“It would . . . be an unreasonable interpretation of the policies to say that they provide for valuation as of the date of . . . discovery since no loss occurs at that point.  The most appropriate date to use in calculating [plaintiff’s] losses is that date of the foreclosure sales, as that is when [plaintiff] incurred covered losses.”  First American Bank v. First American Transportation Title Ins. Co., No. 13-30888 (July 16, 2014)

The defendants in Rainbow Gun Club, Inc. v. Denbury Onshore, LLC removed to federal court under CAFA, arguing that the 167 plaintiffs’ claims based on mineral leases were a “mass action.”   No. 14-30514 (July 23, 2014).  The dispute centered on whether those claims, which alleged negligent operation of the relevant well, arose from “an event or occurrence in the State” within the meaning of that statute.  The Fifth Circuit concluded that the ordinary meaning of those terms, CAFA’s legislative history, and case law from other circuits supported the plaintiffs’ position that “the exclusion applies to a single event or occurrence, but the event or occurrence need not be constrained to a discrete moment in time.”  Drawing an analogy to the Deepwater Horizon accident, the Court also rejected an argument based on allegations of multiple acts of negligence, as such an incident “was the event that resulted from a number of individual negligent acts related to each other . . . .”  Accordingly, the Court affirmed the remand of the case to Louisiana state court.

A quick break to Texas law and Texas state court – the Dallas Morning News reports a great result for firm client Energy Transfer Partners, in what it calls “the largest civil judgment ever awarded by a state judge in Dallas”: Dallas Judge Awards ETP $500 Million.

The Fifth Circuit addressed the Texas rules about settlement credits in two cases this summer:

1.   Credit.  An employee stole a number of checks by endorsing them to himself.  The Court found “that the one satisfaction rule obtains  . . ., for while there are multiple checks at issue, there is but a single injury.”  Coastal Agricultural Supply, Inc. v. JP Morgan Chase Bank, N.A., No. 13-20293 (July 21, 2014).  It then remanded for analysis of the appropriate allocation; a dissent would have dismissed this interlocutory appeal into a complex area of Texas law.  The Court also affirmed that section 3.405 of the UCC — the “padded payroll” defense — provided an affirmative defense for the relevant bank to a common law claim for “money had and received.”

2.  No credit.  The victim of a fraudulent scheme sued the seller of the relevant business for breach of warranty, and the participants in the scheme for a fraudulent transfer.  It settled with the seller and recovered a multi-million dollar judgment against the bank that participated in the transfer.  Held, no credit for the bank: “Citibank’s alleged contractual breach and the TUFTA action against Worthington may share common underlying facts—the three fraudulent transfers from CitiCapital to Worthington totaling $2.5 million, induced by Wright & Wright. But such factual commonality does not suffice to count the contractual dispute’s settlement against TUFTA’s limit on recovery for a single avoidance ‘claim,’ Tex. Bus. & Comm. Code § 24.009(b), or to render Citibank a joint tortfeasor for one-satisfaction rule purposes.”  GE Capital Commercial, Inc. v. Worthington National Bank, No. 13-10171 (June 10, 2014).  The Court also held that Texas would apply an objective “good faith” test under its fraudulent transfer statute rather than a subjective test referred to in an older Texas Supreme Court opinion.  (LTPC and this blog’s author represented the successful plaintiff/appellee in this case.)

Plaintiffs sued for securities fraud, alleging misrepresentations about a company’s capabilities and plans about drilling for oil.  Spitzberg v. Houston American Energy Corp.. No. 13-20519 (July 15, 2014).  Emphasizing the plaintiffs’ arguments about “the industry definitions of . . . terms” and the timing of events giving rise to an inference of scienter, the Fifth Circuit reversed the dismissal of their claims under the PSLRA,.  The Court also found adequate pleading of loss causation.  (The significance of industry terminology echoes the reversal of a Rule 12 dismissal about the sale of a loan in Highland Capital Management LP v. Bank of America, although that claim ultimately lost at the summary judgment stage.)

