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.
The L/B Nicole Eymard (right) became stuck while servicing a well in the Gulf of Mexico. The owner of the boat sued the contractor that hired the boat, in addition to the well owner, and both were found liable for charter fees while the vessel was unable to move. The well owner obtained indemnity from the contractor because the contractor had agreed to indemnify it for 
claims “based upon personal injury or death or property damage or loss.” Unpaid charter fees are a “loss” within the meaning of that language, even without proof of damage to property. Offshore Marine Contractors, LLC v. Palm Energy Offshore, LLC, No. 14-30059 (March 2, 2015).
An insurer settled with its insured; the settlement “did not contain an admission of liability under the Policy and both parties dispute whether the Policy covered the four claims at issue.” Accordingly, the insured had no claim under the Texas Prompt Payment Act for an alleged breach of the settlement. Tremago, L.P. v. Euler-Hermes American Credit Indemnity Co., No. 13-41179 (Feb. 25, 2015, unpublished). The Court also found that a trio of statements such as “[Plainitff] has not alleged, let alone proffered any evidence of any act on [Defendant’s] part that fairly can be characterized as ‘so extreme’ that it would cause ‘injury independent of the policy claim’ was sufficient to place the plaintiff on notice that its extra-contractual claims were within the scope of the defendant’s summary judgment motion.
A design firm proved at trial that Hallmark Design Homes built hundreds of houses such as the one on the right, using its copyrighted plans without permission. Hallmark filed for bankruptcy; the remaining issue was whether the claim was “advertising injury” under Mid-Continent’s various liability policies. Mid-Continent Casualty Co. v. Kipp Flores Architects, LLC, No. 14-50649 (Feb. 26, 2015, unpublished).
The Fifth Circuit affirmed judgment for the insured. After reminding that additional evidence can be offered in a coverage dispute about matters addressed in a prior lawsuit, the Court held: “[I]t is undisputed that Hallmark’s primary means of marketing its construction business was through the use of the homes themselves, both through model homes and yard signs on the property of infringing homes it had built, all of which were marketed to the general public . . . .” Because the homes themselves were “advertisements,” Mid-Continent’s policies covered the prior judgment.
(This post’s title comes from an exchange between Falstaff and Mistress Ford in The Merry Wives of Windsor.)
As part of a sale transaction, the board of “Gold Kist” (more widely known as Pilgrim’s Pride), decided to abandon certain securities for no consideration. For tax purposes, the company then reported a $98.6 million ordinary loss. Pilgrim’s Pride Corp. v. Commissioner of Internal Revenue, No. 14-60295 (Feb. 25, 2015). The IRS contended that this was a capital loss, rather than an ordinary loss, creating a tax deficiency of close to $30 million. The Court agreed with the company, finding: “By its plain terms, [26 U.S.C.] § 1234A(1) applies to the termination of rights or obligations with respect to capital assets (e.g. derivative or contractual rights to buy or sell capital assets). It does not apply to the termination of ownership of the capital asset itself.” In rejecting a contrary view of the statute, Judge Elrod gives a powerful summary of several canons of construction: “We disagree. Congress does not legislate in logic puzzles . . . “
In 2012, the Fifth Circuit remanded a False Claims Act case with the direction: “The district court should determine whether the public disclosures identified in the motion for summary judgment reveal either (i) that Shell was deducting gathering expenses prohibited by program regulations, or (ii) that this type of fraud was so pervasive in the industry that the company’s scheme, as alleged, would have been easily identified.” Little v. Shell Exploration, 690 F.3d 282 (5th Cir. 2012). On remand, the district court again granted summary judgment for the defense, and a displeased Fifth Circuit reversed. Little v. Shell Exploration II, No. 14-20156 (Feb. 23, 2015, unpublished).
