After an underwater tether chain broke, expensive oil production equipment sank to the bottom of the Gulf of Mexico, and Petrobras America sued the chain manufacturer for over $400 million. The key issue was whether admiralty law applied – creating a serious problem for Petrobras under the economic loss doctrine – or whether Louisiana law applied by operation of the Outer Continental Shelf Lands Act. The Fifth Circuit found that the OCLSA applied, that its choice-of-law provisions were not waivable, and that Louisiana law controlled: “Here, expressed in general terms, a component failed on an underwater structure . . . and caused the structure to fall into the sea floor. Such an incident does not have the potential to disrupt maritime commercial or navigational activities on or in the Gulf of Mexico.” Petrobras America, Inc. v. Vicinay Cadenas, S.A., No. 14-20589 (March 7, 2016). (A later supplement clarified the limted scope of the waiver holding.)
The financially unfortunate City of New Orleans, saddled with a “just above junk” credit status, hired Ambac to provide insurance for its municipal bonds. Ambac’s AAA rating slipped after the 2008 financial crisis, causing New Orleans to incur tens of millions of dollars in additional debt service and refinancing costs. The City sued Ambac on several legal theories for not maintaining a high credit rating. The Fifth Circuit affirmed their dismissal: “[T]he resolutions that the City so heavily relies upon show only that the City purchased a bond insurance policy from a highly rated insurer, which, at the time of issuance, lessened the perceived credit risk of the City’s bonds. Any alleged representation by Ambac to provide a larger credit enhancement is foreclosed by the clear language of the Policy.” New Orleans City v. Ambac Assurance Corp., No. 15-30532 (March 2, 2016).
The receiver for the affairs of Allen Stanford assigned some fraudulent transfer claims to a committee of creditors. The defendants moved to dismiss, arguing that while a federal court may hear the claims of a federally-appointed receiver, it may not hear those brought by his assignee. The panel majority, noting that “[n]either side of this dispute has cited any controlling cases” on the point, found that the district court did not “clearly and indisputably err[], if it erred at all,” because the point did not have a clear resolution. A dissent would have heard the case, observing: “It is unfortunate that the [defendants] should be forced to litigate this case to conclusion, if they can afford it, before resolving this difficult and novel jurisdictional issue.” In re American Lebanese Syrian Associated Charities, No. 15-11188 (March 3, 2016). This exchange echoes several others in recent years about mandamus and the balance of power between the trial and appellate levels of the court system. (Thanks to 600Camp friend Jeff Levinger for flagging this one.)
Yesterday’s “Above The Law” blog offers this entertaining exchange between a recent Fifth Circuit petition for rehearing — written in part as an imaginary exchange between lawyer and client about the rehearing process — and the Fifth Circuit’s response: rejection by the panel in a short opinion that was also written as an exchange of dialogue. (Thanks to 600Camp friend Cynthia Halatyn for sending along the link.)
The Gagosian Gallery – for reasons not explained in the opinion, but doubtless interesting ones – wanted to display a work of art that featured a tower of 101 identical gold bars. For approximately $3 million, it contracted to buy the gold from Stanford Coins and Bullion (“SCB”), owned by the now-disgraced Allen Stanford. SCB in turn contracted with Dillon Gage, a wholesale gold supplier, to ship the gold directly to the gallery. SCB forwarded payment to Dillon Gage, who applied to a balance that the gallery had with Dillon Gage as a result of unrelated transactions.
Before the shipment was made, however, the Stanford empire collapsed. When the dust settled, the gallery sued Dillon Gage, alleging that it was a third-party beneficiary of its contract with SCB. The case went to a jury trial and a verdict for Dillon Gage, and the Fifth Circuit affirmed, finding no error in the jury instructions and sufficient evidence to support the verdict. Page 5 of the opinion details the facts, which offer a classic illustration of the roles of knowledge and industry custom in determining contract liability. Pre-War Art, Inc. v. Stanford Coins & Bullion, No. 15-10033 (Feb. 29, 2016, unpublished).
In Villarreal v. Wells Fargo Bank, the Fifth Circuit published a straightforward Rule 12 affirmance in a mortgage servicing case, likely to make abundantly clear what law governs several recurring issues in such cases. Those principles include: (1) a plaintiff’s failure to allege her own performance bars a breach of contract claim, (2) a negligence claim about servicing should arise from a duty independent of the contract, (3) a wrongful foreclosure claim requires allegation of the allegedly grossly inadequate price, and (4) typical mortgage servicing activity is “incidental to the loan” and does not create DTPA standing. No. 15-40243 (Feb. 26, 2016). (See also the recent case of Meachum v. Bank of New York, No. 15-10237 (Jan. 11, 2016, unpublished).
