EnCana Oil & Gas hired Seiber as a general contractor, who in turn hired Holt and TAUG as subcontractors.  Seiber failed to make timely payments.  EnCana interpleaded the funds at issue, and Seiber then filed for bankruptcy — before entry of a final order in the interpleader case. Holt Texas, Ltd. v. Zayler, No. 13-41153 (Nov. 3, 2014).

Holt and TAUG alleged that they had materialmen’s liens under Texas law that removed the funds from Seiber’s bankruptcy estate; Seiber’s bankruptcy trustee argued that the filing of the interpleader action “automatically satisfied its liability to Seiber, thus transferring legal possession of the funds to Seiber and the bankruptcy estate.”

The Fifth Circuit disagreed with the trustee and reversed the bankruptcy court, reasoning: “If this were so, the interpleader would be the final judge of its own legal obligations relative to the dispute, by depositing a sum solely determined by it, washing its hands of any relationship to the dispute and walking away whistling Yankee Doodle.”

Uretek USA developed a process for pavement repair, which it sublicensed to Uretek Mexico under an agreement signed in 2003.  In 2010, the principals of the two companies met to try and resolve disputes about that agreement and other business dealings. During the meeting, the parties initialed an amended sublicense agreement, and Uretek USA accepted four checks from Uretek Mexico with these amounts and memo lines:

1. $10 “As per First Amendment to Sublicense Agreement”
2. $76,950.90 for “Full Payment on Technical Assistance”
3. $225,471.05 for “Full Payment on Royalties”
4. $10 for “Full Release [Uretek USA] to [Uretek Mexico]

Uretek USA later sued to dispute the enforceability of the amendment.  The jury found that Uretek USA ratified it by conduct, principally by cashing these checks.  While Uretek USA made several arguments against that finding on appeal, the number of checks and specificity of the notations on them was sufficient to sustain the verdict.  Uretek (USA), Inc. v. Ureteknologia de Mexico S.A. de C.V., No. 13-20430 (Oct. 29, 2014, unpublished).

In a reversal on rehearing from the original panel opinion, based on answers to certified questions in another matter in the meantime, the Court held in Crownover v. Mid-Continent Casualty Co.: “In sum, [Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 124, 127 (Tex. 2010) and Ewing Constr. Co. v. Amerisure Ins. Co., 420 S.W.3d 30, 37 (Tex. 2014)], maintain that for a contractual-liability exclusion to apply, the insurer must prove that a contractually-assumed duty effected an expansion of liability beyond that supplied by general law. The arbitrator in this case determined that Arrow violated an express duty to repair work that did not conform to the requirements of its construction contract with the Crownovers. Mid-Continent has failed to proffer evidence creating a dispute of fact as to whether the arbitrator’s award was based on liability greater than that dictated by general law. Therefore, the contractual-liability exclusion from coverage does not apply.”  No. 11-10166 (Oct. 29, 2014, on petition for rehearing).

The concept of “proportionality” in discovery began its modern ascendance in  Bell Atlantic Corp v. Twombly, with observations such as these: “Probably, then, it is only by taking care to require allegations that reach the level suggesting conspiracy that we can hope to avoid the potentially enormous expense of discovery in cases with no ‘reasonably founded hope that the [discovery] process will reveal relevant evidence’ to support a § 1 claim.”  127 S.Ct. 1955, 1968 (2007).

Over time, the “proportionality” concept has moved from the discovery rules to pervade the entire system of federal procedure.  Consider Advisory Committee Note to revised Federal Rule of Civil Procedure 1 (approved by the Judicial Conference in September 2014 and now before the Supreme Court): “Effective advocacy is consistent with — and indeed depends upon — cooperative and proportional use of procedure.”

While arising under state law rather than the Federal Rules, the recent Texas Supreme Court of In re National Lloyds Ins. Co. illustrates the concept of proportionality in a highly practical context. The plaintiff in an insurance bad faith case sought evidence about similar claim denials, arguing “that the trial court’s discovery order was (1) limited in time, because it compelled only production of evidence relating to the two storms at issue, and (2) limited by location, because it involved only properties in Cedar Hill.”  ___ S.W.3d ___, No. 13-0761 (Tex. Oct. 31, 2014) (per curiam).

That Court disagreed: “Scouring claim files in hopes of finding similarly situated claimants whose claims were evaluated differently from [plaintiff’s] is at best an ‘impermissible fishing expedition.’ . . . [Plaintiff] is correct that discovery must be reasonably limited in time and geographic scope.   But such limits in and of themselves do not render the underlying information discoverable.”   It concluded that there were still too many likely differences between this set of claims and the plaintiff’s case to justify the discovery request.

Four times in the last two months, 600Camp has won recognition from Texas Bar Today for a “Top 10 Post of the Week” among Texas law blogs, “based on subject matter, writing style, headline, and imagery.” The posts were  The Regulation, My Friend, is Blowing in the Wind (Sept. 16), My Five Tips for Good Legal Writing (Oct. 9), Arbitration Here, There, or Nowhere (Oct. 20), and How to Notice Mississippi (Oct. 28).  Thanks for your support!

“Those who prefer to hunt deer without the use of dogs (still-deer hunters) complain that
dog-deer hunting is disruptive and unsportsmanlike. Adjacent landowners complain that dog-deer hunting leads to shooting near houses and from roads, fights between dog-deer hunters and landowners, roads being blocked by dog-deer hunters, dogs running across private property, and trespass.  Dog-deer hunters defend the practice based on its history as a traditional method of hunting in Louisiana dating back to the colonial period.”  The plaintiffs in Louisiana Sportsmen Alliance, LLC v. Vilsack sought to enjoin the U.S. Forest Service from banning dog-deer hunting in the Kisatchie National Forest.  The Forest Service won on the merits in the district court, and for the first time on appeal, argued that the plaintiff organization lacked standing. Expressing vexation: “The district court was ill-served by the Forest Service in this regard, because the Forest Service never argued that the Alliance lacked organizational standing until this appeal,” the Court nevertheless considered the issue because “Article III standing is a jurisdictional requirement that cannot be waived,” and then dismissed the appeal because the plaintiff association had not shown its standing to bring suit.  No.13-31260 (Oct. 28, 2014, unpublished).

