In declining to hear Crutchfield v. Sewerage & Water Board, the Fifth Circuit offered some rare guidance about what guides its discretion in accepting a petition to appeal under CAFA: “[N]o CAFA-related issues are raised in the petition for permission to appeal. See Alvarez v. [Midland Credit], 585 F.3d [890,] 894 [5th Cir. 2009] (vacating initial grant of permission to appeal under Section 1453(c), as the appeal no longer involved “unique issues under CAFA”); id. (“[Section 1453(c)] was intended to facilitate the development of a body of appellate law interpreting [CAFA] without unduly delaying the litigation of class actions.” (internal quotation marks omitted)); see also Perritt v. Westlake Vinyls Co., L.P.., 562 F. App’x 228, 230 (5th Cir.2014) (unpublished) (per curiam) (““[Section] 1453(c) tethers our discretionary review to CAFA determinations.”).” No. 15-90014 (May 19, 2015, unpublished).
Lincoln Insurance sued several defendants, who it accused of charging excessive fees and otherwise engaging in self-dealing to the detriment of Lincoln. Lincoln won a $16.5 million judgment against two of them for tortious interference. In a “grab bag” of holdings after both sides appealed, the Fifth Circuit held:
- It did not need to reach a difficult Erie issue about when a tortious interference claim accrues under Texas law, where some of the conduct occurs outside the limitations period, because the trial court found sufficient facts to establish that the discovery rule applied;
- Voluntary dismissal of a claim in amended pleading, in response to a dismissal order “based on a technical defect or withdrawal,” waives the right to appeal that order;
- The economic loss rule barred conversion claims where contract provisions dealt with the underlying rights and responsibilities; and
- When a contract provision expressly created a fiduciary duty as to the handling of funds in a particular account, that duty necessarily extended that duty to the handling of those funds before their deposit (and the trial court erred in holding otherwise, requiring a remand).
The Court noted: “[A] litigation strategy with a narrower focus on certain claims and Defendants might reduce the complications, both procedural and substantive, that arose the first go-around.” Lincoln General Ins. Co. v. U.S. Auto Ins. Servcs., Inc., No. 13-10589 (May 18, 2015).
Johnson submitted a claim about his personal injuries to the “Gulf Coast Claims Facility,” an entity created to facilitate the resolution of claims against BP about the Deepwater Horizon accident. The GCCF recommended a settlement of roughly $2.7 million. Johnson accepted the proposal and BP allowed its 14-day appeal period to run. During that period, however, BP made an indemnity demand on another company, who raised serious questions about the veracity of Johnson’s claim. BP sought to set aside the settlement, and the case of Johnson v. BP Exploration & Production, Inc. ensued. No. 14-30269 (May 15, 2015).
As to contract formation, the Fifth Circuit found that: (1) “Johnson accepted the offer in the [GCCF] Determination Letter by its own terms by timely submitting the Final Payment Election Form and agreeing to subsequently sign the Release, and because BP declined to appeal that offer within the fourteen-day period, both an offer and acceptance occurred”; and (2) the actual terms of the release were not material to the formation of the settlement agreement, and neither was its actual delivery. However, after acknowledging the general rule that “simply couching . . . prior litigation as ‘fraudulent,'” will not support a fraudu
lent inducement claim, the Court concluded that BP had raised a question as to whether an exception applied when “the defendant subsequently uncovers previously unavailable evidence that the plaintiff was in fact not injured at all, or sustained only de minimis injuiries.” Accordingly, the Court remanded for an evidentiary hearing about the issue of fraudulent inducement.
A medical practice hired an employment agency, which recommended an office manager who then embezzled $60,000. The practice sued the agency and lost. The Fifth Circuit observed that under the Texas definition of a “producing cause”:
- “when boys meet a man because he volunteers with their Boys Club, but the boys and their family then befriend the man outside of the club context, the club’s misrepresentation that it thoroughly checks the background of its volunteers is not a producing cause of the man’s later molestation of the boys outside of the club,” and
- “when a church advertises a teenage boy as a babysitter and parents hire him, the
church’s advertisement is not the producing cause of his later molestation of
their children because the parents themselves chose to hire the teenager as a
babysitter.”
Accordingly, “[b]ecause the doctors of the Medical Group decided to hire Brown based upon their own observations, we conclude that [the agency’s] conduct was not the producing cause of the Medical Group hiring Brown and its resulting injuries.” Cox, Chanez & Williams v. Howroyd-Wright Employment Agency, Inc., No. 14-10799 (May 14, 2015, unpublished).
The latest appeal about BP’s class settlement of Deepwater Horizon claims — a long and winding path — involved the rights of claimants to appeal a benefit decision to the Fifth Circuit, after review in the district court. While the Court’s ultimate holdings turn on the specific parts of the settlement at issue, on the threshold issue of the claimants’ appeal right, the Court held: “We choose to follow these other circuits’ decisions in similar cases involving consent decrees to hold that, where a settlement agreement does not resolve claims itself but instead establishes a mechanism pursuant to which the district court will resolve claims, parties must expressly waive what is otherwise a right to appeal from claim determination decisions by a district court. Given that there has been no such express waiver in the instant case, the parties have preserved their right to appeal from the district court to this court.” Lake Eugenie Land & Development v. BP Exploration & Production, No. 13-30843 (May 8, 2015).
