Recipients of Section 8 housing assistance sued mortgage originators, complaining that the originators either denied or discouraged the recipients’ credit applications by not considering their Section 8 income, in violation of the Equal Credit Opportunity Act. The Fifth Circuit affirmed the dismissal of claims by recipients who had only inquired about, rather than actually starting, the application process, as well as claims based on Wells Fargo’s policies about the purchase of mortgages in the secondary market. It reversed as to one group of applicants, however, finding under Iqbal and the substantive law that they “plausibly alleged that AmeriPro refused to consider their Section 8 income in assessing their creditworthiness as mortgage applicants, and that they received mortgages on less favorable terms and in lesser amounts than they would have had their Section 8 income been considered.” No. 15-20710 (Feb. 16, 2017).
Hoffman v. L&M Arts arose from the sale of a 1961 Rothko painting (right) by Sotheby’s in 2010; a previous owner alleged that this sale revealed facts about her own sale, in violation of a confidentiality provision in the sales contract that said: “All parties agree to make maximum efforts to keep all aspects of this transaction confidential indefinitely.” The Fifth Circuit ruled for the defense in all respects, concluding that:
- The original owner did not state a fraud claim against the relevant gallery, based on its alleged misrepresentation of its authority to act on behalf of an unnamed buyer, or its alleged misrepresentation about representing an entity or individual. (Notably, the owner did not argue in the district court that equitable relief could still be appropriate without proof of damage), or its claim that the piece would “disappear” into its client’s private collection.
- The contract did not require secrecy about the fact of the sale, based on the plain meaning of the term “aspect,” other provisions in the agreement, and the Texas policy against restraints on alienability.
- The questions about damages associated with the alleged breach either reflected speculative bargains, incorrect damages measures, or a disgorgement theory that is not well-supported as a Texas contract remedy.
No. 15-10046 (Sept. 28, 2016).
ERISA litigation about investment management presents a tension between the administrators’ fiduciary obligations, on the one hand, and discouraging needless litigation, on the other. After the Supreme Court’s most recent guidance about an ERISA fiduciary’s “duty of prudence” in Amgen Inc. v. Harris, 136 S. Ct. 758 (2016), the Fifth Circuit found that the plaintiffs in Whitley v. BP. PLC failed to meet their pleading burden: “The amended complaint states that BP’s stock was overvalued prior to the Deepwater Horizon explosion due to “numerous undisclosed safety breaches” known only to insiders. In other words, the stockholders theorize that BP stock was overpriced because BP had a greater risk exposure to potential accidents than was known to the market. Based on this fact alone, it does not seem reasonable to say that a prudent fiduciary at that time could not have concluded that (1) disclosure of such information to the public or (2) freezing trades of BP stock—both of which would likely lower the stock price—would do more harm than good. In fact, it seems that a prudent fiduciary could very easily conclude that such actions would do more harm than good.” No. 15-20282 (Sept. 26, 2016).
Insurance coverage litigation provided another example of the tension between the “Scylla” of pleading — the “plead more detail” command from Twombly and Iqbal — and its “Charybids” — the principle of insurance law that “[a]ll doubts regarding the duty to defend are resolved in favor of the insured.” Fed Ins. Co. v. Northfield Ins. Co., No. 14-20633 (Sept. 16, 2016). Here, ltigation about pollution liability led to a dispute about whether a “pollution exclusion” eliminated the duty to defend. The Fifth Circuit reversed a summary judgment in favor of the insurer, noting: “ExxonMobil’s petition does not attach any of the petitions in the Louisiana Litigation. ExxonMobil’s petition provides very little information about the nature of the claims made in the Louisiana Litigation, for which ExxonMobil seeks indemnity and defense costs from [the insured].” As a result, “because of the breadth and generality of the allegations in ExxonMobil’s state court petition, we cannot say that all of the claims fall clearly within the exclusion.”
Whitlock, a truck driver, sued his employer for racial discrimination, alleging that the stated reason for discharge (running a red light at a loading dock) was pretextual. As to discriminatory discharge, “[t]he complaint fails to specify the [comparable] white employees’ work violations” and “fails to allege the white employees’ jobs” with the employer. As to hostile work environment, the complaint alleged that the workplace “was difficult [to] endure,” “caused stress related problems,” and that “[a] white employee was allowed to ride around in a pickup ruck without doing his job but given credit for the work done by African-American employees. The Fifth Circuit affirmed dismissal on the pleadings; this case illustrates a straightforward application of Rule 12 where the substantive law clearly dictates a certain level of detail about the claim. Whitlock v. Lazer Spot, Inc., No. 16-30139 (Aug. 15, 2016, unpublished).