River Oaks, an apartment management business originally based entirely in Louisiana, expanded into Mississippi in 2011.  It had a workers comp policy with Bridgefield Insurance, which provided “Other States” coverage for Mississippi if River Oaks notified Bridgefield of activity there.  After an employee’s injury in Mississippi, Bridgefield denied coverage for failure to comply with this notice requirement.  Bridgefield Casualty Ins. Co. v. River Oaks Management, Inc., No. 13-31077 (Oct. 27, 2014, unpublished).

Bridgefiled won the coverage dispute in district court, and the Fifth Circuit agreed that: (1) the provision was not ambiguous; (2) the provision was a condition precedent to coverage, so Bridgefield did not have to show prejudice from the lack of notice; and (3) for similar reasons, the provision did not implicate the Louisiana “anti-technical” statutes.

But, the Court found a material fact issue and reversed — agreeing with the district court that there was a factual dispute about whether an audit by Bridgefield put it on notice of the Mississippi activity (and accepted payments after that time), the Court disagreed with the district court’s conclusion that the dispute was not material: “An insurer may waive a provision that falls short of granting it the right to cancel the entire policy, such as the exclusion-of-coverage provision at issue here.”

Earlier this year, the Texas Supreme Court answered certified questions from the Fifth Circuit about the treatment of home equity loans under the Texas Constitution; that opinion summarizes: “To avoid foreclosure, homeowners and lenders often try to restructure underwater home mortgage loans that are in default by capitalizing past-due amounts as principal, lowering the interest rate, and reducing monthly payments, thereby easing the burden on the homeowners. But home equity loans are subject to the requirements of Article XVI, Section 50 of the Texas Constitution. The United States Court of Appeals for the Fifth Circuit has asked whether those requirements apply to such loan restructuring. We answer that as long as the original note is not satisfied and replaced, and there is no additional extension of credit, as we define it, the restructuring is valid and need not meet the constitutional requirements for a new loan.”  Sims v. Carrington Mortgage Services, LLC, No. 13-0638 (Tex. 2014).  Following that Court’s recent denial of rehearing, the Fifth Circuit has now formally accepted the answer and ruled accordingly.

Because the Fifth Circuit rarely acts en banc in business-related cases, votes by the full court on civil matters deserve careful review as examples of the judges’ broader philosophical leanings.  As detailed in another post, I place particular emphasis on (1) the vote to deny en banc review in the Daubert case of Huss v. Gayden (balancing judicial authority with the jury’s); (2) the vote to grant mandamus relief in the venue dispute of In re Volkswagen (balancing appellate authority with that of the trial court); and (3) the 7-8 vote to deny en banc review in the venue case of In re Radmax (same).  

The issue in the recent en banc case of McBride v. Estis Well Service, LLC, No. 12-30714 (revised Oct. 24, 2014), while facially addressing an important but technical issue of admiralty law, offers insight about the judges’ views of another topic — the authority of the judiciary as opposed to Congress’s. The introduction to Judge Higginson’s dissent succinctly captures that point: “The question presented by this case is whether seamen may recover punitive damages for their employer’s willful and wanton breach of the general maritime law duty to provide a seaworthy vessel. Because the Supreme Court has said that they can, and Congress has not said they can’t, I would answer in the affirmative, and REVERSE.”

Nine judges (spread across three opinions) saw the answer differently.  The conclusion to the majority opinion begins: “In the words of the Supreme Court, ‘Congress has struck the balance for us.'” (citing Mobil Oil Corp. v. Higginbotham, 436 U.S. 618, 623 (1978)).  Two concurrences make similar observations. Notably, all of the active judges appointed by a Democratic president at the time of en banc submission are in dissent.

The State Bar of Texas Litigation Section recently published my article, based on content from this blog, about how the Fifth Circuit has applied Twombly and Iqbal in recent opinions.

A cousin to U.S. Bank, N.A. v. Verizon Communications, Inc., the case of Murphy v. Verizon Communications, Inc. presented an ERISA-based challenge to the spinoff of Idearc by Verizon.  No. 13-11117 (Oct. 15, 2014, unpublished).  The appellate issue was the plaintiffs’ right under ERISA’s “catch-all provision” to request, as “other instruments under which the [ERISA] plan is established or operated,” various documents about the plan’s investment guidelines.  The Fifth Circuit held: “We agree with the majority of the circuits which have construed [the] catch-all provision narrowly so as to apply only to formal legal documents that govern a plan.”

Dawna Casey’s family sued Toyota, alleging that the airbag in a 2010 Highlander did not remain inflated for six seconds and caused her death in an accident.  The district court granted judgment as a matter of law and the Fifth Circuit affirmed.  Casey v. Toyota Motor Engineering & Manufacturing, No. 13-11119 (Oct. 20, 2014).

As to the claim of manufacturing defect, the Court observed: “Casey . . . established only that the air bag did not remain inflated for six seconds,” and relied on alleged violations of Toyota’s performance standards to prove a defect (rather than a technical explanation of the bag’s performance).  The Court rejected those allegations under Texas law and precedent from other jurisdictions: “Each piece of evidence submitted by Casey on this point is result-oriented, not manufacturing-oriented, and provides no detail on how the airbag is constructed.”

As to the claim of design defect, Casey relied primarily on a patent application for an allegedly superior design, which the Court rejected as not having been tested under comparable conditions, and as lacking a real-world track record as to feasibility, risk-benefit, and other such matters.  Law360 has written a summary of the opinion.

Sharpe v. Ameriplan re-engages the recurring problem of an arbitration agreement governed by multiple documents.  No. 13-10922 (Oct. 16, 2014).  Specifically:

— A Policy Manual contained an arbitration clause;

— A Broker Agreement, which incorporated the Policy Manual.  This Agreement said that the Agreement could not be changed except by written agreement, but acknowledged that the Manual could be changed at will; and

–3 of 4 plaintiffs had Sales Director Agreements that contained a lengthy dispute resolution provision, which began with a commitment to nonbinding mediation and concluded with detailed language that “claims, controversies, or disputes” be “submitted . . . to the jurisdiction” of courts in Dallas (a fourth had a much shorter provision that was simply a Dallas forum selection provision for “any action” on the agreement).

