In affirming summary judgment for the defense in an employment case, the Fifth Circuit reminded: “Although we appreciate and encourage vigorous representation by counsel, we will not tolerate representation that is ‘zealous’ to the point of false or misleading statements.  A footnote to that reminder noted: “‘zealous’ is derived from ‘Zealots,’ the sect that, when besieged by the Roman Legions at Masada, took the extreme action of slaying their own families and then committing suicide rather than surrendering or fighting a losing battle.”  Branch v. Cemex, Inc., No. 12-20472 (March 26, 2013, unpublished).

A steady flow of mortgage servicing cases in 2013 continued with Smith v. JPMorgan Chase (March 22, 2013, unpublished).  In affirming summary judgment for the lender on several issues, the Court made two holdings of note.  First, an incomplete RESPA response, provided less than sixty days before suit was filed, could not support a contract or negligent misrepresentation claim when it caused no damage.  Second, the statement: “Defendants’ agents made harassing phone calls 8-10 times per day.  I quit answering our phone, but the constant ringing caused us to have to unplug our home phone and to only use our cell phones” did not raise a fact issue on a claim of unreasonable collection efforts, when “Defendants’ detailed call records, on the other hand, indicated that calls were not answered, phone numbers were disconnected, and messages were left, but, on days when there were multiple calls, only two calls were made.”

A company leased a railcar, and undertook to return it “cleaned of commodities,” which was defined to mean (among other things) “safe for human entry.” Sampson v. GATX Corporation, No. 12-30406 (March 19, 2013, unpublished). The district court concluded that this provision was only part of the contract devoted to allocation of the cost of cleaning.  The Fifth Circuit disagreed, and found that the plaintiff had raised a fact issue about whether this contractual duty could give rise to tort liability to someone injured in the car, pursuant to section 324A of the Second Restatement of Torts.

In a rare but classical exercise of judicial review of a state law’s “rational basis,” the Fifth Circuit found a Louisiana economic regulation unconstitutional.  The Associated Press and the Times-Picayune provide some initial commentary.  The Louisiana State Board of Embalmers and Funeral Directors barred an abbey of Benedictine monks from selling caskets.  In late 2012, the Fifth Circuit certified a question to the Louisiana Supreme Court about the Board’s authority, which that court declined to answer.  The Fifth Circuit then reviewed the Board’s actions and agreed with the district court that the regulation was not rationally related to the state’s claimed interests in consumer protection or public health, affirming an injunction against its enforcement.  St. Joseph Abbey v. Castille, No. 11-30757 (March 20, 2013).  The Court emphasized both the limited role of “rational basis” review and its importance when it does apply: “The deference we owe expresses mighty principles of federalism and judicial roles.  The principle we protect from the hand of the State today protects an equally vital core principle — the taking of wealth and handing it to others . . . as ‘economic’ protection of the rulemakers’ pockets.”

The Court released a revised opinion in Janvey v. Democratic Senatorial Campaign Committee, No. 11-10704 (originally issued October 23, 2012; revised March 18, 2013).  The expanded opinion withdraws the earlier holding that a federal equity receiver has standing to assert creditors’ fraudulent transfer claims arising from a Ponzi scheme.  The Court now holds that the receiver only has standing to assert the claims of the entities in receivership, but those entities are not considered to be “in pari delicto” with the operator of the scheme: “The appointment of the receiver removed the wrongdoer from the scene.  The corporations were no more [the perpetrator’s] evil zombies.”  Id. at 6 (quoting Eberhard v. Marcu, 530 F.3d 122, 132 (2d Cir. 2008), and citing Scholes v. Lehmann, 56 F.3d 750 (7th Cir. 1995) (Posner, C.J.)).

Materials Evaluation and Technology Corporation (“METCO”) had a CGL policy from Mid-Continent that it renewed annually beginning in 1997.  The 2002 policy covered liability arising from a third-party contractual relationship while the 2003 policy did not.  Two METCO employees were injured at a DuPont facility, DuPont settled their claim and sought indemnity from METCO pursuant to their contract, and Mid-Continent denied coverage based on the 2003 policy.  Materials Evaluation & Tech Corp. v. Mid-Continent Casualty Co., No. 12-40186 (March 18, 2013, unpublished).  METCO appealed a summary judgment for the insurer, arguing that Texas law presumes that an insurance policy renews on the same terms as the original.  The Court reviewed METCO’s authority and found it was limited to those cases’ particular fact situations — generally involving a claim of misrepresentation or an issue of mutual mistake — and affirmed.

The parties in Silver Dream LLC v. 3MC Inc. settled a copyright dispute about jewelry sales “by agreeing, among other things, that the [individual defendants] would provide affidavits disclosing details of the infringing items.”  No. 11-30968 (March 18, 2013, unpublished).  The defendants warranted the affidavits would be “true, complete, and exact” but the agreement allowed termination only if the affidavits were discovered to be false within a year.  The plaintiff took issue with the “qualified nature” of the affidavits as a reason to terminate the settlement, but the district court and Fifth Circuit stressed that the cancellation right was limited to a “false” statement. The plaintiff’s proof of alleged affirmative falsehoods in the affidavits was found to lack specificity.  The Fifth Circuit also found no abuse of discretion in denying a motion for continuance to depose the individual defendants, noting delay in the request and a lack of specificity about what the plaintiff planned to establish.