Various products liability claims against both generic and brand-name drug manufacturers were found to be preempted in Johnson v. Teva Pharmaceuticals, No. 12-31011 (July 11, 2014).  The Court relied on recent Circuit precedent after the Supreme Court’s opinion in Pliva, Inc. v. Mensing, 131 S. Ct. 2567 (2011).  As to the brand defendants, the Court declined to certify “the question of whether a brand-name manufacturer can be held liable for injuries caused by a plaintiff’s ingestion of a generic product that was neither manufactured nor distributed by the brand-name manufacturer, reviewing several relevant considerations and authorities.  A dissent would certify, seeing the issue as having “potentially grave ramifications” and taking a different view of the strength of the relevant authority.

After the Deepwater Horizon disaster, BP’s share price declined and several employee benefits sustained major losses. An ERISA lawsuit on behalf of the beneficiaries was dismissed, noting that an ERISA fiduciary’s to maintain an investment in company stock receives a “presumption of prudence,” sometimes referred to as the Moench presumption. Whitley v. BP, P.L.C., No. 12-20670 (July 15, 2014, unpublished).  In June 2014, the Supreme Court eliminated that presumption and held that ERISA fiduciaries managing a plan invested in company stock are subject to the same duty of  prudence as any other ERISA fiduciary, “except that they need not diversify the fund’s assets.” Fifth Third Bancorp v. Dudenhoeffer, No. 12-751 (U.S. June 25, 2014).   Accordingly, the Fifth Circuit vacated the district court’s dismissal and remanded the appeal for reconsideration in light of that opinion.

The coverage dispute in Wiszia Co. v. General Star Indemnity Co. involved a lawsuit in which “Jefferson Parish essentially asserted Wisznia improperly designed a building and did not adequately coordinate with the builders during its construction.” No. 13-31125 (July 16, 2014).  Reviewing the allegations under Louisiana’s eight-corners rule, and summarizing the extensive Louisiana jurisprudence on the topic, the Fifth Circuit found that the claim fell within the policy’s professional services exclusion.   Under those authorities, mere use of the word “‘negligence’ is insufficient to obligate a professional liability insurer to defend the insured,” and “the factual allegations in the Jefferson Parish petition here do not give rise to an ordinary claim for negligence—such as an unreasonably dangerous work site.”

Chesapeake’s lease obliged it to pay the Warrens a royalty based on “the amount realized by Lessee, computed at the mouth of the well.”  A lease addendum said the royalty “shall be free of all costs and expenses related to the exploration, production, and marketing . . . including, but not limited to, costs of compression, dehydration, treatment and transportation.”  Warren v. Chesapeake Exploration LLC, No. 13-10619 (July 16, 2014).

The addendum went on to say that “Lessor will, however, bear a proportionate part of all those expenses imposed upon Lessee by its gas sales contract to the extent incurred subsequent to those that are obligations of Lessee.”  The Warrens contended that this sentence defined certain shared expenses which should not have been deducted from the royalty.  The Fifth Circuit disagreed and affirmed the Rule 12 dismissal of their complaint, finding that the sentence only referred to “the cost of delivering marketable gas to a sales point other than the mouth of the well.”  (distinguishing Heritage Resources, Inc. v. NationsBank, 939 S.W.2d 118 (Tex. 1996)).

The Court reversed, however, as to another pair of plaintiffs with a different lease addendum.  Noting simply that it was different, the Court found that their claim should not have been dismissed, as “[i]t is not apparent from the face of the complaint or its attachments that they could not conceivably state a cause of action.”

A law firm appealed the partial denial of its bankruptcy fee application.  The bankrupty court said “its ruling was informed by the bad conduct of the Debtors themselves, which should have lead [the firm] to withdraw from the case sooner than it ultimately did.”  The district court said the record showed that “this bankruptcy proceeding was doomed at the outset, and arguably could not have been filed in good faith under Chapter 11.”   Barron & Newburger, P.C. v. Texas Skyline, Ltd., No. 13-50075 (July 15, 2014).  The Fifth Circuit affirmed, noting that its earlier opinion of  In re: Pro-Snax Distributors, Inc., 157 F.3d 414 (5th Cir. 1998) rejected a “reasonableness” test in the application of Bankruptcy Code § 330 — which would have asked “whether the services were objectively beneficial toward the completion of the case at the time they were performed” — in favor of a “hindsight” approach, asking whether the professionals’ work “resulted in an identifiable, tangible, and material benefit to the bankruptcy estate.”  That said, all three panel members joined a special concurrence asking the full Court to reconsider Pro-Snax en banc, observing that its outright rejection of forward-looking reasonableness “appears to conflict with the language and legislative history of § 330, diverges from the decisions of other circuits, and has sown confusion in our circuit.”

