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).
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).
Among other holdings in a breach-of-warranty dispute about an aircraft engine, the Fifth Circuit reversed a finding that the manufacturer breached an express warranty by not repairing the engine in a timely manner. Because, under Texas law, “courts will not rewrite agremeents to insert provisions parties could have included,” “time is not of the essence of a contract unless the contract explicitly makes it so . . . .” Becker v. Continental Motors, Inc., No. 16-10166 (Oct. 3, 2017).
In a reminder of the surprising complexity that can surround litigation about a party’s standing to bring a claim, in Intrepid Ship Mgmnt v. Malin Int’l Ship Repair, the Fifth Circuit noted a source of potential confusion about the applicable procedure: “Although a dismissal for lack of standing is appropriately judged under Federal Rule of Civil Procedure 12(b)(1), which allows a court to make limited findings of fact, the parties have argued this case under the standards applicable to ordinary summary judgment motions. Compare Lane v. Halliburton, 529 F.3d 548, 557 (5th Cir. 2008) (explaining that the district court can resolve disputed facts as necessary to decide a challenge to subject atter jurisdiction), withInt’l Marine LLC v. Integrity Fisheries, Inc., 860 F.3d 754, 759 (5th Cir. 2017) (applying de novo review to summary judgment cases, explaining that “[s]ummary judgment is appropriate when ‘there is no genuine dispute as to any material fact.’”)”. No. 16-41074 (Oct. 11, 2017) (unpublished).
The parties in IQ Products Co. v. WD-40 Co.disputed whether an arbitration agreement was limited to “propane/butane-propelled produicts” or also “carbon dioxide-propelled products.” The party who prevailed in the arbitration relied mainly on the parties’ subsequent conduct to justify the broader reading, and the Fifth Circuit agreed (applying California law): “Considering . . . ‘the words used . . . as well as extrinsic evidence of such objective matters and the surrounding circumstances under which the parties negotiated [and] entered into the contract; the object, nature and subject matter of the contract; and the subsequent conduct of the parties . . . WD-40’s assertion is . . . not wholly groundless.” No. 16-20595 (Sept. 13, 2017).
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).
A recurring issue in contract litigation is whether a provision creates a “condition precedent” to the performance of other obligations. In Red Hook Communications I, LP v. On-Site Manager, Inc., the Fifth Circuit identified this provision as one that “plainly creates a condition precedent that both [parties] must comply with before either can bring suit (and thus, denying subject matter jurisdiction if it is not complied with): “[T]he Indemnifying Party and the Indemnified Party will, for a period of sixty (60) days following delivery of such objection, use good faith efforts to resolve the Dispute.” No. 16-11351 (July 3, 2017, unpublished).
Servisair bought a workers’ compensation policy from Liberty Mutual, “There is no dispute that Servisair significantly over-allocated payroll to clerical employees, which is a considerably less expensive classification.” Thus, after the payroll period ended and an audit concluded, Liberty Mutual billed Servisair for $3.6 million in additional premium. Servisair alleged a mistake in the “underlying factual basis” relied upon “in negotiating and agreeing to the policy,” but the Fifth Circuit sided with Liberty Mutual, noting that the policy expressly stated: “If the final premium is more than the premium [Servisair] paid to [Liberty Mutual], [Servisair] must pay [Liberty Mutual the balance.” In other words, “[t]his is an open-ended obligation with no limit on the amount of additional premium Servisair might ultimately owe.” In sum: “Servisair made a deal that, in retrospect, it did not like. That does not allow it to rewrite or avoid its obligations.” Liberty Mutual Ins. Co. v. Servisair, LLC, No. 16-20472 (June 27, 2017, unpublished).
In ASARCO LLC v. Montana Resources, Inc., a case involving the interplay of a business’s bankruptcy with a later lawsuit for breach of contract by that business, the Fifth Circuit observed:
- “[A] declaratory claim on its own typically will not preclude future claims involving the same circumstances (as noted, issue preclusion may still apply to any declaration the court issues). But in a case involving both declaratory claims and ones seeking coercive relief, the former will not serve as an antidote that undoes the preclusive force that traditional claims would ordinarily have.” (applying the “seminal case” on the point, Kaspar Wire Works, Inc. v. Leco Engineering & Machine, Inc., 575 F.2d 530 (5th Cir. 1978))
- As to the damages claim, “ASARCO’s claim for failure to reinstate did not accrue until MRI rejected the tender in 2011. . . . ASARCO may or may not have attempted to cure, and MRI may or may not have denied ASARCO’s reinstatement. Because the present breach of contract claim was contingent on future events, ASARCO could not have brought it during the adversary proceeding.”