JAB Energy successfully sued Cashman Equipment and Cashman’s subsidiary, Servicio Marina Superior (“SMS”), establishing at trial that poor performance by the ocean tug “Atlas” led to roughly $5 million in damages. The Fifth Circuit reversed an “alter ego” finding against Cashman, noting the absence of a fraud allegation against either defendant, and observing that JAB could have negotiated for the same warranty protections from Cashman as from SMS. It affirmed on the merits as to SMS, detailing the well-kept records by the plaintiff about how poorly Atlas tugged, especially as to engine performance and fuel consumption. JAB Energy Solutions v. Servicio Marina Superior, No. 15-30504 (Feb. 26, 2016, unpublished).
A highly technical dispute about the applicable law for an offshore salvage operation produced an insurance holding of general applicability in Tetra Technologies, Inc v. Continental Ins. Co., No. 15-30446 (Feb. 24, 2016). The policy exclusion applied to “[a]ny obligation of the insured under a workers compensation, United States Longshoreman’s and Harbor Workers’ Compensation Act, Jones Act, Death on the High Seas Act, General Maritime Law, Federal Employers’ Liability Act, disability benefits or unemployment compensation law or any similar law . . . ” The Fifth Circuit concluded that the “any similar law,” while referring generally to employers’ liability (since all the laws specifically named deal with that issue), was still ambiguous and meant that the exclusion would be construed against the insurer.
In the fourth opinion in recent months about whether a mortgage servicer waived acceleration of the loan by inconsistent conduct, the Fifth Circuit again rejected such an argument in Martin v. Fannie Mae: “Wells Fargo accepted payments only after [the borrower’s] default in 2009, not after the bank had accelerated the note. . . . These differences matter because the [Deed of Trust’s] non-waiver provisions allow Wells Fargo to accept payments less than the entire obligation or to defer acceleration and foreclosure (and any other remedy) after default without waiving its rights.” In reaching this holding on these facts, the Court noted situations in which post-acceleration conduct could potentially amount to a waiver. No. 15-41104 (Feb. 22, 2016). See also Alvarado v. U.S. Bank, N.A., No. 15-51017 (June 20, 2016, unpublished).
In a followup to Al Rushaid v. Nat’l Oilwell Varco, Inc., 757 F.3d 416 (5th Cir. 2014), the Fifth Circuit confronted a situtation where the plaintiffs’ claims against National Oilwell Varco Norway would be arbitrated before the ICC; claims against NOV LP, an American affiliate would be arbitrated in the Southern District of Texas; and claims against other NOV entities that did not sign the relevant arbitration agreement would proceed in Texas state court. The Court declined jurisdiction over NOV LP’s appeal because the district court granted its 
motion to compel arbitration, leaving no statutory basis for an otherwise interlocutory appeal. As to the nonsignatories, the Court affirmed, finding that the plaintiffs were not seeking to enforce either contract that implicated arbitration. Acknowledging that the litigation would be “fragmented,” the Court observed: “This is an inevitable and permissible consequence where one of multiple defendants asserts a right to arbitrate.” Al Rushaid v. National Oilwell Varco, No. 15-20260 (Feb. 17, 2016). [On the issue of “fragmentation,” consider the dueling opinions in the recent case of In re: Rolls-Royce Corp., 775 F.3d 671 (5th Cir. 2014)]
Bechuck sued Home Depot and Advantage Sales for injuries allegedly suffered in a Home Depot store. After a pretrial conference at which the district court expressed skepticism about the claims against Home Depot, and a flurry of resulting orders and motions, a final order of dismissal resulted that Bechuck challenged in several ways. The Fifth Circuit largely agreed with him, concluding, (1) placing a a restriction on where a case can be refiled is not appropriate for a Rule 41(a)(1) or (a)(2) voluntary dismissal, absent any prior history of forum-shopping or other forum-related gamesmanship; and (2) while labelling a Rule 12 dismissal as one under Rule 41(a)(2) is an abuse of discretion, so long as it without prejudice or undue condition, there is no harm because the matter can be freely refiled. Bechuck v. Home Depot USA, No. 15-20219 (Feb. 17, 2016).