Appellant did not fare well in Bell v. Bell Family Trust, where the Fifth Circuit observed: “The inadequacy of her briefing on appeal does not fall far from her pleadings below, upon which the magistrate judge reflected: ‘The undersigned spent a significant amount of time parsing through the morass of Bell’s voluminous, rambling, and unintelligible pleadings, which proved to be a substantial waste of time and resources. They contain a “hodgepodge of unsupported assertions, irrelevant platitudes, and legalistic gibberish.” As succinctly stated by the late Judge Alvin B. Rubin: “[t]he ability to fill more than 36 pages with no more than legal spun sugar does not make an argument substantial.”’  Construing liberally Bell’s continued hodgepodge of assertions, we discern only one issue for review . . . . .”  No. 13-31219 (July 8, 2014, unpublished)

1.  Creditors get the money.  Debtor filed for Chapter 13 personal bankruptcy.  He made payments to the Trustee for some time.  He then converted to Chapter 7, leaving the Trustee holding money paid under the Chapter 13 plan.  “[W]ages paid to the trustee pursuant to the Chapter 13 plan should be distinguished from the debtor’s other property acquired after the date of filing.”  Viegelahn v. Harris, No. 13-50374 (July 7, 2014)

2.  Creditors get the money.  The stay lifted.  Secured Creditor foreclosed.  Under federal law, its attorneys fees were subject to the customary review under the Bankruptcy Code.  Under state law, its attorneys fees were fixed by contract.  Held: federal law controls, and the case was remanded for review under federal standards.  In re 804 Congress LLC, No. 12-50382 (June 23, 2014)

On Monday the 14th, a 2-1 Fifth Circuit opinion affirmed the free speech rights of the Sons of Confederate Veterans.  On Tuesday the 15th, a 2-1 Fifth Circuit opinion rejected a constitutional challenge to the “top ten percent” admissions policy of the University of Texas: “[T]he backdrop of our efforts here includes the reality that accepting as permissible policies whose purpose is to achieve a desired racial effect taxes the line between quotas and holistic use of race towards a critical mass. We have hewed this line here, persuaded by UT Austin from this record of its necessary use of race in a holistic process and the want of workable alternatives that would not require even greater use of race, faithful to the content given to it by the Supreme Court.”  Fisher v. University of Texas, No. 09-50822.  Both opinions — and the dissents — offer thoughtful analyses of the institutional, historical, and precedential structure of the law governing highly sensitive issues of race, in the geographic area that was once the western portion of the Confederacy. Ideological sound bites will fly about both cases, as the First Amendment allows and encourages, but their reasoning deserves respect and study.

While resolved on other grounds, a part of the diversity-of citizenship question in Tewari De-Ox Systems, Inc. v. Mountain States-Rosen, LLC was whether a business entity — charted as a corporation in Wyoming — should nevertheless be treated as an unincorporated association because it called itself a “cooperative.”  No. 13-50956 (July 9, 2014).  On that point, the Court noted: “Other circuits have rejected similar arguents: ‘For purposes of diversity jurisdiction, the Cooperative is to be treated as a corporation simply because it has been incorporated under [state] law, regardless of the Cooperative’s individual structure, purpose, operations, or name.”  (quoting Kuntz v. Lamar Corp., 385 F.3d 1177, 1183 (9th Cir. 2004), and also citing Pastor v. State Farm Mut. Auto Ins. Co., 487 F.3d 1042, 1048 (7th Cir. 2007)).

“We understand that some members of the public find the Confederate  flag offensive. But that fact does not justify the Board’s decision; this is exactly what the First Amendment was designed to protect against.”  Accordingly, the Fifth Circuit found that the Texas Department of Motor Vehicles Board violated the free speech rights of the Texas Sons of Confederate Veterans when the Board denied the group’s application for a specialty license plate featuring the Confederate battle flag.  Texas Division, Sons of Confederate Veterans, Inc. v. Vandergriff, No. 13-50411 (July 14, 2014).  The Court rejected a jurisdictional challenge under the Tax Injunction Act, finding that the plaintiff organization was not a taxpayer raising taxation issues.  A dissent found the matter controlled by a Supreme Court case about public monuments.  Initial coverage of the case has appeared in the Dallas Morning News and Times-Picayune.