The Court held that that shorter provision did not trump the arbitration clause, but that the longer one did: “The language in Guarisco’s agreement demonstates that AmeriPlan knew how to draft a narrow forum selection clause, and its decision in later Sales Director Agreements to add far more extensive language establishing a full dispute resolution process must be given effect as creating something beyond that.”  The Court distinguished its recent opinion of Klein v. Nabors Drilling USA, L.P., 710 F.3d 234 (5th Cir. 2013), in which it read language about nonbinding mediation as not conflicting with “an exclusive procedural mechanism for the final resolution of all Disputes falling within its terms.”  (See also Lizalde v. Vista Quality Markets,  No. 13-50015 (March 25, 2014) (enforcing an arbitration agreement in the face of a benefit plan with a broad termination right, noting that both agreements’ termination provisions were limited to “this Agreement” and “this Plan” respectively and thus “clearly demarcate their respective applications”)).

The plaintiff in Law v. Ocwen Loan Servicing, L.L.C., a mortgage servicing case, asked the Fifth Circuit for leave to amend if it affirmed the dismissal of the complaint under Rule 12.  No. 14-20019 (Oct. 16, 2014, unpublished).  The Court affirmed on the merits and as to the denial of leave to amend, noting these basic and important principles on the point:

*  “A party who neglects to ask the district court for leave to amend cannot expect to receive such dispensation from the court of appeals.”

*  A district court’s sua sponte discussion of amendment is not a request, and neither is this language in a response: “[T]he only relief possibly available to [the defendant] at this stage of the case is that [the plaintiff] replead.”

*  While new factual allegations in response to a summary judgment motion can be construed as a request for leave to amend, that does not hold for a response to a Rule 12 motion.

The meaning of the word “value,” a seemingly simple word, lies at the heart of most economic theory.  In the Fifth Circuit, in the context of a defense under section 548(c) of the Bankruptcy Code to a fraudulent transfer claim, “value” is measured “from the perspective of the transferee: How much did the transferee ‘give’?” Williams v. FDIC, No. 12-20687 (Oct. 16, 2014) (discussing Jimmy Swaggart Ministries v. Hayes, 310 F.3d 796 (5th Cir. 2002)). (Although, as footnote 3 of Williams observes, the answer may be different under state law.)

In Williams, a debtor company paid $367,681.35 to a bank, on an obligation owed entirely by the individual who owed the debtor.  The bankruptcy trustee proved these payments were a fraudulent transfer, but the bank won below by showing two items of value: (1) forbearance as to eviction, which had substantial value to the debtor’s business, and (2) roughly $250,000 in “reasonable rental rate” for the period when the debtor occupied the premises in question.  The Fifth Circuit disregarded the first as irrelevant from the debtor’s perspective under Swaggart.   As to the second, the Court required “netting” of the loan payments received by the bank, against the rent the bank could have received, and rendered judgment for the trustee for the difference.  This holding turns on a detailed analysis of the term “value” in 548(c), as distinguished from “reasonably equivalent value” in a defense elsewhere in the Code.

The Fifth Circuit and the district court agreed that the plaintiffs/appellants in Mboho USA, Inc. v. Okon had served “abusively excessive, repetitious, and burdensome discovery requests.”  No. 13-20449 (Oct. 10, 2014, unpublished).  But, the Fifth Circuit found that the district court had acted too hastily in dismissing the case entirely, noting:

(1) the plaintiff, a foreign entity, was not foreclosed from suing in Texas simply because it is not registered to do business there;

(2) one of the appellants had legitimate documents from the Nigerian government authorizing him to bring suit in the US or Canada;

(3) an earlier dismissal in state court for lack of subject matter jurisdiction was not preclusive as to another court with jurisdiction; and

(4) as to one of the claims, plaintiffs were entitled to an opportunity to respond before it was dismissed sua sponte.

The Chemical Safety and Hazard Investigation Board served administrative subpoenas on Transocean in connection with the Deepwater Horizon disaster.  United States v. Transocean Deepwater Drilling, Inc., No. 13-20243 (Sept. 18, 2014).  Transocean contended that the Board lacked jurisdiction because the ill-fated rig was not a “stationary source” within the meaning of the Board’s enabling statute; the majority disagreed, concluding that at the time of the accident, the rig “was physically connected (though not anchored) at that site and maintained a fixed position.”

Transocean also contended that this sentence deprived the Board of jurisidiction: “The Board shall not be authorized to investigate marine oil spills, which the National Transportation Safety Board is authorized to investigate.”  After a foray into the grammatical thicket of “which” v. “that,” the majority concluded that the Board was not categorically barred from investigating oil spills in light of the “overall regulatory scheme.”

A dissent disagreed with both conclusions, reminded that “[f]or the sake of maintaining limited government under the rule of law, courts must be vigilant to sanction improper administrative overreach,” and noted that at least 17 other investigations were conducted into the accident.

Holden, an employee of Buck Kreihs Company (“BKS”), was injured while removing a gangway that connected BKS’s dock to a barge owned by U.S. United Ocean Services (“United”).  Holden and United settled their litigation, and United’s liability insurer won summary judgment in United’s suit for insurance coverage.  The Fifth Circuit affirmed in Holden v. U.S. United Ocean Services, L.L.C., No. 12-30251 (Sept. 15, 2014, unpublished).  The policy — actually issed to BKS, but with United as an additional insured — had a “watercraft” exclusion.  The exclusion would otherwise apply to the barge, except for an exemption for a contract under which “the ‘Named Insured’ assumes the tort liability of another party for ‘bodily injury’ or ‘property damage’ to a third party or organization.”  The majority found that United was not a named insured, and that the exemption was best read to reach claims by an injured claimant against BKS — not claims by an additional insured for its own liability to the claimant.  A dissent argued that this reading did not give effect to the precise terms used in the policy.

On Friday October 10, the Fifth Circuit denied mandamus relief on the eve of trial in a high-stakes False Claims case, In re Trinity Industries, Inc. — but took the unusual step of making an additional statement: “The court is compelled to note, however, that this is a close case. The writ is timely and the litigation stakes–the potential for a $1 billion adverse judgment–are unusually high. This court is concerned that the trial court,  despite numerous timely filings and motions by the defendant, has never issued a reasoned ruling rejecting the defendant’s motions for judgment as a matter of law.”  The Court went on to cite several specific opinions that caused its concern.