W&T Offshore operates pipelines and platforms in the Gulf of Mexico. It hired Triton Diving to help repair a pipeline. Grogan, an independent contractor, fell and was injured when he went to work on a Triton vessel called the TRITON ACHIEVER. W&T and Triton both had indemnity rights against the other, giving rise to the case of Grogan v. W&T Offshore, No. 15-30369 (Jan. 27, 2016). The Fifth Circuit found no clear error in the district court’s conclusion that Grogan was W&T’s invitee and not Triton’s, detailing the control that W&T had over the project. In sum: “W&T’s project was the ultimate reason for Triton and [Grogan’s] presence on the work site, and any benefit to Triton from [Grogan’s] presence was indirect .”
Continuing to rhyme with “-ata,” the Fifth Circuit rejected an attempt to create appellate jurisdiction in Luvata Grenada LLC v. Danfoss Industries S.A. de C.V., No. 15-60477 (Feb. 11, 2016). Luvata Grenada sued Danfoss US and Danfoss Mexico. Danfoss Mexico won a motion to dismiss for lack of personal jurisdiction, after which Luvata and Danfoss US stipulated to a voluntary dismissal without prejudice. “However, it is well settled in this circuit that parties cannot manufacture appellate jurisdiction by agreeing to dismiss remaing claims without prejudice. . . . The parties did not obtain a Rule 54(b) certification from the district court, and they cannot achieve the same result by ‘self help.'”
In Akuna Matata Investments v. Texas Nom Limited Partnership, the panel majority found that a judgment in a state court lawsuit for breach of fiduciary duty and contract was not res judicata as to a later federal case about the winding up of the relevant partnership: “Even if Akunas’s interest was ‘bought out’ by the state court judgment and it was no longer a partner, this would have meant a de facto dissolution (since there were only two partners) and [Appellant] would have been obliged to take other steps necessary to reclaim the assets for itself alone.” A dissent saw the two judgments as creating an impermissible double recovery: “Through protracted litigation and incomplete legal arguments, [Appellee] has fallen into an investment that defies both Texas law and common sense — a free ride.” No. 14-51158 (Feb. 11, 2016).
Principled and provocative, Justice Scalia served as the Supreme Court’s liaison to the Fifth Circuit for many years. Vaya con Dios.
Health Care Service Corporation (known in Texas as Blue Cross and Blue Shield of Texas), serves as the administrator of various insurance plans. It had a dispute with Methodist Hospitals of Dallas about its potential liability under the Texas Prompt Pay Act, which sets penalties for insurance claims that are not processed within the deadlines set out by the Act. The Fifth Circuit agreed with the district court that the Act did not apply when Blue Cross “did not provide benefits through its administrator and preferred provider agremeents, but instead merely distributes claim payments from plans to providers[.]” The Court also found federal preemption of claims under the Act related to claims under the Federal Employees Health Benefits Program. Health Care Service Corp. v. Methodist Hospitals of Dallas, No. 15-10154 (Feb. 10, 2016).
In a long-running dispute a
bout Transocean’s ability to recover “maintenance and cure” payments to Boudreaux, a seaman, the parties reached a “high-low” settlement agreement. The Fifth Circuit then held — in an outcome not clearly anticipated by the parties’ deal — that Transocean had no affirmative right of recovery as against Boudreaux,but did have a right to make offsets against future payments. Boudreaux v. Transocean Deepwater, Inc., 721 F.3d 723, 724-25 (5th Cir. 2013). The district court treated that outcome as a “low,” which hurt Boudreaux, but the panel majority saw it as a “high” — “Because our court’s holding in Boudreaux I did not establish the viability of Transocean’s counterclaim, Boudreaux is entitled to the higher settlement amount.” Boudreaux v. Transocean Deepwater, Inc., No. 14-30776 (Feb. 5, 2016, unpublished).
Jeff Heck sought to buy property at a foreclosure sale for $63,000; given 20 minutes to obtain a cashier’s check for that amount, he did not return in time and the property was sold to another buyer. The underlying Texas Property Code provision — the product of a surprising amount of controversy over the years — provides: “The purchase price in a sale held by a trustee . . . is due and payable without delay on acceptance of the bid or within such reasonable time as may be agreed upon[.]” Here, Heck did not pay without delay on acceptance, and he took more time than had been agreed upon, meaning that no violation of the statute occurred. Heck v. Citimortgage, Inc., No. 15-40964 (Jan. 29, 2016, unpublished).
The Houston Professional Towing Association, a persistent if unsuccessful litigant, brought its third challenge to the City of Houston’s “SafeClear” freeway towing program. It argued that recent changes to those ordinances had changed the facts enough to remove a res judicata bar from a previous lawsuit. The Fifth Circuit disagreed, concluding that the purpose of the law remained the same (“to promote safety by expeditiously clearing stalled and wrecked vehicles”), and statistics about collisions after the program began were either indeterminate or showed that it enhanced safety. Houston Professional Towing Association v. City of Houston, No. 15-20117 (Feb. 3, 2016).