The unfortunate taxpayer in Whitehouse Hotel Limited Partnership v. Commissioner of Internal Revenue lost a multi-million dollar dispute about the value of an easement, related to the spectacular Ritz-Carlton on Canal Street in New Orleans, and as a result faced a substantial penalty.  No. 13-60131 (June 11, 2014).  The Fifth Circuit affirmed the Tax Court on the merits but reversed as to the penalty, noting: “We are particularly persuaded by [Taxpayer’s] argument that the Commissioner, the Commissioner’s expert, and the tax court all reached different conclusions” on the core valuation issue.  Acknowledging that this area is fact-specific, the Court held as to the taxpayer’s conduct: “Obtaining a qualified appraisal, analyzing that appraisal, commissioning another appraisal, and submitting a professionally-prepared tax return is sufficient to show a good faith investigation as required by law.”

In Bluebonnet Hotel Ventures, LLC v. Wells Fargo Bank, N.A., the Fifth Circuit considered whether there had been an “[e]rror that vitiates consent” because of a “failure of cause” about an interest rate swap agreement, so as to allow its cancellation under Louisiana contract law.  No. 13-30827 (June 6, 2014).  In the course of affirming summary judgment for the bank, the Court declined to consider emails written around the time of contracting, noting: “Under Louisiana law, courts may only consider parol evidence when a contract is ambiguous.” To illustrate the sharp edge that separates holdings in the area of extrinsic evidence, cf. Fruge v. Amerisure, 663 F.3d 743 (5th Cir. 2011) ( applying Louisiana law and holding: “Parol evidence is admissible to show mutual error even though the express terms of the policy are not ambiguous.”) (citations omitted).

1.  No conflict-of-interest.  In Graper v. Mid-Continent Casualty Co., No. 13-20099 (June 24, 2014), the Fifth Circuit revisited the potential conflict-of-interest issues relating to counsel selected by an insurance carrier, previously addressed in Downhole Navigator LLC v. Nautilus Insurance, 686 F.2d 325 (5th Cir. 2012).  Reminding that a problematic conflict would only arise if “the facts to be adjudicated in the underlying lawsuit are the same facts upon which coverage depends,” the Court found no disqualifying conflict in either: (a) the facts of when a claim accrued for limitations purposes, as opposed to when it occurred under the policy, or (b) the facts about an alleged willful copyright infringement occurs, as opposed to a “knowing” act for coverage purposes.  

2.  No exhaustion.  The excess carriers in Indemnity Ins. Co. of N. Am. v. W&T Offshore, Inc. contended that they had no coverage obligation when the underlying policies had been exhausted.  No. 13-20512 (June 23, 2014).  Distinguishing Westchester Fire Ins. Co. v. Stewart & Stevenson Services., Inc., 31 S.W.3d 654 (Tex. App.–Houston [1st Dist.] 2000, pet. denied), the Court disagreed, finding that the policy “merely outlines what will happen if the underlying insurance is entirely exhausted by claims covered under the policy; it says nothing about what will happen if the Retained Limit is exhausted by non-covered claims.” A deftly-written footnote 5 explains how the excess carriers’ argument relies on the logical fallacy of “affirming the consequent.”

The parties’ contract said: “Terms and conditions are based on the general conditions stated in the enclosed ORGALIME S200.”  The ORGALIME, in turn, had an arbitration clause.  The Fifth Circuit found that the above language incorporated the arbitration clause into the contract, acknowledging that “multiple interpretations of ‘based on’ might be possible in the abstract,” the length and scope of the ORGALIME compared to the contract showed the parties’ intent to incorporate its terms.  Al Rushaid v. National Oilwell Varco, Inc., 757 F.3d 416 (2014).  The Court also rejected a waiver argument, finding that the acts of the party’s co-defendants could not be imputed to it absent a reason to pierce the corporate veil.  Here, “there is no evidence in the record that [the party] has abused its corporate form.  It merely declined to become a party to litigation without being formally served.”  The Court also rejected an argument, based on equitable estoppel, to stay the ongoing litigation until the conclusion of the arbitration.

