Emerald 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  Emerald City Management LLC v. Kahn, No. 14-40856 (Dec. 11, 2015, unpublished) (citing Paulsson Geophysical Servs., Inc. v. Sigmar, 529 F.3d 303 (5th Cir. 2008)).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  Emerald City Management LLC v. Kahn, No. 15-40446 (March 8, 2016, unpublished)).

Jose 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.

Defendants 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 observing: “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).

The 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.

In 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).

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).

A 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 by 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).

The 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.)

In 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).

Concerto 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).

Judgment 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).

Abandoning 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.

After 15-plus years of litigation, the remaining issues in Art Midwest Inc. v. Clapper related to the calculation of prejudgment interest.  No. 14-10973 (Nov. 9, 2015, last before the Fifth Circuit in Art Midwest Inc. v. Atl. Ltd. P’ship XII, 742 F.3d 206 (5th Cir. 2014)).  The Court reversed as to the starting date for calculating interest — even though the first judgment by the district court was reversed in part, the date of that judgment was still the proper starting point under Fed. R. App. P. 37(a) and Masinter v. Tenneco Oil Co., 929 F.2d 191 (5th Cir. 1991), aff’d in relevant part, 938 F.2d 536 (5th Cir. 1991).  The opinion also touches on waiver and law-of-the-case issues addressed in the 2014 appeal.

Fortune Natural Resources made a claim in the bankruptcy of an oil exploration company for roughly $3 million related to decommisioning a lease.  Fortune alleged that adjustments to a sale order hurt its right of recovery on that claim. The Fifth Circuit disagreed and found no standing, observing: “Fortune’s argument that it meets the ‘person aggrieved’ standard because it has already received a letter from . . . mandating that it decommission its Lease misses the mark. Fortune’s payment of decommissioning costs may show an injury, but it does not show that the bankruptcy court’s order caused this injury. This court’s jurisprudence states that the order of the bankruptcy court must directly and adversely affect the appellant pecuniarily.  Having failed to present sufficient evidence to show that Fortune was directly and adversely affected pecuniarily by the order of the bankruptcy court, Fortune does not meet the ‘person aggrieved” test.”  Fortune Natural Resources Corp. v. United States Dep’t of the Interior, No. 15-20151 (Nov. 19, 2015, unpublished).

A mortgage servicer can violate the Texas Finance Code by asserting legal rights it does not actually have.  See McCaig v. Wells Fargo Bank, 788 F.3d 463 (5th Cir. 2015).  But seemingly inconsistent communications by a servicer do not violate the Code:

“[Plaintiff] does not contend that any one letter is a misrepresentation in
and of itself but rather that the amounts differ, so the letters are misleading
as a whole. But the letters explicitly state that they are describing two different
types of obligations: notices of the entire outstanding obligation and notices
of the amount due to bring the loan current. Each category is internally consistent
and consistent with the other. [Plaintiff’s] amount to bring the loan current
continued to grow over time because she was not making adequate payments
and still occupied the property. The total outstanding obligation grew for the
same reason. The letters were not misrepresentations but, instead, were
accurate descriptions of two different types of obligations and were specifically
identified as such.”

Rucker v. Bank of America, 15-10373 (Nov. 20, 2015).

Cameron International, a main defendant in the Deepwater Horizon cases, successfully sued Liberty Insurance to help cover its substantial settlement costs. After affirming on the merits, the Fifth Circuit certified this question to the Texas Supreme Court: “Whether, to maintain a cause of action under Chapter 541 of the Texas Insurance Code against an insurer that wrongfully withheld policy benefits, an insured must allege and prove an injury independent from the denied policy benefits?” Cameron International Corp. v. Liberty Ins. Underwriters, Inc., No. 14-31321 (Nov. 19, 2015).

The district court in Naranjo v. Thompson found that Naranjo, a prisoner in the Reeves County Detention Center, had shown “exceptional circumstances” that warranted the appointment of counsel to pursue his civil rights claims about the conditions of his incarceration.  (Foremost among them was the prisoner’s inability to review a number of documents that were filed under seal due to security concerns.)  The court went on to conclude, however, that no local attorneys were available and that it lacked the power to make a compulsory appointment.  The Fifth Circuit reversed, finding that a district court has the inherent power to make such an appointment, but reminding that “this is a power of last resort” and that “[i]nherent powers ‘must be used with great restraint and caution.'” Accordingly, the Court reversed a summary judgment for the defendants and remanded for proceedings consistent with its ruling about inherent power.

U.S. Bank sent notices of acceleration, and began foreclosure proceedings, several times before suing for judicial foreclosure.  The borrowers contended that suit was time-barred. The Fifth Circuit disagreed, finding that the bank’s second notice “unequivocally manifested an intent to abandon the previous acceleration and provided the [borrowers] with an opportunity to avoid foreclosure if they cured their arrearage.  As a result, the statute of limitations period under [Tex. Civ. Prac. & Rem. Code] § 16.035(a) ceased to run at that point and a new limitations period did not begin to accrue until [they] defaulted again and U.S. Bank exercised its right to accelerate thereafter.”  Boren v. U.S. Nat’l Bank Ass’n. No. 14-20718 (Oct. 26, 2015).

Robert Namer had a Louisiana business that used the name “Voice of America,” and encountered intellectual property trouble with the Voice of America information service operated by the U.S. Government.   (Incidentally, I recommend some study of the VOA’s “Simple English” programming, which uses a 1,500-word vocabulary, for anyone interested in straightforward writing.)  Namer lost at trial and challenged the VOA’s audience survey on appeal.  The Fifth Circuit affirmed: “It was appropriate for [the VOA’s expert] to survey potential consumers of Namer’s website to determine if they might be confused into believing they were viewing the website of the government-run VOA (and 19.1% of them were confused.)”  The Court also rejected a laches argument because Namer did not show prejudice; “[c]ontinued routine use of the website during the time when the Board allegedly sat on its rights is all that Namer has established.”  Namer v. Voice of America, No. 14-31353 (Oct. 26, 2015, unpublished).  The opinion helpfully summarizes recent Circuit authority on both the survey and laches issues.

Treaty Energy sued for its damages after an involuntary bankruptcy petition against it was dismissed.   One of its claims sought damages for losses in connection with attempts to sell its restricted stock during that period.  The Fifth Circuit affirmed summary judgment for the defendants, noting: (1) “Though the sales price of restricted shares did fluctuate, it averaged 0.5¢ immediately before, during, and after the pendency of the involuntary petition, and (2) the affiant about an alleged plan to sell restricted shares at a substantial discount lacked personal knowledge, claiming only that he “did assist in the process when requested, which included gathering information when given direct instructions by his superiors.”  Treaty Energy Corp. v. Hallin, No. 15-30113 (Oct. 27, 2015, unpublished).

In an opinion with enormous policy impact, the Fifth Circuit has affirmed the injunction of President Obama’s executive actions about immigration. Texas v. United States, No. 15-40238 (revised Nov. 25, 2015).  Judge Smith wrote for the 2-judge majority, joined by Judge Elrod — an unsurprising outcome, since they formed the majority in the Court’s earlier opinion that denied an interim stay.  Judge King dissented.  A petition for Supreme Court review is a certainty.  A good representative article about the decision appears in The Atlantic.

The full Fifth Circuit has voted to rehear en banc the case of  Flagg v. Stryker Corporation, a deceptively complicated dispute about the role of a pre-suit review process in determining how to consider a medical malpractice claim in the analysis of the parties’ citizenship.

The Pyes’ home, valued at $195,000 before Hurricane Ike, was destroyed by that storm.  After they recovered under various insurance policies, the Fifth Circuit found that further recovery under a flood insurance policy would be an impermissible double recovery. Noting that federal common law applied in this area rather than Texas law, the Court nevertheless found that Texas’s emphasis on fair market value was persuasive, and set the $195,000 valuation as the cap on recovery.  While reaching this result, the Court reminded that “the question of the proper measure of recovery under a policy, which is controlled by policy language when defined in the contract as it is here, as distinct from the question of how the bar on double recovery is applied.”  Pye v. Fidelity Nat’l Prop. & Cas. Ins. Co., No. 14-40315 (Nov. 6, 2015).

Cordero, a district sales manager for Avon, contended that she was due a $70,850 bonus for the first quarter of 2013.  Avon paid her $1,200, noting that several sales leaders who reported to her had created roughly $450,000 of fraudulent orders (although Cordero was not involved).  Nevertheless, Cordero contended that the terms “met” and “achievement” in her compensation agreement referred to product that was “ordered, shipped, and notated on Avon’s quarterly report.”  The Fifth Circuit agreed with Avon that those terms necessarily referred to legitimate activity; otherwise, the contract did not advance a sensible business goal.  Cordero v. Avon Products, No. 15-40563 (Oct. 29, 2015, unpublished).

Cardoni v. Prosperity Bank, an appeal from a preliminary injunction ruling in a noncompete case, involved a clash between Texas and Oklahoma law, and led to these noteworthy holdings from the Fifth Circuit in this important area for commercial litigators:

• Under the Texas Supreme Court’s weighing of the relevant choice-of-law factors, Oklahoma has a stronger interest in the enforcement of a noncompete than Texas, “with the employees located in Oklahoma and employer based in Texas”;
• As also noted by that Court, “Oklahoma has a clear policy against enforcement of most noncompetition agreements,” which is not so strong as to nonsolicitation agreements;
• The district court did not clearly err in declining to enforce a nondisclosure agreement, given the unsettled state of Texas law on the “inevitable disclosure” doctrine; and
• “[T]he University of Texas leads the University of Oklahoma 61-44-5 in the Red River Rivalry.”

No. 14-20682 (Oct. 29, 2015).

The Howard Hughes Company sold lots, and provided necessary infrastructure, in a planned development near Las Vegas.  The IRS did not let it take advantage of a special gain calculation for “home construction contracts,” and the Fifth Circuit agreed.  The key statutory interpretation principle (after the basic one that tax exemptions are strictly construed) was “the rule against superfluities,” under which an argument about one statutory provision fails if it makes another one redundant.  Howard Hughes Co. v. Commissioner of Internal Revenue, No. 14-60915 (revised Dec. 7, 2015).

Happy Halloween, with the most recent “5 cases to know” update from 600Camp – you can read it here, complete with case links.

In 2013, a Fifth Circuit panel reversed the NLRB and held that “an employer does not engage in unfair labor practices by maintaining and enforcing an arbitration agreement prohibiting employee class or collective actions and requiring employment-related claims to be resolved through individual arbitration.”  D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013).  The NLRB, not bound in other jurisdictions by that holding, reaffirmed its original holding in the D.R. Horton case in another matter involving Murphy Oil. Unfortunately for the NLRB, the venue rules for review of its decisions allowed Murphy to appeal to the Fifth Circuit, which – unsurprisingly – again reversed the NLRB.  As in the prior case, the Court did not reverse as to a requirement that the employer clarify its documents to be clear that employees were not waiving the right to make Board charges. Murphy Oil USA, Inc. v. NLRB, No. 14-60800 (Oct. 26, 2015).

Ybarra sued the Dish Network, alleging that he received seven calls from it in violation if the Telephone Consumer Protection Act.  The trial court granted partial summary judgment for Ybarra on three of the calls, after which the parties agreed to the dismissal of the remaining claims.  Dish appealed, and Ybarra objected because the final judgment did not reserve Dish’s right to appeal.  Distinguishing the much-criticized case of Amstar Corp. v. Southern Pacific, 607 F.2d 1100 (5th Cir. 1979), the Fifth Circuit concluded: “Amstar only precludes the appeal of a claim directly covered by the consent judgment. Here, claims subject the partial summary judgment are independent of the settled claims. The reservation of a right to appeal [in the settlement agreement] was effective.”  Ybarra v. Dish Network, No. 14-11316 (Oct. 20, 2015).

Guzman sued Celadon Trucking for personal injuries.  On May 9, 2011, Celadon’s counsel asked him to undergo an independent medical exam.  On May 27, Guzman said in his deposition that he intended to undergo back surgery. Celadon later contended that his surgery constituted spoliation of evidence, and requested an adverse jury instruction. The Fifth Circuit affirmed its denial, noting: “After [Celadon’s counsel] received this disclosure in the deposition, they made no request to be informed of his surgery date, nor did they ask that he delay surgery pending his examination. Only after the examination was completed did [they] assert that the surgery had meaningfully altered evidence.  While the timing of Guzman’s surgery may seem strange, there is no evidence to suggest that he acted in a manner intended to deceive [Celadon] or that he undertook the surgery with the intent of destroying or altering evidence.”  Guzman v. Jones, No. 15-40007 (Oct. 22, 2015).

After losing a state court lawsuit, Martin Resource Management settled with its primary insurer (Zurich) for less than policy limits.  Axis, the excess carrier, won summary judgment with the argument that this settlement did not trigger coverage, and the Fifth Circuit affirmed.  The Axis policy said: “The Insurance afforded under this Policy shall apply only after all applicable Underlying Insurance . . . has been exhausted by actual payment under such Underlying Insurance[.]”  Martin Resource Management Corp. v. Axis Ins. Co., No. 14-40512 (Oct. 21, 2015) (applying Citigroup, Inc. v. Federal Ins. Co., 649 F.3d 367, 371-73 (5th Cir. 2011)).

Hilda Garza sued Starr County for wrongfully discharging her as a county attorney, in retaliation for announcing her candidacy for the local school board, and she won a $1.4 million verdict for front pay at trial.  The district court set aside the verdict as advisory, reasoning that it went to an issue of equitable relief, and allowed the County to offer her reinstatement as an alternative remedy.  The Fifth Circuit reversed.  While Fed. R. Civ. P. 39(c) allows an advisory jury, it does not apply when: (1) the parties voluntarily submit an issue to a jury without formal objection, and (2) the district court does not announce in advance that the verdict is advisory.  Garza v. Starr County, Texas, No. 14-41343 (Oct. 20, 2015, unpublished) (citing, inter alia, Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772 (5th Cir. 1999)).  (The County also challenged the award as excessive; while noting that the “more prudent course” would have been for the County to cross-appeal, the Court allowed the County to raise that issue on remand — although noting that the County’s lack of earlier objections would limit what it could raise.)

The defendants in Bartel v. Alcoa Steamship Co. sought to remove three Jones Act cases to federal court under the Federal Officer Removal Statute, 28 U.S.C. § 1442(a)(1).  While each of the cases involved a United States Naval Ship (one owned by the Navy but operated by civil contractors), “no evidence show[ed] that the government actually exercised continuing oversight over operations aboard ship,” meaning that “the Federal Officer Defendants operated the vessels  in a largely independent fashion and, at a minimum, were free to adopt the safety measures the plaintiffs now allege would have prevented their injuries.”  Accordingly, the Fifth Circuit affirmed the remand of the cases. No. 15-30004 (Oct. 19, 2015).  [As a procedural note, those defendants had already been dismissed, but their dismissal did not affect the analysis of whether removal was proper at the time it occurred.]

In a case that has now gone en banc, the plaintiffs in Torres v. S.G.E. Management, 805 F.3d 145 (5th Cir. 2015), alleged that they were victims of an alleged pyramid scheme about a multi-level marketing program to sell electricity.  The district court certified a class, acknowledging that the plaintiffs could not show a common misrepresentation, but concluding that they could show a common failure to disclose the illegality of such a scheme.  In other words, “Because it can rationally be assumed (at least without any contravening evidence) that the legality of the Ignite program was a bedrock assumption of every class member, a showing that the program was actually a facially illegal pyramid scheme would provide the necessary proximate cause.”

The Fifth Circuit disagreed: “[A]n investor could reasonably choose to knowingly invest in a pyramid scheme in the hope that they would make money. As we have already explained, a pyramid scheme provides an opportunity for those at the top of the pyramid to profit from their investments. While many of the Plaintiffs might have decided to invest in the scheme in the belief that it was legal, it is equally possible that many of the Plaintiffs chose to invest in the scheme in the belief that, legal or illegal, it provided them with an opportunity to make money.”  Accordingly, because Plaintiffs had to establish reliance with individualized proof, the Court decertified the class.

A detailed dissent warned: “By erecting this barrier to class certification based on nothing more than the theoretical possibility of prior knowledge of illegality, the panel majority creates an insurmountable barrier in this circuit to future class certification of cases that claim the presence of an illegal pyramid scheme. But, even worse, because individuals who are duped into joining such schemes uniformly invest relatively few dollars, none will possibly be able to afford to litigate their individual claims separately. Absent the availability of a class action, there simply will be no possibility of court challenges to such pyramid schemes.”

In a bankruptcy appeal to district court, the appellant’s brief was due on November 4.  It did not file; the appellee moved to dismiss a month later, and the appellant was denied leave to file late. The Fifth Circuit found no abuse of discretion in that decision, looking to the factors about leave for late filings identified in  Salts v. Epps, 676 F.3d 468, 474 & n.13 (5th Cir. 2012).  The Court noted: “In the order granting Tarbox’s motion to dismiss, the district court found: 1) ‘the delay of over one month has prejudiced Appellee’ in its state court suit against [Appellant]; 2) the ‘thirty-four day delay’ ‘is substantial, and could have been easily avoided through basic diligence’; 3) ‘Appellant’s failure to exercise diligence in filing and pursuing its appeal was the sole reason for the delay’; and 4) ‘“Appellant has not shown good cause to excuse the late filing.”  Neurology & Neurophysiology Assocs., P.A. v. Tarbox, No. 15-50105 (Oct. 15, 2015, unpublished).

Eric Eddy alleged injury from a printing press.  The Fifth Circuit affirmed for lack of personal jurisdiction in Texas, holding:

1.  “Once the press was installed in Mississippi, it exited the stream of commerce because the Mississippi buyer was a consumer of the product, not a distributor or retailer.”  After that point, the movement of the press “was the result of ‘fortuitous’ and ‘attenuated’ acts of third parties[.]”  (The last sentence echoes the Supreme Court’s recent emphasis of this general concept in  Walden v. Fiore, 134 S. Ct. 1115 (2014)).

2.  While spare parts for the press were shipped by the defendant to Texas, no evidence showed that those parts contributed to the plaintiff’s injury, and the defendant “introduced uncontroverted evidence establishing that the drive shaft Eddy alleged caused his injury was not, and could not have been, the same shaft that was shipped with the spare parts.”

Eddy v. The Printers House (P) Limited, No. 15-10370 (Oct. 2, 2015, unpublished).

