Not a running royalty

running manTo acquire rights to use patented check processing technology, Chase paid for a license which contained a “Most Favored Licensee” clause. The licensor granted a similar license to another entity for what Chase contended was a significantly lower royalty. Chase sued and won judgment for roughly $70 million. The Fifth Circuit affirmed, agreeing with Chase’s characterization of the royalty as “paid-up lump sum” rather than “running,” and thus concluding that the MFL clause could apply retroactively and require a refund. A dissent saw the clause as only applying prospectively. The opinions identify a number of practical problems that can arise in drafting sophisticated royalty agreements about intellectual property. JP Morgan Chase Bank NA v. Dixon, No. 15-40905 (May 19, 2016).

Time and benefit –

cloekIn a significant and technical dispute about Clean Air Act liability related to emissions at Exxon’s complex in Baytown Texas, the Fifth Circuit touched on a matter of broader interest about restitution/calculation of “benefit.” In its analysis of a proper civil penalty, the Court noted that “the effect of spending money to achieve compliance is often not mitigation of economic benefit — rather, plaintiffs may point to such expenditures as evidence of the regulated entity’s economic benefit to the extent the delay in making those expenditures allowed the regulated entity to use the money it saved productively.” Environment Texas Citizens Lobby v. ExxonMobil Corp., No. 15-20030 (May 27, 2016).

Veil Not Pierced

In Carpenter Properties Inc. v. JP Morgan Chase Bank, the Fifth Circuit found that a contract had been modified notwithstanding a signature on a formal counteroffer, but then found no liability under a “corporate veil” theory as to Chase: “[M]ere frustration with Chase for its failure to pay a commission once Chase’s identity was known is insufficient to amount to frustration of contractual expectations regarding the party to whom Carpenter looked for performance . . . .” No. 15-60309 (May 4, 2016, unpublished).

No harm, no foul – no standing.

no-harm-no-foulThe plaintiffs in Wendt v. 24 Hour Fitness USA, Inc. complained about several violations of the Texas Health Spa Act in the form membership contract of 24 Hour Fitness. Noting the specific remedies provided by that Act, the Fifth Circuit held: “We agree with the district court that Plaintiffs suffered no injury-in-fact. 24 Hour’s alleged violations of the Act did not harm Plaintiffs in any way. To the contrary, 24 Hour gave Plaintiffs exactly what they paid for: access to a gym. Plaintiffs therefore lack Article III standing, and the district court
properly dismissed the case.” No. 15-10309 (April 13, 2016).

Atlas Tugged

i_am_john_galt_i_will_stop_the_motor_of_the_worldJAB Energy successfully sued Cashman Equipment and Cashman’s subsidiary, Servicio Marina Superior (“SMS”), establishing at trial that poor performance by the ocean tug “Atlas” led to roughly $5 million in damages.  The Fifth Circuit reversed an “alter ego” finding against Cashman, noting the absence of a fraud allegation against either defendant, and observing that JAB could have negotiated for the same warranty protections from Cashman as from SMS.  It affirmed on the merits as to SMS, detailing the well-kept records by the plaintiff about how poorly Atlas tugged, especially as to engine performance and fuel consumption.  JAB Energy Solutions v. Servicio Marina Superior, No. 15-30504 (Feb. 26, 2016, unpublished).

The law of vicious poodles. Yes, you read that right.

poodle banksyDiversity jurisdiction brings unusual claims to the federal courts, none more so than E.C. v. Saraco, in which a girl sued for injuries caused when the neighbors’ poodle attacked her.  The poodle owners won summary judgment, and the Fifth Circuit affirmed.  The legal issue was the foreseeability of violence by the poodle — whether it was known to have a “vicious and dangerous disposition.”  The Court concluded that no fact issue was raised by evidence of (1) the poodle’s tendency to jump when excited, (2) the poodle’s allegedly tender ears, and (3) the girl’s unfamiliarity with the proper way to pet the poodle. No. 15-60434 (Jan. 4, 2016, unpublished).  (The above poodle art was drawn by the great Banksy.)

