Superior MRI Services sued for tortious interference with contract; the defendant argued that Superior lacked standing because it never acquired rights under the relevant contracts, and the Fifth Circuit agreed.  Superior MRI Services, Inc. v. Alliance Imaging, Inc., No. 14-60087 (Feb. 18, 2015).  The record showed that P&L Imaging, a bankruptcy debtor, listed “MRI service agreements” on its schedule of assignments to Superior, with an assignment date of October 1, 2011.  Superior, however, did not exist as a legal entity until November 28, 2011.  No evidence showed that Superior ratified the contract after its formation, and the Court was unwilling to accept Mississippi’s approval of Superior as a vendor as evidence of a ratification.  The Court distinguished the recent case of Lexmark, Int’l v. Static Control Components, 134 S. Ct. 1377 (2014), as relating to another aspect of the standing requirement.

Pearl Seas sued Lloyd’s Register North America (“LRNA”) for inadequate performance in certifying a cruise ship (the “Pearl Mist,” seen to the right.)  LRNA moved to dismiss on the grounds of forum non conveniens in favor of England, citing a forum selection clause contained in its rules.  The district court denied the motion without explanation and the Fifth Circuit reversed in a 2-1 panel opinion.  In re Lloyd’s Register North America, Inc.. No. 14-20554 (Feb. 24, 2015), re-released after initial publication as a per curiam opinion on February 18.

The Court held: (1) as in the case of In re: Volkswagen, 545 F.3d 304 (5th Cir. 2008) (en banc), which involved the denial of a motion to transfer venue, mandamus is appropriate in the context of forum non conveniens; (2) it is an abuse of discretion to “grant or deny a[n FNC] motion without written or oral explanation” as to the relevant factors; and (3) the plaintiff was plainly bound by LRNA’s rules under the doctrine of direct-benefit estoppel, since its claim “referenced duties that must be resolved by reference to the classification society’s rules.”  (citing Hellenic Inv. Fund v. Det Norkse Veritas, 464 F.3d 514 (5th Cir. 2006)).  (A panel reached a similar result in Vloeibare Pret Limited v. Lloyd’s Register North America, Inc., No. 14-20538 (April 16, 2015, unpublished).

A dissent by Judge Elrod argued that the majority’s analysis of direct-benefit estoppel expanded the Court’s prior holdings in two areas — the degree to which the claim incorporated the relevant rules, and the timing of when the plaintiff learns of the rules.  The dissent also expressed concern that the substantive claim would not be recognized in England.

The point of division between the majority and dissent — whether an error is “clear” or not — resembles a similar split between the majority and dissent in the mandamus case of In re Radmax, 720 F.3d 285 (5th Cir. 2013), which granted the writ as to the erroneous denial of an “intra-district” motion to transfer venue.  Interestingly, Judge Higginson was the dissenter in Radmax, and also dissented from the denial of en banc review of that panel opinion, while here he forms part of the two-judge majority that grants mandamus relief. Judge Smith, who was in the majority of the Radmax panel opinion, is the author of this opinion after its initial release as per curiam.

In the case of In re Deepwater Horizon, the Texas Supreme Court has answered the certified questions raised in a significant insurance case about BP’s coverage related to the Deepwater Horizon disaster.  (No. 130670, Tex. Feb. 13, 2015.)  The issue is whether BP was an additional insured under policies obtained by Transocean, the operator of the ill-fated rig.  Applying Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008), the Court held that “it is possible for a named insured to purchase a greater amount of coverage for an additional insured than an underlying service contract requires,” and that “the scope of indemnity and insurance clauses in service contracts is not necessarily congruent.”  From that foundation, the court concluded: “The Drilling Contract required Transocean to name BP as an additional insured only for the liability Transocean assumed under the contract.  Accordingly, Transocean had separate duties to indemnify and insure BP for certain risk, but the scope of that risk for either indemnity or insurance purposes extends only to above-surface pollution.”

Monday evening, a district judge in South Texas enjoined President Obama’s immigration program; the full text of his opinion is available here.  (The case has the remarkably awkward caption of “Texas v. United States.”)  An appeal has not yet been docketed with the Fifth Circuit.  As with the recent gay marriage arguments, the makeup of the panel will be critical to the resolution of this extremely important case.  The Washington Post story is a good example of the media coverage of the ruling.

Fernando Ramirez died after a beating by security guards at a nightclub.  His estate sued the guards and the business that owned the club, as well as subsequent owners, alleging a scheme to hide assets.  This lawsuit led to an insurance coverage dispute between the subsequent owners and the CGL carrier at the time of the incident.  Colony Ins. Co. v. Price, No. 14-10317 (Feb. 12, 2015, unpublished).  The specific allegations against the later owners in the underlying suit are far from clear, and appear to be obscured by broad use of the term “Defendants.”  Nevertheless, the district court and Fifth Circuit agreed that these parties were not covered as “employees” under the policy:  “Most obviously, the Price Defendants fail to explain how MTP and TOM, a partnership and a limited liability company, can be employees at all, let alone employees who falsely imprisoned Ramirez on October 1, 2008, particularly given that the Petition alleges that they were not formed until December 31 of the following year.”

1.       I am speaking at the Dallas Bar Appellate Section meeting on March 19 at the Belo Mansion, with an update on recent Fifth Circuit opinions of general interest.

2.       This year’s Super Lawyers nomination deadline is Wednesday, February 18 (two days from now).  Take a few minutes to support the publication and your colleagues; the nomination form is here.

The defendants in a wrongful foreclosure case removed and the district court dismissed the borrower’s claims on the pleadings. The Fifth Circuit reversed for jurisdictional reasons.  Smith v. Bank of America, No. 14-50256 (revised March 20, 2015, unpublished).

As to diversity jurisdiction, which was based on improper joinder of several defendants, the Court reminded: “[W]hen confronted with an allegation of improper joinder, the court must determine whether the removing party has discharged its substantial burden before proceeding to analyze the merits of the action.”

‘Blanton sued for employment discrimination, and after trial, “[t]here is no question that Blanton was subjected to egregious verbal sexual and racial harassment by the general manager of the Pizza Hut store where he worked.”  Blanton v. Newton Associates, Inc., No. 14-50087 (Feb. 10, 2015, unpublished).  The issue on appeal was whether the employer had established “the Ellerth/Faragher affirmative defense”; essentially, that the employer acted reasonably to stop the harassment and the employee unreasonably failed to enlist the employer’s aid.  The evidence showed a lack of training about the employer’s anti-discrimination policies, and that two low-level supervisors hesitated to report the harassment for fear of retaliation by the general manager, but that “[o]nce Blanton did complain to a manager with authority over the general manager, Pizza Hut completed an investigation and fired her within four days.”  Accordingly, the verdict and resulting judgment for the employer was affirmed.

The issue in Lowman v. Jerry Whitaker Timber Contractors, LLC was whether certain timber companies had vicarious liability for allegedly unlawful logging activities, in DeSoto Parish, Louisiana, in violation of that state’s timber cutting statute. Evidence showed that the loggers sold timber to the mills and in return received a “scale ticket” — a sort of commercial paper that can be bought and sold and allows small loggers immediate access to sale proceeds — which featured a description of the wood. Plaintiffs offered an affidavit from a state investigator who described the defendants’ “prior schemes involving the theft of timber and the falsifying of scale tickets,” and opined that he saw “‘the same pattern’ of activity” here. The Fifth Circuit affirmed summary judgment for the defendants, finding that the evidence showed no connection between the tickets he reviewed and the timber at issue, much less any “right of control or supervision” by the defendants over the loggers.  No. 14-30787 (Feb. 10, 2015, unpublished).

An attorney challenged sanctions and contempt orders on appeal; one of her major points was inability to pay.  The Fifth Circuit reminded that inability to pay is a defense to a charge of civil contempt, as to which “[t]he alleged contemnor bears the burden of producing evidence of his inability to comply.  Failure to do so waives further consideration of this issue, even in the face of an order that added $100/day for noncompliance.  Garrett v. Coventry, No. 14-10525 (Feb. 6, 2015).

BNSF Railway Co. v. Alstom Transportation presented a challenge to an arbitration award, in a contract dispute about the maintenance of rail cars.  No. 13-11274 (Feb. 5, 2015).  The Fifth Circuit brushed aside a number of challenges to the arbitrator’s legal analysis, quoting the Seventh Circuit: “As we have said too many times to want to repeat again, the question for decision by a federal court asked to set aside an arbitration award . . . is not whether the arbitrator or arbitrators erred in interpreting the contract; it is not whether they clearly erred in interpreting the contract; it is not whether they grossly erred in interpreting the contract; it is whether they interpreted the contract.”

Also, on procedural grounds, the Court rejected a challenge to the propriety of having arbitrated “gateway questions” of arbitrability.  The district court had partially vacated the arbitrator’s award, the appellant (successfully) challenged that ruling, and BNSF had considerable latitude to defend it.  But the “gateway” argument that arbitration should never have occurred, and that the award should thus be vacated in full, could not be presented on appeal absent a cross-appeal because it “asks for an expansion of the judgment.”

In the press of year-end business, I neglected to cover a notable mandamus opinion in 2014 from the Federal Circuit, In re Google, Inc, No. 2014-147, 2014 WL 5032336 (Oct. 9, 2014).  Reminiscent of that Court’s opinion in In re Genentech, 566 F.3d 1338 (2009), and the Volkswagen/Radmax line of cases from the Fifth Circuit, In re: Google addresses the denial of a motion to transfer patent litigation from the Eastern District of Texas.

The district court focused on “each defendant mobile phone manufacturer’s ability to modify and customize” the relevant platform. The Federal Circuit disagreed and granted mandamus relief, emphasizing the  “substantial similarity involving the infringement and invalidity issues in all the suits.”   That Court also rejected an argument based on the first-filed rule, finding that on these facts, “the equities of the situation do not depend on this argument.”  (quoting Kerotest Mfg. Co. v. C-O-Two Fire Equip Co., 342 U.S. 180, 186 n.6 (1952).  Concluding with a review of the practical considerations listed by 1404(a), the Court noted that the product at issue was developed in the Northern District of California, and thus the “bulk of the relevant evidence” is there as well.

In an earlier opinion, the Fifth Circuit reversed a summary judgment in favor of an insured, finding a fact issue as to whether late notice caused prejudice to the carrier.  “Berkley I,” Berkley Regional Ins. Co. v. Philadelphia Indemnity Ins. Co., 690 F.3d 342 (5th Cir. 2012). After further proceedings, the district court granted summary judgment to the carrier and the Court affirmed.  “Berkley II,”  Berkley Regional Ins. Co. v. Philadelphia Indemnity Ins. Co., No. 13-51180 c/w No. 14-50099 (Jan. 27, 2015, unpublished).  The key issue was whether notice to the broker sufficed to give notice the the carrier; the Court reasoned that even if the broker had a limited agency relationship with the carrier, notice of claims fell outside its scope: “Under the 2002 Agreement, Philadelphia expressly allowed [Agent] to act as an insurance broker and sell Philadelphia policies as Philadelphia’s representative, subject to Philadelphia’s approval.  The 2002 Agreement is silent as to whether [Agent] had the ability to accept notice of claims on behalf of Philadelphia.  Thus, [Agent] did not have express authority to accept notice of claims.”  For the same reasons, an implied agency theory was also rejected.

The insurance coverage case of Mt. Hawley Ins. Co. v. Advance Products & Systems, Inc. illustrates the recurring differences of opinion between the Fifth Circuit and district courts about contract ambiguity.  14-30068  (Jan. 27, 2015, unpublished).  When APS made a claim on its commercial property policy with Mt. Hawley, APS’s recovery was limited by a “coinsurance provision” that applies if it “has not insured the full value of its income.”  The parties differed on whether “income” referred to projected or actual net income; the district court found ambiguity, and the Fifth Circuit reversed: “Although APS has a point—the language used in calculating the coinsurance penalty is imprecise—it does not render the contract ambiguous.”  Based on the relationship between this provision and other parts of the policy, and the general purposes of coinsurance clauses, the Court reversed a summary judgment for the insured.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The United States sued Bollinger Shipyards, alleging that it submitted false claims in connection with upgrades on the Coast Guard’s 110-foot patrol ships (right).  The gist of the complaint was that “Bollinger eventually submitted the highest of three [strength] calculations (5,232) to the Coast Guard, while employing in its internal documents the middle calculation (3,037).”  As to these strength measurements and their review by an independent agency, an internal email said, “adverse results could cause the entire conversion to be an uneconomical solution” and expressed concern that “we BLOW the program.”  United States v. Bollinger Shipyards, Inc., No. 13-31301 (Dec. 23, 2014).

While the parties disputed the proper interpretation of this evidence, and the district court agreed with the defendants, the Fifth Circuit reversed: “Rule 12(b)(6) does not require the United States to present its best case or even a particularly good case, only to state a plausible case” that Bollinger acted “in reckless disregard of the truthy or falsity” of the measurements.  The Court also held: “The government knowledge defense is not appropriate at the motion to dismiss stage, which requires us to draw all inferences in favor of the United States.  It is more proper at the summary judgment or trial stage as ‘a means by which the defendant can rebut the government’s assertion of the “knowing” presentation of a false claim.'”

Mingo sold her partnership interest in PWC to IBM; part of its value included $126,240 of unrealized receivables.  She sought to report them for tax purposes using the installment method of accounting.  The IRS disagreed and the Tax Court and Fifth Circuit accepted its position.  Mingo v. Commissioner of Internal Revenue, No. 13-60801 (Dec. 9, 2014).  The underlying statute, section 741 of the Internal Revenue Code, provides that sale of a partnership interest is ordinarily considered the sale of a capital asset, except for gain from unrealized receivables; the purpose “is to prohibit ordinary income from being transformed into capital gains (which is taxed more favorably) simply by being passed through a partnership and sold.”

Defendants removed, averring: “The real property at issue has a current fair market value of $87,500.”  The district court denied remand.  Plaintiffs appealed, and the Fifth Circuit entertained her argument because it went to the existence of subject matter jurisdiction. Taking judicial notice of county appraisal records that valued the property at $62,392, the Court remanded for the gathering of more evidence about the amount in controversy. Statin v. Deutsche Bank, No. 14-20200 (Dec. 19, 2014, unpublished).  The Court noted the recent Supreme Court case of Dart Cherokee Basin Operating Co. v. Williams, No. 13-719 (U.S. Dec. 15, 2014), which confirmed that while “defendants to not need to attach evidence supporting the alleged amount in controversy to the notice of removal,” “once the notice of removal’s asserted amount is ‘challenged,’ the parties ‘must submit proof and the court decides, by a preponderance of the evidence, whether the amount-in-controversy requirement has been satisfied.'”

The same week as the en banc vote in the whooping crane litigation, the Fifth Circuit analyzed “Whoomp! (There It Is).”  The unfortunate song has been mired in copyright infringement litigation for a decade; the district court entered judgment for the plaintiff for over $2 million, and it was affirmed in Isbell v. DM Records, Inc., Nos. 13-40787 and 14-40545 (Dec. 18, 2014).  [The opinion notes: “The word “‘Whoomp!’ appears to be a neologism, perhaps a variant of ‘Whoop!,’ as in a cry of excitement.”]

The main appellate issue was a variant of a frequently-litigated topic — the role of extrinsic evidence in contract interpretation.  The assignment in question was governed by California law, which the Court found to “employ[] a liberal parol evidence rule” with respect to consideration of extrinsic evidence.  The appellant argued that the district  court erred “in interpreting the Recording Agreement without asking the jury to make any findings on the extrinsic evidence.”  The Court disagreed, finding that the record did not present “a question of the credibility of conflicting extrinsic evidence” (emphasis in original): “The only dispute is over the meaning of the Recording Agreement and the inferences that should be drawn from the numerous undisputed pieces of extrinsic evidence.  This is a question of law for the court, not for a jury.”

The Fifth Circuit revised its earlier opinion in Aransas Project v. Shaw, No. 13-40317 (Dec. 15, 2014) and also denied en banc review over a dissent joined by three judges (with a fourth also voting for review).  The Court continues to hold that the plaintiff failed to establish proximate cause in an environmental case about the environment for whooping cranes.  The points of division are whether the panel “independently weighs facts to render judgment in violation of fundamental principles of federal law,” or simply finds that “the record permits only one resolution of the factual issue after the correct law is applied”; a related issue is whether rendition or remand is the appropriate appellate remedy for fact findings premised on an error of law.

Here’s a holiday gift from 600Camp — a short article called  “How (not) to Draft Arbitration Clauses.”  It reviews five cases to offer practical, specific tips for drafting arbitration clauses; specifically, in business settings involving more than one contract signed at different times.  Enjoy!

As chronicled in the sister blog 600Commerce (following business cases in the Dallas Court of Appeals), the issue of whether a guarantor can waive the “fair market value” offset right provided by the Texas Property Code — a problem that arises frequently after foreclosure sales — was hotly-litigated until the Texas Supreme Court settled the matter in Moyaedi v. Interstate 35/Chisam Road, L.P,  438 S.W.3d 1 (Tex. 2014), finding that the right was waivable.

The Fifth Circuit acknowledged and applied that holding in Hometown 2006-1 1925 Valley View, LLC v. Prime Income Asset Management LLC, finding that the waiver there was even clearer than in Moyaedi.  In Moyaedi, the guarantor waived “every . . . defense”; here, the guarantor waived “any . . . offset, claim or defense,” and the guaranty also had a provision saying: “Guarantor WAIVES each and every right to which it may be entitled by virtue of any suretyship law, including any rights it may have pursuant to . . . Section
51.005 of the Texas Property Code.”  No. 14-10182 (Dec. 11, 2014, unpublished).

Sundown Energy could access its oil and gas production facility via the Mississippi River, but had to cross Haller’s land to access it from the highway.  They litigated about Sundown’s rights and reached a settlement, which their counsel read into the record on the day set for trial.  The Fifth Circuit found that the parties had reached a settlement, which the district court had the authority to enforce pursuant to their agreement.  The Court reversed, though, as to the district court’s resolution of several logistical issues: “Here, the district court erred by imposing several terms which either conflicted with or added to the agreement read into the record by the parties. Although the parties gave the district court the authority to enforce and interpret the settlement agreement, the district court did not have the power to change the terms of the settlement agreed to by the parties.”  Sundown Energy L.P. v. Haller, No. 13-30294 et al. (Dec. 8, 2014).

Can a note be endorsed with a photocopied signature?  Yes. Whittier v. Ocwen Loan Servicing, LLC, No. 13-20639 (Dec. 3, 2014, unpublished) (citing Tex. Bus. & Com. Code § 1.201(b)(37)) (“Signed” includes using any symbol executed or adopted with present intention to adopt or accept a writing.”)

Can a “deed of trust . . . upon a homestead exempted from execution,” which “shall not be valid or binding unless signed by the spouse of the owner,” be signed in separate but identical documents?  Yes.  Avakian v. Citibank, N.A., No. 14-60175 (Dec. 9, 2014) (citing Duncan v. Moore, 7 So. 221, 221-22 (Miss. 1890)) (“There is much force in the argument of defendant’s counsel that the statute does not require a joint deed of husband and wife for the conveyance of the husband’s homestead . . . that the substantial thing is the written evidence of such consent; and that this may be as certainly shown by a separate instrument as by signing the deed of the husband.”)

The borrowers’ complaint in a wrongful foreclosure case sought: “‘an order canceling the Mortgage’ on property that is worth more than $200,000 while also stipulating that they will not recover more than $75,000.”  Accordingly: “Given our established rule that the amount in controversy in cases like this is determined by the value of the property, it is irrelevant whether the stipulation is binding. A party cannot sue over a mountain but stipulate that it is a molehill.”  Solis v. HSBC Bank USA, No. 14-40489 (Nov. 17, 2014, unpublished).

Class action suits alleged that First Community Bank mismanaged its customers’ bank accounts.  The bank’s insurer admitted that there would be coverage under the professional liability policy, but for the “fee dispute exclusion” [excluding claims “based upon, arising out of or attributable to any dispute involving fees or charges for an Insured’s services”]. While the collection of excessive overdraft fees was a major part of the pleadings, “at least some” of their allegations dealt with “First Community’s providing misleading information on its account practices and customers’ account balances . . . that do not have a causal connection to a disagreement that necessarily includes fees.”  Accordingly, under Texas’s “eight corners” rule, the Fifth Circuit affirmed judgment for the insured as to the duty to defend.  First Community Bancshares v. St. Paul Mercury Ins. Co., No. 13-50657 (Nov. 14, 2014, unpublished).

