Parallel Civil and Criminal Matters = Civil Stay

In a topic also addressed on 600Commerce today, the interplay of criminal proceedings and civil litigation can be challenging. The conclusions of In re Grand Jury Subpoena summarized when a stay of civil cases can be required: “It is not necessary that the movant for civil discovery specifically intend to circumvent the rules of criminal discovery: a movant with the ‘purest of motives’ would, in the event the civil case wa allowed to proceed, gain access to materials otherwise unobtainable and, in so doing, potentially harm the related criminal investigation. . . . If not enjoined, further proceedings in state court, including civil discovery, could undermine the federal criminal investigation into [Company]. Furthermore, [Company] will not be unduly burdened if the civil proceedings do not proceed for the duration of the criminal investigation: ownership of the electronic devices can be determined after the investigation is complete, and the devices returned to [Company] if its ownership is established.” No. 16-10181 (Juy 19, 2017).

FDCPA – look at the whole, not the parts

Among other holdings in a hard-fought wrongful foreclosure action, the Fifth Circuit made two observations about the FDCPA in Mahmoud v. DeMoss Owners Association. First, while language on the first page of a letter suggested that action was required in less than 30 days, the next page of that letter clearly gave the required 30-day action period in three places, and thus did not violate the FDCPA.  Second, even though “a small portion of the debt may have been time-barred,” in the context of a non-judicial foreclosure controlled by state law, that matter alone would not create an FDCPA violation. A dissent had a different view of the point, and “would hold instead that, consistent with the text and spirit of the Act, demanding full repayment of a partiaally time-barred debt under the threat of forecloosure – implying that the entirety of the debt is legally enforceable – violates the FDCPA.” No. 15-20618 (July 28, 2017).

Services disparaged, injury covered.

The Fifth Circuit reversed a summary judgment for the insured in a dispute about “advertising injury” coverage, finding that the underlying pleading “alleged misrepresentations . . . directed at a particular potential customer in reference to a particular project that a competitor was undertaking. It thus impugned a particular competitor and its services by necessary implication” (thus distinguishing KLN Steel Prods. Co. v. CNA Ins. Cos., 278 S.W.3d 429 (Tex. App.–San Antonio 2008, pet. denied)). This brought the claim within the policy, which covered “injury . . . arising out of the oral or written publication, in any manner, or material that disparages a person’s or organization’s goods, products or services.” Uretek (USA), Inc. v. Continental Casualty Co., No. 15-20104 (July 28, 2017).


Mortgage Securitization Trust is a Trust

In a thorough review of several basic issues that arise in litigation about residential foreclosures, the Fifth Circuit addressed whether the citizenship of a mortgage securitization trust is determined by the citizenship of the trustee, or the citizenship of all the trust’s interest holders. While the traditional rule is that the citizenship of the trustee controls, Navarro Savings Ass’n v. Lee, 446 U.S. 458 (1980), the borrower argued that a more recent case about the citizenship of a REIT should control, Americold Relay Trust v. Conagra Foods, 136 S. Ct. 1012 (2016). Because the defendant bank was sued in its capacity as trusteee, and because the terms of the Pooling and Service Agreement assigned “real and substantial” control to the bank, the Court elected to follow Navarro. Bynane v. The Bank of New York Mellon, No. 16-20598 (August 4, 2017) (Navarro was sucessfully argued in the Supreme Court by my former law partner James Ellis, an excellent lawyer and as shown above, a star quarterback at Texas Tech in the early 1960s).

Don’t jump the gun on the measure of damage.

In Hills v. Entergy Operations, Inc., a case about overtime pay for security guards, the Fifth Circuit reversed a summary judgment based upon a conclusion about two guards’ lack of damage. While the Court’s holding was based upon technical issues of employment law, its underlying reasoning is of broader applicability: “We reverse the district court’s summary judgment that the fluctuating workweek method applies here as a matter of law. The underlying factual issue upon which the applicabilty of that method is predicated, what the employees clearly understood, should be decided at trial in due course.” No. 16-30924 (Aug. 4, 2017). Also, in a ruling of general interest about administrative law, the Court declined to follow an interpretive letter by the Department of Labor.

