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  No. 13-20425 (Sept. 4, 2014, unpublished).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  No. 14-20098 (Aug. 28, 2014, unpublished).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  Lake Eugenie Land & Development v. BP Exploration & Production,  No. 14-30398 (Aug. 25, 2014, unpublished).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.

The plaintiffs in Garziano v. Louisiana Log Home, Inc. made 88 percent of the installment payments for a build-it-yourself log cabin kit, and then defaulted.  No. 13-60291 (May 29, 2014, unpublished).  The log cabin company won summary judgment against several contract and tort claims by the purchasers.  Before final judgment was entered, however, it came to light that the company had resold several of the logs and actually was ahead on the transaction overall.  The district court denied a Rule 59(e) motion about this information and entered judgment.  The Fifth Circuit reversed, finding that the district court should not have focused on plaintiffs’ erroneous characterization of the issue as “unjust enrichment,” and by doing so, “essentially granted LLH an impermissible double recovery—making the earnest money provision an unenforceable penalty.”  The Court remanded “with instructions for the district court to make findings on the amount of actual damages that LLH suffered and to amend the judgment to remit to the Garzianos any monies paid to LLH under the contract that were in excess of LLH’s actual damages.”  (The defendant offers several packages for log homes, all of which look elegant and cost-effective to this author.)

The plaintiff in McKay v. Novartis, Inc. challenged the dismissal on preemption grounds, by an MDL court in Tennessee, of products liability claims about drugs made by Novartis. No. 13-50404 (May 27, 2014).  The Fifth Circuit rejected an argument about inadequate time to get certain medical records, noting that the plaintiffs “sought formal discovery of evidence that was available to them through informal means” (citing other cases from the Court on that general topic), and also observing that two years passed from the filing of suit until Novartis sought summary judgment.  The Court also affirmed the MDL court’s grant of summary judgment on Texas state law grounds about a breach of warranty claim, finding inadequate notice; as an Erie matter: “the majority of Texas intermediate courts have held that a buyer must notify both the intermediate seller and the manufacturer.”

Burnett Ranches, Inc. operates the sprawling Four Sixes and Dixon Creek ranches in the Texas Panhandle; its history runs to Captain Samuel “Burk” Burnett’s land dealings in the 19th Century with Comanche chief Quanah Parker.  The IRS contended that its current owner (Captain Burnett’s great-granddaughter) was subject to accrual rather than cash accounting pursuant to a law against “farm syndicate” tax shelters.  Burnett Ranches v. United States, No. 13-10403 (May 22, 2014).  The Fifth Circuit affirmed summary judgment for the ranch as to an exception to that law for active farm operators: “To accept the government’s overly expansive reading of § 464 by crediting its overly narrow reading of the Active Participation Exception would be to sanction ‘administrative legislation’ by an Article II executive agency.  This we decline to do, agreeing instead with the district court that the government’s efforts fail, grounded as they are in nothing more than the fact that legal title to Ms. Marion’s interest in Burnett Ranches stands in the name of her S corp.” Of general interest, the Court concluded that “interest” has a broad, nontechnical meaning so long as it does not have a “narrowing modifier.”

A barge accident caused a large oil spill in the Mississippi River.  In the first lawsuit about the incident, the district court placed liability solely on the tugboat operator, noting the (valid and enforceable) charter agreement between it and the barge owner.  In a later case, the barge owner contended that the agreements were void ab initio because the tugboat operator entered without intent to perform.  Gabarick v. Laurin Maritime (America) Inc., No. 13-30739 (May 21, 2014).  The Fifth Circuit agreed that the new position was barred by judicial estoppel. Key to its analysis was that while the barge owner’s positions were in the alternative in the first action, which would not create estoppel: “Once a court has accepted and relied upon one of a party’s several alternative positions, any argument inconsistent with that position may be subject to judicial estoppel in subsequent proceedings.”  The Court also concluded that the district court’s decision to stay the second case so the first could proceed did not compel an argument choice in that case that would make the application of judicial estoppel inequitable.

The Twombly line of cases emphasizes the importance of detail in pleading.  In the insurance context, however, too much detail can defeat coverage.  In State Farm v. Moseley, the Fifth Circuit affirmed a summary judgment for an automobile insurer as to the duty to indemnify, concluding that a “volunteer driver” for a healthcare provider fell within the policy’s “for a charge” exclusion.  The driver received compensation that, while focused on reimbursement for expenses, could yield profit depending on the route taken and the number of passengers.  As to the duty to defend, however, the Court reversed, finding that the following pleading did not unambiguously trigger the exclusion, as it did not allege that “(1) [Plaintiff] gave [Defendant] any payment for transporting her; (2) [Defendant] was operating a taxi service; or (3) the specific amount of compensation [Defendant] received for transporting [Plaintiff]”:

“11.  Upon information and belief, Defendant Elizabeth W. Mosley, owned, operated, and controlled, or in the alternative, was doing business as Mosley’s Transportation. Upon information and belief, the Defendant, Elizabeth W. [Mosley], owned, operated, and controlled, or in the alter- native, was doing business as LogistiCare of MS. Further, upon infor- mation and belief, the Defendant, Elizabeth W. Mosley . . . is in the business of transporting patients to and from their medical treatment facilities.

12. The Defendant, LogistiCare Solutions, LLC, in the regular course of business, operates and maintains a non-emergency medical transportation services business . . . .

13. That on or about March 19, 2010, the Deceased, Pearlie Graham, was being transported by the Defendant, Elizabeth W. Mosley, and riding as a guest passenger in a vehicle being driven and operated by the Defendant, Elizabeth W. Mosley, Individually and d/b/a Mosley’s Transportation and/or d/b/a LogistiCare of MS, or in the alternative, [] was acting in furtherance of and within the course and scope of her employment with Defendant, LogistiCare Solutions, LLC . . . . “

Celebrate Memorial Day this year with a refreshing Ramos Gin Fizz, one of the classic and unique New Orleans cocktails.

“Picking up where we left off in Germano v. Taishan Gypsum Company, Ltd., 742 F.3d 576 (5th Cir. 2014),” the Fifth Circuit affirmed personal jurisdiction in three other suits involving default judgments arising from the “Chinese Drywall” MDL litigation.  In re: Chinese-Manufactured Drywall Products Liability Litig., No. 12-31213 (May 20, 2014).  Again, the Court found jurisdiction for the same basic reasons related to the “stream of commerce.” Applying Florida and also Louisiana law, this opinion also features a detailed discussion of when an agency relationship can give rise to jurisdiction, applying the recent Supreme Court case of Daimler AG v. Bauman, 134 S. Ct. 746 (2014).

The Fifth Circuit has now resolved the challenges to BP’s Deepwater Horizon settlement, as follows:

1.  In October 2013, in three separate opinions, First Panel remanded for more fact findings as to accounting issues about the settlement.

2.  In January 2014, in a 2-1 decision, Second Panel affirmed the settlement over challenges based on Rule 23 and related standing issues.

3.  In March 2014, satisfied with the results of the remand, First Panel affirmed the mechanics of the settlement in a 2-1 decision.

4.  On May 19, 2014:

A.    First Panel denies panel rehearing, concluding in a 2-1 opinion: “In settling this lawsuit, the parties agreed on a substitute for direct proof of causation by a preponderance of the evidence.  By settling this lawsuit and agreeing to the evidentiary framework for submitting claims, the claimants did not abandon their allegations of Article III causation.”

B.  Second Panel also denies panel rehearing, also in a 2-1 opinion, noting its “complete agreement” with the denial of panel rehearing by First Panel.

C.  The full court denied en banc rehearing as to First Panel and also as to Second Panel, both over dissents that stressed Article III issues.

That’s all folks!

Eckhardt v. Qualitest Pharmaceuticals reviewed tort claims under Texas law against generic drug manufacturers.  No. 13-40151 (May 15, 2014).   The Fifth Circuit found that labeling claims were preempted under PLIVA, Inc. v. Mensing, 131 S. Ct. 2567 (2011), and products liability claims were preempted under Mutual Pharmaceutical Co. v. Bartlett, 133 S.Ct. 2466 (2013).  Misrepresentation claims against brand-name drug manufacturers were rejected under state law for lack of a duty from them to generic-drug users. Law360 provides some further discussion.

The full Senate confirmed Judge Gregg Costa’s appointment to the Fifth Circuit yesterday. While great news for the Court and bar, it bears mention that the seat was open for 837 days, and two vacancies still remain on the Fifth Circuit.  Just as it is difficult to balance the sound of an orchestra missing musicians, it is hard to balance the powers of a government missing key officials.

In Songcharoen v. Plastic & Hand Surgery Associates, the district court denied cross-motions for summary judgment about the meaning of a contract and had a trial as to the terms it believed to be ambiguous.  No. 13-60315 (April 2, 2014, unpublished).  Even though both matters present a common issue of law, because “the ‘evidence’ presented at pretrial may well be different from the evidence presented at trial,” the Court reviewed the issue through review of the denial for judgment as a matter of law.  The Court reminded: “because Rule 50 motions for judgment as a matter of law are not required following a bench trial, reviewing a district court’s denial of summary judgment is appropriate following a bench trial.”  (citing Black v. J.I. Case Co., 22 F.3d 568, 570 (5th Cir. 1994), and Becker v. Tidewater, Inc., 586 F.3d 358, 365-66 n.4 (5th Cir. 2009)).

The defendant in Advanced Nano Coatings, Inc. v. Hanafin “entered into an employment agreement with [plaintiff] in which [defendant] agreed to devote 100% of his professional time and effort to [plaintiff] or its subsidiary . . . .”  No. 13-20109 (Feb. 19, 2014, unpublished).  “The district court . . . found that Hanafin breached his fiduciary obligations . . . a finding Hanafin does not dispute on appeal.”  Quoting ERI Consulting Engineers v. Swinnea, 318 S.W.3d 867, 872 (Tex. 2010), the Fifth Circuit noted that under Texas law, “if the fiduciary . . . acquires any interest adverse to his principal, without a full disclosure, it is a betrayal of his trust and a breach of confidence, and he must account to his principal for all he has received.” The Court then held: “Accordingly, [defendant’s] breach of fiduciary duties obligates him to repay everything he gained by virtue of his position, including payments for his salary and any expenses he may have incurred.”

Chesapeake sued two defendants to recover a large overpayment.  Harleton Oil & Gas intervened to claim a share of that payment.  Chesapeake Louisiana L.P. v. Buffco Prod., Inc., No. 13-40458 (May 7, 2014, unpublished).  The Fifth Circuit ruled: (1) Harleton should have been aligned as a plaintiff rather than a defendant, since it “intervened to seek affirmative relief, not to protect its interests . . . .”; (2) that change destroyed diversity and mooted a summary judgment granted by the district court; (3) the case should then be remanded for the district court to consider whether Harleton is indispensable and its joinder requires dismissal of the entire action; but (4) the district court had jurisdiction over the defendants’ counterclaims against Chesapeake, which involved different wells than the one relevant to Harleton.  “When an independent basis for jurisdiction exists with respect to a counterclaim, a federal court may adjudicate the claim even if the original claim was dismissed for lack of subject-matter jurisdiction.”

The short opinion in Navigators Ins. Co. v. Moncla Marine Operations LLC rejected the appeal of a decision to continue a stay of court proceedings, involving the proceeds from the sale of a barge, in favor of arbitration.  No. 13-30975 (May 8, 2014, unpublished).  The Court reminded: (1) a stay is not an appealable final order (citing Apache Bohai Corp. v. Texaco China, B.V., 330 F.3d 307 (5th Cir. 2003)); (2) absent a clear identification of an “important issue . . . completely separate from the merits,” the collateral order doctrine does not allow appeal either; and (3) neither does mandamus, distinguishing a D.C. Circuit case involving a court’s statutory authority over enforcement of a foreign arbitral award.  In a footnote, the Court noted a citation by the movant to In re Radmax, 720 F.3d 285 (5th Cir. 2013), and made the understated observation: “The factors that must be demonstrated to obtain mandamus relief in a venue transfer case are not the same as the factors in an arbitration case.”

