Malin Ship Repair sought to attach boat fuel (“bunkers” in admiralty parlance) of defendant OSA, and thus gain personal jurisdiction over OSA in a Texas federal court. As of the attachment date, OSA had taken delivery of the boat and the fuel on it, but had not paid for the fuel or been invoiced for it. Under the UCC, title would have passed under delivery. Under the common law, the answer turns on the parties’ intent, and the Court concluded that “the parties contemplated a credit transaction.” Thus, title had passed to OSA and the attachment was sufficient to confer personal jurisdiction under the applicable admiralty rule. Malin Int’l Ship Repair & Drydock v. Oceanografia, S.A. de C.V., No. 15-40463 (March 23, 2016).
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).
The Gagosian Gallery – for reasons not explained in the opinion, but doubtless interesting ones – wanted to display a work of art that featured a tower of 101 identical gold bars. For approximately $3 million, it contracted to buy the gold from Stanford Coins and Bullion (“SCB”), owned by the now-disgraced Allen Stanford. SCB in turn contracted with Dillon Gage, a wholesale gold supplier, to ship the gold directly to the gallery. SCB forwarded payment to Dillon Gage, who applied to a balance that the gallery had with Dillon Gage as a result of unrelated transactions.
Before the shipment was made, however, the Stanford empire collapsed. When the dust settled, the gallery sued Dillon Gage, alleging that it was a third-party beneficiary of its contract with SCB. The case went to a jury trial and a verdict for Dillon Gage, and the Fifth Circuit affirmed, finding no error in the jury instructions and sufficient evidence to support the verdict. Page 5 of the opinion details the facts, which offer a classic illustration of the roles of knowledge and industry custom in determining contract liability. Pre-War Art, Inc. v. Stanford Coins & Bullion, No. 15-10033 (Feb. 29, 2016, unpublished).
A highly technical dispute about the applicable law for an offshore salvage operation produced an insurance holding of general applicability in Tetra Technologies, Inc v. Continental Ins. Co., No. 15-30446 (Feb. 24, 2016). The policy exclusion applied to “[a]ny obligation of the insured under a workers compensation, United States Longshoreman’s and Harbor Workers’ Compensation Act, Jones Act, Death on the High Seas Act, General Maritime Law, Federal Employers’ Liability Act, disability benefits or unemployment compensation law or any similar law . . . ” The Fifth Circuit concluded that the “any similar law,” while referring generally to employers’ liability (since all the laws specifically named deal with that issue), was still ambiguous and meant that the exclusion would be construed against the insurer.
W&T Offshore operates pipelines and platforms in the Gulf of Mexico. It hired Triton Diving to help repair a pipeline. Grogan, an independent contractor, fell and was injured when he went to work on a Triton vessel called the TRITON ACHIEVER. W&T and Triton both had indemnity rights against the other, giving rise to the case of Grogan v. W&T Offshore, No. 15-30369 (Jan. 27, 2016). The Fifth Circuit found no clear error in the district court’s conclusion that Grogan was W&T’s invitee and not Triton’s, detailing the control that W&T had over the project. In sum: “W&T’s project was the ultimate reason for Triton and [Grogan’s] presence on the work site, and any benefit to Triton from [Grogan’s] presence was indirect .”
In Akuna Matata Investments v. Texas Nom Limited Partnership, the panel majority found that a judgment in a state court lawsuit for breach of fiduciary duty and contract was not res judicata as to a later federal case about the winding up of the relevant partnership: “Even if Akunas’s interest was ‘bought out’ by the state court judgment and it was no longer a partner, this would have meant a de facto dissolution (since there were only two partners) and [Appellant] would have been obliged to take other steps necessary to reclaim the assets for itself alone.” A dissent saw the two judgments as creating an impermissible double recovery: “Through protracted litigation and incomplete legal arguments, [Appellee] has fallen into an investment that defies both Texas law and common sense — a free ride.” No. 14-51158 (Feb. 11, 2016).
In a long-running dispute about Transocean’s ability to recover “maintenance and cure” payments to Boudreaux, a seaman, the parties reached a “high-low” settlement agreement. The Fifth Circuit then held — in an outcome not clearly anticipated by the parties’ deal — that Transocean had no affirmative right of recovery as against Boudreaux,but did have a right to make offsets against future payments. Boudreaux v. Transocean Deepwater, Inc., 721 F.3d 723, 724-25 (5th Cir. 2013). The district court treated that outcome as a “low,” which hurt Boudreaux, but the panel majority saw it as a “high” — “Because our court’s holding in Boudreaux I did not establish the viability of Transocean’s counterclaim, Boudreaux is entitled to the higher settlement amount.” Boudreaux v. Transocean Deepwater, Inc., No. 14-30776 (Feb. 5, 2016, unpublished).