The Fifth Circuit held in Priester v. JP Morgan Chase Bank, 708 F.3d 667 (5th Cir. 2013), that the Texas “residual” 4-year statute of limitations applied to claims based on the home equity loan provisions of the state Constitution, running from the time the loan closed.  Various requests to reconsider, certify, or otherwise retreat from that holding have been uniformly rejected.  Kramer v. JP Morgan Chase Bank presented a fresh attack on Priester, arguing that the discovery rule applied to a claim based on the Texas statute against the filing of false liens, and citing Vanderbilt Mortgage v. Flores, 692 F.3d 358 (5th Cir. 2012).  No. 13-50920 (June 25, 2014, unpublished).  The Court sidestepped this argument by finding the issue moot because plaintiff did not seek damages based on this statute before the district court.

First case: Highland Capital sued Bank of America for the alleged breach of an oral contract to sell a $15.5 million loan.  After the Fifth Circuit reversed the dismissal of this claim under Rule 12(b)(6), it affirmed summary judgment for the defendant in Highland Capital Management LP v. Bank of America, No. 13-11026 (July 3, 2014). Highland relied upon standard terminology promulgated by an industry association, while the Bank pointed to evidence showing that, in this specific transaction, the Bank was not familiar with that terminology and not want it to control.  “Although industry custom is extrinsic evidence a factfinder can use to determine the parties’ intent to be bound, its value is substantially diminished where, as here, other evidence overwhelmingly shows that the persons involved in the dealings were unaware of those customs.”    The Court also rejected an alternative theory that a prior transaction that involved the terminology continued to govern the parties’ relationship, noting: “Whether a prior contract had a binding effect on the procedures available for future contract-formation is a legal question.”

Second case:  As with the previous case, WH Holdings LLC v. Ace American Ins. Co. was remanded for development of a factual record, this time for extrinsic evidence about a contract ambiguity.  No. 13-30676 (June 26, 2014, unpublished).   And as with the previous case, the Fifth Circuit affirmed a summary judgment, finding that seven pieces of extrinsic evidence were either not relevant to the specific contract issue, or “equally consistent with both” readings.

Aransas Project v. Shaw presented a challenge to an injunction against the Texas Commission on Environmental Quality, prohibiting the TCEQ from issuing new permits to withdraw water from rivers that feed the estuary where whooping cranes live.  No. 13-40317 (June 30, 2014).  The whooping crane, described in the opinion as a “majestic bird that stands five feet tall,” is an endangered species, and the only known wild flock lives in Texas during winter.

The Fifth Circuit first rejected an argument for Burford abstention, finding that this case presented a “broader grant of administrative and judicial authority by state law to remedy environmental grievances” than a prior opinion where it allowed abstention in a similar sort of environmental dispute.  Cf. Sierra Club v. City of San Antonio, 112 F.3d 789 (5th Cir. 1997).

The Court then reversed the injunction, finding no causation “in the face of multiple, natural, independent, unpredictable and interrelated forces affecting the cranes’ estuary environment.”  While couched in language about proximate causation and environmental law, the Court’s analysis is a classic illustration of the recurring Daubert problem of excluding alternate causes.  (In the course of this discussion, the butterfly effect theory makes a cameo appearance in footnote 10.)

The plaintiffs in Crownover v. Mid-Continent Casualty Co. won an arbitration claim based on the “breach of the express warranty to repair” in their contract with an HVAC installation company.  No. 11-10166 (June 27, 2014).  The Fifth Circuit, applying Gilbert Texas Construction LP v. Underwriters of Lloyd’s London, 327 S.W.3d 118 (Tex. 2010) and the recent response to a certification request in Ewing Construction Co. v. Amierisure Ins. Co., 420 S.W.3d 30 (Tex. 2014), concluded that CGL coverage was not available: “Whereas contractually agreeing to repair damage resulting from a failure to exercise reasonable care in performing the work or agreeing to perform work in a good and workmanlike manner would mirror a contractor’s duty under general law . . . contractually agreeing to repair damage resulting from a failure to comply with the requirements of the contract would not.”  Law360 has a good article about the development of this important insurance coverage issue over the last several months.