National Casualty sued its insured in federal court for a declaratory judgment that there was no coverage. The insured sued National Casualty and the insured’s insurance brokers in state court for misleading it about coverage. The district court found that those additional parties were indispensable for the federal action (and would destroy diversity if joined), and abstained under Colorado River from proceeding further. Reminding “that it is not necessary for all joint tortfeasors to be named as defendants in a single lawsuit,” the Fifth Circuit reversed as to the joinder analysis, and also as to abstention, noting in particular that “the federal action has proceeded to summary judgment . . . [and] the state court action has involved little more than an original petition, answers, and a stay of proceedings.” National Casualty Co. v. Gonzalez, No. 15-10478 (Feb. 4, 2016, unpublished).
In Banco Popular v. Kanning, a dispute over entitlement to life insurance proceeds produced two reminders about important, but not often-litigated, principles in business law. No. 15-50342 (Jan. 29, 2016, unpublished). First, an argument that a purported assignment required further actions to become effective failed when the document in question unambiguously said “hereby assign.” The opinion reviews other language in other cases that obscured the assignor’s intent. Second, insurance policy proceeds — while obviously monetary in nature — are sufficiently specific to support an action for conversion (applying Paschal v. Great Western Drilling, 215 S.W.3d 437 (Tex. App.–Eastland 2006, pet. denied)).
Dr. Barrash, a member of a professional association of neurosurgeons, testified against Dr. Oishi, who was also a group member. Dr. Oishi settled his case and filed a complaint with the association about Dr. Barrash, alleging (among other claims) that Dr. Barrash failed to review all relevant records. The association censured Dr. Barrash, who then sued the association, claiming a denial of due process and a breach of the association’s contract with its members.
The district court found a denial of due process as to part of the censure, which the association did not appeal. The Fifth Circuit affirmed the Rule 12 dismissal of the rest of Dr. Barrash’s claims: “Dr. Barrash received sufficient due process, including notice, a hearing, and multiple levels of appeal, before he was censured for failing to review all pertinent and available records prior to testifying. Because the district court found only one basis of the censure to be unsupported by due process, the district court was correct in setting aside only that portion of the censure. Furthermore, no Texas court has recognized a breach of contract challenge to a private association’s disciplinary process.” Barrash v. American Association of Neurological Surgeons, No. 14-20764 (Feb. 3, 2016).
The forum selection clause in Weber v. Pact XPP Technologies AG, written in German, referred to the “Sitz” of defendant Pact AG, which could be translated as “residence” or “corporate seat.” After determining that a mixed de novo / abuse of discretion standard of review was appropriate after Atlantic Marine, the Fifth Circuit affirmed dismissal of a Texas case in favor of Germany. The Court found that the defendant’s broader reading of the clause was better-reasoned, that German law applied to its review (“A contract between a German corporation and a member of its board seems strongly to implicate German policy”), and that the plaintiff did not have a legally cognizable policy argument against enforcing the clause. No. 15-40432 (Jan. 26, 2016).
Plan your New Orleans Mardi Gras trip with this calendar; the next parade is Saturday the 29th, featuring the Krewe of Cork.
Cal Dive settled a hard-fought lawsuit against Schmidt, one of its divers, who alleged that he suffered a debilitating brain injury on the job. A year after the settlement, having continued with surveillance that it conducted during the litigation, Cal Dive brought an “independent action” under Fed. R. Civ. P. 60(b)(1) to set aside the settlement, alleging “that, after reaching the Agreement but before signing the Release, Schmidt had acquired a driver’s license and purchased a new car. In the months following the settlement, Schmidt was observed “cutting his grass, shopping, driving, and jogging for at least two miles.” The Fifth Circuit affirmed dismissal of Cal Dive’s action for failure to plead reliance, noting that during the litigation, “Cal Dive did not believe Schmidt’s allegations or testimony and hired its own experts to examine him over several years.” Cal Dive Int’l v. Schmidt, No. 15-30300 (Jan. 21, 2016, unpublished).
In unsurprising but still important news, the Supreme Court has decided to review the Fifth Circuit’s opinion in Texas v. United States, the challenge to President Obama’s immigration initiatives. The order granting the petition notes: “In addition to the questions presented by the 
petition, the parties are directed to brief and argue the following question: ‘Whether the Guidance violates the Take Care Clause of the Constitution, Art. II, §3.'”