- For the same reasons, the plaintiff was not judicially estopped by allegedly inadequate disclosures during the earlier bankruptcy: “MRI cites no case requiring a party to disclose a potential claim for breach of contract when the contract had not yet been breached. This makes sense, because MRI’s position would require a debtor to scour its contracts looking for hypothetical claims that another party could maybe breach in the future.”
No. 16-40682 (June 2, 2017).
The common situtation of a loan modification raised two general issues – (1) given the princple that “all parts of a contract should be read so that none will be rendered meaningless,” the outcome is not clear if a modification has a signature line, when companied by “contratual language [that] indicated that once the [borrowers] performed, their loan would be modified automatically and [the servicer] would be bound by the Agreement” – and (2) given that the Statute of Frauds in Texas for loan agreements generally involves oral agreements or agreements that clearly require signature by both parties, it is not clear if “the written offer itself, along with the attached Modification Agreement” would satisfy that status. Owens v. Specialized Loan Servicing LLC, No. 16-20557 (June 5, 2017).
The Fifth Circuit reversed a JNOV on liability for breach of contract in Kerr v. Mapei Corp., holding: “The jury was presented with two alternative, but plausible, accounts of the formation and authorization of a contract. The jury reasonably selected one of those alternatives.” As to consequential-type damages for lost profits for other sales, however, the Court affirmed the judgment for the defendants, finding that the plaintiff’s damages model “was not supported by any empirical analysis or any evidence outside of the [contract] relationship . . . (e.g., real-world sales, customer surveys, or current market demand).” In particular, it noted the lack of evidence that the substantial business opportunity related to the contract would recur, the fact that the contract was terminable at will, and the lack of weight for a party’s own “unsubstantiated, self-serving speculations” about future business. No. 16-10430 (June 30, 2017 (revised), unpublished).
The Herculean effort of settling the many lost-profits claims related to the Deepwater Horizon accident led to a claims process described by the Fifth Circuit as follows – “Somewhat simplified, and more than somewhat condensed, the claims process works as follows: The Claims Administrator compares a claimant’s financial performance prior to and after the spill. If the former is greater than the latter, BP is liable for the difference.
Causation is, in all other respects, presumed.”
Efforts to implement this process led to guidelines “requiring the Claims Administrator to move, smooth, or otherwise reallocate revenue for claimants engaged in construction, education, agriculture, and professional services. Claimants in these four industries tend to be paid in lump sums, which are capable of generating damages awards that do not comport with tort principles.”
Mindful that in an earlier dispute about these issues, the Court had reminded that “[i]n interpreting a settlement, surely some weight has to be given to what damages recoverable in civil litigation actually are,” the Court reversed the use of these particular guidelines: “[W]e decline to re-write the Settlement Agreement under the guise of contractualinterpretation. When we said . . . that the Claims Administrator should ‘process claims in accordance with economic reality,’ we assumed that doing so would comport with the text of the Settlement Agreement. . . . [, which] grants claimants the right to choose their own Compensation Period.” Lake Eugenie Land & Devel. v. BP, No. 15-30377 (May 23, 2017).
Adams LLC, formed in July 2010, bought a number of assets from Adams Produce Company, Inc., and sought to prosecute a Deepwater Horizon claim for damages suffered by Adams Inc. Unfortunately, “[a]lthough substantially alll of Adams Inc.’s assets and liabilities were transferred as part of the transaction, it is undisputed that Adams Inc. retained certain assets and liabilities. Adams Inc. and Adams LLC are two distinct entities, and the asset transfer that occurred here was not just a change in form.” BP Exploration v. Claimant ID 100169608, No. 16-30482 (March 8, 2017, unpublished).
