Should I stay or should I go?

  • The panel majority in Veasey v. Abbott concluded that a stay was warranted during the appeal of an injunction against certain “voter ID” laws, focusing on the likelihood-of-success element of the standard four-part test: “As the State explains, each of the 27 voters identified – whose testimony the plaintiffs used to support their discriminatory-effect claim – can vote without impediment under SB 5. The State has made a strong showing that htis reasonable-impediment procedure remedies plaintiffs’ alleged harm and thus forecloses plaintiffs’ injunctive relief.”
  • A dissent disagreed as to the elements of the four-part test, and the overrarching concept of “preserving the status quo”: “Neither side would be irreparably harmed by continuing to operate under the same election procedures they have been operating under for more than a year. If a stay is granted at all, then it should be comprehensive. In other words, the correct approach would be to stay both the district court’s order and the new legislation.” No. 17-40884 (Sept. 5, 2017).

Yes, you are an Inferior Officer.

2017 has not been kind to the administrative state, and neither was Burgess v. FDIC, No. 17-60579 (Sept. 7, 2017). An FDIC administrative law judge concluded that Burgess had misused bank property, the FDIC Board adopted those recommendations, and Burgess sought review in the Fifth Circuit. He sought an interim stay based upon his argument that the ALJ was an “inferior Officer” within the meaning of the Constitution’s Appointments Clause, and the Fifth Circuit agreed, citing the Supreme Court’s analysis of a similar position involving the U.S. Tax Court in Freytag v. Commissioner of Internal Revenue, 501 U.S. 868 (1991). In so doing, the Court parted ways with the D.C. Circuit’s analysis in Landry v. FDIC, 204 F.3d 1125 (2000), by concluding that final decision-making authority was not a prerequisite to Officer status. Accordingly, the Court granted the interim stay, finding that Burgess “has established a likelihood of success on the merits of his Appointments Clause challenge.”

If a holding is not a holding, what does it hold?

After last week’s opinion in In re: DuPuy Orthopaedics, the plaintiffs have sought en banc review of a panel majority’s statements about the trial court’s ruling on the key issue of waiver. The petition raises interesting and basic questions about the scope of opinions. (For more on that general topic, check out David Coale & Wendy Couture, Loud Rules, 34 Pepperdine L. Rev. 715 (2007)).

Pig iron, attached.

Addressing a novel but important question, the Fifth Circuit found in that a state law attachment remedy was available to faciliate an international arbitration about a shipment of pig iron, and that federal courts had removal jurisdiction over the proceedings under the Convention on the Recognition and Enforcement of Foreign Arbital AwardsStemcor USA v. CIA Siderurgica do Para Cosipar, No. 16-30984 (Sept. 1, 2017).

Yes, we have no mandamus.

The high-stakes mandamus petition in In re DuPuy Orthopaedics, Inc., No. 17-10812 (Aug. 31, 2017), sought relief from an upcoming set of “bellweather” trials in a massive MDL proceeding about allegedly defective hip implants.  After an hour-long oral argument – and despite Hurricane Harvey’s enormous impact on Houston, where all three panelists are based – the panel denied the petition a week after argument in an unusual “split decision.”

As to the underlying substantive issue – whether the trials could proceed despite strong arguments about personal jurisdiction – two of the three panelists (Judges Smith and Jones) found that a clear error had been committed. But as to mandamus relief, two of the three panelists (Judges Smith and Costa) concluded that the defendants had an adequate remedy by direct appeal.

The opinion has four implications for mandamus practice in the Fifth Circuit, generally.

First, Judge Costa now has a “track record” about mandamus petitions, and his observations in this case – consistent with his prior experience as a trial judge – suggest he has a restrictive view about its availability.

Second, if there was any doubt that mandamus is essentially limited to forum-selection disputes in the Fifth Circuit, the analysis of “adequate remedy” by the panel majority on that point should eliminate it. The unusual length and expense of the upcoming trial, coupled with its potential impact on settlement discussions for the entire MDL, was seen as the type of litigation expense and “hardship [that] may result from delay” that will not justify a mandamus petition.