The Supreme Court has granted review of the Fifth Circuit’s opinion in Texas Division, Sons of Confederate Veterans v. Vandegriff, a First Amendment case about Texas’s denial of a request for a specialty license plate featuring the Confederate battle flag.

The Supreme Court has denied review of BP’s challenges to the Deepwater Horizon settlement, resolved by the Fifth Circuit earlier this year in a complicated series of panel opinions and denials of rehearing.

Plaintiffs, alleging that the defendant wrongfully printed the expiration dates of credit cards on its store receipts, sought to certify a class of “[a]ll persons who made in-store purchases from the Defendant using a debit or credit card, in a transaction occurring from May 8, 2010, through May 10, 2012, at one of the [specified] stores . . . .” Ticknor v. Rouse’s Enterprises, LLC, No. _____.  Noting a split in authority about similar class actions, and applying Mims v. Stewart Title, 590 F.3d 298 (5th Cir. 2009), the Fifth Circuit found no abuse of discretion in denying certification: “The district court determined that the plaintiffs needed to prove that they: (1) were not using someone else’s card to make their purchases, (2) were consumers rather than business purchasers, and (3) took their receipts.  Rouse’s argued that these factors differed among the putative class members. First, it noted one instance in which an individual had used his mother’s credit card to make a purchase, suggesting there would be many similar situations. Second, Rouse’s observed that it markets to professional chefs and other business customers who shop at its stores. These customers are not “consumers” protected under [the federal statute]. Finally, Rouse’s showed that numerous customers leave its stores without their receipts.”

The issue in Omega Hospital LLC v. Louisiana Health Service & Indemnity was whether the defendant (also known as Blue Cross Blue Shield of Louisiana), had an objectively reasonable basis for removal.  No. 13-31085 (Nov. 18, 2014, unpublished).  Some of the Blue Cross insureds at issue were federal employees covered by a plan overseen by the U.S. Office of Personnel Management.  The Fifth Circuit reversed an award of attorneys fees against Blue Cross, noting “case law arguably supporting Blue Cross, and the absence of a ruling from this court,” and thus concluding: “We cannot say that Blue Cross lacked a reasonable belief in the propriety of removal” under the “federal officer” statute, 28 U.S.C. § 1442(a)(1).

In Southwestern Elec. Power Co. v. Certain Underwriters at Lloyds, No. 13-31130 (Nov. 24, 2014), the trial court entered this order on September 25, 2013:

“IT IS ORDERED that the Motion to Compel Arbitration and Stay Proceedings (Doc. 16) is granted and the parties are ordered to resolve the claim presented in an arbitration conducted in accordance with the terms of their insurance policy.  IT IS FURTHER ORDERED that this civil action is stayed, and the Clerk of Court is directed to close the case for administrative purposes given the unlikelihood that further proceedings in this action will be necessary.”

Several months later, the trial court further ordered:

“This court finds that pursuant to Freudensprung and American Heritage Ins. Co. v. Orr, 294 F.3d 702 (5th Cir. 2002), the September 25, 2013 order compelling arbitration and staying the underlying proceeding operates as a final, appealable decision within the statutory framework of the Federal Arbitration Act, 9 U.S.C. § 1-16.”

The Fifth Circuit gave little weight to that further order:

”In a later ruling on SWEPCO’s Rule 58(d) motion for a separate judgment, the district court carefully construed its earlier ruling. Notably, the district court considered case law to construe the prior order ‘as a final, appealable decision within the statutory framework of the [FAA].’ It did not issue a clarification that its prior order was intended to be final and appealable, did not purport to grant SWEPCO’s motion, and did not issue a new order with the necessary trappings of finality.”

Accordingly, because the previous order only stayed and administratively closed the matter — as opposed to dismissing it — the order was interlocutory and the Court lacked appellate jurisdiction.

In tour de force reviews of Louisiana’s Civil Code and civilian legal tradition, a plurality and dissent — both written by Louisiana-based judges — reviewed whether a 1923 deed created a “predial servitude” with respect to a right of access.  The deed at issue said: “It is understood and agreed that the said Texas & Pacific Railway Company shall fence said strip of ground and shall maintain said fence at its own expense and shall provide three crossings across said strip at the points indicated on said Blue Print hereto attached and made part hereof, and the said Texas and Pacific Railway hereby binds itself, its successors and assigns, to furnish proper drainage out-lets across the land hereinabove conveyed.”

The analysis involved citation to the Revised Civil Code of Louisiana of 1870 (the Code in effect at the time of conveyance), the 1899 treatise Traité de Droit Civil-Des Biens, and the 1893 work, Commentaire théorique & pratique du code civil.  Despite the arcane overlay, the opinions turn on practical observations.  The plurality notes that the deed uses “successors and assigns” language only with respect to drainage — not access — while the dissent observes that a “personal” access right, limited only to the parties to the conveyance and that does not run with the land, is impractical.  Franks Investment Co. v. Union Pacific R.R. Co., No. 13-30990 (Dec. 2, 2014).

After receiving responses from the plaintiff and the District Court, the Fifth Circuit denied the mandamus petition in In re: Trinity Industries, Inc., this time with a simple one-line order — as compared to its previous ruling.  No. 14-41297 (Dec. 2, 2014).

• This contract language binds the parties to an agreed-upon postjudgment interest rate: “All past due interest and/or principal shall bear interest from maturity until paid, both before and after judgment, at the rate of 9% per annum.”  The language “clearly, unambiguously, and unequivocally” refers to postjudgment interest.
• This language does not: “Invoices not paid within the stated terms will be charged 1.5% per month. . . .   All freight, demurrage and other charges shall be subject to an interest charge of 1-1/2% per month beginning on the first day after the due date of invoice.”

Celtic Marine Corp. v. James C. Justice Co., No. 13-31306 (Nov. 20, 2014, unpublished) (quoting Hymel v. UNC, Inc., 994 F.2d 260 (5th Cir. 1993) (emphasis added)).

The Fifth Circuit withdrew its original opinion in Scarlott v. Nissan North America to issue a revised opinion on rehearing.  No. 13-20528 (Nov.10, 2014).  The Court did not materially change its earlier holding that the amount-in-controversy requirement for diversity jurisdiction was not satisfied, or its disposition by a remand to the district court for purposes of remand to state court.  The Court added discussion — and a dissent — about how the district court should handle a sanctions award on remand.  The plurality simply said: “In light of our holding that the district court did not have jurisdiction over this case, the district court should reconsider whether to award attorneys’ fees and costs to the defendants; and if the court decides that attorneys’ fees and costs are still appropriate, the court should reconsider the amount of the award.”  The dissent would vacate the award; among other points, it made this basic one: “By its very nature, section 1927 involves assessing the merits of the claim, which establishes the inappropriateness of the district court’s order in light of the lack of jurisdiction.”

The parties to a contract about the construction of a barge disputed whether an amendment required price adjustments based on the price of steel.   Blessey Marine Services, Inc. v. Jeffboat, LLC, No. 13-30731 (Nov. 10, 2014, unpublished).  In a pretrial summary judgment ruling, the district court rejected the plaintiff’s argument that the contract was unambiguous, and held a jury trial to hear extrinsic evidence and resolve the ambiguity.  On appeal, the Fifth Circuit held:

1.  Because the plaintiff did not renew the ambiguity argument in a Rule 50 motion (although it did raise the point in a motion in limine and in opposition to the other side’s motion), the Court could not consider it on appeal; and

2.  “By adducing some of the same extrinsic evidence at trial that it had sought to exclude in its motion in limine, [Plaintiff] waived its right to challenge the district court’s admission of that evidence.”  (citing Fed. R. Evid. 103(b) and Ohler v. United States, 529 U.S. 753, 755 (2000) [“[A] party introducing evidence cannot complain on appeal that the evidence was erroneously admitted.”])

The forum selection clause in Waste Management of Louisiana LLC v. Jefferson Parish was permissive, not mandatory:

“Jurisdiction: This Agreement and the performance thereof shall be governed, interpreted, construed and regulated by the laws of the State of Louisiana and the parties hereto submit to the jurisdiction of the 24th Judicial District Court for the Parish of Jefferson, State of Louisiana. The parties hereby waiving [sic] any and all plea[s] of lack of jurisdiction or improper venue.”

When Waste Management sued in Louisiana federal court, the defendant’s forum non conveniens motion was denied and the Fifth Circuit declined to review that denial by interlocutory appeal.  No. 14-90040 (Nov. 28, 2014, unpublished).  The Court noted: “Unlike their mandatory counterparts, permissive forum selection clauses allow but do not require litigation in a designated forum. As such, we have never required district courts to transfer or dismiss cases involving clauses that are permissive.”  It held that Atlantic Marine Construction v. District Court, 134 S. Ct. 568 (2013), did not change that rule, as that case involved a mandatory clause, and “[t]he vast majority of district courts deciding this issue have rejected Atlantic Marine’s application to permissive forum selection clauses.”

Leftover turkey?  Have no fear — continue the celebration New Orleans style with Emeril Lagasse’s recipe for Turkey Bone Gumbo.  Happy Thanksgiving from 600Camp!

The parties in Morton v. Yonkers disputed whether a gas royalty interest was void under the laws of the Navajo Nation.  No. 13-10926 (Nov. 19, 2014).  One party submitted a letter from an attorney for the Navajo Nation Department of Justice, opining that the “purported overriding royalty interest is invalid under the applicable provisions of the Navajo Nation Code and is completely void.”  The Fifth Circuit affirmed the lower courts’ conclusion that this letter was inadmissible hearsay, and did not qualify for an exemption under Fed. R. Evid. 803(8) or (15) [public records and statements about property interests]; or the general exception in Rule 807 [the former 803(24) and 804(b)(5), combined in 2011]: “Trustworthiness is the linchpin of these hearsay exceptions.  We are persuaded by the district court’s thorough explanation that the letter is untrustworthy, in large part because it was drafted by Morton’s counsel and was prepared after Morton’s counsel provided the Navajo Nation official with only one side of the story.”

In Matassarin v. Grosvenor, the Fifth Circuit reversed a dismissal on personal jurisdiction grounds, reminding: “For an intentional tort claim, purposeful availment can be established through ‘a single phone call and the mailing of allegedly fraudulent information’ to the forum state if ‘the actual content of communications with a forum gives rise to’ the claim, as when the communications’ content was allegedly fraudulent.”  (quoting Lewis v. Fresne, 252 F.3d 352, 355-56 (5th Cir. 2001)).  Here, the plaintiff described communications, received in Texas by email and fax, that he alleged to contain misrepresentations about several features of a condominium unit.

After an unusual pretrial mandamus ruling by the Fifth Circuit in a high-profile False Claims Act case, and after the jury returned a plaintiff’s verdict for $175 million — which could be trebled upon final judgment — the defendants returned to the Fifth Circuit last week. They filed a renewed mandamus petition  — drawing on the Court’s statements in the prior ruling — supported by amici filings from Texas A&M and another company.  In re: Trinity Industries, Inc., No. 14-41297.  The Court has requested a response, presently due on December 1.  Further briefing, and the ultimate disposition of this mandamus petition, will be of interest both procedurally and substantively.  (Disclaimer: I am not counsel of record in this proceeding, but do represent Trinity.)

In an intellectual property dispute with several pending motions, the district court held a telephone conference and said the following about the pending application for preliminary injunction:

“I can see that there at least would be a fact issue as to whether or not the contract’s violated, but that’s a different proposition from concluding that a preliminary injunction should be granted.  There are a lot of factors to take into account to decide whether or not, ultimately there would — a breach of contract would be found to exist, such as, whether or not there’s a possibility for some relief besides injunctive relief, such as the recovery of damages.  I haven’t found anything in the papers to indicate to me that the defendant couldn’t respond to a judgment in damages, if required to do so.  I don’t — I don’t think a preliminary injunction is necessary or appropriate in this case, so I’m going to deny that request.”

Observing that the district court’s statmeent in damages “seems to relate to [Defendant’s] ability to respond to a judgment in damages, which does not relate to whether damages would be an adequate remedy,” the Fifth Circuit vacated and remanded for a lack of findings of fact and conclusions of law under Fed. R. Civ. P. 52(a).  Software Development Technologies v. Trizetto Corp., No. 13-10829 (Nov. 5, 2014, unpublished).

Mabary withdrew money from an ATM machine. While she received an on-screen notice about a $2.00 fee, the machine did not have a posted external notice about the fee — a violation of the Electronic Funds Transfer Act at the time.  After amendments to the EFTA that eliminated the Bank’s liability (if applicable), the district court dismissed Mabary’s claim and denied certification of a related class.  Mabary v. Home Town Bank, N.A., No. 13-20211 (Nov. 5, 2014).  The Fifth Circuit reversed, holding: (1) Mabary had Article III standing as a result of EFTA’s definition of injury, even though she did receive a form of notice; (2) a Rule 68 offer of proof to her – precertification – did not moot her claim; and (3) EFTA’s amendments did not fall within the exception to the general presumption against statutory retroactivity.  A dissent took issue with the standing holding as “respectfuly, silly stuff,” reasoning: “Mabary cannot show that she suffered a cognizable injury in fact, so she can sue only if the existence of her statutory cause of action sufficed to satisfy Article III.”

World Wrestling Entertainment sought ex parte seizure and temporary restraining orders, against unnamed defendants selling fake WWE merchandise at live events, under the Trademark Counterfeiting Act.  The district judge denied relief, noting concerns about WWE’s ability to prove a likelihood of success against an unknown defendant.  The Fifth Circuit (who reviewed the case because the district court certified the matter for interlocutory appeal) took a different view, noting: “WWE does not license third parties to sell merchandise at live events . . . The resulting confined universe of authorized sellers of WWE merchandise necessarily ‘identifies’ any non-WWE seller as a counterfeiter.”  The opinion also observed that “the very nature of the ‘fly-by-night’ bootlegging industry” involves “counterfeiters who, upon detection and notice of suit, disappear without a trace and hide or destroy evidence, only to reappear later at the next WWE event down the road.”  World Wrestling Entertainment, Inc. v. Unidentified Parties, No. 14-30489 (Nov. 4, 2014).

Menendez complained about his employer’s accounting practices to the SEC.  The employer received a letter from the SEC asking for retention of certain documents.  The employer then emailed Menendez’s colleagues, “instructing them to start retaining certain documents because ‘the SEC has opened an inquiry into the allegations of Mr. Menendez.'”  Relations with his co-workers deteriorated and he ultimately resigned.  In a detailed opinion, the Fifth Circuit affirmed a $30,000 damages award to Menendez on his claim for retaliation: “The undesirable consequences, from a whistleblower’s perspective, of the whistleblower’s supervisor telling the whistleblower’s colleagues that he reported them to authorities for what are allegedly fraudulent practices, thus resulting in an official investigation, are obvious.”  Halliburton, Inc. v. Administrative Review Board, U.S. Dep’t of Labor, No. 13-60323 (Nov. 12, 2014).  The case has received considerable attention in employment and compliance circles; the Wall Street Journal‘s coverage is a short example.

Consistent with a 2014 line of cases that reversed summary judgments on credibility issues, the Fifth Circuit reversed a summary judgment for the insurer in a bad faith case in Santacruz v. Allstate Texas Lloyds, No. 13-10786 (Nov. 13, 2014, unpublished).  The insured alleged inadequate investigation into her claim of covered wind damage to her home, and the Court found fact issues on two matters.

First, as to liability for bad faith, the Court noted: “The extent of Allstate’s inquiry into the claim consisted of its adjuster taking photographs of the damaged home. Significantly, Allstate did not attempt to talk to the contractor, who submitted an affidavit in this case describing what he observed concerning the roof and attributing the cause to wind damage. Nor is there any evidence showing that Allstate obtained weather reports or inquired with neighbors to see if they suffered similar damage, which would tend to show the damage was caused by wind rather than normal wear and tear.”

Second, as to damages, the Court said: “Santacruz claimed three types of damages: (1) the replacement of the roof, supported by an invoice from Pedraza providing that Santacruz paid him $3,900 to repair the roof; (2) a list of damaged personal and household items compiled by Santacruz and his family with an estimate of the value of all the belongings; and (3) repair work needed for the damaged interior of the home, supported by an estimate from a contractor listing the repairs to be done. Further, Pedraza submitted an affidavit testifying to the necessity of repairing the roof, and Santacruz submitted photographs showing the extensive damage to the home’s interior to support his claim that repairs were necessary.”

The Supreme Court recently reversed the Fifth Circuit on a Twombly issue — here is the pleading that “simply, concisely, and directly” stated a civil rights claim.

Among other theories, the borrowers in Shaver v. Barrett Daffin LLP alleged that a servicer “was unjustly enriched by failing to apply credit default swap payments and other payments to their loan balance.”  No. 14-20107 (Nov. 5, 2014, unpublished).  This argument — apparently addressed for the first time by the Fifth Circuit in this opinion — was rejected by the Court, which noted similar results in other jurisdictions.

In the 9-0 per curiam opinion of Johnson v. City of Shelby, the Supreme Court reversed the Fifth Circuit’s dismissal of a civil rights claim for failure to cite the applicable statute: “Our decisions in [Twombly and Iqbal] are not in point, for they concern the factual allegations a complaint must contain to survive a motion to dismiss.  A plaintiff, they instruct, must plead facts sufficient to show that her claim has substantive plausibility.  Petitioners’ complaint was not deficient in that regard.  Petitioners stated simply, concisely, and directly events that, they alleged, entitled them to damages from the city.  Having informed the city of the factual basis for their complaint, they were required to do no more to stave off threshold dismissal for want of an adequate statement of their claim.”  No. 13-1318, 574 U.S. ___ (Nov. 10, 2014).  Law360 has covered the case.  Here is the actual pleading at issue.

Vaillancourt sued a mortgage servicer, the substitute trustee for a foreclosure, and her husband.  The defendants removed, claiming fraudulent joinder of the in-state defendants, and the district court rejected that argument and remanded.  In so doing, it declined to exercise supplemental jurisdiction over the accompanying state-law claims.   Vaillancourt v. PNC Bank, N.A., No. 14-40303 (Nov. 5, 2014).  A good exam question for a Federal Courts class resulted.

Because the district court based its remand order on its decision to decline supplemental jurisdiction, the Fifth Circuit (under its prior precedents) had appellate jurisdiction over that ruling, which necessarily included review of the predicate ruling about original jurisdiction. The Court noted that this result “is in some tension with 28 U.S.C. § 1447(d)’s command that ‘[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise,’ which the Supreme Court has construed to insulate from appellate review remands made on the basis of subject matter jurisdiction.”

The Court went on to reverse the ruling about fraudulent joinder, finding no cognizable claim pleaded against the trustee or the husband.  Accordingly, because “‘the district court had diversity jurisdiction over the state law claims at the time of remand,’ and ‘the exercise of that jurisdiction is mandatory,'” it reversed the remand order.

This summer, in the panel opinion of  Barron & Newburger, P.C. v. Texas Skyline, Ltd., No. 13-50075 (July 15, 2014), the Fifth Circuit affirmed the partial denial of a fee application based on its earlier opinion of  In re: Pro-Snax Distributors, Inc., 157 F.3d 414 (5th Cir. 1998). That earlier opinion rejected a “reasonableness” test in the application of Bankruptcy Code § 330 — which would have asked “whether the services were objectively beneficial toward the completion of the case at the time they were performed” — in favor of a “hindsight” approach, asking whether the professionals’ work “resulted in an identifiable, tangible, and material benefit to the bankruptcy estate.”  All three panel members joined a special concurrence asking the full Court to reconsider Pro-Snax en banc, and that invitation was recently accepted by a majority of active judges.  Law360 provides some good additional commentary about the en banc vote.

“[Attorney] Grodner filed a motion requesting that certain inmates housed in the same correctional facility as [Grodner’s client] be allowed to provide testimony by video. The state did not oppose this form of testimony. Judge Jackson denied the order, however, requiring the incarcerated inmates to appear in court. As a result, Grodner filed five new motions requesting that the district court subpoena certain inmates to testify in court. Grodner styled those motions ‘unopposed,’ although she admittedly never contacted opposing counsel to confirm this. Even after opposing counsel filed a memorandum clarifying their opposition to the subpoenas, Grodner proceeded to file three more ‘unopposed’ motions requesting subpoenas.”  In re Grodner, No. 14-98001 (Nov. 3, 2014, unpublished).  The Fifth Circuit affirmed the district court’s sanction of a 60-day suspension from practice before the Middle District of Louisiana.

