“Reasonable belief” must be legally permissible

Calderone alleged that he was terminated, in retaliation for reporting a car dealership’s alleged refusal to finance cars for racial minorities, in violation of the Consumer Financial Protection Act.  Unfortunately for Calderone, no matter how reasonable his belief may have been, car dealers are exempt from the CFPA by its plain terms, as other agencies have regulatory authority in that sector of the economy. “Under the CFPA, a plainitff may have a reasonable, but mistaken, belief of fact or law that a statute has been violated. But the CFPA does not permit a plaintiff’s reasonable beliefs to expand the CFPB’s jurisdiction.” Calderon v. Sonic Houston JLR, L.P., No. 17-20029 (Jan. 9, 2018).

Deposition transcript is “other paper” for removal clock

While both sides made cogent policy arguments, plain meaning triumphed in Morgan v. Huntington Ingalls, and the Fifth Circuit held that the thirty-day removal deadline begins to run from receipt of a deposition transcript that may create a basis for removal, rather than the oral testimony itself.  “[P]aper” is defined as “[a] written or printed document or instrument.” “[R]eceipt” is defined as the “[a]ct of receiving; also, the fact of receiving or being received; that which is received.” “Copy” is defined as “[t]he transcript or double of an original writing.” “‘Ascertain’ means ‘to make certain, exact, or precise’ or ‘to find out or learn with certainty.’” No. 17-30523 (Jan. 11, 2018).


The statutory interpretation question in United States v. American Commercial Lines was the meaning of the phrase “in connection with.” The Fifth Circuit began with the plain meaning of the word “connection,” which it called “a capacious term, encompassing things that are logically or causally related or simply ‘bound up’ with one another.” Going on to review precedent and the purpose of the statute at hand, the Coourt concluded that “[i]t is, however, not so capacious as to be rendered meaningless. Conduct does not automatically occur ‘in connection with’ a contractual relationship by the mere fact that such a relationship exists.  No. 16-31550 (Nov. 7, 2017) (citation omitted).

Who are “You”?

Welding-safety regulations enacted under the Outer Continental Shelf Lands Act contain this definition: “You means a lessee, the owner or holder of operating rights, a designated operator or agent of the lessee(s), a pipeline right-of-way holder, or a State lesssee granted a right-of-use and easement.” In United States v. Moss, the Fifth Circuit affirmed the dismissal of criminal charges against a contractor based on this set of regulations, agreeing that “you” – as defined above, and applied consistently with relevant canons of interpretation – could not be read to include a contractor. Weighing heavily against the government’s position was a long history of “virtually non-existent past enforcement of OCSLA regulations against contractors.” No. 16-30561 (Sept. 27, 2017).

How to space oil wells

TDX Energy v. Chesapeake Operating begins with an entertaining – and accurate – summary of the challenge presented by oil and gas overproduction. Brought forward into today’s market and the parties’ dispute, at issue was a Louisiana statute, under which an operator can forfeit the right to deduct drilling costs on an “unleased oil and gas interest” – defined as one “upon which the operator or producer has no valid oil, gas, or mineral lease. (Here, the relevant interests were leased to TDX but not the operator, Chesapeake.) The Fifth Circuit elected to follow a Lousiana intermediate court opinion that it found to be consistent with the applicable canons of interpretation, and concluded that “The most natural reading of [the two relevant sections together] is that operators forfeit their right to contribution when they fail to send timely reports to lessees with oil and gas interests in lands upon which the operator has no lease . . . .” 857 F.3d 253 (5th Cir. 2017).

