Felder’s Collision Parts sells aftermarket parts for GM cars; it sued GM and several dealers in original equipment manufactured parts made by GM, alleging that they ran a pricing and rebate program (with the unfortunate name of “Bump the Competition”) that amounted to predatory pricing.  The district court dismissed and the Fifth Circuit affirmed in Felder’s Collision Parts, Inc. v. All Star Advertising Agency, No. 14-30410 (Jan. 27, 2015).

Under the program, a dealer would offer a price significantly lower than the ordinary aftermarket part price.  Felder’s argued the dealer was pricing beneath average variable cost — and thus engaging in predatory pricing — and offered an example of a dealer selling a part for $119 that it bought from GM for $135.  The defendants pointed out that a key part of the program was a rebate to the dealer from GM based on sales, and including that rebate in the “cost” calculation turned the seeming $15 loss in this example into a 14% profit.

The Fifth Circuit agreed:  “The price versus cost comparison focuses on whether the money flowing in for a particular transaction exceeds the money flowing out. The rebate undoubtedly affects that bottom line for All Star by guaranteeing that it makes a profit on any Bump the Competition sale. That undisputed fact resolves the case, as a ‘firm that is selling at a shortrun profit maximizing (or loss-minimizing) price is clearly not a predator.'” The Court acknowledged: “Felder’s no doubt is having a tougher time selling aftermarket equivalent parts for GM vehicles  . . . But antitrust law welcomes those lower prices for consumers of collision parts so long as neither GM nor its dealers is selling parts at below-cost levels.”   (Or, “parts is parts . . . “)

Ratliff Ready-Mix, a creditor of Barry Pledger’s construction business, argued that its claim was not dischargeable in Pledger’s bankrupcty because it arose from a violation of the Texas Construction Trust Fund Statute.  Reviewing the case law about this statute and the defenses it provides, the Fifth Circuit affirmed judgment for the debtor.  To overcome Pledger’s statutory affirmative defense, “Ratliff had to establish that the payments made by Pledger were not ‘actual expenses directly related to the construction.’ Specifically, Ratliff must show that (a) these were not payments made on the project or overhead, or (b) they were made for Pledger’s own uses rather than to benefit the health of his failing business.”  Ratliff Ready-Mix v. Pledger, No. 14-50023 (Jan. 23, 2015, unpublished).  Here, “[i]t would be hard to argue that paying taxes, repairing vehicles and equipment, and compensating employees could be categorized as anything other than maintaining the business.”

The note said: “So long as an Event of Default remains outstanding: (a) interest shall accrue at the Default Rate and, to the extent not paid when due, shall be added to the Principal Amount . . . .” The lender said this language meant that interest should be compounded, and the lower courts agreed — in the amount of almost $5 million.  The borrower argued that this language only meant “that any unpaid interest will be added
to the principal amount as the total debt due.”  The Fifth Circuit disagreed, finding that this reading would impermissibly make the provision redundant “because it would operate only to label the accrued interest as money owed by [borrower] to [lender], and the interest was already owed.  TCI Courtyard, Inc. v. Wells Fargo Bank, N.A., No. 14-10635 (Jan. 22, 2015, unpublished).

The district court dismissed a borrower’s breach of contract claim against a mortgage servicer because the borrower was in substantial arrears, and “as a general principle . . . an individual in breach cannot bring a cause of action for breach against another contracting party.”  The Fifth Circuit reversed, finding that the borrower had alleged plausible claims that the servicer breached first; specially, that “the misapplication of [the borrrower’s] payments to an escrow account, resulting in default . . . constituted a material breach,” and that “Chase’s rejection of her mortgage payments, even if not a material  breach, rendered performance impossible and that, as a result, any subsequent breach does not bar her claim.”  Peters v. JP Morgan Chase, No. 13-50157 (Jan. 23, 2015, unpublished).

