Dawna Casey’s family sued Toyota, alleging that the airbag in a 2010 Highlander did not remain inflated for six seconds and caused her death in an accident. The district court granted judgment as a matter of law and the Fifth Circuit affirmed. Casey v. Toyota Motor Engineering & Manufacturing, No. 13-11119 (Oct. 20, 2014).
As to the claim of manufacturing defect, the Court observed: “Casey . . . established only that the air bag did not remain inflated for six seconds,” and relied on alleged violations of Toyota’s performance standards to prove a defect (rather than a technical explanation of the bag’s performance). The Court rejected those allegations under Texas law and precedent from other jurisdictions: “Each piece of evidence submitted by Casey on this point is result-oriented, not manufacturing-oriented, and provides no detail on how the airbag is constructed.”
As to the claim of design defect, Casey relied primarily on a patent application for an allegedly superior design, which the Court rejected as not having been tested under comparable conditions, and as lacking a real-world track record as to feasibility, risk-benefit, and other such matters. Law360 has written a summary of the opinion.
ExxonMobil sued US Metals, alleging over $6 million in damages from defects in a set of 350 “weld neck flanges.” US Metals sought CGL coverage from Liberty. U.S. Metals, Inc. v. Liberty Mutual Group, Inc., No. 1320433 (Sept. 19, 2014, unpublished). Liberty denied US Metals’s request, based on the “your product” and “impaired” property exclusions in the policy, which turned on the terms “physical injury” and “replacement” in those exclusions. The Fifth Circuit noted a lack of Texas authority as to whether those terms are ambiguous in this context, and no clear answer in other opinions that have addressed them. Accordingly, the Court certified two questions to the Texas Supreme Court: (1) whether those terms, as used in these exclusions, are ambiguous; and (2) if so, whether the insured’s interpretation is reasonable. The Court observed that the interpretation of these terms “will have far-reaching implications” and “affect a large number of litigants.” That Court accepted the certification request today.
A vessel sank while in the harbor for repairs. Afterwards, the insurer sued its insured (the harbor operator) and the vessel owner, to dispute coverage. National Liab. & Fire Ins. Co. v. R&R Marine, Inc., No. 10-20767 (June 30, 2014). The insurer argued that the vessel owner had no standing under Texas law when it made a claim against the insurer, as there was no final judgment establishing the insured’s liability at that time. The plaintiff countered that it was “forced” to assert its claim as a compulsory counterclaim under the Federal Rules. The Fifth Circuit concluded that — although Texas state law barred the timing of the vessel owner’s counterclaim, it arose out of the same occurrence as and had a logical relationship to the coverage dispute. Accordingly, the counterclaim was compulsory. Treating it as such also “permitted the district court to efficiently address all disputes arising from the litigation” and was consistent with the Rules’ goal of only “alter[ing] the mode of enforcing state-created rights.”
In Lemoine v. Wolfe, the Fifth Circuit certified an important question of malicious prosecution law to the Louisiana Supreme Court; namely, whether dismissal of a prosecution constitutes a “bona fide termination in his favor” as required by that tort. No. 13-30178 (July 18, 2014, unpublished). “For example, in a case such as this one, the dismissal served almost as a determination of the merits. The dismissal of [the] cyberstalking charge was expressly based on the fact that the district attorney had determined that there was ‘insufficient credible, admissible, reliable evidence remaining to support a continuation of the prosecution.'”
The Fifth Circuit addressed the Texas rules about settlement credits in two cases this summer:
1. Credit. An employee stole a number of checks by endorsing them to himself. The Court found “that the one satisfaction rule obtains . . ., for while there are multiple checks at issue, there is but a single injury.” Coastal Agricultural Supply, Inc. v. JP Morgan Chase Bank, N.A., No. 13-20293 (July 21, 2014). It then remanded for analysis of the appropriate allocation; a dissent would have dismissed this interlocutory appeal into a complex area of Texas law. The Court also affirmed that section 3.405 of the UCC — the “padded payroll” defense — provided an affirmative defense for the relevant bank to a common law claim for “money had and received.”