Jeff Heck sought to buy property at a foreclosure sale for $63,000; given 20 minutes to obtain a cashier’s check for that amount, he did not return in time and the property was sold to another buyer. The underlying Texas Property Code provision — the product of a surprising amount of controversy over the years — provides: “The purchase price in a sale held by a trustee . . . is due and payable without delay on acceptance of the bid or within such reasonable time as may be agreed upon[.]” Here, Heck did not pay without delay on acceptance, and he took more time than had been agreed upon, meaning that no violation of the statute occurred. Heck v. Citimortgage, Inc., No. 15-40964 (Jan. 29, 2016, unpublished).
The defendant appealed a summary judgment against it on a multi-million dollar claim for breach of a settlement agreement, alleging that a novation had replaced that agreement with a new bargain. Taj Al Khairat, Ltd. v. Swiftships Shipbuilders, LLC, No. 15-30195 (Dec. 4, 2015, unpublished). The Fifth Circuit affirmed, noting that while both principals of the defendant were confident about an agreement to resolve the liability under the settlement, a number of unanswered questions remained about subsequent conditions; for example, one testified that the understanding “we will settle all the past dues, and we will move forward if we can procure this contract, the SOC contract, and the performance bond.” (emphasis in opinion). (Another “conditional agreement” case is discussed today on sister blog 600Commerce.)
Cordero, a district sales manager for Avon, contended that she was due a $70,850 bonus for the first quarter of 2013. Avon paid her $1,200, noting that several sales leaders who reported to her had created roughly $450,000 of fraudulent orders (although Cordero was not involved). Nevertheless, Cordero contended that the terms “met” and “achievement” in her compensation agreement referred to product that was “ordered, shipped, and notated on Avon’s quarterly report.” The Fifth Circuit agreed with Avon that those terms necessarily referred to legitimate activity; otherwise, the contract did not advance a sensible business goal. Cordero v. Avon Products, No. 15-40563 (Oct. 29, 2015, unpublished).
The Fifth Circuit reversed the dismissal of misrepresentation claims about the sale of a house with mold problems, finding that this disclaimer was not dispositive: “Buyer is hereby advised that mold and/or other microscopic organisms may exist at the property known as 1425 MAGNOLIA RIDGE, BOSSIER CITY, LA, 71112. . . . Buyer acknowledges and agrees to accept full responsibility/risk for any matters that may result from microscopic organisms and/or mold and to hold harmless, release, and indemnify Seller and Seller’s managing agents from any liability/recourse/damages (financial or otherwise). Buyer understands that Seller has taken no action to remediate mold. . . . The purpose of this disclaimer is to put Buyers on notice to conduct their own due diligence regarding this matter using appropriate, qualified experts[.]” Jones v. Wells Fargo Bank, No. 15-30031 (Sept. 28, 2015, unpublished).
The plaintiff in International Marine LLC v. FDT proved 33 breaches of the noncompete provisions of a contract related to the chartering of tugboats. The district court and Fifth Circuit agreed that a liquidated damages clause applied to the last several breaches. As to the first five, however, the Court reasoned that the clause “would impose an unreasonable penalty, because due to the parties’ conduct, we know the extent of damages [Plaintiff] suffered from each of these breaches.” It noted: “For over a century, courts have refused to award liquidated damages for contractual breaches solely involving default on payment obligations.” No. 14-31192 (Aug. 10, 2015, unpublished).
A contract dispute about the management of several vessels (among them, the M/V Maurader, right) led to a holding that a termination fee was void as a penalty. The contract required the boat owner to pay the management company “fifty percent of what [it] would have earned as a Management Fee had [the] Agreement not been so terminated,” and provided a formula for making that calculation, which in this case was $537,246.86. “The termination fee formula, however, makes no deductions to account for the fact that [management company] would have fewer expenses in the event of termination, and [it] has not quantified the expenses that would remain.” Comar Marine Co. v. Raider Marine Logistics LLC, No. 13-30156 (July 6, 2015).
