Delaware corporation, Delaware law.

citgo signAn Italian company sued the American subsidiary of the Venezuelan national oil company in Louisiana over a contract obligation. “Why did the Italian company file suit in a forum located many thousands of miles away from both where it is headquartered and where it performed the contracts? To try and take advantage of the single business enterprise theory under which Louisiana courts have allowed companies in certain circumstances to be held liable for the acts of their affiliates.” This manuever did not succeed, as the American subsidiary was incorprated in Delaware: “Applying Louisiana law to hold a Delaware corporation responsible for its foreign affiliate’s alleged breach of a contract in Venezuela would substantially undermine the high bar Delaware sets for disregarding corporate separateness. It would also be at odds with the expectations of the parties. Given the provision in its contract providing that Venezuelan law would govern any disputes, Energy Coal had no reasonable expectation that it could seek recourse under the laws of Louisiana.” Energy Coal SPA v. Citgo, No. 15-30863 (Sept. 1, 2016, unpublished).

An expensive causal chain . . . (UPDATED)

broken-chainAfter an underwater tether chain broke, expensive oil production equipment sank to the bottom of the Gulf of Mexico, and Petrobras America sued the chain manufacturer for over $400 million.  The key issue was whether admiralty law applied – creating a serious problem for Petrobras under the economic loss doctrine – or whether Louisiana law applied by operation of the Outer Continental Shelf Lands Act.  The Fifth Circuit found that the OCLSA applied, that its choice-of-law provisions were not waivable, and that Louisiana law controlled: “Here, expressed in general terms, a component failed on an underwater structure . . . and caused the structure to fall into the sea floor.  Such an incident does not have the potential to disrupt maritime commercial or navigational activities on or in the Gulf of Mexico.” Petrobras America, Inc. v. Vicinay Cadenas, S.A., No. 14-20589 (March 7, 2016). (A later supplement clarified the limted scope of the waiver holding.)

Double, double, toil and trouble . . .

floodThe Pyes’ home, valued at $195,000 before Hurricane Ike, was destroyed by that storm.  After they recovered under various insurance policies, the Fifth Circuit found that further recovery under a flood insurance policy would be an impermissible double recovery. Noting that federal common law applied in this area rather than Texas law, the Court nevertheless found that Texas’s emphasis on fair market value was persuasive, and set the $195,000 valuation as the cap on recovery.  While reaching this result, the Court reminded that “the question of the proper measure of recovery under a policy, which is controlled by policy language when defined in the contract as it is here, as distinct from the question of how the bar on double recovery is applied.”  Pye v. Fidelity Nat’l Prop. & Cas. Ins. Co., No. 14-40315 (Nov. 6, 2015).

Oklahoma law wins “Red River Shootout” in noncompete case

texas-ouCardoni 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).

Cleaning the Ponzian Stables

The Fifth Circuit affirmed liability under the Texas fraudulent transfer statute as to several investors who actually earned returns from the Ponzi scheme run by Allen Stanford.  Janvey v. Brown, No. 13-10266 et al. (Sept. 11, 2014).  First, the Court dismissed a choice-of-law issue as presenting a “false conflict,” since Antigua had no real interest in the application of its laws to the Stanford scheme when compared to Texas.  The Court then endorsed the district court’s approach to the situation, which found that the investors gave reasonably equivalent value to the extent they received back their principal, while requiring the return of interest: “allowing [them] to keep their fraudulent above-market returns in addition to their principal would simply further victimize the true Stanford victims, whose money paid the fraudulent interest.”

Alabama Getaway

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.