A dispute about the scope a “Chinese drywall” settlement illustrates the operation of complex class settlements.  Defendants settled with a broadly-defined group of claimants about defective drywall, but limited to claims involving “Affected Property.”  Defendants sought to enjoin a case by a class member who alleged that his condominium – which did not have Chinese drywall – had lost value because of its association with a neighboring property that did have defective Chinese drywall (also called or a “stigma” claim).  The district court denied the request and the Fifth Circuit affirmed.  Mangiarelli v. Sixty-Fifth and One, LLC, No. 14-31355 (Oct. 2, 2015, unpublished).  The Court distinguished between the situation when “individuals [are] ‘class members’ under a settlement agreement, yet [are] barred from recovery under the terms of that agreement” from this situation, where the plaintiff “was never entitled to a benefit under the . . . agreements in exchange for releasing his stigma claims.”

NiGen alleged that the Texas Attorney General systematically sent harassing letters to retailers, warning against stocking its “amino acid building blocks” product. At least as to future activity by the AG, the Fifth Circuit found that NiGen had standing to complain and could allege a claim for injunctive relief to enforce federal law under Ex parte Young: “None of these cases sought, like NiGen’s, to lift a yoke of alleged unconstitutional conduct from the plaintiff’s own shoulders.”  NiGen Biotech, LLC v. Paxton, No. 14-10923 (Sept. 23, 2015).

The case of Ferguson v. Bank of New York reminds of two basic principles in the area of mortgage servicing litigation: (1) MERS can be named as a beneficiary under a deed of trust; and (2) a borrower does not ordinarily have standing to enforce the terms of a pooling & servicing agreement.   The Court sidestepped an issue of whether the Texas fraudulent lien statute could apply if a lender simply transferred a lien as opposed to creating it.  No. 14-20585 (Oct. 1, 2015).

The Fifth Circuit reversed a ruling that declined to enforce a Moroccan judgment in the case of Dejoria v. Maghreb Petroleum Exploration, S.A., No. 14-51022 (Sept. 30, 2015).  Acknowledging that the Moroccan court system has been criticized for a lack of independence from that country’s king, the Court concluded that “we cannot agree that the Moroccan judicial system lacks sufficient independence such that fair litigation in Morocco is impossible,” and that the defendant had not shown that “Morocco would not recognize an otherwise enforceable foreign judgment only because the judgment was rendered in Texas.”  The Court distinguished other cases involving Iranian “revolutionary courts” and the Liberian court system during that country’s civil war, saying they “exemplify how a foreign judicial system can be so fundamentally flawed as to offend basic notions of fairness.”

Underwood Cotton sued Clark Freight Lines, seeking a declaratory judgment about alleged overcharges on invoices for shipping containers.  Clark removed the case on the basis of complete preemption, and counterclaimed for payment of the invoices.  The district court dismissed the counterclaim and remanded, finding that federal jurisdiction had not been established over the declaratory judgment or the “converse breach of contract action” brought by Clark.  The Fifth Circuit dismissed the resulting appeal, finding: “[T]he dismissal of the counterclaims did not precede the remand in logic and fact.  Dismissing the counterclaims did not deprive the court of subject-matter jurisdiction; the district court ruled it never had jurisdiction to begin with.”  Underwood Cotton Co. v. Clark Freight Lines, Inc., No. 14-11327 (Sept. 28, 2015, unpublished). The Court noted that the counterclaims could proceed in state court notwithstanding the district court’s jurisdictional ruling.

The Fifth Circuit reversed the dismissal of misrepresentation claims about the sale of a house with mold problems, finding that this disclaimer was not dispositive: “Buyer is hereby advised that mold and/or other microscopic organisms may exist at the property known as 1425 MAGNOLIA RIDGE, BOSSIER CITY, LA, 71112. . . . Buyer acknowledges and agrees to accept full responsibility/risk for any matters that may result from microscopic organisms and/or mold and to hold harmless, release, and indemnify Seller and Seller’s managing agents from any liability/recourse/damages (financial or otherwise). Buyer understands that Seller has taken no action to remediate mold. . . . The purpose of this disclaimer is to put Buyers on notice to conduct their own due diligence regarding this matter using appropriate, qualified experts[.]”  Jones v. Wells Fargo Bank, No. 15-30031 (Sept. 28, 2015, unpublished).

The district court removed a bankruptcy trustee after he sought to bill a family trip to New Orleans to the estate, noting two past situations where the court had an issue with the trustee’s practices.  The Fifth Circuit affirmed, rejecting several challenges to that ruling based primarily on the consideration of the past situations, holding: “The district courts and in turn the bankruptcy courts are the keepers of the temple. These courts rely on the bar to abide by its strict rules and norms of conduct. Bankruptcy practice presents many tasks attended and girded by strict identity of duty and diligence by its officers. The courts below were only minding their role: not to end, but to redirect a distinguished presence at the bar, and to give sustenance to necessarily demanding norms of practice. That this is expected does not diminish its importance.”  Smith v. Robbins, No. 14-20588 (Sept. 25, 2015).

Susan Rothkamm sued for wrongful levy, after the IRS seized a CD in her name to satisfy a tax liability of her husband.  The Fifth Circuit reversed the dismissal of her claim, finding that she had standing as a “taxpayer” under the broad definition of 7701 of the Internal Revenue Code: “The term ‘taxpayer’ means any person subject to any internal revenue tax.”  The Court also found that limitations was tolled during the pendency of her application for a Taxpayer Assistance Order, and that the IRS did not have discretion to affect the length of that tolling period.  Rothkamm v. United States, No. 14-31164 (Sept. 21, 2015).  A dissent warned: “I dissent from the majority’s newly minted tolling rule. While this creativity is driven by a desire to achieve fairness, it suffers the vice common to such endeavors – it does the opposite by disrupting a carefully structured regime for the resolution of disputes between the IRS and property owners.”

Myers slipped in the shower while working aboard a drilling rig in the Gulf of Mexico.  In an echo of Blanton v. Newton Associates (a recent employment cases that turned on a prompt investigation into the facts), the rig operator quickly obtained a statement from Myers that said: “When getting out of shower, my shower shoe on left foot broke causing my left foot to slip and twist and resulted in falling out of shower.”  When Myers took an inconsistent position in trial (arguing that he fell because of inadequate rails and mats), this statement was key to affirmance of a defense judgment.  The Fifth Circuit also rejected an argument about the trial court’s review of the evidence: “Myers does not allege that the court did not see the flip flops; instead, he appears to object to the court’s failure to inspect them more closely. . . . When physical evidence is introduced at a bench trial, neither caselaw nor common sense establishes a minimum distance the judge must be from that evidence before the judge’s obligation to consider the evidence is satisfied.”  Myers v. Hercules Offshore Services, No. 15-30020 (Sept. 25, 2015, unpublished).

Sanger Insurance Agency alleged that HUB International violated the antitrust laws to keep it from selling professional liability insurance to veterinarians. The Fifth Circuit reversed the dismissal of Sanger’s claims with two holdings. The Court first found that while Sanger was new to this business, it had done enough to establish antitrust standing, especially since Sanger alleged that the defendants’ anticompetitive activity had hurt its ability to enter the market: “[B]y pursuing a deal with a professional association of veterinarians and even achieving some success in its initial efforts, Sanger went beyond ‘the most basic preparatory steps’ that we require of nascent competitors.”  While then remanding as to other claims, the Court found Sanger’s federal antitrust claims “reverse-preempted” under the McCarran-Ferguson Act.: “Assuming that HUB is engaged in exclusive dealing that prevents the insurers from writing insurance for other group plans, that conduct fortifies the Program HUB operates through the American Veterinary Medical Association. Keeping a large, geographically and professionally diverse pool of veterinarians in the Program—including significant numbers of small- animal, large-animal, mixed, and equine veterinarians—spreads risk.”  Sanger Insurance Agency v. HUB Int’l, Inc, No. 14-40854 (Sept. 23, 2015).

First Metropolitan Church sued Genesis Group, a company that helps churches obtain mortgage refinancing.  The Fifth Circuit affirmed dismissal for lack of personal jurisdiction in a short opinion, echoing its recognition of recent Supreme Court opinions in Monkton Ins. Servs. v. Ritter, 768 F.3d 429 (5th Cir. 2014).  An interactive website, even one that lists Texas business references, does not create general jurisdiction, and contracting with a Texas resident does not create jurisdiction if it does not “contemplate a long-term relationship with . . . continuing obligations and wide-reaching contacts.”  First Metropolitan Church of Houston v. Genesis Group, No. 15-20186 (Sept. 17, 2015, unpublished)

Allstate sued a group of chiropractic clinics and law firms under RICO, alleging that they conspired to send them fraudulent bills for unnecessary services.  Allstate won a 7-figure judgment at trial.  The Fifth Circuit affirmed, reviewing some basic RICO principles after recent Supreme Court rulings:

• “Although the evidence proving the two will sometimes coalesce, the government still has to satisfy the organizational metric of the enterprise (including continuity and common purpose) and the statutorily enumerated predicated offenses.  There is thus no impermissible collapsing of the distinction between the enterprise and the pattern of racketeering.”  (applying a plain error standard of review)
• “[M]ail fraud and its place in RICO framework are different from a case alleging common-law fraud, and one of the differences is the lack of a reliance requirement.” Here, “[r]egardless of how proximate cause is sliced, Allstate proved it.  There is no plausible argument that the insurers were unforeseeable victims or otherwise wronged by the caprice of chance.”
• As to damages, distinguishing a similar case that found inadequate proof that all paid-for services were unnecessary, the Court held: “There is no such deficiency here.  The court instructed the jury, in awarding damages, to distinguish between the portions of the bills generated for unreasonable or unnecessary services and those not generated for those services. Allstate had experts examine all of the files, not just a representative sample, and one of those witnesses testified that Allstate had internally itemized the elements of each settlement.”

Allstate Ins. Co. v. Plambeck, No. 14-10574 (Sept. 17, 2015).

The Fifth Circuit issued a revised opinon in Kovaly v. Wal-Mart Stores, No. 14-20697 (Sept. 22, 2015, unpublished).  The new opinion reaches the same result — reversal of the Daubert exclusion of an expert about the standard of care for a Texas pharmacist asked to issue a 72-hour emergency prescription.  It provides more detail about the expert’s analysis, eliminating some uncertainty in the original opinion about the role of Texas regulations in the expert’s work: “Brooke specifically analyzed how the various regulations overlap and how the history of the regulations led to the codification of particular exceptions but not others.  He explained that his opinion was based not only on the regulations but also on their history, accepted practice, and pharmacist training.”

An appeal in a dispute between the Iraqi oil ministry and the Kurdistan governmental authority (“KRG”) ended in dismissal for mootness, after the tanker with the relevant oil “weighed anchor . . and . . . sailed to Ahkelon, Israel[.]”  (The ship at issue, UNITED KALAVRYTA, appears at right and is presently underway in the Black Sea.)    The Fifth Circuit rejected several arguments by the KRG that the dispute remained live, including:

• Any request in the complaint for a declaratory judgment was merely ancillary to the claim to recover the tanker under admiralty law;
• No claim for interest remained because the Ministry sought to recover the oil, not money damages;
• The “such other and further relief” clause at the end of the complaint was not a pleading for money damages; and
• “[H]ypothetical future shipments do not prevent the dispute regarding the Cargo at issue here from being moot.”

The Court also rejected a request by the KRG for vacatur of the lower court’s decision, noting in particular that “the KRG mooted this appeal through its voluntary decision to discharge the Cargo in Israel.  In so doing, the KRG severely weakened its argument for equitable relief.”  Ministry of Oil of the Republic of Iraq v. Kurdistan Region of Iraq, No. 15-40062 (Sept. 21, 2015, unpublished).

McGowan successfully sued his employer, Tractor Supply Co., for over $8 million in damages after a severe workplace injury.  In the meantime, TSC’s umbrella carrier sued TSC and another carrier for a declaration about coverage obligations.  The district court dismissed for lack of standing, and pursuant to its discretion under the Declaratory Judgment Act.  The Fifth Circuit reversed; its principal holdings were: (1) under Texas insurance law, this sort of suit is justiciable after a liability determination at trial, and does not require exhaustion of appellate remedies; (2) the issues and parties were different in the two actions; and (3) the declaratory judgment suit was filed after the state case and otherwise showed “no indication of procedural fencing.”  Ironshore Specialty Ins. Co. v. Tractor Supply Co. 14-51164 (Aug. 25, 2015, unpublished)

A security company required that its employees travel to a designated break location at lunchtime, substantially eating into their 30-minute lunch break.  The Fifth Circuit reversed summary judgment for the company on FLSA claims, reasoning:  “Unlike a requirement that the employee stay in uniform, or even one that may result in the employee having to perform a duty on rare occasions, a jury could find that preventing the employee from eating—ostensibly the main purpose of the break—for twelve out of thirty minutes during every break is a meaningful limitation on the employee’s freedom. The travel obligation thus cannot be deemed a mere ‘inconvenience’ as a matter of law.”  Naylor v. Securiguard, Inc., No. 14-60637 (Sept. 15, 2015).  Whether the “40 percent rule” carries over to other areas of summary judgment practice remains to be seen, but Naylor still stands as a cogent and highly readable review of a basic part of the modern workplace.

In a dispute about insurance coverage for a False Claims Act case involving the repair of Coast Guard cutters, the relevant exclusion reached: “[t]he failure of your products to meet any
predetermined level of fitness or performance and/or guarantee of such fitness or level of performance and/or any consequential loss arising therefrom.”  The insured argued that “predetermination” implied a bilateral agreement, while a “requirement” was unilateral and did not implicate the exclusion.  The Fifth Circuit disagreed for several reasons: “But ‘predetermined’ means only ‘established, decided upon, or
decreed beforehand.’ It implies nothing about how a determination comes about, or who has the authority to determine. A single party can ‘determine’ something, and can do so in advance: there is nothing inherently bilateral about predetermination. And even if there were, the complaint lays out straightforwardly that [the insured] failed to meet a requirement that the parties together determined in advance. (citation omitted)”  XL Specialty Ins. Co. v. Bollinger Shipyards, Inc., No. 14-31283 (Aug. 27, 2015).

Here is my PowerPoint for the “Fifth Circuit Update” that I presented at the State Bar’s Advanced Civil Appellate course last week in Austin.  (Note that the Fifth Circuit has since issued a revised opinion in the Daubert case of Kovaly v. Wal-Mart, No. 14-20697 (Sept. 22, 2015, unpublished).

A contractor who undertakes to build a house does not have insurance coverage, because of the “your work” exception, if soil movement causes an unacceptable foundation failure.  This exception does not apply to a contractor with a specified and limited scope of work — for example, wall damage is not “your work” for a contractor hired only to repair a foundation.  Feaster v. Mid-Continent Casualty Co., No. 15-20074 (Aug. 27, 2015, unpublished).

A prospective plaintiff in a medical malpractice case in Louisiana must submit the claim to a medical review panel before filing suit.  When suit is filed before the panel is done, district courts have divided on whether an in-state defendant is “improperly joined” for purposes of a diversity analysis in a removal.  In Flagg v. Stryker Corp., the Court concluded that such a defendant is not improperly joined, finding that the panel did not actually adjudicate the claim, and that the panel process could be waived by the parties. A dissent reasoned that the Louisiana statute was analogous to federal statutes where thee court had found improper joinder in similar situations.  No. 14-31169 (Sept. 4, 2015).

In the wake of the Deepwater Horizon accident, plaintiffs sought to bring two class actions against BP alleging violations of federal securities law — one regarding BP’s representations about its pre-spill safety procedures, and one about BP’s post-accident statements as to the flow rate of oil after the spill occurred. The district court certified the post-spill class, concluding that the plaintiffs had established a model of damages consistent with their liability case and capable of measurement across the class, and refused to certify the pre-spill class, finding that it had not satisfied the “common damages” burden established by the Supreme Court in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). The Fifth Circuit affirmed.  As to the post-spill class, the Court reviewed BP’s criticisms of the plaintiffs’ damages expert, and found that they were not so potent as to invalidate his theory at the class certification stage.  As to the pre-spill class, however, the Court agreed that the expert failed to exclude class members who would have bought the stock even with full knowledge of the alleged risks, making his analysis infirm for certification purposes.  Ludlow v. BP, PLC, No. 14-20420 (revised Sept.15, 2015).

Plaintiff claimed that he was not given proper medications by a private corrections company while incarcerated.  The ensuing coverage litigation turned on a “medical services” exclusion, which said in relevant part:

“a) medical, surgical, dental or nursing treatment to such person or the person inflicting the injury including the furnishing of food or beverages in connection therewith;
b) furnishing or dispensing of drugs or medical, dental or surgical supplies or appliances if the injury occurs after the Named Insured has relinquished possession thereof to others;”

The Fifth Circuit agreed with the insurer that (a) and (b) dealt with different, distinct, situations and had to be harmonized – noting that an “or” between two later subparts supported this reading.  Accordingly, the exclusion in (a) could apply even if (b) was not triggered.  LCS Corrections Services v. Lexington Ins. Co., No. 14-40494 (Sept. 4, 2015).

Revisiting the forum non conveniens question whether Mexico is an “available alternative” forum for a tort claim, the Fifth Circuit reaffirmed that the damages caps imposed by Mexican law do not disqualify it as a forum, and that this defense may be raised even in the context of moving to set aside a default judgment.  Moreno v. LG Electronics, USA, Inc., No. 14-40563 (Sept. 8, 2015).

The issue in United States v. CITGO was whether an “equalization tank” — a holding tank that plays a role in the process for handling oil refinery wastewater — is an “oil-water separator” within the meaning of the regulations implementing the Clean Water Act.  The jury instructions quoted the regulation’s definition of an oil-water separator and then added: “[t]he definition of oil-water separator does not require that [it] have any or all of the ancillary equipment mentioned such as forebays, weirs, grit chambers, and sludge hoppers . . . . An oil-water separator is defined by how it is used.” The Fifth Circuit found an abuse of discretion in that additional sentence and reversed CITGO’s convictions: “This purely functional explanation is not what [the regulation] says, however: it defines an oil-water separator by how it is used and by its constituent parts. . . .  Although the jury was also provided the exact text of Subpart QQQ, the court’s instruction told them what it means and thus undoubtedly affected the verdict. For this harmful error, the Clean Air Act convictions must be reversed.”  No. 14-40128 (Sept. 4, 2015).

