filed first, but not first-to-file –

Green Tree Servicing, LLC v. Clayton involved an unusual argument about the “first-to-file rule, in the context of two actions pending before the same district judge. The Fifth Circuit observed: “[T]he concerns undergirding the firstto-file rule are not triggered when the cases are before the same judge. The first-to-file rule is aimed at avoiding both conflicting rulings on similar issues and duplicative rulings. But when the same judge is deciding both cases, there is no danger of conflicting rulings.” No. 16-60726 (May 18, 2017, unpublished).

No general causation in toxic tort case

“[W]here a plaintiff seeks to rely on epidemiological evidence, Texas law requires that the stifues show a statistically significant doubling of the risk of developing their alleged inuiries. . . . The studies relied on by the Plaintiffs and their experts do not . . . One of these studies did not quantify the risk of developing Plaintiffs’ chromuim-related-acute-irritation injuries at all and the other study did not find a doubling of the risk.” McManaway v. KBR, Inc., No. 15-20641 (March 27, 2017) (applying Merck & Co. v. Garza, 347 S.W.3d 256 (Tex. 2011)).

Ex Parte Young goes airborne

Air Evac contended that the Airline Deregulation Act preempted Texas workers compensation laws about reimbursement for air-ambulance services. This claim led to a dispute about the scope of Eleventh Amendment liability and the landmark Constitutional case of Ex parte Young, 209 U.S. 123 (1908). In a methodical analysis of Young’s history and purpose, the Fifth Circuit concluded that Air Evac could sue: “[T]he balance-billing prohibition works in concert with state defendants’ implementation of the reimbursement system, serving as a backstop against alternative methods of fee collection. State defendants’ pervasive authority to oversee and enforce Texas’ workers’-compensation system satisfies the Ex parte Young exception.” Air Evac EMS, Inc. v. State of Texas, No. 16-51023 (March 20, 2017).

A house divided against itself cannot transfer.

Just before filing for bankruptcy, Mr. Wiggins signed a “Partition Agreement” in which he and his wife divided their ownership of their home into two separate property interests. The Fifth Circuit affirmed the bankruptcy court’s conclusion that this was a fraudulent transfer: “When it became clear that Mr. Wiggains would file bankruptcy to satisfy his outstanding debts, the couple entertained various options and made their best estimate on ultimate financial benefits by having only Mr. Wiggains file after the Partition Agreement was recorded. Allowing Mrs. Wiggains to sidestep the statutory limits for homestead exemptions and obtain approximately $500,000 in proceeds that otherwise are for creditors would lay waste to the provisions of the Bankruptcy Code involved here.” Wiggains v. Reed, No. 15-11249 (Feb. 14, 2017).

Early contract termination can be a fraudulent transfer.

A group of real estate companies paid Prime LLC for consulting services. While the contract allowed termination with 60 days notice, the group and Prime agreed to end the contract without using the notice provision. A creditor complained that this termination made a fraudulent transfer, and the Fifth Circuit agreed that the claim was at least facially plausible: “While the value of the notice period lost by failure to adhere to the notice provision remains an issue for further development in the district court, at this stage we think the notice requirement secured measurable economic benefit to Prime. Assuming the facts alleged surrounding this transaction to be true, as we must under Rule 12(b)(6), Plaintiff has alleged an asset, cognizable as such under TUFTA, that was constructively transferred.” Hometown 2006-1 1925 Valley View LLC v. Prime Income Asset Management LLC, No. 15-10881 (Feb. 2, 2017)

PRACTICE TIP – Determining Diversity Details

Several unpublished opinions from the Fifth Circuit in recent weeks, most recently Smitherman v. Bayview Loan Servicing LLC, No. 16-20328 (Jan. 11, 2017, unpublished), have ordered limited remands to the district court “to permit supplementation of the record and to make findings regarding . . . citizenship.” Once completed, “the district court’s amended opinion shall return” to the panel “for appropriate action.” It appears that the Court is reviewing case files not only to confirm appellate jurisdiction, but also the necessary facts to support federal subject matter jurisdiction as well.

State is not federal

federalist-papersIn Marshall v. Hunter, a removed action, the Fifth Circuit addressed a notice of appeal from a state court ruling made before ruling about personal jurisdiction. The Court declined to hear the appeal, saying: “while state court orders and rulings remain in effect upon removal, they do not become appealable orders of the district court until the district court adopts them as its own.” No. 16-20646 (Oct. 20, 2016, unpublished).

Points to notice about notices of appeal

checklistIn Wilson v. Navika Capital Group LLC, the appellants filed this notice of appeal  from adverse rulings in an FLSA dispute. The Fifth Circuit found that the reference in the notice to “Plaintiffs Wilson et al.” did not satisfy the requirements of Fed. R. Civ. P. 3 in light of the entire record — a case in which “the plaintiffs  .. were in ‘continual flux’ at the district court, as various groups of plaintiffs were dismissed at different times.” The notice was sufficient as to two plaintiffs specifically named in named in the style of the case as shown on the notice, as Rule 3 says — “The notice of appeal must: specify the party or parties taking the appeal by naming each one in the caption or body of the notice.” No. 15-20204 (Aug. 8, 2016, unpublished).

Speculation?

speculation signThe Fifth Circuit reversed an ALJ ruling in a labor dispute in DirecTV Holdings v. NLRB. The panel majority, noting that “the NLRB makes much of the fact that [the employee’s] initial suspension was transformed into a termination,” gave no weight to “unsupported speculation” as to why that change occurred. The dissent noted the timing of relevant events around the date of that decision, and gave weight to the ALJ’s credibility determinations as to the relevant witness. This exchange is a classic illustration of how reasonable minds can differ as to when an “inference” becomes impermissible “speculation.” No. 15-60257 (May 31, 2016, unpublished).

Sparring Partner

Front Runner SparAt issue in Hefren v. McDermott, Inc. was whether the Front Runner Spar (right) – a type of offshore drilling platform with a remarkable resemblance to a Jawan Sandcrawler – was “immovable” within the meaning of Louisiana law. A dispositive issue of limitations turned on that classification. Noting that the Spar could be moved with sufficient planning and preparation, the Fifth Circuit agreed with the district court that: “Like a ‘building’ under Louisiana law, there is ‘some permanence’ to the Front Runner Spar as it has not moved from its present location, is intended to remain there for its twenty year life, and has a permanent mooring system.” No. 15-30980 (April 25, 2016, unpublished).

Magistrate judges, remand rulings, and appellate review

articleiiiA magistrate judge ordered remand to state court in Davidson v. Georgia-Pacific. The Fifth Circuit concluded that because “a remand order is dispositive insofar as proceedings in the federal court are concerned,” it is “the functional equivalent of an order of dismissal.” Therefore, a magistrate judge could not make a final ruling on a motion to remand. In so holding, the Court “join[s] the uniform view of the courts of appeals that have considered this question[.]” No. 14-30925 (April 19, 2016).

ERISA fact question?

ERISA-simplifiedIn Burell v. Prudential Ins. Co., the Fifth Circuit addressed one of the many ERISA summary judgment cases in which it reviews a plan administrator’s work for abuse of discretion – or, in the somewhat cryptic language of ERISA: “our de novo review of [the] summary judgment ruling will also apply the abuse of discretion standard.”  The panel affirmed over a dissent, which is not typical in such cases.  It noted disagreement among the doctors who reviewed the claim, as well as allegations that the administrator did not follow its own review procedures, and would have found a fact issue for trial based on those matters.  No. 15-50035 (April 11, 2016).