In the earlier case of Levy Gardens Partners v. Commonwealth Land Title Ins. Co., the Fifth Circuit concluded that a pleading about the extent of coverage was “fundamental to the complaint” and “did not raise a new matter outside of the complaint”; accordingly, it did not implicate the rules about the pleading of affirmative defenses.  706 F.3d 622, 633 (5th Cir. 2013).  In contrast, in LSRef2 Baron LLC v. Tauch, the Court held that a guarantor’s defense of payment by the primary obligor was an affirmative defense.  After a review of Louisiana law on the topics of offset and setoff, which characterizes those matters as defenses, the Court concluded that “[Plaintiff] simply had to allege in its complaint that there was an event of default, which is defined in the Loan Agreement, not in the Guaranty.”  The Court also agreed that the issue had not been raised in a “pragmatically sufficient time,” as “all of the critical pretrial deadlines had passed or were about to expire.”

Colbert v. Brennan arises from the difficult litigation involving the Brennan family, the noted New Orleans restaurateurs.  No. 13-30069 (May 9, 2014, unpublished).  Ted Brennan filed an unopposed motion to dismiss an appeal, pursuant to a settlement agreement [the finality of the agreement is not clear from the opinion].  (Pursuant to Fed. R. App. P. 42(b), “an appeal may be dismissed on an appellant’s unopposed motion if the parties agree about costs.”)  Two months later, he sought to reinstate the appeal.  Citing Williams v. United States, 553 F.2d 420 (5th Cir. 1977), the Fifth Circuit held that the voluntary dismissal “voided” the notice of appeal, noting that “[h]e failed to file a new notice of appeal within the time limits required by Ruel 4(a) or to seek relief in the district court as provided by Rule 4(a).”  Citing Bowles v. Russell, 551 U.S. 205 (2007), the Court declined to apply any “equitable exception” to the rule that a notice of appeal is jurisdictional.  The Court also held it was not bound, on this jurisdictional question, by a previous single-judge ruling that reinstated the appeal.

In United States ex rel Spicer v. Navistar Defense, LLC, the Fifth Circuit found that bankruptcy debtors failed to make adequate disclosure of a potential False Claims Act claim as an estate asset.  No. 12-10858 (May 5, 2014).  Accordingly, the trustee was the real party in interest and was able to take over the administration of the claim, even though he did not learn of it until after the bankruptcy closed and long after suit was filed on the claim.  The review of the debtors’ disclosure is of broad general interest.  As to the merits, the Court affirmed dismissal, reminding that “a false certification of compliance, without more, does not give rise to a false claim for payment unless payment is conditioned on compliance.”

Legal advice or business discussion?  This question is the key issue in most privilege disputes about in-house counsel.  The Fifth Circuit addressed that question and offers practical guidance for in-house counsel in Exxon Mobil Corp. v. Hill, No. 13-30830 (May 6, 2014).

ExxonMobil intervened in tort litigation to contend that the attorney-client privilege protected a short 1988 memo by an in-house lawyer. The lawyer created the memo during negotiations between Exxon Mobil and ITCO, a company that would store oil production equipment for it.  The memo recommended that Exxon Mobil, in response to an information request by ITCO, make a limited disclosure from a report it had about radioactivity associated with the equipment. As the Fifth Circuit summarized: “Stein [the lawyer] suggested that Guidry [the client] disclose only Table IV [of the report], because it contained the only data that ITCO specifically had requested, and that Guidry remove the caption ‘Table IV’ so as not to flag the existence of other tables.”   (The memo identifies the sender as “Counsel,” but does not otherwise say that the contents are privileged.)

Plaintiffs contended that the effect of this advice was to conceal information about dangerous levels of radiation.  The district court opinion [page 61 of the attached] rejected ExxonMobil’s position about privilege, reasoning that it had not shown that the “primary or predominant” purpose for consultation with the lawyer was for legal advice, “particularly in light of the fact that the [memo] itself does not contain any reference to a legal justification for Stein’s advice, or legal concerns prompting Guidry to seek such advice. . . . [I]t appears from the face of the document that the primary purpose of Stein’s advice to Guidry was to help secure more favorable contract terms . . . .”

The Fifth Circuit reversed.  Stating that its conclusion would be the same under de novo or clear error review, the Court held: “The manifest purpose of the draft [attached to the memo] was to deal with what would be the obvious reason Exxon Mobil would seek its lawyer’s advice in the first place, namely to deal 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.”

This opinion offers practical guidance for maintaining privilege as to in-house counsel. First, the memo is focused.  Written in 1988, before long email chains became common, it presents a short exchange on a specific topic.  Second, it has a specific audience — it is written to a specific person rather than a large group — or a “reply all.”  Finally, it is clear. The memo refers directly to legal concepts such as warranty liability and property interests.  The memo’s focus, audience, and clarity appear to have been critical for the Court’s analysis and the preservation of Exxon Mobil’s privilege with its in-house counsel.

The plaintiff in Marucci Sports LLC v. NCAA alleged that the “Bat-Ball Coefficient of Restitution Standard” — a testing protocol “to ensure that aluminum and composite bats perform like wood bats” — was in fact an anticompetitive device calculated to protect the NCAA’s relationship with large bat manufacturers.  No. 13-30568 (May 6, 2014).  The Fifth Circuit affirmed dismissal, finding: (1) inadequate pleading of a conspiracy under Twombly; (2) inadequate pleading of an injury to “competition among non-wood baseball bat manufacturers” as opposed to its own; and (3) that the standard could fairly be called a procompetitive “rule and condition” of athletic competition.  Denial of leave to amend was also affirmed.

Odle v. Wal-Mart Stores, Inc. presents an interesting, if unlikely to recur, issue about the tolling of limitations during appellate review of class certification.  No. 13-10037 (April 1, 2014).  The question was whether one of the plaintiffs in the original Wal-Mart v. Dukes class action was barred by limitations, when the Ninth Circuit’s en banc ruling had remanded the “former employee” claims (which included hers) for further consideration under a different part of Rule 23 that what the district court used.   The Fifth Circuit concluded that, under the considerations detailed by American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) and later Circuit cases applying it, the claim was not time-barred: “To rule otherwise would frustrate American Pipe‘s careful balancing of the competing goals of class action litigation on the one hand and statutes of limitation on the other, by requiring former class members to file duplicative, needless individual lawsuits before the court could resolve the class certification issue definitively.”

A restaurant showed the pay-per-view broadcast of a boxing championship without the approval of the holder of the licensing rights.  J&J Sports Productions, Inc. v. Mandell Family Ventures, LLC, No. 13-10485 (May 2, 2014).  The licensor sued the restaurant under the Federal Communication Act, and the district court granted summary judgment to the licensor for $350 in statutory damages and $26,730.30 in attorneys fees.  The Fifth Circuit reversed, reviewing two issues.  First, as to the licensor’s claim under section 553 of the Act, the Court found a fact issue as to whether the restaurant had been “specifically authorized . . . by a cable operator” to make the showing, which would bring the restaurant within a statutory safe harbor.  The Court reviewed affidavit testimony of the cable company that at least showed “the Defendants did not steal, intercept, or obtain the broadcast under false pretenses.”  Second, the Court rejected a claim based on section 605 of the Act, finding it limited to radio communications only (thereby siding with the Third Circuit in a split with the Seventh about the applicability of that section to cable television).

The Fifth Circuit released a slightly revised opinion in Excel Willowbrook LLC v. JP Morgan Chase Bank, No. 12-20367 (revised April 24, 2014), a dispute about the FDIC’s rights upon assigning the assets of a failed bank.  Of particular interest is the new footnote 34, which observes: “[T]he continued vitality of prudential ‘standing’ is now uncertain in the wake of the Supreme Court’s recent decision in Lexmark International, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014).  See id. at 1388 (‘[A] court . . . cannot limit a cause of action . . . merely because “prudence” dictates.’).”

At issue in Asarco v. Baker Botts. L.L.P. was a fee enhancement associated with an exceptional recovery in fraudulent transfer litigation for a bankruptcy estate.  No. 12-40997 (April 30, 2014).  The Fifth Circuit credited the bankruptcy court’s detailed findings about the quality of the law firms’ work and the “rare and extraordinary” result.  In so doing, the Court reminded that “[b]ecause this court, like the Supreme Court, has not held that reasonable attorneys’ fees in federal court have been ‘nationalized,’ the bankruptcy court’s charts comparing general hourly rates of out-of-state firms and rates charged in cases pending in other circuits are not relevant.”  The Court rejected the firms’ request for compensation from the estate for defending their fee applications, reasoning that the Code had sufficient protections against vexatious litigation, and declining to further expand the American Rule about defendants’ fees.

1.  The Fifth Circuit vacated its panel opinion in Sawyer v. duPont to certify two questions to the Texas Supreme Court — paraphrased slightly, they were (1) whether an at-will employee can sue for fraud for loss of employment, and (2) whether a 60-day “cancellation-upon-notice” collective bargaining agreement would change a “no” answer to (1).  The Texas Supreme Court has now answered those questions: “no” as to the basic question about a fraud claim arising from at-will employment, and “in the situation presented, no” to the second question about the effect of the CBA.  “The Employees argue that it would contravene public policy to allow an employer to benefit from its duplicity, but public policy is not better served by allowing contracting parties to circumvent their agreement.”  No. 12-0626 (Tex. April 25, 2014).  (The Fifth Circuit formally adopted that reasoning and affirmed on June 11, 2014).

2.  Similarly, the Court vacated its panel opinion in Ewing Construction v. Amerisure Insurance Corp. to certify the question whether a CGL policy’s “Contractual Liability Exclusion” would reach a contract in which a contractor commits to work in a “good and workmanlike manner.”  The Texas Supreme Court answered “no”: “[A] general contractor who agrees to perform its construction work in a good and workmanlike manner, without more, does not enlarge its duty to exercise ordinary care in fulfilling its contract, thus it does not ‘assume liability’ for damages arising out its defective work so as to trigger the Contractual Liability Exclusion.”  No. 12-0661 (Tex. Jan. 17, 2014).  The opinion has been called a “significant reassurance” to policyholders in the construction business.

In the recent case of French v. EMC Mortgage Corp., No. 13-50417 (April 29, 2014, unpublished), these allegations were deemed to “reference[] the FDCPA by way of asserting a cause of action under this federal statute,” and thus allowing removal:

“V.  ILLEGAL MORTGAGE SERVICING AND DEBT COLLECTION PRACTICES.

. . .

Specifically in collection calls and notices, monthly statements, payoff statements, foreclosure notices, and otherwise, EMC routinely makes misrepresentations to borrowers about their loans, including: [6 topics]

. . .

Plaintiffs submit that Defendant EMC’s conduct in this matter is in direct violation of the Texas Fair Debt Collection Practices Act, the Federal Fair Debt Collection Practices Act and the above referenced stipulated injunction.”

This case rested on Howery v. Allstate Ins. Co., 243 F.3d 912 (5th Cir. 2001), in which the following allegations did not create federal question 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”:

The acts, omissions, and other wrongful conduct of Allstate complained of in this petition constituted unconscionable conduct or unconscionable course of conduct, and false, misleading, or deceptive acts or practices. As such, Allstate violated the Texas Deceptive Trade Practices Act, Sections 17.46, et seq., and the Texas Insurance Code, including articles 21.21, 21.21-1, 21.55, and the rules and regulations promulgated thereunder, specifically including 28 TAC Section 21.3, et seq. and 21.203.

…

Allstate’s destruction of [Howery’s] file … constituted a further violation of the Texas Deceptive Trade Practices Act, for which plaintiff sues for recovery. Allstate also engaged in conduct in violation of the Federal Trade Commission rules, regulations, and statutes by obtaining Plaintiff’s credit report in a prohibited manner, a further violation of the Texas Deceptive Trade Practices Act….