The ALI’s publication of the Restatement (Third) of Restitution in 2011 stirred interest in the important but arcane principles that define unjust enrichment.  The Fifth Circuit addressed a classic restitution situation in Boudreaux v. Transocean Deepwater, Inc., No. 12-30041 (March 14, 2013).  A seaman sought recovery for maintenance and cure after an injury; Transocean successfully established a defense based on the seaman’s failure to disclose a previous medical condition; and Transocean sought restitution of money paid earlier.  The majority rejected Transocean’s position, finding a lack of support in prior case law, and noting that the scienter element of Transocean’s defense was less demanding that a common-law fraud claim.  (“We are offered no reason to depart from precedent. There is only the change of advocates and judges, by definition irrelevant to the settling force of past jurisprudence — always prized but a treasure in matters maritime.”)  A dissent, briefly citing the Restatement, argued that one other circuit had endorsed such a claim, and that allowing the claim struck the proper policy balance.

Plaintiff purchased a shaved-ice machine in Louisiana, made by Southern Snow, a Louisiana-based business.  She moved the machine to Mississippi, injured her hand while cleaning it, and sued for damages in Mississippi.  Irvin v. Southern Snow Manufacturing, No. 11-60767 (March 13, 2013, unpublished).  The Fifth Circuit agreed with the district court that she did not establish specific jurisdiction under a stream-of-commerce theory.  Even assuming that Southern Snow had minimum contacts by making a substantial percentage of its sales into neighboring Mississippi, her claim did not arise out of those contacts because “Southern Snow sold the machine to a Louisiana customer and had no knowledge that, years later, Irvin unilaterally transported it into Mississippi.”  General personal jurisdiction was not at issue.  The Court’s emphasis on the “arising out of” factor echoes its recent opinion in ITL International v. Constenla, S.A., 669 F.3d 493 (5th Cir. 2012).  The vagaries of snow cone sales produced another published Fifth Circuit opinion, on procedural due process and pleading issues, in Bowlby v. City of Aberdeen, 681 F.3d 215 (5th Cir. 2012).

An assignment of royalty interests for a continental shelf project had this “calculate or pay” clause:  “The overriding royalty interest assigned herein shall be calculated and paid in the same manner and subject to the same terms and conditions as the landowner’s royalty under the Lease.”  The parties disputed whether the clause simply required calculation of royalties in the same way as the government’s royalty, or allowed suspension of the assigned payments during a period when the government’s royalty right was suspended. Total E&P USA, Inc. v. Kerr-McGee Oil & Gas, No. 11-30038 (revised June 20, 2013).  Applying Louisiana law, the majority found the clause ambiguous on that issue, and further reasoned that at the time of contracting, legal principles that eventually became settled and could resolve the ambiguity were not yet settled.  Noting that no cross-appeal was taken, the Court reversed a summary judgment and remanded for consideration of extrinsic evidence.   A succinct concurrence noted an additional reason for finding ambiguity based on the grammar of the clause.  A dissent took issue with the majority’s analysis of other contract provisions and applicable law, and would have affirmed summary judgment about interpretation but reversed as to reformation for mutual mistake.    Both the majority and dissent endorsed consideration of extrinsic evidence, for different reasons and purposes — a general topic which recurs with some regularity in the Court’s contract opinions.

The plaintiff in Smith Maritime v. L/B KAITLYN EYMARD sought recovery for property damage and lost profits from allegedly negligent welding on a crane on a boat.  No. 12-30378 (Jan. 3, 2013, publication ordered March 11, 2013)  The Fifth Circuit found the plaintiff’s tort claims for economic loss barred by East River Steamship Corp. v. Transamerica Delaval, which “held that a manufacturer in a commercial relationship has no duty under either a negligence or strict products-liability theory to prevent a product from injuring itself.”  476 U.S. 858, 871 (1986).  The Court concluded that “modification of a vessel,” as distinguished from its “manufacture or repair,” was “a distinction without a difference” for purposes of East River.  The Court recognized that the errant crane had damaged living quarters that were being added to the vessel, but those quarters were not “other property” outside the East River doctrine given the wording of the parties’ Asset Purchase Agreement.  

Appellant sought review of an attachment order on the M/V OCEAN SHANGHAI.  Appellee moved to dismiss the appeal, as the parties had settled, and the boat in question had left the jurisdiction (near the coast of Latvia as of the date of this post.)    Farenco Shipping Co. v. Farenco Shipping PTE, Ltd., No. 12-31154 (March 4, 2013, unpublished).  Appellant responded by asking for vacatur of the attachment order.  Recognizing that this request raised the novel question of vacatur of an interlocutory order rather than a final judgment, the Fifth Circuit found no “exceptional circumstances” in either the parties’ settlement or the order’s potential collateral estoppel effect that would warrant its vacatur.  With respect to the settlement, the Court observed that as a general matter: “Settlements are frequently made under difficult circumstances, and often represent the least bad of several bad options; this does not make such settlements involuntary.”