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).

Dismissal not warranted as discovery sanction

Dominguez had “a series of mishaps during discovery” in his Jones Act case. The district court ultimately dismissed his claims, but the Fifth Circuit reversed in favor of a less severe sanction. The key discovery problem was Dominguez’s failure to attend an independent medical exam, but that exam was called for because of an opinion from a medical expert offered by Dominguezz. “[E]xcluding [the expert] from the proceedings would have eliminatedd the immediate cause of delay and any prejudice to [Defendant] without dismissing Dominguez’s underlying personal injury claims in their entirety.” Dominguez v. Crosby Tugs, LLC, No. 16-31239 (Aug. 1, 2017).

May be injury, but not “advertising injury”

Laney Chiropractic v. Nationwide Mutual Ins. Co. presented a dispute about whether “advertising injury,” covered by insurance, was raised by a complaint about a competitor’s statements about a chiropractic massage technique. The Fifth Circuit affirmed summary judgment for the insurer, finding, inter alia: “[W]hen an insured is accused of using another’s product, they are generally not using another’s ‘advertising idea.’ . . . And that is precisely what the Underlying Complaint alleges. It alleges that Laney unlawfully used a patented product . . . and then advertised the product on its website.” Arguments based on alleged trade dress and slogan infringement failed for similar reasons. No. 16-1183 (July 28, 2017)

No evidence; no inference.

McCarty fell outside a restaurant kitchen; her subsequent lawsuit against the restaurant for premises liability failed for lack of evidence. The Fifth Circuit distinguished the Texas appellate authority she cited by observing: “The evidence in each of these cases provided context for how long the hazardous condition had existed, in the form of either a discrete and readily documented antecedent event (e.g., a rainfall) or an attribute of the hazard (e.g., a puddle’s size, from which the jury could reasonably infer how long the puddle had been growing). In this case, by contrast, no evidence would permit the jury to trace the alleged slip risk to a particular antecedent event. Nor could a jury infer from any attributes of the alleged hazard that it had been growing over any length of time.” McCarty v. Hillstone Restaurant Group, No. 16-11519 (July 18, 2017).

Conspiracy = Nondischargeability

The bankruptcy court ruled that a claim against the debtor, arising out of a scheme involving foreclosure proceedings, was nondischargeable. The Fifth Circuit affirmed, holding, inter alia, that the debt could be found nondischargeable because of the debtor’s participation in a civil conspiracy involving the scheme: “[Bankruptcy Code ] ection 523(a)(4) excepts from discharge debts ‘for . . . larceny.’ The text adds no further criteria or qualifications. Like § 523(a)(2), a plain reading of the provision is that a debtor cannot discharge a debt that arises from larceny so long as the debtor is liable to the creditor for the larceny. It is the character of the debt rather than the character of the debtor that determines whether the debt is nondischargeable under § 523(a)(4).” Cowin v. Countrywide Home Loans, No. 15-20600 (July 18, 2017).

Objection is late to class.

Duggan, an non-named member of a class certified under Fed. R. Civ. P. 23(b)(1), made an untimely objection to the fairness of the class settlement. While he was not a named party, he sought to appeal under the doctrine recognized by Devlin v. Scardelletti, 536 U.S. 1 (2002), which allowed non-named class members “who have objected in a timely manner to approval of the settlement at the fairness hearing have the power to bring an appeal without first intervening.”  Unfortunately for Duggan, the Fifth Circuit found no reason to excuse his late objection, in particular rejecting the argument that his opponent was required to move to strike the objection in district court as a prerequisite to arguing waiver on appeal. Farber v. Crestwood Midstream Partners LP , No. 16-20742 (July 17, 2017).

Absence of proof.