The Court found: “Not only did the district court fail to follow these explicit instructions, but the analysis set out in its short opinion is so broad, conclusory, and unsupported by the summary judgment record that we are compelled to conclude it did not comply with our instructions.” On the merits, the Court held that “the district court erred with respect to every category of supposed public disclosures.” The Court went on to order reassignment to a different district judge on remand, concluding: ” Facing a lengthy and detailed summary judgment record, the district judge issued a five-page opinion with few
citations to either record evidence or relevant legal authority—not surprising given that neither the summary judgment evidence nor the law support the conclusions he reached.”
The Fifth Circuit has now docketed the federal government’s appeal of the recent ruling that enjoins President Obama’s immigration program; meanwhile, in the district court, the plaintiffs’ response to the federal government’s motion to stay pending appeal is due by March 2.
Pennzoil has several well-known trademarks for its motor oil products. It sued Miller Oil, which operates a quick-stop oil change facility in Houston, for infringing those marks. Miller defended on the ground that after its original contract with Pennzoil lapsed in 2003, Pennzoil’s dealings with Miller amounted to an acquiescence in Miller’s use of the marks. The district court agreed but the Fifth Circuit reversed. Pennzoil-Quaker State Co. v. Miller Oil & Gas Operations, No. 13-20558 (Feb. 23, 2015).
The Court thoroughly reviewed its own, and other Circuits’, approaches to the elements of the acquiescence defense, as well as the relationship of that defense to laches. The Court concluded that an element of the defense was undue prejudice to the defendant from the plaintiff’s conduct, which usually involves “some form of ‘business building.'” Here, the defendant’s expenses associated with removing Pennzoil’s marks did not satisfy that requirement, because they would not be related to business expansion. While the defendant’s claim about a “loss of identity” from removing Pennzoil’s marks could qualify, on this record: “Miller Oil does not proffer evidence of, for example, changes in its customer base, higher profits, or new business opportunities it was able to exploit because of the re-brand.” Accordingly, Miller Oil did not meet its burden of proof.
In Frey v. First National Bank Southwest, No. 13-10375 (Feb. 20, 2015), an appeal that was stayed in deference to the ruling in Mabary v. Home Town Bank, N.A., 771 F.3d 820 (5th Cir. 2014), the Fifth Circuit again affirmed the certification of a class related to notice requirements about ATM fees: “The primary questions with regard to First National’s liability are whether and when First National failed to provide the on-machine fee notice in violation of the EFTA’s requirements during the class period; if so, the appropriate amount of statutory damages; and whether the bank can avail itself of either of the two statutory defenses to liability. The answers to these questions will affect all class member’s claims.”
The Fifth Circuit has withdrawn its high-profile opinion (as to damages) in Forte v. Wal-Mart Stores, which found that civil penalties were not available absent actual damages in a suit under a Texas statutory cause of action about optometry. The controlling issues have now been certified to the Texas Supreme Court.
Superior MRI Services sued for tortious interference with contract; the defendant argued that Superior lacked standing because it never acquired rights under the relevant contracts, and the Fifth Circuit agreed. Superior MRI Services, Inc. v. Alliance Imaging, Inc., No. 14-60087 (Feb. 18, 2015). The record showed that P&L Imaging, a bankruptcy debtor, listed “MRI service agreements” on its schedule of assignments to Superior, with an assignment date of October 1, 2011. Superior, however, did not exist as a legal entity until November 28, 2011. No evidence showed that Superior ratified the contract after its formation, and the Court was unwilling to accept Mississippi’s approval of Superior as a vendor as evidence of a ratification. The Court distinguished the recent case of Lexmark, Int’l v. Static Control Components, 134 S. Ct. 1377 (2014), as relating to another aspect of the standing requirement.
Pearl Seas sued Lloyd’s Register North America (“LRNA”) for inadequate performance in certifying a cruise ship (the “Pearl Mist,” seen to the right.) LRNA moved to dismiss on the grounds of forum non conveniens in favor of England, citing a forum selection clause contained in its rules. The district court denied the motion without explanation and the Fifth Circuit reversed in a 2-1 panel opinion. In re Lloyd’s Register North America, Inc.. No. 14-20554 (Feb. 24, 2015), re-released after initial publication as a per curiam opinion on February 18.