Sour Auer

After a pipeline breach, a federal regulator penalized ExxonMobil for violating safety rules. The Fifth Circuit reversed, finding, inter alia, that the agency’s interpretation of the “textually unambiguous” regulation required no deference under Auer v. Robbins, 519 U.S. 452 (1997). Specifically, the regulation said that pipeline operators “must consider” “all risk factors that reflect the risk conditions on the pipeline segment.” Concluding (presumably, after due consideration), that “consider” meant “to think about carefully,” the Court concluded that the regulation “unambiguously serves to informs a pipeline operator’s careful and deliberate decision-making process rather than to compel a particular outcome . . . ” This conclusion undermined the substantive basis of the agency’s liability determination, and led to reversal in substantial part. ExxonMobil Pipeline Co. v. U.S. Dep’t of Transp., No. 16-60448 (Aug. 14, 2017).



What is “the service”?

The City of Cibolo, Texas, sought to establish sewer service that would conflict with the Greeny Valley Special Utility District’s right to provide such service under a federal program. The dispute turned on the meaning of the phrase “the service” in the relevant statute – the resulting analysis (a) resolved that use of “the” is not dispositive, since its meaning depends on the following noun, and (b) Congress’s many different uses of “service” and “services” in the pertinent set of statutes was not controlling. The Fifth Circuit concluded that the plain terms of the statute required it to “decline the city’s invitation to read adjectives” into the phrase “the service,” and it reversed the district court’s ruling that had limited the phrase to services financed by a federal loan. Green Valley Special Utility District v. City of Cibolo, No.16-51282 (Aug. 2, 2017).

A picture is worth a thousand words –

Press coverage of Judge Neil Gorsuch’s nomination to the Supreme Court has noted his intelligent and accessible writing style, including use of a sentence diagram (left) in a criminal case that turned on what elements of the crime required proof of intent. In the same spirit, in dissent from the denial of en banc rehearing in a highly technical case about protection of the dusky gopher frog (right), Judge Edith Jones used a pair of Venn diagrams to illustrate her view of how the Endangered Species Act should operate (below left), contrasted with the panel opinion’s (below right). Markle Interests v. U.S. Fish & Wildlife Service, No. 14-31008 (Feb. 14, 2017).


Herding Fish

The “Gulf Council” manages fisheries in the federal waters of the Gulf of Mexico.With respect to red snapper, its statutory grant of authority requires it to establish “seprate quotas for recreational fishing . . . and commercial fishing.” A group of private anglers complained that the authority to set those two quotas precluded the ability to set a quota for fishing from charter vessels. The Fifth Circuit disagreed, finding that neither the canon that “expressing one item of a commonly associated group or series excludes another left unmentioned,” nor that “a specific statute prevails over an inconsistent general statute” compelled a ruling in favor of the anglers: “Amendment 40 does not create a separate quota for charter fishing; it subdivides the recreational sector into private and charter components.” Coastal Conservation Association v. U.S. Dep’t of Commerce, No. 16-30137 (revised Jan. 26, 2017).

When is a bank not a bank?

bank-errorThe issue in Moneygram Int’l v. Commissioner of Internal Revenue was whether MoneyGram could take advantage of a favorable deduction rule for “banks,” unhelpfully defined in the Internal Revenue Code with a sentence beginning: “[T]he term ‘bank’ means a bank or trust company . . . .” Turning to the specific requirements of the definition, the Fifth Circuit concluded that the Tax Court “erred by interpreting TexasBarToday_TopTen_Badge_VectorGraphic‘deposit’ to include the requirement that MoneyGram ‘hold its customers’ funds for extended periods of time,'” and by requiring that a “loan” be made for interest. A dissent criticized the majority’s “[n]itpicking some of the definitions of a loan . . . .” No. 15-60527 (Nov. 15, 2016, unpublished).

“What the Heck?” says buyer at speedy foreclosure sale

hourglassJeff 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).

Tax — property development is not home construction — UPDATED

howard hughesThe Howard Hughes Company sold lots, and provided necessary infrastructure, in a planned development near Las Vegas.  The IRS did not let it take advantage of a special gain calculation for “home construction contracts,” and the Fifth Circuit agreed.  The key statutory interpretation principle (after the basic one that tax exemptions are strictly construed) was “the rule against superfluities,” under which an argument about one statutory provision fails if it makes another one redundant.  Howard Hughes Co. v. Commissioner of Internal Revenue, No. 14-60915 (revised Dec. 7, 2015).