The Fifth Circuit has launched an attractive new website, with the customary features and some great pictures of the John Minor Wisdom courthouse and surrounding landmarks.

A mortgage servicer sued two individuals, alleging a conspiracy to defraud; the defendants argued that the servicer lacked standing because the notes in question were not properly conveyed.  The case settled during trial, and as part of the settlement “the parties stipulated to several facts, including the fact that the Trusts were the owners and holders of the Loans at issue.”  An agreed judgment followed.  BAC Home Loans Servicing, L.P. v. Groves, No. 13-20764 (Nov. 3, 2014, unpublished).

The defendants then moved to vacate under FRCP 60(b), arguing that the plaintiff lacked standing.  The district court denied the motion and the Fifth Circuit affirmed.  It first noted that “the court will generally enforce valid appeal waivers, [but] a party cannot waive Article III standing by agreement . . .”  Further noting that “parties may stipulate to facts but not legal conclusions,” the Court held: “That is exactly what happened here.  [Defendants] conceded facts that establish [plainitiff’s] status; thus, the district court appropriately reached the resulting legal conclusion that [plaintiff] has standing.”

EnCana Oil & Gas hired Seiber as a general contractor, who in turn hired Holt and TAUG as subcontractors.  Seiber failed to make timely payments.  EnCana interpleaded the funds at issue, and Seiber then filed for bankruptcy — before entry of a final order in the interpleader case. Holt Texas, Ltd. v. Zayler, No. 13-41153 (Nov. 3, 2014).

Holt and TAUG alleged that they had materialmen’s liens under Texas law that removed the funds from Seiber’s bankruptcy estate; Seiber’s bankruptcy trustee argued that the filing of the interpleader action “automatically satisfied its liability to Seiber, thus transferring legal possession of the funds to Seiber and the bankruptcy estate.”

The Fifth Circuit disagreed with the trustee and reversed the bankruptcy court, reasoning: “If this were so, the interpleader would be the final judge of its own legal obligations relative to the dispute, by depositing a sum solely determined by it, washing its hands of any relationship to the dispute and walking away whistling Yankee Doodle.”

Uretek USA developed a process for pavement repair, which it sublicensed to Uretek Mexico under an agreement signed in 2003.  In 2010, the principals of the two companies met to try and resolve disputes about that agreement and other business dealings. During the meeting, the parties initialed an amended sublicense agreement, and Uretek USA accepted four checks from Uretek Mexico with these amounts and memo lines:

1. $10 “As per First Amendment to Sublicense Agreement”
2. $76,950.90 for “Full Payment on Technical Assistance”
3. $225,471.05 for “Full Payment on Royalties”
4. $10 for “Full Release [Uretek USA] to [Uretek Mexico]

Uretek USA later sued to dispute the enforceability of the amendment.  The jury found that Uretek USA ratified it by conduct, principally by cashing these checks.  While Uretek USA made several arguments against that finding on appeal, the number of checks and specificity of the notations on them was sufficient to sustain the verdict.  Uretek (USA), Inc. v. Ureteknologia de Mexico S.A. de C.V., No. 13-20430 (Oct. 29, 2014, unpublished).

In a reversal on rehearing from the original panel opinion, based on answers to certified questions in another matter in the meantime, the Court held in Crownover v. Mid-Continent Casualty Co.: “In sum, [Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 124, 127 (Tex. 2010) and Ewing Constr. Co. v. Amerisure Ins. Co., 420 S.W.3d 30, 37 (Tex. 2014)], maintain that for a contractual-liability exclusion to apply, the insurer must prove that a contractually-assumed duty effected an expansion of liability beyond that supplied by general law. The arbitrator in this case determined that Arrow violated an express duty to repair work that did not conform to the requirements of its construction contract with the Crownovers. Mid-Continent has failed to proffer evidence creating a dispute of fact as to whether the arbitrator’s award was based on liability greater than that dictated by general law. Therefore, the contractual-liability exclusion from coverage does not apply.”  No. 11-10166 (Oct. 29, 2014, on petition for rehearing).

The concept of “proportionality” in discovery began its modern ascendance in  Bell Atlantic Corp v. Twombly, with observations such as these: “Probably, then, it is only by taking care to require allegations that reach the level suggesting conspiracy that we can hope to avoid the potentially enormous expense of discovery in cases with no ‘reasonably founded hope that the [discovery] process will reveal relevant evidence’ to support a § 1 claim.”  127 S.Ct. 1955, 1968 (2007).

Over time, the “proportionality” concept has moved from the discovery rules to pervade the entire system of federal procedure.  Consider Advisory Committee Note to revised Federal Rule of Civil Procedure 1 (approved by the Judicial Conference in September 2014 and now before the Supreme Court): “Effective advocacy is consistent with — and indeed depends upon — cooperative and proportional use of procedure.”

While arising under state law rather than the Federal Rules, the recent Texas Supreme Court of In re National Lloyds Ins. Co. illustrates the concept of proportionality in a highly practical context. The plaintiff in an insurance bad faith case sought evidence about similar claim denials, arguing “that the trial court’s discovery order was (1) limited in time, because it compelled only production of evidence relating to the two storms at issue, and (2) limited by location, because it involved only properties in Cedar Hill.”  ___ S.W.3d ___, No. 13-0761 (Tex. Oct. 31, 2014) (per curiam).

That Court disagreed: “Scouring claim files in hopes of finding similarly situated claimants whose claims were evaluated differently from [plaintiff’s] is at best an ‘impermissible fishing expedition.’ . . . [Plaintiff] is correct that discovery must be reasonably limited in time and geographic scope.   But such limits in and of themselves do not render the underlying information discoverable.”   It concluded that there were still too many likely differences between this set of claims and the plaintiff’s case to justify the discovery request.

Four times in the last two months, 600Camp has won recognition from Texas Bar Today for a “Top 10 Post of the Week” among Texas law blogs, “based on subject matter, writing style, headline, and imagery.” The posts were  The Regulation, My Friend, is Blowing in the Wind (Sept. 16), My Five Tips for Good Legal Writing (Oct. 9), Arbitration Here, There, or Nowhere (Oct. 20), and How to Notice Mississippi (Oct. 28).  Thanks for your support!

“Those who prefer to hunt deer without the use of dogs (still-deer hunters) complain that
dog-deer hunting is disruptive and unsportsmanlike. Adjacent landowners complain that dog-deer hunting leads to shooting near houses and from roads, fights between dog-deer hunters and landowners, roads being blocked by dog-deer hunters, dogs running across private property, and trespass.  Dog-deer hunters defend the practice based on its history as a traditional method of hunting in Louisiana dating back to the colonial period.”  The plaintiffs in Louisiana Sportsmen Alliance, LLC v. Vilsack sought to enjoin the U.S. Forest Service from banning dog-deer hunting in the Kisatchie National Forest.  The Forest Service won on the merits in the district court, and for the first time on appeal, argued that the plaintiff organization lacked standing. Expressing vexation: “The district court was ill-served by the Forest Service in this regard, because the Forest Service never argued that the Alliance lacked organizational standing until this appeal,” the Court nevertheless considered the issue because “Article III standing is a jurisdictional requirement that cannot be waived,” and then dismissed the appeal because the plaintiff association had not shown its standing to bring suit.  No.13-31260 (Oct. 28, 2014, unpublished).

River Oaks, an apartment management business originally based entirely in Louisiana, expanded into Mississippi in 2011.  It had a workers comp policy with Bridgefield Insurance, which provided “Other States” coverage for Mississippi if River Oaks notified Bridgefield of activity there.  After an employee’s injury in Mississippi, Bridgefield denied coverage for failure to comply with this notice requirement.  Bridgefield Casualty Ins. Co. v. River Oaks Management, Inc., No. 13-31077 (Oct. 27, 2014, unpublished).

Bridgefiled won the coverage dispute in district court, and the Fifth Circuit agreed that: (1) the provision was not ambiguous; (2) the provision was a condition precedent to coverage, so Bridgefield did not have to show prejudice from the lack of notice; and (3) for similar reasons, the provision did not implicate the Louisiana “anti-technical” statutes.

But, the Court found a material fact issue and reversed — agreeing with the district court that there was a factual dispute about whether an audit by Bridgefield put it on notice of the Mississippi activity (and accepted payments after that time), the Court disagreed with the district court’s conclusion that the dispute was not material: “An insurer may waive a provision that falls short of granting it the right to cancel the entire policy, such as the exclusion-of-coverage provision at issue here.”

Earlier this year, the Texas Supreme Court answered certified questions from the Fifth Circuit about the treatment of home equity loans under the Texas Constitution; that opinion summarizes: “To avoid foreclosure, homeowners and lenders often try to restructure underwater home mortgage loans that are in default by capitalizing past-due amounts as principal, lowering the interest rate, and reducing monthly payments, thereby easing the burden on the homeowners. But home equity loans are subject to the requirements of Article XVI, Section 50 of the Texas Constitution. The United States Court of Appeals for the Fifth Circuit has asked whether those requirements apply to such loan restructuring. We answer that as long as the original note is not satisfied and replaced, and there is no additional extension of credit, as we define it, the restructuring is valid and need not meet the constitutional requirements for a new loan.”  Sims v. Carrington Mortgage Services, LLC, No. 13-0638 (Tex. 2014).  Following that Court’s recent denial of rehearing, the Fifth Circuit has now formally accepted the answer and ruled accordingly.

Because the Fifth Circuit rarely acts en banc in business-related cases, votes by the full court on civil matters deserve careful review as examples of the judges’ broader philosophical leanings.  As detailed in another post, I place particular emphasis on (1) the vote to deny en banc review in the Daubert case of Huss v. Gayden (balancing judicial authority with the jury’s); (2) the vote to grant mandamus relief in the venue dispute of In re Volkswagen (balancing appellate authority with that of the trial court); and (3) the 7-8 vote to deny en banc review in the venue case of In re Radmax (same).  

The issue in the recent en banc case of McBride v. Estis Well Service, LLC, No. 12-30714 (revised Oct. 24, 2014), while facially addressing an important but technical issue of admiralty law, offers insight about the judges’ views of another topic — the authority of the judiciary as opposed to Congress’s. The introduction to Judge Higginson’s dissent succinctly captures that point: “The question presented by this case is whether seamen may recover punitive damages for their employer’s willful and wanton breach of the general maritime law duty to provide a seaworthy vessel. Because the Supreme Court has said that they can, and Congress has not said they can’t, I would answer in the affirmative, and REVERSE.”

Nine judges (spread across three opinions) saw the answer differently.  The conclusion to the majority opinion begins: “In the words of the Supreme Court, ‘Congress has struck the balance for us.'” (citing Mobil Oil Corp. v. Higginbotham, 436 U.S. 618, 623 (1978)).  Two concurrences make similar observations. Notably, all of the active judges appointed by a Democratic president at the time of en banc submission are in dissent.

The State Bar of Texas Litigation Section recently published my article, based on content from this blog, about how the Fifth Circuit has applied Twombly and Iqbal in recent opinions.

A cousin to U.S. Bank, N.A. v. Verizon Communications, Inc., the case of Murphy v. Verizon Communications, Inc. presented an ERISA-based challenge to the spinoff of Idearc by Verizon.  No. 13-11117 (Oct. 15, 2014, unpublished).  The appellate issue was the plaintiffs’ right under ERISA’s “catch-all provision” to request, as “other instruments under which the [ERISA] plan is established or operated,” various documents about the plan’s investment guidelines.  The Fifth Circuit held: “We agree with the majority of the circuits which have construed [the] catch-all provision narrowly so as to apply only to formal legal documents that govern a plan.”

Dawna Casey’s family sued Toyota, alleging that the airbag in a 2010 Highlander did not remain inflated for six seconds and caused her death in an accident.  The district court granted judgment as a matter of law and the Fifth Circuit affirmed.  Casey v. Toyota Motor Engineering & Manufacturing, No. 13-11119 (Oct. 20, 2014).

As to the claim of manufacturing defect, the Court observed: “Casey . . . established only that the air bag did not remain inflated for six seconds,” and relied on alleged violations of Toyota’s performance standards to prove a defect (rather than a technical explanation of the bag’s performance).  The Court rejected those allegations under Texas law and precedent from other jurisdictions: “Each piece of evidence submitted by Casey on this point is result-oriented, not manufacturing-oriented, and provides no detail on how the airbag is constructed.”

As to the claim of design defect, Casey relied primarily on a patent application for an allegedly superior design, which the Court rejected as not having been tested under comparable conditions, and as lacking a real-world track record as to feasibility, risk-benefit, and other such matters.  Law360 has written a summary of the opinion.

Sharpe v. Ameriplan re-engages the recurring problem of an arbitration agreement governed by multiple documents.  No. 13-10922 (Oct. 16, 2014).  Specifically:

— A Policy Manual contained an arbitration clause;

— A Broker Agreement, which incorporated the Policy Manual.  This Agreement said that the Agreement could not be changed except by written agreement, but acknowledged that the Manual could be changed at will; and

–3 of 4 plaintiffs had Sales Director Agreements that contained a lengthy dispute resolution provision, which began with a commitment to nonbinding mediation and concluded with detailed language that “claims, controversies, or disputes” be “submitted . . . to the jurisdiction” of courts in Dallas (a fourth had a much shorter provision that was simply a Dallas forum selection provision for “any action” on the agreement).

The Court held that that shorter provision did not trump the arbitration clause, but that the longer one did: “The language in Guarisco’s agreement demonstates that AmeriPlan knew how to draft a narrow forum selection clause, and its decision in later Sales Director Agreements to add far more extensive language establishing a full dispute resolution process must be given effect as creating something beyond that.”  The Court distinguished its recent opinion of Klein v. Nabors Drilling USA, L.P., 710 F.3d 234 (5th Cir. 2013), in which it read language about nonbinding mediation as not conflicting with “an exclusive procedural mechanism for the final resolution of all Disputes falling within its terms.”  (See also Lizalde v. Vista Quality Markets,  No. 13-50015 (March 25, 2014) (enforcing an arbitration agreement in the face of a benefit plan with a broad termination right, noting that both agreements’ termination provisions were limited to “this Agreement” and “this Plan” respectively and thus “clearly demarcate their respective applications”)).

The plaintiff in Law v. Ocwen Loan Servicing, L.L.C., a mortgage servicing case, asked the Fifth Circuit for leave to amend if it affirmed the dismissal of the complaint under Rule 12.  No. 14-20019 (Oct. 16, 2014, unpublished).  The Court affirmed on the merits and as to the denial of leave to amend, noting these basic and important principles on the point:

*  “A party who neglects to ask the district court for leave to amend cannot expect to receive such dispensation from the court of appeals.”

*  A district court’s sua sponte discussion of amendment is not a request, and neither is this language in a response: “[T]he only relief possibly available to [the defendant] at this stage of the case is that [the plaintiff] replead.”

*  While new factual allegations in response to a summary judgment motion can be construed as a request for leave to amend, that does not hold for a response to a Rule 12 motion.

The meaning of the word “value,” a seemingly simple word, lies at the heart of most economic theory.  In the Fifth Circuit, in the context of a defense under section 548(c) of the Bankruptcy Code to a fraudulent transfer claim, “value” is measured “from the perspective of the transferee: How much did the transferee ‘give’?” Williams v. FDIC, No. 12-20687 (Oct. 16, 2014) (discussing Jimmy Swaggart Ministries v. Hayes, 310 F.3d 796 (5th Cir. 2002)). (Although, as footnote 3 of Williams observes, the answer may be different under state law.)

In Williams, a debtor company paid $367,681.35 to a bank, on an obligation owed entirely by the individual who owed the debtor.  The bankruptcy trustee proved these payments were a fraudulent transfer, but the bank won below by showing two items of value: (1) forbearance as to eviction, which had substantial value to the debtor’s business, and (2) roughly $250,000 in “reasonable rental rate” for the period when the debtor occupied the premises in question.  The Fifth Circuit disregarded the first as irrelevant from the debtor’s perspective under Swaggart.   As to the second, the Court required “netting” of the loan payments received by the bank, against the rent the bank could have received, and rendered judgment for the trustee for the difference.  This holding turns on a detailed analysis of the term “value” in 548(c), as distinguished from “reasonably equivalent value” in a defense elsewhere in the Code.

The Fifth Circuit and the district court agreed that the plaintiffs/appellants in Mboho USA, Inc. v. Okon had served “abusively excessive, repetitious, and burdensome discovery requests.”  No. 13-20449 (Oct. 10, 2014, unpublished).  But, the Fifth Circuit found that the district court had acted too hastily in dismissing the case entirely, noting:

(1) the plaintiff, a foreign entity, was not foreclosed from suing in Texas simply because it is not registered to do business there;

(2) one of the appellants had legitimate documents from the Nigerian government authorizing him to bring suit in the US or Canada;

(3) an earlier dismissal in state court for lack of subject matter jurisdiction was not preclusive as to another court with jurisdiction; and

(4) as to one of the claims, plaintiffs were entitled to an opportunity to respond before it was dismissed sua sponte.

The Chemical Safety and Hazard Investigation Board served administrative subpoenas on Transocean in connection with the Deepwater Horizon disaster.  United States v. Transocean Deepwater Drilling, Inc., No. 13-20243 (Sept. 18, 2014).  Transocean contended that the Board lacked jurisdiction because the ill-fated rig was not a “stationary source” within the meaning of the Board’s enabling statute; the majority disagreed, concluding that at the time of the accident, the rig “was physically connected (though not anchored) at that site and maintained a fixed position.”

Transocean also contended that this sentence deprived the Board of jurisidiction: “The Board shall not be authorized to investigate marine oil spills, which the National Transportation Safety Board is authorized to investigate.”  After a foray into the grammatical thicket of “which” v. “that,” the majority concluded that the Board was not categorically barred from investigating oil spills in light of the “overall regulatory scheme.”

A dissent disagreed with both conclusions, reminded that “[f]or the sake of maintaining limited government under the rule of law, courts must be vigilant to sanction improper administrative overreach,” and noted that at least 17 other investigations were conducted into the accident.

Holden, an employee of Buck Kreihs Company (“BKS”), was injured while removing a gangway that connected BKS’s dock to a barge owned by U.S. United Ocean Services (“United”).  Holden and United settled their litigation, and United’s liability insurer won summary judgment in United’s suit for insurance coverage.  The Fifth Circuit affirmed in Holden v. U.S. United Ocean Services, L.L.C., No. 12-30251 (Sept. 15, 2014, unpublished).  The policy — actually issed to BKS, but with United as an additional insured — had a “watercraft” exclusion.  The exclusion would otherwise apply to the barge, except for an exemption for a contract under which “the ‘Named Insured’ assumes the tort liability of another party for ‘bodily injury’ or ‘property damage’ to a third party or organization.”  The majority found that United was not a named insured, and that the exemption was best read to reach claims by an injured claimant against BKS — not claims by an additional insured for its own liability to the claimant.  A dissent argued that this reading did not give effect to the precise terms used in the policy.

On Friday October 10, the Fifth Circuit denied mandamus relief on the eve of trial in a high-stakes False Claims case, In re Trinity Industries, Inc. — but took the unusual step of making an additional statement: “The court is compelled to note, however, that this is a close case. The writ is timely and the litigation stakes–the potential for a $1 billion adverse judgment–are unusually high. This court is concerned that the trial court,  despite numerous timely filings and motions by the defendant, has never issued a reasoned ruling rejecting the defendant’s motions for judgment as a matter of law.”  The Court went on to cite several specific opinions that caused its concern.

