A suit too far . . .

Stickerline-elsa-let-it-goUnsuccessfully, Plaintiff sued about the foreclosure on his home in state court in 2008, and again in federal court in 2012. The Fifth Circuit said he was “WARNED that further frivolous litigation will result in substantial sanctions under Rule 38 or this court’s inherent sanctioning power and will include monetary sanctions and restrictions on access to federal court.” Then, he filed a 60(b) motion, which he also lost, and which he also appealed. The Court dismissed his appeal as frivolous, sanctioned him $500, and barred him from future litigation about the foreclosure without leave of court. Fantroy v. First Financial Bank, No. 15-10975 (May 13, 2016, unpublished). (Some time ago, I TexasBarToday_TopTen_Badge_Smallwrote an article called “Loud Rules” with Wendy Couture about the nuances of this kind of judicial warning.)

“What happened?”

keep_calm_memeThe district court granted the plaintiff’s motion for conditional class certification under the Fair Labor Standards Act. The defendant sought mandamus review, and the Fifth Circuit held the petition in abatement for more information: ” Although there is generally no ‘inflexible rule requiring district courts to file a written order explaining their decisions,” in this case the district court’s ‘lack of explanation makes it impossible for us to determine’ whether mandamus relief would be appropriate here.” In re Schlumberger Tech. Corp., No. 16-20267 (May 13, 2016, unpublished).

Veil Not Pierced

In Carpenter Properties Inc. v. JP Morgan Chase Bank, the Fifth Circuit found that a contract had been modified notwithstanding a signature on a formal counteroffer, but then found no liability under a “corporate veil” theory as to Chase: “[M]ere frustration with Chase for its failure to pay a commission once Chase’s identity was known is insufficient to amount to frustration of contractual expectations regarding the party to whom Carpenter looked for performance . . . .” No. 15-60309 (May 4, 2016, unpublished).

A removal that ran the red light

red light cameraThe plaintiff in Watson v. City of Allen sued, in Texas state court, several Texas cities about the operation of their “red light camera” programs.No. 15-10732 (May 5, 2016). The cities removed based on his RICO claim and CAFA. Plaintiff then dropped the RICO claim and sought remand based on CAFA’s “local controversy” and “home state” exceptions. The district court kept the case, finding it untimely as to CAFA, finding supplemental jurisdiction over the remaining state-law claims, and dismissing many claims for lack of standing. The Fifth Circuit reversed, concluding:

  1. The 30-day deadline in 28 U.S.C. § 1447(c) does not apply to CAFA mandatory abstention provisions, since it “does not deprive federal courts of subject matter jurisdiction, but rather, acts as a limitation upon the exercise of jurisdiction granted by CAFA.”
  2. The CAFA motion was filed within a reasonable time of removal, when “[a]ll indications are that [Plaintiff] acted diligently to gather evidence,” and because “fifty-two days is simply not a very long time.”
  3. TexasBarToday_TopTen_Badge_SmallThe “home state” exception applied because “[t]his suit’s primary thrust is an attempt to declare unconstitutional red light camera scheme,” meaning that the State of Texas and its municipalities were the “primary defendants,” and not the companies hired to carry out the program.
  4. The district court should have declined to exercise supplemental jurisdiction, since “Texas courts have a strong interest” in the remaining issues and the plaintiff’s “motion to amend . . . to delete the federal claims is not a particularly egregious form of forum manipulation, if it is manipulation at all.”

Sanction affirmed.


The case of In re Mole involved continuing fallout from proceedings involving impeached judge Thomas Porteous. Mole was accused of hiring an attorney who “had no useful experience in the type of litigation” at hand in an attempt to have Judge Porteous recuse himself. In disciplinary proceedings before the Eastern District of Louisiana, the first judge to hear the matter declined to sanction Mole, but the full court – reviewing the same record – suspended him for a year. The Fifth Circuit found that the en banc Eastern District could rule differently from the initial judge without giving it deference, and that sufficient evidence supported the sanction — in particular, “the $100,000 severance fee in the retention letter incentivizes the prospect of a recusal.” No. 15-30647 (May 4, 2016).

Fees to defendant under the Lanham Act —

ezgif.com-resize-349Baker sued DeShong under the Lanham Act about use of the phrase “HIV Innocence Group,” in connection with advocacy programs for individuals accused of infecting others with HIV. DeShong won and sought an award of attorneys fees. The Fifth Circuit concluded that after Octane Fitness v. Icon Health & Fitness, 134 S. Ct. 1749 (2014) (a patent case, but analogous to the similar Lanham Act provision), an award of fees to a defendant was not limited to bad faith and did not require a “clear and convincing” showing. To qualify as an “exceptional” case that justifies a fee award, the court should consider a “nonexclusive’ list of ‘factors,’ including ‘frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.” Baker v. DeShong, No. 14-11157 (May 3, 2016).

A guarantor “waives” goodbye –

awkward_wave_star_trekDickson guaranteed a large debt owed by Community Home Financial Services. Community went into bankruptcy, disputing the extent and validity of its obligations to its lenders. Unfortunately for Dickson, his guaranty not only waived all defenses to enforcement, and stated that it created an obligation independent of Community’s, but also said it was not changed “by the partial or complete unenforceability or invalidity” of the guaranteed obligation. He also disputed the amount owing, but the Fifth Circuit agreed that the affidavit evidence he submitted “contained only another set of allegations” and did not preclude summary judgment against him. Edwards Family Partnership LP v. Dickson, No. 15-60683 (April 29, 2016).

Tax lien transfer isn’t an extension of credit.

ej4-truth_in_lending_act_finBillings v. Propel Financial Services, LLC involved plaintiffs, making claims under the Truth in Lending Act, arising from property tax loans they obtained in exchange for the transfer of their tax liens pursuant to the Texas Tax Code. Applying prior precedent in a an analogous bankruptcy context, the Fifth Circuit held: “[I]t is clear that the payments made by defendants to the relevant taxing authorities and the subsequent transfer of the tax liens and execution of the promissory notes did not extinguish the original tax obligations, but rather, simply transferred the preexisting tax obligations to new entities. Thus, the transfers and promissory notes did not create new debts that would be subject to TILA, but rather transferred existing tax obligations, which are not ‘debts’ subject to TILA.” No. 14-51326-CV (April 29, 2016).

How to Satisfy Twombly/Iqbal in a Products Liability Case

One-Does-Not-SimplyIn a significant contribution to the Fifth Circuit’s case law applying Twombly and Iqbal, the Court reversed the Rule 12 dismissal of a products liability case in Flagg v. Stryker Corp., recognizing that “in products liability lawsuits, almost all of the evidence is in the possession of the defendant.” The defendants, manufacturers of toe implants, contended that Flagg’s allegations “lack . . .details about how the implants may have deviated from specifications and performance standards” and did not “sufficiently allege an existing and non-burdensome alternative design.” The Court found sufficient detail, for the pleading stage, in Flagg’s allegations that “the shape and sizing of the implants led to the implants’ fracturing and caused them to be difficult to remove once broken,” as well as his allegation that a different alloy would have performed better. It concluded: “Perhaps after discovery Flagg will not prevail, but at a pre-discovery stage of this case, in an area of law where defendants are likely to exclusively possess the information relevant to making more detailed factual allegations, we cannot say that he is merely on a fishing expedition.” No. 14-31169 (April 26, 2016, unpublished).

Sparring Partner

Front Runner SparAt issue in Hefren v. McDermott, Inc. was whether the Front Runner Spar (right) – a type of offshore drilling platform with a remarkable resemblance to a Jawan Sandcrawler – was “immovable” within the meaning of Louisiana law. A dispositive issue of limitations turned on that classification. Noting that the Spar could be moved with sufficient planning and preparation, the Fifth Circuit agreed with the district court that: “Like a ‘building’ under Louisiana law, there is ‘some permanence’ to the Front Runner Spar as it has not moved from its present location, is intended to remain there for its twenty year life, and has a permanent mooring system.” No. 15-30980 (April 25, 2016, unpublished).

Win some, lose some.

whiskeybottleThe Texas Package Sales Association, a trade association of alcohol sellers, moved for relief under Fed. R. Civ. P. 60(b) from a longstanding injunction against the enforcement of a residency requirement for sales permits. The Fifth Circuit concluded:

  1. While not a plaintiff in the original litigation, TPSA had intervened in it, and could challenge the permanent injunction; and
  2. TPSA had standing as an organization to sue about the requirement; but
  3. Subsequent Supreme Court opinions about the Commerce Clause did not create an intervening change in the law that would justify Rule 60(b) relief original litigation; and
  4. TPSA had not adequately placed at issue the alternative ground for the injunction, based on the Privileges and Immunities Clause.

A dissent would not have found that TPSA had standing to sue, characterizing its suit as an effort “to substitute itself . . for the state authorities” with jurisdiction over the applicable law. Cooper v. TABC, No. 14-51343 (April 21, 2016).

Magistrate judges, remand rulings, and appellate review

articleiiiA magistrate judge ordered remand to state court in Davidson v. Georgia-Pacific. The Fifth Circuit concluded that because “a remand order is dispositive insofar as proceedings in the federal court are concerned,” it is “the functional equivalent of an order of dismissal.” Therefore, a magistrate judge could not make a final ruling on a motion to remand. In so holding, the Court “join[s] the uniform view of the courts of appeals that have considered this question[.]” No. 14-30925 (April 19, 2016).

What is an arbitration worth?

stanford bankAppellants, investors who lost money in their dealings with Allen Stanford, began a FINRA arbitration against Pershing LLC, a clearing broker. The panel rejected appellants’ $80 million claim, awarding only $10,000 in arbitration-related expenses. Pershing sought confirmation in federal court and encountered a split in authority about the amount-in-controversy requirement — the “demand” approach, which would allow jurisdiction, and the “award” approach, which would not. The Fifth Circuit sided with the “demand” approach, finding that it “recognizes the true scope of the controversy between the parties,” and was consistent with the corresponding test for claims filed in district court. A lengthy concurrence suggested that a “general approach” was not needed, given the different fact patterns that can give rise to this kind of dispute about the amount in controversy. Pershing LLC v. Kiebach, No. 15-30396 (April 6, 2016).