Pioneer suffered an oil well blowout and paid millions to restore order.  It sued for reimbursement under its umbrella policy and the Fifth Circuit affirmed judgment for the insurer, based largely on the broad language of the relevant exclusions.  Pioneer Exploration LLC v. Steadfast Ins. Co., No. 13-30802 (Sept. 22, 2014).  Pioneer argued that the “owned, rented or occupied” exclusion did not apply to a mineral lease.  The Court disagreed, noting that the mineral lease gave Pioneer some control over surface land, and that the broad language of the exclusion reached activity associated with oil production (citing Aspen Ins. UK, Ltd. v. Dune Energy, Inc., No. 10-30335 (5th Cir. Nov. 8, 2010, unpublished)).  Further, noting that Louisiana law allowed debate as to whether an “owned property” exclusion reached remediation costs incurred to minimize liability to third parties, the Court found that this exclusion “specifically excludes containment costs” (reviewing Norfolk Southern Corp. v. California Union Ins., 859 So. 2d 167 (La. App. 2003)).”  Finally, as to another exclusion, the Court found that the insured could not meaningfully allocate expense “between controlling costs and plugging costs.”

While preparing a CLE for our associates, I drafted and posted my five tips for good legal writing, along with comments and examples.  The tips are:

1. Avoid needless words.
2. Use shorter words.
3. Use shorter sentences.
4. Avoid passive voice.
5. There is no good writing. Only good re-writing.

I hope you have a chance to read the post, along with some of the linked examples, and that they are of use to you in your work.

This summer, the Fifth Circuit declined to apply the Texas “one satisfaction rule” in a fraudulent transfer case, where the plaintiff had also settled a contract dispute with the seller of the business involved in the transfer.  GE Capital Commercial, Inc. v. Worthington National Bank, No. 13-10171 (June 10, 2014).  The court returned to the one-satisfaction rule in Structural Metals, Inc. v. S&C Electric Co., in which the jury awarded roughly $300,000 for a breach of warranty (measured as the difference in value between the goods as received, and the goods as warranted).  The plaintiff also received an insurance payment for fire damage involving the goods.  Again, the Court declined to apply the rule, finding that the plaintiff had suffered two distinct injuries.  No. 13-50332 (Oct. 6, 2014, unpublished).  Interestingly, in both cases, the Court focused on the one-satisfaction rule rather than the closely-related doctrine of the collateral source rule.

The Fifth Circuit returned to the tension between excess and primary carriers in RSUI Indemnity Co. v. American States Ins. Co., a bad faith case under Louisiana law.  After a review of the cases on the issue, the Court held “that under the circumstances of this case, where an excess carrier alleges that a primary insurer in bad faith breached its duty to defend a common insured properly and caused exposure of the insured to an increase in the settlement value of the case above the primary policy limit, which the excess insurer must then satisfy on the insured’s behalf, the excess insurer has a subrogated cause of action against the primary insurer for any payment above what it otherwise would have been required to pay.”  No. 14-30033 (Sept. 25, 2014).

Plaintiffs alleged that Amedisys, a provider of home health services, concealed billing improprieties, causing a drop in its stock value when they were revealed.  Public Employees’ Retirement System of Mississippi v. Amedisys, Inc., No. 13-30580 (Oct. 2, 2014).  The Fifth Circuit reversed the district court’s dismissal on the pleadings, finding adequate allegations of loss causation.  It based its holding on the alleged cumulative effect of the five pleaded disclosures of the allegedly concealed information: “This holding can best be understood by simply observing that the whole is greater than the sum of its parts.”  In its discussion of the Supreme Court’s treatment of this pleading issue in Dura Phamaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005), the Court pointed out that Dura relied on Conley v. Gibson for its summary of pleading requirements — perhaps inviting a reassessment of that holding in light of later developments under Twombly and Iqbal.

On October 2, the Supreme Court granted certiorari in ASARCO v. Baker Botts, L.L.P., a Fifth Circuit case about enhancement of professional fees for a “rare and extraordinary” result in bankruptcy fraudulent transfer litigation.

Fed. R. Civ. P. 62(f) says: “If a judgment is a lien on the judgment debtor’s property under the law of the state where the court is located, the judgment debtor is entitled to the same stay of execution the state court would give.”  In MM Steel, L.P. v. JSW Steel (USA), Inc., Appellant faced an adverse judgment for over $150 million, and sought a stay of execution based on this rule.  No. 14-20267 (Nov. 14, 2014 [revised]).

Reviewing the somewhat scattered authority about Rule 62(f) and its application in Texas, the per curiam majority concluded that the creation of a Texas judgment lien with an abstract of judgment “requires more than mere ministerial acts.”  Accordingly, a Texas judgment is not a lien within the scope of Rule 62(f), and Appellant’s motion to stay was denied (applying Rodriguez-Vazquez v. Lopez-Martinez, 345 F.3d 13 (1st Cir. 2003)).

In dissent, Judge Jones (a) saw the case as controlled by a different line of authority (citing Castillo v. Montelepre, Inc., 999 F.2d 931 (5th Cir. 1993)), under which “Rule 62(f) is applicable where a judgment creditor is otherwise afforded sufficient security under state law” such as Texas’s $25 million bond cap, and (b) observed: “The majority overstates the difficult of filing an abstract of judgment. . . . It is a single page with a few simple fields, like names and addresses of the parties.”