The Court held: (1) as in the case of In re: Volkswagen, 545 F.3d 304 (5th Cir. 2008) (en banc), which involved the denial of a motion to transfer venue, mandamus is appropriate in the context of forum non conveniens; (2) it is an abuse of discretion to “grant or deny a[n FNC] motion without written or oral explanation” as to the relevant factors; and (3) the plaintiff was plainly bound by LRNA’s rules under the doctrine of direct-benefit estoppel, since its claim “referenced duties that must be resolved by reference to the classification society’s rules.” (citing Hellenic Inv. Fund v. Det Norkse Veritas, 464 F.3d 514 (5th Cir. 2006)). (A panel reached a similar result in Vloeibare Pret Limited v. Lloyd’s Register North America, Inc., No. 14-20538 (April 16, 2015, unpublished).
A dissent by Judge Elrod argued that the majority’s analysis of direct-benefit estoppel expanded the Court’s prior holdings in two areas — the degree to which the claim incorporated the relevant rules, and the timing of when the plaintiff learns of the rules. The dissent also expressed concern that the substantive claim would not be recognized in England.
The point of division between the majority and dissent — whether an error is “clear” or not — resembles a similar split between the majority and dissent in the mandamus case of In re Radmax, 720 F.3d 285 (5th Cir. 2013), which granted the writ as to the erroneous denial of an “intra-district” motion to transfer venue. Interestingly, Judge Higginson was the dissenter in Radmax, and also dissented from the denial of en banc review of that panel opinion, while here he forms part of the two-judge majority that grants mandamus relief. Judge Smith, who was in the majority of the Radmax panel opinion, is the author of this opinion after its initial release as per curiam.
In the case of In re Deepwater Horizon, the Texas Supreme Court has answered the certified questions raised in a significant insurance case about BP’s coverage related to the Deepwater Horizon disaster. (No. 130670, Tex. Feb. 13, 2015.) The issue is whether BP was an additional insured under policies obtained by Transocean, the operator of the ill-fated rig. Applying Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008), the Court held that “it is possible for a named insured to purchase a greater amount of coverage for an additional insured than an underlying service contract requires,” and that “the scope of indemnity and insurance clauses in service contracts is not necessarily congruent.” From that foundation, the court concluded: “The Drilling Contract required Transocean to name BP as an additional insured only for the liability Transocean assumed under the contract. Accordingly, Transocean had separate duties to indemnify and insure BP for certain risk, but the scope of that risk for either indemnity or insurance purposes extends only to above-surface pollution.”
Monday evening, a district judge in South Texas enjoined President Obama’s immigration program; the full text of his opinion is available here. (The case has the remarkably awkward caption of “Texas v. United States.”) An appeal has not yet been docketed with the Fifth Circuit. As with the recent gay marriage arguments, the makeup of the panel will be critical to the resolution of this extremely important case. The Washington Post story is a good example of the media coverage of the ruling.
Fernando Ramirez died after a beating by security guards at a nightclub. His estate sued the guards and the business that owned the club, as well as subsequent owners, alleging a scheme to hide assets. This lawsuit led to an insurance coverage dispute between the subsequent owners and the CGL carrier at the time of the incident. Colony Ins. Co. v. Price, No. 14-10317 (Feb. 12, 2015, unpublished). The specific allegations against the later owners in the underlying suit are far from clear, and appear to be obscured by broad use of the term “Defendants.” Nevertheless, the district court and Fifth Circuit agreed that these parties were not covered as “employees” under the policy: “Most obviously, the Price Defendants fail to explain how MTP and TOM, a partnership and a limited liability company, can be employees at all, let alone employees who falsely imprisoned Ramirez on October 1, 2008, particularly given that the Petition alleges that they were not formed until December 31 of the following year.”
1. I am speaking at the Dallas Bar Appellate Section meeting on March 19 at the Belo Mansion, with an update on recent Fifth Circuit opinions of general interest.
2. This year’s Super Lawyers nomination deadline is Wednesday, February 18 (two days from now). Take a few minutes to support the publication and your colleagues; the nomination form is here.