Heritage and OMG disputed their commissions related to the auction of high-end firearms (such as Colt’s Texas Paterson, right). They arbitrated and Heritage won. OMG successfully opposed confirmation in the district court, which concluded: “By finding that the [parties contracts] never came into existence, the arbitrator intruded on an issue that was reserved for an alternative decision-maker and thereby exceeded his authority.” OMG, LP v. Heritage Auctions, Inc., No. 14-10403 (May 8, 2015, unpublished).
The Fifth Circuit disagreed. It reminded: “By submitting issues for an arbitrator’s consideration, parties may expand an arbitrator’s authority beyond that provided by the original arbitration agreement such that we need not address whether the original agreement encompassed such authority.” Here, “the parties agreed to arbitrate the issue of contract formation by submitting, briefing, and generally disputing that issue throughout the arbitration proceedings, with the plaintiffs never contesting the arbitrator’s authority to decide contract formation until he issued an adverse award.”
Among several issues addressed in the complicated bankruptcy appeal of Templeton v. O’Cheskey, the Fifth Circuit considered whether the “ordinary course of business” defense applied to alleged preferential transfers. The Court noted that a “true” Ponzi scheme is one with “operations build on the collection of funds from new investments to pay off prior investors.” Here, “only a portion of the funds controlled by [Debtor] ([Creditor] estimates 9%) was used to pay Ponzi-like returns to investors,” and the “record is clear that [Debtor] engaged in substantial legitimate business–owning or controlling approximately 14,000 housing units.” Therefore, the defense could apply, and these transfers were remanded for further consideration. No. 14-10563 (revised May 12, 2015).
Amerisure and Arch disputed whether Arch exhausted its policy limits. The Arch policy had an endorsement that said the coverage section “is amended as follows: The provision: ‘These payments will not reduce the limits of insurance. is deleted in its entirety and is replaced with the following provision: ‘These payments will reduce the limits of insurance.’”
Amerisure argued that the “expenses” referred to by the endorsement could not be read as including attorneys fees without contradicting another, more specific portions of the policy: ” Our right and duty to defend end[s] when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverages A or B or medical expenses under Coverage C.”
The Fifth Circuit disagreed, reasoning: “This construction reads the endorsement out of the policy as, logically, there can never be an end to the duty to defend unless the insurer
pays the policy limits in indemnity payments.” Accordingly, Arch had an “eroding” policy with the insured, and its payments of attorneys fees had exhausted the policy limits. Amerisure Mutual Ins. Co. v. Arch Specialty Ins. Co., No. 14-20239 (April 21, 2015).
Chevron’s “Genesis Spar” offshore rig (right) was damaged by the installation of substandard bolts. Chevron sued Aker Maritime and won; Aker in turn sued Oceaneering for indemnity and won; Oceaneering settled and sued its insurer. Sidestepping whether a “sistership” exclusion barred coverage, the Fifth Circuit found that Oceaneering had not proven “property damage” within the meaning of the policy.
To be sure, a Fifth Circuit panel used that phrase in the original Chevron litigation, and a second panel discussed the type of damage at issue in the indemnity case. But because those panels wrote about distinct issues from the coverage question in this case, and because “Oceaneering rests its argument that there was coverage . . . on these two prior opinions,” the Court affirmed judgment for the insurer. American Home Assurance Co. v. Oceaneering Int’l Inc., No. 14-20222 (April 27, 2015, unpublished).
See generally Towne v. Eisner, 245 U.S. 418 (1918) (Holmes, J.) (“A word is not a crystal, transparent and unchanged; it is the skin of a living thought and may vary greatly in color and content according to the circumstances and time in which it is used.”); Lewis Carroll, Through the Looking Glass (“”‘When I use a word,’ Humpty Dumpty said, in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.'”)
To oppose a summary judgment motion in a mortgage servicing case, Plaintiffs sought to introduce two documents: (1) “a printoff from the HOPE Loan Portal, an online log maintained by Impact [a consultant hired by Plainitffs] to catalogue any updates with the [Plaintiffs’] loan-modification application,” and (2) a handwritten call log seemingly created by Impact employees as they contacted BOA for updates by telephone. The Fifth Circuit affirmed their exclusion in Thompson v. Bank of America, N.A., No. 14-10560 (April 21, 2015).