2. No credit. The victim of a fraudulent scheme sued the seller of the relevant business for breach of warranty, and the participants in the scheme for a fraudulent transfer. It settled with the seller and recovered a multi-million dollar judgment against the bank that participated in the transfer. Held, no credit for the bank: “Citibank’s alleged contractual breach and the TUFTA action against Worthington may share common underlying facts—the three fraudulent transfers from CitiCapital to Worthington totaling $2.5 million, induced by Wright & Wright. But such factual commonality does not suffice to count the contractual dispute’s settlement against TUFTA’s limit on recovery for a single avoidance ‘claim,’ Tex. Bus. & Comm. Code § 24.009(b), or to render Citibank a joint tortfeasor for one-satisfaction rule purposes.” GE Capital Commercial, Inc. v. Worthington National Bank, No. 13-10171 (June 10, 2014). The Court also held that Texas would apply an objective “good faith” test under its fraudulent transfer statute rather than a subjective test referred to in an older Texas Supreme Court opinion. (LTPC and this blog’s author represented the successful plaintiff/appellee in this case.)
The coverage dispute in Wiszia Co. v. General Star Indemnity Co. involved a lawsuit in which “Jefferson Parish essentially asserted Wisznia improperly designed a building and did not adequately coordinate with the builders during its construction.” No. 13-31125 (July 16, 2014). Reviewing the allegations under Louisiana’s eight-corners rule, and summarizing the extensive Louisiana jurisprudence on the topic, the Fifth Circuit found that the claim fell within the policy’s professional services exclusion. Under those authorities, mere use of the word “‘negligence’ is insufficient to obligate a professional liability insurer to defend the insured,” and “the factual allegations in the Jefferson Parish petition here do not give rise to an ordinary claim for negligence—such as an unreasonably dangerous work site.”
A subtle Erie issue flashed by when Andrews alleged premises liability claims against BP, and the Fifth Circuit affirmed summary judgment for BP under a Texas statute. Terry v. BP Amoco, No. 12-40913 (June 27, 2014, unpublished). BP won summary judgment: “Exhibits C and D are the only evidence that Andrews identified as raising a material issue of fact as to BP’s responsibility for the explosion. Those exhibits are a Safety Bulletin issued by the United States Chemical Safety and Hazard Investigation Board (CSB) and a CSB press release discussing the bulletin. The statute creating the CSB, however, prohibits Andrews from using the documents as evidence in this case. Additionally, both CSB documents also likely constitute inadmissible hearsay under the Federal Rules of Evidence.” The question not raised is how much substantive effect this type of federal statute must have in a state law tort claim, removed to federal court under diversity jurisdiction, so as to raise an Erie issue.
The plaintiffs in Garziano v. Louisiana Log Home, Inc. made 88 percent of the installment payments for a build-it-yourself log cabin kit, and then defaulted. No. 13-60291 (May 29, 2014, unpublished). The log cabin company won summary judgment against several contract and tort claims by the purchasers. Before final judgment was entered, however, it came to light that the company had resold several of the logs and actually was ahead on the transaction overall. The district court denied a Rule 59(e) motion about this information and entered judgment. The Fifth Circuit reversed, finding that the district court should not have focused on plaintiffs’ erroneous characterization of the issue as “unjust enrichment,” and by doing so, “essentially granted LLH an impermissible double recovery—making the earnest money provision an unenforceable penalty.” The Court remanded “with instructions for the district court to make findings on the amount of actual damages that LLH suffered and to amend the judgment to remit to the Garzianos any monies paid to LLH under the contract that were in excess of LLH’s actual damages.” (The defendant offers several packages for log homes, all of which look elegant and cost-effective to this author.)
The plaintiff in McKay v. Novartis, Inc. challenged the dismissal on preemption grounds, by an MDL court in Tennessee, of products liability claims about drugs made by Novartis. No. 13-50404 (May 27, 2014). The Fifth Circuit rejected an argument about inadequate time to get certain medical records, noting that the plaintiffs “sought formal discovery of evidence that was available to them through informal means” (citing other cases from the Court on that general topic), and also observing that two years passed from the filing of suit until Novartis sought summary judgment. The Court also affirmed the MDL court’s grant of summary judgment on Texas state law grounds about a breach of warranty claim, finding inadequate notice; as an Erie matter: “the majority of Texas intermediate courts have held that a buyer must notify both the intermediate seller and the manufacturer.”