The owner of the Golden Nugget casino in Lake Charles withheld $18.7 million from payments to its general contractor, who then filed a statutory lien (a “privilege” in Louisiana parlance) on the property. The relevant statute requires the contractor to file “within sixty days after the filing of the notice of termination or substantial completion of the work.” If “substantial completion” refers to an event, the contractor’s filing was not timely; if, however, it refers to a filing that certifies substantial completion, the contractor’s filing was timely, as the owner did not record such a certification. The Fifth Circuit concluded that, while the statute was ambiguous, the related provisions and the apparent industry practice supported the contractor’s position: “The [statute] places the burden on an owner to cut of potential claims when a contract has been recorded, whether it is a general contractor or a subcontractor.” Golden Nugget Lake Charles LLC v. W.G. Yates & Sons Constr. Co., No. 16-30496 (March 6, 2017).
In Richard v. Anadarko Petroleum Corp., the Fifth Circuit required reformation of a contract on the grounds of mutual mistake, to the detriment of non-party Liberty Mutual, acknowledging that “[c]ourts must guard against parties’ ‘attempts to make an end-run around the parol-evidence rule,’ which forecloses the use of parol evidence to interpret unambiguous terms, ‘by framing [their] argument[s] as a request for reformation.” Here, reformation was appropriate even considering the effect on Liberty Mutual, given (1) its lack of reliance on the contract, (2) the general consistency of the terms in the reformed contract with industry practice, and (3) course of performance. No. 16-30216 (March 2, 2017).
Heniff Transportation, a trucking company, sued Trimac Transportation, alleging that Trimac did not properly clean a tanker-trailer, resulting in contamination and a damages claim against Heniff by its customer. Trimac argued that Heniff’s state law claims were preempted by the Carmack Amendment, a federal law that addresses actions about lost or damaged goods, arising from interstate transportation of the goods by a common carrier. The Fifth Circuit agreed, finding that washing a tanker-trailer was “plainly” such a service, directly analogous to specific examples given by the statute. This statute, not widely known outside trucking litigation, can bear significantly on UCC claims involving transported goods. Heniff Transportation v. Trimac Transportation, No. 16-40553 (Jan. 30, 2017).
NNN Realty disputed its obligations under a guaranty, noting that the definition of “borrower” in the instrument listed sixteen entities (all of which contained “NNN” in some fashion), concluding with the conjunction “and.” Thus, argued NNN, all of those entities had to be in default to trigger its obligations. The Court rejected this argument, noting the overall structure of the guaranty and related security instrument, as well as the usage of similar terms. It gave little weight to textual arguments about the definition that arose from a misplaced parenthetical. While many of the grammatical arguments – especially as to the the erroneous parenthetical – are unique to the facts of this case, the broader analysis about the interplay between a collectively-defined term and individual obligations applies in many business settings. WBCMT 2007 C33 Office 9720, LLC v. NNN Realty Advisors, Inc., No. 15-20086 (Dec. 22, 2016).
Two manufacturers of baby products (specifically, pacifiers and “sippy cups”), disputed the enforcement of a contract provision that said: “Distributor hereby acknowledges and agrees not to copy or utilize any of LNC’s . . . product design . . . without LNC’s written permission.” While “the district court imposed the requirement that the design be either confidential or protectable as intellectual property in order to fall within the definition of ‘product design,'” the Fifth Circuit disagreed and reversed because of the plain meaning of the terms chosen by the parties: “On its face, the clause applies to any of LNC’s product designs, which would include those in the public domain.” The court rejected arguments based on analogies and appeals to principles of (non-contractual) intellectual property law. Luv N’ Care, Ltd. v. Gruopo Rimar, No. 16-30039 (Dec. 16, 2016).
Plaintiff sued Defendant for breach of contract, alleging a failure to deliver Defendant’s 2010 cotton crop to Plaintiff. Defendant contended that an anticipatory repudiation occurred. The Fifth Circuit reminded that the proposal of new contract terms, absent a statement of intent not to perform the present contract, does not create an anticipatory repudiation. As a counterpoint, the Court cited a Texas appellate case in which the appellant not only proposed new terms, but also “‘definitely manifested’ that he would not longer perform the terms of his original contract when he . . . drove the appellee out to a deserted county road, threatened to sue him, [and] stated that he was ‘mad enough to smash the appellee’s face in.'” Plains Cotton Cooperative Ass’n v. Gray, No. 16-10806 (Dec. 5, 2016) (unpublished).