Noting that “[i]n the case of an exhibit purported to represent an electronic source, such as a website or chat logs, testimony by a witness with direct knowledge of the source, stating that the exhibit fairly and fully reproduces it, may be enough to authenticate,” the Court observed: “At no point does [Plaintiffs’] affidavit say that they have personal knowledge of the online log or that it represents an unaltered version of the website. . . . That is likely because, by all indications, those logs were created and maintained by Impact, not the Thompsons. Nor do the logs have characteristics that would authenticate them from their own appearance under Rule 901(b)(4).” The opinion summarizes some other federal authority about the authentication of evidence obtained from the Internet.
In State of Veracruz v. BP, P.L.C., the Fifth Circuit reviewed the dismissal of claims brought by the Mexican states of Veracruz, Tamaulipas, and Quintana Roo, against several corporate defendants, seeking to recover damages related to the effects of the Deepwater Horizon disaster on the environment, fishing industry, and tourism. No. 13-31070 (May 1, 2015). The Fifth Circuit agreed with the district court’s conclusion that the states “lacked a proprietary interest to overcome application of the rule, announced in Robins Dry Dock & Repair Co. v. Flint[, 275 U.S. 303 (1927)], precluding recovery for economic loss absent a proprietary interest in physically damaged property. In a thorough review of Mexican law on this point, featuring analysis by many leading experts in the field, the Court found this article of the Mexican Constitution dispositive: “The Nation has full ownership over all natural resources of the continental shelf and the seabed . . . .”
Amerijet sued Zero Gravity in Texas state court, seeking emergency relief about the handling of certain aircraft engines subject to their contract. Zero Gravity responded with its own request for emergency relief. After some initial rulings by the state court, Zero Gravity removed to federal court. Amerijet then filed a notice of dismissal under Fed. R. Civ. P. 41(a)(1)(A)(i). The matter proceeded in federal court, however, based on its jurisdiction over the TRO bond and a counterclaim for declaratory relief, as the parties tried to settle. Their dealings culminated in the district court enjoining further litigation by Amerijet in Florida federal court, which then led to an appeal about the district court’s power over the case in light of the dismissal notice. Amerijet Int’l, Inc. v. Zero Gravity Corp., No. 14-20521 (May 15, 2015).
Observing that a Rule 41 notice takes effect automatically if the defendant has not answered or moved for summary judgment, the Fifth Circuit found that Zero Gravity’s pre-removal filing “barely” qualified as an answer under Texas law, which meant that the notice no longer had automatic effect. Even though the filing was styled as a TRO application (and accompanying motion to dissolve) and was not called an “answer,” the Court noted that it asserted defenses, a counterclaim for declaratory relief, and facts in support and thus met the “minimal characteristics of an answer” under Texas law (The question whether a defendant’s pre-removal counterclaim waives the right to remove did not appear to be before the Court.) Accordingly, the district court was not bound to dismiss the matter, and it did not abuse its discretion in enjoining parallel federal litigation under the first-to-file rule.
Dean and Sherry Buescher filed for bankruptcy; First United Bank opposed their discharge, and won. Sherry Buescher argued on appeal that the bank lacked standing, because she did not personally guarantee the loans at issue. The Fifth Circuit disagreed, noting that because Texas is a community property state, the bank could sue in rem in Texas to collect her husband’s guaranty obligation from community property. Buescher v. First United Bank & Trust, No. 14-40361 (April 15, 2015).
Chester sued DIRECTV for age discrimination; it moved to compel arbitration. Chester swore: “I do not remember signing any arbitration agreement, and dispute that I signed an arbitration agreement with Directv, LLC at anytime. . . . Had I been offered an arbitration agreement I would have attempted to continue my employment without signing it, and only would have signed it if the employer threatened to terminate me if it was not signed. . . . If I was threatened with termination if I did not sign an arbitration agreement I would remember it. Since I do not remember any such threat I am sure I did not sign an arbitration agreement.”
DIRECTV, admitting that it lost the arbitration agreement, argued that it had a practice of having employees sign one of two form agreements. The Fifth Circuit was unimpressed, noting that the two agreements contained substantial substantive differences. DIRECTV sought solace in the fact that it had lost Chester’s entire file, not just the arbitration agreement; the Court noted that DIRECTV was unable to provide arbitration agreements for 26 of the 87 other employees in the relevant office. In sum: “Considering the entire record, it is clear that, somewhere along the way, DIRECTV’s purported practice of collecting and filing arbitration agreements for all new employees broke down . . . .” Chester v. DIRECTV, LLC, No. 14-60247 (April 29, 2015, unpublished).
The Songs deposited $361,200 as earnest money, toward the purchase of a $3.4 million apartment complex. They then made the successful bid in an auction process, but backed out of the transaction and refused to close. The Fifth Circuit affirmed the district court’s ruling that the seller could keep the money. It found that the parties’ agreement had consideration, most notably in the seller’s commitment to review, consider, and accept the Songs’ bid. It also found that the earnest money was a proper liquidated damages award for the Songs’ termination, finding that it “is reasonable and actual damages were uncertain.” Song v. 4170 & 4231 & 4271 Altoona Drive Holdings LP, No. 14-11059 (April 8, 2015, unpublished).