Pioneer suffered an oil well blowout and paid millions to restore order.  It sued for reimbursement under its umbrella policy and the Fifth Circuit affirmed judgment for the insurer, based largely on the broad language of the relevant exclusions.  Pioneer Exploration LLC v. Steadfast Ins. Co., No. 13-30802 (Sept. 22, 2014).  Pioneer argued that the “owned, rented or occupied” exclusion did not apply to a mineral lease.  The Court disagreed, noting that the mineral lease gave Pioneer some control over surface land, and that the broad language of the exclusion reached activity associated with oil production (citing Aspen Ins. UK, Ltd. v. Dune Energy, Inc., No. 10-30335 (5th Cir. Nov. 8, 2010, unpublished)).  Further, noting that Louisiana law allowed debate as to whether an “owned property” exclusion reached remediation costs incurred to minimize liability to third parties, the Court found that this exclusion “specifically excludes containment costs” (reviewing Norfolk Southern Corp. v. California Union Ins., 859 So. 2d 167 (La. App. 2003)).”  Finally, as to another exclusion, the Court found that the insured could not meaningfully allocate expense “between controlling costs and plugging costs.”

While preparing a CLE for our associates, I drafted and posted my five tips for good legal writing, along with comments and examples.  The tips are:

1. Avoid needless words.
2. Use shorter words.
3. Use shorter sentences.
4. Avoid passive voice.
5. There is no good writing. Only good re-writing.

I hope you have a chance to read the post, along with some of the linked examples, and that they are of use to you in your work.

This summer, the Fifth Circuit declined to apply the Texas “one satisfaction rule” in a fraudulent transfer case, where the plaintiff had also settled a contract dispute with the seller of the business involved in the transfer.  GE Capital Commercial, Inc. v. Worthington National Bank, No. 13-10171 (June 10, 2014).  The court returned to the one-satisfaction rule in Structural Metals, Inc. v. S&C Electric Co., in which the jury awarded roughly $300,000 for a breach of warranty (measured as the difference in value between the goods as received, and the goods as warranted).  The plaintiff also received an insurance payment for fire damage involving the goods.  Again, the Court declined to apply the rule, finding that the plaintiff had suffered two distinct injuries.  No. 13-50332 (Oct. 6, 2014, unpublished).  Interestingly, in both cases, the Court focused on the one-satisfaction rule rather than the closely-related doctrine of the collateral source rule.

The Fifth Circuit returned to the tension between excess and primary carriers in RSUI Indemnity Co. v. American States Ins. Co., a bad faith case under Louisiana law.  After a review of the cases on the issue, the Court held “that under the circumstances of this case, where an excess carrier alleges that a primary insurer in bad faith breached its duty to defend a common insured properly and caused exposure of the insured to an increase in the settlement value of the case above the primary policy limit, which the excess insurer must then satisfy on the insured’s behalf, the excess insurer has a subrogated cause of action against the primary insurer for any payment above what it otherwise would have been required to pay.”  No. 14-30033 (Sept. 25, 2014).

Plaintiffs alleged that Amedisys, a provider of home health services, concealed billing improprieties, causing a drop in its stock value when they were revealed.  Public Employees’ Retirement System of Mississippi v. Amedisys, Inc., No. 13-30580 (Oct. 2, 2014).  The Fifth Circuit reversed the district court’s dismissal on the pleadings, finding adequate allegations of loss causation.  It based its holding on the alleged cumulative effect of the five pleaded disclosures of the allegedly concealed information: “This holding can best be understood by simply observing that the whole is greater than the sum of its parts.”  In its discussion of the Supreme Court’s treatment of this pleading issue in Dura Phamaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005), the Court pointed out that Dura relied on Conley v. Gibson for its summary of pleading requirements — perhaps inviting a reassessment of that holding in light of later developments under Twombly and Iqbal.

On October 2, the Supreme Court granted certiorari in ASARCO v. Baker Botts, L.L.P., a Fifth Circuit case about enhancement of professional fees for a “rare and extraordinary” result in bankruptcy fraudulent transfer litigation.

Fed. R. Civ. P. 62(f) says: “If a judgment is a lien on the judgment debtor’s property under the law of the state where the court is located, the judgment debtor is entitled to the same stay of execution the state court would give.”  In MM Steel, L.P. v. JSW Steel (USA), Inc., Appellant faced an adverse judgment for over $150 million, and sought a stay of execution based on this rule.  No. 14-20267 (Nov. 14, 2014 [revised]).

Reviewing the somewhat scattered authority about Rule 62(f) and its application in Texas, the per curiam majority concluded that the creation of a Texas judgment lien with an abstract of judgment “requires more than mere ministerial acts.”  Accordingly, a Texas judgment is not a lien within the scope of Rule 62(f), and Appellant’s motion to stay was denied (applying Rodriguez-Vazquez v. Lopez-Martinez, 345 F.3d 13 (1st Cir. 2003)).

In dissent, Judge Jones (a) saw the case as controlled by a different line of authority (citing Castillo v. Montelepre, Inc., 999 F.2d 931 (5th Cir. 1993)), under which “Rule 62(f) is applicable where a judgment creditor is otherwise afforded sufficient security under state law” such as Texas’s $25 million bond cap, and (b) observed: “The majority overstates the difficult of filing an abstract of judgment. . . . It is a single page with a few simple fields, like names and addresses of the parties.”

1. General jurisdiction is not general.  “It is . . . incredibly difficult to establish general jurisdiction in a forum other than the place of incorporation or principal place of business.”  Monkton Ins. Servs. v. Ritter, __ F.3d ___ (5th Cir. Sept. 26, 2014) (applying Daimler AG v. Bauman, 134 S. Ct. 746 (2014)).
2.  “Gateway” arbitration has a gate.   A party must only “arbitrate gateway questions of arbitrability if the argument that the dispute falls within the scope of the agreement is not wholly groundless.”  In Douglas v. Regions Bank, an agreement about a bank account did not control a later, unrelated embezzlement case.  757 F.3d 460 (5th Cir. 2014).
3. “Based on” = Arbitration.  The contract said: “Terms and conditions are based on the general conditions stated in the [attached].”  While “based on” may have “multiple interpretations . . . in the abstract,” no such reading worked here, given the length and scope of the attachment compared to the contract.   Rushaid v. National Oilwell Varco, Inc., 757 F.3d 416 (5th Cir. 2014).
4. No actual damages = No civil penalties.  Forte v. Wal-Mart Stores, ___ F.3d ___ (5th Cir. Aug. 25, 2014) (rehearing pending).
5. Analytical GAAP.   An expert reviewed financial documents from A and tax returns from B.  His opinions about the finances of C and D were stricken: “It is by no means clear how a [CPA] can obtain personal knowledge of the effects of the actions of one entity on other parties without reviewing the latter’s financial documents . . . .”  Meadaa v. K.A.P. Enterprises LLC, 756 F.3d 875 (5th Cir. 2014).

BONUS: Lipan Apaches may use eagle feathers in religious rituals — for now at least.  McAllen Grace Brethren Church v. Salazar, ___ F.3d ___ (5th Cir. Aug. 20, 2014).

Plaintiff bought a Nissan Murano, paying $39,289 in total.  She sued for breach of warranty and related state law claims, and the defendants removed.  The issue addressed on appeal was whether the claim fell within the $50,000 amount-in-controversy requirement of the Magnuson-Moss Warranty Act.    Scarlott v. Nissan North America, Inc., No. 13-20528 (Sept. 30, 2014).  The Fifth Circuit found it did not — the plaintiff’s invocation of a “Level One” Discovery Control Plan under the Texas Rules of Civil Procedure did not specify a claim amount, and the defendants did not offer sufficient evidence of dimunution of value, repair costs, or lost profits to bring the claim about the threshold.  Notably, under the Magnuson-Moss statute, in calculating the amount in controversy a court may not consider attorneys fees, personal injury damages, or damages associated solely with pendent state-law claims.

Ritter, a resident of Texas, owned an insurance company in the Cayman Islands. Litigation broke out, in Texas, between Ritter and the Cayman-based entity that managed the insurance company.  Ritter sought to join a Cayman-based bank to the Texas case, arguing that it failed to detect the manager’s wrongdoing.  The district court dismissed for lack of personal jurisdiction and the Fifth Circuit affirmed.  Monkton Ins. Servs. v. Ritter, No. 13-50941 (Sept. 26, 2014).  The case is notable as one of the first applications by the Circuit of two 2014 Supreme Court cases about personal jurisdiction.

First, as to general jurisdiction, applying Daimler AG v. Bauman, 134 S. Ct. 746 (2014), the Court observed: “It is . . . incredibly difficult to establish general jurisdiction in a forum other than the place of incorporation or principal place of business.”  The Court also reminded that a “sliding scale” analysis about the jurisdictional effect of a defendant’s website “is not well adapted to the general jurisdiction inquiry, because even repeated contacts with forum residents by a foreign defendant may not constitute the requisite substantial, continuous and systematic contacts required for a finding of general jurisdiction—in other words, while it may be doing business with Texas, it is not doing business in Texas.” (quoting Revell v. Lidov, 317 F.3d 467, 471 (5th Cir. 2002) (citing Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997)).

Second, as to specific jurisdiction, the Court noted that Walden v. Fiore, 134 S. Ct. 1115 (2014), emphasized that a plaintiff’s unilateral actions with respect to the forum cannot create personal jurisdiction.  Here, the bank transactions at issue were initiated by Ritter, running afoul of this principle.  The Court also found no abuse of discretion in denying jurisdictional discovery.

Plaintiff brought a class action in Louisiana state court on behalf of apartment owners and managers.  Defendant removed under CAFA.  Plaintiff then sought to add a local defendant and invoke the “local controversy” exception to CAFA jurisdiction. Cedar Lodge Plantation, LLC v. CSHV Fairway View I, LLC, No. 14-30735 (Sept. 29, 2014). Citing State of Louisiana v. American National Property & Casualty Co., 746 F.3d 633 (5th Cir. 2014), the Fifth Circuit rejected this argument, noting that CAFA defines a class action as the “civil action filed”   28 U.S.C. § 1332(d)(1)(B) (emphasis added).

Boxcars Properties, the operator of an apartment complex, sued its neighboring landowners West Hills Park and Home Depot in Texas state court, complaining about development activity that led to a “lack of lateral support” and made the complex uninhabitable. Williams v. Home Depot, Inc. (Sept. 22, 2014, unpublished).  Boxcars settled with Home Depot and obtained a $2.4 million verdict against West Hills, which then filed for bankruptcy.

West Hills sought indemnity from Home Depot, and the district court and Fifth Circuit rejected its request.  The indemnity provision contained an exclusion for “the tortious acts of . . . other parties” — such as West Hills.  Noting that “[t]he express negligence doctrine alone may be sufficient to deny [debtor’s] claim,” the Court decided on the basis of issue preclusion, agreeing with the district court that “the negligence finding was essential to the judgment because only that finding allowed for the damages for improvements to land included in the state court verdict.”

ExxonMobil sued US Metals, alleging over $6 million in damages from defects in a set of 350 “weld neck flanges.”  US Metals sought CGL coverage from Liberty.  U.S. Metals, Inc. v. Liberty Mutual Group, Inc., No. 1320433 (Sept. 19, 2014, unpublished). Liberty denied US Metals’s request, based on the “your product” and “impaired” property exclusions in the policy, which turned on the terms “physical injury” and “replacement” in those exclusions.   The Fifth Circuit noted a lack of Texas authority as to whether those terms are ambiguous in this context, and no clear answer in other opinions that have addressed them. Accordingly, the Court certified two questions to the Texas Supreme Court: (1) whether those terms, as used in these exclusions, are ambiguous; and (2) if so, whether the insured’s interpretation is reasonable.  The Court observed that the interpretation of these terms “will have far-reaching implications” and “affect a large number of litigants.”  That Court accepted the certification request today.

In somewhat quirky language, the Texas Rules of Civil Procedure set this deadline to answer a lawsuit: “[O]n or before 10:00 a.m. on the Monday next after the expiration of twenty days after the date of service.”  Despite the specific time stated, attorneys often calendar only the answer day, reasoning that a default judgment is unlikely in the space of a few hours.  That practice failed in G&C Land v. Farmland Management Services, in which the plaintiff obtained a default judgment for over $3,000,000 at 10:15 on the critical Monday.  No. 14-10046 (5th Cir. Sept. 23, 2014).

Plaintiff alleged fraud claims about the costs of an agricultural lease on a West Texas farm; the judgment granted recovery on those claims and trebled the damages under the DTPA.  Two hours later, the defendant removed and then sought to set aside the default judgment.  The district court ultimately granted that motion, along with a summary judgment for the defendant on the merits, and the Fifth Circuit affirmed.

Whilte the Fifth Circuit’s opinion is short and unpublished, the district court opinion (page 31 of the attached) goes into substantial detail about the default judgment.  It found a lack of willfulness by the defendant, a lack of prejudice to the plaintiff, and meritorious defenses.  As to willfulness, the district court noted that “fault is attributed only to Farmland’s counsel,” and held: “There is no dispute that Farmland failed to file an answer or remove before the deadline to answer in state court, which failure is attributed to the negligence of Farmland’s counsel.  Yet, such negligence does not amount to willfulness . . . “   It also noted that while Farmland had timely answered after removal in accordance with the Federal rules, “this alone does not excuse Farmland’s failure to timely answer in state court.”

The federal courts’ decisions to set aside the default judgment are clearly correct – the (affirmed) summary judgment shows that the claim lacked merit, and plaintiff was not prejudiced by having to address the merits instead of resting on a 15-minute “gotcha.”  And as to the deadline, the opinions do not address Rule 5 of the Texas Rule of Civil Procedure, which provides:  “If any document is sent to the proper clerk by first-class United States mail in an envelope or wrapper properly addressed and stamped and is deposited in the mail on or before the last day for filing same, the same, if received by the clerk not more than ten days tardily, shall be filed by the clerk and be deemed filed in time (emphasis added).”  A serious argument says that the state court’s speedy grant of a default judgment did not allow Rule 5 a chance to function as intended.

Nevertheless, the district court faulted defense counsel for not answering before 10:00, and used the word “negligence” to describe what happened.  Had the facts been different – a stronger claim, a change of position in reliance on the judgment – the decision could have been closer and counsel’s situation would have become more awkward.  In light of the facts of this case, defense counsel should be mindful of the 10:00 AM deadline in the rules, and factor it into their calendaring system.

A similar article about this case appeared in a recent Texas LawBook.

The district court ordered Glay Collier, a bankruptcy attorney, to stop advertising for “no money down” Chapter 7 services.  Despite efforts by Collier, some online ads remained. The district court found him in contempt and ordered him confined for 48 hours “[a]s a result of the violation of this Court’s order, without any reasonable excuse other than ‘I forgot[.]'”  In re Glay Collier, No. 14-30887 (Sept. 19, 2014, unpublished).  The Fifth Circuit granted mandamus, finding that this order involved criminal rather than civil contempt, and thus triggered procedural safeguards that had not been invoked.  Among other considerations, the Court noted that “the sanction was for an unconditional term of imprisonment,” that Collier “could have taken additional steps to comply with the court’s order by the time he was remanded into custody,” and that the district court cited “‘the violation’ of [its] order (not the continued non-compliance) as the basis for its finding of civil contempt.”  A similar order was treated in the same fashion in the later case of Wheeler v. Collier, No. 14-30961 (March 5, 2015, unpublished).

Estate of Elkins v. Commissioner of Internal Revenue presented a dispute about the taxable value of a decedent’s fractional ownership in an extremely valuable art portfolio, including works by Picasso, Jackson Pollock, and Cezanne. No. 13-60742 (Sept. 15, 2014).  Before the U.S. Tax Court, the IRS “steadfastly maintained that absolutely no fractional-ownership discount was allowable.” The estate offered expert testimony that “any hypothetical willing buyer would demand significant fractional-ownership discounts in the face of becoming a co-owner with the Elkins descendants, given their financial strength and sophistication, their legal restraints on alienation and partition, and their determination never to sell their interests in the art.”

The Tax Court applied a “‘nominal’ discount of 10 percent only.”  The Fifth Circuit reversed: “[T]he Estate’s uncontradicted, unimpeached, and eminently credible evidence in support of its proferred fractional-ownership discounts is not just a ‘preponderance’ of such evidence; it is the only such evidence.  Nowhere is there any evidentiary support for the Tax Court’s unsubstantiated declaration” about the 10% discount (emphasis in original).  In reviewing the IRS’s “no discount” position at trial, the Court noted in footnote 7: “The Commissioner appears to have ignored, or been unaware of, the venerable lesson of Judge Learned Hand’s opinion in Cohan: In essence, make as close an approximation as you can, but never use a zero.”  Cohan v. Commissioner, 39 F.2d 540, 543-44 (2d Cir. 1930).

Plaintiffs, citizens of Texas, sued two citizens of Massachusetts and their companies, alleging violations of the Texas Fraudulent Transfer Act.  Dontos v. Vendomation NZ Ltd., No. 12-10986 (Sept. 16, 2014, unpublished).  The district court dismissed for lack of personal jurisdiction and the Fifth Circuit reversed.

Noting that it was “hesitant to make per se rules regarding fact-specific minimum contacts analysis,” the Court observed generally that “a debtor who is liable under TUFTA to a Texas resident is likely subject to suit in the creditor’s forum state because the debtor acted with actual or constructive fraudulent intent to expressly aim their conduct at a creditor in the forum, where the tort’s harm was felt.”  Similarly, while “a mere ‘passive transferee[]” is unlikely to be subject to jurisdiction in the creditor’s resident state,” if ” the transferee ‘precipitate[s] and direct[s] an alleged fraudulent transfer at the expense of a known . . . creditor in Texas,” jurisdiction is likely.  (reviewing and applying Mullins v. TestAmerica, Inc., 564 F.3d 386, 400 (5th Cir. 2009) (citing Calder v. Jones, 465 U.S. 783, 789-90 (1984)).

Applying those principles, and accepting the plaintiffs’ allegations as true, the Court found sufficiently detailed allegations to state a prima facie case for personal jurisdiction as to both the debtor and the initial transferees.

600Camp celebrates its birthday today, and as is its custom, proposes a New Orleans cocktail for the occasion.  Please consider the “Touchdown Jesus Bloody Mary” as made by the Bourbon O bar in the French Quarter, one of the leading craft cocktail establishments in NOLA these days.

Drillers asserted a subcontractors’ lien on Debtors’ oil well.  Endeavor Energy Resources, L.P. v. Heritage Consolidated, L.L.C., No. 13-10969 (reviised Sept. 16, 2014). Debtors argued that when the general contractor acquired a 1% ownership interest in the lease, that interest related back to the time before Drillers began work, and voided any lien because a party cannot be both a contractor and an owner.

The Fifth Circuit rejected that argument and reversed the lower courts, finding that the Texas Supreme Court intended the relation-back doctrine in this context to expand the interest to which a valid lien can attach (applying Diversified Mortgage Investors v. Lloyd D. Blaylock General Contractor, Inc., 578 S.W.2d 794 (Tex. 1978)).  Noting that this interest was not acquired until after the Drillers had done their work, the Court observed that even an earlier acquisition would reach the same result: “If [GC] gained a 1% ownership interest in the lease at the time that Drillers performed their work, then Drillers may have gained an additional claim for contractors’ liens against [GC].  It would not, however, prevent Drillers from asserting separate subcontractors’ liens against [Debtors].”

A borrower lost a summary judgment in a mortgage dispute in Langlois v. Wells Fargo Bank, N.A., No. 13-10914 (Sept. 8, 2014, unpublished).  In addition to a basic summary of problems that such cases can have, the opinion illustrates one in particular.  The stronger an alleged oral modification becomes, the weaker a corresponding fraud claim becomes, because “When oral promises are directly contradicted by express, unambiguous terms of a written agreement, the law says that reliance on those oral promises is not justified.”  (quoting Taft v. Sherman, 301 S.W.3d 452, 458 (Tex. App.–Amarillo 2009, no pet.)  The same phenomenon strengthens a Statute of Frauds defense as well.

The Public Utilities Regulatory Policies Act (“PURPA”) directs the FERC to encourage alternative energy providers, called “Qualifying Facilities” under that statute.  In a novel arrangement that encourages flexibility but also can raise “troublesome” Tenth Amendment concerns, PURPA directs state agencies — such as the Texas PUC — to adopt rules that comply with FERC’s regulations and help implement PURPA.  Exelon Wind 1, LLC v. Nelson, No. 12-51228 (Sept. 8, 2014) (quoting Power Resource Group v. Public Utility Comm’n of Texas, 422 F.3d 231 (5th Cir. 2005), and FERC v. Mississippi, 456 U.S. 742 (1982)).

The Texas PUC, acknowledging this mandate as well as the vagaries of wind power generation in the Texas Panhandle, enacted a rule limiting the pricing benefits of PURPA to “Qualifying Facilities able to forecast when they will deliver energy to the utility.”  Exelon, a wind power producer, challenged the validity of this rule under PURPA.