Prompt notice, please.

PlazaHotel-e1358970876918In July 2009, hail damaged the then-dormant Dallas Plaza Hotel (right), owned by Hamilton Properties. Hamilton inspected the property in November 2010, emailed an insurance agent in February 2011, and filed a claim in October 2011.  The Fifth Circuit agreed that Hamilton had failed to give reasonably prompt notice, noting that it had no explanation for the long delay, and that while the insurer had been able to investigate the claim: “It is undisputed that because of Hamilton’s delay, AIC lost access to critical evidence, including the condition of the twelfth floor before and after the July hailstorm and up until the end of the coverage period.” Hamilton Properties, Inc v. American Ins. Co., No. 15-10382 (April 14, 2016, unpublished).

No harm, no foul – no standing.

no-harm-no-foulThe plaintiffs in Wendt v. 24 Hour Fitness USA, Inc. complained about several violations of the Texas Health Spa Act in the form membership contract of 24 Hour Fitness. Noting the specific remedies provided by that Act, the Fifth Circuit held: “We agree with the district court that Plaintiffs suffered no injury-in-fact. 24 Hour’s alleged violations of the Act did not harm Plaintiffs in any way. To the contrary, 24 Hour gave Plaintiffs exactly what they paid for: access to a gym. Plaintiffs therefore lack Article III standing, and the district court
properly dismissed the case.” No. 15-10309 (April 13, 2016).

Yes, this is a messy construction case.

Rooftop_Packaged_UnitsThe parties in DFW Airport Board v. Inet Aiport Systems sued each other about problems in the installation of rooftop air conditioning units.  Key issues were “who breached first” and whether the parties had a meeting of the minds about a solution; the evidence consisted of a fast-moving, complicated exchange of emails and letters. The Fifth Circuit reversed a summary judgment, noting: “In these circumstances the Contract required both parties to participate in resolving defects. Any contractual modification or change order required the mutual assent of the parties, and questions of mutual assent are fact based. Sifting through the evidence to determine whether the parties reached agreement on a contractual modification is a task ill-suited for summary judgment on this record.”  Nos. 15-10390, 15-10600 (April 12, 2016).

“I’ll wait here while Jim objects to all relevant rulings.”

marlin_perkinsMutual of Omaha obtained a summary judgment against Prospect, who complained under Fed. R. Civ. P. 56(d) that it needed “additional electronic discovery related to allegedly backdated documents produced by Mutual.”  The Fifth Circuit declined to enter that wild kingdom, observing: “[T]he magistrate judge denied Prospect’s motion to compel that electronic discovery, and Prospect did not object to the denial. That means that the electronic discovery was not ‘susceptible of collection within a reasonable time frame’ —Prospect was never
going to get it—so it cannot support Prospect’s Rule 56(d) motion.”  Prospect Capital v. Mutual of Omaha, No. 15-20345 (April 13, 2016).

ERISA fact question?

ERISA-simplifiedIn Burell v. Prudential Ins. Co., the Fifth Circuit addressed one of the many ERISA summary judgment cases in which it reviews a plan administrator’s work for abuse of discretion – or, in the somewhat cryptic language of ERISA: “our de novo review of [the] summary judgment ruling will also apply the abuse of discretion standard.”  The panel affirmed over a dissent, which is not typical in such cases.  It noted disagreement among the doctors who reviewed the claim, as well as allegations that the administrator did not follow its own review procedures, and would have found a fact issue for trial based on those matters.  No. 15-50035 (April 11, 2016).


No, you didn’t opt out.

opt out graphicThe issue in Seacor Holdings v. Mason was whether a party had “informally” opted out of a class action related to the Deepwater Horizon disaster.  Acknowledging that a party can opt out of a class without strictly complying with specified procedures, especially if the party is unsophisticated and unrepresented by legal counsel, the Fifth Circuit found no abuse of discretion in not finding an opt-out here.  “The gargantuan size and extraordinary complexity of this litigation therefore supports the district court’s decision. . . .  . When the district court approved the Agreement, it noted the class had potentially 200,000 members and that over 1,700 individuals sent opt-out requests to the claims administrator. Given the size and complexity of this MDL proceeding, the court and parties should not have to intuit an opt out from vague statements made in one of thousands of filings before the court. To hold otherwise would allow class members to make ambiguous statements and motions while waiting to see if the outcome of the class action is favorable.”  No. 15-30597 (April 6, 2016).

Scope of the notice of appeal

appeal-pen-300x200“Here, the appellants’ notice of appeal specifically designated only the district court’s September 17, 2015, order granting summary judgment for appeal, and it reveals no implied challenge to the magistrate judge’s May 2015 ruling on their motion to reset deadlines or the district court’s August 2015 ruling on their motion for an extension of time. These unmentioned orders therefore fall outside the scope of the appellants’ notice of appeal, and we lack jurisdiction to review them.”  Underwood v. General Motors, No. 15-30831 (April 5, 2016, unpublished).

Mississippi Searching

google logoThe attorney general of Mississippi served Google with a broad administrative subpoena about Google’s efforts to reduce copyright infringement, drug trafficking, and other undesirable uses of its search technology. Google responded with a federal lawsuit seeking an injunction against the subpoena and further proceedings about it. The Fifth Circuit found federal jurisdiction, as “Google’s claims seeking to enjoin a state officer’s alleged violations of federal law invoke federal-question jurisdiction,” and found no reason to abstain under Younger v. Harris. But the Court went on to find that the action was not yet ripe: “there is no current consequence for resisting the subpoena and the same challenges raised in the federal suit could be litigated in state court.”  Google, Inc. v. Hood, No. 15-60205 (April 8, 2016).  Accordingly, it vacated the injunction granted by the trial court, and remanded with instructions to dismiss.

Overserved causes of action

400_SPILL ICE CREAM CONEAppellant “Why Not LLC” (unfortunately, not the appellee, despite the perfect name for that side of an appeal) complained of a frozen yogurt franchise termination by Yumilicious. The district court granted summary judgment on Why Not’s many causes of action, and the Fifth Circuit affirmed, principally on grounds relating to Yumilicious’s lack of intent and the terms of the franchise agreement. In the course of doing so, the opinion offers a primer on commonly-litigated issues about basic business torts in Texas. The Court observed that Why Not’s pleading had presented “a large serving of claims and counterclaims piled precariously together,” and concluded: “This saccharine swirl of counterclaims suggests that litigants, like fro-yo fans, should seek quality over quantity.” Yumilicious v. Barrie, No. 15-10508 (April 6, 2016). (The opinion is silent as to whether Why Not has any relation to the left fielder on Bud Abbott’s famous baseball team.)

Standing, for one who cannot stand.

help standA clear disability — a child rendered incompetent by a debilitating medical condition — gave rise to complicated standing and capacity issues in Rideau v. Keller ISD, No. 15-10095 (April 5, 2016).  The child, the beneficiary of a trust established in his behalf as a result of the incident that caused his condition, sought damages from his school district for mistreatment by his special education teacher.  The Fifth Circuit found that the child had standing to seek recovery for his home care expenses, notwithstanding “[t]he existence of a third-party payor in the form of a trust created by a prior tortfeasor.”  The Court then agreed with the defendant that Texas law gave the bank who administered the child’s trust the exclusive right to file suit for other damages, and not his parents.  It concluded, however, that this problem had been cured by the bank’s ratification of the parents’ action under the rarely-applied but very practical Fed. R. Civ. P. 17(a)(3).  (I congratulate my LPCH colleague John Guild on his work for the plaintiffs in this case.)

Investigation in business dispute does not violate FCRA

jake gittesThe plaintiffs in Hall v. Phenix Investigations were also defendants in contentious state court fraudulent transfer litigation.  They alleged that a private investigation firm violated the FCRA in its work in that litigation.  The Fifth Circuit affirmed the dismissal of the case on the pleadings, finding that “the report was commissioned for use in ongoing commercial litigation, which is not a qualifying purpose of the FCRA even it may potentially be used for such a purpose someday.  And, “[e]ven assuming that filing a lawsuit to collect on a judgment could constitute the collection of a consumer account within the meaning of the FCRA, there is no collection of a consumer account here because the judgment arose from a commercial transaction.”  No. 15-10533 (March 29, 2016, unpublished).

Singapore Sting.

In the second case in a week about the seizure of maritime fuel supplies, the Fifth Circuit addressed a recurring issue in international business transactions — the incorporation of a bulk julianageneral set of standards by reference in a less-detailed, but party-specific contract. Applying Singapore law to the substantial fuel bunkers of the M/V BULK JULIANA (right), the Court concluded: “Although [the expert’s] testimony did not address the bunker delivery notes, he affirmed the incorporation of the General Terms by reference to the bunker confirmation email, which provided all the relevant terms and conditions of the contract. We recognize that neither Bulk Juliana nor the vessel was a party to the bunker confirmation email, and therefore did not have singapore flagaccess to and/or awareness of the specific document at all material times. [The expert], however, testified about the ready availability of the contractual terms via the internet, as well as the prevalence of the practices employed here with respect to sales of necessaries in the shipping industry. Importantly, [he] pointed out that [Plaintiff’s] incorporation of the General Terms was ‘commonplace in the bunkering industry worldwide, and ought to be in the contemplation of ship operators and ship-owners such as [Bulk Juliana].'”  World Fuel Services v. Bulk Juliana, Ltd., No. 15-30239 (April 1, 2016).