Several investors in the ill-fated Stanford scheme sued Pershing LLC, who provided clearing services to the Stanford Group. Many of the investors had contracts with Pershing that required arbitration with FINRA, but one group did not, and sought to compel arbitration based on estoppel theories. As to a “direct benefits” theory, the Fifth Circuit found “no evidence that Pershing was aware that [the investors] had executed contracts to purchase CDs from the Stanford entities,” reminding that “a nonsignatory’s generalized sense that the two contracting parties have a course of dealing will not satisfy this requirement.” Accordingly, the Court affirmed the denial of the plaintiffs’ motion to compel arbitration.
In Barzelis v. Flagstar Bank, F.S.B., No. 14-10782 (Apr. 22, 2015), the Fifth Circuit addressed the preemption of state-law mortgage claims under “HOLA,” the Home Owners’ Loan Act of 1933, a statute governing federal savings associations. The Court held:
1. Notice and cure. “It may be the case, for example, that a state law regulating interest-rate adjustments to protect borrowers is preempted by HOLA. But that does not prevent a bank and a borrower from voluntarily agreeing to substantially the same protections in their contract . . . .”
2. Misrepresentation. “[W]here a negligent-misrepresentation claim is predicated not on affirmative misstatements but instead on the adequacy of disclosures or credit notices, it has a specific regulatory effect on lending operations and is preempted.”
3. Debt collection. Consumer protection laws “‘that establish the basic norms that undergird commercial transactions’ do not have more than an incidental effect on lending and thus escape preemption.”
Halliburton obtained an injunction in an arbitration against a former employee. The employee sought vacatur under the FAA, arguing that it allows judicial review of an injunction for vagueness. After reviewing some dispute as to whether such review is allowed after Hall Street, the Court rejected the challenge. The employee challenged a provision that enjoined him from “utilizing in any fashion” certain documents “that concern [Halliburton’s] products or services, arguing that “utilization” was undefined, the limitation had no time period, and the document description was vague. The Court found that, “read in context,” it was clear that the arbitrator was referring to material that the employee had improperly taken from Halliburton. Because this gave the employee “fair notice of what he may, and must not, do,” it was “clearly capable of being implemented and enforced.” McVay v. Halliburton Energy Services, No. 10-10172 (April 22, 2015). The entire injunction appears on pages 6-7 of the opinion and is of general interest to noncompete and trade secret litigation.
Plaintiff alleged birth defects from the prescription of metoclopramide, off-label, to control nausea during pregnancy. The prescribing doctor gave “unequivocal” deposition testimony that he chose the medicine because of his clinical experience, and had no contact with marketing efforts by the drug manufacturer. Accordingly, preempted or not, plaintiff’s claims failed for lack of causation. Whitener v. Pliva, Inc., No. 14-30468 (April 9, 2015, unpublished).
Continuing an earlier post about how to sign documents, the issue of effective consent again appeared in Berry v. Fannie Mae, No. 14-10474 (April 17, 2015, unpublished). A mortgage servicer sent a trial payment plan to a borrower, which said: “This Plan will not take effect unless and until both the Lender and I sign it and Lender provides me with a copy of this Plan with the Lender’s signature.” Rejecting an argument that the servicer’s letter acknowledging the borrower’s signature waived this language, the Court enforced it and affirmed dismissal of the borrower’s claims. A similar analysis led to a similar result in Williams v. Bank of America, No. 14-20520 (May 7, 2015, unpublished).
The Cantus filed for Chapter 11 bankruptcy, and after their case was converted to Chapter 7, sued their bankruptcy attorney for malpractice. That suit settled for roughly $300,000, leading to a dispute between the Cantus and the Chapter 7 Trustee as to who should receive the proceeds. The Fifth Circuit found that the estate suffered pre-conversion injury as a result of the alleged misconduct, including diversion of assets, time wasted with an unconfirmable Chapter 11 plan, and additional attorneys fees. Therefore, the causes of action against the attorney “accrued prior to conversion and belong to the estate.” Cantu v. Schmidt, No. 14-40597 (April 17, 2015).
Lito Asignacion, a Filipino seaman, worked aboard the M/V RICKMERS DALIAN (right, en route to Antwerp at the time of this post) – a “superflex heavy” container ship owned by a German company and flying the flag of the Marshall Islands. Severely burned in an onboard accident, he went to arbitration in the Phillippines under Filipino law, and received an award of $1,700 — significantly less than U.S. maritime law would afford. The district court refused to enforce the award on public policy grounds, and the Fifth Circuit reversed. Asignacion v. Rickmers Genoa, No. 14-30132 (April 16, 2015). Acknowledging the strong U.S. policy that gives “special solicitude to seamen” and treats them as “wards of admiralty,” the Court found it outweighed by the policy in favor of arbitration, coupled with unique considerations about the legal arrangements under which Filipino citizens find employment at sea. It also rejected a challenge based on the “prospective waiver” doctrine, finding that the Supreme Court had not extended it beyond purely statutory rights.
