Cardoni v. Prosperity Bank, an appeal from a preliminary injunction ruling in a noncompete case, involved a clash between Texas and Oklahoma law, and led to these noteworthy holdings from the Fifth Circuit in this important area for commercial litigators:
- Under the Texas Supreme Court’s weighing of the relevant choice-of-law factors, Oklahoma has a stronger interest in the enforcement of a noncompete than Texas, “with the employees located in Oklahoma and employer based in Texas”;
- As also noted by that Court, “Oklahoma has a clear policy against enforcement of most noncompetition agreements,” which is not so strong as to nonsolicitation agreements;
- The district court did not clearly err in declining to enforce a nondisclosure agreement, given the unsettled state of Texas law on the “inevitable disclosure” doctrine; and
- “[T]he University of Texas leads the University of Oklahoma 61-44-5 in the Red River Rivalry.”
No. 14-20682 (Oct. 29, 2015).
Employees of the Stanford Financial Group sought coverage for attorneys fees incurred in defending federal criminal charges. The district court held the policy ambiguous and found coverage under the contra proferentem doctrine. The insurer sought reversal based on the “sophisticated insured” exception to that doctrine under Texas law. (A previous panel certified the question whether this exception existed in Texas to the Texas Supreme Court, who declined to answer it by resolving that case on other grounds.) Concluding that if Texas were to recognize the exception, it would apply a “middle-ground approach,” the majority affirmed: “Absent any information about the content of the negotiations, how the contracts were prepared, or other indicators of relative bargaining power, [the insurer] did not present evidence that the insured did or could have influenced the terms of the exclusion.” A dissent would have sidestepped saying anything about the exception, preferring to affirm on the ground that the policy unambiguously provided coverage. Certain Underwriters at Lloyds v. Perraud, No. 14-10849 (Aug. 12, 2015, unpublished).
Cox Operating incurred significant expenses in cleaning up pollution and debris at its oil-and-gas facilities after Hurricane Katrina. Its insurer disputed coverage. After a lengthy trial, the district court awarded $9,465,103.22 in damages and $13,064,948.28 in penalty interest under the Texas Prompt Payment Act. The Fifth Circuit affirmed in Cox Operating LLC v. St. Paul Surplus Lines Ins. Co., No. 13-20529 (July 30, 2015).
After finding that the one-year reporting requirement in Cox’s policy was not an unwaivable limitation on coverage, the Court confronted a “disturbing inconsistency” about the Act. On the one hand, the penalty-interest provision applies generally “[i]f an insurer that is liable for a claim under an insurance policy is not in compliance with this subchapter.” On the other hand, of the Act’s variously deadlines, only one expressly ties its violation to the penalty provision. The Fifth Circuit found for the insured, finding “the construction urged by St. Paul . . . would seem to transform all but one of the Act’s deadlines from commands backed by the threat of penalty interest to suggestions backed by nothing at all.”
An earlier panel opinion found the Golf Channel liable for $5.9 million under the Texas Uniform Fraudulent Transfer Act (“TUFTA”), even though it delivered airtime with that market value, because the purchaser was Allen Stanford while running a Ponzi scheme. Accordingly, the airtime had no value to creditors, despite its market value. On rehearing, the Fifth Circuit vacated its initial opinion and certified the controlling issue to the Texas Supreme Court: “Considering the definition of ‘value’ in section 24.004(a) of the Texas Business and Commerce Code, the definition of ‘reasonably equivalent value’ in section 24.004(d) of the Texas Business and Commerce Code, and the comment in the Uniform Fraudulent Transfer Act stating that ‘value’ is measured ‘from a creditor’s viewpoint,’ what showing of ‘value’ under TUFTA is sufficient for a transferee to prove the elements of the affirmative defense under section 24.009(a) of the Texas Business and Commerce Code?” Janvey v. The Golf Channel, No. 13-11305 (June 30, 2015).
Three counties sued MERS (“Mortgage Electronic Registration Systems, Inc.”) for violations of various statutes related to the recording of deeds of trust (the Texas equivalent of a mortgage). In a nutshell, MERS is listed as the “beneficiary” on a deed of trust while the note is executed in favor of the lender. “If the lender later transfers the promissory note (or its interest in the note) to another MERS member, no assignment of the deed of trust is created or recorded because . . . MERS remains the nominee for the lender’s successors and assigns.” The counties argued that this arrangement avoided significant filing fees. The Fifth Circuit affirmed judgment for MERS, finding (1) procedurally, that the Texas Legislature did not create a private right of action to enforce the relevant statute and (2) substantively, that the statute was better characterized as a “procedural directive” to clerks rather than an absolute rule. Other claims failed for similar reasons. Harris County v. MERSCORP Inc., No. 14-10392 (June 26, 2015).