The Fifth Circuit first rejected a jurisdictional challenge, finding that Exelon’s attack on the rule was an “as-applied” challenge — over which federal courts have jurisdiction – as opposed to a “facial” challenge reserved to state courts.  In so reasoning, the Court declined to give Chevron deference to a “Declaratory Order” by FERC.  On the merits, — again declining to give the FERC letter deference — the Court upheld the PUC regulation: “The PUC had the discretion to determine the specific parameters for ehwn a wind farm can form a Legally Enforceable Obligation, and . . . left open the possibility that other wind farms might be able to provide firm power . . . .”

A dissent, agreeing with the jurisdictional analysis, differed on the merits, finding that the PUC rule conflicts on its face with the applicable FERC regulation, and that deference was due to the “FERC’s reasonable interpretation of that regulation according to well-established principles of adminstrative deference.”

Earlier this year, the Fifth Circuit ordered the remand to state court of litigation between Vantage Drilling and Hsin-Chi Su.  Vantage Drilling Co. v. Su, 741 F.3d 535 (5th Cir. 2014).  Meanwhile, several marine shipping companies, owned in whole or in part by Su, filed for Chapter 11 protection in the Southern District of Texas, and Vantage intervened in those proceedings.  TMT Procurement Corp. v. Vantage Drilling Co., No. 13-20622 (Sept. 3, 2014).  The district court entered several orders related to DIP financing and shares of Vantage stock, which Vantage appealed.

The Fifth Circuit rejected a mootness challenge, concluding that the DIP lender’s awareness of Vantage’s claim removed the appeal from certain Code provisions that limit appellate rights.  The Court then held that (1) the shares at issue were not estate property — even though the district court’s orders had tied them to the business affairs of the debtor, and (2) the ongoing state court litigation was not “related to” the estate because it was an action “between non-debtors over non-estate property.”  Accordingly, the lower courts lacked jurisdiction to enter the orders challenged by Vantage, and the Fifth Circuit vacated them.

Trying to set up a “Special Limited Investment Partnership” to reduce taxes, Dow Chemical contributed 73 patents to a partnership with several foreign banks, which licensed the patents back to Dow.  Chemtech Royalty Assocs. v. United States, No. 13-30887 (Sept. 10, 2014).  The Fifth Circuit affirmed the finding of a “sham partnership,” noting three points: (1) the transaction was structured to ensure the banks a fixed annual return on investment; (2) Dow agreed to bear all material risks arising from the transactions; and (3) the banks did not meaningfully share in any potential upside.  The Court dismissed several case citations by Dow as elevating form over substance.  The Court concluded by vacating and remanding as to penalty — the district court concluded that that “it could not impose a valuation-misstatement penalty when an entire transaction has been disregarded,” but since that ruling, the Supreme Court suggested that it was as least possible to do so in United States v. Woods, 134 S. Ct. 557 (2013).

The Fifth Circuit affirmed liability under the Texas fraudulent transfer statute as to several investors who actually earned returns from the Ponzi scheme run by Allen Stanford.  Janvey v. Brown, No. 13-10266 et al. (Sept. 11, 2014).  First, the Court dismissed a choice-of-law issue as presenting a “false conflict,” since Antigua had no real interest in the application of its laws to the Stanford scheme when compared to Texas.  The Court then endorsed the district court’s approach to the situation, which found that the investors gave reasonably equivalent value to the extent they received back their principal, while requiring the return of interest: “allowing [them] to keep their fraudulent above-market returns in addition to their principal would simply further victimize the true Stanford victims, whose money paid the fraudulent interest.”

The Swareks and the Derrs disputed the ownership of a large farm in Issaquena County, Mississippi (at 1400 residents, the least populous county in that state, but also the home of its largest captured alligator).  Their litigation unfolded as follows:

1. In 2005, Swareks sued Derrs in Issaquena County;
2. In March 2009, the Derrs sued Swareks in the — somewhat unlikely — venue of the German Regional Court in Düsseldorf, Germany (population 600,000, and capital of the state of North Rhine-Westphalia);
3. In November 2009, the Swareks voluntarily dismissed their claims in Mississippi;
4. In 2010, the Derrs lost in Germany when that court recognized the dismissal of the Mississippi claims; but then,
5. The Derrs ultimately won on appeal in Germany before the Higher Regional Court of Düsseldorf, obtaining judgment for $300,000 in costs.

The Derrs sought to domesticate the judgment in Mississippi, and the district court rejected their request, citing res judicata and characterizing the German action as an end run around the Mississippi state court.  On appeal, the Fifth Circuit affirmed with these three observations:

1. “Filing a mirror-image lawsuit in a foreign court while domestic litigation is pending is not sufficient, on its own, to preclude recognition of a foreign judgment, and the district court erred in denying comity on this ground.”
2. While dismissal for want of jurisdiction may not have preclusive effect, a voluntary dismissal does: “If the plaintiff chooses to extinguish his rights forever he is entitled to do so, and the defendant will reap the benefit of a res judicata bar to any attempt by the plaintiff
3. As to the German appellate holding: “The German Higher Regional Court’s decision to sidestep the comity determination and re-adjudicate claims that had already been settled in the Chancery Court violated the Mississippi public policy of res judicata and the Swareks’ right to permanently terminate their claims.  Comity must be a two-way street.”

A dissent characterized the interplay between the Mississippi and German holdings differently, and thus would affirm.

In Ferrara Fire Apparatus, Inc. v. JLG Industries, Inc., the Fifth Circuit returned to ground surveyed by the American Law Institute’s Restatement (Third) of Restitution, which the Court recently visited in cases about a faithless employee and the payment of benefits to a seaman.  Here, Gradall Industries manufactured a specialized boom called the “Strong Arm,” designed for firefighting, and Ferrara Fire Apparatus contracted to serve as its exclusive sales representative.  The relationship soured, Gradall terminated the contract, and Ferrara sued.  Ferrara obtained judgment for unjust enrichment for $1 million.  The Fifth Circuit reversed, finding no evidence of “an absence of justification or legal cause for the enrichment” as required by Louisiana law: “Gradall was simply competing in the market, which it was entitled to do after ending its exclusive contract with Ferrara.”  No. 13-30600 (Sept. 9, 2014, unpublished).

In loan-level litigation between borrowers and mortgage servicers, the servicer usually has the significant advantage of better record-keeping.  In Tielke v. Bank of America, however, the Fifth Circuit reversed a summary judgment for a servicer.  No. 13-20425 (Sept. 4, 2014, unpublished).  The Court observed, as to the servicer’s loan history statement, that “we are unable to decipher this document with any certainty.”  The main problem was whether the borrowers had truly fallen into default or the servicer was inaccurately carrying forward matters that should have been erased by their bankruptcy; compounded by confusion over the servicer’s handling of an escrow account for insurance.  In a conclusion that should encourage careful record-keeping by all parties, the Court found: “There are simply too many unanswered questions”

On September 9 at noon at the Belo Mansion in downtown Dallas, a panel consisting of Judges Gregg Costa, Jennifer Elrod, James Graves, and Stephen Higginson — and moderated by Judge Catharina Haynes — will offer tips about effective advocacy before the Fifth Circuit.  It is sponsored by the DBA’s Business Litigation Section; co-sponsored by the Appellate Law & Trial Skills Sections.  Terrific opportunity for advice that comes straight from the source.

The plaintiffs’ employment lawsuit in Arce v. Austin Industries was stayed in favor of arbitration.  No. 14-20098 (Aug. 28, 2014, unpublished).  While the parties then reached a settlement agreement, the district court would not dismiss the lawsuit without review and approval of the settlement.  The district court found the attorneys fees excessive and only dismissed the case after modifying that aspect of the settlement.  The plaintiffs appealed, noting the deference given to arbitration awards, and the Fifth Circuit rejected that argument: “The plaintiffs have not shown that the arbitrator imposed the terms of the settlement on the parties through any order or award.  Furthermore, the plaintiffs have cited no authority holding that a private settlement that happens to take place while the parties are in arbitration is tantamount to an arbitration award.”

Claimants in the compensation system created by BP after the Deepwater Horizon accident received an award in October 2013.  Lake Eugenie Land & Development v. BP Exploration & Production,  No. 14-30398 (Aug. 25, 2014, unpublished).  Unpaid by March 2014, they filed a “Motion to Confirm Award and Order Payment,” which the district court denied because an interim injunction had stayed the entire program while aspects of it were under legal challenge.  After appealing, the injunction lifted.  The Fifth Circuit dismissed for lack of jurisdiction, finding that the trial court’s ruling was neither an order that “vacates, modifies, or corrects” an arbitration award, nor an “interlocutory order . . . continuing . . . an injunction against an arbitration.”

In Houston Refining, LP v. United Steel Workers, an arbitrator found that the suspension of a company’s 401(k) plan, after its bankruptcy filing, violated the company’s CBA with a union.  No. 13-20384 (Aug. 25, 2014).  Two judges agreed that the parties had not “clearly and unmistakably” allowed the arbitrator to decide arbitrability, noting this provision of the parties agreement: “At arbitration, the parties shall reserve all rights to present any and all arguments and advance any and all defenses to them including, without limitation, arguments concerning whether or not an applicable collective bargaining agreement was in effect at the time that a particular grievance arose.”  A dissent stressed other provisions of the agreement and the limited scope of review in the CBA context.  All three judges agreed that the court had subject matter jurisdiction, but differed on the rationales, in the specific context of an alleged breach of a contract controlled by federal labor law.

In Flooring Systems, Inc. v. Chow, these events led to a dispute about whether a preferential transfer occurred:

• June 2007: Flooring Systems, Inc. obtains a Texas state court judgment against Eric Poston.
• October 26, 2007: State court appoints a receiver to collect assets to satisfy the judgment.
• November 20, 2007: Flooring Systems serves Plain Capital Bank with a certified copy of the receivership order.
• December 18, 2007: Bank turns over $22,923.05 check.
• January 15, 2008: Receiver pays Flooring Systems $18,529.64
• January 31, 2008.  Poston files for bankruptcy, Chow appointed as trustee.

If the transfer was made on October 26, it did not implicate the 90-day preferential transfer period in the Bankruptcy Code; if made on the 20th, it did.  Citing a Texas statute that provides: “[T]he rights of a receiver . . . do not attach until the financial institution receives service of a certified copy of the order of receivership . . . ,” the Fifth Circuit held that the transfer did not occur until the date of service on the bank, and affirmed.  No. 13-41050 (Aug. 28, 2014).

In Galaz v. Galaz, a bankruptcy debtor sued her ex-husband for the fraudulent transfer of a royalty interest in the works of the Ohio Players, a popular funk band in the 1970s. Nos. 13-50781, 50783 (Aug. 25, 2014).  Her ex-husband brought third-party claims against a music producer, who in turn brought counterclaims.  The resulting litigation produced judgments in favor of both the debtor and the producer against the ex-husband.  On appeal, in a landscape formed by the legacy of Stern v. Marshall, 131 S. Ct. 2594 (2011), the Fifth Circuit held:

1.  While the debtor’s fraudulent transfer claim was not the “paradigmatic” case where assets are transferred out of the estate, it could still “conceivably” affect the estate, and the bankruptcy court thus had statutory jurisdiction because these non-core claims related to her bankruptcy;

2.  The producer’s counterclaims, however, had no connection to the estate and the bankruptcy court had no statutory jurisdiction over them;

3.  Under Stern, in light of the present posture of cases from this Circuit and one awaiting Supreme Court review, the implied consent of the parties cannot confer constitutional jurisdiction on the bankruptcy court to enter final judgment such as the debtor’s claim here.

Accordingly, the Court reversed and remanded, hinting that the bankruptcy court could prepare proposed findings of fact and conclusions of law for the district court as to the debtor’s claims.  The Court also noted that the debtor had standing as a creditor under the Texas Uniform Fraudulent Transfer Act even though her personal interest in the royalties flowed through a business she partly owned.

The bankruptcy debtor in McClendon v. Springfield had lost a defamation judgment for $341,000.  No. 13-41030 (Aug. 26, 2014, unpublished).  Because “the jury’s verdict could be sustained either on intentionality or recklessness,” the bankruptcy court held an evidentiary hearing to determine whether the claim resulted from a “wilful and malicious” injury.  Concluding that it did, the court denied discharge of that claim.  On appeal, the debtor argued that “a trial judge may not use his disbelief of a witness as affirmative support for the proposition that the opposite of the witness’s testimony is the truth.”  (citing Seymour v. Oceanic Navigating Co., 453 F.2d 1185, 1190-91 (5th Cir. 1972)) (Texas state practitioners are familiar with similar sufficiency principles from City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005)).  The Fifth Circuit rejected this argument, both in light of the entire record received by the bankruptcy court, and because:  “[H]here, the factual inquiry was binary, a question whether [the debtor] acted willfully and maliciously or not.  . . . [T]he bankruptcy court’s disbelief of [the debtor’s] statements that he did not know the statements were false leaves only the alternative that he did know . . . .”

CAP agreed to sell a security to VPRO.  Their contract said: “The purchase price is $400,000 and this amount is to be paid to you within 10 business days from the date of transfer of the [security t]o: CITIBANK NY DTC 908 Account 089154 CSC73464, Further Credit to: [CAP], Beneficiary Deposit Account NR. 840 BSI SPA San Marino.” Collective Asset Partners, LLC v. Vtrader Pro, LLC, No. 13-20619 (Aug. 15, 2014, unpublished).

CAP hired a broker, who successfully transferred the security to the DTC account but, because the broker provided inaccurate information, failed to transfer it on to the San Marino account.  VPRO refused to pay.  CAP sold the security to another buyer for $175,069.41 and sued VPRO for the difference.

Applying Texas law, the Fifth Circuit agreed with the district court that VPRO unambiguously had no payment obligation until both transfers occurred, noting both the “Further Credit to” language in the contract, and the fact that the broker in fact tried to make both transfers.

Plaintiffs own and operate a mineral lease in the Gulf of Mexico; they allege that their neighbors drilled so as to deplete the value of their lease.  Specifically, they pleaded claims for “waste” and “unlawful drainage and trespass” under Louisiana law, as adopted by the Outer Continental Shelf Lands Act.  Breton Energy LLC v. Mariner Energy Resources Inc., No. 13-20307 (Aug. 12, 2014).   As to the waste claims, after a detailed review of the specific allegations and precedent, the Fifth Circuit found a cognizable waste claim pleaded against the defendant alleged to have perforated the relevant oil sands.  The Court affirmed, however, the dismissal of claims against the non-perforating defendants, finding “equivocat[ion]” in a key allegation that those defendants could have caused the Minerals Management Service to “take[] other steps to protect the correlative rights of adjacent lessees.”  The Court also rejected claims for drainage losses and trespass, describing the interplay of those claims with a waste claim under Louisiana law.

McAllen Grace Brethren Church v. Salazar presents a fascinating conflict between Native American religious practice and the preservation of endangered eagle species.  No. 13-40326 (Aug. 20, 2014)  Robert Soto, a member of the Lipan Apache Tribe, sought to use eagle feathers in a tribal religious ritual.  All parties agreed that his beliefs were sincere and that the lack of the feathers would substantially burden his ministry.  The Lipan Apaches, while recognized by Texas authorities since the 1838 Live Oak Treaty between the Tribe and the Republic of Texas, are not a “federally recognized tribe” as understood by the Interior Department.  Accordingly, under the Department’s regulations that implement various statutes about the protection of eagles, he was not entitled to the feathers.

Assuming that the Department’s stated goals — eagle protection and protection of federally-recognized tribes — served compelling interests, the Fifth Circuit held that the record did not show that the regulations used the least-restrictive means to advance those interests.  The Court found the Department’s evidence of harm to be inconclusive and subject to more than one interpretation, and also found inadequate consideration of potential alternative approaches.  Acknowledging that other courts have accepted similar arguments by the Department, the Court observed: “Soto does not seek to make the practice of his religion ‘easier,’ he seeks to avoid roadblocks of the government’s own making which have made the practice of his religion not just ‘not easier’” but impossible.”  Accordingly, it reversed a summary judgment for the Department and remanded.

The Fifth Circuit, which in recent years has shown a healthy skepticism about suits to enforce guaranty obligations, again reversed a judgment against a guarantor in JRG Capital Investors I, LLC v. Doppelt, No. 13-20418 (Aug. 5, 2014, unpublished).  The underlying note was “generally a nonrecourse debt, meaning that the borrower could not be held personally liable for any deficiency.”  While the note had several exceptions that triggered personal liability, the parties agreed that none had occurred.  The Court found that the guaranty was only for “the prompt, complete and full payment and performance when due . . . of Borrower’s Recourse Obligations,” and contrasted language involving similar guaranty documents in other cases that was not so limited.

Keep an eye on the proposed amendments to the FRCP, which will be considered by the Judicial Conference in September and then forwarded on to the Supreme Court and Congress if approved.  Two major features are:

• –A redefined scope for permissible discovery in Fed. R. Civ. P. 26(b)(1) [page 10 of the linked document above]
• –Revised sanctions rules about the spoliation of electronic evidence in Fed. R. Civ. P. 37(e)(1) and (2) [page 37 of the above]

The Advisory Committee notes, while lengthy, are particularly informative about the reasons for these revisions and how they are intended to work in practice.

Two classic jurisdictional issues were presented in Special Industries, Inc. v. Zamil Group Holding Co., No. 13-20231 (Aug. 5, 2014, unpublished), which affirmed a dismissal on personal jurisdiction grounds in a forum dispute between Texas and Saudi Arabia.

First, citing Moncrief Oil Int’l, Inc. v. OAO Gazprom, 481 F.3d 309 (5th Cir. 2007), the Fifth Circuit emphasized the importance of the “hub” of contract performance, finding: “The foreseeability that [plaintiff] would perform part of its obligations under the contract in Texas, and that the parties did in fact engage other Texas companies for work on the project, is not enough for a finding of specific jurisdiction over the . . . defendants.  The contracts were formed outside of Texas, did not expressly provide for work to be done in Texas, the [plaintiff] individuals performing work under the contract did not do so solely from Texas, Texas was not the hub of the parties’ activities, the contracts’ choice of law provisions did not provide for Texas law, and payments under the contract were not made to Texas.”

Second, as to an “alter ego” theory of jurisdiction over another defendant, the Court held: “We find no authority allowing for the assertion of general jurisdiction over a foreign parent corporation premised only on the foreign corporation’s ownership of subsidiaries in the forum and representations by the foreign parent of its ‘unified’ corporate structure. The assertion of jurisdiction must be premised either on sufficient minimum contacts of the foreign parent with the forum or on some evidence demonstrating the parent company’s actual control over the internal business operations and affairs of the subsidiary.” (distinguishing Daimler-Benz AG v. Olson, 21 S.W.3d 707 (Tex. App.–Austin 2000, pet. dism’d w.o.j.)

In Forrte v. Wal-Mart Stores, Inc., the Fifth Circuit affirmed a finding of liability under the Texas Optometry Act, based on dealings between Wal-Mart and optometrists who leased space in its stores.  No. 12-40854 (revised, Aug. 25, 2014).  While the plaintiff optometrists did not claim actual damages, they obtained judgment for over $1,000,000, plus attorneys fees, based on mandatory statutory penalties.  Noting that the Act used the phrase “civil penalty,” the Fifth Circuit found that the damages fell within the cap set by Section 41.008(b) of the Civil Practice & Remedies Code  — “two times the amount of economic damages [plus] economic damages.”  In this case, that was zero, since the plaintiffs sought no other recovery.  The Court distinguished Vanderbilt Mortgage v. Flores, 692 F.3d 358 (5th Cir. 2012), based on the terms of the statutes at issue.  As the Texas Lawbook notes, this opinion has the potential to introduce uncertainty into other “Private Attorney General” statutes in Texas.

Chavez v. Wells Fargo Bank, N.A., No. 13-11325 (Aug. 13, 2014, unpublished) reminds of 2 black-letter principles in mortgage servicing litigation:

1.  A claim under section 392.304(a)(19) of the Texas Finance Code requires proof of a misleading affirmative statement.  “Chavez does not allege that Wells Fargo ever affirmatively represented that he qualified for the modification program.  Here, even assuming that Wells Fargo told Chavez ‘not to worry’ about whether he qualified, this is not an affirmative statement.”