Bartos, an injured seaman, sued for future lost wages.  His expert offered calculations based on a retirement age of 55.8 (from a table of work-life expectancies) or 67 (the Social Security full-retirement age).  The Fifth Circuit reversed a damages award based on the older age and rendered an award based on the younger one, reasoning: “Barto’s economist did not provide any reason to believe that Barto would continue to work past his statistical work-life expectancy. The only relevant evidence Barto presented at trial was his testimony that he plans to work ‘[a]s long as I can retire. Whatever the retirement age is.’ This scant evidence was not enough to show that Barto ‘by virtue of his health or occupation or other factors, is likely to live and work a longer, or shorter, period than the average.'”  Barto v. Shore Construction LLC, No. 14-31326 (revised Sept. 29, 2015).

In one of its infrequent but steady appearances in the Fifth Circuit, the Rooker/Feldman doctrine arose in a federal court lawsuit alleging misconduct in state court about the confirmation and enforcement of a large arbitration award.  Building on Truong v. Bank of America, 717 F.3d 377 (5th Cir. 2013), the Court affirmed the dismissal of claims about collection efforts, finding that “the [state court judgment itself was the source of these injuies.”  As to civil rights claims about the proceedings leading up to confirmation, however, “the timing of the injury was before the state court entered judgment.  And unlike . . . the conversion claim described above, none of the alleged conspirators was acting under the authority of the turnover orders in seeking to obtain a remedy.”  Land & Bay Gauging, LLC v. Shor, No. 14-40259 (Aug. 21, 2015, unpublished).

An accident occurred while a dredge attempted to anchor itself in the seabed.  The legal issue was whether the dredge’s activity triggered the notice requirements of a Louisiana statute involving “excavation.”  The Fifth Circuit reasoned: “The plaintiffs may well be right that the movement of earth is an inevitable result of anchoring, and thus that a person who engages in anchoring does so knowing that he will cause the movement of earth.  But under the [statute], an activity constitutes ‘excavation’ only if the ‘purpose’ — the actual object — of engaging in it is the ‘movement . . . of earth.’  And the object of ‘anchoring’ is, unmistakably, the securing of a ship, not the movement of earth.”  Plains Pipeline LP v. Great Lakes Dredge, No. 14-31046 (Aug. 12, 2015, unpublished).

Employees of the Stanford Financial Group sought coverage for attorneys fees incurred in defending federal criminal charges.  The district court held the policy ambiguous and found coverage under the contra proferentem doctrine.  The insurer sought reversal based on the “sophisticated insured” exception to that doctrine under Texas law.  (A previous panel certified the question whether this exception existed in Texas to the Texas Supreme Court, who declined to answer it by resolving that case on other grounds.) Concluding that if Texas were to recognize the exception, it would apply a “middle-ground approach,” the majority affirmed: “Absent any information about the content of the negotiations, how the contracts were prepared, or other indicators of relative bargaining power, [the insurer] did not present evidence that the insured did or could have influenced the terms of the exclusion.”  A dissent would have sidestepped saying anything about the exception, preferring to affirm on the ground that the policy unambiguously provided coverage. Certain Underwriters at Lloyds v. Perraud, No. 14-10849 (Aug. 12, 2015, unpublished).

Continuing a series of opinions that vacated findings of contempt – most recently in Waste Management v. Kattler, 776 F.3d 336 (5th Cir. 2015) – the Fifth Circuit vacated a contempt finding against an attorney for allegedly encouraging his client to make inappropriate online postings.  Test Masters Educational Services v. Singh Educational Services, No. 13-20250 (Aug. 21, 2015).  Applying Waste Management, the Court found inadequate notice from a show-cause order that only named the client.  On the merits, agreeing that the relevant injunction against the client bound the attorney, the Court found no clear and convincing evidence that he personally had violated the injunction.

Cypress Financial invested in Petters Company.  Petters turned out to be a Ponzi scheme and its bankruptcy trustee sought to recover money transferred from Petters to Cypress. Cypress filed for Chapter 7 protection but its case was dismissed because it “serves only to delay the prosecution of a lawsuit against the debtor.”  In re Cypress Financial, No. 14-10956 (Aug. 12, 2015, unpublished).  “Everyone agrees there are no assets to marshal or liquidate, and applicable statutes of limitations bar any preference or fraudulent transfer actions that might lead to additional assets. . . . With no benefit conferred but considerable harm inflicted by Cypress’s Chapter 7 case, the district court properly concluded that the bankruptcy court abused its discretion. . . Even if we were to agree with Cypress that the bankruptcy court had no ’cause’ [under § 707(a)] to dismiss the case, its victory is pyrrhic.”

The plaintiff in International Marine LLC v. FDT proved 33 breaches of the noncompete provisions of a contract related to the chartering of tugboats.  The district court and Fifth Circuit agreed that a liquidated damages clause applied to the last several breaches. As to the first five, however, the Court reasoned that the clause “would impose an unreasonable penalty, because due to the parties’ conduct, we know the extent of damages [Plaintiff] suffered from each of these breaches.”  It noted: “For over a century, courts have refused to award liquidated damages for contractual breaches solely involving default on payment obligations.” No. 14-31192 (Aug. 10, 2015, unpublished).

Vocada sued Nuance for securities fraud.  They had a merger agreement in which they agreed to arbitrate “any . . . dispute relating to the Earnout Consideration.”  The Fifth Circuit found that this claim had to be arbitrated, noting: “Although the arbitration clause as a whole is narrow, the ‘relates to’ language is broad.  The clause does not require that the remedy sought in arbitration be the earnout consideration or that the claim relate to how the earnout consideration is calculated or distributed.”  Accordingly, “this securities fraud ‘dispute’ is arbitrable because it ‘relates to’ the representations that Nuance made about how to achieve the Earnout Consideration.”  Murchison Capital Partners, L.P. v. Nuance Communications, Inc., No. 14-1819 (Aug. 11, 2015).

Johnny Long, a former bankruptcy debtor, sought to bring FCA claims against his former employer.  The defendant successfully obtained dismissal on the ground of judicial estoppel  because the claim was not listed on Long’s bankruptcy schedules.  After reminding that judicial estoppel, as a flexible and equitable doctrine, does not automatically compel dismissal in such a situation, the Fifth Circuit affirmed.  The elements are that “(1) the party against whom judicial estoppel is sought has asserted a legal position which is plainly inconsistent with a prior position, (2) a court accepted the prior position, and (3) the party did not act inadvertently.”  The specific issue was the third element, and whether Long had a motivation to conceal.  The Court noted three advantageous features the payment terms in Long’s Chapter 13 plan, which disclosure could have endangered — and further noted that after judicial estoppel was raised, Long sought to reopen his case so “he may pay interest to his creditors” if he recovered on his FCA claim.  United States ex rel Long v. GSD&M Idea City, LLC, 798 F.3d 265 (5th Cir. 2015).  A later award to the defendant of roughly $200,000 in costs was substantially affirmed in United States ex rel Long v. GSDMidea City, LLC, No. 14-11049 (Dec. 1, 2015).

In resolving a personal jurisdiction issue that turned on a party’s agency, the Fifth Circuit observed:

• While a statement by a purported agent may not be hearsay, it is not admissible to establish “the existence or scope” of agency; and
• Correspondence that was not specifically directed to the plaintiffs does not establish agency by estoppel.

Sealed Appellant v. Sealed Appellee, No. 14-20204 (Aug. 17, 2015, unpublished).

A medical group sued a payor for underpayments.  The payor removed under ERISA complete preemption, contending that “about 98% of [Plaintiff’s] claims are claims for ERISA plan benefits.”  The district court kept the case and entered judgment for the payor; the Fifth Circuit reversed: “a claim that implicates the rate of payment as set out in the Provider Agreement, rather than the right to payment under the terms of the benefit plan, does not run afoul of [Aetna Health, Inc. v. Davila, 542 U.S. 200 (2004)] and is not preempted by ERISA.”  Kelsey-Seybold Medical Group v. Great-West Healthcare of Texas, No. 14-20506 (Aug. 10, 2015, unpublished).

A company sued a Hong Kong business in Texas for unpaid consulting fees.  The Fifth Circuit reversed the dismissal of the business for lack of personal jurisdiction, finding that “the nature of the relationship” between it and the plaintiff, as well as both parties’ “joint connection” to a transaction involving BP’s Houston office, made it “foreseeable that the hub of [plaintiff’s] consulting activity would be in Texas.”  It also found no “unique” burden on the business of having to litigate in the U.S.  The Court affirmed the dismissal of an in-state defendant (and thus the removal of the case based on diversity/improper joinder) for failure to state a contract, quantum meruit, or fraud claim against him. International Energy Ventures Management, LLC v. United Energy Group, Ltd., No. 14-20552 (Aug. 21, 2015). (This opinion has subsequently been withdrawn and replaced)

In Century Surety Co. v. Blevins, the district court dismissed two causes of action related to handling of insurance claims, and then sua sponte dismissed three other related causes of action — breach of contract, estoppel, and vicarious liability.  The Fifth Circuit reversed, reminding: “While the district court has great discretion in how it manages its cases, in the Fifth Circuit litigants must — with certain exceptions – be given notice and an opportunity to respond before a district court dismisses claims sua sponte.”  No. 14-31131 (Aug. 18, 2015).

In the case’s second trip to the Fifth Circuit, the Court considered whether – after an earlier remand for “limited discovery” on jurisdictional facts related to the contract-making authority of the Mexican consulate – the district court erred by reconsidering its earlier substantive ruling about the basis for subject matter jurisdiction.  Blake Box v. Dallas Mexican Consultate General, Nos. 14-10744 & 14-10954 (Aug. 19, 2015, unpublished).

Reviewing both the law-of-the case doctrine and the “mandate rule,” the Court found error and reversed: “[W]hether the Consulate [o]fficials had authority from the Mexican government to form a joint venture is a separate question from whether they exercised that authority in their dealings with [plaintiff].  Simply put, here, the first question was answered by the district court on remand in Box I and the second question was defaulted by the Consulate” when it failed to answer after service.  Accordingly, a $3 million default judgment was reinstated.  Congratulations to my LTPC colleagues Jason Dennis and Sam Hardy on this win!

The issue in Kovaly v. Wal-Mart was whether a pharmacist was negligent in not providing a 72-hour emergency supply of a patient’s medicine, despite some confusion about the quantity in the prescription issued by the patient’s physician.  No. 14-20697 (Aug. 12, 2015, unpublished).  The district court found that Brooke, the plaintiff’s expert, was well-qualified by experience and training to testify about the standard of care.  The district court went on to hold, however, that “nothing in the regulations definitively authorizes a pharmacist to provide a 72-hour emergency supply for an original prescription, and it concluded that doing so would actually violate Texas law,” and thus excluded his opinions as unreliable.  The Fifth Circuit reversed, concluding: “Even if Brooke’s opinion that the pharmacist legally could have filled the emergency supply is an incorrect interpretation of Texas law, that does not render it unreliable in light of his qualifications, experience, and foundation for the opinion.”  In support, the Court cites several cases about the ultimate “correctness” of an expert’s factual conclusion.

Wallace sued Tesoro Corporation for retaliation, alleging he was fired for activity protected by the Sarbanes-Oxley Act.  he district court dismissed.  The Fifth Circuit affirmed in part, finding that Wallace had not exhausted his administrative remedies as to his claims about Tesoro that he did not present to OSHA.  Wallace v. Tesoro Corp., No. 13-51010 (July 31, 2015).  The Court reversed as to other claims dismissed on the pleadings, holding:

• As to the objective reasonableness of Wallace’s belief about an accounting practice — “The basis for that belief in this case, including the level and role of Wallace’s accounting expertise and how that should weigh against him, are grounded in factual disputes that cannot be resolved at this stage of the case.”
• As for Wallace’s reasonable belief that a fraud was occurring, Rule 9(b) is not implicated because “an employee who is providing information about potential fraud or assisting in a nascent fraud investigation might not know who is making the false representations or what that person is obtaining by the fraud; indeed, that may be the point of the investigation.”
• Wallace adequate pleaded the basis for his reasonable belief that Tesoro was not making proper SEC disclosures, and that Tesoro acted with the requisite mental state (primarily by detailing the steps he took to inform Tesoro management).  The opinion provides more detail about the specific allegations made by Wallace.

The ABA Journal sponsors a “Blawg 100” list that recognizes legal blogs. Unlike the various top lawyer lists, the ABA encourages campaigning: (“Bloggers, by all means tell your readers about Blawg 100 Amici and invite them to send us messages on behalf of your blog.”) So if you enjoy 600Camp (or its sister blog, 600 Commerce about the Dallas Court of Appeals), please click here and fill out the ABA’s short form.  Shouldn’t take but a minute, and much appreciated.

Hooks sued Landmark Industries, the operator of an ATM, as the representative of a putative class alleging that Landmark failed to give proper notices under the Electronic Funds Transfer Act about withdrawal fees.  Hooks v. Landmark Industries, Inc., No. 14-20496 (Aug. 12, 2015).  Pursuant to Fed. R. Civ. P. 68, Landmark offered $1,000 (the maximum allowable statutory damages) and costs and fees “through the date of acceptance of the offer, as agreed by the parties, or to be determined by the court if agreement cannot be reached.”  Hooks did not accept it, and the district court dismissed, finding the action mooted by the unaccepted Rule 68 offer.

Sidestepping the thorny question of whether this offer was “complete” under Rule 68, the Fifth Circuit  reversed.  It reasoned: “[i]t is hornbook law that the rejection of an offer nullifies the offer,” and expressed concern that “[a] contrary ruling would serve to allow defendants to unilaterally moot named-plaintiffs’ claims in the class action context — even though the plaintiff, having turned the offer down, would receiver no actual relief.  This holding places the Fifth Circuit in the minority of a 6-3 circuit split on the issue of whether an unaccepted offer of judgment can moot a named plaintiff’s claim in a putative class action.

The Texas Securities Act has a five-year statute of repose.  The issue in FDIC v. RBS Securities was whether that statute was preempted by a 3-year “extender” provision in FIRREA, which “works by hooking any claims that are alive at the time of the FDIC’s appointment as receiver and pulling them forward to a new, federal, minimum limitations period — six years for contract claims, three years for tort claims.”  No. 14-51055 (Aug. 10, 2015).

The Fifth Circuit concluded that the Texas statute of repose was preempted, and reversed a judgment on the pleadings in a securities fraud suit arising out of the failure of Guaranty Bank, holding: “The text, structure, and purpose of the FDIC Extender Statute all evince a Congressional intent to grant the FDIC a three-year grace period after its appointment as receiver to investigate potential claims. Therefore, the statute displaces any limitations period that would interfere with that reprieve — whether characterized as a statute of limitations or as a statute of repose.”   The Court distinguished the analysis of a CERCLA limitations provision in CTS Corp. v. Waldburger, 134 S. Ct. 2175 (2014), finding that “many of the considerations that the [Supreme] Court found disfavored preemption in CTS suggest preemption when applied to the FDIC Extender Statute.”

The Eastern District of Texas suspended attorney Robert Booker for three years.  While a magistrate issued a report, which was reviewed and adopted unanimously by the Eastern District Judges, the Fifth Circuit held: “[W]e cannot discern from the record whether the district court specifically found that Booker acted in bad faith under the clear and convincing evidence standard.”  Accordingly, the Court remanded for the district court to “specify whether it finds that Booker has committed any ethics violation based on clear and convincing evidence and whether Booker acted in bad faith in committing any such violations.”  In re: Booker, No. 14-41194 (Aug. 3, 2015, unpublished).  (Subsequently, the Fifth Circuit affirmed on the merits.)

The Department of Agriculture fined Bodie Knapp (d/b/a “The Wild Side”) $395,000 for violations of regulations about the purchase and sale of exotic animals.  The Fifth Circuit largely affirmed, reviewing several basic concepts of administrative law in the process:

• A clear regulation about a regulatory exemption trumps an arguably inconsistent summary of the regulation in an agency publication.
• Even in an environment of considerable deference, an agency ALJ must provide enough explanation so the appellate court can “reasonably discern the reason” for his ruling.  Accordingly, the Court remanded for further findings as to whether “aoudad, alpaca, and miniature donkeys are ‘animals’ . . . and not ‘farm animals,'” and about the purchasers’ intentions to display “one alpaca, one auodad, two zebras, one wildebeest, two addax, seven buffalo, three nilgai, four chinchilla and one axis deer.”  (No partridge in a pear tree was involved in the case.)
• It is a “heavy burden” to prove estoppel from statements made by an agency employee, and proof of a misrepresentation is only one element of that defense.
• A sale of two lemurs (as opposed to a donation) can be proven with evidence of the receipt of two zebras shortly after the delivery of the lemurs.

The opinion also affirmed on several challenges to the penalties, finding the agency’s position to not be unreasonable.  Knapp v. U.S. Dep’t of Agriculture, No. 14-60002 (July 31, 2015).

Hamsher was admitted to “Timberline Knolls Residential Treatment Center” for mental health care; her employer did not pre-authorize her treatment.  Unfortunately for the employer, its right under its healthcare plan to insist on precertification applied only to care in a “hospital,” and the Fifth Circuit concluded: “the administrative file contains only claim forms, none of which provide an indication as to whether Timberline is a ‘hospital’ as defined under the Plan.  The name is suggestive, of course, but title alone does not constitute the type of ‘substantial evidence’ that [the employer] must put forward.”  Accordingly, the Court rendered judgment for the employee, in a rare appellate reversal of an ERISA dispute.

Cox Operating incurred significant expenses in cleaning up pollution and debris at its oil-and-gas facilities after Hurricane Katrina.  Its insurer disputed coverage.  After a lengthy trial, the district court awarded $9,465,103.22 in damages and $13,064,948.28 in penalty interest under the Texas Prompt Payment Act.  The Fifth Circuit affirmed in Cox Operating LLC v. St. Paul Surplus Lines Ins. Co., No. 13-20529 (July 30, 2015).

After finding that the one-year reporting requirement in Cox’s policy was not an unwaivable limitation on coverage, the Court confronted a “disturbing inconsistency” about the Act. On the one hand, the penalty-interest provision applies generally “[i]f an insurer that is liable for a claim under an insurance policy is not in compliance with this subchapter.”  On the other hand, of the Act’s variously deadlines, only one expressly ties its violation to the penalty provision.  The Fifth Circuit found for the insured, finding “the construction urged by St. Paul . . . would seem to transform all but one of the Act’s deadlines from commands backed by the threat of penalty interest to suggestions backed by nothing at all.”