While these holdings are consistent, the line between them is only a few words in a lengthy pleading.  They underscore the importance of detail in considering whether removal is appropriate.

The dispute presented by the petition for a writ of mandamus in In re Times-Picayune, LLC was a criminal defendant’s ability to have identifying information about online commentators on the defendant’s case produced for in camera review; the defendant contending that the commentators were federal prosecutors.  No. 14-30298 (April 8, 2014, unpublished).  The Fifth Circuit denied the petition, reasoning: “Here, we are not persuaded that the district court’s (1) balancing of the speech rights of anonymous commenters against the due process interests of [defendant] and (2) ordering the Times-Picayune to turn over information for in camera review was clearly and indisputably erroneous. As an initial matter, there is little case law illuminating how the competing interests in situations comparable to this one should be balanced. . . . Even in the absence of precedent, however, we cannot say that the district court here clearly reached the wrong decision.”   [The short opinion is worth comparing to the concurrence in All Plaintiffs v. Transocean Offshore from 2013, about the availability of mandamus relief for discovery matters.]  And subsequently, the district court concluded that the commentator at issue was not a prosecutor.

The plaintiffs in Singha v. BAC Home Loans Servicing LP alleged a number of foreclosure-related claims, most of which were resolved by recent Fifth Circuit precedent.  Among them was a claim for unfair debt collection based on the common situation of failed negotiations about a loan modification.  As to that issue, the Court observed: “We do not announce a rule that modification discussions may never be debt collection activities. We do conclude, though, that the [Plaintiffs’] particular factual allegations here – allegations of what occurred during the course of what they describe as more than fifty phone calls and other contacts during a protracted loan modification process – are not communications in connection with collection of a debt.” (emphasis in original).  No. 13-40061 (April 17, 2014, unpublished).

The plaintiff in Jonibach Management Trust v. Wartburg Enterprises sued the defendant for breach of an oral contract; specifically, an agreement to exclusively market the plaintiff’s products in the US.  No. 13-20308 (April 24, 2014).  The defendant made three counterclaims, two of which were dismissed because they relied on an additional oral modification to the contract and could not satisfy the Statute of Frauds.  The third survived before the Fifth Circuit, however, as it was essentially the mirror image of the plaintiff’s claim — contending that the plaintiff wrongfully supplied goods to other distributors.  Among other reasons for that conclusion, the Court noted that the plaintiff’s “pleadings and testimony regarding the initial contract . . . constitute judicial admissions,” and reviewed the elements of such an admission.

In Aviles v. Russell Stover Candies, the Fifth Circuit again engaged the issue of whether the unilateral power to change an arbitration clause makes it illusory and unenforceable. No. 12-11227 (April 4, 2014, unpublished).  This time, however, the Court observed that the agreement subjected to arbitration “any and all claims challenging the validity or enforceability of the [Waiver and Arbitration] Agreement.”   Accordingly, the Court affirmed the dismissal of her case in favor of arbitration, but vacated the magistrate judge’s resolution of the enforceability issue because it “should have declined to decide either of those two issues.”

The plaintiff in Sanders v. Flanders alleged legal malpractice arising from the handling of patent applications.  The Fifth Circuit did not engage the question whether he had shown lost profits with reasonable certainty, noting: “[C]ounsel admitted during oral argument that [Plaintiff] did not make any offer of proof concerning the lost-profit evidence that he would have otherwise presented but for the district court’s hearsay ruling.”  No. 13-50235 (April 22, 2014, unpublished).

In reviewing a motion to dismiss under Rule 12(b)(6), the district court “must limit itself to the contents of the pleadings, attachments thereto,” and “may also consider documents attached to either a motion to dismiss or an opposition to that motion when the documents are referred to in the pleadings and are central to a plaintiff’s claims.”  Brand Coupon Network LLC v. Catalina Marketing Corp., No. 13-30756 (April 8, 2014).  Here, without converting the Rule 12 motion into a summary judgment motion, the district court considered an affidavit “signed . . . a day before [plaintiff] filed its opposition to Defendants’ motion to dismiss, and weeks after the filing of the petition.”  Accordingly, the Fifth Circuit reversed a dismissal under Rule 12 on limitations grounds.

Compare Sigaran v. U.S. Bank, N.A., No. 13–20367 (April 30, 2014, unpublished): “The district court, however, did not rely on those documents in making its ruling. The additional documents were relevant to the merits of the Sigarans’ claims under the Texas Constitution, but the district court did not reach the merits of those claims and instead dismissed them as barred under the statute of limitations. The mere presence of those documents in the record, absent any indication that the district court relied on them, does not convert the motion to dismiss into a motion for summary judgment.”

At issue in Hess Management Firm, LLC v. Bankston were the damages arising from the termination of a contract about the operation of a gravel pit (sadly, not a magical gravel pit of rule-against-perpetuities lore).  No. 12-31016 (April 18, 2014).  The dispute was whether damages were capped at 180 days — the contract term for adequate notice of closure — or whether the closure of the pit was post-breach activity that is not relevant to damage calculation.  The Fifth Circuit sided with the bankruptcy court and reversed the district court’s enlargement of the damages, concluding: “A contrary result would defeat the maxim of placing a non-breaching party in the same position they would have been had breach not occurred, and award [plaintiff] more than their expectation interest.”

1.  Defendants’ Rule 59 motion was filed a day late, “therefore the district court did not abuse its discretion in denying the motion.”

2.  Post-verdict, the defendant did not renew, under Fed. R. Civ. P. 50(b), an earlier Fed. R. Civ. P. 50(a) motion that challenged the sufficiency of the evidence for the plaintiff’s mental anguish claims.  The Court “decline[d] to review” the issue, noting that the Fifth Circuit’s cases “are not entirely uniform” as to whether this oversight was a waiver or allows review under a plain error standard.

3.  The Court found no plain error from the plaintiff’s closing argument, including the lawyer’s “odd tactic of handing his business card to the jury during argument, especially in light of the court’s curative instructions and [defendant’s] failure to move for a mistrial.” McLendon v. Big Lots Stores No. 13-20338 (April 14, 2014, unpublished).

Class actions were filed about the effects of an explosion at a chemical plant.  The Fifth Circuit agreed that CAFA jurisdiction had not been established.  Citing Berniard v. Dow Chem. Co., 481 F. App’x 859 (5th Cir. 2010), the Court held: “[D]efendants ‘overstate the reach of the plaintiffs’ petitions by improperly equating the geographic areas in which potential plaintiffs might reside with the population of the plaintiff class itself.  Further, the comparisons that the Defendants-Appellants make to damage recovery in similar cases is too attenuated to satisfy their burden.'”  Perritt v. Westlake Vinyls Company, L.P., No. 14-30145 (April 14, 2014, unpublished).  The Court also noted: “Bald exposure extrapolations are insufficient to establish the likely number of persons affected by the release or, for those affected, the severity of their harm.”

The parties’ letter agreement incorporated “AIA Document B51” with respect to “the services provided . . . under this Agreement.”  That document states that all claims shall be adopted under the AAA’s Construction Industry Arbitration Rules. Those Rules state that “the arbitrator shall have the power to rule on his or her own jurisdiction.”  The Fifth Circuit found the agreement’s incorporation of the other documents to be effective, and accordingly the arbitrator had jurisdiction to determine arbitrability — including, whether the parties’ dispute involved “services.”  RW Development, LLC v. Cunningham Group Architecture, P.A., 13-60010 (April 11, 2014, unpublished).

Congress amended the Fair Credit Reporting Act to have a limitations period of “2 years after the date of discovery by the plaintiff of the violation that is the basis for such liability.”   The plaintiff in Mack v. Equable Ascent Financial, LLC argued that this amendment meant that “he could not have ‘discovered’ the violation until he had researched the statute.”  No. 13-40128 (April 11, 2014).  The Fifth Circuit disagreed, finding that the amendment was made to equalize the treatment of different types of claims, and that the plaintiff’s reading “would indefinitely extend the limitations period.”

Several operators of drug stores sued pharmacy chains for misappropriating confidential information.  The defendants successfully compelled arbitration and the Fifth Circuit affirmed.  Crawford Professional Drugs v. CVS Caremark Corp., 748 F.3d 249 (5th Cir.
2014). Specifically (applying Arizona law), the Court found that the plaintiffs’ allegations sufficiently invoked the terms of a contract that contained an arbitration agreement, allowing arbitration to be compelled against nonsignatories on an equitable estoppel theory.  The Court went on to reject the plaintiffs’ argument that the contract, and its arbitration clause, were procedurally unconscionable contracts of adhesion.  It also found insufficient evidence to support their argument that the clause imposed substantively unconscionable litigation costs.  (The Court recently revisited this topic in Muecke Co. v. CVS Caremark Corp., No. 14-41213 (Aug. 25, 2015)).

The unfortunate plaintiff in Robinson v. Wal-Mart Stores LLC argued that her state court petition referenced a $23,500 medical bill, which was in fact only $235. No. 12-41411 (April 9, 2014, unpublished).  The Fifth Circuit affirmed the denial of her motion to remand, reminding: “If at the time of removal it is facially apparent from the state-court petition that he amount in controversy exceeds $75,000, a plaintiff’s subsequent request to amend her petition to ‘clarify’ the amount in controversy cannot divest jurisdiction.”  The Court also observed: “In addition, prior to removal, Wal-Mart proposed to Robinson that she stipulate to no more than $75,000 in damages in exchange for not removing the case to federal court,” and that the plaintiff had declined to make that stipulation.

In Haase v. Countrywide Home Loans, Inc., the district court dismissed the plaintiff’s RESPA claim, declined to exercise supplemental jurisdiction over the remaining state law claims, and remanded them to state court.  No. 12-20806 (April 9, 2014).  Appellees argued that “because this judgment remanded the remaining state claims to the state court without addressing their respective merits, it is not a final disposition of all claims in the case, and therefore not appealable under 28 U.S.C. § 1291.”  The Fifth Circuit disagreed, concluding that “as a practical matter, remands end federal litigation and leave the district court with nothing else to do.”  (applying Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (1996)).

Payne sued Progressive Financial for violations of fair debt collection statutes, seeking statutory damages, actual damages, attorneys fees, and costs.  Payne v. Progressive Financial Services, No. 13-10381 (April 7, 2014).  Progressive made a Rule 68 offer of $1,001 in damages and fees to the date of the offer, to which Payne did not respond.  The district court reasoned that Payne had not pleaded a basis to recover actual damages, and that the unaccepted offer mooted her claim for statutory damages because it exceeded the amount she could recover.  The Fifth Circuit reversed, finding that the district court’s analysis of the actual damages claim conflated jurisdiction with resolution of the merits; accordingly, Progressive’s offer was incomplete because it did not address actual damages.  A footnote reminds that a complete Rule 68 offer can moot a case, and that the Court did not reach the argument that the offer was incomplete because it did not include post-offer fees and costs.

The stark facts of Bierwith v. Countrywide Bank, FSB are: “[A[ppellant’s] notice of appeal was filed on August 16, 2013, thirty-one days after the district court’s entry of final judgment on July 16, 2013.  Federal Rule of Appellate Procedure 4 provides that a notice of appeal ‘must be filed with the district clerk within 30 days after entry of the judgment or order appealed from.’  As the Supreme Court has made clear, a party’s failure to take an appeal within the prescribed time precludes our jurisdiction.   Accordingly, [Appellants’] appeal is DISMISSED.”  No. 13-50755 (April 3, 2014, unpublished) (footnotes omitted).