Third, by detailing a panel majority’s view that the trial court had erred, the opinion continues a practice of offering something of an “advisory opinion” about the merits, despite declining to issue the writ. Indeed, footnote 4 of the opinion gives several examples of other opinions that have done so; two other recent examples include the opinions in In re: Crystal Power Co., 641 F.3d 82 (5th Cir. 2011) (“We confess puzzlement over why respondents insist on litigating this case in federal court even though . . . any judgment issued by the district court will su ely be reversed . . . . “) and In re: Trinity Industries, No. 14-41067 (Oct. 10, 2014) (“The court is compelled to note, however, that this is a close case.”)

Fourth, the opinion highlights the difference between federal and Texas state mandamus practice, despite the nominally similar tests used by the two court systems. A leading Texas Supreme Court case about the adequacy of appellate remedy observes: “Although this Court has tried to give more concrete direction for determining the availability of mandamus review, rigid rules are necessarily inconsistent with the flexibility that is the remedy’s principal virtue.” In re: Prudential Ins. Co., 148 S.W.3d 124 (Tex. 2004). The DuPuy panel majority has a different view of the point.

After the storm – preparing for Harvey litigation

Five Tips for Hurricane Harvey Litigation (a version of this article is in this week’s Texas Lawbook)

In the course of reviewing the Fifth Circuit’s commercial cases for this blog, I have read many opinons about disputes arising from Hurricane Katrina cases. In light of the havoc recently created by Hurricane Harvey, I wanted to share five observations  to prepare for the litigation that will inevitably result.

  1. Record the facts.

Any lawsuit creates tension between the past and the future. The parties want to move on, and put the expense and stress of litigation behind them. But the legal case forces them to revisit the past.

That tension is particularly acute after a disaster such as Harvey, which forced people and businesses to endure incredible stress, while making them then revisit that trauma to protect their legal rights in court. The – entirely understandable – desire to move on, must be squared with the need to take the time to preserve evidence.

Consider St. Bernard Parish v. Lafarge North America, a case about the destruction of a bridge during Hurricane Katrina. While the parties offered extensive expert testimony about what caused the damage, the summary judgment proceedings turned in no small part on the facts of what happened during the storm, including facts established by photographs.

A party facing litigation should consider – as awkward as it can be while recovering from a life-disrupting event – what facts seem obvious now but may fade from memory as time goes on. To the extent possible, some thought should be given to:

  • maintaining electronic records, even if the hardware appears damaged at first blush;
  • writing down a “log” of relevant conversations and events about important events;
  • storing any relevant physical objects, for potential future analysis by experts; and
  • simply writing down basic information about names, addresses, phone numbers, and the like.

In a case arising from a natural disaster, courts will likely be forgiving as to claims of spoliation. But lost information is lost, and its absence can later effect the resolution of a legal case.

  1. Help the people.

The fact evidence in the Lafarge case also included eyewitness testimony, which proved critical to defeating the defendant’s summary judgment motion. Just as a photograph can deteriorate, a person’s memory can fade. And the likelihood of that occurring can only increase when the person is placed under the severe stress of a natural disaster.

Any “team” confronted with a legal challenge by Harvey ­– a business, a professional organization, or even a family – should be mindful of the psychological effects of that stress, and encourage counseling for depression, substance abuse, and other such problems when their first signs appear. Of course, that is a good practice in any event. But its potential side benefit to a legal case is real and worth remembering.

  1. Remember three definitions.

The factual and legal issues that will ultimately go to trial in cases about Harvey simply cannot be predicted with any specificity. But in the short run, three basic legal concepts are likely to pervade business dealings related to the storm:

  • The Texas pattern jury instruction about “duress” defines it as “the mental, physical, or economic coercion of another, causing that party to act contrary to his free will and interest.”
  • While “force majeure” is ordinarily defined by a specific contract, it generally refers to an “extraordinary event or circumstance beyond the control of the parties,” and often does not excuse a party’s non-performance entirely, but only suspends it for the duration of the event.
  • Impossibility of performance” is defined by the Restatement (Second) of Contracts as occurring “[w]here, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.”

Awareness of these concepts can potentially avoid problems down the road, as well as identify topics and issues that require special attention today.

  1. “Two-deep leadership.”

The Boy Scouts of America strictly follows a policy of “two-deep leadership,” under which two adults should be present at all times when interacting with youth. One benefit of that policy is to avoid “he-said, she-said” disputes between two eyewitnesses with no third–party corroboration. In the stress of dealing with the aftermath of Harvey, involving a business colleague or a friend in important discussions may help the future resolution of a legal matter, if a dispute arises about what was said in those discussions.