The unsuccessful plaintiffs in Blythe v. Bumbo International appealed the dismissal of their products liability claim about a Bumbo baby seat (right).  No. 14-40387 (July 27, 2015, unpublished).  The Fifth Circuit, affirmed, holding on two key evidentiary issues:

1. “The district court did not abuse its discretion in excluding the instructions on Bumbo’s website [under Fed. R. Evid. 407.]  . . . [Plaintiffs’ attempt to introduce the website instructions for the purpose of proving a design defect ‘under the guise’ of claiming they are admissible under the impeachment exception.”

2.  Evidence about prior product recalls and related investigations was inadmissible, as subsequent remedial measures.  Examining the “subject matter, underlying purpose, and relevance” of the communications about safety harnesses, the Court noted that none involved the use of a Bumbo on an elevated surface as the plaintiffs had done, contrary to product warnings.

After the EEOC sent two inconsistent letters about a claimant’s case – one in June, and one in July – a confusing limitations problem arose.  The Fifth Circuit found that equitable tolling applied and prevented a bar to filing suit.  It agreed with the district court that testimony about what the EEOC told counsel on the phone was inadmissible for the truth of the matter asserted, but disagreed that it was completely inadmissible — when offered to prove why counsel acted as he did, the conversation was not offered for a hearsay purpose.  The Court also noted that counsel, and his client, had proceeded diligently throughout the matter, noting: “Th[e] desire to have an EEOC letter with all the t’s crossed and i’s dotted is a sign of diligence rather than dawdling.”  Alvarado v. Mine Service, Ltd., No. 14-50668 (July 30, 2015, unpublished).

H&E Equipment sued Advanced Services after a fire at a plywood plant.  Advanced brought a third-party claim against Georgia-Pacific for indemnity, who in turn sought coverage from Kinsale Insurance.  Kinsale denied coverage on the ground that Advanced was also insured under the relevant policy, triggering this “insured v. insured” exclusion:  “This insurance does not apply to claims or ‘suits’ for ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ brought by one insured against any other insured.”  The Fifth Circuit reversed summary judgment for the insurer, reasoning: “Advanced did not, in turn, seek damages from Georgia-Pacific due to a property loss; it sought indemnity based on general tort principles for the property damage that occurred to another party. Advanced had no property damage, but it seeks protection from a potential duty to pay for someone else’s property damages.”  Kinsale Ins. Co. v. Georgia-Pacific, LLC, No. 14-60770 (July 27, 2015) (distinguishing Fidelity & Deposit Co. of Maryland v. Conner, 973 F.2d 1236 (5th Cir. 1992).

Plaintiff challenged a proposed development plan as violating the Fair Housing Act. Defendants argued “that because the planned redevelopment is both inchoate and designed to be mixed income and to attract a variety of tenants, [Plaintiff] can only speculate as to whether, if redevelopment proceeds, it will deprive her of the social and economic benefits of diversity,” and thus lacked standing.  The Fifth Circuit disagreed, finding that her “asserted injury would be concretely felt in the logical course of probably events flowing from an unfavorable decision by this court: (1) HUD approves the already-pending plan for redevelopment; (2) redevelopment occurs according to the approved plan; [and] (3) segregation and minority- and poverty-concentration occur in [Plaintiff’s] neighborhood as specifically anticipated in several expert reports contained in the record.”  The Court distinguished Clapper v. Amnesty International, 133 S. Ct. 1138 (2013), a recent case about the Foreign Intelligence Surveillance Act, as “depend[ing] on a long and tenuous chain of contingent events[.]” McCardell v. U.S. Dep’t of Housing & Urban Devel., No. 14-40955 (July 23, 2015).

Dixon complained that he was defrauded into leasing a Toyota Corolla, having been told that the lease would be tax-exempt because his co-lessee was a non-profit entity.  The Fifth Circuit affirmed dismissal, finding that the Consumer Leasing Act does not confer standing unless all lessees are natural persons, which the non-profit was not.   Dixon v. Toyota Motor Credit Corp., No. 14-30426 (July 23, 2015).

HUD suspended a mortgage lender from doing business with the government; after some litigation, HUD withdrew the suspensions.  In the meantime, the lender had appealed the district court’s ruling that upheld the suspensions, and argued that it was not moot after the withdrawal.  The Fifth Circuit disagreed, finding that the requested declaration that the suspension was unlawful is “no longer embedded in an actual controversy about the appellants’ legal rights.”  The Court rejected arguments based on the “voluntary-cessation” and “collateral consequences,” emphasizing the specific posture of the lender’s situation with the government and the specifics of the regulatory environment.  The Court also rejected an argument based on the past economic losses, noting that the lender was not seeking damages and could not under the applicable statute.  Allied Home Mortgage Corp. v. U.S. Dep’t of Housing & Urban Devel., No. 14-20523 (July 22, 2015, unpublished).

Red Barn Motors sued its lender in a Louisiana district court.  That court transferred the case to Indiana based on a forum selection clause.  Three months later, the dealer sought mandamus relief from the Fifth Circuit, which denied its request.  The Court noted that the case was no longer in the Circuit – meaning that the only possible remedy would be to ask the Indiana court to return the case, which would require a “very extreme case.”  “Despite the potential availability” of this limited opportunity for mandamus relief, the Court found that the unexplained three-month delay in seeking review showed a lack of diligence that defeated the petition.  In re: Red Barn Motors, Inc., No. 15-30067 (July 20, 2015).

Plaintiff’s FCA claims about billing for aircraft parts were dismissed for failure to comply with the heightened pleading requirements of Fed. R. Civ. P. 9(b), in that:

• it is not sufficient to argue that certain federal regulations must have been contained in the relevant contract, because by their terms, they do not automatically apply;
• neither nondisclosure of a part’s history, nor the subsequent failure of a plane containing that part, establishes that a false claim was made about it; and
• speculation about a company’s billing practices does not adequately establish when the company actually submitted the allegedly false claims.

United States ex rel Gage v. Davis S.R. Aviation, LLC, No. 14-50704 (July 14, 2015).

The district court overseeing the settlement process for Deepwater Horizon claims ordered that the program could not have access to a certain set of “claim-specific information” before making an initial determination about a claim’s eligibility.  BP sought to appeal this ruling as a collateral order.  The Fifth Circuit dismissed for lack of jurisdiction, acknowledging that it had taken three earlier appeals about the settlement.  The Court concluded that those appeals involved uniquely important issues about interpretation of the underlying agreement, and expressed concern about inviting significantly more interlocutory appeals given “the increasing frequency of court-supervised settlement agreements and consent decrees.” Lake Eugenie Land & Development v. BP Exploration & Production. No. 14-30823 (July 16, 2015).

The plaintiffs/relators in United States ex rel Rigsby v. State Farm contended that, in the wake of Hurricane Katrina, State Farm improperly skewed its claims handling process in favor of finding flood damage, as “wind policy claims were paid out of the company’s own pocket while flood policy claims were paid with government funds.”  They won at trial and the Fifth Circuit affirmed, finding that – notwithstanding earlier investigations – they were “paradigmatic . . . whistleblowing insiders” as to this specific claim who qualified as “original sources.”  The Court went on to find sufficient evidence of falsity and scienter, and reversed a discovery ruling that would not have allowed the plaintiffs to investigate the facts of other potentially false claims. ” 794 F.3d 457 (5th Cir. 2015). The Supreme Court granted review and affirmed on an issue about violation of the FCA’s sealing requirement.

1.  As the Supreme Court term wound down, it affirmed the panel opinion in Baker Botts LLP v. ASARCO, holding that under the Bankruptcy Code: “Section §330(a)(1) does not permit bankruptcy courts to award fees to §327(a) professionals for defending fee applications.” No. 14–103 (U.S. June 15, 2015).

2.  The Supreme Court also granted review of Dolgencorp Inc. v. Mississippi Band of Choctaw Indians, 746 F.3d 167 (5th Cir. 2014), which addresses Indian tribal court jurisdiction over a tort claim.

Moving to dismiss?  Drafting a complaint?  Educating a colleague?  Check out the newly-revised Twombly/Iqbal page on 600Camp, which includes the recent insights from Wooten v. McDonald Transit Associates, No. 13-11035 (June 7, 2015) (statutory employment claim), Owens v. Jastrow,  No. 13-10928 (June 12, 2015) (scienter), and mortgage servicing cases.

A contract dispute about the management of several vessels (among them, the M/V Maurader, right) led to a holding that a termination fee was void as a penalty.  The contract required the boat owner to pay the management company “fifty percent of what [it] would have earned as a Management Fee had [the] Agreement not been so terminated,” and provided a formula for making that calculation, which in this case was $537,246.86.  “The termination fee formula, however, makes no deductions to account for the fact that [management company] would have fewer expenses in the event of termination, and [it] has not quantified the expenses that would remain.”   Comar Marine Co. v. Raider Marine Logistics LLC, No. 13-30156 (July 6, 2015).

Building on momentum after winning a challenge to the MERS business model, MERS succeeded in arguing that an earlier suit against Bank of America created a res judicata bar to a later suit against MERS because MERS and the bank were in privity.  Warren v. MERS, No. 14-11102 (July 2, 2015, unpublished).

At mid-year 2015, you can see here my recommendations for five cases from the last 3 months that are well worth a read.

SMI alleged ten causes of action, claiming that the defendants “had stolen both technical and business trade secrets related to VaultWorks,” a software program that helps banks manage their cash inventories.  Spear Marketing, Inc. v. Bancorpsouth Bank, No. 14-10753 (June 30, 2015).    A series of unfortunate events for SMI ensued:

1.  Defendants removed on the grounds of complete preemption under the copyright laws.  Acknowledging a lack of Fifth Circuit precedent on the specific issues in this case, as well as a split among other circuits, the Court found that “the technical trade secrets found within VaultWorks fall within the subject matter of copyright,” and that SMI’s Texas Theft Liability Act claim — and to the extent it involved intangible assets, its conversion claim – – were preempted.

2.  SMI’s post-removal amendment to drop the key language for preemption failed because “jurisdictional facts are determined at the time of removal, and consequently post-removal events do not affect that properly established jurisdiction.”  The Court concluded that “SMI has conflated the question whether the initial removal was proper . . . with the question whether the district court should, in its discretion, remand the case when the federal claims disappear as the case progresses.”

3.  The remaining claims — trade secret misappropriation, in particular — failed for a lack of proof that the defendants actually used the information in question.

An earlier panel opinion found the Golf Channel liable for $5.9 million under the Texas Uniform Fraudulent Transfer Act (“TUFTA”), even though it delivered airtime with that market value, because the purchaser was Allen Stanford while running a Ponzi scheme. Accordingly, the airtime had no value to creditors, despite its market value.  On rehearing, the Fifth Circuit vacated its initial opinion and certified the controlling issue to the Texas Supreme Court: “Considering the definition of ‘value’ in section 24.004(a) of the Texas Business and Commerce Code, the definition of ‘reasonably equivalent value’ in section 24.004(d) of the Texas Business and Commerce Code, and the comment in the Uniform Fraudulent Transfer Act stating that ‘value’ is measured ‘from a creditor’s viewpoint,’ what showing of ‘value’ under TUFTA is sufficient for a transferee to prove the elements of the affirmative defense under section 24.009(a) of the Texas Business and Commerce Code?”  Janvey v. The Golf Channel, No. 13-11305 (June 30, 2015).

In three opinions — one for each state in the Fifth Circuit — the Court remanded the “gay marriage” cases in light of Obergefell v. Hodges.  E.g., De Leon v. Abbott, No. 14-31037 (July 1, 2015).  Noting that the Supreme Court addressed both the Fourteenth and First Amendments in its opinion, the Fifth Circuit observed: “We express no view on how controversies involving the intersection of these rights should be resolved but instead leave that to the robust operation of our system of laws and the good faith of those who are impacted by them.”  (I was recently quoted by the Dallas Morning News about other matters related to Obergefell.)

Two test preparation services sued each other.  The plaintiff sought coverage for a counterclaim under a policy that covered “injury arising out of . . . infringing upon another’s copyright, trade dress or slogan in your advertisement” (in other words, “trade dress” but not “trademark” claims).  .” (emphasis added). Even under the generous standards for determining the duty to defend, the counterclaim’s allegations did not trigger coverage: “The central focus in this coverage dispute, however, is not on the confusion, but on what allegedly is causing the confusion. The alleged confusion in this case stems from the use of a similar service mark (“Testmasters”), and the false
representation that TES offers a similar service (live LSAT courses offered nationwide). None of the allegations possibly states a claim for confusingly similar trade dress.”  Test Masters Educational Services, Inc. v. State Farm Lloyds, No. 14-20473 (June 29, 2015).

The Fifth Circuit remanded to calculate an attorney fee award when: “At nearly every turn, this Department of Labor investigation and prosecution violated the department’s internal procedures and ethical litigation practices. Even after the DOL discovered that its lead investigator conducted an investigation for which he was not trained, concluded Gate Guard was violating the Fair Labor Standards Act based on just three interviews, destroyed evidence, ambushed a low-level employee for an interview without counsel, and demanded a grossly inflated multi-million dollar penalty, the government pressed on. In litigation, the government opposed routine case administration motions, refused to produce relevant information, and stone-walled the deposition of its lead investigator.”  Gate Guard Services v. Perez (Secretary, Department of Labor),  No. 14-40585 (July 2, 2015, unpublished).

The owners of a self-storage company sued Morgan Stanley, alleging that it mishandled the negotiation of substantial insurance claims arising from Hurricane Katrina.  An issue on appeal was whether, under federal common law, a communication between the company’s corporate counsel to Morgan Stanley was privileged.  The Fifth Circuit noted that while “[s]everal courts — including lower courts in this circuit — have held that the [common interest] privilege extends to co-plaintiffs in litigation,” “this court has not expressly held that the privilege is inapplicable to co-plaintiffs.  The Court did not need to address that issue, however, because it found that this communication was not made to “further a joint or common interest.”  (emphasis in original)  BCR Safeguard Holding, LLC v. Morgan Stanley Real Estate Advisor, Inc., No. 14-31068 (June 2, 2015, unpublished).

Waggoner owned a working interest in a carbon dioxide well that sold to Denbury Resources.  He alleged that Denbury sold carbon dioxide to its subsidiaries at low prices, thereby decreasing the royalties it had to pay, and resulting in less money for Waggoner. The Court affirmed the dismissal of his claim, relying on Jebaco v. Harrah’s Operating Co., 587 F.3d 314 (5th Cir. 2009), which found no antitrust standing from the effect of casinos’ behavior on riverboat rentals, and Bailey v. Shell W. E&P, Inc., 609 F.3d 710 (5th Cir. 2010), which involved a similar royalty claim.  “As with the decrease in per-patron [rental] fees in Jebaco, Waggoner’s decrease in royalties is the result of downstream conduct by the payor, in a market in which Waggoner is not a participant.”   Waggoner v. Denbury Onshore, LLC, No. 14-60310 (May 20, 2015, unpublished).

A revised Templeton v. O’Cheskey did not alter the Fifth Circuit’s analysis about proof of a Ponzi scheme, but slightly clarified the scope of its holding about “good faith” under the fraudulent transfer provision of the Bankruptcy Code.  That holding was that the “good faith test under Section 548(c) is generally presented as a “two-step inquiry” into (1) whether the transferee had “inquiry notice” of the transferor’s possible insolvency or possible fraud and (2) if so, whether the transferee then satisfied a “diligent investigation” requirement.  No. 14-10563 (June 8, 2015).  (The Fifth Circuit addressed the related “good faith” requirement under TUFTA in GE Capital v. Worthington National Bank, 754 F.3d 297 (5th Cir. 2014)).

In Texas v. United States, the high-profile challenge to the Obama Administration’s immigration policies, the oral argument panel has been announced for the “merits” argument on July 10 — Judges King, Smith, and Elrod.  Of course, Judges Smith and Elrod were the two majority votes on the “preliminary stay” panel that ruled for the plaintiffs and denied a stay, strongly signalling how they will the view the issues presented in this phase of the case.

Three counties sued MERS (“Mortgage Electronic Registration Systems, Inc.”) for violations of various statutes related to the recording of deeds of trust (the Texas equivalent of a mortgage).  In a nutshell, MERS is listed as the “beneficiary” on a deed of trust while the note is executed in favor of the lender.  “If the lender later transfers the promissory note (or its interest in the note) to another MERS member, no assignment of the deed of trust is created or recorded because . . . MERS remains the nominee for the lender’s successors and assigns.”  The counties argued that this arrangement avoided significant filing fees.  The Fifth Circuit affirmed judgment for MERS, finding (1) procedurally, that the Texas Legislature did not create a private right of action to enforce the relevant statute and (2) substantively, that the statute was better characterized as a “procedural directive” to clerks rather than an absolute rule.  Other claims failed for similar reasons.  Harris County v. MERSCORP Inc., No. 14-10392 (June 26, 2015).

A set of “kaleidoscopic claims” about the Houston ISD’s contracting process produced several RICO holdings of note in Ramirez Group v. Houston ISD, No. 13-20753 (May 18, 2015):

• To show the requisite injury, “[a] plaintiff need not show that the other party would have been obliged to confer a benefit, only that the other party would have conferred the benefit.”  This can be shown by a substantial drop in work assignments coupled with other suspicious activity.
• The Houston ISD is immune from suit under RICO, because a governmental entity cannot form the requisite criminal intent, and because municipal entities enjoy common law immunity from punitive damages.
• Official immunity does not extend to a school trustee accused of acting “wholly outside the legitimate scope” of his duties by allegedly accepting bribes.
• The requisite mental state for tortious interference can be shown “[w]here only a limited number of . . . contractors would be selected, [so] all of the participants in the scheme ‘knew the interference was substantially certain to occur as a result of the conduct.'”

1.  Improper joinder when the acts of the nondiverse employee that allegedly tortiously interfered with the plaintiff’s contract were ratified by the employer.  Denson v. Beavex, Inc., No. 14-20534 (May 22, 2015, unpublished).

2.  No appellate jurisdiction when the district court administratively closed the case in favor of arbitration.  “[A]n order by the district court administratively closing a case is tantamount to a stay, and bars appellate review.”  Walker v. TA Operating, LLC, No. 14-41046 (May 22, 2015, unpublished).

3. “[A] district court cannot permissively abstain from exercising jurisdiction in proceedings related to Chapter 15 [cross-border bankruptcy] cases.”   Firefighters’ Retirement System v. Citco Group Ltd., No. 14-30857 (revised August 6, 2015).

4.  A lawyer who intervenes in a client’s case to protect a fee interest must independently establish diversity of citizenship and the requisite amount in controversy.  Samuels v. Twin City, No. 14-31203 (May 18, 2015, unpublished).