The State of Louisiana sued several insurers, alleging it was the beneficiary of assignments made by the insured in return for help rebuilding after Hurricane Katrina.  The insurers removed to federal court under CAFA.  After extensive proceedings, the district courts ultimately severed the actions by individual policy and ordered remand to state court.  State of Louisiana v. American National Property & Casualty Co., No. 14-30071 (March 26, 2014).  The Fifth Circuit reversed because “at the time of removal, these claims clearly possessed original federal jurisdiction as an integrated part of the CAFA class action.”  Noting language in Honeywell International v. Phillips Petroleum that “a severed action must have an independent jurisdictional basis,” 415 F.3d 429, 431 (5th Cir. 2005), the Court limited that language as “appl[ying] only to severed claims that are based on supplemental jurisdiction.”

1. How close does Twombly come to Fed. R. Civ. P. 9(b)?  Consider Merchants & Farmers Bank v. Coxwell, affirming the dismissal of a pleading: “The complaint did not specify what court issued the order, when it was issued, or to whom it was directed; [and] the complaint did not describe what the order required . . . .”  No. 13-60368 (5th Cir. Feb. 7, 2014, unpublished).
2. Credibility questions create fact issues.  See Vaughan v. Carlock Nissan of Tupelo, No. 12-60568 (5th Cir. Feb. 4, 2014, unpublished) (reversing a summary judgment about a manager’s “bad faith,” noting credibility questions about his claimed justifications for a firing, ambiguity in other statements, and the timing of the termination).
3. Forum non conveniens factors – the “availability of witnesses” factor is reviewed by Royal Ten Cate USA, Inc. v. TT Investors, Ltd.  No. 13-50106 (5th Cir. March 25, 2014, unpublished), and Indusoft, Inc. v. Taccolini, No. 13-50042 (March 19, 2014, unpublished).
4. Conflicting documents about arbitration are harmonized in Lizalde v. Vista Quality Markets, ___ F.3d ___ (5th Cir. March 25, 2014) (enforcing an arbitration agreement despite a benefit plan with a broad termination right, noting that both agreements’ termination provisions “clearly demarcate their respective applications”).
5. Settlement efforts as prerequisite for arbitration.  This language — “the parties agree to negotiate in good faith toward resolution of the issues, and to escalate the dispute to senior management personnel in the event that the dispute cannot be resolved at the operational level” — does not create a requirement of negotiation by senior management before arbitration is invoked.  21st Century Financial Services v. Manchester Financial, ___ F.3d ____ (5th Cir. March 31, 2014).

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This language — “the parties agree to negotiate in good faith toward resolution of the issues, and to escalate the dispute to senior management personnel in the event that the dispute cannot be resolved at the operational level” — does not create (1) a requirement of negotiation by senior management before arbitration is invoked, or (2) a condition that any senior management negotiation fail before arbitratation is invoked.  It simply requires negotiation at the operational level.  21st Century Financial Services v. Manchester Financial, No. 13-50389 (March 31, 2014).

The district court granted a dismissal in favor of New Zealand, on forum non conveniens grounds, in Royal Ten Cate USA, inc. v. TT Investors, Ltd.  No. 13-50106 (March 25, 2014, unpublished).  The Fifth Circuit remanded for further consideration of what it saw as a key private-interest factor — “whether two key witnesses who reside in Texas would be amenable to process in New Zealand.”   The witnesses in question were former party employees living in Texas, and the parties disputed whether those individuals’ employment contracts obligated them to cooperate with litigation after their employment.  Their importance was heightened because they were particularly significant to one side, while the other side did not appear to have comparable problems with its likely witnesses.  The Court did not express an opinion about the proper result on remand, and noted that “[t]he decision regarding whether or not to take additional evidence is one that we leave to the sound discretion of the district court.”

A law firm appealed the disposition of its fee application.  The district court affirmed the bankruptcy court in part, vacated in part, and remanded for the firm to make another fee request that provided more necessary information.  Okin Adams & Kilmer v. Hill, No. 13-20035 (March 24, 2014).  The firm appealed to the Fifth Circuit, which concluded it had no appellate jurisdiction because the order was not final: “Given that the bankruptcy court must perform additional fact-finding and exercise discretion when determining an appropriate attorney’s fee award, the district court’s order requires the bankruptcy court to perform judicial functions upon remand.”  A detailed dissent concluded that, while the district court’s order required “more than a mechanical entry of judgment,” “it also involves only mechanical and computational tasks that are ‘unlikely to affect the issue that the disappointed party wants to raise on appeal.'”  Accordingly, it warned that “refusing to hear this appeal undermines the long-recognized, salutary purpose of allowing appeals in discrete issues well before a final order in bankruptcy.”

In Lizalde v. Vista Quality Markets, the Fifth Circuit revisited the recurring issue of whether an arbitration agreement becomes illusory because of an employer’s right to amend the terms of employment.  No. 13-50015 (March 25, 2014).The parties’ Arbitration Agreement gave the employer the power to terminate that agreement after following several procedural prerequisites, which made that agreement non-illusory.  In contrast, the parties’ Benefit Plan had a “completely unrestrained” termination power.  And, the Arbitration Agreement acknowledged: “this Agreement is presented in connection with the Company’s [Benefit Plan].  Payments made under the [Benefit Plan] also constitute consideration for this Agreement.”  The district court found the arbitration agreement illusory, based on that connection.  The Fifth Circuit reversed, nothing that both agreements’ termination provisions were limited to “this Agreement” and “this Plan” respectively and thus “clearly demarcate their respective applications.”

The plaintiffs in Moran v. Ocwen Loan Servicing LLC ran afoul of the holding in Priester v. JP Morgan Chase, 708 F.3d 667 (5th Cir. 2013), that “liens that are contrary to the requirements of § 50(a) [of the Texas Constitution] are voidable rather than void from the start.”  No. 13-20242 (March 24, 2014, unpublished).  They sought certification to the Texas Supreme Court to correct what they contended was an erroneous holding in Priester.  The Fifth Circuit gave two valuable general reminders in this area. First: “It is a well-settled Fifth Circuit rule of orderliness that one panel of our court may not overturn another panel’s decision, absent an intervening change in the law, such as by a  statutory amendment, or the Supreme Court, or our en banc court.”  Second, “While the Texas Constitution allows this court to certify questions to the Texas Supreme Court, certification is not a proper avenue to change our binding precedent.”

Indusoft sued in the Southern District of Texas alleging theft of intellectual property.  Two defendants moved to dismiss on the grounds of forum non conveniens (under Gulf Oil Corp. v. Gilbert, 330 U.S. 501 (1947), not 1404(a)).  The Court affirmed dismissal, finding no error in (1) presuming that Brazil was an adequate alternate forum, (2) concluding that certain electronic data was more likely to be preserved in Brazil, (3) discounting the importance of one witness for whom compulsory process would not be available in Brazil, and (4) analyzing the interplay between the Texas case and related litigation in Brazil. Indusoft, Inc. v. Taccolini, No. 13-50042 (March 19, 2014, unpublished). The Court reversed dismissal of the other defendants’ counterclaims, finding that it was erroneous to do so sua sponte (citing Lozano v. Ocwen Federal Bank, 489 F.3d 636, 643 (5th  Cir. 2007)).

After the Supreme Court’s reversal of the Fifth Circuit in Mississippi v. AU Optronics, which held that the case was not a “mass action” under CAFA, AU Optronics argued that federal courts still had jurisdiction over the matter as a “class action.”  The Fifth Circuit disagreed, finding that it had addressed and rejected that argument in its prior panel opinion.  Mississippi v. AU Optronics, No. 12-60704 (March 19, 2014, unpublished).  Its treatment of the issue was not dicta because it was “an explication of the governing rules of law” that received the Court’s “full and careful consideration.” Because that analysis “was a proper holding, the law-of-the-case doctrine forbids its reconsideration.”  Alternatively, the point was waived when AU Optronics did not appeal it to the Supreme Court.  (While the distinction between holding and dicta is fundamental to the common law, much less appellate practice, a formal definition such as this is rare.  A detailed analysis appears in Loud Rules, an article in the Pepperdine Law Review by this blog’s author and Professor Wendy Couture of the University of Idaho Law School.)

While a host of opinions have addressed basic problems with common plaintiffs’ theories in mortgage servicing cases, the recent case of Williams v. Wells Fargo is a useful guide to a wide range of them in a single opinion, including the statute of frauds and its exceptions, waiver, and basic TDCPA and RESPA violations.  The Court also reminded that a good contract pleading should identify the specific ways in which a contract has been breached, and found waiver when the grounds were not sufficiently detailed until the appellate level.

Even by the standards of tax cases, BNSF Railway Co. v. United States is arcane, but the underlying statutory analysis is of broad general interest.  No. 13-10014 (March 13, 2014). The first issue — the taxability of certain stock options — turned on whether a Treasury regulation about the meaning of the term “compensation” was entitled to Chevron deference.  The Fifth Circuit held that it was — as to the first Chevron factor, the Court found the term ambiguous, noting (1) the lack of a similar statute using the term, (2) variation among dictionary definitions, and (3) ambiguity in business usage, such as there was, at the time the relevant statute was passed in the 1920s-40s.  [Unintentional capitalist wit appears in footnote 63, which refers to the “Rand House Dictionary” rather than the “Random House Dictionary” in a citation about “capital or finance.”]  The Court then found the regulation reasonable, noting its general consistency with the goals and structure of the statute and its legislative history.  A second holding illustrates the application of the “specific-general canon” and “the rule against superfluities.”

A law firm argued that the Texas “anti-SLAPP” statute protected its efforts to solicit former patients of a dental clinic as clients.  NCDR, LLC v. Mauze & Bagby PLLC, No. 12-41243 (March 11, 2014).  (This statute has led to a great deal of litigation about communication-related disputes, often in areas that the Legislature may not have fully anticipated — this blog’s sister details such litigation in the Dallas Court of Appeals.)  In a detailed analysis, the Fifth Circuit agreed that the district court’s ruling against the firm was appealable as a collateral order.  The Court then sidestepped an issue as to whether the anti-SLAPP statute was procedural and thus inapplicable in federal court, finding it had not been adequately raised below.  Finally, on the merits, the Court affirmed the ruling that the law firm’s activity fell within the “commercial speech” exception to the statute:  “Ultimately, we conclude that the Supreme Court of Texas would most likely hold that M&B’s ads and other client solicitation are exempted from the TCPA’s protection because M&B’s speech arose from the sale of services where the intended audience was an actual or potential customer.”

Taylor sued his employer in state court for violations of Texas law.  Taylor v. Bailey Tool & Manufacturing Co., No. 13-10715 (March 10, 2014). Later, he amended his pleading to add federal claims.  Defendant removed and moved to dismiss on limitations grounds.  Under Texas law, Taylor’s new claims would not relate back because the original state law claims were barred by limitations when suit was filed.  Under Fed. R. Civ. P. 15(c), however, the claims would relate back because they “arose out of the conduct, transaction, or occurrence set out” in the original pleading.  Noting that Rule 81(c) says the Federal Rules “apply to a civil action after it is removed,” the Fifth Circuit concluded that they did not “provide for retroactive application to the procedural aspects of a case that occurred in state court prior to removal to federal court.”  Accordingly, it affirmed dismissal.

When a homestead is permanently exempted from a bankruptcy estate, are any proceeds from a subsequent sale of the homestead also permanently exempt? Viegelahn v. Frost found they were not.  No. 12-50811 (March 5, 2014).  Frost argued that In re Zibman, 268 F.3d 298 (5th Cir. 2001), was distinguishable because he sold his homestead after petitioning for bankruptcy, when the homestead was already exempted, while Zimban concerned homestead proceeds obtained before bankruptcy. The Fifth Circuit found that distinction immaterial, concluding that once a debtor sells his homestead the essential character of the homestead changes from “homestead” to “proceeds,” placing it under a more limited six month exemption.  Accordingly, when a debtor does not reinvest the proceeds within that period, they are removed from the protection of Texas law and are no longer exempt from the estate.