Building on In re Deepwater Horizon, ___ S.W.3d ___, 2015 WL 674744 (Tex. Feb. 13, 2015), in Ironshore Specialty Ins. Co. v. Aspen Underwriting, the Fifth Circuit addressed whether the following insurance policy provision limited the excess insurer’s obligations to a $5 million that the insured was obliged to provide under another contract: “The word ‘Insured,’ wherever used in this Policy, shall mean . . . any person or entity to whom [Insured] is obliged by a written ‘Insurance Contract’ entered into before any relevant ‘Occurrence’ and/or ‘Claim’ to provide insurance such as is afforded by this Policy.” The Court found that it did, even though the contract at issue in Deepwater Horizon had additional provisions that bore on this question. No. 13-51027 (June 10, 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[.]”
Dan Peterson sued his former employer, Bell Helicopter Textron, for age discrimination under the TCHRA. The jury found that age was a motivating factor in his termination, but also found that Bell would have terminated him even without consideration of his age. The district court awarded no damages, but imposed an injunction on Bell about future age discrimination, and awarded Peterson attorneys fees of approximately $340,000. The Fifth Circuit reversed. Noting that the TCHRA allowed an injunction even in light of the unfavorable causation finding, the Court found that plaintiff’s request came too late, as Fed. R. Civ. P. 54(c) “assumes that a plaintiff’s entitlement to relief not specifically pled has been tested adversarially, tried by consent, or at least developed with meaningful notice to the defendant.” Here, Bell showed that it would have tried the case differently had it known an injunction was at issue. Accordingly, the fee award was also vacated. Peterson v. Bell Helicopter Textron, Inc., No. 14-10249 (June 4, 2015). A revised opinion honed the opinion’s analysis as to a potential alternative ground of fee recovery; the same day it issued, the full Court denied en banc review over a lengthy dissent.
Withdrawing an earlier panel opinion, the Fifth Circuit certified two insurance questions to the Louisiana Supreme Court in 2014, which have now been answered:
1. Whether an insurer can be liable for a bad-faith failure-to-settle claim when it never received a firm settlement offer. (The Fifth Circuit noted that a revised statute imposed “an affirmative duty . . . to make a reasonable effort to settle claims,” drawing into question prior case law in the area.) The Louisiana Supreme Court said: “Having determined that the plain language supports the existence of a cause of action in favor of the insured under [the revised statute], we answer this question affirmatively.”
2. Whether an insurer can be liable for “misrepresenting or failing to disclose facts that are not related to the insurance policy’s coverage” — namely, the status of a claim and related settlement negotiations. The answer: ” An insurer can be found liable under [the statute] for misrepresenting or failing to disclose facts that are not related to the insurance policy’s coverage; the statute prohibits the misrepresentation of ‘pertinent facts,’ without restriction to facts ‘relating to any coverages.'”
Accordingly, the Fifth Circuit remanded for further proceedings in Kelly v. State Farm, No. 12-31064 (May 29, 2015, unpublished).
The same week as the en banc vote in the whooping crane litigation, the Fifth Circuit analyzed “Whoomp! (There It Is).” The unfortunate song has been mired in copyright infringement litigation for a decade; the district court entered judgment for the plaintiff for over $2 million, and it was affirmed in Isbell v. DM Records, Inc., Nos. 13-40787 and 14-40545 (Dec. 18, 2014). [The opinion notes: “The word “‘Whoomp!’ appears to be a neologism, perhaps a variant of ‘Whoop!,’ as in a cry of excitement.”]
The main appellate issue was a variant of a frequently-litigated topic — the role of extrinsic evidence in contract interpretation. The assignment in question was governed by California law, which the Court found to “employ a liberal parol evidence rule” with respect to consideration of extrinsic evidence. The appellant argued that the district court erred “in interpreting the Recording Agreement without asking the jury to make any findings on the extrinsic evidence.” The Court disagreed, finding that the record did not present “a question of the credibility of conflicting extrinsic evidence” (emphasis in original): “The only dispute is over the meaning of the Recording Agreement and the inferences that should be drawn from the numerous undisputed pieces of extrinsic evidence. This is a question of law for the court, not for a jury.”
In tour de force reviews of Louisiana’s Civil Code and civilian legal tradition, a plurality and dissent — both written by Louisiana-based judges — reviewed whether a 1923 deed created a “predial servitude” with respect to a right of access. The deed at issue said: “It is understood and agreed that the said Texas & Pacific Railway Company shall fence said strip of ground and shall maintain said fence at its own expense and shall provide three crossings across said strip at the points indicated on said Blue Print hereto attached and made part hereof, and the said Texas and Pacific Railway hereby binds itself, its successors and assigns, to furnish proper drainage out-lets across the land hereinabove conveyed.”
The analysis involved citation to the Revised Civil Code of Louisiana of 1870 (the Code in effect at the time of conveyance), the 1899 treatise Traité de Droit Civil-Des Biens, and the 1893 work, Commentaire théorique & pratique du code civil. Despite the arcane overlay, the opinions turn on practical observations. The plurality notes that the deed uses “successors and assigns” language only with respect to drainage — not access — while the dissent observes that a “personal” access right, limited only to the parties to the conveyance and that does not run with the land, is impractical. Franks Investment Co. v. Union Pacific R.R. Co., No. 13-30990 (Dec. 2, 2014).