Golf Channel gets out of the rough

golf roughAfter a bad start in the Fifth Circuit, the Golf Channel ultimately prevailed in the Texas Supreme Court in a fraudulent transfer case against the Allen Stanford receiver.  The Channel ran advertisements for Stanford’s golf business in exchange for payments of roughly $6 million.  The issue was whether the “value” of those ads, for purposes of the Channel’s defenses under TUFTA, “became valueless based on the true nature of the debtor’s business as a Ponzi scheme or the debtor’s subjective reasons for procuring otherwise lawful services.”  The Texas Supreme Court ruled for the Channel, finding that “TUFTA does not contain separate standards for assessing ‘value’ and ‘reasonably equivalent’ value based on whether the debtor was operating a Ponzi scheme. . . .  “[V]alue must be determined objectively at the time of the transfer and in relation to the individual exchange at hand rather than viewed in the context of the debtor’s entire enterprise, . . . the debtor’s perspective, or . . . a retrospective evaluation of the impact it had on the debtor’s estate.”  Janvey v. Golf Channel, No. 15-0489 (Tex. Apr. 1, 2016).

No fueling, there’s personal jurisdiction.

mine yours memeMalin Ship Repair sought to attach boat fuel (“bunkers” in admiralty parlance) of defendant OSA, and thus gain personal jurisdiction over OSA in a Texas federal court.  As of the attachment date, OSA had taken delivery of the boat and the fuel on it, but had not paid for the fuel or been invoiced for it.  Under the UCC, title would have passed under delivery.  Under the common law, the answer turns on the parties’ intent, and the Court concluded that “the parties contemplated a credit transaction.”  Thus, title had passed to OSA and the attachment was sufficient to confer personal jurisdiction under the applicable admiralty rule.  Malin Int’l Ship Repair & Drydock v. Oceanografia, S.A. de C.V., No. 15-40463 (March 23, 2016).

Improper joinder clarified, maybe.

joinderAlleging that a toe joint implant did not work properly, Flagg sued “Manufacturing Defendants” (who built the implant) and “Medical Defendants” (who surgically installed it in Flagg’s foot.)  The Manufacturing Defendants were diverse from Flagg,  a Louisiana citizen, while the Medical Defendants were not.

Affirming the district court while reversing the panel, an 11-4 en banc opinion holds “the plaintiff had improperly joined the non-diverse defendants because [he] has not exhausted his claims against those parties as required by statute.”  That Louisiana statute requires review by a “medical review panel” before suit is filed against a health care provider; the Fifth Circuit concluded that pursuant to it, “there is no doubt that the state court would have been required to dismiss the Medical Defendants from the case,” as no such review had occurred at the time of removal.  A vigorous dissent raised questions about the Court’s standard for analyzing claims of improper joinder, as well as whether this kind of state statute (“a non-adjudicative, non-comprehensive, waivable process since concluded in this case”) was a proper foundation for an improper joinder claim.  Flagg v. Stryker Corp., No. 14-31169 (March 24, 2016) (en banc).


slapp-graphicIn another case that defly manuevers around the thorny Erie issues presented by state anti-SLAPP laws, the Fifth Circuit reminded that Louisiana’s law imposes a burden that “is the same as that of a non-movant opposing summary judgment under Rule 56.” (applying Lozovyy v. Kurtz, No. 15-30086 (5th Cir. Dec. 29, 2015)).  The Court assumed the law would apply, but noted: “We do not conclusively resolve today whether Article 971 applies in diversity cases.”  Block v. Tanenhaus, No. 15-30459 (March 7, 2016).

It’s hard to be a receiver.

stanford bankPeter Romero, among the multitudes sued for fraudulent transfers by the receiver for Stanford International Bank, argued that limitations had run because the receiver had not sued within a year of when the transfer “was or could reasonably have been discovered by the claimaint.”  The receiver offered detailed proof about the overall timetable of his work, its substantive scope, its geographic scope, and the condition of the relevant documents and electronic records.  An accountant corroborated his account.  This was sufficient information to sustain the jury’s finding in favor of the receiver (on a question using a specific date, unlike the standard Texas PJC submission).  Janvey v. Romero, No. 15-10435 (March 16, 2016).

Insurance coverage, and the power of what is not said.

one hand clappingLalo sued for injuries he suffered while riding in an 18-wheeler driven by Estrada.  Castle Point Insurance sought a declaration about its coverage obligations.  The Fifth Circuit, applying Texas’s “eight corners rule,” found that the district court erred in applying a “work-related injuries” exclusion to Lalo because his “state-court complaint contains no allegation that Lalo was an employee of [the trucking company]; nor does it contain sufficient factual allegations to classify Lalo as an employee.”  As to Estrada — again, not specifically alleged to be an employee — the insurer had a duty to defend (and potentially, to indemnify) because the evidence might establish him to be an employee.  (This is Lalo’s Petition — notably, while he never directly claims to be an employee, he does allege the defendants’ “[f]ailure to furnish Plaintiff with a safe place to work” and their hiring of “[n]egligent co-workers like Defendant ESTRADA — vividly illustrating the importance of the specific words used in pleading allegations that bear on insurance coverage.)  Castle Point Nat’l Ins. Co. v. Lalo, No. 15-10224 (March 17, 2016, unpublished).

“Hey, do we have jurisdiction over this case?”

North-CarolinaIn the district court, Bank of America won and Fulcrum lost.  Fulcrum appealed.  The Fifth Circuit noticed that the pleadings identified Fulcrum as “a limited liability company organized and existing under the laws of the State of Nevada.”  As that allegation does not in fact establish Fulcrum’s citizenship, the Court asked for amendment pursuant to 28 U.S.C. § 1653 (“Defective allegations of jurisdiction may be amended, upon terms, in the trial or appellate courts.”)  In response, Fulcrum alleged that is members were from Georgia, Nevada, New York, and North Carolina.  Because Bank of America is also a citizen of North Carolina, and because “we find no evidence in the record, and Fulcrum has cited none, supporting Fulcrum’s recent assertions that it is a citizen of North Carolina,” the court remanded for the purpose of discovery and findings on the citizenship question.  Bank of America v. Fulcrum Enterprises LLC, No. 14-20532 (March 18, 2016, unpublished).

Neither a borrower nor a 50% heir be.

mine yours memeGarza moved into her mother’s house after her mother died intestate in 2013.  In August 2013, Garza filed an application to determine heirship as to the house.  In October, Wells Fargo foreclosed, having refused to speak to Garza about the note since she was not the borrower.  In December, Garza was awarded a 50% share of the property.  In January 2014, Wells Fargo began eviction proceedings.  The Fifth Circuit agreed that Wells Fargo had not violated section 51.002(d) of the Texas Property Code (passing on the question whether it provides a private right of action), as the statute only requires notice to “a debtor in default.” Garza v. Wells Fargo Bank, No. 15-10426 (Jan. 28, 2016, unpublished).

To be an agent, or not to be an agent, that is the fact question —

agent smithThe issue in Gross v. GGNSC Southaven, LLC was whether two nursing home residents had granted powers of attorney that authorized a third party to agree to arbitration on their behalf.  The Fifth Circuit concluded that (a) Mississippi law allows proof of an express OR implied agency relationship, even in this context, and (b) testimony of the alleged agent is relevant to whether an implied agency relationship exists.  Accordingly, it reversed the denial of the defendants’ motions to compel arbitration for further proceedings.  No. 15-60124 & 60248 (March 14, 2016).

Attorneys are immune. Really immune.

truemmunity-8A class sought damages from attorneys involved in Allen Stanford’s business affairs.  The Fifth Circuit, reversing the district court, found the claims barred by attorney immunity under Cantey Hanger LLP v. Byrd, 467 S.W.3d 484 (Tex. 2015): “Plaintiffs alleged that, in representing Stanford Financial in the SEC’s investigation, [Attorney] Sjoblom: sent a letter arguing, using legal authorities, that the SEC did not have jurisdiction; communicated with the SEC about its document requests and about Stanford Financial’s credibility and legitimacy; stated that certain Stanford Financial executives would be more informative deponents than others; and represented a Stanford Financial executive during a deposition. These are classic examples of an attorney’s conduct in representing his client.”  The Court rejected the “fraud exception” relied upon by the district court, and among arguments for other exceptions, rejected the argument that immunity only extended to litigation as not having been raised below.  Troice v. Proskauer Rose LLP, No. 15-00500 (March 10, 2016).

How to raise a fact issue about home damage

Ayoub v. Chubb Lloyds Ins. Co. of Texas confronted a “scattershot and somewhat redundant” endorsement to a homeowner’s policy, “unlike any policy language addresValuesed in Texas case law that we have seen.”  The endorsement dealt with personal property. The district court granted summary judgment for the insured, concluding that the “actual cash value” described in the endorsement could not be proved with the insured’s affidavit about replacement cost.  The Fifth Circuit disagreed and reversed, noting that the Texas Supreme Court has acknowledged that “personal effects have ‘no market value in the ordinary meaning of that term,'” meaning that “[t]he trier of facts may consider original cost and cost of replacement,” among other evidence.  No. 14-51301 (Jan. 28, 2016, unpublished).

A-peel of attorneys fee award in food fight —

veggie talesIn Kingdom Fresh Produce, Inc. v. Stokes Law Office LLP, the Fifth Circuit tended the garden of the obscure but important Perishable Agricultural Commodities Act, a Depression-era statute designed to defend vulnerable sellers of perishable produce from sharp dealing.  To do so, PACA creates a “trust fund” obligation for produce buyers; here, a bankruptcy court authorized the payment of special counsel from monies in a debtor’s fund.

Three fee applications were at issue.  As to the first two, the Court found that the district TexasBarToday_TopTen_Badge_Smallcourt had not granted leave to appeal and thus did not have jurisdiction to uproot the bankruptcy court’s rulings.  “With these jurisdictional issues peeled away,” and after “a bit more paring” of the remaining issue, the Court held that “PACA’s unequivocal language requires that a PACA trustee—or in this case, its functional equivalent—may not be paid from trust assets ‘until full payment of the sums owing’ is paid to all claimants.”  Nos. 14-51079 & 14-51080 (March 11, 2016).  (Readers’ Note: 600Camp will publicly recognize the blog reader who finds all of the vegetabilia in the well-written opinion.)