Two principles – somewhat inconsistent – govern whether a court should accept an untimely request for jury trial. First, “‘because the seventh amendment confers a fundamental right,'” a court “typically ‘should grant a motion for jury trial . . . in the absence of strong and compelling reasons to the contrary.'” Second, “it is not an abuse of discretion to deny an untimely motion for a jury trial ‘when the failure to make a timely jury demand results form mere inadvertence on the part of the moving party.'” In BPRE, LP v. RML Waxahachie Dodge, LLC, under the operative scheduling order, the plaintiff had to make a request for a pretrial conference by January 31, 2010. It did not do so until February 16, and did not file a separate brief about the right to jury trial until April 12. The Fifth Circuit found no abuse of discretion in the trial court’s conclusion that this was “mere inadvertence,” and affirmed the finding of waiver. No. 14-50339 (April 7, 2015, unpublished).
Several insurance-related businesses had a dispute. The businesses were not all parties to all relevant agreements, leading to confusion about whether arbitration should proceed with the AAA or ICC, and about how to select an arbitrator. The district court found that the arbitrator was not appointed correctly, vacated the award, and the Fifth Circuit affirmed: “Arbitration is simply a matter of contract between the parties; it is a way to resolve those disputes — but only those disputes — that the parties have agreed to submit to arbitration.” Poolre Ins. Corp. v. Organizational Strategies, Inc., No. 14-20433 (April 7, 2015). Interestingly, the relevant contract required arbitrator selection “by the Anguilla, [British West Indies] Director of Insurance” — a nonexistent position. This error did not moot that provision, however, but simply implicated the section 5 of the FAA, which lets a district judge appoint an arbitrator if “a lapse in the naming of an arbitrator” arises.
The panel has been announced for Friday’s arguments in “the immigration case,” Texas v. United States: Judges Smith, Elrod, and Higginson. Like the recent panel in Crane v. Johnson (No.14-10049, April 2, 2015), this panel draws from the major “wings” of the Court – a senior Reagan appointee, a recent Bush appointee (both from Texas) and the second-newest appointee by Obama.
The similarity of panel makeup suggests the potential for a similar result. Interestingly, while Judge Smith is a strong separation-of-powers conservative (consider his dissent in the en banc False Claims Act case of Riley v. St. Luke’s Episcopal Hospital, 252 F.3d 749 (5th Cir. 2001)) he is also a strong voice for judicial action when there is jurisdiction; for example, he has led the Court toward expanded pretrial oversight of district courts in opinions such as In re: Radmax. Judge Higginson, while new, has a record of thorough opinions that comport with the majority view of legal issues (consider his recent opinion in the False Claims Act case of United States ex rel. Shupe v. Cisco Systems, Inc., 759 F.3d 379 (5th Cir. 2014)). The panel will give the plaintiffs a full hearing but may well find problems with their standing theories.
At the risk of reading one tea leaf too many, it is worth noting that Judge Elrod dissented from the denial of en banc rehearing in Radmax, as well as a recent panel opinion that granted mandamus relief on a forum issue, In re Lloyd’s Register North America, Inc., No. 14-20554 (Feb. 24, 2015). The analogy between the Court’s mandamus jurisdiction and the justiciability issues in Texas v. United States is not powerful – and indeed, Judge Smith was on the opposite side of both matters from Judge Elrod – but it does suggest a healthy concern for judicial constraint.
A law firm sought $130,000 in fees for representing a bankruptcy debtor; the bankruptcy court awarded $20,000, noting the firm’s lack of success in delivering a measurable benefit to the estate. While a Fifth Circuit panel affirmed, citing the test in In re: Pro-Snax Distributors, Inc., 157 F.3d 414 (5th Cir. 1998), all three judges called for en banc reconsideration of that opinion. That request was granted unanimously in Barron & Newburger, P.C. v. Texas Skyline, Ltd., which recognized that the “retrospective, ‘material benefit’ standard enunciated in Pro–Snax conflicts with the language and legislative history of § 330, diverges from the decisions of other circuits, and has sown confusion in our circuit.” Accordingly, the full Court overturned Pro–Snax’s attorney’s-fee rule to “adopt the prospective, ‘reasonably likely to benefit the estate’ standard endorsed by our sister circuits.” While the division of some en banc votes can offer insight on subtle aspects of judges’ philosophies, this unanimous decision shows that sometimes, the full court will simply fix what it regards as an earlier mistake, if that mistake has sufficiently far-reaching consequences within the Circuit.
Only in New Orleans. During Mardi Gras, a form of folk art takes discarded beads and twists them into a dog shape, also known as a “bead dog.” A seller of king cakes obtained a trademark for its mascot based on that image (below left), and sued a jewelrymaker who sold necklaces and earrings that also drew upon that image (below right).