Disputes between borrowers and mortgage servicers are common; jury trials in those disputes are rare. But rare events do occur, and in McCaig v. Wells Fargo Bank, 788 F.3d 463 (5th Cir. 2015), a servicer lost a judgment for roughly $400,000 after a jury trial.
The underlying relationship was defined by a settlement agreement in which “Wells Fargo has agreed to accept payments from the McCaigs and to give the McCaigs the opportunity to avoid foreclosure of the Property; as long as the McCaigs make the required payments consistent with the Forbearance Agreement and the Loan Agreement.” Unfortunately, Wells’s “‘computer software was not equipped to handle’ the settlement and forbearance agreements meaning ‘manual tracking’ was required.” This led to a number of accounting mistakes, which in turn led to unjustified threats to foreclose and other miscommunications.
In reviewing and largely affirming the judgment, the Fifth Circuit reached several conclusions of broad general interest:
- The “bona fide error” defense under the Texas Debt Collection Act allows a servicer to argue that it made a good-faith mistake; Wells did not plead that defense here, meaning that its arguments about a lack of intent were not pertinent to the elements of the Act sued upon by plaintiffs;
- The economic loss rule did not bar the TDCA claims, even though the alleged misconduct breached the parties’ contract: “[I]f a particular duty is defined both in a contract and in a statutory provision, and a party violates the duty enumerated in both sources, the economic loss rule does not apply”;
- A Casteel – type charge issue is not preserved if the objecting party submits the allegedly erroneous question with the comment “If I had to draft this over again, that’s the way I’d draft it”;
- The plaintiffs’ lay testimony was sufficient to support awards for mental anguish; and
- “[A] print-out from [plaintiffs’] attorney’s case management system showing individual tasks performed by the attorney and the date on which those tasks were performed” was sufficient evidence to support the award of attorneys fees.
A dissent took issue with the economic loss holding, and would find all of the plaintiffs’ claims barred; “[t]he majority’s reading of these [TDCA] provisions specifically equates mere contract breach with statutory violations[.]”
An architectural firm sued a former employee and a competitor. The Fifth Circuit affirmed judgment for the defendants in Hunn v. Dan Wilson Homes, No. 13-11297 (June 15, 2015). As to the firm’s claim for breach of fiduciary duty, the Fifth Circuit found no error in the district court’s finding that “the plans in the AutoCAD files were the same as the physical copies of the plans that [had] already been disseminated by [Plaintiff]” to various homeowners. A noncompete claim failed for lack of an express promise related to confidential information. Other claims based on copyright, the Lanham Act, contract, and the Computer Fraud and Abuse Act failed for similar proof problems. Particularly as to the elements of a noncompete claim under Texas law, the opinion provides a practical summary of potential claims related to an employee’s departure, as well as several commonly-litigated factual issues related to those claims.
Estes sued JP Morgan Chase, alleging violations of the Texas Constitution with respect to a home equity loan. The Fifth Circuit affirmed dismissal on a basic ground: “Estes’s complaint fails to allege any connection between himself and JPMC except that Estes ‘notified [JPMC] that the original promissory note had not been returned,’ and that ‘[m]ore than 60 days have passed since plaintiff notified [JMPC] of its failure to cancel and return the promissory note.’ Considering the allegations in Estes’s complaint, and taking those allegations as true, Estes has not alleged that JPMC possessed the Note at the relevant time. He also has not alleged that he made payments to JPMC, nor has he alleged any other facts from which the Court could reasonably infer that the Note was made payable to “bearer” or to JPMC, as the definition of “holder” set forth in Tex. Bus. & Com. Code § 1.201 requires.” Estes v. JP Morgan Chase Bank, N.A., No. 14-51103 (May 20, 2015, unpublished).
Plaintiffs settled a noncompete case with their employer, TXL Mortgage, and signed a broad general release of “all claims and causes of action that were or could have been asserted in the Lawsuit and all claims and causes of action related to or in any way arising from [their] employment with TXL, whether based in tort, contract (express or implied), warranty, deceptive trade practices, or any federal, state or local law, statute, or regulation.” Plaintiffs then sued for overtime wages under the FLSA.