Rooker Renaissance Renews

Alphonse lost his home to foreclosure.  He then sued in federal court, alleging unfair trade practices.  Alphonse v. Arch Bay Holdings LLC, No. 13-30154 (Dec. 11, 2013, unpublished).  The district court dismissed based on the Rooker/Feldman doctrine, but by the time the Fifth Circuit took up the case, all parties conceded that ruling was incorrect because of Truong v. Bank of America, 717 F.3d 377, 381-83 (5th Cir. 2013).  The appellees urged affirmance based on res judicata from the foreclosure proceeding, but the Fifth Circuit remanded for further factual development.  The party to the foreclosure proceeding was a “Series 2010B” that owned the mortgage; the parties to the federal case were that entity’s parent and its mortgage servicer; and the Court was not convinced that the pleadings — standing alone — established the right relationships to find preclusion.  The Court also remanded for further consideration of whether Delaware law about 2010B entities applied to third party claims, noting a potential exception the “internal affairs” doctrine in choice-of-law analysis.

Libel tourism: Mississippi v. Nova Scotia

Persons upset about posts on the Mississippi blog “slabbed.org” sued for defamation in Nova Scotia (some of the content related to a lodge owned there by a Mississippi resident).  After obtaining a default judgment, they sought to domesticate it in Mississippi; the defendant removed and resisted domestication under the SPEECH Act, 28 U.S.C. § 4102.  Trout Point Lodge v. Handshoe, No. 13-60002 (Sept. 5, 2013).  That law, enacted in 2010, intends to prevent “libel tourism” by plaintiffs who obtain judgments in jurisdictions with less protection of speech than the First Amendment. The Court concluded that the plaintiffs failed to meet its burden under the Act to prove either (1) that Canadian law (which allocates the burden to prove falsity differently than American law) offers as much free speech protection as Mississippi, or (2) a Mississippi court reviewing the allegations of the pleading would have found liability for defamation.  The Court found some of the pleading’s allegations conclusory and that others involved language that “[t]hough offensive . . . are not actionable . . . .”

No bad faith liability for aggressive settlement tactics

The insured in Mid-Continent Casualty v. Eland Energy recovered a multi-million dollar verdict against its insurer, alleging that the insurer’s efforts to unilaterally settle a claim for environmental damage after Hurricanes Katrina and Rita undermined the defense of an ongoing class action about similar claims.  No. 11-10649 (Feb. 22, 2013).   The district court granted JNOV and the Fifth Circuit affirmed.  Recognizing that “[the insured] is understandably upset,” the court rejected a common-law duty of good faith under Texas law in the handling of third-party insurance claims, dismissing as dicta or distinguishing several cases cited by the insured.   Potential claims under Louisiana law failed for  choice-of-law reasons since the claim was handled in Texas. Claims based on the Texas Insurance Code failed to establish a causal link between the alleged misconduct and the ultimate settlement terms of the class action.

Mandamus relief denied about forum selection clause

In re Atlantic Marine Construction denied a mandamus petition about enforcement of a forum selection clause, finding no “clear abuse of discretion.”  No. 12-50826 (Nov. 19, 2012).  The majority and specially concurring opinions exchanged detailed views on whether Fed. R. Civ. P. 12(b)(3) or 28 U.S.C. § 1404(a) controls a forum selection issue when the parties did not select state law to govern enforcement of the clause and venue would otherwise be proper in the district of suit.  The majority opinion reflects a continuing conservatism in recent mandamus cases after 2008’s en banc Volkswagen opinion.

Jurisdiction over jurisdictional issue; choice of law affirmance

In National Union v. American Eurocopter, a contribution suit arising from settlement of claims about a helicopter crash, a Hawaii district court found no personal jurisdiction and transferred venue to Texas.  No. 11-10798 (Aug. 27, 2012).  The appellant challenged that ruling, and the Fifth Circuit held that it lacked jurisdiction over that issue.  Id at 4 (quoting 28 U.S.C. § 1294, defining appellate jurisdiction as reaching “appeals . . . [f]rom a district court of the United States to the court of appeals for the circuit embracing the district”).  On the merits, the Court affirmed a dispositive choice-of-law ruling for Texas law, noting a Texas choice-of-law provision in a relevant contract, a rough balance between the place of the accident (Hawaii) and the defendants’ headquarters (Texas), and the relatively weak interest of an out-of-state insurer.  Id. at 5-7 (noting Beech Aircraft v. Jinkins,  739 S.W.2d 19 (Tex. 1987)).