The Fifth Circuit affirmed summary judgment for the 
jewelrymaker, reasoning:
1. The bakery’s “Mardi Gras Bead Dog” mark was descriptive of its products;
2. The mark was not inherently distinctive, and thus may be protected only if it had acquired secondary meaning;
3. Under the applicable seven-factor test, the bakery failed to establish that the mark had acquired secondary meaning; and .
4. While a dog itself cannot be copyrighted, its distinctive collar could potentially be, but on this record the Court concluded that no reasonable juror could find the collars to be “substantially similar in protectable expression.”
Other related state law claims were also dismissed. Nola Spice Designs, LLC v. Haydel Enterprises, Inc., No. 13-30918 (April 8, 2015).
The district court has denied an interim stay of its injunction against the Obama Administration’s immigration policies; the Fifth Circuit has recently rejected, on standing grounds, a comparable case; and oral argument is set for April 17 before the Fifth Circuit on an appellate motion to stay the injunction. I was recently interviewed by Law360 about the matter and anticipate announcement by the Court of the panel for the April 17 argument in the near future.
A law firm and its client arbitrated a fee dispute. While the arbitrators ruled for the firm, the district court vacated the award as to the contingent fee on the grounds that the fee was unconscionable. The Fifth Circuit reinstated the arbitration award, noting the “extraordinarily narrow” standard of review and the arbitrators’ specific fact findings on the relevant considerations. Campbell Harrison & Dagley LLP v. Hill, No. 14-10631 (April 2, 2015, unpublished). The Court acknowledged, but concluded that it did not need to address, the question whether the ability to vacate an arbitration award on public policy grounds survived Hall Street Associates v. Mattel, 128 S. Ct. 1396 (2008).
Can you believe it is April 2015 already? To review the “top five” opinions from the Fifth Circuit in the area of business litigation from the first quarter, please click here — better-formatted compared to the standard WordPress ordinarily used by the blog.
In Wellness Wireless, Inc. v. Infopia America, LLC, the district court dismissed a suit on a note for lack of subject matter jurisdiction, noting the potential effect on the estate of a company in bankruptcy. The Fifth Circuit faulted this reasoning as “plainly wrong,” noting that Article III courts have jurisdiction over bankruptcy matters and simply refer them to bankruptcy courts as a matter of course. The Court also disagreed as to an alternative ground for dismissal, based on the debtor being a necessary party under Fed. R. Civ. P. 19, noting that the debtor had disclaimed any interest in the funds at issue during the bankruptcy case. No. 14-20024 (March 24, 2015, unpublished).
Satterwhite appealed an adverse ruling from the bankruptcy court, and then to the district court. In the district court, after judgment, he filed a motion for new trial, to modify the judgment, and for findings of fact and conclusions of law. After the trial court denied those motions, he filed a notice of appeal that would have been timely in an “ordinary” appeal under Fed. R. App. P. 4. Unfortunately, this bankruptcy appeal fell under Fed. R. App. P. 6, which only allows a motion for rehearing filed within 14 days of judgment to extend the appellate deadline. Satterwhite v. Guin, No. 14-20430 (March 31, 2015, unpublished).
In a remarkably tangled construction dispute, the property owner interpleaded roughly $260,000, after a dispute arose between the general contractor and a sub. One of the interpleaded parties argued that the owner “faces only separate obligations,” augmented by the fact that the Mississippi statute relied upon the subcontractor to freeze the funds was declared unconstitutional. Auto Parts Manufacturing Mississippi, Inc. v. King Construction of Houston, No. 14-60217 (May 8, 2015). The Fifth Circuit disagreed: “The first stage of interpleader only is concerned with whether multiple claims have been asserted, or may be asserted, against a disinterested stakeholder, not whether those claims have merit.” The Court reminded that “interpleader jurisdiction is determined at the time the interpleader complaint is filed . . . ‘and subsequent events do not divest the court of jurisdiction once properly acquired.'”
In St. Joseph Abbey v. Castille, the Fifth Circuit affirmed a substantive due process challenge to a state law that stopped a group of monks from making funeral caskets. The Court explained the limits of that holding and noted: “Nor is the ghost of Lochner lurking about.” 712 F.3d 215, 227 (5th Cir. 2013). Confirming that such a phantom still does not haunt the Circuit, the Court rejected First Amendment and due process challenges to a Texas law that requires a veterinarian to physically examine an animal before treating it (and which thus prohibits “distance” treatment via the Internet.) The Court found a rational connection between the law and quality animal care, and noted: “The idea that content-neutral regulation of the professional-client relationship does not violate the First Amendment has deep roots, and has been embraced by many circuits.” Hines v. Alldredge, No. 14-40403 (March 27, 2015).