At issue in Hess Management Firm, LLC v. Bankston were the damages arising from the termination of a contract about the operation of a gravel pit (sadly, not a magical gravel pit of rule-against-perpetuities lore). No. 12-31016 (April 18, 2014). The dispute was whether damages were capped at 180 days — the contract term for adequate notice of closure — or whether the closure of the pit was post-breach activity that is not relevant to damage calculation. The Fifth Circuit sided with the bankruptcy court and reversed the district court’s enlargement of the damages, concluding: “A contrary result would defeat the maxim of placing a non-breaching party in the same position they would have been had breach not occurred, and award [plaintiff] more than their expectation interest.”
A law firm argued that the Texas “anti-SLAPP” statute protected its efforts to solicit former patients of a dental clinic as clients. NCDR, LLC v. Mauze & Bagby PLLC, No. 12-41243 (March 11, 2014). (This statute has led to a great deal of litigation about communication-related disputes, often in areas that the Legislature may not have fully anticipated — this blog’s sister details such litigation in the Dallas Court of Appeals.) In a detailed analysis, the Fifth Circuit agreed that the district court’s ruling against the firm was appealable as a collateral order. The Court then sidestepped an issue as to whether the anti-SLAPP statute was procedural and thus inapplicable in federal court, finding it had not been adequately raised below. Finally, on the merits, the Court affirmed the ruling that the law firm’s activity fell within the “commercial speech” exception to the statute: “Ultimately, we conclude that the Supreme Court of Texas would most likely hold that M&B’s ads and other client solicitation are exempted from the TCPA’s protection because M&B’s speech arose from the sale of services where the intended audience was an actual or potential customer.”
Taylor sued his employer in state court for violations of Texas law. Taylor v. Bailey Tool & Manufacturing Co., No. 13-10715 (March 10, 2014). Later, he amended his pleading to add federal claims. Defendant removed and moved to dismiss on limitations grounds. Under Texas law, Taylor’s new claims would not relate back because the original state law claims were barred by limitations when suit was filed. Under Fed. R. Civ. P. 15(c), however, the claims would relate back because they “arose out of the conduct, transaction, or occurrence set out” in the original pleading. Noting that Rule 81(c) says the Federal Rules “apply to a civil action after it is removed,” the Fifth Circuit concluded that they did not “provide for retroactive application to the procedural aspects of a case that occurred in state court prior to removal to federal court.” Accordingly, it affirmed dismissal.
Mississippi law allows a “bad faith” claim relating to handling of workers’ compensation; Alabama law does not. Williams, a Mississippi resident, was injured in Mississippi while working for an Alabama resident contract. Williams v. Liberty Mutual, No. 11-60818 (Jan. 28, 2014). The Fifth Circuit reversed the choice-of-law question, finding that section 145 of the Restatement (governing tort claims) applied rather than other provisions for contract claims. Under that framework, Mississippi would give particular weight to the place of injury, and thus apply Mississippi law. The opinion highlights the importance of the threshold issue of properly characterizing a claim before beginning the actual choice-of-law analysis.
Boyett v. Redland Ins. Co. examined whether a forklift is a “motor vehicle” within the meaning of Louisiana’s uninsured motorist statute, and concluded that it is one. No. 12-31273 (Jan. 27, 2014). Its Erie analysis illustrates a feature of Louisiana’s civil law system that bedevils outsiders. On the one hand, a court “must look first to Louisiana’s Constitution, its codes, and statutes, because the ‘primary basis of law for a civilian is legislation, and not (as in the common law) a great body of tradition in the form of prior decisions of the courts.’ Unlike in common law systems, ‘[s]tare decisis is foreign to the Civil Law, including Louisiana.'” On the other hand, “[W]hile a single decision is not binding on [Louisiana’s] courts, when a series of decisions form a constant stream of uniform and homogenous rulings having the same reasoning, jurisprudence constante applies and operates with considerable persuasive authority.”
In Coleman v. H.C. Price Co., a toxic tort case, the Fifth Circuit certified to the Louisiana Supreme Court the question whether that state’s one-year limitations statute for survival actions is “prescriptive” (limitations does not run until the cause of action accrues, based on the plaintiff’s actual or constructive knowledge), or or “preemptive” (the cause of action is extinguished even if it has not accrued). No. 13-30150 (Dec. 18, 2013, unpublished). The issue is significant, as the opinion says: “the answer will define the time period governing all survival actions brought in Louisiana . . . .”