Construction Funding filed a timely, sworn, proof of loss that “itemized the claim into general categories” such as “building structures” and “personal property.” Unfortunately, the relevant policy (incorporating a background federal law), required a “complete” inventory with attached documents. In this context “substantial compliance . . . is not enough,” and Construction Funding had no coverage for its loss. Construction Funding, LLC v. Fidelity Nat’l Indem. Ins. Co., No. 15-30040 (Jan. 8, 2016, unpublished).
Here is a reprint of my article this week in the Texas Lawbook, Federal Litigation in the Fifth Circuit in the New Year. I hope you find it informative and helpful.
In the cases of In re: Radmax and In re: Volkswagen of America, the Fifth Circuit asserted its power to oversee the transfer of cases under 28 USC § 1404(a). In the recent case of In re: Archer Directional Drilling Co., the Court stayed and partially remanded a venue appeal for the district court to make findings on the relevant factors: “Here, unlike in Volkswagen and Radmax, the district court failed to provide any analysis supporting its denial of Archer’s motion to transfer the case. Articulating the basis for the denial of a change of venue motion is ‘the better practice’ for a district court. . . . In the present case, the lack of explanation makes it impossible for us to determine whether the district court clearly abused its discretion, which is required in order for us to decide whether to
grant mandamus relief.” (citations omitted). No. 15-41539 (Jan. 13, 2016, unpublished).
In Local 731 Pension Trust Fund v. Diodes, Inc., the Fifth Circuit affirmed the dismissal of securities claims related to the alleged nondisclosure of labor problems at a Shanghai manufacturing plant, finding a failure to adequately allege scienter. Most basically, the Court observed — “It is important to note the curious nature of the Fund’s claims. To recap the relevant facts: during the class period, Diodes repeatedly warned investors of a labor shortage that would affect its output in the first two quarters of 2011; Diodes accurately warned the precise impact this labor shortage would have on its financial results, not once, but twice. Yet the Fund contends that more disclosure was required.” The Court went on to reject arguments about the unique knowledge of the relevant executives, the company’s decision to make an early product shipment (noting this would have made the labor problem worse and more apparent), and circumstances of an insider’s stock sales. No. 14-41141 (Jan. 13, 2016).
Boaz Legacy LP sued Roberts about ownership of land. Roberts argued that the land was located to the north of “the vegetation line along the south bank of the Red River,” which places the land in Oklahoma under the terms of the Red River Boundary Compact. Accordingly, Texas state and federal courts lacked subject matter jurisdiction under the “local action doctrine.” Boaz argued that the Compact did not apply to a boundary dispute among private landowners, but the Fifth Circuit disagreed: “[T]his argument conflates the underlying dispute with the present determination, which is purely jurisdictional.” Boaz Legacy LP v. Roberts, No. 15-10439 (Jan. 11, 2016, unpublished).
Collins challenged bankruptcy court jurisdiction over “illusory indemnity and contribution claims” that he alleged had no conceivable effect on the bankruptcy estate due to their lack of merit. The Fifth Circuit rejected his argument: “Both the Supreme Court and this court have gravitated away from conflating jurisdiction and merits, and Collins’s proposed standard results in exactly that conflation.” The Court also noted that the claims, based on a principal’s alleged commitment to indemnify its agent, were not “wholly insubstantial and frivolous” on their merits. Collins v. Sidharthan, No. 14-41226 (Dec. 15, 2015).
The district court abstained under the “primary jurisdiction” doctrine in deference to a FERC proceeding. On the threshold question of appellate jurisdiction, the Court concluded that Hines v. D’Artois, 531 F.2d 726 (5th Cir. 1976) was still good law, and allowed it to consider an otherwise-interlocutory appeal: “[T]he district court’s order resulted in Occidental being ‘effectively out of court’ and therefore functioned as a final decision.” On the merits, the Court remanded with instructions to not stay the court case indefinitely, but to instead stay for 180 days and assess the status then. Occidental Chem. Corp. v. Louisiana Public Service Comm’n, No. 15-30100 (Jan. 4, 2016).
A plaintiff class alleged that Chesapeake’s oil and gas production in the Fort Worth area trespassed on their property interests. The defendants removed under CAFA, the district court remanded under that statute’s “local controversy exception,” and the Fifth Circuit reversed. The key appellate issue was whether the plaintiff class was “narrow” — only current owners of mineral interests — or “broad” — current and former interests since a series of foreclosures began in 2004. The plaintiffs could prove the requisite citizenship to establish the exception for the narrow class, but not the broad. The panel majority found the plaintiffs’ pleading was ambiguous on this point, and based on that conclusion, remanded for a failure to prove that element of the exception. A dissent took issue with the construction of the pleading and what it called “a new rule” of a “presumption in favor of federal jurisdiction.” Arbuckle Mountain Ranch of Texas v. Chesapeake Energy Corp., No. 15-10955 (Jan. 7, 2016).