Org Chart ≠ Personal jurisdiction

FPMC_30Judgment creditors garnished two oil tankers (including the M/V FMPC 30, right); the garnishees appealed as to the connection between them and the judgment debtors.  After reviewing the distinction between “alter ego” theories at the jurisdictional and merits stages, the Fifth Circuit reversed.  Finding that “[t]he [district court relied almost exclusively on two ‘organizational charts’ submitted by Plaintiffs (taken from Garnishees’ website),” the Court found that the charts “do not actually depict corporate structure” or ” show the functional relationship among the entities.”   Accordingly, the case for “jurisdictional veil piercing” was not established and the garnishment proceeding was dismissed.  Licea v. Curacao Drydock Co., No. 14-20619 (Nov. 23, 2015).

How to calculate interest in very, very long-running dispute

green-visor-accountantAfter 15-plus years of litigation, the remaining issues in Art Midwest Inc. v. Clapper related to the calculation of prejudgment interest.  No. 14-10973 (Nov. 9, 2015, last before the Fifth Circuit in Art Midwest Inc. v. Atl. Ltd. P’ship XII, 742 F.3d 206 (5th Cir. 2014)).  The Court reversed as to the starting date for calculating interest — even though the first judgment by the district court was reversed in part, the date of that judgment was still the proper starting point under Fed. R. App. P. 37(a) and Masinter v. Tenneco Oil Co., 929 F.2d 191 (5th Cir. 1991), aff’d in relevant part, 938 F.2d 536 (5th Cir. 1991).  The opinion also touches on waiver and law-of-the-case issues addressed in the 2014 appeal.

A penny for your damages –

Tflatlinereaty Energy sued for its damages after an involuntary bankruptcy petition against it was dismissed.   One of its claims sought damages for losses in connection with attempts to sell its restricted stock during that period.  The Fifth Circuit affirmed summary judgment for the defendants, noting: (1) “Though the sales price of restricted shares did fluctuate, it averaged 0.5¢ immediately before, during, and after the pendency of the involuntary petition, and (2) the affiant about an alleged plan to sell restricted shares at a substantial discount lacked personal knowledge, claiming only that he “did assist in the process when requested, which included gathering information when given direct instructions by his superiors.”  Treaty Energy Corp. v. Hallin, No. 15-30113 (Oct. 27, 2015, unpublished).

 

Do not grant a JNOV in disguise.

disguiseHilda Garza sued Starr County for wrongfully discharging her as a county attorney, in retaliation for announcing her candidacy for the local school board, and she won a $1.4 million verdict for front pay at trial.  The district court set aside the verdict as advisory, reasoning that it went to an issue of equitable relief, and allowed the County to offer her reinstatement as an alternative remedy.  The Fifth Circuit reversed.  While Fed. R. Civ. P. 39(c) allows an advisory jury, it does not apply when: (1) the parties voluntarily submit an issue to a jury without formal objection, and (2) the district court does not announce in advance that the verdict is advisory.  Garza v. Starr County, Texas, No. 14-41343 (Oct. 20, 2015, unpublished) (citing, inter aliaAlcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772 (5th Cir. 1999)).  (The County also challenged the award as excessive; while noting that the “more prudent course” would have been for the County to cross-appeal, the Court allowed the County to raise that issue on remand — although noting that the County’s lack of earlier objections would limit what it could raise.)

RICO 101

rico graphicAllstate sued a group of chiropractic clinics and law firms under RICO, alleging that they conspired to send them fraudulent bills for unnecessary services.  Allstate won a 7-figure judgment at trial.  The Fifth Circuit affirmed, reviewing some basic RICO principles after recent Supreme Court rulings:

  • “Although the evidence proving the two will sometimes coalesce, the government still has to satisfy the organizational metric of the enterprise (including continuity and common purpose) and the statutorily enumerated predicated offenses.  There is thus no impermissible collapsing of the distinction between the enterprise and the pattern of racketeering.”  (applying a plain error standard of review)
  • “[M]ail fraud and its place in RICO framework are different from a case alleging common-law fraud, and one of the differences is the lack of a reliance requirement.” Here, “[r]egardless of how proximate cause is sliced, Allstate proved it.  There is no plausible argument that the insurers were unforeseeable victims or otherwise wronged by the caprice of chance.”
  • As to damages, distinguishing a similar case that found inadequate proof that all paid-for services were unnecessary, the Court held: “There is no such deficiency here.  The court instructed the jury, in awarding damages, to distinguish between the portions of the bills generated for unreasonable or unnecessary services and those not generated for those services. Allstate had experts examine all of the files, not just a representative sample, and one of those witnesses testified that Allstate had internally itemized the elements of each settlement.”

Allstate Ins. Co. v. Plambeck, No. 14-10574 (Sept. 17, 2015).