“Please, no more Deepwater Horizon appeals.”

bplogoJustice Blackmun famously declared, “From this day forward, I no longer shall tinker with the machinery of death.”  Callins v. Collins, 510 U.S. 1141 (1994).  In less dramatic fashion, in the 9th appeal from a ruling about the administration of the Deepwater Horizon settlement, the Fifth Circuit has declared: “If the discretionary nature of the district court’s review is to have any meaning, the court must be able to avoid appeals like this one which involve no pressing question of how the [BP] Settlement Agreement should be interpreted or implemented, but simply raise the correctness of a discretionary administrative decision in the facts of a single claimant’s case.”  In re Deepwater Horizon, No. 15-30395 (March 8, 2016).

A discount, by any other name, would be a surcharge

stoke signRowell v. Pettijohn confronted the surprisingly subtle question of whether a Texas statute, which proscribes surcharges by merchants for credit-card purchases, violates the First Amendment.  The panel majority concluded that it did not, as “prices, although necessarily communicated through language, do not rank as ‘speech’ within the meaning of the First Amendment.”  A dissent saw matters differently: “[T]he Texas law does not regulate the difference between prices . . . .  All that it regulates is what merchants can tell customers about their prices.”  Other circuits have also reached different conclusions about similar statutes in other states.  No. 15-50168 (March 2, 2016).

Illusionist trick: No savings clause, no arbitration — UPDATED

iillusionistIn the latest of a long line of cases about arbitration clauses in employment documents that the employer can amend at will, the Fifth Circuit reversed the grant of a motion to compel arbitration in Nelson v. Watch House Int’l, LLC: “Here, the Plan provides that Watch House may make unilateral changes to the Plan, purportedly including termination, and that such a change ‘shall be immediately effective upon notice to’ employees.  Watch House’s retention of this unilateral power to terminate the Plan without advance notice renders the plan illusory under a plain reading of Lizalde [v. Vista Quality Markets, 746 F.3d 222 (5th Cir. 2014)].”  The opinion details recent cases about a “savings clause” in employee manuals that limit the power to change as to present disputes, following the analysis of In re: Halliburton Co., 80 S.W.3d 566 (Tex. 2002).  I am interviewed about this line of cases in this Legal News Line article.

Interlocutory Oops.

oopsIn Dodds v. Terracon Consultants, the Fifth Circuit accepted an interlocutory appeal about whether a terminated employee had a Sabine Pilot claim when he also had a statutory remedy.  After oral argument, the Court decided that the appeal had been improvidently accepted, as there was a fact issue about whether the employee had actually been fired for violating the law. An adverse finding on that issue would moot the legal issue.  The Court also noted that certification — a possible resolution of the federal appeal — is only available “if the certifying court is presented with determinative questions of Texas law.”  No. 15-20313 (Feb. 17, 2016, unpublished).

SLAPPing around the Erie doctrine?

slapp-graphicThe Texas anti-SLAPP law (the “TCPA”) imposes a number of deadlines that can fit awkwardly with federal practice.  The panel majority in Cuba v. Pylant concluded that when no hearing is held on a TCPA motion as required by the statute (hearings being common in Texas state practice but not in federal court), appeal-related deadlines that start from the hearing date do not begin to run.  A dissent said: “Applying an Erie analysis, I conclude that the TCPA is procedural and must be ignored.”  Nos. 15-10212 & -10213 (Feb. 23, 2016).

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.)

No credit? NoLa.

us-treasury-bondsThe financially unfortunate City of New Orleans, saddled with a “just above junk” credit status, hired Ambac to provide insurance for its municipal bonds.  Ambac’s AAA rating slipped after the 2008 financial crisis, causing New Orleans to incur tens of millions of dollars in additional debt service and refinancing costs.  The City sued Ambac on several legal theories for not maintaining a high credit rating.  The Fifth Circuit affirmed their dismissal: “[T]he resolutions that the City so heavily relies upon show only that the City purchased a bond insurance policy from a highly rated insurer, which, at the time of issuance, lessened the perceived credit risk of the City’s bonds.  Any alleged representation by Ambac to provide a larger credit enhancement is foreclosed by the clear language of the Policy.”  New Orleans City v. Ambac Assurance Corp., No. 15-30532 (March 2, 2016).

“Clear and Indisputable Error”?

The receiver for the affairs of Allen Stanford assigned some fraudulent transfer claims to a committee of creditors.  The defendants moved to dismiss, arguing that while a federal court may hear the claims of a federally-appointed receiver, it may not hear those brought by his assignee.  The panel majority, noting that “[n]either side of this dispute has cited any controlling cases” on the point, found that the district court did not “clearly and indisputably err[], if it erred at all,” because the point did not have a clear resolution.  A dissent would have heard the case, observing: “It is unfortunate that the [defendants] should be forced to litigate this case to conclusion, if they can afford it, before resolving this difficult and novel jurisdictional issue.”  In re American Lebanese Syrian Associated Charities, No. 15-11188 (March 3, 2016).  This exchange echoes several others in recent years about mandamus and the balance of power between the trial and appellate levels of the court system. (Thanks to 600Camp friend Jeff Levinger for flagging this one.)

Of Briefs With Imaginary Dialogue

memenoYesterday’s “Above The Law” blog offers this entertaining exchange between a recent Fifth Circuit petition for rehearing — written in part as an imaginary exchange between lawyer and client about the rehearing process — and the Fifth Circuit’s response: rejection by the panel in a short opinion that was also written as an exchange of dialogue. (Thanks to 600Camp friend Cynthia Halatyn for sending along the link.)

Golden Triangle

220px-Golden_triangle_and_Fibonacci_spiral.svgThe Gagosian Gallery – for reasons not explained in the opinion, but doubtless interesting ones – wanted to display a work of art that featured a tower of 101 identical gold bars.  For approximately $3 million, it contracted to buy the gold from Stanford Coins and Bullion (“SCB”), owned by the now-disgraced Allen Stanford.  SCB in turn contracted with Dillon Gage, a wholesale gold supplier, to ship the gold directly to the gallery.  SCB forwarded payment to Dillon Gage, who applied to a balance that the gallery had with Dillon Gage as a result of unrelated transactions.

Before the shipment was made, however, the Stanford empire collapsed.  When the dust settled, the gallery sued Dillon Gage, alleging that it was a third-party beneficiary of its contract with SCB.  The case went to a jury trial and a verdict for Dillon Gage, and the Fifth Circuit affirmed, finding no error in the jury instructions and sufficient evidence to support the verdict.  Page 5 of the opinion details the facts, which offer a classic illustration of the roles of knowledge and industry custom in determining contract liability.  Pre-War Art, Inc. v. Stanford Coins & Bullion, No. 15-10033 (Feb. 29, 2016, unpublished).

Mortgage Servicing 101 — UPDATED

houseIn Villarreal v. Wells Fargo Bank, the Fifth Circuit published a straightforward Rule 12 affirmance in a mortgage servicing case, likely to make abundantly clear what law governs several recurring issues in such cases.  Those principles include: (1) a plaintiff’s failure to allege her own performance bars a breach of contract claim, (2) a negligence claim about servicing should arise from a duty independent of the contract, (3) a wrongful foreclosure claim requires allegation of the allegedly grossly inadequate price, and (4) typical mortgage servicing activity is “incidental to the loan” and does not create DTPA standing.  No. 15-40243 (Feb. 26, 2016).  (See also the recent case of Meachum v. Bank of New York, No. 15-10237 (Jan. 11, 2016, unpublished).

Atlas Tugged

i_am_john_galt_i_will_stop_the_motor_of_the_worldJAB Energy successfully sued Cashman Equipment and Cashman’s subsidiary, Servicio Marina Superior (“SMS”), establishing at trial that poor performance by the ocean tug “Atlas” led to roughly $5 million in damages.  The Fifth Circuit reversed an “alter ego” finding against Cashman, noting the absence of a fraud allegation against either defendant, and observing that JAB could have negotiated for the same warranty protections from Cashman as from SMS.  It affirmed on the merits as to SMS, detailing the well-kept records by the plaintiff about how poorly Atlas tugged, especially as to engine performance and fuel consumption.  JAB Energy Solutions v. Servicio Marina Superior, No. 15-30504 (Feb. 26, 2016, unpublished).

“Any similar law” = ambiguity

A highly technical dispute about the applicable law for an offshore salvage operation produced an insurance holding of general applicability in Tetra Technologies, Inc v. Continental Ins. Co., No. 15-30446 (Feb. 24, 2016).  The policy exclusion applied to “[a]ny obligation of the insured under a workers compensation, United States Longshoreman’s and Harbor Workers’ Compensation Act, Jones Act, Death on the High Seas Act, General Maritime Law, Federal Employers’ Liability Act, disability benefits or unemployment compensation law or any similar law . . . ”  The Fifth Circuit concluded that the “any similar law,” while referring generally to employers’ liability (since all the laws specifically named deal with that issue), was still ambiguous and meant that the exclusion would be construed against the insurer.

No waiver by servicer. Really. — UPDATED

In the fourth opinion in recent months about whether a mortgage servicer waived acceleration of the loan by inconsistent conduct, the Fifth Circuit again rejected such an argument in Martin v. Fannie Mae: “Wells Fargo accepted payments only after [the borrower’s] default in 2009, not after the bank had accelerated the note. . . . These differences matter because the [Deed of Trust’s] non-waiver provisions allow Wells Fargo to accept payments less than the entire obligation or to defer acceleration and foreclosure (and any other remedy) after default without waiving its rights.”  In reaching this holding on these facts, the Court noted situations in which post-acceleration conduct could potentially amount to a waiver.  No. 15-41104 (Feb. 22, 2016). See also Alvarado v. U.S. Bank, N.A., No. 15-51017 (June 20, 2016, unpublished).