  1. Crowdsource, wisely.

For good or ill, social media has come a long way since Hurricane Katrina. Used judiciously, it can be a good source of information about late-breaking news or the reputation of a particular business. And it can provide a valuable outlet for self-expression after the trauma of Harvey.

But social media posts can survive much longer than the thoughts that prompted them, and rash comments about people or events can come back to haunt the person who makes an ill-advised post. Social media is a valuable conduit for information, and at the same time, it is a reliable creator and collector of potential evidence.

Conclusion

Faced with the reality of recovery from one of the worst storms in the nation’s history, planning for future litigation may seem to be a distant worry. But the foundation for that litigation is being put in place today, intentionally or unintentionally. These five basic ideas may provide ways to place that foundation in a more orderly manner, resulting in a stronger end product.

 

 

Do I need an expert for that?

While arising in the specific context of a defective design claim under state law, Stewart v. Capital Safety USA addressed a broader question about when expert testimony is required to prove a point, as opposed to observations by knowledgeable lay witnesses. The Court held: “To find injury causation here, a jury would at least have to conclude that a different lifeline cable or a different warning would have, under the circumstances of this accident, prevented Stewart’s death. Thus, a jury would be confronted with questions that require a degree of familiarity with such subjects as physics, engineering, and oil rig practices and procedures. This case therefore raises questions that are of ‘sufficient complexity to be beyond the expertise of the average judge and juror’ and that ‘common sense’ does not ‘make[] obvious.'” No. 16-30993-CV (May 30, 2017; published Aug. 21, 2017).

Interest rates and multiple appeals

An insurance dispute went to final judgment in 2012, was appealed to the Fifth Circuit and ultimately remanded “for further consideration in the light of hte answer given by the Texas Supreme Court in [In re: Deepwater Horizon, 470 S.W.3d 452 (Tex. 2015)]. On remand, after considering the effect of Deepwater Horizon, the district court reinstated its 2012 judgment. In the second appeal, the parties disputed whether “the post-judgment interest rate, which is significantly lower than the applicable pre-judgment interest rate, should apply from the date of the 2012 judgment because that judgment was not materially changed on remand.” The Fifth Circuit agreed that it should run from the 2012 judgment, noting that the district court did not reopen the record, and the judgment did not materially change. ExxonMobil v. Electrical Reliability Servcs., No. 15-20751 (Aug. 22, 2017).

“Cross suits” exclusion does not apply between general and sub

Sterling Homes, the general contractor on a residential construction project, successfully sued Espinoza, a painting subcontractor, for a fire loss over $1 million. Espinoza’s insurer denied coverage because Sterling Homes was an “additional insured” on Espinoza’s policy, which the insurer said brought the Sterling-Espinoza dispute within the policy’s “cross suits” (or “insured v. insured”) exclusion.. The Fifth Circuit concluded that the plain terms of the exclusion would cover parties that were named as “additional insureds,” in addition to the actualy purchasers of a policy. But as to the specific claims at issue, the Court further held that the exclusion was only intended to apply to Sterling Homes’s liability arising rom Espinoza’s operations, as “nothing in the plain language of the subcontracting agreement obligating Espinoza to name Sterling Homes as an additional insured suggests the parties intended for Espinoza to lose insurance overage in the event Sterling Homes needed to sue him.” Certain Underwriters at Lloyd’s v. Sterling Custom Homes

FRCP Arithmetic: 8 ≠ 12

Body by Cook, Inc. v. State Farm gives a useful reminder about the basic rules for a federal pleading: “[A] complaint may simultaneously satisfy Rule 8’s technical requirements but fail to state a claim under Rule 12(b)(6). Mere compliance with Rule 8 does not itself immunize the complaint against a motion to dismiss. Rule 8(a)(2) specifies the conditions of the formal adequacy of a pleading,” but “it does not specify the conditions of its substantive adequacy, that is, its legal merit.” No. 16-31034-CV (Aug. 24, 2017) (citations omitted).