2.  As to negligent misrepresentation, “Chavez argues that Wells Fargo made negligent misrepresentations that it would not foreclose on Chavez during the loan modification process and that it he should not make payments during the process.  However, ‘representations regarding future loan modifications and foreclosure constitute promises of future action rather than representations of existing fact.”  .

The Baptists bought a home insurance policy from Nationwide in 2006.  In 2008, they lost their home to foreclosure.  They remained in the house, however, until December 2011 — before a court-ordered eviction date of January 13, 2012, but after fire did serious damage to the house in December.  They made a claim on the Nationwide policy, which discovered that they no longer owned the house as part of its post-loss investigation. Nationwide Mut. Ins. Co. v. Baptist, No. 13-60726 (Aug. 7, 2014).  While Nationwide won a summary judgment about coverage on the ground that the Baptists no longer had an insurable interest by the time of the fire, the Fifth Circuit affirmed because the Baptists’ “renewals of their policy constituted their affirmations to Nationwide of their initial application for insurance, material portions of which were no longer true.”  Those misstatements allowed Nationwide to rescind the policy under Mississippi law.

The question in Salty Brine I, Ltd. v. United States was whether a complicated transaction involving an oil and gas project was an inappropriate assignment of income to avoid income tax.  No. 13-10799 (July 31, 2014).  Reviewing the basic principles of the “assignment of income” doctrine, the Fifth Circuit found no clear error in the district court’s findings that the taxpayers “were in control of the entire transaction.”  In summarizing the doctrine, the Court quoted a metaphor from a 1930 opinion by Justice Holmes — that income tax may not be avoided through an “arrangement by which the fruits are attributed to a different tree from that on which they grew.”  The court also found that the transaction lacked economic substance, again noting the taxpayer’s control of the entities and money flow.

Relators, displeased with their treatment by the City of Dallas in connection with the redevelopment of a downtown office building, “embarked on a fifteen-month investigation that involved compiling data and performing analyses of DHA properties, Low-Income Housing Tax Credit project locations, and City plans and reports.”  United States ex rel Lockey v. City of Dallas, Nos. 13-10884 & 14-10063 (Aug. After proceedings before HUD, they filed a qui tam lawsuit, alleging that the City and the Dallas Housing Authority submitted false claims that were not in compliance with their obligations under civil rights and fair housing laws.  The Fifth Circuit affirmed dismissal, noting that “[t]he overwhelming majority of the complaint is . . . based, not on the Relators’ personal experiences with the City, but on their research of publicly disclosed information.”  (applying United States ex rel. Reagan v. East Texas Medical Center, 385 F.3d 168, 177-78 (5th Cir. 2004)).

A bankruptcy court entered judgment against Defendants, who the filed a new federal lawsuit for a declaratory judgment that the bankruptcy court lacked jurisdiction.  Jacuzzi v. Pimienta, No. 13-41111 (August 5, 2014).  The district court found that it lacked jurisdiction over that suit, and the Fifth Circuit reversed.  Noting that as a general matter, it is procedurally proper to attack a judgment for lack of jurisdiction in a collateral proceeding, the Court found that the lawsuit raised federal questions about due process rights and compliance with the federal rules for service of process.  Accordingly, there was federal jurisdiction to hear the challenge to the bankruptcy court judgment.

1.  No “split-the-note” claims — we mean it.  Echoing recent opinions about efforts to revisit Priester v. JP Morgan Chase, 708 F.3d 667 (5th Cir. 2013), in Paulette v. Lozoya the Fifth Circuit declined to distinguish, rehear, or certify the holding of Martins v. BAC Home Loans Servicing, LP, 722 F.3d 249 (5th Cir. 2013).  No. 14-50111 (Aug. 6, 2014, unpublished).

.2.  Plead fraudulent lien claims correctly — we mean it.  In Reece v. U.S. Bank, N.A., the Fifth Circuit reiterated, and this time published, a holding from a previous unpublished opinion — that a claim based on the Texas fraudulent lien statute requires “inten[t] to cause the plaintiff physical injury, financial injury, or mental anguish.” No.14-10176 (Aug. 5, 2014).  [Cf. rejection of such a claim for other reasons in Kramer v. JP Morgan Chase Bank, No. 13-50920 (June 25, 2014, unpublished)].

3.  Priester is here to stay.  And, at the district court level, sanctions were recently imposed for failure to acknowledge the Fifth Circuit’s holding in Priester.  Some years ago, this blog’s author co-wrote an article, with Professor Wendy Couture of the University of Idaho Law School, about how courts warning litigants about continuing to press arguments perceived as weak — a topic definitely raised by these recent cases. Loud Rules, 34 Pepperdine L. Rev. 715 (2007).

The issue does not come up every day, but it can be critical when it surfaces.  “A civil action in any State court arising under the workmen’s compensation laws of such State may not be removed to any district court of the United States.”  28 U.S.C. § 1445(c).  The defendant argued for removal based on common-law bad faith claims — an argument that once worked — but amendments to Texas law meant that “claims of bad faith no longer arise outside of the workers’ compensation laws.”  Trahan v. Liberty Mutual Ins. Co., No. 13-20717 (June 10, 2014, unpublished) (citing Tex. Mut. Ins. Co. v. Ruttiger, 381 S.W.3d 430 (Tex. 2012)).  Accordingly, the case returned to state court.

The trustee of a litigation trust formed from the bankruptcy of Idearc, Inc. sued its former parent, Verizon, alleging billions of dollars in damages in connection with its spinoff.  After a bench trial and several other orders, the district court ruled in favor of defendants, and the Fifth Circuit affirmed in U.S. Bank, N.A. v. Verizon Communications, No. 13-10752 (revised Sept. 2, 2014).

The opinion, while lengthy, still only hints at the complexity of the case, and much of its analysis is fact-specific.  Some of the issues addressed include:

1.  A bankruptcy litigation trust does not have a right to jury trial on a fraudulent transfer claim, when the defendant creditor has filed a proof of claim in the bankruptcy, and the bankruptcy court must resolve whether a fraudulent transfer occurred to rule on that claim (analyzing and applying Langemkamp v. Culp, 498 U.S. 42 (1990), in light of Stern v. Marshall, 131 S. Ct. 2594 (2011)).

2.  In the context of determining whether the district court reviewed an earlier ruling correctly, on pages 26-27, the Court provided crisp definitions of the basic concepts of dictum and holding.

3.  In the course of rejecting an argument about the refusal to admit several pieces of evidence, the Court noted that the trustee “does not discuss how each specific piece of evidence was likely to affect the outcome of the trial, in light of all the evidence presented.”

4.  A defense expert, without experience in the particular industry, was still qualified to speak to valuation methodology in the bench trial, and “we cannot reverse the district court for adopting one permissible view over the other.”

5.  The Court thoroughly reviewed the fiduciary duties owed from a parent to a subsidiary under Delaware law, while affirming the district court’s conclusions about causation associated with their alleged breach.

One party to a settlement made the last installment payment several weeks late, triggering an acceleration clause that led to more liability.  Celtic Marine Corp. v. James C. Justice Co., No. 13-30712 (July 29, 2014).  The parties had this email exchange after the last payment was due and before it was made, which the party in default said modified the agreement:

A (1-5-2013):  Are we being paid the $91,666.66 to settle this once and for all?  I have lost faith in the agreement from your side.

A (1-7-2013): Are you paying us the $91,666.66 today?

B(1-7-2013): Fri

A (1-7-2013): o/n check correct and can’t u do it Thurs for Friday devl?

The Fifth Circuit held that this exchange did not modify the agreement, for several reasons: (1) the parties had not agreed to conduct transactions by electronic means [citing Louisiana’s version of the Uniform Electronic Transactions Act], (2) prior contracts had been “typed agreements physically signed,” and (3) factually, the email that talks about payment “to settle this for once and for all” was 1 of 15 demands for payment in a “one-sided” set of communications.

The Fifth Circuit sees many challenges to decisions under ERISA about benefits.  In McCorkle v. Metropolitan Life Ins. Co., the Court reminded that “district courts hearing complaints from disappointed ERISA plan members or their beneficiaries for the administrative denial of benefits are not sitting, as they usually are, as courts of first impression.  Rather, they are serving in an appellate role.”  No. 13-30745 (July 3, 2014). After summarizing the deferential standard of review in that capacity, the Court then emphasized: “We had thought that by now this was understood and accepted by all district judges of this circuit.  But, as this case demonstrates that we were wrong, at least as to one of them, we try yet again to drive that message home.”

A little-known but powerful part of Fed. R. Civ. P. 41(b) provides: “[I]f the plaintiff previously dismissed any federal- or state-court action based on or including the same claim, a notice of dismissal operates as an adjudication on the merits.”   The Fifth Circuit affirmed a dismissal under this rule in Cabot Golf CL-PP 1, LLC v. Nixon Peabody, No. 13-40912 (July 7, 2014, unpublished).  It began by noting that, in this context, the distinction between Rule 12 and Rule 56 was immaterial, where “the material facts are undisputed, and we address a pure question of law.”  On the merits, Plaintiff had filed a state lawsuit, filed a federal lawsuit, dismissed the state action, and then dismissed the federal case with a unilateral notice.  Plaintiff argued that the 2-dismissal rule “should apply only to serial litigation (i.e., suits which are filed after the earlier suits were dismissed), not to parallel/tandem litigation as in this case (i.e., suits which were already pending when the earlier suits were dismisssed).”  The Court rejected that argument as unsupported by case law or the plain terms of the Rule.

1.  In 2002, Douglas opened a checking account with Union Planters Bank and signed a signature card with an arbitration provision.  That clause included a “delegation provision,” delegating the question of a dispute’s arbitrability to an arbitrator.  She closed the account a year later.  Douglas v. Regions Bank, No. 12-60877 (July 7, 2014).

2.  In 2007, Douglas was injured in a car accident, after which she brought suit against her lawyer and his bank for allegedly embezzling her settlement funds.  That bank – Regions Bank – had acquired Union Planters in a 2005 transaction.

3.  Regions Bank moved to compel arbitration.  The district court denied the motion on a “successor-in-interest” theory that Douglas did not defend on appeal.  She argued that the delegation provision was not relevant to this dispute, and the Fifth Circuit agreed, adopting a standard under which Douglas would “only . . . bind herself to arbitrate gateway questions of arbitrability if the argument that the dispute falls within the scope of the agreement is not wholly groundless.”  A dissent argued that this test was foreclosed by recent Supreme Court authority on related issues about an arbitrator’s authority.

A vessel sank while in the harbor for repairs.  Afterwards, the insurer sued its insured (the harbor operator) and the vessel owner, to dispute coverage.  National Liab. & Fire Ins. Co. v. R&R Marine, Inc., No. 10-20767 (June 30, 2014).  The insurer argued that the vessel owner had no standing under Texas law when it made a claim against the insurer, as there was no final judgment establishing the insured’s liability at that time.  The plaintiff countered that it was “forced” to assert its claim as a compulsory counterclaim under the Federal Rules.  The Fifth Circuit concluded that — although Texas state law barred the timing of the vessel owner’s counterclaim, it arose out of the same occurrence as and had a logical relationship to the coverage dispute.  Accordingly, the counterclaim was compulsory.  Treating it as such also “permitted the district court to efficiently address all disputes arising from the litigation” and was consistent with the Rules’ goal of only “alter[ing] the mode of enforcing state-created rights.”

Recent Fifth Circuit cases have curtailed many arguments employed by plaintiffs in litigation with mortgage servicers, and the most recent opinions in the area tend to simply refer back to those cases.  Here are a handful that make useful reminders or address variations of the older arguments:

1.  While potentially viable as legal theories, unsupported allegations of “forgery” and a “false lien” do not survive Rule 12.  And, because a party in breach of a contract may not itself sue for breach, a failure to allege that the plaintiff has performed or tendered performance does not survive Rule 12 either.  Ybarra v. Wells Fargo Bank, No. 13-50881 (July 21, 2014, unpublished).

2.  The restructuring of a Texas home equity loan is a modification, not a refinancing, and thus does not implicate the substantial protections for home equity borrowers provided by the Texas Constitution.  Green v. Wells Fargo Bank No. 14-10254 (July 11, 2014, unpublished) (applying Sims v. Carrington Mortgage Services, LLC, ___ S.W.3d ___, No. 13-0638 (Tex. May 16, 2014)).

3.   Under Texas law, a co-owner who is not a borrower is not entitled to notice of default; a claim of unfair debt collection fails when “there is no evidence that [the servicer] phoned outside of regular business hours or that [its] debt collection efforts included any threats of violence against the [borrowers]”; and an an alleged misrepresentation about future activity by a debt collector is not actionable absent intent not to perform at the time of speaking. Robinson v. Wells Fargo Bank, No. 13-11236 (July 28, 2014, unpublished).

Characterizing the False Claims Act as “a statute that shadows every aspect of the administrative state,” the Fifth Circuit decided in United States ex rel. Shupe v. Cisco Systems, Inc. this issue: “[W]hen the Government ‘provides any portion of’ requested money” so as to trigger its protections.  No. 13-40807 (July 7, 2014).  After an extensive review of the statute and precedent, the Court concluded: “[That the FCC maintains regulatory supervision over the E-Rate program does not affect the Congress’ decision, embodied in the program’s independent structure, to externalize the cost of administering the program to a private entity.  Because there are not federal funds involved in the program, and USAC [an independent nonprofit charged with its administration] is not itself a government entity, we agree that the Government does not ‘provide[] any portion of’ the requested money under the FCA.”

After recently reviewing the phrase “computed at the mouth of the well,” the Fifth Circuit returned to oil royalties in Potts v. Chesapeake Exploration LLC, No. 13-10601 (July 29, 2014).  The lease fixed the royalty as a percentage of “the market value at the point of sale,” and would be “free and clear of all costs and expenses related to the exploration, production and marketing of oil and gas production . . . ”  Since Chesapeake’s sales of gas occured at the wellhead, this language allowed it to deduct a reasonable post-production cost for delivering the gas from the wellhead under Heritage Resources, Inc. v. NationsBank, 939 S.W.2d 118 (Tex. 1996).  The Court said that its conclusion was not affected, under the terms of this lease, by the fact that Chesapeake sold to an affiliate.  The Court also rejected a procedural argument about whether Heritage was binding precedent after the Texas Supreme Court’s 4-4 vote on rehearing.   

In Department of Texas, Veterans of Foreign Wars v. Texas Lottery Commission, the en banc Fifth Circuit reversed a 2013 panel opinion and reinstated a permanent injunction against the Texas Bingo Enabling Act, which “allow[ed] charitable organizations to raise money by holding bingo games on the condition that the money is used only for the organizations’ charitable purpose.”  No. 11-50932 (July 28, 2014).  The Court found that this restriction imposed an unconstitutional condition on those organizations’ First Amendment rights, and distinguished Rust v. Sullivan on the grounds that “the government  may attach certain speech restrictions to funds linked to the public treasury — when either granting cash subsidies directly from the public coffers or approving the withholding of funds that would otherwise go to the public treasury. . . . The bingo program in Texas is wholly distinguishable . . . simply because no public monies or ‘spending’ by the state are involved.”  (citations omitted).

“The central issue in this case is whether a district court has jurisdiction over an inventorship dispute where the contest patent has not yet issued.”  Camsoft Data Systems v. Southern Electronics Supply, Inc., No. 12-31013 (June 19, 2014).  After a removal based on patent jurisdiction, the plaintiff amended to add federal antitrust and RICO claims.  The Fifth Circuit held: “where — as here — a plaintiff [timely] objects to jurisdiction at removal, that plaintiff does not waive her jurisdictional arguments via post-removal amendment to her complaint.”  Then, as to patent jurisdiction — acknowledging some uncertainty in the law on this specific topic — the Court found that the Patent & Trademark Office had “sole discretion” over a pending patent, not the federal courts. Returning to the other federal claims, because those claims had not proceeded to trial, a potential argument against remand based on Caterpillar, Inc. v. Lewis, 519 U.S. 61, was unavailable.  Accordingly, the district court’s order of remand to state court was affirmed.

A large group of Dallas firefighters and police officers, involved in class action litigation against the City, filed a declaratory judgment action in the bankruptcy case of a law firm that had once represented them.  They sought a declaration that neither the firm, nor the bankruptcy trustee, continued to represent them in their litigation or was entitled to any fee in that litigation.  Caton v. Payne, No. 13-41182 (July 16, 2014, unpublished).  After reminding in a lengthy footnote one that the final judgment rule for bankruptcy appeals is viewed “in a practical, less technical light,” the Fifth Circuit nevertheless agreed that the appeal from the ruling on that declaration was not ripe: “It is undisputed that the Class Action Lawsuits remain pending, that no recovery has been made, and that there may never be a recovery, which would preclude any contingent fee award as to which [bankrupt firm] (through the Trustee) may or may not be entitled to a share.  Moreover, the Trustee has not yet demanded a fee, or threatened legal action to recover a fee.”

In Muchison Capital Partners, L.P. v. Nuance Communications, Inc., the district court remanded a case to an arbitration panel for further consideration of damages, making clear that it was not vacating the award.  No. 13-10852 (July 25, 2014).  Appeal ensued. Acknowledging that an order vacating an award and remanding is final, the majority concluded that this order was not final (and thus not appealable) as a matter of precedent and the general policy favoring arbitration and discouraging piecemeal appeals.  A dissent warned that “mischief will come of this error,” pointing out that the district judge closed the case, issued a final judgment, and did not stay or retain jurisdiction over the case after the remand.  The dissenting judge would take the appeal, reach the merits, and affirm the award.  A main point of difference between the majority and dissent was the holding of of Green Tree Financial Corp. v. Randolph, 531 U.S. 79 (2000).

The Fifth Circuit revisited the issue of an arbitrator’s authority to fashion a remedy — nominally an issue of labor union law, but of broader general interest — that it recently addressed in Albermarle Corp. v. United Steel Workers, 703 F.3d 821 (5th Cir. 2013). Observing that the parties’ CBA “did not establish criteria for determining cause to discharge,” it found that the arbitrator’s decision to suspend rather than discharge was within the bounds of an arguable construction of the contract.  United Steel v. Delek Refining, Ltd., No. 12-41119 (July 14, 2014, unpublished).

A 1404(a) dispute was affirmed in Empire Indemity Ins. Co. v. N-S Corp., where “almost all non-party witnesses and all sources of proof needed to determine whether damages were covered by Empire’s policy are in, or around, Texas, and subject to the district court’s compulsory subpoena power.”  No. 13-40426 (June 12, 2014, unpublished).  On the merits, an aggrieved car wash operator sued its parts supplier and won a verdict for over $3 million.  Several months later, the parts supplier and its primary carrier settled with the plaintiff, all parties mutually released all claims against each other, and the parts supplier assigned its claims against its excess carrier to the plaintiff.  The excess carrier won summary judgment and the Fifth Circuit affirmed: “Following a release, the releasor cannot sue the releasee’s insurer ‘because the release precludes the prerequisite determination of [releasee’s liablity.'”  (quoting Angus Chem. Co. v. IMC Fertilizer, Inc., 939 S.W.2d 138 (Tex. 1997)).

In Lemoine v. Wolfe, the Fifth Circuit certified an important question of malicious prosecution law to the Louisiana Supreme Court; namely, whether dismissal of a prosecution constitutes a “bona fide termination in his favor” as required by that tort.  No. 13-30178 (July 18, 2014, unpublished).  “For example, in a case such as this one, the dismissal served almost as a determination of the merits.  The dismissal of [the] cyberstalking charge was expressly based on the fact that the district attorney had determined that there was ‘insufficient credible, admissible, reliable evidence remaining to support a continuation of the prosecution.'”