A creditor argued that the bankruptcy court should have used the same property valuation in both the debtor’s bankruptcy case and the creditor’s adversary proceeding against the debtor, citing the doctrines of judicial estoppel and res judicata. The Fifth Circuit disagreed: “The district court correctly held that the valuations under [Bankruptcy Code] §§ 1129 and 506 are two distinct, separate valuations required for different purposes. The feasibility projections under § 1129 were based on [the debtor’s] estimate of ‘monies to be realized from the sale of lots over time’ and anticipated continued development of the Property. The estimate under § 506, on the other hand, was based on an appraisal of the present fair market value of the Property. As a result, [the debtor] did not assume inconsistent positions by presenting two different valuations for two different purposes, nor does the bankruptcy court’s acceptance of a § 1129 feasibility plan constitute a final judgment on the value of the Property under § 506. The doctrines of judicial estoppel and res judicata are not applicable.” Gold Star Construction, Inc. v. Cavu Rock Properties Project I, LLC, No. 15-50455 (Jan. 4, 2015, unpublished).
TransCanada has sued in Houston federal court about the Keystone Pipeline, alleging that President Obama exceeded his Constitutional authority by denying the necessary permission to proceed. While this just-filed lawsuit is a long way from Fifth Circuit review, and TransCanada has a substantial business presence in Houston, it comes as no surprise after the rejection of President Obama’s immigration policies in Texas v. United States that this challenge to executive power would be filed in this Circuit. Here is the complaint in TransCanada v. Kerry.
The bankruptcy debtor owned a large candle factory; after a year of effort, the trustee gave up trying to realize more value on the factory property than what was owed on the outstanding mortgages, and abandoned the property to Southwest Securities. The remaining legal issue was: “Should the estate or the secured creditor pay the property’s maintenance expenses incurred while the trustee was trying to sell the property?”
Section 506(c) of the Bankruptcy Code provides: “The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of
preserving, or disposing of, such property to the extent of any benefit to the holder of such claim, including the payment of all ad valorem property taxes with respect to the property.” The Fifth Circuit found that Southwest benefited, and that the costs were fairly taxed against it from sales proceeds: “[W]e accept that an expense which was not incurred primarily to preserve or dispose of encumbered property cannot meet the requirement of being incurred primarily for the benefit of the secured creditor. But we also accept the inverse: that an expense incurred primarily to preserve or dispose of encumbered property meets the requirement. The necessary direct relationship between the expenses and the collateral is obvious here; all of the surcharged expenses related only to preserving the value of the Property and preparing it for sale.” Southwest Securities v. Segner, No. 14-41463 (Dec. 29, 2015).
Diversity jurisdiction brings unusual claims to the federal courts, none more so than E.C. v. Saraco, in which a girl sued for injuries caused when the neighbors’ poodle attacked her. The poodle owners won summary judgment, and the Fifth Circuit affirmed. The legal issue was the foreseeability of violence by the poodle — whether it was known to have a “vicious and dangerous disposition.” The Court concluded that no fact issue was raised by evidence of (1) the poodle’s tendency to jump when excited, (2) the poodle’s allegedly tender ears, and (3) the girl’s unfamiliarity with the proper way to pet the poodle. No. 15-60434 (Jan. 4, 2016, unpublished). (The above poodle art was drawn by the great Banksy.)
Despite the combined starpower of Danny Trejo, Lady Gaga, and Mel Gibson, the movie “Machete Kills” holds a 29% rating on Rotten Tomatoes. That site’s “Critical Consensus” says: “While possessed with the same schlocky lunacy as its far superior predecessor, Machete Kills loses the first installment’s spark in a less deftly assembled sequel.” Perhaps motivated by one of the worst theater openings of all time, the makers of this movie raised constitutional claims about the denial of funding by Texas’s filmmaker incentive program.
The Fifth Circuit affirmed dismissal on the pleadings: “Despite the denial of an Incentive Program grant, Machete Kills was still filmed in Texas, produced, and released. Machete does not dispute that it was free to engage in protected First Amendment activity without the benefit of an Incentive Program grant, and in fact did engage in such activity by making the film. Machete has not shown that it is clearly established that the First Amendment requires a state which has an incentive program like this one to fund films casting the state in a negative light.” Machete Productions LLC v. Page, No. 15-50120 (Dec. 28, 2015).