Litigation triple-header

cerebrusIn a followup to Al Rushaid v. Nat’l Oilwell Varco, Inc., 757 F.3d 416 (5th Cir. 2014), the Fifth Circuit confronted a situtation where the plaintiffs’ claims against National Oilwell Varco Norway would be arbitrated before the ICC; claims against NOV LP, an American affiliate would be arbitrated in the Southern District of Texas; and claims against other NOV entities that did not sign the relevant arbitration agreement would proceed in Texas state court. The Court declined jurisdiction over NOV LP’s appeal because the district court granted its TexasBarToday_TopTen_Badge_Smallmotion to compel arbitration, leaving no statutory basis for an otherwise interlocutory appeal.  As to the nonsignatories, the Court affirmed, finding that the plaintiffs were not seeking to enforce either contract that implicated arbitration.  Acknowledging that the litigation would be “fragmented,” the Court observed: “This is an inevitable and permissible consequence where one of multiple defendants asserts a right to arbitrate.”  Al Rushaid v. National Oilwell Varco, No. 15-20260 (Feb. 17, 2016).  [On the issue of “fragmentation,” consider the dueling opinions in the recent case of In re: Rolls-Royce Corp., 775 F.3d 671 (5th Cir. 2014)]

Not the right way, under Rule 41(a) – UPDATED

41Bechuck sued Home Depot and Advantage Sales for injuries allegedly suffered in a Home Depot store.  After a pretrial conference at which the district court expressed skepticism about the claims against Home Depot, and a flurry of resulting orders and motions, a final order of dismissal resulted that Bechuck challenged in several ways.  The Fifth Circuit largely agreed with him, concluding, (1) placing a a restriction on where a case can be refiled is not appropriate for a Rule 41(a)(1) or (a)(2) voluntary dismissal, absent any prior history of forum-shopping or other forum-related gamesmanship; and (2) while labelling a Rule 12 dismissal as one under Rule 41(a)(2) is an abuse of discretion, so long as it without prejudice or undue condition, there is no harm because the matter can be freely refiled.  Bechuck v. Home Depot USA, No. 15-20219 (Feb. 17, 2016).


triton achieverW&T Offshore operates pipelines and platforms in the Gulf of Mexico.  It hired Triton Diving to help repair a pipeline.  Grogan, an independent contractor, fell and was injured when he went to work on a Triton vessel called the TRITON ACHIEVER.  W&T and Triton both had indemnity rights against the other, giving rise to the case of Grogan v. W&T Offshore, No. 15-30369 (Jan. 27, 2016).  The Fifth Circuit found no clear error in the district court’s conclusion that Grogan was W&T’s invitee and not Triton’s, detailing the control that W&T had over the project.  In sum: “W&T’s project was the ultimate reason for Triton and [Grogan’s] presence on the work site, and any benefit to Triton from [Grogan’s] presence was indirect .”

Ta-ta, Luvata . . .

Continuing to rhyme with “-ata,” the Fifth Circuit rejected an attempt to create appellate jurisdiction in Luvata Grenada LLC v. Danfoss Industries S.A. de C.V., No. 15-60477 (Feb. 11, 2016).  Luvata Grenada sued Danfoss US and Danfoss Mexico.  Danfoss Mexico won a motion to dismiss for lack of personal jurisdiction, after which Luvata and Danfoss US stipulated to a voluntary dismissal without prejudice.  “However, it is well settled in this circuit that parties cannot manufacture appellate jurisdiction by agreeing to dismiss remaing claims without prejudice. . . . The parties did not obtain a Rule 54(b) certification from the district court, and they cannot achieve the same result by ‘self help.'”

Hakuna Matata, no Res Judicata –

hakunamatataIn Akuna Matata Investments v. Texas Nom Limited Partnership, the panel majority found that a judgment in a state court lawsuit for breach of fiduciary duty and contract was not res judicata as to a later federal case about the winding up of the relevant partnership: “Even if Akunas’s interest was ‘bought out’ by the state court judgment and it was no longer a partner, this would have meant a de facto dissolution (since there were only two partners) and [Appellant] would have been obliged to take other steps necessary to reclaim the assets for itself alone.”  A dissent saw the two judgments as creating an impermissible double recovery: “Through protracted litigation and incomplete legal arguments, [Appellee] has fallen into an investment that defies both Texas law and common sense — a free ride.”  No. 14-51158 (Feb. 11, 2016).

No Prompt Pay Act liability for Blue Cross

361089_630x354Health Care Service Corporation (known in Texas as Blue Cross and Blue Shield of Texas), serves as the administrator of various insurance plans.  It had a dispute with Methodist Hospitals of Dallas about its potential liability under the Texas Prompt Pay Act, which sets penalties for insurance claims that are not processed within the deadlines set out by the Act.  The Fifth Circuit agreed with the district court that the Act did not apply when Blue Cross “did not provide benefits through its administrator and preferred provider agremeents, but instead merely distributes claim payments from plans to providers[.]”  The Court also found federal preemption of claims under the Act related to claims under the Federal Employees Health Benefits Program.  Health Care Service Corp. v. Methodist Hospitals of Dallas, No. 15-10154 (Feb. 10, 2016).

High-low settlement agreement; ruling somewhere in the middle . . .

In a long-running dispute ahi_lo_1bout Transocean’s ability to recover “maintenance and cure” payments to Boudreaux, a seaman, the parties reached a “high-low” settlement agreement.  The Fifth Circuit then held — in an outcome not clearly anticipated by the parties’ deal — that Transocean had no affirmative right of recovery as against Boudreaux,but did have a right to make offsets against future payments.  Boudreaux v. Transocean Deepwater, Inc., 721 F.3d 723, 724-25 (5th Cir. 2013).  The district court treated that outcome as a “low,” which hurt Boudreaux, but the panel majority saw it as a “high” — “Because our court’s holding in Boudreaux I did not establish the viability of Transocean’s counterclaim, Boudreaux is entitled to the higher settlement amount.”  Boudreaux v. Transocean Deepwater, Inc., No. 14-30776 (Feb. 5, 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).

No change in facts, no change in judgment.

towtruckThe Houston Professional Towing Association, a persistent if unsuccessful litigant, brought its third challenge to the City of Houston’s “SafeClear” freeway towing program.  It argued that recent changes to those ordinances had changed the facts enough to remove a res judicata bar from a previous lawsuit.  The Fifth Circuit disagreed, concluding that the purpose of the law remained the same (“to promote safety by expeditiously clearing stalled and wrecked vehicles”), and statistics about collisions after the program began were either indeterminate or showed that it enhanced safety.  Houston Professional Towing Association v. City of Houston, No. 15-20117 (Feb. 3, 2016).

Enough parties at the party

bookNational Casualty sued its insured in federal court for a declaratory judgment that there was no coverage.  The insured sued National Casualty and the insured’s insurance brokers in state court for misleading it about coverage.  The district court found that those additional parties were indispensable for the federal action (and would destroy diversity if joined), and abstained under Colorado River from proceeding further.  Reminding “that it is not necessary for all joint tortfeasors to be named as defendants in a single lawsuit,” the Fifth Circuit reversed as to the joinder analysis, and also as to abstention, noting in particular that “the federal action has proceeded to summary judgment . . . [and] the state court action has involved little more than an original petition, answers, and a stay of proceedings.”  National Casualty Co. v. Gonzalez, No. 15-10478 (Feb. 4, 2016, unpublished).

Assignment of error

assignment clipartIn Banco Popular v. Kanning, a dispute over entitlement to life insurance proceeds produced two reminders about important, but not often-litigated, principles in business law. No. 15-50342 (Jan. 29, 2016, unpublished).  First, an argument that a purported assignment required further actions to become effective failed when the document in question unambiguously said “hereby assign.”  The opinion reviews other language in other cases that obscured the assignor’s intent. Second, insurance policy proceeds — while obviously monetary in nature — are sufficiently specific to support an action for conversion (applying Paschal v. Great Western Drilling, 215 S.W.3d 437 (Tex. App.–Eastland 2006, pet. denied)).

Actually, it is brain surgery. [UPDATED]

brainDr. Barrash, a member of a professional association of neurosurgeons, testified against Dr. Oishi, who was also a group member.  Dr. Oishi settled his case and filed a complaint with the association about Dr. Barrash, alleging (among other claims) that Dr. Barrash failed to review all relevant records.  The association censured Dr. Barrash, who then sued the association, claiming a denial of due process and a breach of the association’s contract with its members.

The district court found a denial of due process as to part of the censure, which the association did not appeal.  The Fifth Circuit affirmed the Rule 12 dismissal of the rest of Dr. Barrash’s claims: “Dr. Barrash received sufficient due process, including notice, a hearing, and multiple levels of appeal, before he was censured for failing to review all pertinent and available records prior to testifying. Because the district court found only one basis of the censure to be unsupported by due process, the district court was correct in setting aside only that portion of the censure. Furthermore, no Texas court has recognized a breach of contract challenge to a private association’s disciplinary process.”  Barrash v. American Association of Neurological Surgeons, No. 14-20764 (Feb. 3, 2016).


waving german flagThe forum selection clause in Weber v. Pact XPP Technologies AG, written in German, referred to the “Sitz” of defendant Pact AG, which could be translated as “residence” or “corporate seat.”  After determining that a mixed de novo / abuse of discretion standard of review was appropriate after Atlantic Marine, the Fifth Circuit affirmed dismissal of a Texas case in favor of Germany.  The Court found that the defendant’s broader reading of the clause was better-reasoned, that German law applied to its review (“A contract betweeTexasBarToday_TopTen_Badge_Smalln a German corporation and a member of its board seems strongly to implicate German policy”), and that the plaintiff did not have a legally cognizable policy argument against enforcing the clause.  No. 15-40432 (Jan. 26, 2016).