The actual pleading is available here, the key averment appears in paragaph 8: “According to the information received from the bank, Defendant believes Plaintiff is over $50,000 in arrears. According to the accounting done by Plaintiff, Plaintiff only owes $31, 437.30. Only $15,000 of this amount is on past due payments. Plaintiff believes that the disparity between the two figures is due to the fact that Chase has misapplied her payments under the mortgage to escrow fund, thereby causing her to be in default under the mortgage.”

I hope you enjoy this article on “Fact Issues in the Fifth Circuit,” which I published earlier this month in the State Bar Litigation Section’s periodical, “News for the Bar.”

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

Lexington Relocation Services sued Gum Tree Property Management and other defendants, alleging that a former employee had been hired by them to perform “substantially the same marketing and sales tasks that she had previously performed, in violation of her employment agreement.”  Nationwide Mutual Ins. Co. v. Gum Tree Property Management, No. 14-60302 (Jan. 14, 2015, unpublished).  Gum Tree sought defense and indemnity under several CGL and umbrella policies; the district court ruled for the insurer and the Fifth Circuit affirmed.  The Court held that the insured did not successfully invoke a “narrow exception” under Mississippi law that can base coverage on “true facts” learned by the insurer beyond what a pleading says, noting that the exception does not reach “simpl[e] denials of the allegations in the complaint” or other “mere assertions.”  The Court then found that the pleading did not make allegations about disparagement, invasion of privacy, or advertising injury.

The issue in Vine Street LLC v. Borg Warner Corp. was whether the defendant — a seller of dry cleaning equipment and supplies — intentionally discharged “PERC” (an unpleasant chemical widely used in dry cleaning) into the ground. No. 07-40440 (Jan. 14, 2015). While most of the opinion addresses technical matters about CERCLA , the discussion about the evidence of intent is of general interest.  In particular, the Court noted testimony that the defendant’s employees handled PERC with care and did not intentionally spill it, and evidence that the defendant’s intent was to “sell useful chemicals to distributors and not to dispose of them” — in other words, “there is no evidence to suggest that [Defendant] engaged in subterfuge to disguise the disposal of PERC as a legitimate transaction surrounding the operation of a dry cleaning business.”

The case of AAA Bonding Agency v. United States Dep’t of Homeland Security involved the seldom-seen world of “immigration bonds” — a type of surety bond that allows release of an alien from custody while deportation proceedings are ongoing.  No. 14-20057 (Jan. 12, 2015, unpublished).  The Fifth Circuit has previously held that “DHS may only enforce an immigration bond against a surety company or bonding agent that has received notice demanding delivery of the alien covered by the bond.”  This case involved 23 bonds where (1) AAA, the bonding agency, was liable on the bond with Surety National, an insurance company, (2) only AAA had received notice from DHS, and (3) Surety National had settled with DHS, and as part of the settlement, agreed that AAA would not be liable to DHS on these bonds if a court held that AAA’s obligation was joint and several with Surety National’s.  The Court concluded that its prior holding did not alter the joint and several liability of AAA and Surety National as set forth in the language of the bonds, and ruled for AAA.

Plaintiffs — breeders of quarter horses using cloning technology — sued the American Quarter Horse Association, alleging that its bar on the registry of cloned horses was anticompetitive and violated Sections 1 and 2 of the Sherman Act.   Abraham & Veneklasen Joint Venture v. American Quarter Horse Association, No. 13-11043 (Jan. 14, 2015).  The district court agreed and entered an injunction; the Fifth Circuit reversed.

With respect to the Section 1 (conspiracy) claim, the Court expressed skepticism about whether the Association’s management could legally conspire with the Association, noting (without deciding):  “American Needle‘s rejection of ‘single entity’ status for organizations with ‘separate economic actors’ [such as the NFL as to licensing] does not fit comfortably with the facts before us.  AQHA is more than a sports league, it is not a trade association, and its quarter million members are involved in ranching, horse trading, pleasure riding and many other activities besides the ‘elite Quarter Horse’ market.”  The Court then held that Plaintiffs had not shown a conspiracy, finding that their evidence about powerful members of the Association speaking out against cloning did not prove an actual agreement: “[T]he antitrust laws are not intended as a device to review the details of parliamentary procedure.”  (citation omitted)

As to the Section 2 claim, the Court observed: “AQHA is a member organization; it is not engaged in breeding, racing, selling or showing elite Quarter Horses.”  Thus, because “nothing in the record . . . shows that AQHA competes in the elite Quarter Horse Market,” no claim about its alleged monopolization of that market was cognizable.  The Court distinguished other cases in which a trade association actually became a market participant and competitor.