In Angus Chemical Co. v. Glendora Plantation, Inc., an industrial facility had an easement that gave it “the right to construct, maintain, inspect, operate, protect, alter, repair, replace and change” a pipeline. No. 14-30416 (March 24, 2015). The company plugged and abandoned its original 12″ pipeline in favor of a new 16″ one. The key appellate issue was whether the right to “replace” a pipeline allowed the company to simply substitute one pipeline for another, or whether it also “impl[ied] a corresponding duty to remove” the old one. The Fifth Circuit found the term “replace” was ambiguous in this context, and that there was a material fact issue in the extrinsic evidence about which meaning should prevail. Therefore, it reversed the district court’s summary judgment in favor of the chemical company. This topic — the role of extrinsic evidence in contract disputes — was most recently before the Court in a major case in the “Whoomp! There it is” litigation, and as detailed in a link from that post, frequently leads to disagreement between the trial courts and the Fifth Circuit.
The plaintiffs have responded to the United States’ motion for a stay during the pendency of Texas v. United States, No. 15-40238, so that matter is now in the hands of the Court.
Pursuant to section 965 of the Internal Revenue Code, BMC Software repatriated to the United States several hundred million dollars of income earned by a foreign subsidiary. It earned a substantial tax deduction for the year, as this provision is intended to incentivise the fresh investment of foreign cash into the U.S. by companies with international operations. BMC Software v. Commissioner of Internal Revenue, No. 13-60684 (March 13, 2015). Some time later, BMC settled a dispute about the tax treatment of royalties paid to it by the same subsidiary. The IRS then took the position that BMC’s accounting for that dispute amounted to a loan, which would lead to the disallowal of some of the section 965 deduction (loaning money to a subsidiary who then returns it to the US would not be fresh investment). The Fifth Circuit rejected that position and reversed the Tax Court, finding no support for it in either the statute or the settlement document. Because the accounts receivable created as a result of the settlement were not created until after the applicable tax year, the statutory exception for loaned funds could not apply.
At issue in North Cypress Medical Center Operating Co. v. Cigna Healthcare was a basic aspect of the structure of a “preferred provider” insurance program. Under the many policies at issue, “in-network” providers receive more reimbursement than “out-of-network” ones, as an incentive to seek treatment in-network. With respect to the portion of the bill as to which patients had responsibility, certain providers provided “prompt pay” discounts. Insurers disputed whether they were then still responsible for the entire billed amount, or should have their responsibility reduced by a corresponding discount. The Fifth Circuit found that the patients, and thus the providers to whom they assigned their claims, had standing to litigate about this situation (reversing a district court ruling to the contrary). It also found that ERISA preempted state law claims about these issues, that limitations applied (without tolling) to compulsory counterclaims by insurers that sought affirmative relief rather than recoupment, and affirmed the dismissal of RICO claims by the provider. The litigation seems likely to continue, and to produce more issues about complicated and significant ERISA and procedural points. No. 12-20695 (March 10, 2015).
Allstate did not request a jury trial in its original complaint, but did in response to the defendant’s answer and counterclaim (which also included a jury demand, and which Allstate was entitled to rely upon). After a summary judgment ruling, Allstate made a limited jury waiver on the remaining issue of damages. The district court then vacated its summary judgment ruling and held a bench trial on all issues in the case — liability and damages.
The Fifth Circuit found that, “[a]lthough deference is generally accorded to a trial judge’s interpretation of a pretrial order,” this was “[a]t the very least . . a ‘doubtful situation'” that did not support the finding of “a knowing and voluntary relinquishment of the right” to jury trial pursuant to the Seventh Amendment. The Court also found harm because Allstate’s case could survive a JNOV motion, noting that “the district court relied heavily on its weighing of the credibility of the witness’s testimony at trial” in its fact finding. Accordingly, the Court reversed and remanded for jury trial. Allstate Ins. Co. v. Community Health Center, Inc., No. 14-30506 (March 16, 2015, unpublished).
I am speaking to the Appellate Section of the Dallas Bar Association, at the Belo Mansion in downtown Dallas, at noon on Thursday March 19, with a Fifth Circuit update. The official title is “Horses, Whooping Cranes, and Eagle Feathers: the Fifth Circuit in 2014.” Here is a copy of the PowerPoint for the presentation.
Jefferson sued Delgado Community College, alleging that it was “an agency or instrumentality of the government of the State of Louisiana.” The Louisiana Attorney General appeared for the State, argued that she had not correctly named the State in the case, and suggested how to properly serve the college. Jefferson v. Delgado Community College, No. 14-30379 (March 12, 2015, unpublished). The district court denied the AG’s motion to dismiss, pointing to what the pleading said. The AG sought appellate review and the Fifth Circuit found it had no jurisdiction. The ruling was not appealable as a collateral order: “For example, personal jurisdiction implicates a defendant’s due process rights, but a defendant may not appeal the denial of a motion to dismiss based on lack of personal jurisdiction under the collateral order rule.” The Court also denied mandamus relief, noting that the district court’s ruling was not clearly erroneous given the language of the pleading, and suggesting that the parties may wish to consider the AG’s suggestion about proper service for future proceedings in the case.