At issue in Meadaa v. K.A.P. Enterprises LLC was the relative liability of three defendants for a $3.5 million claim.  No. 12-30918 (July 1, 2014).  In a summary judgment affidavit, an expert opined that transactions of Defendant 1 had not resulted in unfair advantage to Defendants 2 and 3, and had kept its affairs separate from those of Defendant 4.  The expert had reviewed financial documents from Defendant 1 and tax returns from Defendant 4.  The Fifth Circuit found no clear error in the district court’s striking of this affidavit for a lack of personal knowledge.  Because “[i]t 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,” it was “incumbent upon him to explain how he acquired such knowledge.”  As a procedural matter, the Court also found that a notice of appeal from a final judgment encompassed a later ruling on a Rule 59 motion.

In the second quarter of 2014, the Fifth Circuit said how to . . .

1. . . . enforce an Agreed Protective Order.  Two judges, finding “written notice” ambiguous, found that Ford did not waive confidentiality designations by having a lengthy email exchange rather than moving for protection.  The dissent would construe the ambiguity against Ford and faults the majority for encouraging “vague, non-responsive answers.”  Moore v. Ford Motor Co., ___ F.3d ___ (June 20, 2014).

2. . . . . remove based on federal question jurisdiction.  A petition raised a sufficient federal question for removal when it incorporated this allegation from an EEOC complaint: “I have been and continue to be discriminated against, in violation of Title VII of the 1964 Civil Rights Act, as amended, [and] the Texas Commission on Human Rights Act, as amended, because of my national origin (Iranian).”   Davoodi v. Austin ISD, ___ F.3d ___ (June 16, 2014).

3.  . . . protect in-house counsel’s attorney-client privilege.  Addressing the common question of “business or legal advice?” the court found a memo privileged because it “deal[t] with any legal liability that may stem from under-disclosure of data, hedged against any liability that may occur from any implied warranties during complex negotiations.”  Exxon Mobil Corp. v. Hill, 751 F.3d 379 (2014).

The agreed protective order said:  “At any time after the delivery of documents designated ‘confidential,’ counsel for the receiving party may challenge the confidential designation of any document or transcript (or portion thereof) by providing written notice thereof to counsel for the opposing party.”  The producing party then has 15 days to seek protection; if it does not do so, “then the disputed material shall no longer be subject to protection as provided in this order.”  Moore v. Ford Motor Co., No. 13-40761 (June 20, 2014).

Pursuant to the order, Ford produced four boxes of documents related to Volvo safety issues.  These communications ensued:

• On May 11, 2004, plaintiffs’ counsel emailed to challenge the confidentiality designations of several documents.
• On June 4, Ford’s counsel asked for Bates numbers.
• On June 23, plaintiffs’ counsel responded, expanded on the confidentiality argument, and said it “will begin passing them out to any and everyone that is interested”
• In July, plaintiffs’ counsel asked: “what’s the word . . . on confidentiality?”
• The next day, Ford’s counsel withdrew its designations as to some documents, said it was “evaluating your claims” as to others, and “expects you to abide by the terms of the Protective Orders in the meantime”
• Plaintiffs’ counsel responded: “I gave Ford adequate time.  I am sending the materials out.  Thanks for trying.”  (He did not specify what “materials”)
• On February 22, 2005, plaintiffs’ counsel asked for an update on the “confidentiality issue”
• On March 8, 2005, Ford responded that “in the spirit of cooperation” it would “officially de-designate from the Protective Order” specified other documents.

In 2012, documents surfaced in other litigation that Ford had produced pursuant to the above protective order; while the opinion does not specify what they were, it seems clear that they were documents which Ford had not formally “de-designated.”  Ford moved to enforce the protective order and the district court agreed, finding no “clear written notice . . . challenging the confidential designation of these documents.”

On appeal, plaintiffs argued that the 15-day period ran from the first email, and Ford thus waived its designations by not moving for protection.  The Fifth Circuit disagreed, finding the protective order ambiguous on this issue, and stating: “This interpretation may well be the better reading without more, but the parties understanding of these agreed orders bears upon the interpretation, and the actions of both parties strongly suggest” otherwise, noting the lengthy dialogue between the parties.    Noting that “[a]lthough on de novo review a different outcome may obtain,” the Court found the district court’s conclusion that no waiver occurred to not be clearly erroneous.