1. General jurisdiction is not general.  “It is . . . incredibly difficult to establish general jurisdiction in a forum other than the place of incorporation or principal place of business.”  Monkton Ins. Servs. v. Ritter, __ F.3d ___ (5th Cir. Sept. 26, 2014) (applying Daimler AG v. Bauman, 134 S. Ct. 746 (2014)).
2.  “Gateway” arbitration has a gate.   A party must only “arbitrate gateway questions of arbitrability if the argument that the dispute falls within the scope of the agreement is not wholly groundless.”  In Douglas v. Regions Bank, an agreement about a bank account did not control a later, unrelated embezzlement case.  757 F.3d 460 (5th Cir. 2014).
3. “Based on” = Arbitration.  The contract said: “Terms and conditions are based on the general conditions stated in the [attached].”  While “based on” may have “multiple interpretations . . . in the abstract,” no such reading worked here, given the length and scope of the attachment compared to the contract.   Rushaid v. National Oilwell Varco, Inc., 757 F.3d 416 (5th Cir. 2014).
4. No actual damages = No civil penalties.  Forte v. Wal-Mart Stores, ___ F.3d ___ (5th Cir. Aug. 25, 2014) (rehearing pending).
5. Analytical GAAP.   An expert reviewed financial documents from A and tax returns from B.  His opinions about the finances of C and D were stricken: “It is by no means clear how a [CPA] can obtain personal knowledge of the effects of the actions of one entity on other parties without reviewing the latter’s financial documents . . . .”  Meadaa v. K.A.P. Enterprises LLC, 756 F.3d 875 (5th Cir. 2014).

BONUS: Lipan Apaches may use eagle feathers in religious rituals — for now at least.  McAllen Grace Brethren Church v. Salazar, ___ F.3d ___ (5th Cir. Aug. 20, 2014).

Plaintiff bought a Nissan Murano, paying $39,289 in total.  She sued for breach of warranty and related state law claims, and the defendants removed.  The issue addressed on appeal was whether the claim fell within the $50,000 amount-in-controversy requirement of the Magnuson-Moss Warranty Act.    Scarlott v. Nissan North America, Inc., No. 13-20528 (Sept. 30, 2014).  The Fifth Circuit found it did not — the plaintiff’s invocation of a “Level One” Discovery Control Plan under the Texas Rules of Civil Procedure did not specify a claim amount, and the defendants did not offer sufficient evidence of dimunution of value, repair costs, or lost profits to bring the claim about the threshold.  Notably, under the Magnuson-Moss statute, in calculating the amount in controversy a court may not consider attorneys fees, personal injury damages, or damages associated solely with pendent state-law claims.

Ritter, a resident of Texas, owned an insurance company in the Cayman Islands. Litigation broke out, in Texas, between Ritter and the Cayman-based entity that managed the insurance company.  Ritter sought to join a Cayman-based bank to the Texas case, arguing that it failed to detect the manager’s wrongdoing.  The district court dismissed for lack of personal jurisdiction and the Fifth Circuit affirmed.  Monkton Ins. Servs. v. Ritter, No. 13-50941 (Sept. 26, 2014).  The case is notable as one of the first applications by the Circuit of two 2014 Supreme Court cases about personal jurisdiction.

First, as to general jurisdiction, applying Daimler AG v. Bauman, 134 S. Ct. 746 (2014), the Court observed: “It is . . . incredibly difficult to establish general jurisdiction in a forum other than the place of incorporation or principal place of business.”  The Court also reminded that a “sliding scale” analysis about the jurisdictional effect of a defendant’s website “is not well adapted to the general jurisdiction inquiry, because even repeated contacts with forum residents by a foreign defendant may not constitute the requisite substantial, continuous and systematic contacts required for a finding of general jurisdiction—in other words, while it may be doing business with Texas, it is not doing business in Texas.” (quoting Revell v. Lidov, 317 F.3d 467, 471 (5th Cir. 2002) (citing Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997)).

Second, as to specific jurisdiction, the Court noted that Walden v. Fiore, 134 S. Ct. 1115 (2014), emphasized that a plaintiff’s unilateral actions with respect to the forum cannot create personal jurisdiction.  Here, the bank transactions at issue were initiated by Ritter, running afoul of this principle.  The Court also found no abuse of discretion in denying jurisdictional discovery.

Plaintiff brought a class action in Louisiana state court on behalf of apartment owners and managers.  Defendant removed under CAFA.  Plaintiff then sought to add a local defendant and invoke the “local controversy” exception to CAFA jurisdiction. Cedar Lodge Plantation, LLC v. CSHV Fairway View I, LLC, No. 14-30735 (Sept. 29, 2014). Citing State of Louisiana v. American National Property & Casualty Co., 746 F.3d 633 (5th Cir. 2014), the Fifth Circuit rejected this argument, noting that CAFA defines a class action as the “civil action filed”   28 U.S.C. § 1332(d)(1)(B) (emphasis added).

Boxcars Properties, the operator of an apartment complex, sued its neighboring landowners West Hills Park and Home Depot in Texas state court, complaining about development activity that led to a “lack of lateral support” and made the complex uninhabitable. Williams v. Home Depot, Inc. (Sept. 22, 2014, unpublished).  Boxcars settled with Home Depot and obtained a $2.4 million verdict against West Hills, which then filed for bankruptcy.

West Hills sought indemnity from Home Depot, and the district court and Fifth Circuit rejected its request.  The indemnity provision contained an exclusion for “the tortious acts of . . . other parties” — such as West Hills.  Noting that “[t]he express negligence doctrine alone may be sufficient to deny [debtor’s] claim,” the Court decided on the basis of issue preclusion, agreeing with the district court that “the negligence finding was essential to the judgment because only that finding allowed for the damages for improvements to land included in the state court verdict.”

ExxonMobil sued US Metals, alleging over $6 million in damages from defects in a set of 350 “weld neck flanges.”  US Metals sought CGL coverage from Liberty.  U.S. Metals, Inc. v. Liberty Mutual Group, Inc., No. 1320433 (Sept. 19, 2014, unpublished). Liberty denied US Metals’s request, based on the “your product” and “impaired” property exclusions in the policy, which turned on the terms “physical injury” and “replacement” in those exclusions.   The Fifth Circuit noted a lack of Texas authority as to whether those terms are ambiguous in this context, and no clear answer in other opinions that have addressed them. Accordingly, the Court certified two questions to the Texas Supreme Court: (1) whether those terms, as used in these exclusions, are ambiguous; and (2) if so, whether the insured’s interpretation is reasonable.  The Court observed that the interpretation of these terms “will have far-reaching implications” and “affect a large number of litigants.”  That Court accepted the certification request today.

In somewhat quirky language, the Texas Rules of Civil Procedure set this deadline to answer a lawsuit: “[O]n or before 10:00 a.m. on the Monday next after the expiration of twenty days after the date of service.”  Despite the specific time stated, attorneys often calendar only the answer day, reasoning that a default judgment is unlikely in the space of a few hours.  That practice failed in G&C Land v. Farmland Management Services, in which the plaintiff obtained a default judgment for over $3,000,000 at 10:15 on the critical Monday.  No. 14-10046 (5th Cir. Sept. 23, 2014).