Allegedly fraudulent settlement not set aside

diver down flagCal Dive settled a hard-fought lawsuit against Schmidt, one of its divers, who alleged that he suffered a debilitating brain injury on the job.  A year after the settlement, having continued with surveillance that it conducted during the litigation, Cal Dive brought an “independent action” under Fed. R. Civ. P. 60(b)(1) to set aside the settlement, alleging “that, after reaching the Agreement but before signing the Release, Schmidt had acquired a driver’s license and purchased a new car. In the months following the settlement, Schmidt was observed “cutting his grass, shopping, driving, and jogging for at least two miles.”  The Fifth Circuit affirmed dismissal of Cal Dive’s action for failure to plead reliance, noting that during the litigation, “Cal Dive did not believe Schmidt’s allegations or testimony and hired its own experts to examine him over several years.”  Cal Dive Int’l v. Schmidt, No. 15-30300 (Jan. 21, 2016, unpublished).

SCOTUS takes immigration appeal.

In unsurprising but still important news, the Supreme Court has decided to review the Fifth Circuit’s opinion in Texas v. United States, the challenge to President Obama’s immigration initiatives.  The order granting the petition notes: “In addition to the questions presented by the ice_logopetition, the parties are directed to brief and argue the following question: ‘Whether the Guidance violates the Take Care Clause of the Constitution, Art. II, §3.'”

Substantial compliance, not enough.

Construction Funding filed a timely, sworn, proof of loss that “itemized the claim into general categories” such as “building structures” and “personal property.”  Unfortunately, the relevant policy (incorporating a background federal law), required a “complete” inventory with attached documents.  In this context “substantial compliance . . . is not enough,” and Construction Funding had no coverage for its loss.  Construction Funding, LLC v. Fidelity Nat’l Indem. Ins. Co., No. 15-30040 (Jan. 8, 2016, unpublished).

Radmax Requires Reasons

In the cases of In re: Radmax and In re: Volkswagen of America, the Fifth Circuit asserted its power to oversee the transfer of cases under 28 USC § 1404(a).  In the recent case of In re: Archer Directional Drilling Co., the Court stayed and partially remanded a venue appeal for the district court to make findings on the relevant factors: “Here, unlike in Volkswagen and Radmax, the district court failed to provide any analysis supporting its denial of Archer’s motion to transfer the case. Articulating the basis for the denial of a change of venue motion is ‘the better practice’ for a district court. . . . In the present case, the lack of explanation makes it impossible for us to determine whether the district court clearly abused its discretion, which is required in order for us to decide whether to
grant mandamus relief.” (citations omitted).  No. 15-41539 (Jan. 13, 2016, unpublished).

No scienter about labor problems

Diodes_Inc_logoIn Local 731 Pension Trust Fund v. Diodes, Inc., the Fifth Circuit affirmed the dismissal of securities claims related to the alleged nondisclosure of labor problems at a Shanghai manufacturing plant, finding a failure to adequately allege scienter.  Most basically, the Court observed — “It is important to note the curious nature of the Fund’s claims. To recap the relevant facts: during the class period, Diodes repeatedly warned investors of a labor shortage that would affect its output in the first two quarters of 2011; Diodes accurately warned the precise impact this labor shortage would have on its financial results, not once, but twice. Yet the Fund contends that more disclosure was required.” The Court went on to reject arguments about the unique knowledge of the relevant executives, the company’s decision to make an early product shipment (noting this would have made the labor problem worse and more apparent), and circumstances of an insider’s stock sales.  No. 14-41141 (Jan. 13, 2016).

Where is Oklahoma?

texas-ouBoaz Legacy LP sued Roberts about ownership of land.  Roberts argued that the land was located to the north of “the vegetation line along the south bank of the Red River,” which places the land in Oklahoma under the terms of the Red River Boundary Compact.  Accordingly, Texas state and federal courts lacked subject matter jurisdiction under the “local action doctrine.”  Boaz argued that the Compact did not apply to a boundary dispute among private landowners, but the Fifth Circuit disagreed: “[T]his argument conflates the underlying dispute with the present determination, which is purely jurisdictional.”  Boaz Legacy LP v. Roberts, No. 15-10439 (Jan. 11, 2016, unpublished).

When is a claim illusory?

illusionistCollins challenged bankruptcy court jurisdiction over “illusory indemnity and contribution claims” that he alleged had no conceivable effect on the bankruptcy estate due to their lack of merit.  The Fifth Circuit rejected his argument: “Both the Supreme Court and this court have gravitated away from conflating jurisdiction and merits, and Collins’s proposed standard results in exactly that conflation.”  The Court also noted that the claims, based on a principal’s alleged commitment to indemnify its agent, were not “wholly insubstantial and frivolous” on their merits.  Collins v. Sidharthan, No. 14-41226 (Dec. 15, 2015).

Wait awhile, just not forever.

godotThe district court abstained under the “primary jurisdiction” doctrine in deference to a FERC proceeding.  On the threshold question of appellate jurisdiction, the Court concluded that Hines v. D’Artois, 531 F.2d 726 (5th Cir. 1976) was still good law, and allowed it to consider an otherwise-interlocutory appeal: “[T]he district court’s order resulted in Occidental being ‘effectively out of court’ and therefore functioned as a final decision.”  On the merits, the Court remanded with instructions to not stay the court case indefinitely, but to instead stay for 180 days and assess the status then.  Occidental Chem. Corp. v. Louisiana Public Service Comm’n, No. 15-30100 (Jan. 4, 2016).

Ambiguous petition = no CAFA remand.

chesapeake logoA plaintiff class alleged that Chesapeake’s oil and gas production in the Fort Worth area trespassed on their property interests.  The defendants removed under CAFA, the district court remanded under that statute’s “local controversy exception,” and the Fifth Circuit reversed.  The key appellate issue was whether the plaintiff class was “narrow” — only current owners of mineral interests — or “broad” — current and former interests since a series of foreclosures began in 2004.  The plaintiffs could prove the requisite citizenship to establish the exception for the narrow class, but not the broad.  The panel majority found the plaintiffs’ pleading was ambiguous on this point, and based on that conclusion, remanded for a failure to prove that element of the exception.  A dissent took issue with the construction of the pleading and what it called “a new rule” of a “presumption in favor of federal jurisdiction.” Arbuckle Mountain Ranch of Texas v. Chesapeake Energy Corp., No. 15-10955 (Jan. 7, 2016).

Not all appraisals are the same.

sameness graphicA creditor argued that the bankruptcy court should have used the same property valuation in both the debtor’s bankruptcy case and the creditor’s adversary proceeding against the debtor, citing the doctrines of judicial estoppel and res judicata. The Fifth Circuit disagreed: “The district court correctly held that the valuations under [Bankruptcy Code] §§ 1129 and 506 are two distinct, separate valuations required for different purposes. The feasibility projections under § 1129 were based on [the debtor’s] estimate of ‘monies to be realized from the sale of lots over time’ and anticipated continued development of the Property. The estimate under § 506, on the other hand, was based on an appraisal of the present fair market value of the Property. As a result, [the debtor] did not assume inconsistent positions by presenting two different valuations for two different purposes, nor does the bankruptcy court’s acceptance of a § 1129 feasibility plan constitute a final judgment on the value of the Property under § 506. The doctrines of judicial estoppel and res judicata are not applicable.”  Gold Star Construction, Inc. v. Cavu Rock Properties Project I, LLC, No. 15-50455 (Jan. 4, 2015, unpublished).

TransCanada arrives in the Fifth Circuit . . .

keystonegraphicTransCanada has sued in Houston federal court about the Keystone Pipeline, alleging that President Obama exceeded his Constitutional authority by denying the necessary permission to proceed.  While this just-filed lawsuit is a long way from Fifth Circuit review, and TransCanada has a substantial business presence in Houston, it comes as no surprise after the rejection of President Obama’s immigration policies in Texas v. United States that this challenge to executive power would be filed in this Circuit.  Here is the complaint in TransCanada v. Kerry.

Which end of the candle should burn?

2 end candleThe bankruptcy debtor owned a large candle factory; after a year of effort, the trustee gave up trying to realize more value on the factory property than what was owed on the outstanding mortgages, and abandoned the property to Southwest Securities.  The remaining legal issue was: “Should the estate or the secured creditor pay the property’s maintenance expenses incurred while the trustee was trying to sell the property?”

Section 506(c) of the Bankruptcy Code provides: “The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of
preserving, or disposing of, such property to the extent of any benefit to the holder of such claim, including the payment of all ad valorem property taxes with respect to the property.” The Fifth Circuit found that Southwest benefited, and that the costs were fairly taxed against it from sales proceeds: “[W]e accept that an expense which was not incurred primarily to preserve or dispose of encumbered property cannot meet the requirement of being incurred primarily for the benefit of the secured creditor. But we also accept the inverse: that an expense incurred primarily to preserve or dispose of encumbered property meets the requirement. The necessary direct relationship between the expenses and the collateral is obvious here; all of the surcharged expenses related only to preserving the value of the Property and preparing it for sale.”  Southwest Securities v. Segner, No. 14-41463 (Dec. 29, 2015).

The law of vicious poodles. Yes, you read that right.

poodle banksyDiversity jurisdiction brings unusual claims to the federal courts, none more so than E.C. v. Saraco, in which a girl sued for injuries caused when the neighbors’ poodle attacked her.  The poodle owners won summary judgment, and the Fifth Circuit affirmed.  The legal issue was the foreseeability of violence by the poodle — whether it was known to have a “vicious and dangerous disposition.”  The Court concluded that no fact issue was raised by evidence of (1) the poodle’s tendency to jump when excited, (2) the poodle’s allegedly tender ears, and (3) the girl’s unfamiliarity with the proper way to pet the poodle. No. 15-60434 (Jan. 4, 2016, unpublished).  (The above poodle art was drawn by the great Banksy.)

No First Amendment right to subsidy of slasher movies

machete killsDespite the combined starpower of Danny Trejo, Lady Gaga, and Mel Gibson, the movie “Machete Kills” holds a 29% rating on Rotten Tomatoes.  That site’s “Critical Consensus” says: “While possessed with the same schlocky lunacy as its far superior predecessor, Machete Kills loses the first installment’s spark in a less deftly assembled sequel.”  Perhaps motivated by one of the worst theater openings of all time, the makers of this movie raised constitutional claims about the denial of funding by Texas’s filmmaker incentive program.