In Naquin v. Elevating Boats, LLC, the Fifth Circuit found that the verdict and resulting judgment in a Jones Act case erroneously included compensation for mental anguish from seeing the death of another person.  No. 12-31258 (March 10, 2014).  The Court disposed of the case as follows: “[S]erious practical problems would be presented at trial if we were to save some elements of the damage award and retry only other elements of damage.  ‘Where, as here, the jury’s findings on questions relating to liability were based on sufficient evidence and made in accordance with law, it is proper to order a new trial only as to damages.’  We therefore retain the jury’s liability finding but order a new trial on damages.”  (quoting Hadra v. Herman Blum Consulting Engineers, 632 F.2d 1242, 1246 (5th Cir. 1980)).

Plaintiffs alleged that the members of MERS violated RICO by making fraudulent statements about the legal effect of mortgages nominally recorded in the name of MERS. Welborn v. Bank of New York Mellon, No. 13-30103 (March 5, 2014, unpublished).  The district court dismissed under Rule 12(b)(6) on the ground that Plaintiffs impermissibly sought to enforce the Trust Indenture Act by way of a RICO action.  The Fifth Circuit affirmed, but on the alternative ground that Plaintiffs had not pleaded a RICO injury to their “business or property.”  The alleged injuries — “loss of recording fees and general damage to the integrity of public records” arose “not . . . from commercial activity, but rather from the provision of a public service — that is, a governmental function.”

BP’s continuing efforts to reduce the scope of its Deepwater Horizon settlement program again produced three separate opinions from a panel in In re Deepwater Horizon (several cause numbers, March 3, 2014).  Judge Southwick found that the plan’s requirement of a “certification on the document that the claimant was injured by the Deepwater Horizon disaster” resolved any lingering jurisdictional issues.  Judge Dennis concurred in a shorter opinion.  Judge Clement dissented, arguing: “This agreement, as implemented, is using the powers of the federal courts to enforce obligations unrelated to actual cases or controversies.”

The Fifth Circuit reversed a summary judgment on a construction subcontractor’s promissory estoppel claim in MetroplexCore, LLC v. Parsons Transportation, No. 12-20466 (Feb. 28, 2014).  The Court noted the specificity of the statements made to it by representatives of the general contractor, the parties’ relationship on an earlier phase of the project, and specific communications describing reliance.  The Court relied heavily on the analysis of a similar claim in Fretz Construction Co. v. Southern National Bank of Houston, 626 S.W.2d 478 (Tex. 1981).

Duoline Technologies v. Polymer Instrumentation presents an unusual appellate review of a discovery order, arising from an ancillary proceeding to enforce a subpoena for a Pennsylvania case.  No. 13-50532 (March 5, 2014, unpublished).  Plaintiff Duoline sought to depose Joseph Schwalbach, a former employee, about the business dealings between his new company and Defendant Polymer.  Among other rulings, the district court limited the document requests and deposition scope to events during Schwalbach’s employment by Duroline.  The Fifth Circuit noted that some evidence supported the plaintiff’s theory of a connection between the businesses, and that logically, plaintiff’s theory relied upon events after Schwalbach left his job at Duoline.  The Court did not find an explanatory affidavit from Schwalbach to be dispositive.

Several Louisiana parishes sought damages under a state statute for damages arising from the Deepwater Horizon incident.  In re Deepwater Horizon, No. 12-30012 (Feb. 24, 2014).  Condensing a much more nuanced opinion — the Fifth Circuit held that the claims were preempted by the Clean Water Act under International Paper v. Oulette, 479 U.S. 481 (1987), because the pollution arose from a source outside Louisiana.  The Court rejected arguments that the Oil Pollution Act of 1990 (prompted by the Valdez disaster) changed that analysis, and concluded that the Supreme Court ruled consistently with this result in Arkansas v. Oklahoma, 503 U.S. 91 (1992).

Fat Tuesday is March 4; the Krewe of Zulu starts the day’s parades in New Orleans. Celebrate with some traditional red beans and rice.

Rowland Trucking’s insurance policy required that it maintain a fence around the entirety of its property.  The fence had gaps on the south and west side.  Thieves entered on the east side and stole $350,000 in videogame consoles.  The Fifth Circuit affirmed judgment for the insured under the Texas Anti-Technicality Statute, which provides: “Unless the breach or violation contributed to cause the destruction of the property, a breach or violation by the insured of a warranty, condition, or provision of a fire insurance policy or contract of insurance on personal property, or of an application for the policy or contract: (1) does not render the policy or contract void; and (2) is not a defense to a suit for loss.”  W.W. Rowland Trucking Co. v. Max America Insurance, No. 13-20341 (Feb. 24, 2014, unpublished).  The Court sidestepped an argument that the statute did not reach liability policies, finding that the policy here was a property policy notwithstanding its occasional use of the word “liability.”

Plaintiff Jongh sued “State Farm Lloyds” and Johnson, a local insurance adjuster, relating to the handling of her property insurance claim for storm damage.  Jongh v. State Farm Lloyds, No. 13-20174 (Feb. 20, 2014, unpublished).  State Farm answered and removed, arguing that (1) Johnson was improperly joined to destroy diversity; (2) Jongh had improperly named Lloyds, a separate entity; and (3) State Farm and Jongh were diverse.  The trial court ruled for the defendants after a 1-day bench trial.   The Fifth Circuit agreed with Plaintiff — who appears to have raised subject matter jurisdiction for the first time on appeal — that “State Farm never became a party in this action. Jongh did not  name State Farm as a defendant in her original petition; although it asserted in its answer and notice of removal that Jongh incorrectly named Lloyds as a defendant, State Farm did not move to intervene or otherwise request that the district court substitute it as the proper party in interest.”  The Court noted that Plaintiff, the “master of her complaint,” consistently asserted that her claim was against Lloyds and not State Farm.  The judgment was vacated and the case remanded.

In Star-Tex Resources, LLC v. Granite State Ins. Co., the parties disputed whether an “auto exclusion” barred coverage in a personal injury case.  553 F. App’x 366 (5th Cir. 2014).  The Fifth Circuit concluded that it was not possible to determine coverage form the plaintiff’s pleading: “The complaint contains only one, brief sentence describing the facts of the accident. Importantly, it contains no description of how Esquivel caused the collision.”  Therefore, it was appropriate to consider extrinsic evidence (beyond the “eight corners” of the pleading and policy) that the insured was driving a car at the time of the accident, as it was relevant to coverage and by itself did not go to liability, citing Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523 (2004).

In Grimes v. BNSF Railway, the district court applied collateral estoppel to a Federal Railway Safety Act (“FRSA”) suit, based on a fact finding made by a type of arbitral panel called a Public Law Board (“PLB”) after an investigation and hearing by railroad personnel. No. 13-60382 (Feb. 17, 2014).  The Fifth Circuit reversed, noting: (1) the hearing was conducted by the railroad; (2) the plaintiff was represented by the union rather than an attorney; (3) the termination decision was made by a railroad employee, not by “an impartial fact finder such as a judge or jury”; (4) the rules of evidence did not appear to have controlled in the arbitral proceedings; and (5) “most crucially,” the PLB’s affirmance was based solely on the record developed at the hearing administered by the railroad.  The Court noted authority that rejects res judicata in this context, but also noted that “estoppel may apply in federal-court litigation to facts found in arbitral proceedings as long as the court considers the ‘federal interests warranting protection.’”

After recent opinions finding that credibility determinations led to fact issues in cases about whether a barge hit a bridge and a prison fight, the Fifth Circuit again so held in Vaughan v. Carlock Nissan of Tupelo, No. 12-60568 (Feb. 4, 2014, unpublished). Vaughan alleged that a car dealership unlawfully terminated her after she reported several irregularities there to Nissan.  The Fifth Circuit affirmed summary judgment for the dealership as to Mississippi’s “illegal act” exception to at-will employment, but reversed as to her tortious interference claim against the supervisor who terminated her.  That claim requires proof of bad faith, which Vaughan sought to establish by showing that she was not fired until making a complaint that specifically named the supervisor.  The supervisor admitted that, at the time of termination, he knew Vaughan had complained to Nissan but said “he did not know the contents of the complaint.”  The Fifth Circuit found that credibility issues about his claimed justifications for the firing, coupled with the ambiguity of his statement that Vaughn had “no right to report these things to Nissan,” and the timing of the termination, created a fact issue that made summary judgment unwarranted.

Villanueva worked for a Colombian affiliate of a publicly-traded entity subject to Sarbanes-Oxley.  He alleged that he was terminated after reporting a scheme by his employer to understate revenue to Colombian tax authorities.  Villanueva v. U.S. Department of Labor, No. 12-60122 (Feb. 12, 2014).  The Fifth Circuit affirmed the DOL’s rejection of his claim for whistleblower protection under SOX, concluding: “Villanueva did not provide inforotmation regarding conduct that he reasonably believed violated one of the six provisions of U.S. law enumerated in § 806; rather, he provided information regarding conduct that he reasonably believed violated Colombian law.”  (Footnote 1 notes that the Court did not reach the broader issue whether section 806 applies extraterritorially.)  Law 360 has reported on the case and collected opinion from both sides of the employment bar.

The Fifth Circuit found that a subcontractor’s CGL carrier had no duty to defend a construction defect claim against the general contractor.  Carl E. Woodward LLC v. Acceptance Indemnity Ins. Co., No. 12-60561 (Feb. 11, 2014). The pleading alleged that the general contractor, through its subcontractor, “built the foundation piers in non-conformity with plans and specifications.” An accompanying engineer’s report provided detail about related drainage problems.  The Court concluded that the policy language meant that “claims for liability can be brought after ongoing operations are complete, but the underlying liability cannot be due to the ‘completed operations.'”  A contrary holding, reasoned the Court, “effectively converts a CGL policy into a performance bond.”   Here, “[e]ven accepting the district court’s factual finding that damage had occurred during ongoing operations, the only ‘damage’ supported by allegation is the construction that was not in conformity with plans and specifications,” and “[l]iability for such damages arising out of completed operations . . . .”  Law360 has recently published an analysis of this opinion.  An opinion denying rehearing elaborates on the role of the engineering report.

Babalola and Adetunmbi alerted authorities to Medicare fraud by the clinic they worked for. Federal authorities investigated and the clinics’ operators, the Sharmas, were indicted and pleaded guilty, accepting a criminal restitution obligation of over $40 million.  United States ex rel Babalola v. Sharma, No. 13-20182 (Feb. 14, 2014).  During the criminal proceedings, the whistleblowers filed a FCA suit against the Sharmas.  The Sharmas asserted an interest in the restitution proceeds, arguing that it was an “alternate remedy” within the meaning of the FCA that would give them “the same rights in such proceeding as [they] would have had if the action had continued under this section.”  The Fifth Circuit disagreed, finding that other Circuits’ authorities “implicitly recogniz[e] that a qui tam suit must be filed before there is an alternate remedy.”   A dissent conceded that this reading of the FCA was correct, but called for Congressional intervention in situations like this where the plaintiffs “took the path of the Good Samaritan and without delay provided the government with the evidence needed to pursue the defrauders.”

The company’s Collective Bargaining Agreement said: “Discharge for a confirmed positive test under the substance abuse policy shall not be subject to grievance or arbitration. However, relative to such discharge the union continues to maintain the right to grieve and arbitrate issues around the integrity of the chain of custody.”  The union began an arbitration to challenge an employee’s termination for failing a drug test.  ConocoPhillips, Inc. v. Local 13-0555 United Steelworkers Int’l Union, No. 12-31225 (Jan. 30, 2014).  The arbitrator concluded that he had jurisdiction over that claim.  The company successfully opposed confirmation on the ground that he lacked power to decide jurisdiction, and the Fifth Circuit affirmed, finding no provision that “clearly and unmistakably” granted such authority.