Waste Management sued Kattler, a former employee, for misappropriating confidential information and other related claims.  A dispute about what information Kattler had in is possession expanded to include a contempt finding against Kattler’s attorney, Moore.  Waste Management v. Kattler, No. 13-20356 (Jan. 15, 2015).  The Fifth Circuit reversed, reasoning as follows:

1.  The order setting a hearing referenced a motion, by Pacer docket number, that only sought relief against Kattler and not the attorney.  It was not an adequate “show-cause order naming [both] Moore and Kattler as alleged contemnors[.]”

2.  On the merits, the Court found that Kattler had misled Moore as to the existence of a particular “San Disk thumb drive,” that Moore had acted prudently in consulting ethics counsel and withdrawing after he learned of the untruthfulness, and that new counsel made a prompt disclosure about the drive that avoided unfair prejudice.  This part of the opinion reviews Circuit authority about the failure to correct incorrect court filings.

3.  Also on the merits, “while Moore clearly failed to comply with the terms of the December 20 preliminary injunction by not producing the iPad image directly to [Waste Management] by December 22, this failure is excusable because the order required Moore to violate the attorney-client privilege.”  Further, the relevant order only “required Kattler to produce an image of the device only, not the device itself,” which created a “degree of confusion” that excused the decision not to produce the actual iPad.

Law360 has also reported on this decision, and an expanded version of this article appears in the Texas Lawbook.

Eastman Chemical, the manufacturer of a plastic resin used in water bottles and food containers, successfully sued Plastipure under the Lanham Act, alleging that Plastipure falsely advertised that Eastman’s resin contained a dangerous and unhealthy additive. Eastman Chemical Co. v. Plastipure, Inc., No. 13-51087 (Dec. 22, 2014). Relying on ONY, Inc. v. Cornerstone Therapeutics, Inc., 720 F.3d 490 (2d Cir. 2013), Plastipure argued that “commercial statements relating to live scientific controversies should be treated as opinions for Lanham Act purposes.”  The Fifth Circuit disagreed, noting that Plastipure made these statements in commercial ads rather than scientific literature, and observing: “Otherwise, the Lanham Act would hardly ever be enforceable — ‘many, if not most, products may be tied to public concerns with the environment, energy, economic policy, or individual health and safety.'”  The Court also rejected challenges to the jury instructions and to the sufficiency of the evidence as to falsity.

While affirming the dismissal of the borrowers’ other claims related to a foreclosure, the Fifth Circuit reversed as to a claim for wrongful foreclosure, reasoning: “Under Texas law, a claim for wrongful foreclosure generally requires: (1) ‘a defect in the foreclosure sale proceedings;’ (2) ‘a grossly inadequate selling price;’ and (3) ‘a causal connection between the defect and grossly inadequate selling price.’ In their Third Amended
Complaint, Plaintiffs allege that JPMC failed to comply with the notice procedures required for a foreclosure sale,and that, as a result, they lost the opportunity to obtain cash or to find a buyer for the Property before JPMC foreclosed. Plaintiffs also specifically allege that the Property sold for a grossly inadequate sales price.”  Guajardo v. JP Morgan Chase Bank, N.A., No. 13-51025 (Jan. 12, 2015, unpublished) (citations omitted).  Notably, while the pleading describes the type of notice required and avers that it did not occur, it does not provide detail about the sales price and why it was not adequate.

