Dr. 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).

The 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 between 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).

Plan your New Orleans Mardi Gras trip with this calendar; the next parade is Saturday the 29th, featuring the Krewe of Cork.

Cal 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).

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 petition, 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.'”

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).

Here is a reprint of my article this week in the Texas Lawbook, Federal Litigation in the Fifth Circuit in the New Year.  I hope you find it informative and helpful.

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).

In 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).

Boaz 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).

Collins 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).

The 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).

A 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).

A 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 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.

The 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).

Diversity 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.)

Despite 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).

In 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.'”