After completing her Chapter 13 plan, Juliana Jett owed roughly $35,000 on her mortgage, with $0 past due.  Her Experian credit report, however, erroneously showed it as discharged with a $0 balance, which Jett alleged caused her to be denied refinancing. She complained to Experian four times, who in turn sent an “automatic credit dispute verification form” to American Home Mortgage Servicing each time.   She sued under the Fair Credit Reporting Act, alleging that “[i]n each instance, American Home tried to correct the information but returned a blank [Consumer Information Indicator] field so Experian did not process the updates.”  The Fifth Circuit reversed a summary judgment for the servicer as to Jett’s negligence claim, noting that this evidence allowed an inference that “American Home knew that Jett’s information was being reported inaccurately and attempted to correct it.”  The adequacy of the servicer’s procedures was an issue to be resolved at trial.  Jett v. American Home Mortgage Servicing, Inc., No. 14-10771 (June 10, 2015, unpublished).

Building on In re Deepwater Horizon, ___ S.W.3d ___, 2015 WL 674744 (Tex. Feb. 13, 2015), in Ironshore Specialty Ins. Co. v. Aspen Underwriting, the Fifth Circuit addressed whether the following insurance policy provision limited the excess insurer’s obligations to a $5 million that the insured was obliged to provide under another contract: “The word ‘Insured,’ wherever used in this Policy, shall mean . . . any person or entity to whom [Insured] is obliged by a written ‘Insurance Contract’ entered into before any relevant ‘Occurrence’ and/or ‘Claim’ to provide insurance such as is afforded by this Policy.”  The Court found that it did, even though the contract at issue in Deepwater Horizon had additional provisions that bore on this question.  No. 13-51027 (June 10, 2015).

On rehearing, the Fifth Circuit vacated its earlier panel opinion in Wooten v. McDonald Transit Associates, 775 F.3d 689 (5th Cir. 2015), which reversed a default judgment because of inadequate underlying pleadings, and replaced it with an opinion affirming the default judgment.  The new opinion holds that “[a]lthough Wooten’s complaint contained very few factual allegations, we conclude that it met the low threshold of content demanded by Federal Rule of Civil Procedure 8 because it provided McDonald Transit with fair notice of Wooten’s claims.”  No. 13-11035 (June 10, 2015).  The Court thus continues to reserve the question left open in Nishimatsu Construction Co. v. Houston Nat’l Bank, 515 F.2d 1200 (5th Cir. 1975): “We do not consider here the possibility that otherwise fatal defects in the pleadings might be corrected by proof taken by the court at a hearing.”

A business dispute about a telephone service provider’s billing system leads to 2 holdings of broad interest, one procedural and the other substantive:

1A.  Waiver.  “Although [defendant] moved for a directed verdict at the close of evidence, it did not argue in its motion that the Supply Contract was unenforceable.”  Accordingly, under Fed. R. Civ. 50(b), that argument could not be raised post-trial.  (Here, in fact, because defendant took the opposite position about the contract in the directed verdict motion, judicial estoppel also barred the later argument.)

1B.  Waiver of Waiver.  When defendant relied on a certain letter agreement in its Rule 50(b) motion, and plaintiff “did not argue waiver in its response . . . [plaintiff] has forfeited its right to raise the waiver issue on appeal.”

2.  Speculative damages.  A “strained business relationship” between the parties supported a holding that plaintiff’s $10 million lost profits award, assuming six years of business dealings, was not proven with “reasonable certainty.”  Transverse LLC v. Iowa Wireless Services, LLC, No. 13-51098 (revised Aug. 5, 2015, unpublished).

During the 1980s, the Jefferson Group failed to pay both a large loan and its property taxes.  The lender failed and the RTC/FDIC acquired the deed of trust for the loan, which it later assigned to another entity.  The local school district foreclosed on the property in 1990.  Many years later, a dispute arose between the entity who acquired the deed of trust, who asserted a lien on the (now-developed) land, and the owners who traced title to the foreclosure sale.  The district court dismissed on limitations grounds.  The Fifth Circuit concluded that if the RTC had not effectively consented to the foreclosure sale, then it violated 12 U.S.C. § 1825(b)(2), which meant that the sale “is, without qualification, ‘null and void.'”  This would mean that the current owners could not assert a limitations defense.  The Court remanded to consider whether a violation had occurred, in light of this conclusion about the effect of a violation.  CAP Holdings, Inc. v. Lorden, No. 14-50397 (June 22, 2015).

Adler, the distributing agent for a bankrupt business, sought to sue a law firm for allegedly mishandling its affairs and causing its financial problems.  The business’s Third Amended Plan of Reorganization had a provision that retained its standing to pursue avoidance and fraudulent transfer actions against a list of named defendants (which did not include the law firm).  The Plan also had a provision reserving “[a]ny and all other claims and causes of action which may have been asserted by the Debtor prior to the Effective Date.”  The Fifth Circuit held that this was “exactly the sort of blanket reservation that is insufficient to preserve the debtor’s standing.”  (citing Dynasty Oil & Gas LLC v. Citizens Bank, 540 F.3d 551 (5th Cir. 2008)). On waiver grounds, he Court declined to consider whether such a reservation would be sufficient if “(1) the defendant is a non-creditor [and thus not entitled to vote on the plan] and (2) the reorganization plan clearly identifies how the proceeds of the claim will be distributed.”  Adler v. Frost, No. 14-31109 (June 11, 2015, unpublished).

Pal-Con, a manufacturer of “regenerators” for gas turbine engines (right), sued a pilot car service for causing a truck wreck that severely damaged one of its products.  The service argued that the economic loss rule precluded Pal-Con’s claim. The Fifth Circuit disagreed, citing Chapman Custom Homes, Inc. v. Dallas Plumbing Co., 445 S.W.3d 716, 718 (Tex. 2014).  “Here, a manufacturer contracted with a shipper, who subcontracted with a trucking company, who subcontracted with a negligent pilot car service provider . . . [T]he harm suffered by Pal-Con extended beyond the mere economic loss of a contractual benefit from [pilot car service] with [trucking company.]”   Pal-Con, Ltd. v. Wheeler, No. 14-10615 (June 22, 2015, unpublished).

The plaintiffs in Owens v. Jastrow sued officers of Guaranty Bank for securities fraud, alleging that their SEC filings and public comments misstated the vulnerability of the bank’s mortgage-related holdings.  No. 13-10928 (June 12, 2015).  The Fifth Circuit affirmed dismissal in a detailed opinion, holding, procedurally, that:

• “A district court may best make sense of scienter allegations by first looking to the contribution of each individual allegation to a strong inference of scienter, especially in a complicated case such as this one.  Of course, the court must follow this initial step with a holistic look at all the scienter allegations”; and
• “Group pleaded” allegations were properly disregarded, although the Court declined to adopt “a strict rule requiring outright dismissal for any group or puzzle pleading[.]”

And on the merits:

• Knowledge of undercapitalization showed motive and opportunity, but does not by itself establish scienter;
• “Defendants’ disclosure of the ‘red flags’ [cited by Plainitiffs] and candidness about the uncertainly underlying its models neutralize any scienter inference from ‘red flags'”; and
• “An inference of severe recklessness is more likely when a statement violates an objective rule than when GAAP permits a range of acceptable outcomes.”

Therefore: “Considered holistically, plaintiffs’ allegations of knowledge of Guaranty’s undercapitalization, a large misstatement, red flags, and ignorance of internal warnings, do not raise a strong inference of severe recklessness that is equally as likely as the competing inference that [Defendants] negligently relief on the AAA ratings and believed that Guaranty’s internal models were accurate.”

Zastrow, owner of an auto repair shop, testified in an arbitration about problems with a CLK sedan sold by Mercedes Greenway.  He later sued Mercedes Greenway himself, alleging that it “threatened him to prevent him from testifying and then, with the assistance of [a lawyer], retaliated against him by refusing to sell him auto parts after he gave his deposition.”   The Fifth Circuit affirmed the dismissal of his RICO claims, finding (1) no pattern of racketeering activity, (2) no continuity of racketeering activity, and (3) no enterprise separate from the alleged racketeering activity.  It reversed dismissal of Zastrow’s claim for retaliation under 42 U.S.C. § 1981 — while noting that “[w]e are skeptical” about its merits, the Court found that the defendant had not fully engaged the burden-shifting analysis that governs this type of claim.    Zastrow v. Houston Auto Imports Greenway Ltd., No. 14-20359 (June 12, 2015).

Disputes between borrowers and mortgage servicers are common; jury trials in those disputes are rare.  But rare events do occur, and in McCaig v. Wells Fargo Bank, 788 F.3d 463 (5th Cir. 2015), a servicer lost a judgment for roughly $400,000 after a jury trial.

The underlying relationship was defined by a settlement agreement in which “Wells Fargo has agreed to accept payments from the McCaigs and to give the McCaigs the opportunity to avoid foreclosure of the Property; as long as the McCaigs make the required payments consistent with the Forbearance Agreement and the Loan Agreement.” Unfortunately, Wells’s “‘computer software was not equipped to handle’ the settlement and forbearance agreements meaning ‘manual tracking’ was required.”  This led to a number of accounting mistakes, which in turn led to unjustified threats to foreclose and other miscommunications.

In reviewing and largely affirming the judgment, the Fifth Circuit reached several conclusions of broad general interest:

• The “bona fide error” defense under the Texas Debt Collection Act allows a servicer to argue that it made a good-faith mistake;  Wells did not plead that defense here, meaning that its arguments about a lack of intent were not pertinent to the elements of the Act sued upon by plaintiffs;
• The economic loss rule did not bar the TDCA claims, even though the alleged misconduct breached the parties’ contract: “[I]f a particular duty is defined both in a contract and in a statutory provision, and a party violates the duty enumerated in both sources, the economic loss rule does not apply”;
• A Casteel – type charge issue is not preserved if the objecting party submits the allegedly erroneous question with the comment “If I had to draft this over again, that’s the way I’d draft it”;
• The plaintiffs’ lay testimony was sufficient to support awards for mental anguish; and
• “[A] print-out from [plaintiffs’] attorney’s case management system showing individual tasks performed by the attorney and the date on which those tasks were performed” was sufficient evidence to support the award of attorneys fees.

A dissent took issue with the economic loss holding, and would find all of the plaintiffs’ claims barred; “[t]he majority’s reading of these [TDCA] provisions specifically equates mere contract breach with statutory violations[.]”

Electrostim, a provider of medical electrical stimulation services, sued Blue Cross for several reimbursement issues, as well as wrongful contract termination.   The Fifth Circuit found that the district court improperly denied leave to amend on the key issue, noting that in Electrostim’s briefing: “Electrostim specifically drew the district court’s attention to . . . partially paid claims and argued that its lawsuit challenged not only the denial of claims, but also the rate at which claims were paid. As we have explained, ERISA does not preempt state-law claims based on an allegedly improper rate of payment in violation of a provider agreement. Therefore, Electrostim has demonstrated, both to the district court and to this court, that because Electrostim can amend its complaint to put at issue the rate at which BCBSTX paid the partially paid claims, amendment would not be futile.” Electrostim Medical Services, Inc. v. Health Care Service Corp., No. 13-20649 (June 16, 2015, unpublished).

A shipbuilder, under contract to the federal government, sought to remove an asbestos claim to federal court under the “Federal Officer Removal Statute,” 28 U.S.C. § 1442.  The Fifth Circuit concluded that the shipbuilder was acting at the direction of the federal government, but that the plaintiff’s pleading did not establish a link between his alleged exposure and the shipbuilder’s boat (a seemingly fundamental causation problem, but not implicated at this initial procedural stage).  Wilde v. Huntington Ingalls, Inc. (June 19, 2015, unpublished).

In Zente v. Credit Management, L.P., an attorney sought to appeal the district court’s referral of a Rule 11 matter to the Western District of Texas disciplinary committee.  The Fifth Circuit found that he had no standing: “In accordance with the cases from our sister circuits, we conclude that a referral of attorney conduct to a disciplinary committee, absent a specific finding of misconduct, is not a sanction that confers standing to appeal.  Thus, [Attorney] has standing to appeal in the instant case only if the district court’s referral to the Admissions Committee was accompanied by a specific finding of misconduct.  In the circumstances of this case, we conclude that the court made no finding of misconduct. The district court made no findings like those that courts have found conferred standing to appeal. It made no factual findings or legal conclusions regarding the alleged misconduct, and made no implied or explicit finding that [Attorney] violated any ethical rule or canon. No. 14-50910 (June 15, 2015).

In a 5-4 decision, the Supreme Court reversed the Fifth Circuit’s 2-1 panel opinion in the “Confederate Flag License Plate Case,” :reasoning: “Texas’s specialty license plate designs constitute government speech, and thus Texas was entitled to refuse to issue plates featuring [the Sons of Confederate Veteran’s] proposed design.”  A thoughtful dissent begins: “The Court’s decision passes off private speech as government speech and, in doing so, establishes a precedent that threatens private speech that government finds displeasing.”

An architectural firm sued a former employee and a competitor.  The Fifth Circuit affirmed judgment for the defendants in Hunn v. Dan Wilson Homes, No. 13-11297 (June 15, 2015).  As to the firm’s claim for breach of fiduciary duty, the Fifth Circuit found no error in the district court’s finding that “the plans in the AutoCAD files were the same as the physical copies of the plans that [had] already been disseminated by [Plaintiff]” to various homeowners.  A noncompete claim failed for lack of an express promise related to confidential information.  Other claims based on copyright, the Lanham Act, contract, and the Computer Fraud and Abuse Act failed for similar proof problems.  Particularly as to the elements of a noncompete claim under Texas law, the opinion provides a practical summary of potential claims related to an employee’s departure, as well as several commonly-litigated factual issues related to those claims.

As a counterpoint to the recent case of Alonso v. Abide — which required leave of court to sue a bankruptcy trustee for alleged negligence in handling a claim against a debtor’s insurer — in Carroll v. Abide, the Fifth Circuit reversed the dismissal of a claim against a trustee because leave was not required.  No. 14-31230 (June 11, 2015). The debtors sued, alleging that the trustee violated their Fourth Amendment rights in seizing a computer.  Again applying Barton v. Barbour, 104 U.S. 126 (1881), the Court concluded: “[B]ecause the [debtors] complain of the bankruptcy trustee’s conduct while carrying out district court orders, we conclude that the plaintiffs were not required to seek permission from the bankruptcy court before filing suit in the district court regarding the challenged conduct.”  (emphasis added).

The Spongs bought property on Galveston Island and obtained flood insurance under the National Flood Insurance Program.  Unfortunately, their property was located in an “coastal barrier resources system” area, ineligible for flood insurance; even more unfortunately, Hurricane Ike completely swept away everything on the property.  The record showed confusion about the property address and the records kept by FEMA and the Fish and Wildlife Service.  On an interlocutory appeal, the Fifth Circuit held that: (1) federal law did not preempt the Spongs’ claims related to “procurement,” as opposed to “claims handling,” but (2) “[i]n determining whether the property was within the CBRS and therefore eligible for a federal flood insurance policy, [the insurer] was acting as the representative of the Government, not the Spongs”; accordingly, the Spongs could not establish reasonable reliance.  Spong v. Fidelity Nat’l Prop. & Cas. Ins. Co., No. 13-41317 (May 22, 2015).

Garofolo paid off her home equity note, but did not then receive the cancelled promissory note and a release of lien from the servicer, as required by the Texas Constitution, and the terms of the note.  She sued for forfeiture of principal and all interest paid under the Constitution; the servicer admitted not having sent the papers, but contended that having the provision in the note was sufficient to comply with the Constitutional requirement.  The Fifth Circuit certified this issue to the Texas Supreme Court: “Garofolo’s construction appears to give rise to a drastic remedy, but Ocwen’s construction appears to render the requirement a virtual nullity except in the (hopefully rare) circumstance where a lender unscrupulously attempts to enforce a paid note resulting in recoverable damages.” Garofolo v. Ocwen Loan Servicing, LLC, No. 14-51156 (June 9, 2015).

Estes sued JP Morgan Chase, alleging violations of the Texas Constitution with respect to a home equity loan.  The Fifth Circuit affirmed dismissal on a basic ground: “Estes’s complaint fails to allege any connection between himself and JPMC except that Estes ‘notified [JPMC] that the original promissory note had not been returned,’ and that ‘[m]ore than 60 days have passed since plaintiff notified [JMPC] of its failure to cancel and return the promissory note.’  Considering the allegations in Estes’s complaint, and taking those allegations as true, Estes has not alleged that JPMC possessed the Note at the relevant time. He also has not alleged that he made payments to JPMC, nor has he alleged any other facts from which the Court could reasonably infer that the Note was made payable to “bearer” or to JPMC, as the definition of “holder” set forth in Tex. Bus. & Com. Code § 1.201 requires.”  Estes v. JP Morgan Chase Bank, N.A., No. 14-51103 (May 20, 2015, unpublished).

Plaintiffs sued Whirlpool, alleging that a gas range it manufactured made them sick from carbon monoxide emissions.  They offered two causation experts, whose testimony was stricken by the district court under Daubert, which the Fifth Circuit affirmed.  The first opined about the “general causation” link connection between carbon monoxide and health problems, but the main studies he relied on involved significantly higher concentrations than what was measured in Plainitffs’ apartment.  The second, an “accomplished engineer with significant expertise in vehicular accident reconstruction and fire and explosion analysis,” did not have expertise on the issue in this case: “No gas appliance fire is at issue in this case; rather, the core claim here is that the gas range was defective because it emitted carbon monoxide in excess of an amount that is safe.”  Macy v. Whirlpool Corp., No. 14-20603 (June 4, 2015, unpublished).

Dan Peterson sued his former employer, Bell Helicopter Textron, for age discrimination under the TCHRA. The jury found that age was a motivating factor in his termination, but also found that Bell would have terminated him even without consideration of his age.  The district court awarded no damages, but imposed an injunction on Bell about future age discrimination, and awarded Peterson attorneys fees of approximately $340,000.  The Fifth Circuit reversed.  Noting that the TCHRA allowed an injunction even in light of the unfavorable causation finding, the Court found that plaintiff’s request came too late, as Fed. R. Civ. P. 54(c) “assumes that a plaintiff’s entitlement to relief not specifically pled has been tested adversarially, tried by consent, or at least developed with meaningful notice to the defendant.”  Here, Bell showed that it would have tried the case differently had it known an injunction was at issue.  Accordingly, the fee award was also vacated. Peterson v. Bell Helicopter Textron, Inc., No. 14-10249 (June 4, 2015).  A revised opinion honed the opinion’s analysis as to a potential alternative ground of fee recovery; the same day it issued, the full Court denied en banc review over a lengthy dissent.