In yet another opinion showing that the seemingly simple language of CAFA is anything but, in Robertson v. Exxon Mobil the Fifth Circuit reversed the remand of a mass action, concluding that the district court erred in finding that no plaintiff satisfied the $75,000 amount-in-controversy requirement. No. 15-30920 (Dec. 31, 2015). In a footnote, the Court declined to engage the broader issue of whether at least 100 plaintiffs had to satisfy that requirement, and the Court declined to rule on potentially applicable exceptions to jurisdiction (such as “local controversy”) until the district court addressed them on remand. On the proof point, the Court noted: “(1) [Plaintiff] Eddie Ashley claims that she has suffered, among other harms, emphysema and the wrongful death of her husband from lung cancer; and (2) [Plaintiff] Tommie Jones avers that he developed prostate cancer and a host of other ailments. We hold that it is more likely than not that these plaintiffs seek to recover more than $75,000. Indeed, Plaintiffs’ counsel acknowledged at oral argument that for the plaintiffs who contracted cancer, he would be ‘asking [the] jury, come trial, for a whole lot more than $75,000.'”
A failed class action alleging sex discrimination by Wal-Mart concluded as follows:
- The named plaintiffs settled with Wal-Mart, and the district court entered final judgment on May 15, 2015;
- Appellants intervened on June 2; and then
- Appellants filed a notice of appeal (as to the dismissed class claims) on June 12.
While the notice of appeal divested the district court of jurisdiction over the pending motion to intervene, the Fifth Circuit may dismiss such an appeal and remand for purposes of considering the motion, which it did here with the agreement of the parties. Odle v. Wal-Mart Stores, Inc., No. 15-10571 (Dec. 16, 2015, unpublished).
Plaintiffs sued about insulation installed in their home by the defendants, alleging that they “failed to seal off completely areas in which vapors could be transported from the areas under renovation and construction to the existing area[] of the house[,] in which the Commarotos, their three minor children, and their houseguest, Schlegel, were living and sleeping during the construction process.” The district court found that these allegations unambigously fell within the pollution exclusion of the relevant insurance policy and the Fifth Circuit affirmed. The Court declined to consider “deposition testimony by two of the plaintiffs stating that they physically touched and examined the spray foam insulation.” While an exception to the “eight corners rule” could allow consideration of such evidence if “it is initially impossible to discern whether coverage is potentially implicated” (among other matters), the clarity of this pleading precluded its application here. Evanston Ins. Co. v. Lapolla Indus, Inc., No. 15-20213 (Dec. 23, 2015, unpublished) (applying Star-Tex Resources, LLC v. Granite State Ins. Co., 553 F. App’x 366 (5th Cir. 2014)).
The Allens filed for Chapter 13 bankruptcy protection; during the pendency of that case, they sued Mrs. Allen’s employer for injuries allegedly suffered in the workplace. The Fifth Circuit affirmed summary judgment for the employer, finding the three elements of judicial estoppel satisfied by the Allens’ failure to disclose the personal injury suit in the bankruptcy – (1) inconsistent positions, (2) one of which was accepted by a court, and (3) lack of inadvertence by the Allens. The Court also found that the overall balance of equities weighed against the Allens, given the importance of full disclosure to the bankruptcy process. The Court modified the judgment to be without prejudice so the Allens’ trustee could pursue the suit if he or she so desired (although acknowledging potential limitations issues). Allen v. C&H Distributors, Inc., No. 15-30330 (Dec. 23, 2015). The opinion is of broad interest because of its detailed analysis of judicial estoppel under the general three-part test, rather than a more truncated version sometimes employed in bankruptcy cases.
Greenwich Insurance Company made a number of errors in its internal accounting about crop insurance premiums. When those mistakes ultimately led to a substantial assessment against it by a state authority, Greenwich argued that the state standards were preempted by regulations associated with the Federal Crop Insurance Act. The Fifth Circuit agreed with the district court that they were not, as the true source of Greenwich’s problems was not the state rules but its own “acts of unjustifiable incompetence”: “The FCIC did not intend to hamstring . . . the operations of state programs . . . simply to protect inattentive insurers from their own mistakes.” Greenwich Ins. Co. v. Mississippi Windstorm Underwrting Ass’n, No. 15-60405 (Dec. 15, 2015).