“It would . . . be an unreasonable interpretation of the policies to say that they provide for valuation as of the date of . . . discovery since no loss occurs at that point.  The most appropriate date to use in calculating [plaintiff’s] losses is that date of the foreclosure sales, as that is when [plaintiff] incurred covered losses.”  First American Bank v. First American Transportation Title Ins. Co., No. 13-30888 (July 16, 2014)

The defendants in Rainbow Gun Club, Inc. v. Denbury Onshore, LLC removed to federal court under CAFA, arguing that the 167 plaintiffs’ claims based on mineral leases were a “mass action.”   No. 14-30514 (July 23, 2014).  The dispute centered on whether those claims, which alleged negligent operation of the relevant well, arose from “an event or occurrence in the State” within the meaning of that statute.  The Fifth Circuit concluded that the ordinary meaning of those terms, CAFA’s legislative history, and case law from other circuits supported the plaintiffs’ position that “the exclusion applies to a single event or occurrence, but the event or occurrence need not be constrained to a discrete moment in time.”  Drawing an analogy to the Deepwater Horizon accident, the Court also rejected an argument based on allegations of multiple acts of negligence, as such an incident “was the event that resulted from a number of individual negligent acts related to each other . . . .”  Accordingly, the Court affirmed the remand of the case to Louisiana state court.

A quick break to Texas law and Texas state court – the Dallas Morning News reports a great result for firm client Energy Transfer Partners, in what it calls “the largest civil judgment ever awarded by a state judge in Dallas”: Dallas Judge Awards ETP $500 Million.

The Fifth Circuit addressed the Texas rules about settlement credits in two cases this summer:

1.   Credit.  An employee stole a number of checks by endorsing them to himself.  The Court found “that the one satisfaction rule obtains  . . ., for while there are multiple checks at issue, there is but a single injury.”  Coastal Agricultural Supply, Inc. v. JP Morgan Chase Bank, N.A., No. 13-20293 (July 21, 2014).  It then remanded for analysis of the appropriate allocation; a dissent would have dismissed this interlocutory appeal into a complex area of Texas law.  The Court also affirmed that section 3.405 of the UCC — the “padded payroll” defense — provided an affirmative defense for the relevant bank to a common law claim for “money had and received.”

2.  No credit.  The victim of a fraudulent scheme sued the seller of the relevant business for breach of warranty, and the participants in the scheme for a fraudulent transfer.  It settled with the seller and recovered a multi-million dollar judgment against the bank that participated in the transfer.  Held, no credit for the bank: “Citibank’s alleged contractual breach and the TUFTA action against Worthington may share common underlying facts—the three fraudulent transfers from CitiCapital to Worthington totaling $2.5 million, induced by Wright & Wright. But such factual commonality does not suffice to count the contractual dispute’s settlement against TUFTA’s limit on recovery for a single avoidance ‘claim,’ Tex. Bus. & Comm. Code § 24.009(b), or to render Citibank a joint tortfeasor for one-satisfaction rule purposes.”  GE Capital Commercial, Inc. v. Worthington National Bank, No. 13-10171 (June 10, 2014).  The Court also held that Texas would apply an objective “good faith” test under its fraudulent transfer statute rather than a subjective test referred to in an older Texas Supreme Court opinion.  (LTPC and this blog’s author represented the successful plaintiff/appellee in this case.)

Plaintiffs sued for securities fraud, alleging misrepresentations about a company’s capabilities and plans about drilling for oil.  Spitzberg v. Houston American Energy Corp.. No. 13-20519 (July 15, 2014).  Emphasizing the plaintiffs’ arguments about “the industry definitions of . . . terms” and the timing of events giving rise to an inference of scienter, the Fifth Circuit reversed the dismissal of their claims under the PSLRA,.  The Court also found adequate pleading of loss causation.  (The significance of industry terminology echoes the reversal of a Rule 12 dismissal about the sale of a loan in Highland Capital Management LP v. Bank of America, although that claim ultimately lost at the summary judgment stage.)

Various products liability claims against both generic and brand-name drug manufacturers were found to be preempted in Johnson v. Teva Pharmaceuticals, No. 12-31011 (July 11, 2014).  The Court relied on recent Circuit precedent after the Supreme Court’s opinion in Pliva, Inc. v. Mensing, 131 S. Ct. 2567 (2011).  As to the brand defendants, the Court declined to certify “the question of whether a brand-name manufacturer can be held liable for injuries caused by a plaintiff’s ingestion of a generic product that was neither manufactured nor distributed by the brand-name manufacturer, reviewing several relevant considerations and authorities.  A dissent would certify, seeing the issue as having “potentially grave ramifications” and taking a different view of the strength of the relevant authority.

After the Deepwater Horizon disaster, BP’s share price declined and several employee benefits sustained major losses. An ERISA lawsuit on behalf of the beneficiaries was dismissed, noting that an ERISA fiduciary’s to maintain an investment in company stock receives a “presumption of prudence,” sometimes referred to as the Moench presumption. Whitley v. BP, P.L.C., No. 12-20670 (July 15, 2014, unpublished).  In June 2014, the Supreme Court eliminated that presumption and held that ERISA fiduciaries managing a plan invested in company stock are subject to the same duty of  prudence as any other ERISA fiduciary, “except that they need not diversify the fund’s assets.” Fifth Third Bancorp v. Dudenhoeffer, No. 12-751 (U.S. June 25, 2014).   Accordingly, the Fifth Circuit vacated the district court’s dismissal and remanded the appeal for reconsideration in light of that opinion.

The coverage dispute in Wiszia Co. v. General Star Indemnity Co. involved a lawsuit in which “Jefferson Parish essentially asserted Wisznia improperly designed a building and did not adequately coordinate with the builders during its construction.” No. 13-31125 (July 16, 2014).  Reviewing the allegations under Louisiana’s eight-corners rule, and summarizing the extensive Louisiana jurisprudence on the topic, the Fifth Circuit found that the claim fell within the policy’s professional services exclusion.   Under those authorities, mere use of the word “‘negligence’ is insufficient to obligate a professional liability insurer to defend the insured,” and “the factual allegations in the Jefferson Parish petition here do not give rise to an ordinary claim for negligence—such as an unreasonably dangerous work site.”

Chesapeake’s lease obliged it to pay the Warrens a royalty based on “the amount realized by Lessee, computed at the mouth of the well.”  A lease addendum said the royalty “shall be free of all costs and expenses related to the exploration, production, and marketing . . . including, but not limited to, costs of compression, dehydration, treatment and transportation.”  Warren v. Chesapeake Exploration LLC, No. 13-10619 (July 16, 2014).

The addendum went on to say that “Lessor will, however, bear a proportionate part of all those expenses imposed upon Lessee by its gas sales contract to the extent incurred subsequent to those that are obligations of Lessee.”  The Warrens contended that this sentence defined certain shared expenses which should not have been deducted from the royalty.  The Fifth Circuit disagreed and affirmed the Rule 12 dismissal of their complaint, finding that the sentence only referred to “the cost of delivering marketable gas to a sales point other than the mouth of the well.”  (distinguishing Heritage Resources, Inc. v. NationsBank, 939 S.W.2d 118 (Tex. 1996)).

The Court reversed, however, as to another pair of plaintiffs with a different lease addendum.  Noting simply that it was different, the Court found that their claim should not have been dismissed, as “[i]t is not apparent from the face of the complaint or its attachments that they could not conceivably state a cause of action.”

A law firm appealed the partial denial of its bankruptcy fee application.  The bankrupty court said “its ruling was informed by the bad conduct of the Debtors themselves, which should have lead [the firm] to withdraw from the case sooner than it ultimately did.”  The district court said the record showed that “this bankruptcy proceeding was doomed at the outset, and arguably could not have been filed in good faith under Chapter 11.”   Barron & Newburger, P.C. v. Texas Skyline, Ltd., No. 13-50075 (July 15, 2014).  The Fifth Circuit affirmed, noting that its earlier opinion of  In re: Pro-Snax Distributors, Inc., 157 F.3d 414 (5th Cir. 1998) rejected a “reasonableness” test in the application of Bankruptcy Code § 330 — which would have asked “whether the services were objectively beneficial toward the completion of the case at the time they were performed” — in favor of a “hindsight” approach, asking whether the professionals’ work “resulted in an identifiable, tangible, and material benefit to the bankruptcy estate.”  That said, all three panel members joined a special concurrence asking the full Court to reconsider Pro-Snax en banc, observing that its outright rejection of forward-looking reasonableness “appears to conflict with the language and legislative history of § 330, diverges from the decisions of other circuits, and has sown confusion in our circuit.”

Appellant did not fare well in Bell v. Bell Family Trust, where the Fifth Circuit observed: “The inadequacy of her briefing on appeal does not fall far from her pleadings below, upon which the magistrate judge reflected: ‘The undersigned spent a significant amount of time parsing through the morass of Bell’s voluminous, rambling, and unintelligible pleadings, which proved to be a substantial waste of time and resources. They contain a “hodgepodge of unsupported assertions, irrelevant platitudes, and legalistic gibberish.” As succinctly stated by the late Judge Alvin B. Rubin: “[t]he ability to fill more than 36 pages with no more than legal spun sugar does not make an argument substantial.”’  Construing liberally Bell’s continued hodgepodge of assertions, we discern only one issue for review . . . . .”  No. 13-31219 (July 8, 2014, unpublished)

1.  Creditors get the money.  Debtor filed for Chapter 13 personal bankruptcy.  He made payments to the Trustee for some time.  He then converted to Chapter 7, leaving the Trustee holding money paid under the Chapter 13 plan.  “[W]ages paid to the trustee pursuant to the Chapter 13 plan should be distinguished from the debtor’s other property acquired after the date of filing.”  Viegelahn v. Harris, No. 13-50374 (July 7, 2014)

2.  Creditors get the money.  The stay lifted.  Secured Creditor foreclosed.  Under federal law, its attorneys fees were subject to the customary review under the Bankruptcy Code.  Under state law, its attorneys fees were fixed by contract.  Held: federal law controls, and the case was remanded for review under federal standards.  In re 804 Congress LLC, No. 12-50382 (June 23, 2014)

On Monday the 14th, a 2-1 Fifth Circuit opinion affirmed the free speech rights of the Sons of Confederate Veterans.  On Tuesday the 15th, a 2-1 Fifth Circuit opinion rejected a constitutional challenge to the “top ten percent” admissions policy of the University of Texas: “[T]he backdrop of our efforts here includes the reality that accepting as permissible policies whose purpose is to achieve a desired racial effect taxes the line between quotas and holistic use of race towards a critical mass. We have hewed this line here, persuaded by UT Austin from this record of its necessary use of race in a holistic process and the want of workable alternatives that would not require even greater use of race, faithful to the content given to it by the Supreme Court.”  Fisher v. University of Texas, No. 09-50822.  Both opinions — and the dissents — offer thoughtful analyses of the institutional, historical, and precedential structure of the law governing highly sensitive issues of race, in the geographic area that was once the western portion of the Confederacy. Ideological sound bites will fly about both cases, as the First Amendment allows and encourages, but their reasoning deserves respect and study.

While resolved on other grounds, a part of the diversity-of citizenship question in Tewari De-Ox Systems, Inc. v. Mountain States-Rosen, LLC was whether a business entity — charted as a corporation in Wyoming — should nevertheless be treated as an unincorporated association because it called itself a “cooperative.”  No. 13-50956 (July 9, 2014).  On that point, the Court noted: “Other circuits have rejected similar arguents: ‘For purposes of diversity jurisdiction, the Cooperative is to be treated as a corporation simply because it has been incorporated under [state] law, regardless of the Cooperative’s individual structure, purpose, operations, or name.”  (quoting Kuntz v. Lamar Corp., 385 F.3d 1177, 1183 (9th Cir. 2004), and also citing Pastor v. State Farm Mut. Auto Ins. Co., 487 F.3d 1042, 1048 (7th Cir. 2007)).

“We understand that some members of the public find the Confederate  flag offensive. But that fact does not justify the Board’s decision; this is exactly what the First Amendment was designed to protect against.”  Accordingly, the Fifth Circuit found that the Texas Department of Motor Vehicles Board violated the free speech rights of the Texas Sons of Confederate Veterans when the Board denied the group’s application for a specialty license plate featuring the Confederate battle flag.  Texas Division, Sons of Confederate Veterans, Inc. v. Vandergriff, No. 13-50411 (July 14, 2014).  The Court rejected a jurisdictional challenge under the Tax Injunction Act, finding that the plaintiff organization was not a taxpayer raising taxation issues.  A dissent found the matter controlled by a Supreme Court case about public monuments.  Initial coverage of the case has appeared in the Dallas Morning News and Times-Picayune.

The unfortunate taxpayer in Whitehouse Hotel Limited Partnership v. Commissioner of Internal Revenue lost a multi-million dollar dispute about the value of an easement, related to the spectacular Ritz-Carlton on Canal Street in New Orleans, and as a result faced a substantial penalty.  No. 13-60131 (June 11, 2014).  The Fifth Circuit affirmed the Tax Court on the merits but reversed as to the penalty, noting: “We are particularly persuaded by [Taxpayer’s] argument that the Commissioner, the Commissioner’s expert, and the tax court all reached different conclusions” on the core valuation issue.  Acknowledging that this area is fact-specific, the Court held as to the taxpayer’s conduct: “Obtaining a qualified appraisal, analyzing that appraisal, commissioning another appraisal, and submitting a professionally-prepared tax return is sufficient to show a good faith investigation as required by law.”

In Bluebonnet Hotel Ventures, LLC v. Wells Fargo Bank, N.A., the Fifth Circuit considered whether there had been an “[e]rror that vitiates consent” because of a “failure of cause” about an interest rate swap agreement, so as to allow its cancellation under Louisiana contract law.  No. 13-30827 (June 6, 2014).  In the course of affirming summary judgment for the bank, the Court declined to consider emails written around the time of contracting, noting: “Under Louisiana law, courts may only consider parol evidence when a contract is ambiguous.” To illustrate the sharp edge that separates holdings in the area of extrinsic evidence, cf. Fruge v. Amerisure, 663 F.3d 743 (5th Cir. 2011) ( applying Louisiana law and holding: “Parol evidence is admissible to show mutual error even though the express terms of the policy are not ambiguous.”) (citations omitted).

1.  No conflict-of-interest.  In Graper v. Mid-Continent Casualty Co., No. 13-20099 (June 24, 2014), the Fifth Circuit revisited the potential conflict-of-interest issues relating to counsel selected by an insurance carrier, previously addressed in Downhole Navigator LLC v. Nautilus Insurance, 686 F.2d 325 (5th Cir. 2012).  Reminding that a problematic conflict would only arise if “the facts to be adjudicated in the underlying lawsuit are the same facts upon which coverage depends,” the Court found no disqualifying conflict in either: (a) the facts of when a claim accrued for limitations purposes, as opposed to when it occurred under the policy, or (b) the facts about an alleged willful copyright infringement occurs, as opposed to a “knowing” act for coverage purposes.  

2.  No exhaustion.  The excess carriers in Indemnity Ins. Co. of N. Am. v. W&T Offshore, Inc. contended that they had no coverage obligation when the underlying policies had been exhausted.  No. 13-20512 (June 23, 2014).  Distinguishing Westchester Fire Ins. Co. v. Stewart & Stevenson Services., Inc., 31 S.W.3d 654 (Tex. App.–Houston [1st Dist.] 2000, pet. denied), the Court disagreed, finding that the policy “merely outlines what will happen if the underlying insurance is entirely exhausted by claims covered under the policy; it says nothing about what will happen if the Retained Limit is exhausted by non-covered claims.” A deftly-written footnote 5 explains how the excess carriers’ argument relies on the logical fallacy of “affirming the consequent.”

The parties’ contract said: “Terms and conditions are based on the general conditions stated in the enclosed ORGALIME S200.”  The ORGALIME, in turn, had an arbitration clause.  The Fifth Circuit found that the above language incorporated the arbitration clause into the contract, acknowledging that “multiple interpretations of ‘based on’ might be possible in the abstract,” the length and scope of the ORGALIME compared to the contract showed the parties’ intent to incorporate its terms.  Al Rushaid v. National Oilwell Varco, Inc., 757 F.3d 416 (2014).  The Court also rejected a waiver argument, finding that the acts of the party’s co-defendants could not be imputed to it absent a reason to pierce the corporate veil.  Here, “there is no evidence in the record that [the party] has abused its corporate form.  It merely declined to become a party to litigation without being formally served.”  The Court also rejected an argument, based on equitable estoppel, to stay the ongoing litigation until the conclusion of the arbitration.

The Fifth Circuit held in Priester v. JP Morgan Chase Bank, 708 F.3d 667 (5th Cir. 2013), that the Texas “residual” 4-year statute of limitations applied to claims based on the home equity loan provisions of the state Constitution, running from the time the loan closed.  Various requests to reconsider, certify, or otherwise retreat from that holding have been uniformly rejected.  Kramer v. JP Morgan Chase Bank presented a fresh attack on Priester, arguing that the discovery rule applied to a claim based on the Texas statute against the filing of false liens, and citing Vanderbilt Mortgage v. Flores, 692 F.3d 358 (5th Cir. 2012).  No. 13-50920 (June 25, 2014, unpublished).  The Court sidestepped this argument by finding the issue moot because plaintiff did not seek damages based on this statute before the district court.

First case: Highland Capital sued Bank of America for the alleged breach of an oral contract to sell a $15.5 million loan.  After the Fifth Circuit reversed the dismissal of this claim under Rule 12(b)(6), it affirmed summary judgment for the defendant in Highland Capital Management LP v. Bank of America, No. 13-11026 (July 3, 2014). Highland relied upon standard terminology promulgated by an industry association, while the Bank pointed to evidence showing that, in this specific transaction, the Bank was not familiar with that terminology and not want it to control.  “Although industry custom is extrinsic evidence a factfinder can use to determine the parties’ intent to be bound, its value is substantially diminished where, as here, other evidence overwhelmingly shows that the persons involved in the dealings were unaware of those customs.”    The Court also rejected an alternative theory that a prior transaction that involved the terminology continued to govern the parties’ relationship, noting: “Whether a prior contract had a binding effect on the procedures available for future contract-formation is a legal question.”

Second case:  As with the previous case, WH Holdings LLC v. Ace American Ins. Co. was remanded for development of a factual record, this time for extrinsic evidence about a contract ambiguity.  No. 13-30676 (June 26, 2014, unpublished).   And as with the previous case, the Fifth Circuit affirmed a summary judgment, finding that seven pieces of extrinsic evidence were either not relevant to the specific contract issue, or “equally consistent with both” readings.

Aransas Project v. Shaw presented a challenge to an injunction against the Texas Commission on Environmental Quality, prohibiting the TCEQ from issuing new permits to withdraw water from rivers that feed the estuary where whooping cranes live.  No. 13-40317 (June 30, 2014).  The whooping crane, described in the opinion as a “majestic bird that stands five feet tall,” is an endangered species, and the only known wild flock lives in Texas during winter.

The Fifth Circuit first rejected an argument for Burford abstention, finding that this case presented a “broader grant of administrative and judicial authority by state law to remedy environmental grievances” than a prior opinion where it allowed abstention in a similar sort of environmental dispute.  Cf. Sierra Club v. City of San Antonio, 112 F.3d 789 (5th Cir. 1997).

The Court then reversed the injunction, finding no causation “in the face of multiple, natural, independent, unpredictable and interrelated forces affecting the cranes’ estuary environment.”  While couched in language about proximate causation and environmental law, the Court’s analysis is a classic illustration of the recurring Daubert problem of excluding alternate causes.  (In the course of this discussion, the butterfly effect theory makes a cameo appearance in footnote 10.)

The plaintiffs in Crownover v. Mid-Continent Casualty Co. won an arbitration claim based on the “breach of the express warranty to repair” in their contract with an HVAC installation company.  No. 11-10166 (June 27, 2014).  The Fifth Circuit, applying Gilbert Texas Construction LP v. Underwriters of Lloyd’s London, 327 S.W.3d 118 (Tex. 2010) and the recent response to a certification request in Ewing Construction Co. v. Amierisure Ins. Co., 420 S.W.3d 30 (Tex. 2014), concluded that CGL coverage was not available: “Whereas contractually agreeing to repair damage resulting from a failure to exercise reasonable care in performing the work or agreeing to perform work in a good and workmanlike manner would mirror a contractor’s duty under general law . . . contractually agreeing to repair damage resulting from a failure to comply with the requirements of the contract would not.”  Law360 has a good article about the development of this important insurance coverage issue over the last several months.