The Fifth Circuit affirmed dismissal on the pleadings: “Despite the denial of an Incentive Program grant, Machete Kills was still filmed in Texas, produced, and released. Machete does not dispute that it was free to engage in protected First Amendment activity without the benefit of an Incentive Program grant, and in fact did engage in such activity by making the film. Machete has not shown that it is clearly established that the First Amendment requires a state which has an incentive program like this one to fund films casting the state in a negative light.”  Machete Productions LLC v. Page, No. 15-50120 (Dec. 28, 2015).

CAFA — how to claim $75,000

mass chartIn yet another opinion showing that the seemingly simple language of CAFA is anything but, in Robertson v. Exxon Mobil the Fifth Circuit reversed the remand of a mass action, concluding that the district court erred in finding that no plaintiff satisfied the $75,000 amount-in-controversy requirement.  No. 15-30920 (Dec. 31, 2015).  In a footnote, the Court declined to engage the broader issue of whether at least 100 plaintiffs had to satisfy that requirement, and the Court declined to rule on potentially applicable exceptions to jurisdiction (such as “local controversy”) until the district court addressed them on remand.  On the proof point, the Court noted: “(1) [Plaintiff] Eddie Ashley claims that she has suffered, among other harms, emphysema and the wrongful death of her husband from lung cancer; and (2) [Plaintiff] Tommie Jones avers that he developed prostate cancer and a host of other ailments. We hold that it is more likely than not that these plaintiffs seek to recover more than $75,000. Indeed, Plaintiffs’ counsel acknowledged at oral argument that for the plaintiffs who contracted cancer, he would be ‘asking [the] jury, come trial, for a whole lot more than $75,000.'”

Class certification ping-pong

ping-pongA failed class action alleging sex discrimination by Wal-Mart concluded as follows:

  1. The named plaintiffs settled with Wal-Mart, and the district court entered final judgment on May 15, 2015;
  2. Appellants intervened on June 2; and then
  3. Appellants filed a notice of appeal (as to the dismissed class claims) on June 12.

While the notice of appeal divested the district court of jurisdiction over the pending motion to intervene, the Fifth Circuit may dismiss such an appeal and remand for purposes of considering the motion, which it did here with the agreement of the parties.  Odle v. Wal-Mart Stores, Inc., No. 15-10571 (Dec. 16, 2015, unpublished).

Cannot escape the pollution exclusion

mold_cartoonPlaintiffs sued about insulation installed in their home by the defendants, alleging that they “failed to seal off completely areas in which vapors could be transported from the areas under renovation and construction to the existing area[] of the house[,] in which the Commarotos, their three minor children, and their houseguest, Schlegel, were living and sleeping during the construction process.” The district court found that these allegations unambigously fell within the pollution exclusion of the relevant insurance policy and the Fifth Circuit affirmed.  The Court declined to consider “deposition testimony by two of the plaintiffs stating that they physically touched and examined the spray foam insulation.”  While an exception to the “eight corners rule” could allow consideration of such evidence if “it is initially impossible to discern whether coverage is potentially implicated” (among other matters), the clarity of this pleading precluded its application here.  Evanston Ins. Co. v. Lapolla Indus, Inc., No. 15-20213 (Dec. 23, 2015, unpublished) (applying Star-Tex Resources, LLC v. Granite State Ins. Co., 553 F. App’x 366 (5th Cir. 2014)).

Estopped by nondisclosure in bankruptcy.

stopsignThe Allens filed for Chapter 13 bankruptcy protection; during the pendency of that case, they sued Mrs. Allen’s employer for injuries allegedly suffered in the workplace.  The Fifth Circuit affirmed summary judgment for the employer, finding the three elements of judicial estoppel satisfied by the Allens’ failure to disclose the personal injury suit in the bankruptcy – (1) inconsistent positions, (2) one of which was accepted by a court, and (3) lack of inadvertence by the Allens. The Court also found that the overall balance of equities weighed against the Allens, given the importance of full disclosure to the bankruptcy process.  The Court modified the judgment to be without prejudice so the Allens’ trustee could pursue the suit if he or she so desired (although acknowledging potential limitations issues).  Allen v. C&H Distributors, Inc., No. 15-30330 (Dec. 23, 2015).  The opinion is of broad interest because of its detailed analysis of judicial estoppel under the general three-part test, rather than a more truncated version sometimes employed in bankruptcy cases.

Preemption Exemption

error street signGreenwich Insurance Company made a number of errors in its internal accounting about crop insurance premiums.  When those mistakes ultimately led to a substantial assessment against it by a state authority, Greenwich argued that the state standards were preempted by regulations associated with the Federal Crop Insurance Act.  The Fifth Circuit agreed with the district court that they were not, as the true source of Greenwich’s problems was not the state rules but its own “acts of unjustifiable incompetence”:  “The FCIC did not intend to hamstring . . . the operations of state programs . . . simply to protect inattentive insurers from their own mistakes.”  Greenwich Ins. Co. v. Mississippi Windstorm Underwrting Ass’n, No. 15-60405 (Dec. 15, 2015).

Band brand banned — UPDATED.

emerald cityEmerald City Management, d/b/a the band “Downtown Fever,” won a preliminary injunction against another band with the same name.  The Fifth Circuit affirmed, noting the importance of “los[ing] control over the mark’s reputation and goodwill” in establishing irreparable injury, and citing evidence of the plaintiff’s history with the band name, the defendant’s plans to play in the same area, and the defendant’s marketing using that name.  Emerald City Management LLC v. Kahn, No. 14-40856 (Dec. 11, 2015, unpublished) (citing Paulsson Geophysical Servs., Inc. v. Sigmar, 529 F.3d 303 (5th Cir. 2008)).  (In a later skirmish among these parties, the Court reversed a later preliminary injunction about the use of a Facebook page: “neither shutting down a Facebook account nor blocking administrator access to a Facebook account constitutes ‘use in commerce’ of a trademark.”  Emerald City Management LLC v. Kahn, No. 15-40446 (March 8, 2016, unpublished)).

No “amor” for copyright infringement claim about Tejano song

tejanoJose Guzman, writer of the Tejano song Triste Aventuerera, sued Hacienda Records, alleging that its affiliated band “The Hometown Boys” infringed his copyright with their song Cartas de Amor (link below).  The Fifth Circuit affirmed judgment for the defendants.  After reminding about the significant deference due to the trial court on credibility issues, the Court agreed that Guzman’s evidence about radio play and live performance was properly rejected as to the issue of the defendants’ “opportunity to view” his song.  Similarly, while acknowledging similarity in the first sixteen words of both songs, expert testimony showed that the words were set to different music and appeared in other songs as well, thus supporting the trial court’s rejection of his alternative “striking similarity” theory.  The Court also declined to adopt a “sliding scale” test for infringement that would be weighted by the degree of similarity between the works at issue.


Separate Actions ≠ Mass Action

mass chartDefendants sought to remove several cases under the “mass action” provisions of CAFA, arguing: “the fact that plaintiffs’ counsel broke up their client base into multiple suits making identical allegations is not a tactic that prevents the assertion of jurisdiction under CAFA.”  The Fifth Circuit disagreed, declining to “pierce the pleadings across multiple state court actions,” noting that there had been no effort to consolidate the cases below, and TexasBarToday_TopTen_Badge_Smallobserving: “Every other court of appeals confronted with this question has come to the same conclusion: that plaintiffs have the ability to avoid [CAFA ‘mass action’] jurisdiction by filing separate complaints naming less than 100 plaintiffs by not moving for or otherwise proposing joint trial in the state court.”  Eagle US 2, LLC v. Abraham et al. (Dec. 11, 2015, unpublished) (on petition for rehearing en banc of denial of petition for review).

This is a conclusory affidavit.

affidavit memeThe plaintiff in Stagliano v. Cincinnati Ins. Co. submitted this expert affidavit to establish that alleged hail damage occurred within the insurance policy period.  No. 15-10137 (Dec. 11, 2015, unpublished).  The affidavit did not succeed, as the Fifth Circuit found it “was little more  that an allusion to his credentials, a recitation of the hail damage observed, and a conclusory, ‘subjective opinion’ that the damage resulted from a hail storm within the policy period.”  Footnote 2 reviews a “perceived . . . tension between the admissibility requirements for expert testimony and the burdens at summary judgment when expert affidavits are utilized” in a past opinion of the Court.

Beyond the outer bound of arbitrability theories . . .

limit-signIn USHealth Group v. South, applying Texas law, the Fifth Circuit rejected the use of “concerted misconduct estoppel” to compel arbitration against a nonsignatory (citing In re: Merrill Lynch Trust Co. FSB, 235 S.W.3d 185 (Tex. 2007)), and also found no basis for “direct benefits estoppel” because the claims did not arise solely from the contracts with the arbitration clause, and the issues in dispute could be resolved without reference to those contracts (citing In re: Weekley Homes, L.P., 180 S.W.3d 127 (Tex. 2005)).  No. 15-10117 (Dec. 8, 2015, unpublished).

How to freeze assets

Mr_Freeze_(Movie_Poster)Plaintiffs obtained a preliminary injunction freezing many of the Defendants’ assets. The Fifth Circuit affirmed, noting the strong proof on two key topics.  As to likelihood of success on RICO and fraud claims: “The [district[ court examined in detail three representative transactions, tracing funds from [Plaintiff] that were intended for legitimate vendors but ended up in accounts owned wholly by the defendants. In each case, [Plaintiff] netted less money than it should have, with the profit going to [Defendant] or his associates.”  As to irreparable injury: “[Defendant] had already closed personal and corporate accounts in Hong Kong, containing exclusively money diverted from [Plainitff], transferring some of the funds to his father-in-law. [Defendant] also has international ties, including the co-defendants – natural persons and shell companies alike – who have yet to appear in court. He has experience and sophistication transferring money internationally, suggesting a high risk that funds allegedly belonging to plaintiffs could disappear.”  ATN Indus. v. Gross, No. 15-20102 (Dec. 7, 2015, unpublished).