Duncan, a Wal-Mart employee, slipped on a mat near an ice freezer in the store. She sued for her injuries and the Fifth Circuit affirmed summary judgment for the defense, noting several ways in which her proof of a dangerous condition was lacking: “In Duncan’s deposition—the only evidence she and Johnson submitted in support of their claim—she repeatedly explained that she did not know how water developed under the mat on which she slipped. Duncan couldn’t say whether water had ‘somehow leaked or spilled underneath the mat’ or whether ‘something on top of the mat . . . leaked through it.’ No one at Wal-Mart told her that they knew there was water in that area before she fell, and she didn’t know whether water had ever accumulated in that area before. Duncan also said that in the four years she worked at Wal-Mart, she had never heard of the Reddy Ice machine leaking, even though she knew other appliances, like the ‘Coke machine,’ leaked. ” Duncan v. Wal-Mart Louisiana LLC, No. 16-31223 (July 14, 2017).

For your next mock argument of Marbury v. Madison –

I recently participated in a mock reargument of Marbury v. Madison (right), albeit changed from the original to (1) actually have discussion about judicial review (2) actually have participation by my character, Attorney General Levi Lincoln, who in “real life” was ordered to stay silent by a highly irritated President Jefferson. In case you should ever need such a thing, here are my notes about the case against judicial review, which rely heavily upon an outstanding 1969 Duke Law Journal article by Professor William Van Alstyne.

Pass “Go,” but don’t collect immunity –

Litigation continues on the Texas tollroads, most recently producing a defamation lawsuit in BancPass v. Highway Toll Administration LLC, arising from letters sent by a company’s competitors to Google and Apple. The defendant unsuccessfully argued that the letters were immune from liability by the Texas privilege associated with court proceedings.

Before the Fifth Circuit, matters began well for the defendant – the Court concluded (1) that an immediate interlocutory appeal was allowed because the Texas privilege protects from suit, not just liability, and (2) while “[c]ertainly, the district court expressed its displeasure” at this issue arising late in the proceedings, it did not formally certify the appeal as frivolous (and thus avoided a line of cases that would otherwise have undermined defendant’s appeal right). But on the merits:

“Texas caselaw is clear that our analysis must focus on the connection between the communications and the specific legal action HTA now claims that it was contemplating, rather than legal action more broadly. The letters to Google and Apple in particular put forward bare accusations of unlawful conduct that was unrelated to HTA’s later tortious interference claim and that neither directly implicated HTA’s own legal rights nor constituted legal claims that HTA had any ability to pursue.”

No. 16-51073 (July 13, 2017).

How to get en banc rehearing –

The Fifth Circuit recently granted rehearing en banc in two civil cases – Ariana M. v. Humana Health Services, 853 F.3d 753 (5th Cir. 2017), which reviewed the decisions of an ERISA plan administrator, and In re: Doiron, 849 F.3d 602 (5th Cir. 2017), which addressed whether a contract was “maritime” in nature. The common thread? Both opinions made express appeals to the full court for review:

  • In Ariana, all three panel members who joined in the same opinion also joined in a special concurrence:  “As any sports fan dismayed that instant replay did not overturn a blown call learns, it is difficult to overcome a deferential standard of review. The deferential standard of review our court applies to ERISA decisions often determines the outcome of disputes that are far more important than a sporting event: decisions made by retirement and health plans during some of life’s most difficult times, as this case involving a teenager with a serious eating disorder demonstrates. So it is striking that we are the only circuit that would apply that deference to factual determinations made by an ERISA administrator when the plan does not vest them with that discretion.” (emphasis added)
  • And the conclusion of the unanimous Dorian panel opinion said: “It is time to abandon the Davis & Sons test for determining whether or not a contract is a maritime contract. The test relies more on tort principles than contract principles to decide a contract case. It is too flexible to allow parties or their attorneys to predict whether a court will decide if a contract is maritime or non-maritime or for judges to decide the cases consistently. The Supreme Court’s decision in Kirby reinforces this conclusion. Just as important, the above test will allow all parties to the contract to more accurately allocate risks and determine their insurance needs more reliably.” (emphasis added)