The Court released a revised opinion in PPI Technologies v. Liberty Mutual, which continues to affirm the dismissal of a coverage case for inadequate allegations of property damage.  No. 12-40189 (March 1, 2013, unpublished).  The opinion is now unpublished, contains a footnote stating: “Our holding is not intended to alter Texas pleading standards,” and discusses the allegations in Twombly-like language, stating: “The allegations in the underlying lawsuits are either for economic damages, and thus not covered, or are legal conclusions, rather than factual allegations as required.”

The Deepwater Horizon rig operated under a drilling contract between BP and Transocean.  The contract had indemnity provisions between BP and Transocean for pollution claims depending on whether the contamination originated above water.  The contract also required Transocean to maintain BP as an additional insured under Transocean’s liability coverage.  In Ranger Insurance v. Transocean Offshore, the parties agreed that BP was entitled to some coverage as an additional insured, but disputed whether that coverage reached pollution liability, since the spill originated below water in BP’s area of responsibility under the indemnity clauses.  No. 12-30230 (March 1, 2013).  The Fifth Circuit reasoned: (1) Texas law begins by examining the policy, which did not restrict pollution coverage when read in light of earlier cases involving similar clauses; (2) the terms of the drilling contract did not change that conclusion, as its indemnity provisions were sufficiently “discrete” from its additional insured provision.  The opinion reviews what the Court saw as a consistent line of Fifth Circuit and Texas authority about the interplay of indemnity and “additional insured” clauses.

The Fifth Circuit affirmed a preliminary injunction about pharmaceutical development in Daniels Health Sciences v. Vascular Health Sciences.  No. 12-20599 (March 5, 2013). The opinion offers a practical road map for basic issues in trade secret litigation.  As to likelihood of success on the merits, the Court found adequate findings about damage, specific confidential information, a trade secret arising from a “compilation,” and a confidential relationship between the parties.  As to irreparable injury, the Court found sufficient findings about reputational injury that was not speculative.  While it found no abuse of discretion in the district court’s weighing of public and private interest factors, it did see a “close question” about the overall scope of the injunction in light of the conduct at issue and the defendant’s business plans and suggested that the district court “try to narrow the scope of its injunction on remand.”

The secured lender held a $39 million claim in the bankruptcy of a hotel development; a reorganization plan was approved over its objection in a “cram-down” that called for repayment of the debt over ten years at 5.5 percent interest (1.75 percent above prime on the date of confirmation).  Wells Fargo v. Texas Grand Prairie Hotel Realty LLC (No. 11-11109, March 1, 2013).  The parties agreed that this “prime-plus” approach was appropriate under the plurality in Till v. SCS Credit Corp., 541 U.S. 465 (2004), but disputed the proper rate.  The Court rejected a threshold challenge based upon “equitable mootness” because it reasoned that the appeal could be resolved with “fractional relief” rather than rejection of the plan.  On the merits, the Court reaffirmed that it would review the choice of a cramdown rate for clear error rather than de novo, citing In re: T-H New Orleans Limited Partnership, 116 F.3d 790 (5th Cir. 1997)).  After a thorough review of Till and subsequent cases, the court found no clear error in this prime-plus rate in this factual context.

A creditor successfully made a “credit bid” under the Bankruptcy Code for assets of a failed golf resort.  Litigation followed between the creditor and guarantors of the debt, ending with a terse summary judgment order for the guarantors: “This is not rocket science.  The Senior Loan has been PAID!!!!”  Fire Eagle LLC v. Bischoff, No. 11-51057 (Feb. 28, 2013).  The Fifth Circuit affirmed in all respects, holding: (1) the bankruptcy court had jurisdiction over the dispute with the guarantors because it had a “conceivable effect” on the estate; (2) the issue of the effect of the credit bid was within core jurisdiction and did not raise a Stern v. Marshall issue; (3) core jurisdiction trumped a forum selection clause on the facts of this case; (4) a transfer into the bankruptcy court based on the first-to-file rule was proper; and (5) the creditor’s bid extinguished the debt.  On the last holding, the Court noted that the section of the Code allowing the credit bid did not provide for fair-market valuation of the assets, unlike other Code provisions.

A federal jury awarded $4 million in compensatory damages for a car wreck.  The district judge interpreted the award to include $2.2 million in noneconomic damages, and then reduced that portion of the award to $1 million because of Mississippi’s statutory cap on noneconomic damages.  Learmonth v. Sears, Roebuck & Co., No. 09-60651 (Feb. 27, 2013, revised March 20, 2013).  The plaintiff challenged the cap as violating the Mississippi Constitution’s jury trial guarantee and separation of power provisions.  The Mississippi Supreme Court declined to answer certified questions about those issues.  The Fifth Circuit found that the cap did not violate the Mississippi Constitution.  The Court declined to consider an argument that the Erie doctrine prevented the district judge from segregating the verdict as a matter of state substantive law, finding that the point was not asserted timely and was thus waived.

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