After a recent example of attorneys fees that were not “inextricably intertwined” under Texas law, the Fifth Circuit followed this month with a practical example of the Texas requirement of “presentment” of a contract claim before fees may be recovered. In Playboy Enterprises, Inc. Sanchez-Campuzano, the Court reminded that the pleading of presentment is procedural, and thus not a requirement in the federal system. No. 12-40544 (Dec. 23, 2013, unpublished). It is, however, a substantive requirement. In this case, sending a “Notice of Default” under a primary obligation was enough to “present” a claim for liability on a guaranty, noting the “flexible, practical understanding” of the requirement by Texas courts. The Court distinguished Jim Howe Homes v. Rodgers, 818 S.W.2d 901 (Tex. App.-Austin 1991, no writ), which found that service of a DTPA complaint was not presentment of a later-filed contract claim, on the ground that the “Notice” here went beyond mere service of a pleading. For thorough review of this principle, and other key points about fee awards, please consult the book “How to Recover Attorneys Fees in Texas” by my colleagues Trey Cox and Jason Dennis.)
While nominally about a limited issue of workers compensation law, Austin v. Kroger Texas LP analyzes basic issues of an “Erie guess,” Texas premises liability law, and the types of negligence claims available in Texas. No. 12-10772 (Sept. 27, 2013). Austin, a Kroger employee, slipped while cleaning an oily liquid with a mop. Contrary to store policy, a product called “Spill Magic” was not available to him that day. After a thorough discussion of the interplay between the common law of premises liability and the Texas workers compensation statutes (Kroger being a non-subscriber), the Fifth Circuit reversed a summary judgment for Kroger that was based on Austin’s subjective awareness of the spill. “Section 406.033(a) of the Texas Labor Code takes the employee’s own negligence off of the table for a non-subscriber like Kroger . . . ” The Court went on to find fact issues about Kroger’s negligence in not having Spill Magic available, and about Kroger’s knowledge of the spill. The Court affirmed dismissal of the gross negligence claim, and in the remand, asked the district court to consider the specific type of negligence claim that Austin asserted under Texas law.
The insured estimated loss from a hailstorm at a shopping center at close to $1 million; the insurer estimated $17,000. TMM Investments v. Ohio Casualty Insurance, No. 12-40635 (Sept. 17, 2013). The insurer invoked its contractual right for an appraisal, which came in around $50,000. The insured sued, alleging that the appraisal improperly excluded damages to the HVAC system and that the panel exceeded its authority by considering causation issues. Applying State Farm Lloyds v. Johnson, 290 S.W.3d 886 (Tex. 2009), the Fifth Circuit agreed on the HVAC issue, but did not see that as a reason to invalidate the entire award, and reasoned that the appraisers were within their authority when they “merely distinguished damage caused by pre-existing conditions from damage caused by the storm . . . .”
In a high-profile “data breach” case, the district court dismissed several banks’ claims against a credit card processor after hackers entered its system and stole confidential information. Lone Star National Bank v. Heartland Payment Systems, No. 12-20648 (Sept. 3, 2013). The banks did not have a contract with the processor. They sought money damages for the cost of replacing compromised credit cards and reimbursing customers for wrongful charges. Applying New Jersey law, the Fifth Circuit found that the economic loss rule did not bar a negligence claim on these facts at the Rule 12 stage. These banks were an “identifiable class,” Heartland’s liability would not be “boundless” but run only to the banks, and the banks would otherwise have no remedy. The Court also noted that it was not clear whether the risk could have been allocated by contract. The Court declined to affirm dismissal on several other grounds such as choice-of-law and collateral estoppel, “as they are better addressed by the district court in the first instance.”
The plaintiffs in Young v. United States alleged that the Interior Department negligently prepared two studies which led to flooding along Interstate 12 in Louisiana, bringing federal litigation in 2008 when the last major flood was in 1983. No. 13-30094 (August 21, 2013). Plaintiff argued that the “continuing tort” doctrine saved the claim from limitations because the improperly-designed highway remained in place. The Fifth Circuit affirmed dismissal, noting two controlling Louisiana Supreme Court cases. The first, Hogg v. Chevron, involved leaking underground gasoline storage tanks and “rejected the plaintiffs’ contention that the failure to contain or remediate the leakage constituted a continuing wrong, suspending the commencement of the running of prescription . . . [explaining] that ‘the breach of a duty to right an initial wrong simply cannot be a continuing wrong that suspends the running of prescription, as that is the purpose of every lawsuit and the obligation of every tortfeasor.'” 45 So.3d 991 (La. 2010). Similarly, the second held: “[T]he actual digging of the canal was the operating cause of the injury[, and t]he continued presence of the canal and the consequent diversion of water from the ox-bow [were] simply the continuing ill effects arising from a single tortious act.” Crump v. Sabine River Authority, 737 So.2d 720 (La. 1999).