The plaintiff in Isner v. Seeger Weiss LLP alleged that counsel misrepresented the compensation that she would receive under a large Vioxx settlement. The defendants won; two features of the master settlement agreement were particularly important. First, it said that claimants would receive a payment under “criteria to be determined by the Claim Administrator” and “according to guidelines to be established by the Claims
Administrator” — thus, “the method of calculation was . . . specifically reserved for
the decision of the Claims Administrator at a later date.” Second, under the heading “NO GUARANTEE OF PAYMENT,” the release said: “I FURTHER ACKNOWLEDGE THAT I UNDERSTAND THIS RELEASE AND THE AGREEMENT AND THAT THERE IS NO GUARANTEE THAT I WILL RECEIVE ANY SETTLEMENT PAYMENT OR, IF ANY SETTLEMENT PAYMENT IS MADE, THE AMOUNT THEREOF.” No. 15-31070 (Oct. 11, 2016, unpublished).
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).
In Smith Group JJR, PLLC v. Forrest General Hospital, a dispute about an architect’s fee, the appellant argued that “the district court erred by considering extrinsic evidence bearing on the meaning of the term ‘actual contstruction cost’ in the parties’ agreement. This issue – the proper role of extrinsic evidence in determining the meaning of a contract, produces frequent litigation and frequent differences of opinion between district courts and the Fifth Circuit. Here, the court found a waiver of these arguments before the trial court, reminding that “citing cases that may contain a useful argument is simply inadequate to preserve that argument for appeal; ‘to be preserved, an argument must be pressed, and not merely intimated.'” No. 16-60134 (Sept. 9, 2016, unpublished). (This post was picked as one of the top five of the week by the Appellate Advocacy blog on the Law Professor Blogs Network!)
A former employee of a defense contractor sued for unpaid benefits; the forum selection clause said: “This Contract shall be governed by and interpreted exclusively under the laws of Kuwait and all disputes between the Parties shall be resolved exclusively in Kuwait.” Noting a potential threshold issue as to whether federal or Texas law governs the “validity” of a forum selection clause (while federal law clearly governs their “enforceability”), the Fifth Circuit found it enforceable under either standard. Kuwait – where the work was done – had a stronger interest in application of its laws than Texas, and the most relevant law was a statute of repose rather than limitation, which “operates as ‘a substantive definition of, rather than a procedural limitation on, rights.'” Barnett v. Dyncorp Int’l LLC, No. 15-10757 (July 26, 2016).
American Construction, the general contractor on a hotel construction project, signed a “joint check” agreement, by which it would pay its subcontractor (Cratus Development) and its supplier (Shelter Products) jointly for building materials. American’s agreement also included this term: “If Cratus Development does not start or complete work on this project, and/or becomes past due with Shelter Products, Inc. to the extent that Shelter Products, Inc. can no longer extend credit to Cratus Development[,] American Construction will make payments directly to Shelter Products, Inc. for all outstanding and unpaid invoices for materials delivered to the jobsite . . . . ” The Fifth Circuit affirmed the district court’s conclusion that this language, in the overall context of the parties’ business dealings, created a suretyship by American. Shelter Products Inc. v. American Construction Hotel Corp., No. 16-30001 (July 27, 2016, unpublished).
Extensive tornado damage to a building at the University of Southern Mississippi led to a hard-fought dispute among insurers. The Fifth Circuit’s detailed affirmance of the district court’s opinion turned on this observation about the losing insurer’s postition: “Were this construction adopted, insurers who covered the same risk would be incentivized to enter into a stare-down, each waiting for the other to blink first in order to seize the opportunity to deny coverage. Such an outcome is neither reasonable nor commercially practicable.” Southern Ins. Co. v. Affiliated FM Ins. Co., No. 15060742 (July 21, 2016). (The opinion also features a rare appellate shout-out to T.S. Eliot’s The Hollow Men.)