At issue in Meadaa v. K.A.P. Enterprises LLC was the relative liability of three defendants for a $3.5 million claim.  No. 12-30918 (July 1, 2014).  In a summary judgment affidavit, an expert opined that transactions of Defendant 1 had not resulted in unfair advantage to Defendants 2 and 3, and had kept its affairs separate from those of Defendant 4.  The expert had reviewed financial documents from Defendant 1 and tax returns from Defendant 4.  The Fifth Circuit found no clear error in the district court’s striking of this affidavit for a lack of personal knowledge.  Because “[i]t is by no means clear how a [CPA] can obtain personal knowledge of the effects of the actions of one entity on other parties without reviewing the latter’s financial documents,” it was “incumbent upon him to explain how he acquired such knowledge.”  As a procedural matter, the Court also found that a notice of appeal from a final judgment encompassed a later ruling on a Rule 59 motion.

In the second quarter of 2014, the Fifth Circuit said how to . . .

1. . . . enforce an Agreed Protective Order.  Two judges, finding “written notice” ambiguous, found that Ford did not waive confidentiality designations by having a lengthy email exchange rather than moving for protection.  The dissent would construe the ambiguity against Ford and faults the majority for encouraging “vague, non-responsive answers.”  Moore v. Ford Motor Co., ___ F.3d ___ (June 20, 2014).

2. . . . . remove based on federal question jurisdiction.  A petition raised a sufficient federal question for removal when it incorporated this allegation from an EEOC complaint: “I have been and continue to be discriminated against, in violation of Title VII of the 1964 Civil Rights Act, as amended, [and] the Texas Commission on Human Rights Act, as amended, because of my national origin (Iranian).”   Davoodi v. Austin ISD, ___ F.3d ___ (June 16, 2014).

3.  . . . protect in-house counsel’s attorney-client privilege.  Addressing the common question of “business or legal advice?” the court found a memo privileged because it “deal[t] with any legal liability that may stem from under-disclosure of data, hedged against any liability that may occur from any implied warranties during complex negotiations.”  Exxon Mobil Corp. v. Hill, 751 F.3d 379 (2014).

The agreed protective order said:  “At any time after the delivery of documents designated ‘confidential,’ counsel for the receiving party may challenge the confidential designation of any document or transcript (or portion thereof) by providing written notice thereof to counsel for the opposing party.”  The producing party then has 15 days to seek protection; if it does not do so, “then the disputed material shall no longer be subject to protection as provided in this order.”  Moore v. Ford Motor Co., No. 13-40761 (June 20, 2014).

Pursuant to the order, Ford produced four boxes of documents related to Volvo safety issues.  These communications ensued:

• On May 11, 2004, plaintiffs’ counsel emailed to challenge the confidentiality designations of several documents.
• On June 4, Ford’s counsel asked for Bates numbers.
• On June 23, plaintiffs’ counsel responded, expanded on the confidentiality argument, and said it “will begin passing them out to any and everyone that is interested”
• In July, plaintiffs’ counsel asked: “what’s the word . . . on confidentiality?”
• The next day, Ford’s counsel withdrew its designations as to some documents, said it was “evaluating your claims” as to others, and “expects you to abide by the terms of the Protective Orders in the meantime”
• Plaintiffs’ counsel responded: “I gave Ford adequate time.  I am sending the materials out.  Thanks for trying.”  (He did not specify what “materials”)
• On February 22, 2005, plaintiffs’ counsel asked for an update on the “confidentiality issue”
• On March 8, 2005, Ford responded that “in the spirit of cooperation” it would “officially de-designate from the Protective Order” specified other documents.

In 2012, documents surfaced in other litigation that Ford had produced pursuant to the above protective order; while the opinion does not specify what they were, it seems clear that they were documents which Ford had not formally “de-designated.”  Ford moved to enforce the protective order and the district court agreed, finding no “clear written notice . . . challenging the confidential designation of these documents.”

On appeal, plaintiffs argued that the 15-day period ran from the first email, and Ford thus waived its designations by not moving for protection.  The Fifth Circuit disagreed, finding the protective order ambiguous on this issue, and stating: “This interpretation may well be the better reading without more, but the parties understanding of these agreed orders bears upon the interpretation, and the actions of both parties strongly suggest” otherwise, noting the lengthy dialogue between the parties.    Noting that “[a]lthough on de novo review a different outcome may obtain,” the Court found the district court’s conclusion that no waiver occurred to not be clearly erroneous.

A dissent, among other arguments, noted that (1) the 15-day provision only requires that confidentiality be “in dispute,” (2) Ford drafted the agreement so any ambiguity should be construed against it, and (3) Ford had the burden to establish confidentiality.  The dissent concluded the majority opinion undermined “efficient resolution of discovery disputes” by allowing “Ford . . . to undermine this purpose through vague, non-responsive answers.”

1. Thompson sued Defendants in Arkansas in 2011, alleging he was a citizen of Arkansas.  That lawsuit was dismissed for improper venue.
2. Thompson sued Defendants again in Florida in 2012, and voluntarily dismissed that action after the magistrate concluded that diversity was lacking.
3. Thompson sued Defendants again in Alabama in 2012, alleging that he was a citizen of Arkansas.  That action was transferred to Mississippi.   It was then dismissed for lack of jurisdiction because Thompson and one of the citizens were both Florida citizens at the time of filing in 2012.

Thompson argued that the relevant facts related to the original 2011 filing, not the 2012 re-filing.  HELD: “[T]he [Alabama] complaint does not relate back to the [Arkansas] complaint because the second complaint was not an amendment, but rather the commencement of a separate action.”  Dismissal affirmed.

A subtle Erie issue flashed by when Andrews alleged premises liability claims against BP, and the Fifth Circuit affirmed summary judgment for BP under a Texas statute. Terry v. BP Amoco, No. 12-40913 (June 27, 2014, unpublished).  BP won summary judgment: “Exhibits C and D are the only evidence that Andrews identified as raising a material issue of fact as to BP’s responsibility for the explosion. Those exhibits are a Safety Bulletin issued by the United States Chemical Safety and Hazard Investigation Board (CSB) and a CSB press release discussing the bulletin. The statute creating the CSB, however, prohibits Andrews from using the documents as evidence in this case.  Additionally, both CSB documents also likely constitute inadmissible hearsay under the Federal Rules of Evidence.”  The question not raised is how much substantive effect this type of federal statute must have in a state law tort claim, removed to federal court under diversity jurisdiction, so as to raise an Erie issue.

Plaintiff recovered $12,200 in actual damages and $40,000 in punitives on his claim for race discrimination, and the Fifth Circuit affirmed in all respects.  Rhines v. Salinas Construction Technologies, Ltd. (June 25, 2014, unpublished).  On the punitive damages award, the Court noted this evidence: (1) the employer falsely told the EEOC that plaintiff had not complained about the workplace; (2) an employee admitted at trial that he signed a false affidavit about the use of racial slurs in the workplace; and (3) “the person who allegedly performed the [employer’s] investigation testified before the jury that he did not investigate.”  As the Court dryly summarized: “There was sufficient evidence to support the jury’s award of punitive damages.”

Defendant was personally served in Louisiana; the question was whether the plaintiffs fraudulently induced her to come there.  Gatte v. Dohm (June 23, 2014, unpublished). More specifically, Defendant (part owner of a Mexican clinic where the plaintiffs’ relative had died) alleged she had been duped into travelling to Louisiana to return the decedent’s ashes and personal effects to family members, as they were too distraught to travel themselves.  The district court found fraudulent inducement; the Fifth Circuit reversed, noting a conflict between the affidavits submitted by the parties and applying the principle: “Conflicts between the facts contained in the parties’ affidavits must be resolved in the plaintiff’s favor for purposes of determining whether a prima facie case for personal jurisdiction exists.”  (citing D.J. Investments, Inc. v. Metzeler Motorcycle Tire Agent Gregg Inc., 754 F.2d 542, 546 (5th Cir. 1985).

A Friday diversion from federal practice — from the sister blog that follows the Dallas Court of Appeals, the Texas Supreme Court has written a major opinion reversing a judgment of minority shareholder oppression.  Here is the summary worth a read by any commercial litigator in Texas.

In Tetra Technologies, Inc v. Continental Ins. Co., the district court ruled on several key issues in an insurance coverage dispute, declined to certify the rulings for immediate appeal under 28 U.S.C. § 1292(b) because it found no substantial ground for difference of opinion, and entered judgment on those matters pursuant to Fed. R. Civ. P. 54(b).  No. 13-30516 (June 10, 2014).  The Fifth Circuit found that judgment improper, and thus dismissed on jurisdictional grounds for lack of a final and appealable order. Rather than sounding the “death knell” of claims as required by Rule 54, the Court concluded that the rulings would allow “Tetra and Maritech to prevail completely nor not at all on their indemnification claim against Continental, depending on the resolution of certain ‘factual issues.'”  “Thus, what we are presented with here is a request by the district court for us to sign off mid-litigation on legal questions it considers non-contentions.  Since the inception of the federal judiciary, however, our role has been to review final decisions of trial courts, not to tinker with ongoing cases through piecemeal appeals . . . “

In the published opinion of Davoodi v. Austin ISD, the Fifth Circuit revisited the recurring question of how substantial a federal question must be to create jurisdiction (and thus, allow removal). No. 13-50823 (June 16, 2014).  Notably, the Court did not analyze whether the plaintiff stated a claim under federal law in the causes of action alleged in his pleading.  Rather, the decision turns on how much the pleaded facts involved violation of federal law.  This focus contrasts with the framework of Howery v. Allstate Ins. Co., which rejected jurisdiction because “[f]rom its context, it appears that Howery’s mention of federal law merely served to describe types of conduct that violated the DTPA, not to allege a separate cause of action under the FCRA,” and because a violation of federal law was not an “essential element” of Howery’s state law claims.  243 F.3d 912, 918-919 (5th Cir. 2001).  

Davoodi sued in Texas state court, alleging state law claims for “national origin discrimination” and intentional infliction of emotional distress, and a claim for “retaliation” without a specified basis in state or federal law. The first of the two paragraphs in the “Facts” section of the petition said:

“On or about June 2, 2011 Plaintiff filed a Charge of Discrimination with the EEOC and the Texas Human Rights Commission.  (See Charge attached as Exhibit ‘A’ and fully incorporated herein).  This charge alleged that Defendant discriminated against Plaintiff based on his National Origin (Iranian).  On February 3, 2012 the EEOC issued a Dismissal and Notice of Rights.  The Texas Human Rights Commission did not issue a dismissal/right to sue.”  

The Court noted that the incorporation of the Charge made it “part of [plaintiff’s] complaint for all purposes,” and created federal jurisdiction because the Charge contained the averment and claim: “I have been and continue to be discriminated against, in violation of Title VII of the 1964 Civil Rights Act, as amended, [and] the Texas Commission on Human Rights Act, as amended, because of my national origin (Iranian).”  The Court remanded as to the Rule 12 dismissal of the case, however, to allow the plaintiff a chance to replead under Lozano v. Ocwen Federal Bank, 489 F.3d 636 (5th Cir. 2007).

The movant’s Rule 12 arguments, as reflected in the appellate record excerpts, address whether the plaintiff’s pleading stated a claim for “retaliation” under either state or federal law.  The Fifth Circuit did not engage the basis for that claim in its analysis of federal question jurisdiction, focusing entirely on the fact allegations described above and the statement made to the EEOC.  Allstate can be reconciled with Davoodi  because the mention of federal law in the Allstate pleading is substantially smaller, as a percentage of the overall allegations.  That analytical framework — different than Allstate‘s focus — may invite new removals based on a “percentage-based” analysis of a pleading’s factual allegations.

A company received “PRP” (Potentially Responsible Party) letters from the EPA, followed by a “Unilateral Administrative Order” requiring the company to do remedial work.  Its CGL insurer denied coverage, contending that these administrative communications under CERCLA were not a “suit” that triggered the duty to defend.  McGinnes Industrial Maintenance Corp. v. Phoenix Ins. Co., No. 13-20360 (June 11, 2014, unpublished).  The insured argued that the word “suit” was ambiguous and thus led to coverage; the insurer argued that a broad reading of “suit” was inconsistent with the word “claim” in the policy and the word “petition” in the usual phrasing of the Texas “eight corners” rule.  Finding the issue important and that “the parties each make reasonable arguments” about it, the Fifth Circuit certified this question to the Texas Supreme Court: “Whether the EPA’s PRP letters and/or unilateral administrative order, issued pursuant to CERCLA, constitute a ‘suit’ within the meaning of the CGL policies, triggering the duty to defend.”  That Court has now answered yes and the case has been remanded for further proceedings.

The Leas joined a wholesale membership club, and made a $100 payment that day as part of the down payment.  Their contract did not include the starting date, interval, or date of the month when their installment payments would be due over the next 3 years for the $4,000 membership fee.  Lea v. Buy Direct LLC, No. 13-20281 (June 12, 2014).  The Fifth Circuit found that TILA applied because the Leas had entered a credit transaction, even if they had not bought any goods yet.  Then, recognizing that “[Defendant’s] decision to leave the contract blanks unfilled was, at least in part, an accomodation to the Leas,” the Court nevertheless reversed the district court’s summary judgment for the club on the Leas’ TILA claim.  “Perhaps our reversal falls into the category of letting no good deed go unpunished.  Another perspective, though, is that TILA provides an unvarying set of rules that protect consumers who might otherwise voluntarily waive what they should not.”  Thus, although “[w]e do not perceive any harm here . . . harm is not a prerequisite for [TILA] relief.”

Adding to an April opinion about the proper scope of review for a Rule 12(b)(6) motion, the Fifth Circuit reminded that — In addition to the pleading itself — a court may consider “the documents attached to the complaint, the documents attached to the motion to dismiss which were referred to in the complaint and central to Plaintiffs’ claim, as well as taking judicial notice of matters of public record.”  Mitchem v. Fannie Mae, No. 13-10904 (June 9, 2014, unpublished).  Mitchem provides citations to published Fifth Circuit authority for each of these points.

1.  Request a limiting instruction to help preserve evidentiary error:  “Moreover, even if there is merit to this distinction, [Defendant] never requested a limiting instruction during trial that would have enabled the jury to consider the evidence regarding insurance only for permissible purposes. Where ‘counsel never requested a more complete limiting instruction,’ the district court ‘cannot [be] fault[ed] . . . for failing to give one spontaneously.” Eagle Suspensions, Inc. v. Hellmann Worldwide Logistics, Inc. (June 9, 2014, unpublished).

2.  Renew earlier issues to help preserve charge error: “Essentially, [Defendant] now argues that the district court should have recalled [Defendant’s] federal preemption argument from January and February 2013 when drafting the final jury instructions on March 20, 2013, even though [Defendant] itself never referenced this federal preemption argument in [Defendant’s] objections to the proposed jury instructions. . . . [A]  party cannot merely rely on ‘‘the fact that the court is already aware of its position as an excuse for a failure to make a specific, formal objection at the charge conference.’  Rule 51 specifically requires parties to make their objections after the proposed jury charge has been drafted and distributed for comment.”  Id. (quoting Jimenez v. Wood County, 660 F.3d 841, 845-46 (5th Cir. 2011) (en banc)).

Two boats collided.  The district court dismissed the resulting tort litigation in favor of Mexico on forum non conveniens grounds.  Cotemar S.A. de C.V. v. Hornbeck Offshore Services, No. 13-20230 (May 21, 2014, unpublished).  After that dismissal, the plaintiff seized the offending vessel in Louisiana (still there at the time of this writing).  The Fifth Circuit reversed and remanded for further analysis.  The first point dealt with a potential time bar in the Mexican system.  “If access to relief in the Mexican courts has become time-barred for reasons not of Appellants’ ‘own making,’ then the Mexican courts are no
longer an available alternative forum.”  (citing Veba-Chemie AG v. M/V Getafix, 711 F.2d 1243, 1248 n.10 (5th Cir. 1983)).   Second, the “supervening change of circumstances” arising from the vessel seizure may affect the balancing of private and public factors, because a transfer to Mexico would now likely result in duplicative proceedings.

At the recent University of Texas Conference on State and Federal Appeals, Fifth Circuit Clerk Lyle Cayce gave a  presentation about the Court that included a demonstration of a remarkable new technology.  After an attorney files a brief, the Court has software that quickly adds hyperlinks for all case and record citations (which is the reason for the recent local rule change to standardize the form for record references).  Those links are then available to the judges and staff on their computers and tablets.  Among other implications, this new technology means that pre-argument, review of the record is no longer limited to the parties’ record excerpts.

The district court held that under Texas law, a creditor may not garnish on a judgment, after entry of judgment but prior to the filing of an appeal.  The Fifth Circuit affirmed, relying upon Waples-Platter Grocer Co. v. Texas & Pacific Railway Co., 68 S.W. 265 (Tex. 1902) [a case from the court of Chief Justice Reuben Gaines and the governorship of Joseph Sayers, a period “notable for the number of disasters that the state faced” such as the Galveston Hurricane and the invasion of the boll weevil].  JGM Holdings LLC v. T-Mobile USA, Inc., No. 13-10678 (May 19, 2014, unpublished).  The Fifth Circuit rejected an argument that the later overruling of a holding in Waples about res judicata implicitly overruled this holding about garnishment.

Placid Oil filed for bankruptcy and the claim bar date, published in the Wall Street Journal, passed in 1987. “By the early 1980s, Placid was aware, generally, of the hazards of asbestos exposure and, specifically, of Mr. Williams’s exposure in the course of
his employment. Prior to the Plan’s confirmation, no asbestos-related claims
had ever been filed against Placid, and the Williamses did not file any proof of
claim.”  Williams v. Placid Oil Co., No. 12-11120 (May 27, 2014).  Applying In re: Crystal Oil, 158 F.3d 291 (5th Cir. 1998), the Fifth Circuit affirmed summary judgment in the Williamses subsequent tort suit against Placid: “Although Placid knew of the dangers of asbestos and Mr. Williams’s exposure, such information suggesting only a risk  to the Williamses does not make the Williamses known creditors. Here, Placid had no specific knowledge of any actual injury to the Williamses prior to its bankruptcy plan’s confirmation.”  (Donald Rumsfeld’s 2002 discussion of the broader philosophical point is reviewed here.)

Aspen Technology Inc v. M3 Technology Inc. affirmed an $11 million judgment in a suit to enforce a noncompetition agreement.  Nos. 12-20388 & 13-20268 (May 29, 2014, unpublished).  Most of the grounds are fact-specific and substantially influenced by spoliation matters.  On a key copyright issue, the Court held: “Aspen’s registration of its derivative materials permits Aspen to bring a claim that M3 had infringed preexisting versions of its software,” aligning the Fifth Circuit with several other courts that have addressed the point.  The Court removed roughly $500,000 in attorneys fees arising in prior litigation from the award for tortious interference, noting that the opposing party in that litigation was also a party in this case, removing the fee claim from the “equitable exception” to the rule that a contract or statute must allow recovery of fees.

Ayala was killed by a propane heater explosion; his estate sued the manufacturer for damages.  Ayala v. Enerco Group, 13-30532 (May 28, 2014, unpublished).  Ayala’s wife testified that he was generally careful with the heater, although she did not observe him at the time of the accident.  An expert identified several possible defects with the heater, but: “[There was no evidence to suggest the Ayalas’ heater itself was defective. He did not perform a structural analysis of the Mr. Heater or destructive testing of an example unit. His conclusions supporting that there could be a leak were based solely on the nature of the item itself. McPhate also admitted that he could not rule out other potential sources of a propane leak other than a defect in the heater, such as a faulty propane bottle or a failure by Mr. Ayala to secure the valve properly on the heater.”  Accordingly, the estate’s claims failed.  A sanctions award against the plaintiff’s counsel under 28 U.S.C. § 1927 for filing a second lawsuit was reversed because that filing did not show a “persistent” pattern of vexatious litigation as required by that statute.

Two cases warn against skipping foundational steps (or “not showing your work”):

1.  The dismissal of Garcia v. Jenkins Babb, LLP was affirmed for failure to allege facts sufficient under Iqbal to show that an FDCPA claim arose from a consumer transaction; more specifically, “giv[ing] no indication what item was purchased or what service was paid for, much less explain how the item or service was intended for personal or family use.”  No. 13-10886 (May 29, 2014, unpublished).  (The case returned, and dismissal was again affirmed, in Israel v. Primary Financial Services, No. 14-10012 (May 28, 2015, unpublished)).

2.  An award of sanctions was reversed and remanded in Arnold v. Fannie Mae when “the
district court abused its discretion by failing to adequately articulate the authority, the basis, and the reasoning for the sanctions” under Rule 11, inherent power, or 28 U.S.C. § 1927.