Plaintiff alleged fraud claims about the costs of an agricultural lease on a West Texas farm; the judgment granted recovery on those claims and trebled the damages under the DTPA.  Two hours later, the defendant removed and then sought to set aside the default judgment.  The district court ultimately granted that motion, along with a summary judgment for the defendant on the merits, and the Fifth Circuit affirmed.

Whilte the Fifth Circuit’s opinion is short and unpublished, the district court opinion (page 31 of the attached) goes into substantial detail about the default judgment.  It found a lack of willfulness by the defendant, a lack of prejudice to the plaintiff, and meritorious defenses.  As to willfulness, the district court noted that “fault is attributed only to Farmland’s counsel,” and held: “There is no dispute that Farmland failed to file an answer or remove before the deadline to answer in state court, which failure is attributed to the negligence of Farmland’s counsel.  Yet, such negligence does not amount to willfulness . . . “   It also noted that while Farmland had timely answered after removal in accordance with the Federal rules, “this alone does not excuse Farmland’s failure to timely answer in state court.”

The federal courts’ decisions to set aside the default judgment are clearly correct – the (affirmed) summary judgment shows that the claim lacked merit, and plaintiff was not prejudiced by having to address the merits instead of resting on a 15-minute “gotcha.”  And as to the deadline, the opinions do not address Rule 5 of the Texas Rule of Civil Procedure, which provides:  “If any document is sent to the proper clerk by first-class United States mail in an envelope or wrapper properly addressed and stamped and is deposited in the mail on or before the last day for filing same, the same, if received by the clerk not more than ten days tardily, shall be filed by the clerk and be deemed filed in time (emphasis added).”  A serious argument says that the state court’s speedy grant of a default judgment did not allow Rule 5 a chance to function as intended.

Nevertheless, the district court faulted defense counsel for not answering before 10:00, and used the word “negligence” to describe what happened.  Had the facts been different – a stronger claim, a change of position in reliance on the judgment – the decision could have been closer and counsel’s situation would have become more awkward.  In light of the facts of this case, defense counsel should be mindful of the 10:00 AM deadline in the rules, and factor it into their calendaring system.

A similar article about this case appeared in a recent Texas LawBook.

The district court ordered Glay Collier, a bankruptcy attorney, to stop advertising for “no money down” Chapter 7 services.  Despite efforts by Collier, some online ads remained. The district court found him in contempt and ordered him confined for 48 hours “[a]s a result of the violation of this Court’s order, without any reasonable excuse other than ‘I forgot[.]'”  In re Glay Collier, No. 14-30887 (Sept. 19, 2014, unpublished).  The Fifth Circuit granted mandamus, finding that this order involved criminal rather than civil contempt, and thus triggered procedural safeguards that had not been invoked.  Among other considerations, the Court noted that “the sanction was for an unconditional term of imprisonment,” that Collier “could have taken additional steps to comply with the court’s order by the time he was remanded into custody,” and that the district court cited “‘the violation’ of [its] order (not the continued non-compliance) as the basis for its finding of civil contempt.”  A similar order was treated in the same fashion in the later case of Wheeler v. Collier, No. 14-30961 (March 5, 2015, unpublished).

Estate of Elkins v. Commissioner of Internal Revenue presented a dispute about the taxable value of a decedent’s fractional ownership in an extremely valuable art portfolio, including works by Picasso, Jackson Pollock, and Cezanne. No. 13-60742 (Sept. 15, 2014).  Before the U.S. Tax Court, the IRS “steadfastly maintained that absolutely no fractional-ownership discount was allowable.” The estate offered expert testimony that “any hypothetical willing buyer would demand significant fractional-ownership discounts in the face of becoming a co-owner with the Elkins descendants, given their financial strength and sophistication, their legal restraints on alienation and partition, and their determination never to sell their interests in the art.”

The Tax Court applied a “‘nominal’ discount of 10 percent only.”  The Fifth Circuit reversed: “[T]he Estate’s uncontradicted, unimpeached, and eminently credible evidence in support of its proferred fractional-ownership discounts is not just a ‘preponderance’ of such evidence; it is the only such evidence.  Nowhere is there any evidentiary support for the Tax Court’s unsubstantiated declaration” about the 10% discount (emphasis in original).  In reviewing the IRS’s “no discount” position at trial, the Court noted in footnote 7: “The Commissioner appears to have ignored, or been unaware of, the venerable lesson of Judge Learned Hand’s opinion in Cohan: In essence, make as close an approximation as you can, but never use a zero.”  Cohan v. Commissioner, 39 F.2d 540, 543-44 (2d Cir. 1930).

Plaintiffs, citizens of Texas, sued two citizens of Massachusetts and their companies, alleging violations of the Texas Fraudulent Transfer Act.  Dontos v. Vendomation NZ Ltd., No. 12-10986 (Sept. 16, 2014, unpublished).  The district court dismissed for lack of personal jurisdiction and the Fifth Circuit reversed.

Noting that it was “hesitant to make per se rules regarding fact-specific minimum contacts analysis,” the Court observed generally that “a debtor who is liable under TUFTA to a Texas resident is likely subject to suit in the creditor’s forum state because the debtor acted with actual or constructive fraudulent intent to expressly aim their conduct at a creditor in the forum, where the tort’s harm was felt.”  Similarly, while “a mere ‘passive transferee[]” is unlikely to be subject to jurisdiction in the creditor’s resident state,” if ” the transferee ‘precipitate[s] and direct[s] an alleged fraudulent transfer at the expense of a known . . . creditor in Texas,” jurisdiction is likely.  (reviewing and applying Mullins v. TestAmerica, Inc., 564 F.3d 386, 400 (5th Cir. 2009) (citing Calder v. Jones, 465 U.S. 783, 789-90 (1984)).

Applying those principles, and accepting the plaintiffs’ allegations as true, the Court found sufficiently detailed allegations to state a prima facie case for personal jurisdiction as to both the debtor and the initial transferees.