Patent venue in EDTex after TC Heartland –

While not within the usual subject matter of this blog, the general importance to Texas business litigation of the Eastern District’s June 30 decision in Raytheon Co. v. Cray, Inc. warrants attention. Raytheon sued Cray in the Marshall Division of the Eastern District for alleged infringement of at least two patents about supercomputer systems. After the Supreme Court’s recent opinion in TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514 (2017), Cray moved to transfer, arguing that it (1) did not reside in the district and (2) had not committed acts of infringement or had a regular and established place of business there. The Eastern District adopted a four-factor test and denied the motion, examining —

  1. physical presence “including but not limited to property, inventory, infrastructure, or people”;
  2. defendant’s representations “internatlly or externally, that is has a presence in the district”;
  3. benefits received from the defendant’s presence in the district, “including but not limited to sales revenue”; and
  4. “the extent to which a defendant interacts in a targeted way with existing or potential customers, consumers, users or entities within a district, including but not limited to through localized customer support, ongoing contractual relationships, or targeted marketing efforts.”

No. 2:15-CV-01554-JRG (June 29, 2017).

FDCPA summary judgment – for the plaintiff –

By summary judgment, Advanced Recovery Systems lost a case brought under section 8 of the Fair Debt Collection Practices Act, alleging that it failed to disclose on credit reports that the plaintiff disputed two allegedly unpaid debts. Procedurally, while the summary judgment did not follow the traditional Rule 56 schedule, the Fifth Circuit found no harm because ARS had admitted to the district court that there were no remaining issues of fact. Substantively, the Court rejected a challenge to Article III standing, finding that the plaintiff’s injury was sufficiently “tangible” — “[T]he violation of a procedural right granted by statute can be sufficient in some circumstances to constitute injury in fact .. . . Among those circumstances are cases where a statutory violation creates the ‘risk of real harm’ . . . Unlike an incorrect zip code, the ‘bare procedural violation’ in [Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1549 (2016)], an inaccurate credit rating creates a substantial risk of harm.” Sayles v. Advanced Recovery Systems, Inc., No. 16-60640 (July 6, 2017).

Here is a condition precedent.

A recurring issue in contract litigation is whether a provision creates a “condition precedent” to the performance of other obligations. In Red Hook Communications I, LP v. On-Site Manager, Inc., the Fifth Circuit identified this provision as one that “plainly creates a condition precedent that both [parties] must comply with before either can bring suit (and thus, denying subject matter jurisdiction if it is not complied with): “[T]he Indemnifying Party and the Indemnified Party will, for a period of sixty (60) days following delivery of such objection, use good faith efforts to resolve the Dispute.” No. 16-11351 (July 3, 2017, unpublished).

If the ghost of Lochner lurks about, it must pay toll.

In St. Joseph Abbey v. Castille, 712 F.3d 215 (5th Cir. 2013), the Fifth Circuit struck down a state-law restriction on the sale of funeral caskets by a monastery, finding that the state had no rational basis for that restriction. Cautious about encouraging similar challenges to economic regulation, the Court warned: “Nor is the ghost of Lochner lurking about. . . . We insist only that Louisiana’s regulation not be irrational—the outer-most limits of due process and equal protection . . . . ”

The recent case of Reyes v. North Texas Tollway Authority confiirms that if the ghost of Lochner chooses to lurk on Dallas-area tollways, it will have to pay its toll charges timely. It found that the NTTA’s system for charging late fees has a rational basis in both its legitimate need to recover collection costs and desire to encourage the use of TollTags, and concluded: “The Zip Cash system with its challenged fees is the type of novel policymaking for which the limited scrutiny of rational basis review is most justified. . . . The political process may continue to fine tune toll collection, but that is not the Due Process Clause’s role to play.”

In so doing, the Court clarified a sometimes-confusing principle about the legal standard: “[G]overnment action that applies broadly gets rational basis [review]; government action that is individualized to one of a few plaintiffs gets [‘]shocks the conscience[‘] review.” No. 16-10767 (June 27, 2017).

Sorry, Servisiar.