Defendants claimed that a foreclosure sale produced an unfair windfall for Fannie Mae on a substantial commercial property.  They alleged that Fannie Mae had a practice of making unfairly low bids on Gulf Coast properties.  The Fifth Circuit observed: “As the district court held, evidence regarding Fannie Mae’s other foreclosure practices throughout the Gulf Coast region would not impact whether the subject property was sold for the amount at which it would have changed hands between a willing buyer and seller having knowledge of the relevant facts. At most, such evidence might have suggested that Fannie Mae’s conduct throughout the region affected the fair market value of the subject property. So long as the property was sold for fair market value, however, evidence of the various market forces influencing that value is not relevant to this case.” Fannie Mae v. Lynch, No. 14-60864 (June 2, 2015, unpublished).

Plaintiffs settled a noncompete case with their employer, TXL Mortgage, and signed a broad general release of “all claims and causes of action that were or could have been asserted in the Lawsuit and all claims and causes of action related to or in any way arising from [their] employment with TXL, whether based in tort, contract (express or implied), warranty, deceptive trade practices, or any federal, state or local law, statute, or regulation.”  Plaintiffs then sued for overtime wages under the FLSA.

The district court granted summary judgment for the employer, and the Fifth Circuit reversed, applying Martin v. Spring Break ’83 Productions, LLC, 688 F.3d 247 (5th Cir. 2012): “To deem the plaintiffs as having fairly bargained away unmentioned overtime pay based on a settlement that involves a compromise over wages due for commissions and salary would subvert the purpose of the FLSA: namely, in this case, the protection of the
right to overtime pay. Under these circumstances where overtime pay was never specifically negotiated, there is no guarantee that the plaintiffs have been or will be compensated for the overtime wages they are allegedly due under the Act.” Accordingly, the general prohibition on settlement of FLSA claims applied, and the exception recognized in Martin did not.  Bodle v. TXL Mortgage Corp., No. 14-20224 (June 1, 2015).

Constango Operators Inc. built a pipeline beneath the Atchafalaya Channel.  Unfortunately, the Corps of Engineers neglected to forward information about that new pipeline to its Waterways Division, which supervises dredging operations. A dredging barge operated by Weeks Marine (the G.D. MORGAN, right) then hit the pipeline. The resulting trial awarded damages to Constango, with the U.S. liable for 60% and Weeks 40%, and the Fifth Circuit affirmed.

The opinion turns largely on issues or maritime law and the applicable federal regulations, but has three features of broad general interest:

1. An exceptionally clear definition of “extrinsic evidence” as “anything outside a contract itself,” which excluded consideration of material from the Federal Register and CFR in construing an exculpatory clause;
2. A reminder that a duty of care can arise from common law even though regulations control and define some aspects of the parties’ dealings; and
3. A reminder, under general tort law, that “[t]he fact that Weeks followed the custom of the dredging industry is not dispositive, because a common practice can still be negligent.”

Contango Operators, Inc. v. USA, No. 14-20265 (May 28, 2015, unpublished).

Withdrawing an earlier panel opinion, the Fifth Circuit certified two insurance questions to the Louisiana Supreme Court in 2014, which have now been answered:

1.  Whether an insurer can be liable for a bad-faith failure-to-settle claim when it never received a firm settlement offer.  (The Fifth Circuit noted that a revised statute imposed “an affirmative duty . . . to make a reasonable effort to settle claims,” drawing into question prior case law in the area.)  The Louisiana Supreme Court said: “Having determined that the plain language supports the existence of a cause of action in favor of the insured under [the revised statute], we answer this question affirmatively.”

2.  Whether an insurer can be liable for “misrepresenting or failing to disclose facts that are not related to the insurance policy’s coverage” — namely, the status of a claim and related settlement negotiations.  The answer: ” An insurer can be found liable under [the statute] for misrepresenting or failing to disclose facts that are not related to the insurance policy’s coverage; the statute prohibits the misrepresentation of ‘pertinent facts,’ without restriction to facts ‘relating to any coverages.'”

Accordingly, the Fifth Circuit remanded for further proceedings in Kelly v. State Farm, No. 12-31064 (May 29, 2015, unpublished).

Former bankruptcy debtors sued their trustee, alleging that he failed to sue an insurer who could have satisfied many creditors’ claims.  The district court dismissed because the plaintiffs did not first get leave from the bankruptcy court that appointed the trustee, and the Fifth Circuit affirmed under Barton v. Barbour, 104 U.S. 126, 128 (1881) (an opinion by the otherwise unmemorable William Burnham Woods, right).

The debtors contended that Stern v. Marshall implicitly overruled Barton, in part, because the bankruptcy court would lack final adjudicative authority over their state law tort claims.  The Fifth Circuit disagreed, holding that under Barton: “If a bankruptcy court concludes that the claim against a trustee is one that the court would not itself be able to resolve under Stern, that court can make the initial decision on the procedure to follow.  Once a bankruptcy court makes such a determination, this court can review the utilized procedure.”  Villegas v. Schmidt, No. 14-40423 (May 28, 2015).

TRC Environmental Corporation, the contractor on a project to decommission a power plant, sued LVI Facilities Services for breach of its subcontract with TRC.  The subcontract said that “All disputes arising under the Contract Documents will be resolved in accordance with the terms of the Project Agreement”; otherwise, they would be arbitrated.  The Project Agreement spelled out various ADR processes but did not require arbitration.  In affirming the rejection of LVI’s motion to compel arbitration, the Fifth Circuit reminded: “The Federal Arbitration Act codifies a ‘liberal federal policy favoring arbitration agreements.’  But, this presumption applies when a court evaluates the scope of an arbitration under the second step of the arbitration analysis, not when a court is determining whether a valid arbitration agreement exists at all.”  TRC Environmental Corp. v. LVI Facility Servcs., No. 14-51269 (May 22, 2015, unpublished).

In Harris v. Viegelahn, No. 14-400 (May 18, 2015), the Supreme Court resolved a split between the Third and Fifth Circuits and held 9-0 (contrary to the Fifth’s position) that “by excluding postpetition wages from the converted Chapter 7 estate (absent a bad-faith conversion), 11 U.S.C. § 348(f) removes those earnings from the pool of assets that may be liquidated and distributed to creditors.”

Husky, a seller of electronic components, sued Ritz, a director of a company that owed Husky $163,999.38.  Ritz was denied a bankruptcy discharge as to that debt based on 11 U.S.C. § 423(a)(2)(A), which excludes from discharge “any debt . . . for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation, or actual fraud[.]”   The Fifth Circuit reversed, finding that this statute did not apply “where, as here, the debtor made no false representation ot the creditor.”  Husky International Electronics v. Ritz, No. 14-20526 (May 22, 2015).

Specifically, the Court rejected the Seventh Circuit’s contrary reasoning in McClellan v. Cantrell, 217 F.3d 890 (7th Cir. 2000), both as inconsistent with Fifth Circuit precedent, and with the Supreme Court’s reasoning about the level of reliance required by this section in Field v. Mans, 516 U.S. 59 (1995).  The Court acknowledged the argument that “actual fraud” is one of three scenarios listed in the statute, but found that the canon of construction supporting this argument was a “guide[] that need[s] not be conclusive.”  The Court also noted that the fraudulent transfer provisions of the Code addressed situations where the debtor did not make a direct misrepresentation.

In a 2-1 decision, the Fifth Circuit has denied the federal government’s request to stay the district court’s injunction against key elements of President Obama’s immigration policy. Texas v. United States, No. 15-40238 (May 26, 2015).  Judge Higginson’s dissent concludes that the issues before the Court are nonjusticiable.  Judge Smith’s majority (joined by Judge Elrod), made these key points:

• On standing — “Texas’s forced choice between incurring costs and changing its fee structure is itself an injury: A plaintiff suffers an injury even if it can avoid that injury by incurring other costs.  And being pressured to change state law constitutes an injury,”‘
• On the statutory merits — “[E]ven granting ‘special deference,’ the INA provisions cited by the government for that proposition cannot reasonably be construed, at least at this early stage of the case, to confer unreviewable discretion,” and
• On the APA issue — “But a rule can be binding if it is ‘applied by the agency in a way that indicates it is binding,’ and the states offered evidence from DACA’s implementation that DAPA’s discretionary language was pretextual.”

More mandamus news of Trinity Industries, the Fifth Circuit, and the Marshall Division of the Eastern District of Texas. Recall that last October, the Fifth Circuit issued an unusual mandamus ruling that denied Trinity’s request for relief on the eve of trial in a high-profile qui tam case, but expressed concern that the federal government had “found the defendant’s product sufficiently compliant with federal safety standards and therefore fully eligible, in the past, present and future, for federal reimbursement claims.” The case went forward, the jury returned a large verdict against Trinity, and a later mandamus petition by Trinity was unavailing.  Judgment has not yet been entered.

The same players have returned to a similar stage. In January 2015, in a product liability case arising from a North Carolina automobile accident, Trinity moved to transfer venue from the Marshall Division. As discovery deadlines approached, Trinity filed an emergency stay application on May 6, and after hearing no response, sought mandamus relief from the Fifth Circuit on May 15.  Later that day, the trial court ordered a transfer to North Carolina, mooting the mandamus petition.

Now it was the trial court’s turn to comment, adding an unusual “addendum” to its opinion. The trial court pointed out that it was already in the process of drafting an order to transfer venue when Trinity filed its mandamus petition. The court further noted that “Trinity has stumbled in its race for credibility” by seeking mandamus intervention, and counseled greater patience from litigants in the future in light of crowded docket conditions.

These events, aside of their dramatic nature, highlight a practical and important challenge of “rocket dockets.” Busy dockets, coupled with tightly compressed discovery schedules, can force counsel into “Catch-22” situations. Counsel either advises their clients to endure extensive, fast-paced litigation activity that they believe is in the wrong place, or risk the ire of courts by “bugging” them for dispositive rulings.

(This blog’s author represents Trinity but not in either matter referred to above.)

In declining to hear Crutchfield v. Sewerage & Water Board, the Fifth Circuit offered some rare guidance about what guides its discretion in accepting a petition to appeal under CAFA: “[N]o CAFA-related issues are raised in the petition for permission to appeal. See Alvarez v. [Midland Credit], 585 F.3d [890,] 894 [5th Cir. 2009] (vacating initial grant of permission to appeal under Section 1453(c), as the appeal no longer involved “unique issues under CAFA”); id. (“[Section 1453(c)] was intended to facilitate the development of a body of appellate law interpreting [CAFA] without unduly delaying the litigation of class actions.” (internal quotation marks omitted)); see also Perritt v. Westlake Vinyls Co., L.P.., 562 F. App’x 228, 230 (5th Cir.2014) (unpublished) (per curiam) (““[Section] 1453(c) tethers our discretionary review to CAFA determinations.”).”  No. 15-90014 (May 19, 2015, unpublished).

Lincoln Insurance sued several defendants, who it accused of charging excessive fees and otherwise engaging in self-dealing to the detriment of Lincoln.  Lincoln won a $16.5 million judgment against two of them for tortious interference.  In a “grab bag” of holdings after both sides appealed, the Fifth Circuit held:

• It did not need to reach a difficult Erie issue about when a tortious interference claim accrues under Texas law, where some of the conduct occurs outside the limitations period, because the trial court found sufficient facts to establish that the discovery rule applied;
• Voluntary dismissal of a claim in amended pleading, in response to a dismissal order “based on a technical defect or withdrawal,” waives the right to appeal that order;
• The economic loss rule barred conversion claims where contract provisions dealt with the underlying rights and responsibilities; and
• When a contract provision expressly created a fiduciary duty as to the handling of funds in a particular account, that duty necessarily extended that duty to the handling of those funds before their deposit (and the trial court erred in holding otherwise, requiring a remand).

The Court noted: “[A] litigation strategy with a narrower focus on certain claims and Defendants might reduce the complications, both procedural and substantive, that arose the first go-around.”  Lincoln General Ins. Co. v. U.S. Auto Ins. Servcs., Inc., No. 13-10589 (May 18, 2015).

Johnson submitted a claim about his personal injuries to the “Gulf Coast Claims Facility,” an entity created to facilitate the resolution of claims against BP about the Deepwater Horizon accident.  The GCCF recommended a settlement of roughly $2.7 million. Johnson accepted the proposal and BP allowed its 14-day appeal period to run.  During that period, however, BP made an indemnity demand on another company, who raised serious questions about the veracity of Johnson’s claim.  BP sought to set aside the settlement, and the case of Johnson v. BP Exploration & Production, Inc. ensued.  No. 14-30269 (May 15, 2015).

As to contract formation, the Fifth Circuit found that: (1) “Johnson accepted the offer in the [GCCF] Determination Letter by its own terms by timely submitting the Final Payment Election Form and agreeing to subsequently sign the Release, and because BP declined to appeal that offer within the fourteen-day period, both an offer and acceptance occurred”; and (2) the actual terms of the release were not material to the formation of the settlement agreement, and neither was its actual delivery.  However, after acknowledging the general rule that “simply couching . . . prior litigation as ‘fraudulent,'” will not support a fraudulent inducement claim, the Court concluded that BP had raised a question as to whether an exception applied when “the defendant subsequently uncovers previously unavailable evidence that the plaintiff was in fact not injured at all, or sustained only de minimis injuiries.”  Accordingly, the Court remanded for an evidentiary hearing about the issue of fraudulent inducement.

A medical practice hired an employment agency, which recommended an office manager who then embezzled $60,000.  The practice sued the agency and lost.  The Fifth Circuit observed that under the Texas definition of a “producing cause”:

• “when boys meet a man because he volunteers with their Boys Club, but the boys and their family then befriend the man outside of the club context, the club’s misrepresentation that it thoroughly checks the background of its volunteers is not a producing cause of the man’s later molestation of the boys outside of the club,” and
• “when a church advertises a teenage boy as a babysitter and parents hire him, the
  church’s advertisement is not the producing cause of his later molestation of
  their children because the parents themselves chose to hire the teenager as a
  babysitter.”

Accordingly, “[b]ecause the doctors of the Medical Group decided to hire Brown based upon their own observations, we conclude that [the agency’s] conduct was not the producing cause of the Medical Group hiring Brown and its resulting injuries.”  Cox, Chanez & Williams v. Howroyd-Wright Employment Agency, Inc., No. 14-10799 (May 14, 2015, unpublished).

The latest appeal about BP’s class settlement of Deepwater Horizon claims — a long and winding path — involved the rights of claimants to appeal a benefit decision to the Fifth Circuit, after review in the district court.  While the Court’s ultimate holdings turn on the specific parts of the settlement at issue, on the threshold issue of the claimants’ appeal right, the Court held: “We choose to follow these other circuits’ decisions in similar cases involving consent decrees to hold that, where a settlement agreement does not resolve claims itself but instead establishes a mechanism pursuant to which the district court will resolve claims, parties must expressly waive what is otherwise a right to appeal from claim determination decisions by a district court. Given that there has been no such express waiver in the instant case, the parties have preserved their right to appeal from the district court to this court.”  Lake Eugenie Land & Development v. BP Exploration & Production, No. 13-30843 (May 8, 2015).

Heritage and OMG disputed their commissions related to the auction of high-end firearms (such as Colt’s Texas Paterson, right).  They arbitrated and Heritage won.  OMG successfully opposed confirmation in the district court, which concluded: “By finding that the [parties contracts]  never came into existence, the arbitrator intruded on an issue that was reserved for an alternative decision-maker and thereby exceeded his authority.”  OMG, LP v. Heritage Auctions, Inc., No. 14-10403 (May 8, 2015, unpublished).

The Fifth Circuit disagreed.  It reminded: “By submitting issues for an arbitrator’s consideration, parties may expand an arbitrator’s authority beyond that provided by the original arbitration agreement such that we need not address whether the original agreement encompassed such authority.”  Here, “the parties agreed to arbitrate the issue of contract formation by submitting, briefing, and generally disputing that issue throughout the arbitration proceedings, with the plaintiffs never contesting the arbitrator’s authority to decide contract formation until he issued an adverse award.”

Among several issues addressed in the complicated bankruptcy appeal of Templeton v. O’Cheskey, the Fifth Circuit considered whether the “ordinary course of business” defense applied to alleged preferential transfers. The Court noted that a “true” Ponzi scheme is one with “operations build on the collection of funds from new investments to pay off prior investors.”  Here, “only a portion of the funds controlled by [Debtor] ([Creditor] estimates 9%) was used to pay Ponzi-like returns to investors,” and the “record is clear that [Debtor] engaged in substantial legitimate business–owning or controlling approximately 14,000 housing units.”  Therefore, the defense could apply, and these transfers were remanded for further consideration. No. 14-10563 (revised May 12, 2015).

Amerisure and Arch disputed whether Arch exhausted its policy limits.  The Arch policy had an endorsement that said the coverage section “is amended as follows: The provision: ‘These payments will not reduce the limits of insurance. is deleted in its entirety and is replaced with the following provision: ‘These payments will reduce the limits of insurance.’”

Amerisure argued that the “expenses” referred to by the endorsement could not be read as including attorneys fees without contradicting another, more specific portions of the policy: ” Our right and duty to defend end[s] when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverages A or B or medical expenses under Coverage C.”

The Fifth Circuit disagreed, reasoning: “This construction reads the endorsement out of the policy as, logically, there can never be an end to the duty to defend unless the insurer
pays the policy limits in indemnity payments.”  Accordingly, Arch had an “eroding” policy with the insured, and its payments of attorneys fees had exhausted the policy limits.  Amerisure Mutual Ins. Co. v. Arch Specialty Ins. Co., No. 14-20239 (April 21, 2015).

Chevron’s “Genesis Spar” offshore rig (right) was damaged by the installation of substandard bolts.  Chevron sued Aker Maritime and won; Aker in turn sued Oceaneering for indemnity and won; Oceaneering settled and sued its insurer. Sidestepping whether a “sistership” exclusion barred coverage, the Fifth Circuit found that  Oceaneering had not proven “property damage” within the meaning of the policy.

To be sure, a Fifth Circuit panel used that phrase in the original Chevron litigation, and a second panel discussed the type of damage at issue in the indemnity case.  But because those panels wrote about distinct issues from the coverage question in this case, and because “Oceaneering rests its argument that there was coverage . . . on these two prior opinions,” the Court affirmed judgment for the insurer. American Home Assurance Co. v. Oceaneering Int’l Inc., No. 14-20222 (April 27, 2015, unpublished).