Breaux sued ASC Industries for age discrimination, but died before the case resolved. Her attorney, Oglesby, filed a “suggestion of death” pursuant to Fed. R. Civ. P. 25. ASC then obtained dismissal when the 90-day period set by that rule passed with no substitution. Breaux’s estate then sought reinstatement, pointing out that the estate representative had not been personally served pursuant to Fed. R. Civ. P. 4 (Rule 25 provides that: “A motion to substitute, together with a notice of hearing, must be served on the parties as provided in Rule 5 and on nonparties as provided in Rule 4. A statement noting death must be served in the same manner.”) ASC countered that Oglesby also represented the estate. The Fifth Circuit sided with Breaux’s estate, finding that a personal representative is a nonparty under Rule 25, noting that is the majority position among Circuits, and distinguishing other cases that reached arguably inconsistent conclusions. Sampson v. ASC Industries, 14-10085 (March 13, 2015, unpublished).
After initially holding that the borrowers’ complaint survived a Twombly challenge as to whether the “grossly inadequate sales price” element of a wrongful foreclosure claim had been properly pleaded, the Fifth Circuit reversed field and issued a revised opinion that affirms dismissal: “We agree with the district court that Plaintiffs’ wrongful foreclosure claim should be dismissed, but for a different reason—Plaintiff’s abandoned the claim on appeal. In challenging the district court’s dismissal, Plaintiffs did not argue that their wrongful foreclosure claim should survive because they adequately pleaded a grossly inadequate sales price. They only argued that the claim should survive because they need not plead that element at all. However, our precedent requires this element in all but a specific category of cases that does not include the instant case.” Guajardo v. JP Morgan Chase, No. 13-51025 (March 10, 2015).
Allen Stanford spent close to $6 million advertising his investment firm on the Golf Channel. After his empire collapsed, the receiver sued the Golf Channel under the Texas fraudulent transfer statute. The Channel successfully defended in the district court on the ground that it gave reasonably equivalent value. Janvey v. The Golf Channel, No. 13-11305 (March 11, 2015). Unfortunately for the Channel, because the receiver proved Stanford was running a Ponzi scheme, the question was whether it gave value from the perspective of the creditors, not whether it provided quality advertising from the perspective of Stanford’s business operation. “Golf Channel argues that its advertising services did not further the Stanford Ponzi scheme and that the $5.9 million reasonably represents the market value of those services. . . . TUFTA makes no distinction between different types of services or different types of transferees, but requires us to look at the value of any services from the creditors’ perspective. We have no authority to create an exception for ‘trade creditors.'” Accordingly, the Fifth Circuit reversed.
With a stay motion still pending in the district court, the United States has asked the Fifth Circuit for an emergency stay of the recent ruling that enjoins President Obama’s immigration program. No. 15-40238. A short clerk’s order, which does not reveal the identity or involvement of any judge “behind the curtain,” has set a response date of March 23. Law360 has written a good article with more detail about the current status in the district court.
In November, a Fifth Circuit panel affirmed the NLRB’s $30,000 award in a retaliation case based on the employer’s handling of a whistleblower. Halliburton Co. v. Administratve Review Board, U.S. Dep’t of Labor, No. 13-60323. The full court has now denied the petition for en banc review, by the close margin of 7 judges for review and 8 against. A 3-judge dissent criticizes the “ad hoc nature” of the panel opinion and warns that it will lead to confusion about what specific conduct can amount to a materially adverse employment action in the context of a retaliation claim.
Fed. R. Civ. P. 60, titled “Grounds for Relief from a Final Judgment, Order, or Proceeding,” is generally invoked to vacate a judgment because of alleged misconduct, mistake, newly-discovered evidence, or other equitable reasons. Clause (5) of that rule also allows relief if “the judgment has been satisfied, released, or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable.” That provision — and specifically, its rarely-litigated first clause — was at issue in Frew v. Janek, in which the Texas Health and Human Services Commission argued that it had fully performed under a consent decree related to the operation of a Medicaid program. No. 14-40048 (March 5, 2015). Construing the decree “according to ‘general principles of contract interpretation,'” and declining to apply the law of the case doctrine to the interpretation of the decree by the judge who entered the order, the Fifth Circuit found no error in the district court’s ruling that the defendants had complied with the order and performed fully.
I just wrote an article in the most recent Appellate Advocate – the publication of the Texas State Bar Appellate Section – about the key recent cases from the Fifth Circuit about jury charge error. I hope you enjoy it and find it useful in your practice!
Richardson alleged that he was terminated, in violation of Louisiana’s whistleblower statute, for revealing fraudulent time records and overbilling. The district court granted summary judgment and the Fifth Circuit reversed. Richardson v. Axion Logistics, No. 14-30306 (revised March 23, 2015). Applying the Twombly “plausibility” standard, the Court found adequate pleading about his employer’s knowledge of the alleged misconduct, as well as the timeline of events leading up to his termination. The pleading itself is available for review here; the specific paragraphs identified by the Court as to the employer’s knowledge are highlighted in yellow, and those identified about his termination in orange.