Two rulings for mortgage servicers offer points of general interest to start the New Year:

1.  This allegation does not satisfy Twombly, with respect to the intent requirement of the Texas fraudulent lien statute: “the transactions by the Defendants jointly and severally were designed to defraud the Plaintiff out of her property.” The Fifth Circuit found that “this allegation is, at most, a legal conclusion that [Defendant Law Firm] acted with the requisite intent; it lacks any ‘factual content’ that would ‘allow[] the court to draw the reasonable inference that the intent element was met.”  Trang v. Taylor Bean & Whitaker Mortgage Corp., No. 14-5028 (Jan. 7, 2015, unpublished).

2.  Footnote 1 of the Trang opinion reviews the apparent split in authority on whether a lien assignment falls within the scope of that statute.

3.  A borrower seeking refinancing of a mortgage loan is not a consumer under the Texas DTPA.  “[T]he refinancing that Perkins sought from BOA is “directly analogous to the [auto] refinancing services sought by the claimant in Riverside [National Bank v. Lewis, 603 S.W.2d 169 (Tex. 1980)].”  Perkins v. Bank of America, No. 14-20284 (revised March 4, 2015).

1.  The Fifth Circuit heard oral arguments on Friday, January 9, in the gay marriage appeals from each of the three states in the Circuit.  Here is a representative news article about the arguments, and the recording of the arguments is available here.

2.  Also on January 9, the Court denied en banc review of a Clean Water Act case arising from the Deepwater Horizon disaster.  The vote was 6 in favor of review, 7 opposed, with a short dissenting opinion. I have not followed this opinion previously, and the en banc split is not as telling about commercial cases as a a trio of other votes, but it is nevertheless an uncommon insight on the full Court’s view of an issue.

Many personal injury claims are resolved by a “structured settlement,” in which the plaintiff receives a large sum in installments over his or her lifetime.  Symetra is a company that contracts with tort defendants to fund those settlements.  Rapid is a company that offers large lump sum payments to the beneficiaries of those settlements, seeking to profit by the time value of money.  In many states, offers such as Rapid’s are regulated by Structured Settlement Payment Acts (“SSPAs”), and Rapid’s noncompliance with those laws gave rise to Symetra Life Ins. Co. v. Rapid Settlements, Ltd., No. 13-20412 (Dec. 23, 2014).

The trial court found that when Rapid had a dispute with an annuitant, it invoked an arbitration right that “w[as] a sham — designed to circumvent the SSPA’s exclusive method for transferring future payments.”  The first issue on appeal related to the accompanying award of attorneys fees.  The Fifth Circuit remanded for further consideration under Texas law, focusing on the distinction between claims involving present disputes with annuitants (fees allowed), and for future injuctive relief (not allowed). The Court also held that attorneys fees were recoverable as direct damages on Symetra’s claims for tortious interference, when it was “completely foreseeable” to Rapid that its arbitration practices would involve Symetra in state court litigation.

The plaintiff in Wooten v. McDonald Transit Assocs. sued for age discrimination and the defendant defaulted.    The trial court received damages evidence and entered judgment for the plaintiff.   The defendant then appeared – unsuccessfully – but obtained reversal from the Fifth Circuit.  No. 13-11035 (Jan 2, 2015).

“On appeal, the [defaulted] defendant, although he may not challenge the sufficiency of the evidence, is entitled to contest the sufficiency of the complaint and its allegations to support the judgment.”   Here, the majority saw the pleading as a “threadbare recital of a cause of action,” especially weak as to causation.  At the hearing, however, “[P]laintiff’s live testimony provides sufficient evidence of each of the elements of his ADEA cause of action to support the entry of default.”

After a careful review of the language of the rules, precedent, and policy, the majority emphasized the pleadings over the evidence: “As there can be no judgment absent competent pleadings, it strains the text of [Rule 55] to suppose that this investigatory power encompasses the adduction of facts necessary to render the pleadings competent in the first place.”  The trial court should have either dismissed or, in one of various ways, ordered amendment of the pleadings and afforded the defendant the chance to answer them.  A dissent found that “[t]his result is inordinately lopsided and, even worse, favors the wearer of the black hat over the wearer of the white hat.”