See generally Towne v. Eisner, 245 U.S. 418 (1918) (Holmes, J.) (“A word is not a crystal, transparent and unchanged; it is the skin of a living thought and may vary greatly in color and content according to the circumstances and time in which it is used.”); Lewis Carroll, Through the Looking Glass (“”‘When I use a word,’ Humpty Dumpty said, in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.'”)

To oppose a summary judgment motion in a mortgage servicing case, Plaintiffs sought to introduce two documents: (1) “a printoff from the HOPE Loan Portal, an online log maintained by Impact [a consultant hired by Plainitffs] to catalogue any updates with the [Plaintiffs’] loan-modification application,” and (2)  a handwritten call log seemingly created by Impact employees as they contacted BOA for updates by telephone. The Fifth Circuit affirmed their exclusion in Thompson v. Bank of America, N.A., No. 14-10560 (April 21, 2015).

Noting that “[i]n the case of an exhibit purported to represent an electronic source, such as a website or chat logs, testimony by a  witness with direct knowledge of the source, stating that the exhibit fairly and fully reproduces it, may be enough to authenticate,” the Court observed: “At no point does [Plaintiffs’] affidavit say that they have personal knowledge of the online log or that it represents an unaltered version of the website. . . . That is likely because, by all indications, those logs were created and maintained by Impact, not the Thompsons. Nor do the logs have characteristics that would authenticate them from their own appearance under Rule 901(b)(4).”   The opinion summarizes some other federal authority about the authentication of evidence obtained from the Internet.

In State of Veracruz v. BP, P.L.C., the Fifth Circuit reviewed the dismissal of claims brought by the Mexican states of Veracruz, Tamaulipas, and Quintana Roo, against several corporate defendants, seeking to recover damages related to the effects of the Deepwater Horizon disaster on the environment, fishing industry, and tourism.  No. 13-31070 (May 1, 2015). The Fifth Circuit agreed with the district court’s conclusion that the states “lacked a proprietary interest to overcome application of the rule, announced in Robins Dry Dock & Repair Co. v. Flint[, 275 U.S. 303 (1927)], precluding recovery for economic loss absent a proprietary interest in physically damaged property.  In a thorough review of Mexican law on this point, featuring analysis by many leading experts in the field, the Court found this article of the Mexican Constitution dispositive: “The Nation has full ownership over all natural resources of the continental shelf and the seabed  . . . .”

Amerijet sued Zero Gravity in Texas state court, seeking emergency relief about the handling of certain aircraft engines subject to their contract.  Zero Gravity responded with its own request for emergency relief. After some initial rulings by the state court, Zero Gravity removed to federal court.  Amerijet then filed a notice of dismissal under Fed. R. Civ. P. 41(a)(1)(A)(i). The matter proceeded in federal court, however, based on its jurisdiction over the TRO bond and a counterclaim for declaratory relief, as the parties tried to settle.  Their dealings culminated in the district court enjoining further litigation by Amerijet in Florida federal court, which then led to an appeal about the district court’s power over the case in light of the dismissal notice.  Amerijet Int’l, Inc. v. Zero Gravity Corp., No. 14-20521 (May 15, 2015).

Observing that a Rule 41 notice takes effect automatically if the defendant has not answered or moved for summary judgment, the Fifth Circuit found that Zero Gravity’s pre-removal filing “barely” qualified as an answer under Texas law, which meant that the notice no longer had automatic effect.  Even though the filing was styled as a TRO application (and accompanying motion to dissolve) and was not called an “answer,” the Court noted that it asserted defenses, a counterclaim for declaratory relief, and facts in support and thus met the “minimal characteristics of an answer” under Texas law  (The question whether a defendant’s pre-removal counterclaim waives the right to remove did not appear to be before the Court.)   Accordingly, the district court was not bound to dismiss the matter, and it did not abuse its discretion in enjoining parallel federal litigation under the first-to-file rule.

Dean and Sherry Buescher filed for bankruptcy; First United Bank opposed their discharge, and won.  Sherry Buescher argued on appeal that the bank lacked standing, because she did not personally guarantee the loans at issue.  The Fifth Circuit disagreed, noting that because Texas is a community property state, the bank could sue in rem in Texas to collect her husband’s guaranty obligation from community property.  Buescher v. First United Bank & Trust, No. 14-40361 (April 15, 2015).

Chester sued DIRECTV for age discrimination; it moved to compel arbitration.  Chester swore: “I do not remember signing any arbitration agreement, and dispute that I signed an arbitration agreement with Directv, LLC at anytime. . . . Had I been offered an arbitration agreement I would have attempted to continue my employment without signing it, and only would have signed it if the employer threatened to terminate me if it was not signed. . . . If I was threatened with termination if I did not sign an arbitration agreement I would remember it. Since I do not remember any such threat I am sure I did not sign an arbitration agreement.”

DIRECTV, admitting that it lost the arbitration agreement, argued that it had a practice of having employees sign one of two form agreements.  The Fifth Circuit was unimpressed, noting that the two agreements contained substantial substantive differences.  DIRECTV sought solace in the fact that it had lost Chester’s entire file, not just the arbitration agreement; the Court noted that DIRECTV was unable to provide arbitration agreements for 26 of the 87 other employees in the relevant office.  In sum: “Considering the entire record, it is clear that, somewhere along the way, DIRECTV’s purported practice of collecting and filing arbitration agreements for all new employees broke down . . . .” Chester v. DIRECTV, LLC, No. 14-60247 (April 29, 2015, unpublished).

The Songs deposited $361,200 as earnest money, toward the purchase of a $3.4 million apartment complex.  They then made the successful bid in an auction process, but backed out of the transaction and refused to close.  The Fifth Circuit affirmed the district court’s ruling that the seller could keep the money.  It found that the parties’ agreement had consideration, most notably in the seller’s commitment to review, consider, and accept the Songs’ bid.  It also found that the earnest money was a proper liquidated damages award for the Songs’ termination, finding that it “is reasonable and actual damages were uncertain.”  Song v. 4170 & 4231 & 4271 Altoona Drive Holdings LP, No. 14-11059 (April 8, 2015, unpublished).

Several investors in the ill-fated Stanford scheme sued Pershing LLC, who provided clearing services to the Stanford Group.  Many of the investors had contracts with Pershing that required arbitration with FINRA, but one group did not, and sought to compel arbitration based on estoppel theories.  As to a “direct benefits” theory, the Fifth Circuit found “no evidence that Pershing was aware that [the investors] had executed contracts to purchase CDs from the Stanford entities,” reminding that “a nonsignatory’s generalized sense that the two contracting parties have a course of dealing will not satisfy this requirement.”  Accordingly, the Court affirmed the denial of the plaintiffs’ motion to compel arbitration.

In Barzelis v. Flagstar Bank, F.S.B., No. 14-10782 (Apr. 22, 2015), the Fifth Circuit addressed the preemption of state-law mortgage claims under “HOLA,” the Home Owners’ Loan Act of 1933, a statute governing federal savings associations.  The Court held:

1.  Notice and cure.  “It may be the case, for example, that a state law regulating interest-rate adjustments to protect borrowers is preempted by HOLA.  But that does not prevent a bank and a borrower from voluntarily agreeing to substantially the same protections in their contract . . . .”

2.  Misrepresentation.  “[W]here a negligent-misrepresentation claim is predicated not on affirmative misstatements but instead on the adequacy of disclosures or credit notices, it has a specific regulatory effect on lending operations and is preempted.”

3.  Debt collection.  Consumer protection laws “‘that establish the basic norms that undergird commercial transactions’ do not have more than an incidental effect on lending and thus escape preemption.”

Halliburton obtained an injunction in an arbitration against a former employee.  The employee sought vacatur under the FAA, arguing that it allows judicial review of an injunction for vagueness.  After reviewing some dispute as to whether such review is allowed after Hall Street, the Court rejected the challenge.  The employee challenged a provision that enjoined him from “utilizing in any fashion” certain documents “that concern [Halliburton’s] products or services, arguing that “utilization” was undefined, the limitation had no time period, and the document description was vague.  The Court found that, “read in context,” it was clear that the arbitrator was referring to material that the employee had improperly taken from Halliburton.  Because this gave the employee “fair notice of what he may, and must not, do,” it was “clearly capable of being implemented and enforced.” McVay v. Halliburton Energy Services, No. 10-10172 (April 22, 2015).  The entire injunction appears on pages 6-7 of the opinion and is of general interest to noncompete and trade secret litigation.

Plaintiff alleged birth defects from the prescription of metoclopramide, off-label, to control nausea during pregnancy. The prescribing doctor gave “unequivocal” deposition testimony that he chose the medicine because of his clinical experience, and had no contact with marketing efforts by the drug manufacturer.  Accordingly, preempted or not, plaintiff’s claims failed for lack of causation. Whitener v. Pliva, Inc., No. 14-30468 (April 9, 2015, unpublished).

Continuing an earlier post about how to sign documents, the issue of effective consent again appeared in Berry v. Fannie Mae, No. 14-10474 (April 17, 2015, unpublished).  A mortgage servicer sent a trial payment plan to a borrower, which said: “This Plan will not take effect unless and until both the Lender and I sign it and Lender provides me with a copy of this Plan with the Lender’s signature.”  Rejecting an argument that the servicer’s letter acknowledging the borrower’s signature waived this language, the Court enforced it and affirmed dismissal of the borrower’s claims.  A similar analysis led to a similar result in Williams v. Bank of America, No. 14-20520 (May 7, 2015, unpublished).

The Cantus filed for Chapter 11 bankruptcy, and after their case was converted to Chapter 7, sued their bankruptcy attorney for malpractice.  That suit settled for roughly $300,000, leading to a dispute between the Cantus and the Chapter 7 Trustee as to who should receive the proceeds.  The Fifth Circuit found that the estate suffered pre-conversion injury as a result of the alleged misconduct, including diversion of assets, time wasted with an unconfirmable Chapter 11 plan, and additional attorneys fees.  Therefore, the causes of action against the attorney “accrued prior to conversion and belong to the estate.”  Cantu v. Schmidt, No. 14-40597 (April 17, 2015).

Lito Asignacion, a Filipino seaman, worked aboard the M/V RICKMERS DALIAN (right, en route to Antwerp at the time of this post) – a “superflex heavy” container ship owned by a German company and flying the flag of the Marshall Islands.  Severely burned in an onboard accident, he went to arbitration in the Phillippines under Filipino law, and received an award of $1,700 — significantly less than U.S. maritime law would afford.  The district court refused to enforce the award on public policy grounds, and the Fifth Circuit reversed.  Asignacion v. Rickmers Genoa, No. 14-30132 (April 16, 2015).  Acknowledging the strong U.S. policy that gives “special solicitude to seamen” and treats them as “wards of admiralty,” the Court found it outweighed by the policy in favor of arbitration, coupled with unique considerations about the legal arrangements under which Filipino citizens find employment at sea.  It also rejected a challenge based on the “prospective waiver” doctrine, finding that the Supreme Court had not extended it beyond purely statutory rights.

With several hundred noisy demonstrators outside the courthouse, the Fifth Circuit held oral argument on Friday the 18th about an interim stay in Texas v. United States – the New York Times has an excellent summary; Law360 interviews me about it here.

Two principles – somewhat inconsistent – govern whether a court should accept an untimely request for jury trial.  First, “‘because the seventh amendment confers a fundamental right,'” a court “typically ‘should grant a motion for jury trial . . . in the absence of strong and compelling reasons to the contrary.'”  Second, “it is not an abuse of discretion to deny an untimely motion for a jury trial ‘when the failure to make a timely jury demand results form mere inadvertence on the part of the moving party.'”  In BPRE, LP v. RML Waxahachie Dodge, LLC, under the operative scheduling order, the plaintiff had to make a request for a pretrial conference by January 31, 2010.  It did not do so until February 16, and did not file a separate brief about the right to jury trial until April 12.  The Fifth Circuit found no abuse of discretion in the trial court’s conclusion that this was “mere inadvertence,” and affirmed the finding of waiver.  No. 14-50339 (April 7, 2015, unpublished).

Several insurance-related businesses had a dispute. The businesses were not all parties to all relevant agreements, leading to confusion about whether arbitration should proceed with the AAA or ICC, and about how to select an arbitrator. The district court found that the arbitrator was not appointed correctly, vacated the award, and the Fifth Circuit affirmed: “Arbitration is simply a matter of contract between the parties; it is a way to resolve those disputes — but only those disputes — that the parties have agreed to submit to arbitration.”  Poolre Ins. Corp. v. Organizational Strategies, Inc., No. 14-20433 (April 7, 2015).   Interestingly, the relevant contract required arbitrator selection “by the Anguilla, [British West Indies] Director of Insurance” — a nonexistent position.  This error did not moot that provision, however, but simply implicated the section 5 of the FAA, which lets a district judge appoint an arbitrator if “a lapse in the naming of an arbitrator” arises.

The panel has been announced for Friday’s arguments in “the immigration case,” Texas v. United States:  Judges Smith, Elrod, and Higginson.  Like the recent panel in Crane v. Johnson (No.14-10049, April 2, 2015), this panel draws from the major “wings” of the Court – a senior Reagan appointee, a recent Bush appointee (both from Texas) and the second-newest appointee by Obama.

The similarity of panel makeup suggests the potential for a similar result.  Interestingly, while Judge Smith is a strong separation-of-powers conservative (consider his dissent in the en banc False Claims Act case of Riley v. St. Luke’s Episcopal Hospital, 252 F.3d 749 (5th Cir. 2001)) he is also a strong voice for judicial action when there is jurisdiction; for example, he has led the Court toward expanded pretrial oversight of district courts in opinions such as In re: Radmax.  Judge Higginson, while new, has a record of thorough opinions that comport with the majority view of legal issues (consider his recent opinion in the False Claims Act case of United States ex rel. Shupe v. Cisco Systems, Inc., 759 F.3d 379 (5th Cir. 2014)).  The panel will give the plaintiffs a full hearing but may well find problems with their standing theories.

At the risk of reading one tea leaf too many, it is worth noting that Judge Elrod dissented from the denial of en banc rehearing in Radmax, as well as a recent panel opinion that granted mandamus relief on a forum issue, In re Lloyd’s Register North America, Inc., No. 14-20554 (Feb. 24, 2015).  The analogy between the Court’s mandamus jurisdiction and the justiciability issues in Texas v. United States is not powerful – and indeed, Judge Smith was on the opposite side of both matters from Judge Elrod – but it does suggest a healthy concern for judicial constraint.

A law firm sought $130,000 in fees for representing a bankruptcy debtor; the bankruptcy court awarded $20,000, noting the firm’s lack of success in delivering a measurable benefit to the estate.  While a Fifth Circuit panel affirmed, citing the test in In re: Pro-Snax Distributors, Inc., 157 F.3d 414 (5th Cir. 1998), all three judges called for en banc reconsideration of that opinion.  That request was granted unanimously in Barron & Newburger, P.C. v. Texas Skyline, Ltd., which recognized that the “retrospective, ‘material benefit’ standard enunciated in Pro–Snax conflicts with the language and legislative history of § 330, diverges from the decisions of other circuits, and has sown confusion in our circuit.”  Accordingly, the full Court overturned Pro–Snax’s attorney’s-fee rule to “adopt the prospective, ‘reasonably likely to benefit the estate’ standard endorsed by our sister circuits.”  While the division of some en banc votes can offer insight on subtle aspects of judges’ philosophies, this unanimous decision shows that sometimes, the full court will simply fix what it regards as an earlier mistake, if that mistake has sufficiently far-reaching consequences within the Circuit.

Only in New Orleans.  During Mardi Gras, a form of folk art takes discarded beads and twists them into a dog shape, also known as a “bead dog.”  A seller of king cakes obtained a trademark for its mascot based on that image (below left), and sued a jewelrymaker who sold necklaces and earrings that also drew upon that image (below right).

The Fifth Circuit affirmed summary judgment for the jewelrymaker, reasoning:

1.  The bakery’s “Mardi Gras Bead Dog” mark was descriptive of its products;

2.  The mark was not inherently distinctive, and thus may be protected only if it had acquired secondary meaning;

3.  Under the applicable seven-factor test, the bakery failed to establish that the mark had acquired secondary meaning; and .

4.  While a dog itself cannot be copyrighted, its distinctive collar could potentially be, but on this record the Court concluded that no reasonable juror could find the collars to be “substantially similar in protectable expression.”

Other related state law claims were also dismissed.  Nola Spice Designs, LLC v. Haydel Enterprises, Inc., No. 13-30918 (April 8, 2015).

The district court has denied an interim stay of its injunction against the Obama Administration’s immigration policies; the Fifth Circuit has recently rejected, on standing grounds, a comparable case; and oral argument is set for April 17 before the Fifth Circuit on an appellate motion to stay the injunction.  I was recently interviewed by Law360 about the matter and anticipate announcement by the Court of the panel for the April 17 argument in the near future.

A law firm and its client arbitrated a fee dispute.  While the arbitrators ruled for the firm, the district court vacated the award as to the contingent fee on the grounds that the fee was unconscionable.  The Fifth Circuit reinstated the arbitration award, noting the “extraordinarily narrow” standard of review and the arbitrators’ specific fact findings on the relevant considerations.  Campbell Harrison & Dagley LLP v. Hill, No. 14-10631 (April 2, 2015, unpublished).  The Court acknowledged, but concluded that it did not need to address, the question whether the ability to vacate an arbitration award on public policy grounds survived Hall Street Associates v. Mattel, 128 S. Ct. 1396 (2008).

Can you believe it is April 2015 already?  To review the “top five” opinions from the Fifth Circuit in the area of business litigation from the first quarter, please click here — better-formatted compared to the standard WordPress ordinarily used by the blog.

In Wellness Wireless, Inc. v. Infopia America, LLC, the district court dismissed a suit on a note for lack of subject matter jurisdiction, noting the potential effect on the estate of a company in bankruptcy.  The Fifth Circuit faulted this reasoning as “plainly wrong,” noting that Article III courts have jurisdiction over bankruptcy matters and simply refer them to bankruptcy courts as a matter of course. The Court also disagreed as to an alternative ground for dismissal, based on the debtor being a necessary party under Fed. R. Civ. P. 19, noting that the debtor had disclaimed any interest in the funds at issue during the bankruptcy case.  No. 14-20024 (March 24, 2015, unpublished).