Emerald City Management, d/b/a the band “Downtown Fever,” won a preliminary injunction against another band with the same name. The Fifth Circuit affirmed, noting the importance of “los[ing] control over the mark’s reputation and goodwill” in establishing irreparable injury, and citing evidence of the plaintiff’s history with the band name, the defendant’s plans to play in the same area, and the defendant’s marketing using that name. Emerald City Management LLC v. Kahn, No. 14-40856 (Dec. 11, 2015, unpublished) (citing Paulsson Geophysical Servs., Inc. v. Sigmar, 529 F.3d 303 (5th Cir. 2008)). (In a later skirmish among these parties, the Court reversed a later preliminary injunction about the use of a Facebook page: “neither shutting down a Facebook account nor blocking administrator access to a Facebook account constitutes ‘use in commerce’ of a trademark.” Emerald City Management LLC v. Kahn, No. 15-40446 (March 8, 2016, unpublished)).
Jose Guzman, writer of the Tejano song Triste Aventuerera, sued Hacienda Records, alleging that its affiliated band “The Hometown Boys” infringed his copyright with their song Cartas de Amor (link below). The Fifth Circuit affirmed judgment for the defendants. After reminding about the significant deference due to the trial court on credibility issues, the Court agreed that Guzman’s evidence about radio play and live performance was properly rejected as to the issue of the defendants’ “opportunity to view” his song. Similarly, while acknowledging similarity in the first sixteen words of both songs, expert testimony showed that the words were set to different music and appeared in other songs as well, thus supporting the trial court’s rejection of his alternative “striking similarity” theory. The Court also declined to adopt a “sliding scale” test for infringement that would be weighted by the degree of similarity between the works at issue.
Defendants sought to remove several cases under the “mass action” provisions of CAFA, arguing: “the fact that plaintiffs’ counsel broke up their client base into multiple suits making identical allegations is not a tactic that prevents the assertion of jurisdiction under CAFA.” The Fifth Circuit disagreed, declining to “pierce the pleadings across multiple state court actions,” noting that there had been no effort to consolidate the cases below, and observing: “Every other court of appeals confronted with this question has come to the same conclusion: that plaintiffs have the ability to avoid [CAFA ‘mass action’] jurisdiction by filing separate complaints naming less than 100 plaintiffs by not moving for or otherwise proposing joint trial in the state court.” Eagle US 2, LLC v. Abraham et al. (Dec. 11, 2015, unpublished) (on petition for rehearing en banc of denial of petition for review).
The plaintiff in Stagliano v. Cincinnati Ins. Co. submitted this expert affidavit to establish that alleged hail damage occurred within the insurance policy period. No. 15-10137 (Dec. 11, 2015, unpublished). The affidavit did not succeed, as the Fifth Circuit found it “was little more that an allusion to his credentials, a recitation of the hail damage observed, and a conclusory, ‘subjective opinion’ that the damage resulted from a hail storm within the policy period.” Footnote 2 reviews a “perceived . . . tension between the admissibility requirements for expert testimony and the burdens at summary judgment when expert affidavits are utilized” in a past opinion of the Court.
In USHealth Group v. South, applying Texas law, the Fifth Circuit rejected the use of “concerted misconduct estoppel” to compel arbitration against a nonsignatory (citing In re: Merrill Lynch Trust Co. FSB, 235 S.W.3d 185 (Tex. 2007)), and also found no basis for “direct benefits estoppel” because the claims did not arise solely from the contracts with the arbitration clause, and the issues in dispute could be resolved without reference to those contracts (citing In re: Weekley Homes, L.P., 180 S.W.3d 127 (Tex. 2005)). No. 15-10117 (Dec. 8, 2015, unpublished).
Plaintiffs obtained a preliminary injunction freezing many of the Defendants’ assets. The Fifth Circuit affirmed, noting the strong proof on two key topics. As to likelihood of success on RICO and fraud claims: “The [district[ court examined in detail three representative transactions, tracing funds from [Plaintiff] that were intended for legitimate vendors but ended up in accounts owned wholly by the defendants. In each case, [Plaintiff] netted less money than it should have, with the profit going to [Defendant] or his associates.” As to irreparable injury: “[Defendant] had already closed personal and corporate accounts in Hong Kong, containing exclusively money diverted from [Plainitff], transferring some of the funds to his father-in-law. [Defendant] also has international ties, including the co-defendants – natural persons and shell companies alike – who have yet to appear in court. He has experience and sophistication transferring money internationally, suggesting a high risk that funds allegedly belonging to plaintiffs could disappear.” ATN Indus. v. Gross, No. 15-20102 (Dec. 7, 2015, unpublished).