The district court granted summary judgment for the employer, and the Fifth Circuit reversed, applying Martin v. Spring Break ’83 Productions, LLC, 688 F.3d 247 (5th Cir. 2012): “To deem the plaintiffs as having fairly bargained away unmentioned overtime pay based on a settlement that involves a compromise over wages due for commissions and salary would subvert the purpose of the FLSA: namely, in this case, the protection of the
right to overtime pay. Under these circumstances where overtime pay was never specifically negotiated, there is no guarantee that the plaintiffs have been or will be compensated for the overtime wages they are allegedly due under the Act.” Accordingly, the general prohibition on settlement of FLSA claims applied, and the exception recognized in Martin did not. Bodle v. TXL Mortgage Corp., No. 14-20224 (June 1, 2015).
Constango Operators Inc. built a pipeline beneath the Atchafalaya Channel. Unfortunately, the Corps of Engineers neglected to forward information about that new pipeline to its Waterways Division, which supervises dredging operations. A dredging barge operated by Weeks Marine (the G.D. MORGAN, right) then hit the pipeline. The resulting trial awarded damages to Constango, with the U.S. liable for 60% and Weeks 40%, and the Fifth Circuit affirmed.
The opinion turns largely on issues or maritime law and the applicable federal regulations, but has three features of broad general interest:
- An exceptionally clear definition of “extrinsic evidence” as “anything outside a contract itself,” which excluded consideration of material from the Federal Register and CFR in construing an exculpatory clause;
- A reminder that a duty of care can arise from common law even though regulations control and define some aspects of the parties’ dealings; and
- A reminder, under general tort law, that “[t]he fact that Weeks followed the custom of the dredging industry is not dispositive, because a common practice can still be negligent.”
Contango Operators, Inc. v. USA, No. 14-20265 (May 28, 2015, unpublished).
TRC Environmental Corporation, the contractor on a project to decommission a power plant, sued LVI Facilities Services for breach of its subcontract with TRC. The subcontract said that “All disputes arising under the Contract Documents will be resolved in accordance with the terms of the Project Agreement”; otherwise, they would be arbitrated. The Project Agreement spelled out various ADR processes but did not require arbitration. In affirming the rejection of LVI’s motion to compel arbitration, the Fifth Circuit reminded: “The Federal Arbitration Act codifies a ‘liberal federal policy favoring arbitration agreements.’ But, this presumption applies when a court evaluates the scope of an arbitration under the second step of the arbitration analysis, not when a court is determining whether a valid arbitration agreement exists at all.” TRC Environmental Corp. v. LVI Facility Servcs., No. 14-51269 (May 22, 2015, unpublished).
Lincoln Insurance sued several defendants, who it accused of charging excessive fees and otherwise engaging in self-dealing to the detriment of Lincoln. Lincoln won a $16.5 million judgment against two of them for tortious interference. In a “grab bag” of holdings after both sides appealed, the Fifth Circuit held:
- It did not need to reach a difficult Erie issue about when a tortious interference claim accrues under Texas law, where some of the conduct occurs outside the limitations period, because the trial court found sufficient facts to establish that the discovery rule applied;
- Voluntary dismissal of a claim in amended pleading, in response to a dismissal order “based on a technical defect or withdrawal,” waives the right to appeal that order;
- The economic loss rule barred conversion claims where contract provisions dealt with the underlying rights and responsibilities; and
- When a contract provision expressly created a fiduciary duty as to the handling of funds in a particular account, that duty necessarily extended that duty to the handling of those funds before their deposit (and the trial court erred in holding otherwise, requiring a remand).
The Court noted: “[A] litigation strategy with a narrower focus on certain claims and Defendants might reduce the complications, both procedural and substantive, that arose the first go-around.” Lincoln General Ins. Co. v. U.S. Auto Ins. Servcs., Inc., No. 13-10589 (May 18, 2015).
Johnson submitted a claim about his personal injuries to the “Gulf Coast Claims Facility,” an entity created to facilitate the resolution of claims against BP about the Deepwater Horizon accident. The GCCF recommended a settlement of roughly $2.7 million. Johnson accepted the proposal and BP allowed its 14-day appeal period to run. During that period, however, BP made an indemnity demand on another company, who raised serious questions about the veracity of Johnson’s claim. BP sought to set aside the settlement, and the case of Johnson v. BP Exploration & Production, Inc. ensued. No. 14-30269 (May 15, 2015).
