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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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