The “ART entities” sued the “Clapper entities” for fraud about a real estate transaction, and they countersued for breach of fiduciary duty.  A jury found against both sides.  The Clapper entities appealed; the Fifth Circuit reversed on a legal issue and remanded for new proceedings on liability and damages. The ART entities then sought to raise the fraud claim again; the district court found it barred by the mandate rule, and on appeal from the second trial, the Fifth Circuit affirmed.  ART Midwest Inc. v. Clapper, No. 11-11140 (Feb. 3, 2014).  It reasoned: “We hold that the ART entities’ decision not to cross-appeal the jury’s fraud findings in the first district court proceeding prevented them from raising the same rejected fraud claims in the second district court proceeding. Even though they prevailed on many of their claims in the first district court proceeding, the consensus of circuit authority supports that the ART entities could have filed a ‘protective’ or ‘conditional’ cross-appeal of the adverse fraud finding.”   The Court otherwise affirmed, reversing as to one issue relating to “double-counting” of damages in light of the parties’ correspondence.

The Fifth Circuit released a revised opinion in James v. State Farm, which continues to affirm in part and reverse in part a summary judgment for the defendant in an insurance bad-faith case based on delays in handling the claim.  The majority tightens its description of the requirements for punitive damages under Mississippi law, the dissent heightens its criticism of the majority’s reasoning as to the applicable standard and analytical framework.

Mississippi law allows a “bad faith” claim relating to handling of workers’ compensation; Alabama law does not.  Williams, a Mississippi resident, was injured in Mississippi while working for an Alabama resident contract.  Williams v. Liberty Mutual, No. 11-60818 (Jan. 28, 2014).  The Fifth Circuit reversed the choice-of-law question, finding that section 145 of the Restatement (governing tort claims) applied rather than other provisions for contract claims.  Under that framework, Mississippi would give particular weight to the place of injury, and thus apply Mississippi law. The opinion highlights the importance of the threshold issue of properly characterizing a claim before beginning the actual choice-of-law analysis.

The Fifth Circuit provided its most thorough recent review of the pleading requirements of Twombly and Iqbal in  Merchants & Farmers Bank v. Coxwell, No. 13-60368 (Feb. 7, 2014, unpublished).  The issue was whether the plaintiff pleaded a conversion claim relating to an attorney’s distribution of certain funds in alleged violation of a court order.  The Fifth Circuit noted that such a claim was cognizable under Mississippi law, and that the plaintiff’s pleading might have satisfied Conley v. Gibson.  Under Twombly and Iqbal, however:  “The complaint did not specify what court issued the order, when it was issued, or to whom it was directed; the complaint did not describe what the order required and therefore whether the allegation of a violation is plausible or merely fantastical. Further, merely alleging a perfected security interest is insufficient to establish ownership, and the complaint did not describe whether the court order established M&F’s possessory interest in the funds by reducing its claim to judgment.”  (citing Funk v. Stryker Corp., 631 F.3d 777, 782 (5th Cir. 2011)).

In Credit Union Liqudity Services, LLC v. Green Hills Devel. Co. LLC, the Fifth Circuit found that a creditor lacked standing under section 303(b) of the Bankruptcy Code to file an involuntary bankruptcy proceeding, because the creditor’s debt was subject to a ‘bona fide dispute.’  No. 12-60784 (Feb. 3, 2014).  The Court first held that the debtor had not waived arguments about 303(b) by failing to file a conditional cross-appeal from the district court’s dismissal order, finding that the arguments fell under the rule allowing affirmance on any argument supported by the record.  In reaching its conclusion, the Court noted that the claim had been subject to “unresolved, multiyear litigation.”  The Court also observed that 2005 amendments to the Code defined a bona fide dispute as one “to liability or amount,” a change which drew into question earlier authority that focused only on liability.  That change can allow consideration of counterclaims related to the creditor’s claim.

In Wells Fargo Capital Finance v. Noble, Wells Fargo faced a class action in California.  It attempted to get an antisuit injunction from a Texas bankruptcy court, which was denied. No.13-10468 (Feb. 5, 2014, unpublished).  The Fifth Circuit found the appeal moot, because Wells’s briefing focused on a consolidated complaint in the class case that was amended after the appeal began.  While the Court noted: “An amended complaint supersedes the original complaint and renders it of no legal effect unless the amended complaint specifically refers to and adopts or incorporates by reference the earlier pleading,” it did not resolve the appeal on that basis, simply finding that the new complaint significantly changed the relevant issues.

The Chinese defendant in Germano v. Taishan Gypsum Co., part of the “Chinese Drywall” MDL proceeding, sought to set aside a default judgment for lack of personal jurisdiction.  742 F.3d 576 (5th Cir. 2014).  Applying Fourth Circuit law, which the Court characterized as taking a “more conservative” approach to recent Supreme Court decisions than the Fifth (see Ainsworth v. Moffett Engineering, 716 F.3d 174 (5th Cir. 2013).  The Court found jurisdiction under that Circuit’s “stream-of-commerce plus” test, noting that the defendant sold directly into Virginia, made markings on its product specific to the Virginia customer, modified the design specifically for that customer, and had a plan to expand sales by leveraging the relationship with the customer.  The Court also found a lack of excusable neglect, noting that service was proper under the Hague Convention and that the defendant delayed seeking legal counsel for many months.  

In 2012, the Fifth Circuit held that for purposes of the duty to defend, a mishap while loading a patient into an ambulance was “use” of an auto.  Litigation continued, and the district court concluded that for purposes of the duty to indemnify (where the inquiry is not limited to the “eight corners”), the injury did not arise from auto use.  National Casualty Co. v. Western World Ins., 12-50652 (Jan. 15, 2014, unpubl.)  The Fifth Circuit reaffirmed its earlier conclusion that it did, and also remanded for further review of a potentially applicable exclusion about auto use: “If the EMTs in fact failed to properly secure Rigsby to the gurney before they began to move her toward the ambulance, and if Rigsby’s injury resulted from this failure, Western World’s auto exclusion is inapplicable.” The facts of this case illustrate some awkwardness in common form insurance provisions in this area.

Scott v. Carpanzano affirmed two default judgments and vacated a third, applying the basic federal standard: “whether the defendant willfully defaulted, whether a meritorious defense is presented, and whether setting aside the default judgment would prejudice the plaintiff.”  No. 13-10096 (Jan. 24, 2014, unpublished).  Footnote 3 notes that the standards under Rule 60(b)(1) and Rule 55 may diverge after a 2007 stylistic revision to Rule 55,  but concludes they have not yet and did not on the facts of this case.

The question in Bank of New York Mellon v. GC Merchandise Mart LLC was whether the acceleration of a note triggered a $1.8  million prepayment penalty, when the debtor had ceased making payments on the note.  No. 13-10461 (Jan. 27, 2014).  The Fifth Circuit affirmed judgment in favor of the debtor: “The plain language of the contract does not require the payment of the Prepayment Consideration in the event of mere acceleration. Quite the opposite, in fact: the plain language plainly provides that no Prepayment Consideration is owed unless there is an actual prepayment, whether voluntary or involuntary.”

This week, the Texas Lawbook has posted an excellent profile of Chief Judge Carl Stewart, titled “Meet Chief Judge Carl Stewart: ‘A Brilliant Legal Mind Housed in a Very Nice, Regular Person.'”  The ABA Journal will publish the profile later this week.

Boyett v. Redland Ins. Co. examined whether a forklift is a “motor vehicle” within the meaning of Louisiana’s uninsured motorist statute, and concluded that it is one.  No. 12-31273 (Jan. 27, 2014).  Its Erie analysis illustrates a feature of Louisiana’s civil law system that bedevils outsiders.  On the one hand, a court “must look first to Louisiana’s Constitution, its codes, and statutes, because the ‘primary basis of law for a civilian is legislation, and not (as in the common law) a great body of tradition in the form of prior decisions of the courts.’ Unlike in common law systems, ‘[s]tare decisis is foreign to the Civil Law, including Louisiana.'”  On the other hand, “[W]hile a single decision is not binding on [Louisiana’s] courts, when a series of decisions form a constant stream of uniform and homogenous rulings having the same reasoning, jurisprudence constante applies and operates with considerable persuasive authority.”

In Lawyers Title Ins. Corp. v. Doubletree Partners, L.P., the title insurance company mistakenly left key provisions out of a policy due to a software problem, while the insured’s surveyor erroneously measured the extent of a “flowage easement” held on the development property by Lake Lewisville.  No. 12-40692 (Jan. 14, 2014).  The Fifth Circuit held: (1) reformation was justified, because the insured had reason to know of the title company’s unilateral mistake; (2) both sides had reasonable interpretations of (a) the scope of coverage for survey error, (b) the ‘flowage easement exception,’ (c) and the ‘created, suffered, assumed, or agreed to’ exception, so coverage appeared likely. Summary judgment for the insurer was reversed and the case remanded for further proceedings.  A sanctions award against the insured’s counsel under 28 U.S.C. § 1927 in connection with extracontractual claims was reversed for lack of bad faith by the attorneys.

In Richardson v. Wells Fargo, a mortgage servicer sought recovery of attorneys fees pursuant to a provision in the deed of trust that referred to “paying reasonable attorneys’ fees to protect its interest in the Property and/or rights under this Security Instrument.”  No. 13-10002 (Jan. 24, 2014).  The issue was whether a Rule 54(d)(2) motion was an appropriate vehicle to make its claim, which turned on “whether the fees are an element of damages or collateral litigation costs.”  The Fifth Circuit concluded this provision defined legal fees as collateral costs, not “an independent ground of recovery” where Rule 54 might become inapplicable.  The Court went on to hold that “motions for attorney’s fees provided by contract are permissible under Rule 54(d)(2)” after reviewing and rejecting authority that suggested otherwise.   (For thorough review of when fees become damages in their own right under Texas law, and other key points about fee awards, please consult  “How to Recover Attorneys Fees in Texas” by my colleagues Trey Cox and Jason Dennis.)

A painstaking panel issued two detailed tax opinions on the same day.  In the first, “substantial underpayment” penalties were found appropriate, in a partnership-level proceeding, where substantial authority did not support the taxpayer’s position as to a well-known inappropriate tax shelter.  NPR Investments LLC v. United States,  No. 10-41219 (Jan. 23, 2014).  In  the second, the Court affirmed a finding that certain claimed tax credits were not “qualified research expenses” within the meaning of the Internal Revenue Code, while also remanding to enforce a stipulation made by government before the Tax Court, In an evidentiary holding of broader interest, the court found no abuse of discretion in the exclusion under Rule 403 of the taxpayers’ alleged lab records, agreeing that they were voluminous and not pertinent to the specific tax law issues at hand. Shami v. Commissioner of Internal Revenue, No. 12-60727 (Jan. 23, 2014).  Both opinions discuss the appropriate standards of review for appeal from the U.S. Tax Court.

BAL Metals stored roughly $500,000 of copper in a warehouse operated by Mundell Terminal Services.  Thieves stole the copper.  BAL Metals’ insurance carrier paid the claim and then sued the warehouse as BAL’s subrogee.  United Nat’l Ins. Co. v. Mundell Terminal Servs., Inc., No. 13-50052 (Jan. 23, 2014). The warehouse asked its carrier for defense and indemnity, coverage litigation ensued, and the district court granted summary judgment for the warehouse’s carrier.  It reasoned that because a bailor is presumed to insure a bailee’s interest as well as its own under Texas law, the policy was “other insurance” to BAL’s coverage.  The Court noted that the warehouse had a first-party property damage policy rather than liability coverage.  The Court also concluded that another coverage argument, about the characterization of the metal under the policy’s definition of “property,” had been waived because it was not presented with enough specificity to the district court.