Judge Emilio Garza of San Antonio, who served ably on the Fifth Circuit over 20 years, has retired effective January 5, 2015.

Plaintiffs sued for securities fraud about their investments in a business that auctioned antiques.  Heck v. Triche, No. 14-30146 (Dec. 23, 2014). They won on many claims at trial and the Fifth Circuit affirmed, largely on procedural grounds:

1.  Appeal Deadline Extended.  As a threshold matter, the plaintiffs’ motion for attorneys fees tolled the deadline for the notice of appeal, because the district court entered an order under Fed. R. Civ. P. 83(e) that stayed the deadline until the disposition of the motion.  The Court noted some tension between its analysis of this issue and that of the Second Circuit’s in Mendes Junior Int’l Co. v. Banco Do Brasil, S.A., 215 F.3d 306 (2000).

2.  Invited Charge Error.  The Court agreed that the district court’s verdict form erroneously conflated the elements of a federal 10b-5 claim with those of a Louisiana securities claim.  It found, however, that the plaintiffs invited this error by advocating for this part of the charge (citing United States v. Gray, 626 F.2d 494, 501 n.2 (5th Cir. 1980) [“The invited error doctrine bars reversal even if the instruction constituted plain error.”])

3.  Cross-Appeal Needed.  The plaintiffs argued that the district court erred by imposing liability under state law, not 10b-5.  The Court found this argument waived, because its acceptance would change the amount of the judgment as well as its basis, and the plaintiffs did not cross-appeal.

Several labor unions arbitrated disputes with American Airlines about pilot seniority. Mackenzie v. Air Lines Pilots Association, No. 11-11098 (Dec. 23, 2014, unpublished). Two pilots sought to bring a class action to challenge the arbitration award.  The Fifth Circuit dismissed for lack of standing: “[W]hen a CBA formed pursuant to the RLA establishes a mandatory, binding grievance procedure and vests the union with the exclusive right to pursue claims on behalf of aggrieved employees, an aggrieved employee whose employment is governed by the CBA lacks standing to attack the results of the grievance process in court—the sole exception being the authorization of an aggrieved employee to bring an unfair representation claim.”  (citing Mitchell v. Continental Airlines, 481 F.3d 225 (5th Cir. 2007)).  The Court’s analysis of this issue resembles discussion about the broader topic of claim preclusion, arising from a privity relationship, based on another party’s litigation activity.

A helicopter crashed in the Gulf of Mexico.  Its owner sued three defendants — Rolls-Royce, who built the engine bearing in question; the designer of the “pontoon flotation” system that deployed after the crash; and a repair company that worked on that system. Rolls-Royce sought severance and transfer to Indiana, based on a forum selection clause in its warranty, and relying on the recent case of Atlantic Marine Construction v. Western District of Texas, 134 S. Ct. 568 (2013).  The district court denied its motions; in a 2-1 decision, the Fifth Circuit reversed.   In re: Rolls Royce Corp., 775 F.3d 671 (5th Cir. 2014).

After confirming that mandamus relief was available, despite the novel procedural context of a combined transfer and venue motion, the majority reviewed the applicability of Atlantic Marine.  “For cases where all parties signed a forum selection contract, the analysis is easy: except in a truly exceptional case, the contract controls.”  For a situation such as this one, however, the analysis is more subtle: “While Atlantic Marine noted that public factors, standing alone, were unlikely to defeat a transfer motion, the Supreme Court has also noted that section 1404 was designed to minimize the waste of judicial resources of parallel litigation of a dispute. The tension between these centrifugal considerations suggests that the need — rooted in the valued public interest in judicial economy — to pursue the same claims in a single action in a single court can trump a forum-selection clause.”

The dissent “believe[s] the majority have erroneously and confusingly diminished the scope of Atlantic Marine,” concluding: “Simple two-party disputes are near a vanishing breed of litigation.  It seems highly unlikely that the Supreme Court granted certiorari and awarded the extraordinary relief of mandamus simply to proclaim that a forum selection clause must prevail only when one party sues one other party.  The Court is not naive about the nature of litigation today.”