An earth-moving precedent

mike mulliganAn accident occurred while a dredge attempted to anchor itself in the seabed.  The legal issue was whether the dredge’s activity triggered the notice requirements of a Louisiana statute involving “excavation.”  The Fifth Circuit reasoned: “The plaintiffs may well be right that the movement of earth is an inevitable result of anchoring, and thus that a person who engages in anchoring does so knowing that he will cause the movement of earth.  But under the [statute], an activity constitutes ‘excavation’ only if the ‘purpose’ — the actual object — of engaging in it is the ‘movement . . . of earth.’  And the object of ‘anchoring’ is, unmistakably, the securing of a ship, not the movement of earth.”  Plains Pipeline LP v. Great Lakes Dredge, No. 14-31046 (Aug. 12, 2015, unpublished).

Taxes today, taxes yesterday

Pursuant to section 965 of the Internal Revenue Code, BMC Software repatriated to the United States several hundred million dollars of income earned by a foreign subsidiary.  It earned a substantial tax deduction for the year, as this provision is intended to incentivise the fresh investment of foreign cash into the U.S. by companies with international operations.  BMC Software v. Commissioner of Internal Revenue, No. 13-60684 (March 13, 2015).  Some time later, BMC settled a dispute about the tax treatment of royalties paid to it by the same subsidiary.  The IRS then took the position that BMC’s accounting for that dispute amounted to a loan, which would lead to the disallowal of some of the section 965 deduction (loaning money to a subsidiary who then returns it to the US would not be fresh investment).  The Fifth Circuit rejected that position and reversed the Tax Court, finding no support for it in either the statute or the settlement document.  Because the accounts receivable created as a result of the settlement were not created until after the applicable tax year, the statutory exception for loaned funds could not apply.

Lost, but still taxed . . .

lostAs part of a sale transaction, the board of “Gold Kist” (more widely known as Pilgrim’s Pride), decided to abandon certain securities for no consideration.  For tax purposes, the company then reported a $98.6 million ordinary loss.  Pilgrim’s Pride Corp. v. Commissioner of Internal Revenue, No. 14-60295 (Feb. 25, 2015).  The IRS contended that this was a capital loss, rather than an ordinary loss, creating a tax deficiency of close to $30 million.  The Court agreed with the company, finding: “By its plain terms, [26 U.S.C.] § 1234A(1) applies to the termination of rights or obligations with respect to capital assets (e.g. derivative or contractual rights to buy or sell capital assets).  It does not apply to the termination of ownership of the capital asset itself.”  In rejecting a contrary view of the statute, Judge Elrod gives a powerful summary of several canons of construction: “We disagree.  Congress does not legislate in logic puzzles . . . “

Chevron Still Lives

chevronThe Fifth Circuit revised its original opinion in BNSF Railway Co. v. United States to expand and revise the discussion of ambiguity as part of the Chevron analysis of an IRS regulation; the outcome remained unchanged.  No. 13-10014 (Jan. 15, 2015).  The new discussion includes a reminder about the limited role of dictionaries, from the venerable en banc opinion about regulations for chicken processing in Mississippi Poultry Association, Inc. v. Madigan, 31 F.3d 293 (5th Cir.1994).  The canon of “noscitur a sociis” (“an ambiguous term may be given more precise context by the neighboring words with which it is associated” also makes one of its infrequent appearances.

Civil penalties capped at — zero.