The law of yelling at process servers

The process server’s affidavit in Norris v. Causey said that (1) the defendant’s wife “yelled through the door that she would not accept service, and (2) he then posted the summons and complaint on the defendant’s door. The affidavit did not say, however, that these events occurred on the same day, which led to a remand for additional fact-finding by the district court: “It turns out that whether the yelling and posting happened the same day matters a great deal. Leaving a summons and complaint at a residence door, unaccompanied by a refusal to accept service, is not effective service under Rule 4. . . .   This means that if Garry’s wife was not present, let alone refusing service, on the day the process server posted the documents on the door, Garry’s service was likely defective. On the other hand, a defendant’s refusal to accept service is not rewarded when the process server announces the nature of the documents and leaves them in close proximity to the defiant defendant.” No. 16-30339 (Aug. 22, 2017).

Yahoo! The contract incorporates the invoices!

Yahoo cancelled its contract with SCA related to a billion-dollar “perfect bracket contest” for 2014’s March Madness. The parties disputed the appropriate termination payment, defined in the contract as “50% of the fee” – Yahoo contending the “fee” was 50% of the $1.1 million deposit that it already paid SCA; SCA contending that the “fee” was the rull $11 million contract fee, credited for the deposit. The Fifth Circuit reversed and rendered judgment for SCA, noting that the contract “clear[ly] incorporated by reference two invoices that specified the $11 million figure,” and identifying several other contract provisions consistent with SCA’s reading. The issue of what documents comprise a contract, and the related legal issue of when a court may consider “parol” evidence, continues to be a frequent – if not the most frequent – point of disagreement between the Fifth Circuit and trial courts. SCA Promotions v. Yahoo!, No. 15-11254 (Aug. 21, 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).

 

 

Is asbestos an “irritant”?

The issue in Longhorn Gasket & Supply Co. v. U.S. Fire Ins. Co. was whether asbestos was within the scope of a pollution exclusion that applied to  “irritants, contaminants or pollutants.” Acknowledging a dearth of Texas case law on the subject, and lack of a clear trend in opinions nationally, the Fifth Circuit concluded that asbestos was an “irritant” under the commonly-accepted meaning of that term, and the underlying claims thus fell within the scope of the exclusion. The Court then held that because “[w]e have concluded that the pollution exclusion applies . . . the burden shifts to [the insured] to attempt to apply an exception to the exclusion”; in this case whether “such discharge, dispersal, release or escape is sudden and accidental.” No. 15-41625 (Aug. 18, 2017).

State anti-SLAPP laws; the elephant remains in the Erie room

In a return trip to the Fifth Circuit, the defamation case of Block v. Tanenhaus again sidestepped the question of whether state anti-SLAPP laws apply in federal courrt, allowing that elephant to remain in the Erie room for awhile longer. Here, assuming that the Lousiana state law applied, the panel reversed and remanded the dismissal of a professor’s claim that the New York Times misquoted him. Jess Krochtengel summarizes the underlying Erie question and its implications in a recent Law360 article. No. 16-30966 (Aug. 15, 2017).

Dismissal not an appropriate sanction

The trial court in Oprex Surgery v. Sonic Automotive Employee Welfare Benefit Plan dismissed Oprex’s complaint for failure to comply with a discovery order; the Fifth Circuit reversed, finding, inter alia:

  • A record of “delay or contumacious conduct” was not established when “Sonic raised no complaint, in a motion to compel or otherwise, regarding the adequacy of Oprex’s responses unitl one hour before the conference” at which dismissal occurred;
  • The time and expense of participating in conferences is not “prejudice to ‘the opposing party’s preparation for trial”; and
  • “. . . given the important due process concerns implicated by a dismissal with prejudice, the court should at leat consider the efficacy of lesser sanctions first”

No. 16-20734 (Aug. 10, 2017, unpublished).

 

The old document and the sea.

The common law of contracts was forever shaped by the good ships Peerless (one of which appears to the right), which both sailed into Liverpool in late 1863 bearing loads of cotton from Bombay. A modern counterpoint appears in GIC Services v. Freightplus USA , in which the parties were both talking about a tugboat called REBEL (left), but disagreed over what Nigerian city it was supposed to arrive in after a trans-Atlantic journey from Houston. The core problem with the “meeting of the minds,” however, was not among the parties, but among their counsel and the trial court, as the calculation of damages for the prevailing party rested almost entirely on one invoice. The Fifth Circuit panel split 2-1 over whether an effective stipulation had been reached about the authenticity of the invoice, providing a cautionary note to all trial lawyers about the effect and scope of agreements reached “on the fly” in open court. No. 15-30975 (August 8, 2017).

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.