Servisair bought a workers’ compensation policy from Liberty Mutual, “There is no dispute that Servisair significantly over-allocated payroll to clerical employees, which is a considerably less expensive classification.” Thus, after the payroll period ended and an audit concluded, Liberty Mutual billed Servisair for $3.6 million in additional premium. Servisair alleged a mistake in the “underlying factual basis” relied upon “in negotiating and agreeing to the policy,” but the Fifth Circuit sided with Liberty Mutual, noting that the policy expressly stated: “If the final premium is more than the premium [Servisair] paid to [Liberty Mutual], [Servisair] must pay [Liberty Mutual the balance.” In other words, “[t]his is an open-ended obligation with no limit on the amount of additional premium Servisair might ultimately owe.” In sum: “Servisair made a deal that, in retrospect, it did not like. That does not allow it to rewrite or avoid its obligations.” Liberty Mutual Ins. Co. v. Servisair, LLC, No. 16-20472 (June 27, 2017, unpublished).

No res judicata, when claims arise during the first suit –

Welsh unsuccessfully sued her employer for allegedly retaliating against her for filing an EEOC charge in 2012. Welsh then sued her employer again in 2015, alleging discrimination based on incidents occurring between April and December of 2014. The district court granted summmary judgment for the defense on res judicata grounds, and the Fifth Circuit reversed. Reviewing Texas law about claim preclusion, pleading amendments, and compulsory counterclaims, the Court concluded: “[W]e reject [Defendant’s] argument that Welsh was required to amend her petition in Welsh I to include claims that were not mature at the time of filing Welsh I. We specifically reject the idea that every time something happens after a lawsuir is filed the plaintiff must immediately amend or risk losing that claim forever.” Welsh v. Fort Bend ISD, No. 16-20538 (June 22, 2017).

How to conspire, and when –

In the course of affirming a substantial judgment for misappropriation of trade secrets, the Fifth Circuit made an interesting observation in a footnote about liability for civil conspiracy under Texas law: “For instance, [Defendant] argues he is entitled to judgment on the conspiracy to misappropriate claim because such a claim is barred by Texas’ intra-corporate conspiracy doctrine, i.e., that a corporation and its employees cannot conspire with each other in carrying out a company’s business. He has presented no case applying it to the instant situation, where the conspiracy predated even the creation of the company at issue. Here, [Defendant] stole [Plaintiff’s] trade secrets months before the creation of SXP, and the creation and operation of SXP was the means by which the conspiracy was carried out.” Quantlab Technologies v. Kuharsky, No. 16-20242 (June 22, 2017, unpublished).


Exemplary Example

While otherwise affirming a judgment in the plaintiff’s favor, in Merrit Hawkins & Associates v. Gresham the Fifth Circuit vacated an award of exemplary damages under Texas law in a non-compete case. It distinguished the plaintiff’s authorities by saying: “Unlike in those cases, the only argument and evidence that [plainitff] MHA presented to the jury on the issue of exemplary damages was that [defendant] Consilium intentionally breached the non-compete contract. MHA claimed that ‘the circumstances of this case [were] quite egregious, that everything was intentional, [Consilium] knew [MHA] had these agreements . . . and they breached them anyway.’ However, this is the exact type of argument that the Texas Supreme Court explains is insufficient to show malice when an element of the underlying cause of action is willful harm. Even drawing all inferences in favor of MHA, the additional evidence MHA points to is insufficient to show that Consilium acted with specific intent to cause substantial harm to MHA. The proximity of the two businesses, without more, does not lead to the conclusion that Consilium acted with malice towards MHA. And the fact that Consilium’s founder was a partner at MHA was not raised for the purpose of showing that MHA engaged in a strategic plan of hiring away MHA employees to harm it, but rather to show that Consilium was aware that MHA’s employees had non-compete agreements. Moreover, MHA has never claimed that Consilium induced [the employee] to steal or use its proprietary information . . . .” No. 16-10439 (June 21, 2017).

Reminder about FRAP 28(j) submissions –

The Fifth Circuit website has recently posted an “Important Note Regarding FRAP 28(j) Filings,” which reminds: “Counsel sometimes file a FRAP 28(j) letter after oral argument, ostensibly to provide information requested by the court, but make supplemental argument in the filing. . . . [U]nless authorized or requested by the panel, it is improper to make supplemental argument in the letter.”