The City of Alexandria settled a lawsuit with an electricity supplier for a $50 million recovery.  A sordid dispute then broke out among the City and various lawyers who worked on the case and asserted a contingency interest in the recovery.  City of Alexandria v. Brown, No. 12-30823 (Jan. 15, 2014).  The opinion, which affirms the district court’s resolution of the dispute, provides an overview of when “quantum meruit” principles control over the terms of a contingent fee agreement.  As to one lawyer, relevant factors included the end of her involvement relatively early in the matter, and seemingly unreliable time records during that involvement. As to another, the court noted that the contract created a “joint obligation” between him and another lawyer that became impossible of performance after he was disbarred, requiring a quantum meruit analysis.  (A related appeal was disposed of later in the year in deference to this panel opinion.)

During 2013, this blog had a feature that tracked the M/V OCEAN SHANGHAI — in Farenco Shipping Co. v. Farenco Shipping PTE, Ltd., an appeal about an attachment order on that vessel became moot when the ship sailed from Fifth Circuit waters, apparently never to return.  Now under new ownership, the ship is reflagged as the M/V CALHOUN, so the SHANGHAI is no more.

The plaintiff in Diggs v. Citigroup, Inc. sought to resist arbitration of an employment dispute, relying upon a study by Cornell professor Alex Colvin that concluded: “there is a large gap in outcomes between the employment arbitration and litigation forums, with employees obtaining significantly less favorable outcomes in arbitration.”  No. 13-10138 (Jan. 8, 2014, unpublished).  The Fifth Circuit affirmed the district court’s decision to exclude the study under Daubert, noting that the study was not connected to this dispute and examined data from 5 years before its initiation.  The Court also questioned — without resolving — the validity of comparing arbitration statistics from 2003-07 with litigation statistics from the late 1990s.

After WaMu failed, the FDIC conveyed its assets and liabilities to Chase.  Several landowners sought to enforce lease terms against Chase by virtue of that conveyance. The Fifth Circuit affirmed summary judgment for them in Excel Willowbrook LLC v. JP Morgan Chase Bank, NA, 758 F.3d 592 (5th Cir. 2014).  First, the Fifth Circuit “reluctantly” followed two other Circuits which found that a “no-beneficiaries” clause in the FDIC’s assignment extinguished the landlords’ rights, noting its own belief that the lease requirements were more in the nature of primary obligations.  But the Court then agreed with the district court that the landlords were in privity of estate with Chase and could enforce the leases for that reason, characterizing the FDIC’s argument to the contrary as “ignor[ing] eight centuries of legal history,” and expressly disagreeing with an Eleventh Circuit case to the contrary.  As for concerns about expansive liability for FDIC assignees, the Court observed: “The FDIC can avoid its present plight in future cases by drafting contractual provisions for the right it seeks to claim.”  The Court re-examined this “obscure but heavily litigated consequence of the largest bank failure in U.S. history” in Central Southwest Texas Development, LLC v. JPMorgan Chase, No. 12-51083 (March 2, 2015), resolved largely on procedural grounds.

9-0, the Supreme Court reversed the Fifth Circuit’s panel opinion in Mississipi ex rel. Hood v. AU Optronics Corp., 571 U.S. ___ (Jan. 14, 2014).  After review of CAFA’s language and structure, that Court concluded that an action brought on behalf of consumers by a state was not a “mass action” that could allow removal, since it has only one plaintiff, and the claims of the relevant consumers cannot be counted without “unwieldy inquiries.”  The Supreme Court characterized the “mass action” provision of CAFA as a “backstop” to prevent the repackaging of a class action.

After a recent panel remanded an appeal about the Deepwater Horizon settlement for further proceedings about its payment formula, another panel examined challenges to the settlement based on the guidelines of Rule 23, the Rules Enabling Act, and Article III.  In re Deepwater Horizon — Appeals of the Economic and Property Damage Class Action Settlement, No. 13-30095 (Jan. 10, 2014).  The panel found that, at the stage of certifying a settlement class, it did not violate those guidelines to have class members who may not be able to prove causation or damages on the merits: “It is sufficient for standing purposes that the plaintiffs seek recovery for an economic harm that they allege they have suffered, because we assume arguendo the merits of their claims at the Rule 23 stage.”  In particular, the panel found that outcome consistent with Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011), as it requires evidence “that a particular contention is common, but not that it is correct.”  The panel also found no abuse of discretion in the district court’s handling of subclasses or damage calculations.  A dissent contended: “Absent an actual causation requirement for all class members, Rule 23 is not being used to simply aggregate similar cases and controversies, but rather to impermissibly extend the judicial power of the United States into administering a private handout program.

From recent cases described on this blog, here are three basic tips for business cases in 2014:

 1.            Plead like a mystery writer.  Like a skilled crime novelist, the civil rights plaintiff in Jabaray v. City of Allen survived a Rule 12 motion by detailing motive and opportunity – the mayor’s alleged personal investment in the real estate at issue, and his role and involvement in the relevant city agencies.  No. 12-41054 (Nov. 25, 2013, unpubl.)

2.            Eyewitnesses help make fact issues.  Plaintiff claimed a barge came loose during Hurricane Katrina and damaged a bridge.  Defendant said that Plaintiff’s theory required the impossible – that the barge move upstream against hurricane-force wind.  The Fifth Circuit found a fact issue from eyewitnesses who saw and heard things consistent with Plaintiff’s theory.  “There is a great deal of testimony supporting Lafarge’s position, to be sure, and little to support the Parish’s, but we are mindful of the summary judgment standard.”  St. Bernard Parish v. Lafarge North America, No. 13-30030 (Dec. 19, 2013, unpubl.)  This reasoning could extend to admissible testimony about the commercial context of an agreement, or its course of performance.

3.            Keep experts on Earth.  The Court found that an expert in a toxic tort case made unsupported assumptions about (a) the plaintiff’s work hours, (b) what he did at work, (c) where he worked, and (d) whether the ventilation worked.  ”To be sure, reliable expert testimony often involves estimation and reasonable inferences from a sometimes incomplete record. . . . Here, however, the universe of facts assumed by the expert differs frequently and substantially from the undisputed record evidence.”  Moore v. International Paint LLC, No. 13-30281 (Nov. 15, 2013, unpubl.)

A recurring issue in federal litigation arises from cases that “overstay their welcome” in the federal courthouse; for example, where only state law claims remain after dismissal of federal claims.  A variation of that situation arose in Energy Management Services LLC v. City of Alexandria, where a city sued its electricity provider.  After that litigation was removed to federal court, the city then removed a second suit, brought by its utility consulting firm, on the ground of supplemental jurisdiction — after the first case had been settled.  12-31184 (Jan. 9, 2014).  The remand order was certified for interlocutory appeal and the Fifth Circuit reversed, finding that there was no original jurisdiction over the second case as required by the removal statute.  The Court acknowledged that the district court could have continuing jurisdiction over matters related to the original settlement, which could potentially even extend to such matters involving third parties — but here, the second case had no connection to those settled matters.

Su, a citizen of Taiwan, served on the board of Vantage, an offshore drilling contractor. Vantage is incorporated in the Cayman Islands with its principal place of business in Texas.  Vantage sued Su in Texas state court for breach of fiduciary duty and related claims.   Su removed, remand was denied, and the district court certified the jurisdictional issue for interlocutory appeal.  Vantage Drilling Co. v. Su, No. 13-20379 (Jan. 7, 2014). The Fifth Circuit reversed and ordered remand, relying primarily upon  Chick Kam Choo v. Exxon Corp., 764 F.2d 1148 (5th Cir. 1985).  Section 1332(a)(2) requires complete diversity, and section 1332(c)(1) deems a corporation a citizen of “every State and foreign state” in which it is incorporated — thus, “there are aliens on both sides of the litigation, complete diversity is lacking, and there can be no diversity jurisdiction.”  Su argued that Choo could be read to allow federal jurisdiction to protect against local bias, but the Court rejected that argument as inconsistent with the statute.

Federal Rule of Bankruptcy Procedure 8002(a) says that the notice of appeal from bankruptcy to district court must be filed within 14 days of the judgment or order at issue. Here, Smith filed his notice of appeal to district court thirty days after entry of final judgment. Smith v. Gartley, No. 13-50154 (Dec. 16, 2013).  After reviewing the continuing validity of its older precedent of In re Stangel, 219 F.3d 498 (5th Cir. 2000), which held that this deadline is jurisdictional, the Fifth Circuit looked to In re Latture, 605 F.3d 830 (10th Cir. 2010), which reached the same conclusion. Because “the statute defining jurisdiction over bankruptcy appeals, 28 U.S.C. § 158, expressly requires that the notice of appeal be filed under the time limit provided in Rule 8002,” the time limit is jurisdictional.

In Coleman v. H.C. Price Co., a toxic tort case, the Fifth Circuit certified to the Louisiana Supreme Court the question whether that state’s one-year limitations statute for survival actions is “prescriptive” (limitations does not run until the cause of action accrues, based on the plaintiff’s actual or constructive knowledge), or or “preemptive” (the cause of action is extinguished even if it has not accrued).  No. 13-30150 (Dec. 18, 2013, unpublished). The issue is significant, as the opinion says: “the answer will define the time period governing all survival actions brought in Louisiana . . . .”

Venable had a heart attack on a drilling barge; he and its owner agreed to settle for $350,000.  The Louisiana Workers’ Compensation Corporation initially indicated its agreement, but withdrew consent when it became evident that he would need a heart transplant.  Venable v. Louisiana Workers’ Compensation Corporation, No. 12-30965 (Dec. 30, 2013).  Litigation ensued as to whether the LWCC could rely upon section 933 of LHWCA, which gives a carrier such as LWCC a veto right with substantial procedural safeguards.  The Fifth Circuit reversed summary judgment for Venable.  After a thorough and succinct review of the black-letter law on federal question jurisdiction, the Court found that section 933 gave the LWCC a defensive right that did not implicate Venable’s “well-pleaded complaint.”  It also found that the tentative nature of the LWCC’s alleged consent foreclosed ancillary jurisdiction over the claimed settlement under Kokonnen v. Guardian Life, 511 U.S. 375 (1994).

This blog’s author is giving the Fifth Circuit Update at the State Bar’s Annual Litigation Update Institute in Austin on January 10; here is a draft of the anticipated PowerPoint.

He will also be in an audience debate (open to the public) on the afternoon of January 8 at SMU, hosted by the SMU Communications Department and the Bush Institute.  The topic will be presidential power, the other participants are the debate coaches at the Universities of Houston and North Texas and the director of the Dallas Urban Debate Association.

The lower courts agreed that the sale of a pipeline system from a bankruptcy estate was free and clear of an obligation to pay certain fees to “Newco.”  Newco Energy v. Energytec, Inc., No. 12-41162 (Dec. 31, 2013).  The Fifth Circuit reversed, finding that the obligations arose from a covenant that ran with the land.  First, the Court found that the lower courts’ reservation of the “free and clear” issue was sufficient to avoid section 363 of the Bankruptcy Code, which would otherwise moot the appeal for failure to get a stay.  On the merits, the Court focused on “horizontal privity” between the parties at the time the covenant was created, expressing doubt that Texas in fact imposed such a requirement, but finding it satisfied in the conveyances here.  (discussing Wayne Harwell Props. v. Pan Am. Logistics Center, Inc., 945 S.W.2d 216, 218 (Tex. App.–San Antonio 1997, writ denied)).  The Court also concluded that the payment obligation ran with the land, as it related to transportation from the land and was secured by a lien on the entire pipeline.  (distinguishing El Paso Refinery, LP v. TRMI Holdings, Inc., 302 F.3d 343 (5th Cir. 2002)).

Waltner v. Aurora Loan Services LLC welcomes the New Year with three bread-and-butter issues in business litigation.  No. 12-50929 (Dec. 31, 2013, unpublished).  First, a party’s failure to answer on time does not require the “drastic remedy” of a default judgment, especially when a plaintiff shows no prejudice from the failure to timely answer.  The granting of a default judgment is a discretionary ruling by the district court.  Second, damages for lost use of property are not reliance damages that can be recovered with a promissory estoppel claim.  Rather, they are consequential losses — a form of expectation damages.  Finally, while Fed. R. Civ. P. 26(g)(2) says that a court “must strike” unsigned discovery responses “unless a signature is promptly supplied” after the error is identified, the district court has discretion in determining what is “prompt” and in what weight to give the lack of prejudice to the opposing party.