Thomas v. Chevron USA involved a suit for damages after a pirate attack off the shore of Nigeria. The Fifth Circuit reversed the districr court’s denial of leave to amend; on the key issue of duty, the Court observed: “Thomas alleged that Chevron knew about of the real risk of piracy in the region and of the specific threats received by the [ship]. He alleged that despite its knowledge, Chevron requested that the [ship] take an unaccompanied support trip that would pass by the source of the recent threats. Finally, he alleged that Chevron broadcast his route information and locations over easily-accessible VHF radios, through which they could be heard by pirates known to be in the area. These allegations are sufficient to suggest that the harm suffered by Thomas was reasonably foreseeable to Chevron and that Chevron consequently owed him a duty not to subject him to the conditions he encountered . . . .” No. 15-20490 (Aug. 11, 2016).
In a fraudulent joinder analysis, the Fifth Circuit observed: “The Mastronardis’ claims against Estrada and Marin are insufficiently pled under either the federal standard or the revised Texas standard, which now tracks the federal standard.” Mastronardi v. Wells Fargo Bank, N.A., No. 15-11028 (June 29, 2016) (citing, inter alia, Tex. R. Civ. P. 91a.1). See also Int’l Energy Ventures v. United Energy Group, No. 14-20552 (March 31, 2016).
I recently published an article, titled “Convergence of Federal Rules 8(A) and 9(B) – The Fifth Circuit’s Application of Twombly and Iqbal” in the Southern University Law Review.
Building on Wooten v. McDonald Transit Associates, Inc., 788 F.3d 490 (5th Cir. 2015), the Fifth Circuit found that a pro se plaintiff had adequately pleaded an ADEA claim in Haskett v. T.S. Dudley Land Co., No. 14-41459 (May 20, 2016, unpublished). Haskett attached his employer’s response to his EEOC charge as an exhibit to his complaint, and the employer argued that the statements in that response negated Haskett’s claim. The Court disagreed: “Haskett clearly did not adopt [his employer’s] allegations to the EEOC as his own for purposes of his complaint. They are therefore still ‘unilateral’ and to the extent they are in tension with the complaint itself, they cannot control.” (citing Bosarge v. Mississippi Bureau of Narcotics, 796 F.3d 435, 440 (5th Cir. 2015)).
In a significant contribution to the Fifth Circuit’s case law applying Twombly and Iqbal, the Court reversed the Rule 12 dismissal of a products liability case in Flagg v. Stryker Corp., recognizing that “in products liability lawsuits, almost all of the evidence is in the possession of the defendant.” The defendants, manufacturers of toe implants, contended that Flagg’s allegations “lack . . .details about how the implants may have deviated from specifications and performance standards” and did not “sufficiently allege an existing and non-burdensome alternative design.” The Court found sufficient detail, for the pleading stage, in Flagg’s allegations that “the shape and sizing of the implants led to the implants’ fracturing and caused them to be difficult to remove once broken,” as well as his allegation that a different alloy would have performed better. It concluded: “Perhaps after discovery Flagg will not prevail, but at a pre-discovery stage of this case, in an area of law where defendants are likely to exclusively possess the information relevant to making more detailed factual allegations, we cannot say that he is merely on a fishing expedition.” No. 14-31169 (April 26, 2016, unpublished).
The financially unfortunate City of New Orleans, saddled with a “just above junk” credit status, hired Ambac to provide insurance for its municipal bonds. Ambac’s AAA rating slipped after the 2008 financial crisis, causing New Orleans to incur tens of millions of dollars in additional debt service and refinancing costs. The City sued Ambac on several legal theories for not maintaining a high credit rating. The Fifth Circuit affirmed their dismissal: “[T]he resolutions that the City so heavily relies upon show only that the City purchased a bond insurance policy from a highly rated insurer, which, at the time of issuance, lessened the perceived credit risk of the City’s bonds. Any alleged representation by Ambac to provide a larger credit enhancement is foreclosed by the clear language of the Policy.” New Orleans City v. Ambac Assurance Corp., No. 15-30532 (March 2, 2016).