600Camp celebrates its birthday today, and as is its custom, proposes a New Orleans cocktail for the occasion.  Please consider the “Touchdown Jesus Bloody Mary” as made by the Bourbon O bar in the French Quarter, one of the leading craft cocktail establishments in NOLA these days.

Drillers asserted a subcontractors’ lien on Debtors’ oil well.  Endeavor Energy Resources, L.P. v. Heritage Consolidated, L.L.C., No. 13-10969 (reviised Sept. 16, 2014). Debtors argued that when the general contractor acquired a 1% ownership interest in the lease, that interest related back to the time before Drillers began work, and voided any lien because a party cannot be both a contractor and an owner.

The Fifth Circuit rejected that argument and reversed the lower courts, finding that the Texas Supreme Court intended the relation-back doctrine in this context to expand the interest to which a valid lien can attach (applying Diversified Mortgage Investors v. Lloyd D. Blaylock General Contractor, Inc., 578 S.W.2d 794 (Tex. 1978)).  Noting that this interest was not acquired until after the Drillers had done their work, the Court observed that even an earlier acquisition would reach the same result: “If [GC] gained a 1% ownership interest in the lease at the time that Drillers performed their work, then Drillers may have gained an additional claim for contractors’ liens against [GC].  It would not, however, prevent Drillers from asserting separate subcontractors’ liens against [Debtors].”

A borrower lost a summary judgment in a mortgage dispute in Langlois v. Wells Fargo Bank, N.A., No. 13-10914 (Sept. 8, 2014, unpublished).  In addition to a basic summary of problems that such cases can have, the opinion illustrates one in particular.  The stronger an alleged oral modification becomes, the weaker a corresponding fraud claim becomes, because “When oral promises are directly contradicted by express, unambiguous terms of a written agreement, the law says that reliance on those oral promises is not justified.”  (quoting Taft v. Sherman, 301 S.W.3d 452, 458 (Tex. App.–Amarillo 2009, no pet.)  The same phenomenon strengthens a Statute of Frauds defense as well.

The Public Utilities Regulatory Policies Act (“PURPA”) directs the FERC to encourage alternative energy providers, called “Qualifying Facilities” under that statute.  In a novel arrangement that encourages flexibility but also can raise “troublesome” Tenth Amendment concerns, PURPA directs state agencies — such as the Texas PUC — to adopt rules that comply with FERC’s regulations and help implement PURPA.  Exelon Wind 1, LLC v. Nelson, No. 12-51228 (Sept. 8, 2014) (quoting Power Resource Group v. Public Utility Comm’n of Texas, 422 F.3d 231 (5th Cir. 2005), and FERC v. Mississippi, 456 U.S. 742 (1982)).

The Texas PUC, acknowledging this mandate as well as the vagaries of wind power generation in the Texas Panhandle, enacted a rule limiting the pricing benefits of PURPA to “Qualifying Facilities able to forecast when they will deliver energy to the utility.”  Exelon, a wind power producer, challenged the validity of this rule under PURPA.

The Fifth Circuit first rejected a jurisdictional challenge, finding that Exelon’s attack on the rule was an “as-applied” challenge — over which federal courts have jurisdiction – as opposed to a “facial” challenge reserved to state courts.  In so reasoning, the Court declined to give Chevron deference to a “Declaratory Order” by FERC.  On the merits, — again declining to give the FERC letter deference — the Court upheld the PUC regulation: “The PUC had the discretion to determine the specific parameters for ehwn a wind farm can form a Legally Enforceable Obligation, and . . . left open the possibility that other wind farms might be able to provide firm power . . . .”

A dissent, agreeing with the jurisdictional analysis, differed on the merits, finding that the PUC rule conflicts on its face with the applicable FERC regulation, and that deference was due to the “FERC’s reasonable interpretation of that regulation according to well-established principles of adminstrative deference.”

Earlier this year, the Fifth Circuit ordered the remand to state court of litigation between Vantage Drilling and Hsin-Chi Su.  Vantage Drilling Co. v. Su, 741 F.3d 535 (5th Cir. 2014).  Meanwhile, several marine shipping companies, owned in whole or in part by Su, filed for Chapter 11 protection in the Southern District of Texas, and Vantage intervened in those proceedings.  TMT Procurement Corp. v. Vantage Drilling Co., No. 13-20622 (Sept. 3, 2014).  The district court entered several orders related to DIP financing and shares of Vantage stock, which Vantage appealed.

The Fifth Circuit rejected a mootness challenge, concluding that the DIP lender’s awareness of Vantage’s claim removed the appeal from certain Code provisions that limit appellate rights.  The Court then held that (1) the shares at issue were not estate property — even though the district court’s orders had tied them to the business affairs of the debtor, and (2) the ongoing state court litigation was not “related to” the estate because it was an action “between non-debtors over non-estate property.”  Accordingly, the lower courts lacked jurisdiction to enter the orders challenged by Vantage, and the Fifth Circuit vacated them.

Trying to set up a “Special Limited Investment Partnership” to reduce taxes, Dow Chemical contributed 73 patents to a partnership with several foreign banks, which licensed the patents back to Dow.  Chemtech Royalty Assocs. v. United States, No. 13-30887 (Sept. 10, 2014).  The Fifth Circuit affirmed the finding of a “sham partnership,” noting three points: (1) the transaction was structured to ensure the banks a fixed annual return on investment; (2) Dow agreed to bear all material risks arising from the transactions; and (3) the banks did not meaningfully share in any potential upside.  The Court dismissed several case citations by Dow as elevating form over substance.  The Court concluded by vacating and remanding as to penalty — the district court concluded that that “it could not impose a valuation-misstatement penalty when an entire transaction has been disregarded,” but since that ruling, the Supreme Court suggested that it was as least possible to do so in United States v. Woods, 134 S. Ct. 557 (2013).

The Fifth Circuit affirmed liability under the Texas fraudulent transfer statute as to several investors who actually earned returns from the Ponzi scheme run by Allen Stanford.  Janvey v. Brown, No. 13-10266 et al. (Sept. 11, 2014).  First, the Court dismissed a choice-of-law issue as presenting a “false conflict,” since Antigua had no real interest in the application of its laws to the Stanford scheme when compared to Texas.  The Court then endorsed the district court’s approach to the situation, which found that the investors gave reasonably equivalent value to the extent they received back their principal, while requiring the return of interest: “allowing [them] to keep their fraudulent above-market returns in addition to their principal would simply further victimize the true Stanford victims, whose money paid the fraudulent interest.”