As to contract formation, the Fifth Circuit found that: (1) “Johnson accepted the offer in the [GCCF] Determination Letter by its own terms by timely submitting the Final Payment Election Form and agreeing to subsequently sign the Release, and because BP declined to appeal that offer within the fourteen-day period, both an offer and acceptance occurred”; and (2) the actual terms of the release were not material to the formation of the settlement agreement, and neither was its actual delivery. However, after acknowledging the general rule that “simply couching . . . prior litigation as ‘fraudulent,'” will not support a fraudulent inducement claim, the Court concluded that BP had raised a question as to whether an exception applied when “the defendant subsequently uncovers previously unavailable evidence that the plaintiff was in fact not injured at all, or sustained only de minimis injuiries.” Accordingly, the Court remanded for an evidentiary hearing about the issue of fraudulent inducement.
Amerijet sued Zero Gravity in Texas state court, seeking emergency relief about the handling of certain aircraft engines subject to their contract. Zero Gravity responded with its own request for emergency relief. After some initial rulings by the state court, Zero Gravity removed to federal court. Amerijet then filed a notice of dismissal under Fed. R. Civ. P. 41(a)(1)(A)(i). The matter proceeded in federal court, however, based on its jurisdiction over the TRO bond and a counterclaim for declaratory relief, as the parties tried to settle. Their dealings culminated in the district court enjoining further litigation by Amerijet in Florida federal court, which then led to an appeal about the district court’s power over the case in light of the dismissal notice. Amerijet Int’l, Inc. v. Zero Gravity Corp., No. 14-20521 (May 15, 2015).
Observing that a Rule 41 notice takes effect automatically if the defendant has not answered or moved for summary judgment, the Fifth Circuit found that Zero Gravity’s pre-removal filing “barely” qualified as an answer under Texas law, which meant that the notice no longer had automatic effect. Even though the filing was styled as a TRO application (and accompanying motion to dissolve) and was not called an “answer,” the Court noted that it asserted defenses, a counterclaim for declaratory relief, and facts in support and thus met the “minimal characteristics of an answer” under Texas law (The question whether a defendant’s pre-removal counterclaim waives the right to remove did not appear to be before the Court.) Accordingly, the district court was not bound to dismiss the matter, and it did not abuse its discretion in enjoining parallel federal litigation under the first-to-file rule.
The Songs deposited $361,200 as earnest money, toward the purchase of a $3.4 million apartment complex. They then made the successful bid in an auction process, but backed out of the transaction and refused to close. The Fifth Circuit affirmed the district court’s ruling that the seller could keep the money. It found that the parties’ agreement had consideration, most notably in the seller’s commitment to review, consider, and accept the Songs’ bid. It also found that the earnest money was a proper liquidated damages award for the Songs’ termination, finding that it “is reasonable and actual damages were uncertain.” Song v. 4170 & 4231 & 4271 Altoona Drive Holdings LP, No. 14-11059 (April 8, 2015, unpublished).
Continuing an earlier post about how to sign documents, the issue of effective consent again appeared in Berry v. Fannie Mae, No. 14-10474 (April 17, 2015, unpublished). A mortgage servicer sent a trial payment plan to a borrower, which said: “This Plan will not take effect unless and until both the Lender and I sign it and Lender provides me with a copy of this Plan with the Lender’s signature.” Rejecting an argument that the servicer’s letter acknowledging the borrower’s signature waived this language, the Court enforced it and affirmed dismissal of the borrower’s claims. A similar analysis led to a similar result in Williams v. Bank of America, No. 14-20520 (May 7, 2015, unpublished).
In Angus Chemical Co. v. Glendora Plantation, Inc., an industrial facility had an easement that gave it “the right to construct, maintain, inspect, operate, protect, alter, repair, replace and change” a pipeline. No. 14-30416 (March 24, 2015). The company plugged and abandoned its original 12″ pipeline in favor of a new 16″ one. The key appellate issue was whether the right to “replace” a pipeline allowed the company to simply substitute one pipeline for another, or whether it also “impl[ied] a corresponding duty to remove” the old one. The Fifth Circuit found the term “replace” was ambiguous in this context, and that there was a material fact issue in the extrinsic evidence about which meaning should prevail. Therefore, it reversed the district court’s summary judgment in favor of the chemical company. This topic — the role of extrinsic evidence in contract disputes — was most recently before the Court in a major case in the “Whoomp! There it is” litigation, and as detailed in a link from that post, frequently leads to disagreement between the trial courts and the Fifth Circuit.