After a recent example of attorneys fees that were not “inextricably intertwined” under Texas law, the Fifth Circuit followed this month with a practical example of the Texas requirement of “presentment” of a contract claim before fees may be recovered. In Playboy Enterprises, Inc. Sanchez-Campuzano, the Court reminded that the pleading of presentment is procedural, and thus not a requirement in the federal system.  No. 12-40544  (Dec. 23, 2013, unpublished).  It is, however, a substantive requirement.  In this case, sending a “Notice of Default” under a primary obligation was enough to “present” a claim for liability on a guaranty, noting the “flexible, practical understanding” of the requirement by Texas courts. The Court distinguished Jim Howe Homes v. Rodgers, 818 S.W.2d 901 (Tex. App.-Austin 1991, no writ), which found that service of a DTPA complaint was not presentment of a later-filed contract claim, on the ground that the “Notice” here went beyond mere service of a pleading.  For thorough review of this principle, and other key points about fee awards, please consult the book “How to Recover Attorneys Fees in Texas” by my colleagues Trey Cox and Jason Dennis.)

New York Life v. Cannatella involved the interpleader of life insurance benefits.  The Fifth Circuit affirmed the award of $750 in attorneys fees to the insurance company who filed the action, agreeing that the company was “disinterested,” and identifying these factors about a fee award to a party in its position: “1) whether the case is simple or involved; 2) whether the stakeholder performed any unique services for the claimants or the court; 3) whether the stakeholder acted in good faith and with diligence; 4) whether the services rendered benefited the stakeholder; and 5) whether the claimants improperly protracted the proceedings.”  No. 12-30663 (Dec. 23, 2013, unpublished).

Gregg Costa, a recent appointee to the Galveston division of the Southern District of Texas, has been nominated by President Obama to the Fifth Circuit.  A Rehnquist clerk and the lead prosecutor in the Allen Stanford case, Judge Costa enjoys substantial bipartisan support for his intellect and abilities.

A barge moored at a facility operated by Lafarge came loose during Hurricane Katrina and caused extensive damage.  The district court granted summary judgment to Lafarge, finding that the plaintiff’s damage theory was not scientifically credible in light of the observed weather conditions at the time.  St. Bernard Parish v. Lafarge North America, Inc., No. 13-30030 (Dec. 19, 2013, unpublished).  The Fifth Circuit agreed that “[t]here is a great deal of testimony supporting Lafarge’s position, to be sure, and little to support the Parish’s, but we are mindful of the summary judgment standard.”  It reversed, however, noting eyewitness testimony that was not consistent with the defendant’s expert analysis. The Court distinguished and limited Ralston Purina v. Hobson, 554 F.2d 725 (5th Cir. 1977), which involved an unusual theory about the behavior of starving chickens, on the ground that its plaintiff could not prove the facts that his theory required.

The parties’ agreement said: “Upon payment of the Lease Termination Fee, TTE will not longer have any obligations under Section 9.1A.”  The district court found that the structure of the agreement meant that provision did not apply to all of the relevant buildings.  The Fifth Circuit disagreed: “While such a divisions may be analytically satisfying, it is unsupported by any other language in the MOU, such as, for example, a paragraph heading identifying a particular provision as only relating to one warehouse.”  APL Logistics Americas, Ltd. v. TTE Technology, Inc., No. 13-10352 (Dec. 13, 2013, unpublished).

Among other issues in Farkas v. GMAC Mortgage LLC, a borrower disputed whether he had received proper notice of the servicer’s identity, arguing that only the current mortgagee could send effective notice.  No. 12-20668 (Dec. 2, 2013, unpublished).  The Fifth Circuit affirmed a judgment against him on the grounds of quasi-estoppel, noting: “The duration and regularity of these continued payments to mortgage servicers who had not been identified by current mortgagees constitute acquiescence to the validity of notice of transfer from one mortgage servicer to the next.  The equitable relief afforded by quasi-estoppel assures that a party’s position on a given issue is more than a matter of mere convenience but is instead a stance to which it is bound.”

Alphonse lost his home to foreclosure.  He then sued in federal court, alleging unfair trade practices.  Alphonse v. Arch Bay Holdings LLC, No. 13-30154 (Dec. 11, 2013, unpublished).  The district court dismissed based on the Rooker/Feldman doctrine, but by the time the Fifth Circuit took up the case, all parties conceded that ruling was incorrect because of Truong v. Bank of America, 717 F.3d 377, 381-83 (5th Cir. 2013).  The appellees urged affirmance based on res judicata from the foreclosure proceeding, but the Fifth Circuit remanded for further factual development.  The party to the foreclosure proceeding was a “Series 2010B” that owned the mortgage; the parties to the federal case were that entity’s parent and its mortgage servicer; and the Court was not convinced that the pleadings — standing alone — established the right relationships to find preclusion.  The Court also remanded for further consideration of whether Delaware law about 2010B entities applied to third party claims, noting a potential exception the “internal affairs” doctrine in choice-of-law analysis.

A business taxpayer claimed a deduction for a loan.  The Fifth Circuit affirmed the Tax Court’s finding that the transaction was not a loan.  DF Systems v. Commissioner of Internal Revenue, No. 13-60322 (Dec. 10, 2013, unpublished).  Noting that “the absence of a formal loan agreement is not determinative,” and acknowledging board minutes and the taxpayer’s testimony supporting the conclusion that it was a loan, the Court stressed the “absence of . . . objective economic indicia of genuine debt” — determinable sum to be repaid, specified interest rate, repayment schedule, maturity date, or collateral.  The Court’s analysis is of general interest in other business situations involving arguments about “form over substance.”

In Croft v. Lowry, the debtor filed for bankruptcy after judgment was entered against him for attorneys fees and sanctions in two lawsuits.  No. 13-50020 (Dec. 10, 2013).  The debtor sought to lift the stay to pursue appeals of those judgments; the adverse parties in the lawsuits opposed, arguing that the debtor’s defensive appellate rights were estate property and could be sold.  The district court ruled for the debtor and the Fifth Circuit reversed.  Noting that only two courts have addressed this issue, and reached different results, the Court concluded that the rights had quantifiable value and were thus “property” under Texas law. The Court noted that the rights had value to the estate, since appellate success would reduce liability, as well as the judgment creditors, who may be willing to pay some amount to avoid litigation expense and reversal risk.  “Whether the defensive appellate rights are sold depends upon whether the parties can agree on the value of those rights, not whether they have any value at all.”  (emphasis in original)

Seventy property owners sued St. Bernard Parish, alleging that it wrongfully demolished their properties in the wake of Hurricane Katrina (which flooded virtually every structure in that hard-hit area).  The Parish’s insurer disputed coverage.  Lexington Ins. Co. v. St. Bernard Parish Gov’t, No. 13-30300 (Dec. 6, 2013, unpublished).  Among other arguments, the insurer argued that there was no coverage because the policy had a $250,000 retention limit per occurrence, and each demolition (none of which involved more than that amount) should be viewed as a separate occurrence.  The district court and Fifth Circuit ruled for the Parish.  The Fifth Circuit noted that the limit applied “separately to each and every occurrence . . . or series of continuous, repeated, or related occurrences,” and that the phrase “related” has a broad meaning in the insurance context, covering logical or causal connections between acts or occurrences.   Here: “[T]he acts alleged in the underlying actions are related because they all resulted from St. Bernard’s ordinance condemning those properties that remained in disrepair following Hurricane Katrina. The fact that the properties in the underlying action were demolished at different times, in varying degrees, and at different locations, does not mean that these acts are not related.”

The plaintiff in Weeks Marine Inc. v. Standard Concrete Products Inc. fell from a crane during a bridge construction project.  No. 12-20610 (Dec. 6, 2013).  He sued Weeks Marine, the general contractor, who in turn sought indemnity from Standard Concrete, the manufacturer of the “concrete fender modules” for the project.  The district court granted summary judgment for the manufacturer and the Fifth Circuit affirmed.  A broader indemnity obligation in the original purchase order was limited by the additional terms and conditions to “actual damages relating to workmanship of Seller’s (Standard Concrete) product.”  Accordingly, the plaintiff’s claims, related to a steel component of the product made by another company, were not covered: “The steel modules are a component that Standard Concrete used to make its product; they are not the product itself. Standard Concrete’s products are the pre-cast concrete fender modules. The common usage of ‘product’ distinguishes this term from components, tools, and equipment used in the manufacturing process.”

Mississippi brought six parens patriae actions alleging inappropriate charges for credit card “ancillary services” in violation of state law.  Defendants removed under CAFA and on the ground of complete preemption, and the district court denied remand. Hood v. JP Morgan Chase & Co. (Dec. 2, 2013).  The Fifth Circuit reversed.  As to CAFA, it found that defendants (who have the burden) did not establish that any plaintiff had a claim of $75,000 – especially when Mississippi offered evidence that the average yearly charge at issue was around $100.  The Court also observed that the defendants likely had similar information in their records.  The Court acknowledged that federal usury laws have the effect of complete preemption, but found that the charges at issue in these cases could not be characterized as “interest” within the meaning of those laws.

In Ortega v. Young Again Products, the plaintiff sued a judgment creditor and its counsel, claiming that they took assets that belonged to him rather than the judgment debtor.  No. 12-20592 (Nov. 27, 2013, unpublished).  The Fifth Circuit recognized that Texas extends qualified immunity to claims by a third-party against an attorney for conduct requiring the “office, professional training, skill, and authority of an attorney.”  The focus is on the type of conduct, not its merit.  Accordingly, removal of the case was proper because the attorney was fraudulently joined, and dismissal for various reasons was affirmed.

In D.R. Horton Inc. v. NLRB, the Fifth Circuit reviewed an NLRB decision that invalidated an arbitration agreement as to collective or class claims related to employment.  No. 12-60031 (Dec. 3, 2013).  The court deftly sidestepped a difficult constitutional issue, presently before the Supreme Court, about President Obama’s “recess appointments” to the NLRB.  On the merits, the Court reversed the NLRB.  The Board relied upon Section 7 of the NLRA, which guarantees the right “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”  The Court found that this statute did not create a right to pursue collective or class claims in court that trumped the language and policy goals of the Federal Arbitration Act.  A recent Texas Lawbook article discusses the significance of this opinion for employers.

In a 9-0 opinion, the Supreme Court reversed a Fifth Circuit panel about the enforcement of a forum selection clause.  Atlantic Marine Construction v. U.S. District Court for the Western District of Texas, 571 U.S. ___ (December 3, 2013).  The panel opinion questioned enforceability when the district of suit was otherwise proper under the federal venue statutes; a strong dissent by Judge Catharina Haynes argued otherwise. The Supreme Court endorsed her position: “When the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause.  Only under extraordinary circumstances unrelated to the convenience of the parties should a §1404(a) motion be denied. And no such exceptional factors appear to be present in this case.”  Procedurally, while the Supreme Court noted in its introduction that the case arose in a mandamus context, it nowhere discusses how that posture affects the analysis — a significant point that divided the Fifth Circuit’s recent en banc vote in the case of In re Radmax.  

Two new briefing rules took effect in the Fifth Circuit on December 1.  The first eliminates the requirement of a separate statement of the case, and consolidates a matter’s procedural and substantive history into a single statement of facts.  The second standardizes record citations.  “For multiple record cases, parties will cite ‘ROA’ followed by a period, followed by the Fifth Circuit appellate case number of the record they reference, followed by a period, followed by the page of the record. For example, ‘ROA.13 12345.123.’  In single record cases, parties cite the short citation form, ‘ROA,’ followed by a period, followed by the page number. For example, ‘ROA.123.'”  This standardized form should help the Court in electronically matching record citations and the actual record.