Satterwhite appealed an adverse ruling from the bankruptcy court, and then to the district court.  In the district court, after judgment, he filed a motion for new trial, to modify the judgment, and for findings of fact and conclusions of law.  After the trial court denied those motions, he filed a notice of appeal that would have been timely in an “ordinary” appeal under Fed. R. App. P. 4.  Unfortunately, this bankruptcy appeal fell under Fed. R. App. P. 6, which only allows a motion for rehearing filed within 14 days of judgment to extend the appellate deadline.   Satterwhite v. Guin, No. 14-20430 (March 31, 2015, unpublished).

In a remarkably tangled construction dispute, the property owner interpleaded roughly $260,000, after a dispute arose between the general contractor and a sub.  One of the interpleaded parties argued that the owner “faces only separate obligations,” augmented by the fact that the Mississippi statute relied upon the subcontractor to freeze the funds was declared unconstitutional. Auto Parts Manufacturing Mississippi, Inc. v. King Construction of Houston, No. 14-60217 (May 8, 2015).  The Fifth Circuit disagreed: “The first stage of interpleader only is concerned with whether multiple claims have been asserted, or may be asserted, against a disinterested stakeholder, not whether those claims have merit.” The Court reminded that “interpleader jurisdiction is determined at the time the interpleader complaint is filed . . . ‘and subsequent events do not divest the court of jurisdiction once properly acquired.'”

In St. Joseph Abbey v. Castille, the Fifth Circuit affirmed a substantive due process challenge to a state law that stopped a group of monks from making funeral caskets. The Court explained the limits of that holding and noted: “Nor is the ghost of Lochner lurking about.”  712 F.3d 215, 227 (5th Cir. 2013). Confirming that such a phantom still does not haunt the Circuit, the Court rejected First Amendment and due process challenges to a Texas law that requires a veterinarian to physically examine an animal before treating it (and which thus prohibits “distance” treatment via the Internet.) The Court found a rational connection between the law and quality animal care, and noted: “The idea that content-neutral regulation of the professional-client relationship does not violate the First Amendment has deep roots, and has been embraced by many circuits.”  Hines v. Alldredge, No. 14-40403 (March 27, 2015).

In Angus Chemical Co. v. Glendora Plantation, Inc., an industrial facility had an easement that gave it “the right to construct, maintain, inspect, operate, protect, alter, repair, replace and change” a pipeline.  No. 14-30416 (March 24, 2015).  The company plugged and abandoned its original 12″ pipeline in favor of a new 16″ one.  The key appellate issue was whether the right to “replace” a pipeline allowed the company to simply substitute one pipeline for another, or whether it also “impl[ied] a corresponding duty to remove” the old one.  The Fifth Circuit found the term “replace” was ambiguous in this context, and that there was a material fact issue in the extrinsic evidence about which meaning should prevail.  Therefore, it reversed the district court’s summary judgment in favor of the chemical company.  This topic — the role of extrinsic evidence in contract disputes — was most recently before the Court in a major case in the “Whoomp! There it is” litigation, and as detailed in a link from that post, frequently leads to disagreement between the trial courts and the Fifth Circuit.

The plaintiffs have responded to the United States’ motion for a stay during the pendency of Texas v. United States, No. 15-40238, so that matter is now in the hands of the Court.

Pursuant to section 965 of the Internal Revenue Code, BMC Software repatriated to the United States several hundred million dollars of income earned by a foreign subsidiary.  It earned a substantial tax deduction for the year, as this provision is intended to incentivise the fresh investment of foreign cash into the U.S. by companies with international operations.  BMC Software v. Commissioner of Internal Revenue, No. 13-60684 (March 13, 2015).  Some time later, BMC settled a dispute about the tax treatment of royalties paid to it by the same subsidiary.  The IRS then took the position that BMC’s accounting for that dispute amounted to a loan, which would lead to the disallowal of some of the section 965 deduction (loaning money to a subsidiary who then returns it to the US would not be fresh investment).  The Fifth Circuit rejected that position and reversed the Tax Court, finding no support for it in either the statute or the settlement document.  Because the accounts receivable created as a result of the settlement were not created until after the applicable tax year, the statutory exception for loaned funds could not apply.

At issue in North Cypress Medical Center Operating Co. v. Cigna Healthcare was a basic aspect of the structure of a “preferred provider” insurance program.  Under the many policies at issue, “in-network” providers receive more reimbursement than “out-of-network” ones, as an incentive to seek treatment in-network.  With respect to the portion of the bill as to which patients had responsibility, certain providers provided “prompt pay” discounts.  Insurers disputed whether they were then still responsible for the entire billed amount, or should have their responsibility reduced by a corresponding discount.  The Fifth Circuit found that the patients, and thus the providers to whom they assigned their claims, had standing to litigate about this situation (reversing a district court ruling to the contrary).  It also found that ERISA preempted state law claims about these issues, that limitations applied (without tolling) to compulsory counterclaims by insurers that sought affirmative relief rather than recoupment, and affirmed the dismissal of RICO claims by the provider.  The litigation seems likely to continue, and to produce more issues about complicated and significant ERISA and procedural points.  No. 12-20695 (March 10, 2015).

Allstate did not request a jury trial in its original complaint, but did in response to the defendant’s answer and counterclaim (which also included a jury demand, and which Allstate was entitled to rely upon).  After a summary judgment ruling, Allstate made a limited jury waiver on the remaining issue of damages.  The district court then vacated its summary judgment ruling and held a bench trial on all issues in the case — liability and damages.

The Fifth Circuit found that, “[a]lthough deference is generally accorded to a trial judge’s interpretation of a pretrial order,” this was “[a]t the very least . . a ‘doubtful situation'” that did not support the finding of “a knowing and voluntary relinquishment of the right” to jury trial pursuant to the Seventh Amendment. The Court also found harm because Allstate’s case could survive a JNOV motion, noting that “the district court relied heavily on its weighing of the credibility of the witness’s testimony at trial” in its fact finding.  Accordingly, the Court reversed and remanded for jury trial.  Allstate Ins. Co. v. Community Health Center, Inc., No. 14-30506 (March 16, 2015, unpublished).

I am speaking to the Appellate Section of the Dallas Bar Association, at the Belo Mansion in downtown Dallas, at noon on Thursday March 19, with a Fifth Circuit update.  The official title is “Horses, Whooping Cranes, and Eagle Feathers: the Fifth Circuit in 2014.” Here is a copy of the PowerPoint for the presentation.

Jefferson sued Delgado Community College, alleging that it was “an agency or instrumentality of the government of the State of Louisiana.”  The Louisiana Attorney General appeared for the State, argued that she had not correctly named the State in the case, and suggested how to properly serve the college.  Jefferson v. Delgado Community College, No. 14-30379 (March 12, 2015, unpublished).  The district court denied the AG’s motion to dismiss, pointing to what the pleading said.  The AG sought appellate review and the Fifth Circuit found it had no jurisdiction.  The ruling was not appealable as a collateral order: “For example, personal jurisdiction implicates a defendant’s due process rights, but a defendant may not appeal the denial of a motion to dismiss based on lack of personal jurisdiction under the collateral order rule.”  The Court also denied mandamus relief, noting that the district court’s ruling was not clearly erroneous given the language of the pleading, and suggesting that the parties may wish to consider the AG’s suggestion about proper service for future proceedings in the case.

Breaux sued ASC Industries for age discrimination, but died before the case resolved. Her attorney, Oglesby, filed a “suggestion of death” pursuant to Fed. R. Civ. P. 25.  ASC then obtained dismissal when the 90-day period set by that rule passed with no substitution. Breaux’s estate then sought reinstatement, pointing out that the estate representative had not been personally served pursuant to Fed. R. Civ. P. 4 (Rule 25 provides that: “A motion to substitute, together with a notice of hearing, must be served on the parties as provided in Rule 5 and on nonparties as provided in Rule 4. A statement noting death must be served in the same manner.”)  ASC countered that Oglesby also represented the estate. The Fifth Circuit sided with Breaux’s estate, finding that a personal representative is a nonparty under Rule 25, noting that is the majority position among Circuits, and distinguishing other cases that reached arguably inconsistent conclusions. Sampson v. ASC Industries, 14-10085 (March 13, 2015, unpublished).

After initially holding that the borrowers’ complaint survived a Twombly challenge as to whether the “grossly inadequate sales price” element of a wrongful foreclosure claim had been properly pleaded, the Fifth Circuit reversed field and issued a revised opinion that affirms dismissal: “We agree with the district court that Plaintiffs’ wrongful foreclosure claim should be dismissed, but for a different reason—Plaintiff’s abandoned the claim on appeal. In challenging the district court’s dismissal, Plaintiffs did not argue that their wrongful foreclosure claim should survive because they adequately pleaded a grossly inadequate sales price. They only argued that the claim should survive because they need not plead that element at all. However, our precedent requires this element in all but a specific category of cases that does not include the instant case.”   Guajardo v. JP Morgan Chase, No. 13-51025 (March 10, 2015).

Allen Stanford spent close to $6 million advertising his investment firm on the Golf Channel.  After his empire collapsed, the receiver sued the Golf Channel under the Texas fraudulent transfer statute.  The Channel successfully defended in the district court on the ground that it gave reasonably equivalent value.  Janvey v. The Golf Channel, No. 13-11305 (March 11, 2015). Unfortunately for the Channel, because the receiver proved Stanford was running a Ponzi scheme, the question was whether it gave value from the perspective of the creditors, not whether it provided quality advertising from the perspective of Stanford’s business operation.  “Golf Channel argues that its advertising services did not further the Stanford Ponzi scheme and that the $5.9 million reasonably represents the market value of those services. . . . TUFTA makes no distinction between different types of services or different types of transferees, but requires us to look at the value of any services from the creditors’ perspective. We have no authority to create an exception for ‘trade creditors.'”  Accordingly, the Fifth Circuit reversed.

With a stay motion still pending in the district court, the United States has asked the Fifth Circuit for an emergency stay of the recent ruling that enjoins President Obama’s immigration program.  No. 15-40238.  A short clerk’s order, which does not reveal the identity or involvement of any judge “behind the curtain,” has set a response date of March 23.  Law360 has written a good article with more detail about the current status in the district court.

In November, a Fifth Circuit panel affirmed the NLRB’s $30,000 award in a retaliation case based on the employer’s handling of a whistleblower.  Halliburton Co. v. Administratve Review Board, U.S. Dep’t of Labor, No. 13-60323.  The full court has now denied the petition for en banc review, by the close margin of 7 judges for review and 8 against.  A 3-judge dissent criticizes the “ad hoc nature” of the panel opinion and warns that it will lead to confusion about what specific conduct can amount to a materially adverse employment action in the context of a retaliation claim.

Fed. R. Civ. P. 60, titled “Grounds for Relief from a Final Judgment, Order, or Proceeding,” is generally invoked to vacate a judgment because of alleged misconduct, mistake, newly-discovered evidence, or other equitable reasons.  Clause (5) of that rule also allows relief if “the judgment has been satisfied, released, or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable.” That provision — and specifically, its rarely-litigated first clause — was at issue in Frew v. Janek, in which the Texas Health and Human Services Commission argued that it had fully performed under a consent decree related to the operation of a Medicaid program. No. 14-40048 (March 5, 2015).  Construing the decree “according to ‘general principles of contract interpretation,'” and declining to apply the law of the case doctrine to the interpretation of the decree by the judge who entered the order, the Fifth Circuit found no error in the district court’s ruling that the defendants had complied with the order and performed fully.

I just wrote an article in the most recent Appellate Advocate – the publication of the Texas State Bar Appellate Section – about the key recent cases from the Fifth Circuit about jury charge error.  I hope you enjoy it and find it useful in your practice!

Richardson alleged that he was terminated, in violation of Louisiana’s whistleblower statute, for revealing fraudulent time records and overbilling.  The district court granted summary judgment and the Fifth Circuit reversed.  Richardson v. Axion Logistics, No. 14-30306 (revised March 23, 2015).  Applying the Twombly “plausibility” standard, the Court found adequate pleading about his employer’s knowledge of the alleged misconduct, as well as the timeline of events leading up to his termination.  The pleading itself is available for review here; the specific paragraphs identified by the Court as to the employer’s knowledge are highlighted in yellow, and those identified about his termination in orange.

The L/B Nicole Eymard (right) became stuck while servicing a well in the Gulf of Mexico.  The owner of the boat sued the contractor that hired the boat, in addition to the well owner, and both were found liable for charter fees while the vessel was unable to move.  The well owner obtained indemnity from the contractor because the contractor had agreed to indemnify it for claims “based upon personal injury or death or property damage or loss.”  Unpaid charter fees are a “loss” within the meaning of that language, even without proof of damage to property.  Offshore Marine Contractors, LLC v. Palm Energy Offshore, LLC, No. 14-30059 (March 2, 2015).

An insurer settled with its insured; the settlement “did not contain an admission of liability under the Policy and both parties dispute whether the Policy covered the four claims at issue.”  Accordingly, the insured had no claim under the Texas Prompt Payment Act for an alleged breach of the settlement.  Tremago, L.P. v. Euler-Hermes American Credit Indemnity Co., No. 13-41179 (Feb. 25, 2015, unpublished).  The Court also found that a trio of statements such as “[Plainitff] has not alleged, let alone proffered any evidence of any act on [Defendant’s] part that fairly can be characterized as ‘so extreme’ that it would cause ‘injury independent of the policy claim’ was sufficient to place the plaintiff on notice that its extra-contractual claims were within the scope of the defendant’s summary judgment motion.

A design firm proved at trial that Hallmark Design Homes built hundreds of houses such as the one on the right, using its copyrighted plans without permission. Hallmark filed for bankruptcy; the remaining issue was whether the claim was “advertising injury” under Mid-Continent’s various liability policies.  Mid-Continent Casualty Co. v. Kipp Flores Architects, LLC, No. 14-50649 (Feb. 26, 2015, unpublished).

The Fifth Circuit affirmed judgment for the insured.  After reminding that additional evidence can be offered in a coverage dispute about matters addressed in a prior lawsuit, the Court held: “[I]t is undisputed that Hallmark’s primary means of marketing its construction business was through the use of the homes themselves, both through model homes and yard signs on the property of infringing homes it had built, all of which were marketed to the general public . . . .”  Because the homes themselves were “advertisements,” Mid-Continent’s policies covered the prior judgment.

(This post’s title comes from an exchange between Falstaff and Mistress Ford in The Merry Wives of Windsor.)

As part of a sale transaction, the board of “Gold Kist” (more widely known as Pilgrim’s Pride), decided to abandon certain securities for no consideration.  For tax purposes, the company then reported a $98.6 million ordinary loss.  Pilgrim’s Pride Corp. v. Commissioner of Internal Revenue, No. 14-60295 (Feb. 25, 2015).  The IRS contended that this was a capital loss, rather than an ordinary loss, creating a tax deficiency of close to $30 million.  The Court agreed with the company, finding: “By its plain terms, [26 U.S.C.] § 1234A(1) applies to the termination of rights or obligations with respect to capital assets (e.g. derivative or contractual rights to buy or sell capital assets).  It does not apply to the termination of ownership of the capital asset itself.”  In rejecting a contrary view of the statute, Judge Elrod gives a powerful summary of several canons of construction: “We disagree.  Congress does not legislate in logic puzzles . . . “

In 2012, the Fifth Circuit remanded a False Claims Act case with the direction: “The district court should determine whether the public disclosures identified in the motion for summary judgment reveal either (i) that Shell was deducting gathering expenses prohibited by program regulations, or (ii) that this type of fraud was so pervasive in the industry that the company’s scheme, as alleged, would have been easily identified.”  Little v. Shell Exploration, 690 F.3d 282 (5th Cir. 2012).  On remand, the district court again granted summary judgment for the defense, and a displeased Fifth Circuit reversed.  Little v. Shell Exploration II, No. 14-20156 (Feb. 23, 2015, unpublished).

The Court found: “Not only did the district court fail to follow these explicit instructions, but the analysis set out in its short opinion is so broad, conclusory, and unsupported by the summary judgment record that we are compelled to conclude it did not comply with our instructions.”  On the merits, the Court held that “the district court erred with respect to every category of supposed public disclosures.”  The Court went on to order reassignment to a different district judge on remand, concluding: ”  Facing a lengthy and detailed summary judgment record, the district judge issued a five-page opinion with few
citations to either record evidence or relevant legal authority—not surprising given that neither the summary judgment evidence nor the law support the conclusions he reached.”

The Fifth Circuit has now docketed the federal government’s appeal of the recent ruling that enjoins President Obama’s immigration program; meanwhile, in the district court, the plaintiffs’ response to the federal government’s motion to stay pending appeal is due by March 2.

Pennzoil has several well-known trademarks for its motor oil products.  It sued Miller Oil, which operates a quick-stop oil change facility in Houston, for infringing those marks.  Miller defended on the ground that after its original contract with Pennzoil lapsed in 2003, Pennzoil’s dealings with Miller amounted to an acquiescence in Miller’s use of the marks.  The district court agreed but the Fifth Circuit reversed.  Pennzoil-Quaker State Co. v. Miller Oil & Gas Operations, No.  13-20558 (Feb. 23, 2015).

The Court thoroughly reviewed its own, and other Circuits’, approaches to the elements of the acquiescence defense, as well as the relationship of that defense to laches.  The Court concluded that an element of the defense was undue prejudice to the defendant from the plaintiff’s conduct, which usually involves “some form of ‘business building.'” Here, the defendant’s expenses associated with removing Pennzoil’s marks did not satisfy that requirement, because they would not be related to business expansion.  While the defendant’s claim about a “loss of identity” from removing Pennzoil’s marks could qualify, on this record: “Miller Oil does not proffer evidence of, for example, changes in its customer base, higher profits, or new business opportunities it was able to exploit because of the re-brand.”  Accordingly, Miller Oil did not meet its burden of proof.

In Frey v. First National Bank Southwest, No. 13-10375 (Feb. 20, 2015),  an appeal that was stayed in deference to the ruling in Mabary v. Home Town Bank, N.A., 771 F.3d 820 (5th Cir. 2014), the Fifth Circuit again affirmed the certification of a class related to notice requirements about ATM fees: “The primary questions with regard to First National’s liability are whether and when First National failed to provide the on-machine fee notice in violation of the EFTA’s requirements during the class period; if so, the appropriate amount of statutory damages; and whether the bank can avail itself of either of the two statutory defenses to liability. The answers to these questions will affect all class member’s claims.”

The Fifth Circuit has withdrawn its high-profile opinion (as to damages) in Forte v. Wal-Mart Stores, which found that civil penalties were not available absent actual damages in a suit under a Texas statutory cause of action about optometry.  The controlling issues have now been certified to the Texas Supreme Court.