In Forrte v. Wal-Mart Stores, Inc., the Fifth Circuit affirmed a finding of liability under the Texas Optometry Act, based on dealings between Wal-Mart and optometrists who leased space in its stores.  No. 12-40854 (revised, Aug. 25, 2014).  While the plaintiff optometrists did not claim actual damages, they obtained judgment for over $1,000,000, plus attorneys fees, based on mandatory statutory penalties.  Noting that the Act used the phrase “civil penalty,” the Fifth Circuit found that the damages fell within the cap set by Section 41.008(b) of the Civil Practice & Remedies Code  — “two times the amount of economic damages [plus] economic damages.”  In this case, that was zero, since the plaintiffs sought no other recovery.  The Court distinguished Vanderbilt Mortgage v. Flores, 692 F.3d 358 (5th Cir. 2012), based on the terms of the statutes at issue.  As the Texas Lawbook notes, this opinion has the potential to introduce uncertainty into other “Private Attorney General” statutes in Texas.

Chevron lives.

Even by the standards of tax cases, BNSF Railway Co. v. United States is arcane, but the underlying statutory analysis is of broad general interest.  No. 13-10014 (March 13, 2014). The first issue — the taxability of certain stock options — turned on whether a Treasury regulation about the meaning of the term “compensation” was entitled to Chevron deference.  The Fifth Circuit held that it was — as to the first Chevron factor, the Court found the term ambiguous, noting (1) the lack of a similar statute using the term, (2) variation among dictionary definitions, and (3) ambiguity in business usage, such as there was, at the time the relevant statute was passed in the 1920s-40s.  [Unintentional capitalist wit appears in footnote 63, which refers to the “Rand House Dictionary” rather than the “Random House Dictionary” in a citation about “capital or finance.”]  The Court then found the regulation reasonable, noting its general consistency with the goals and structure of the statute and its legislative history.  A second holding illustrates the application of the “specific-general canon” and “the rule against superfluities.”

What is an “impaired” bankruptcy claim?

The Bankruptcy Code requires that a plan receive a favorable vote from “at least one class of claims that is impaired under the plan.”  11 U.S.C. § 1129(a)(10).  In Western Real Estate Equities LLC v. Village at Camp Bowie I, LP, thirty-eight unsecured trade creditors of a real estate venture voted to approve the debtor’s plan, while the secured creditor voted against it.  No. 12-10271 (Feb. 26, 2013).  The secured creditor complained that the consent was not valid because the plan “artificially” impaired the unsecured claims, paying them over a three-month period when the debtor had enough cash to pay them in full upon confirmation.  Recognizing a circuit split, the Fifth Circuit held that section 1129 “does not distinguish between discretionary and economically driven impairment.”  The Court conceded that the Code imposes an overall “good faith” requirement on the proponent of a plan, but held that the secured creditor’s argument here went too far by “shoehorning a motive inquiry and materiality requirement” into the statute without support in its text.

What is a “detailed” statement about drilling costs?

A Louisiana statute requires a well operator to provide landowners “a sworn, detailed, [and] itemized statement” about drilling costs.  Brannon Properties v. Chesapeake Operating, No. 12-30306 (Feb. 21, 2013, unpublished).  The Fifth Circuit reversed a summary judgment for the operator, finding that the district court correctly concluded that its report lacked enough detail under the unambiguous language of the statute, and that the analysis should have ended there.  Id. at 5 (“The statute clearly connects the costs reported to the benefits received in exchange.  . . . [I]t must tell the unleased mineral owner what it is getting for its money.”).  The Court faulted the district court for proceeding to analysis of the statute’s purpose after reaching a conclusion that its terms were unambiguous, and also for finding an incorrect purpose inconsistent with those terms. Id. at 6-7.

Statutory interpretation 101 — “prejudice” and “reasonable time”

The FDIC repudiated a North Texas office lease as receiver for a failed bank, the landlord sued for unreasonable delay in violation of the statute authorizing the FDIC’s action, and the FDIC defended on the ground that the delay caused no harm in a depressed real estate market and thus could not have been unreasonable.  Building Four Shady Oaks Management LP v. FDIC, No. 12-0080 (Dec. 21, 2012, unpublished).  The district court and Fifth Circuit agreed with the FDIC.  The opinion clearly illustrates basic statutory interpretation and how a factor such as “prejudice” may be incorporated by a statutory term such as “reasonable time.”