I have to arbitrate, you have to arbitrate.

seabreezeA general contractor began an arbitration against several subcontractors about problems with the Sea Breeze Condominiums and Resort in Biloxi, Mississippi.  One of the subcontractors resisted the arbitration demand; while it won in district court, the Fifth Circuit reversed, based on this contract language: “If the Contractor has a claim or dispute involving the same general subject matter, either in whole or in part, with any third party if elected by the Contractor, the Subcontractor shall assert its claims and defenses in and shall be bound TexasBarToday_TopTen_Badge_Smallby the same forum and in the same proceeding which has jurisdiction over the claims or disputes between the Contractor and such third party.” Unlike other contract terms about arbitration, this clause had no limitation as to the Subcontractor’s claims against a particular party.  New Orleans Glass Co. Roy Anderson Corp., No. 15-60083 (Dec. 1, 2015, unpublished).

No meeting of the minds = summary judgment affirmed

meeting of the mindsThe defendant appealed a summary judgment against it on a multi-million dollar claim for breach of a settlement agreement, alleging that a novation had replaced that agreement with a new bargain.  Taj Al Khairat, Ltd. v. Swiftships Shipbuilders, LLC, No. 15-30195 (Dec. 4, 2015, unpublished).  The Fifth Circuit affirmed, noting that while both principals of the defendant were confident about an agreement to resolve the liability under the settlement, a number of unanswered questions remained about subsequent conditions; for example, one testified that the understanding “we will settle all the past dues, and we will move forward if we can procure this contract, the SOC contract, and the performance bond.” (emphasis in opinion). (Another “conditional agreement” case is discussed today on sister blog 600Commerce.)

“Show me the note” becomes sanctionable, after being shown the note.

Mortgage-Note-FL11In a wrongful foreclosure case, the borrower alleged that PNC Bank had not proved its ownership of the note.  Then, “an attorney representing [defendants] showed an attorney employed by [Barrett-Bowie’s law firm] the original blue ink note signed by Barrett-Bowie. The Firm’s attorney acknowledged that the note was indorsed from the original lender to First Franklin Financial Corporation and from First Franklin Financial Corporation to PNC Bank. The Firm’s attorney retained a copy of the original note and reported what she had seen to her colleagues at the Firm.”  Nevertheless, the firm filed two more pleadings repeating the standing allegations, and in response to a summary judgment motion — while not directly disputing the servicer’s proof of standing in response — asked that the court “deny [the servicer’s ]motion ‘in its entirety’ and argued that genuine issues of material fact existed ‘on elements in each of Plaintiff’s remaining causes of action.'”  An award of Rule 11 sanctions against the plaintiff’s firm was affirmed in Barrett-Bowie v. Select Portfolio Servicing, Inc., No. 14-11249 (Nov. 25, 2015, unpublished).

Chiropractic Copyrights

chiropractic emblemConcerto Labs, a chiropractic practice, sued another practice for copyright infringement as to “a short video outlining a diagnostic procedure and a blank form to be filled in while conducting that procedure.”  The Fifth Circuit affirmed summary judgment for the defendant as neither interest could be copyrighted.  As to the video, “[b]ecause the Appellants cannot own a copyright in a procedure, it does not matter if the procedure presented in one work is the same as or identical to that presented in another.”  As to the form, it was “merely ‘designed for recording information and does not in itself convey information.'” Concentro Laboratories, LLC v. Practice Wealth, Ltd., No. 15-10325 (Nov. 30, 2015, unpublished).

Org Chart ≠ Personal jurisdiction

FPMC_30Judgment creditors garnished two oil tankers (including the M/V FMPC 30, right); the garnishees appealed as to the connection between them and the judgment debtors.  After reviewing the distinction between “alter ego” theories at the jurisdictional and merits stages, the Fifth Circuit reversed.  Finding that “[t]he [district court relied almost exclusively on two ‘organizational charts’ submitted by Plaintiffs (taken from Garnishees’ website),” the Court found that the charts “do not actually depict corporate structure” or ” show the functional relationship among the entities.”   Accordingly, the case for “jurisdictional veil piercing” was not established and the garnishment proceeding was dismissed.  Licea v. Curacao Drydock Co., No. 14-20619 (Nov. 23, 2015).

Fifth Circuit affirms $150 million antitrust judgment. No kidding.

antitrust cartoon elephantAbandoning its reputation as a skeptic of antitrust claims, the U.S. Court of Appeals for the Fifth Circuit recently affirmed a $150 million judgment in MM Steel, L.P. v. JSW Steel (USA) Inc., a hard-fought battle among steel distributors on the Texas Gulf Coast.  No. 14-20267 (Nov. 25, 2015).  Judge Stephen Higginson, a relatively recent Obama appointee, wrote the opinion, joined by Judges Edith Brown Clement and Fortunato “Pete” Benavides.  A likely landmark in the modern law of antitrust conspiracy, the opinion unhesitatingly applies longstanding rules about “per se” antitrust liability instead of engaging in the more complex economic analysis that has dominated in recent years.  By doing so, the opinion has the potential to invigorate antitrust litigation in many situations where competing businesses allegedly join forces against another competitor.

As background, the opinion notes: “In the Gulf Coast steel industry, steel manufacturers sell about half of their steel plate to end users, including companies such as Wal-Mart, Exxon, and General Motors, and sell the other half to distributors who then resell the plate to end users.”  The dispute arose when two former employees of a distributor, named Chapel Steel, formed a new distribution company called MM Steel.  Chapel’s management, angry at their departure and competition, not only sued MM and its founders for violation of a non-compete agreement, but began an aggressive boycott campaign to cut off MM’s supply of steel plate and put it out of business.

Evidence showed that Chapel’s leadership enlisted other distributors in its attack on MM, and also threatened several steel manufacturers, including Nucor Corporation and JSW Steel, with a boycott if they did not refuse to deal with MM.  In particular, JSW received threats from Chapel and another distributor within several weeks of each other, and shortly afterwards, cancelled a supply contract that it had earlier negotiated with MM.

MM went out of business. It sued JSW for breach of contract, and sued Chapel (and other distributors), along with Nucor, JSW, and another manufacturer.  After a six-week trial, the Southern District of Texas entered judgment for over $150 million for MM, finding that the distributors formed a conspiracy in violation of Section 1 of the Sherman Act to keep steel away from MM, and that the manufacturers knowingly joined that conspiracy.  The distributors settled, leaving Nucor and JSW as the only appellants by the time of the Fifth Circuit’s decision.

The opinion’s analysis began by stating the accepted legal standards in the area.  A Section 1 claim requires proof that the defendants “(1) engaged in a conspiracy (2) that restrained trade (3) in a particular market.”  That proof must “tend[] to exclude the possibility of independent conduct,” which in a refusal-to-deal case such as this one, means showing that the defendants’ conduct is “inconsistent with the manufacturer’s independent self-interest.”

Applying these standards, the court affirmed the liability finding as to JSW.  “The fact that both [distributors’ made . . . threats within several weeks of each other was sufficient evidence for a reasonable juror to conclude that JSW was aware of the horizontal conspiracy to exclude MM from the market.”  Then, when JSW responded by terminating its contract with MM, virtually guaranteeing a suit for breach, “[a] reasonable juror also could have concluded that JSW’s abrupt decision to no longer deal with MM following those threats and JSW’s statements regarding that decision tended to exclude the possibility of conduct that was independent of the distributor’s conspiracy.”  While JSW contended that its actions were motivated by concern about the Chapel lawsuit against MM, the court found that “[a] reasonable juror could have concluded that JSW’s explanation for its supposedly independent refusal to deal was pretextual.”

The court reversed as to Nucor, who had received only one threat, from Chapel.  In response, Nucor introduced evidence that it had an “incumbency practice,” under which it remained loyal to established customers such as Chapel, to maintain a stable supply chain.  The court reasoned that “[e]ven if the jury did not credit this practice, MM did not provide evidence that when Nucor first refused to quote MM, Nucor was aware of an agreement between the distributors to foreclose MM from the market. . . . In fact, at the time Nucor first refused to quote MM, Nucor believed that JSW, its competitor, was supplying MM.”

Returning to JSW, the court observed that “[t]he Supreme Court has consistently held that the per se rule [of antitrust liability] is applicable to group boycotts identical to the boycott alleged in this case.”  JSW argued that in the recent opinion of Leegin Creative Leather Products v. PSKS, 551 U.S. 877 (2007) when the Supreme Court eliminated per se liability for price-setting vertical agreements (i.e, exclusive dealing arrangements), it necessarily did so for horizontal agreements such as the one among distributors in this case.  The court disagreed, concluding: “Purely vertical refusals to deal . . . frequently have procompetitive justifications, such as limiting free riding and increasing specialization.  However, the crux of the group boycotts at issue in the cases in which per se liability has always applied is that members of a horizontal conspiracy use vertical agreements anticompetitively to foreclose a competitor from the market.”  The court concluded by rejecting a challenge to MM’s damage model.

The MM opinion has considerable significance, both practically and theoretically.  Practically, a company in a position like JSW’s is not unsympathetic – on the one hand, it has substantial contract obligations to a new customer, while on the other hand, it confronts serious threats to substantial other and longstanding business.  A tough business decision becomes harder when potential Section 1 antitrust liability – which carries with it the threat of treble damages – must be considered.

Theoretically, the court’s affirmation of per se liability connects to an older school of antitrust thought that emphasized bright-line rules over case-by-case analysis.  That view has received strong criticism as anachronistic; as Robert Bork wrote many years ago in a famous Yale Law Journal article: “The current shibboleth of per se illegality in existing law conveys a sense of certainty, even of automaticity, which is delusive. The per se concept does not accurately describe the law relating to agreements eliminating competition as it is, as it has been, or as it ever can be.”  Yet per se rules remain in place in the antitrust laws, and the MM opinion shows that they are not going away any time soon, absent sweeping action by Congress or the Supreme Court.