2013 has seen a steady stream of unpublished opinions favoring mortgage servicers, followed by a published opinion affirming a MERS assignment, and now a second published opinion rejecting arguments about the alleged “robosigning” of assignment documents. In Reinagel v. Deutsche Bank, a suit arising out of foreclosure on a Texas home equity loan, the Fifth Circuit held: (1) borrowers could challenge the validity of assignments to the servicer, since they were not asserting affirmative rights under those instruments; (2) alleged technical defects in the signature on the relevant assignment created rights only for the servicer and lender, not the borrower; (3) the assignment did not have to be recorded, mooting challenges to defects in the acknowledgement; and (4) a violation of the relevant PSA related to the transfer of the note did not create rights for the borrower. The opinion concluded with two important caveats: it was not deciding whether the Texas Supreme Court would adopt the “note-follows-the-mortgage” concept, and it reminded: “We do not condone ‘robo-signing’ more broadly and remind that bank employees or contractors who commit forgery or prepare false affidavits subject themselves and their supervisors to civil and criminal liability.” 735 F.3d 220 (5th Cir. 2013).
In Temple v. McCall, the Fifth Circuit confronted a series of property conveyances with ambiguous language about whether mineral rights were included. No. 12-30661 (June 20, 2013). The Court affirmed, approving the weight given by the district court to expert testimony about “customary interpretation” of similar deed language in Louisiana. The Court discussed the proper weight that Erie gives to an intermediate state appellate opinion, but ultimately found the relevant Louisiana case distinguishable on its facts. (The proper role of extrinsic evidence in contract cases is a recurring issue in the Court’s diversity cases, although the express finding of ambiguity in this dispute simplifed the analysis on that point.)
In its first published opinion of 2013 about the merits of a wrongful foreclosure claim, the Fifth Circuit rejected the plaintiff’s “show-me-the-note” and “split-the-note” arguments. Martins v. BAC Home Loans Servicing LP, 722 F.3d 249 (5th Cir. 2013). In footnote 2, the Court noted that much of the relevant law is federal because of diversity between the borrower and the foreclosing entity. As to the first theory, the court cited authority that allowed an authenticated photocopy to prove a note, and said: “We find no contrary Texas authority requiring production of the ‘original’ note.” As to the second, acknowledging some contrary authority, the Court reviewed the relevant statute and held: “The ‘split-the-note’ theory is . . . inapplicable under Texas law where the foreclosing party is a mortgage servicer and the mortgage has been properly assigned. The party to foreclose need not possess the note itself.” An unpublished opinion, originally released a day before Martins, was revised to closely follow its analysis and result. Casterline v. OneWest Bank, No. 13-50067 (revised July 5, 2013, unpublished).
On June 18, two separate panels — one addressing a chemical spill, the other a vessel crash into an oil well — reached the same conclusion in published opinions: when an insured fails to give notice within the agreed-upon period, as required by a “negotiated buyback” endorsement to a policy, the insurer does not have to show prejudice to void coverage. Settoon Towing LLC v. St. Paul Surplus Lines Ins. Co., No. 11-31030; Starr Indemnity & Liability Co. v. SGS Petroleum Service Corp., No. 12-20545. The notice provision was seen as part of the basic bargain struck about coverage. Both opinions — especially Starr, arising under Texas law — recognized the continuing viability of Matador Petroleum v. St. Paul Surplus Lines Ins. Co., 174 F.3d 653 (5th Cir. 1989), in this situation, notwithstanding later Texas Supreme Court cases requiring prejudice in other contexts arising from the main body of a policy. Settoon went on to address other issues under Louisiana insurance law, including whether the Civil Code concept of “impossibility,” which focuses on a failure to perform an obligation, applies to a failure to perform a condition precedent such as giving notice.
A lawyer’s letter making a settlement offer contained a paragraph accusing the other side of giving a witness money for favorable testimony. The accused party then sued for defamation. In Lehman v. Holleman, applying Mississippi law, the Fifth Circuit affirmed that such statements are absolutely privileged from liability because they are “plainly related” to an underlying judicial proceeding. No. 12-60814 (April 15, 2013, unpublished).