The Swareks and the Derrs disputed the ownership of a large farm in Issaquena County, Mississippi (at 1400 residents, the least populous county in that state, but also the home of its largest captured alligator).  Their litigation unfolded as follows:

1. In 2005, Swareks sued Derrs in Issaquena County;
2. In March 2009, the Derrs sued Swareks in the — somewhat unlikely — venue of the German Regional Court in Düsseldorf, Germany (population 600,000, and capital of the state of North Rhine-Westphalia);
3. In November 2009, the Swareks voluntarily dismissed their claims in Mississippi;
4. In 2010, the Derrs lost in Germany when that court recognized the dismissal of the Mississippi claims; but then,
5. The Derrs ultimately won on appeal in Germany before the Higher Regional Court of Düsseldorf, obtaining judgment for $300,000 in costs.

The Derrs sought to domesticate the judgment in Mississippi, and the district court rejected their request, citing res judicata and characterizing the German action as an end run around the Mississippi state court.  On appeal, the Fifth Circuit affirmed with these three observations:

1. “Filing a mirror-image lawsuit in a foreign court while domestic litigation is pending is not sufficient, on its own, to preclude recognition of a foreign judgment, and the district court erred in denying comity on this ground.”
2. While dismissal for want of jurisdiction may not have preclusive effect, a voluntary dismissal does: “If the plaintiff chooses to extinguish his rights forever he is entitled to do so, and the defendant will reap the benefit of a res judicata bar to any attempt by the plaintiff
3. As to the German appellate holding: “The German Higher Regional Court’s decision to sidestep the comity determination and re-adjudicate claims that had already been settled in the Chancery Court violated the Mississippi public policy of res judicata and the Swareks’ right to permanently terminate their claims.  Comity must be a two-way street.”

A dissent characterized the interplay between the Mississippi and German holdings differently, and thus would affirm.

In Ferrara Fire Apparatus, Inc. v. JLG Industries, Inc., the Fifth Circuit returned to ground surveyed by the American Law Institute’s Restatement (Third) of Restitution, which the Court recently visited in cases about a faithless employee and the payment of benefits to a seaman.  Here, Gradall Industries manufactured a specialized boom called the “Strong Arm,” designed for firefighting, and Ferrara Fire Apparatus contracted to serve as its exclusive sales representative.  The relationship soured, Gradall terminated the contract, and Ferrara sued.  Ferrara obtained judgment for unjust enrichment for $1 million.  The Fifth Circuit reversed, finding no evidence of “an absence of justification or legal cause for the enrichment” as required by Louisiana law: “Gradall was simply competing in the market, which it was entitled to do after ending its exclusive contract with Ferrara.”  No. 13-30600 (Sept. 9, 2014, unpublished).

In loan-level litigation between borrowers and mortgage servicers, the servicer usually has the significant advantage of better record-keeping.  In Tielke v. Bank of America, however, the Fifth Circuit reversed a summary judgment for a servicer.  No. 13-20425 (Sept. 4, 2014, unpublished).  The Court observed, as to the servicer’s loan history statement, that “we are unable to decipher this document with any certainty.”  The main problem was whether the borrowers had truly fallen into default or the servicer was inaccurately carrying forward matters that should have been erased by their bankruptcy; compounded by confusion over the servicer’s handling of an escrow account for insurance.  In a conclusion that should encourage careful record-keeping by all parties, the Court found: “There are simply too many unanswered questions”

On September 9 at noon at the Belo Mansion in downtown Dallas, a panel consisting of Judges Gregg Costa, Jennifer Elrod, James Graves, and Stephen Higginson — and moderated by Judge Catharina Haynes — will offer tips about effective advocacy before the Fifth Circuit.  It is sponsored by the DBA’s Business Litigation Section; co-sponsored by the Appellate Law & Trial Skills Sections.  Terrific opportunity for advice that comes straight from the source.

The plaintiffs’ employment lawsuit in Arce v. Austin Industries was stayed in favor of arbitration.  No. 14-20098 (Aug. 28, 2014, unpublished).  While the parties then reached a settlement agreement, the district court would not dismiss the lawsuit without review and approval of the settlement.  The district court found the attorneys fees excessive and only dismissed the case after modifying that aspect of the settlement.  The plaintiffs appealed, noting the deference given to arbitration awards, and the Fifth Circuit rejected that argument: “The plaintiffs have not shown that the arbitrator imposed the terms of the settlement on the parties through any order or award.  Furthermore, the plaintiffs have cited no authority holding that a private settlement that happens to take place while the parties are in arbitration is tantamount to an arbitration award.”

Claimants in the compensation system created by BP after the Deepwater Horizon accident received an award in October 2013.  Lake Eugenie Land & Development v. BP Exploration & Production,  No. 14-30398 (Aug. 25, 2014, unpublished).  Unpaid by March 2014, they filed a “Motion to Confirm Award and Order Payment,” which the district court denied because an interim injunction had stayed the entire program while aspects of it were under legal challenge.  After appealing, the injunction lifted.  The Fifth Circuit dismissed for lack of jurisdiction, finding that the trial court’s ruling was neither an order that “vacates, modifies, or corrects” an arbitration award, nor an “interlocutory order . . . continuing . . . an injunction against an arbitration.”

In Houston Refining, LP v. United Steel Workers, an arbitrator found that the suspension of a company’s 401(k) plan, after its bankruptcy filing, violated the company’s CBA with a union.  No. 13-20384 (Aug. 25, 2014).  Two judges agreed that the parties had not “clearly and unmistakably” allowed the arbitrator to decide arbitrability, noting this provision of the parties agreement: “At arbitration, the parties shall reserve all rights to present any and all arguments and advance any and all defenses to them including, without limitation, arguments concerning whether or not an applicable collective bargaining agreement was in effect at the time that a particular grievance arose.”  A dissent stressed other provisions of the agreement and the limited scope of review in the CBA context.  All three judges agreed that the court had subject matter jurisdiction, but differed on the rationales, in the specific context of an alleged breach of a contract controlled by federal labor law.