A dissent, among other arguments, noted that (1) the 15-day provision only requires that confidentiality be “in dispute,” (2) Ford drafted the agreement so any ambiguity should be construed against it, and (3) Ford had the burden to establish confidentiality.  The dissent concluded the majority opinion undermined “efficient resolution of discovery disputes” by allowing “Ford . . . to undermine this purpose through vague, non-responsive answers.”

1. Thompson sued Defendants in Arkansas in 2011, alleging he was a citizen of Arkansas.  That lawsuit was dismissed for improper venue.
2. Thompson sued Defendants again in Florida in 2012, and voluntarily dismissed that action after the magistrate concluded that diversity was lacking.
3. Thompson sued Defendants again in Alabama in 2012, alleging that he was a citizen of Arkansas.  That action was transferred to Mississippi.   It was then dismissed for lack of jurisdiction because Thompson and one of the citizens were both Florida citizens at the time of filing in 2012.

Thompson argued that the relevant facts related to the original 2011 filing, not the 2012 re-filing.  HELD: “[T]he [Alabama] complaint does not relate back to the [Arkansas] complaint because the second complaint was not an amendment, but rather the commencement of a separate action.”  Dismissal affirmed.

A subtle Erie issue flashed by when Andrews alleged premises liability claims against BP, and the Fifth Circuit affirmed summary judgment for BP under a Texas statute. Terry v. BP Amoco, No. 12-40913 (June 27, 2014, unpublished).  BP won summary judgment: “Exhibits C and D are the only evidence that Andrews identified as raising a material issue of fact as to BP’s responsibility for the explosion. Those exhibits are a Safety Bulletin issued by the United States Chemical Safety and Hazard Investigation Board (CSB) and a CSB press release discussing the bulletin. The statute creating the CSB, however, prohibits Andrews from using the documents as evidence in this case.  Additionally, both CSB documents also likely constitute inadmissible hearsay under the Federal Rules of Evidence.”  The question not raised is how much substantive effect this type of federal statute must have in a state law tort claim, removed to federal court under diversity jurisdiction, so as to raise an Erie issue.

Plaintiff recovered $12,200 in actual damages and $40,000 in punitives on his claim for race discrimination, and the Fifth Circuit affirmed in all respects.  Rhines v. Salinas Construction Technologies, Ltd. (June 25, 2014, unpublished).  On the punitive damages award, the Court noted this evidence: (1) the employer falsely told the EEOC that plaintiff had not complained about the workplace; (2) an employee admitted at trial that he signed a false affidavit about the use of racial slurs in the workplace; and (3) “the person who allegedly performed the [employer’s] investigation testified before the jury that he did not investigate.”  As the Court dryly summarized: “There was sufficient evidence to support the jury’s award of punitive damages.”

Defendant was personally served in Louisiana; the question was whether the plaintiffs fraudulently induced her to come there.  Gatte v. Dohm (June 23, 2014, unpublished). More specifically, Defendant (part owner of a Mexican clinic where the plaintiffs’ relative had died) alleged she had been duped into travelling to Louisiana to return the decedent’s ashes and personal effects to family members, as they were too distraught to travel themselves.  The district court found fraudulent inducement; the Fifth Circuit reversed, noting a conflict between the affidavits submitted by the parties and applying the principle: “Conflicts between the facts contained in the parties’ affidavits must be resolved in the plaintiff’s favor for purposes of determining whether a prima facie case for personal jurisdiction exists.”  (citing D.J. Investments, Inc. v. Metzeler Motorcycle Tire Agent Gregg Inc., 754 F.2d 542, 546 (5th Cir. 1985).

A Friday diversion from federal practice — from the sister blog that follows the Dallas Court of Appeals, the Texas Supreme Court has written a major opinion reversing a judgment of minority shareholder oppression.  Here is the summary worth a read by any commercial litigator in Texas.

In Tetra Technologies, Inc v. Continental Ins. Co., the district court ruled on several key issues in an insurance coverage dispute, declined to certify the rulings for immediate appeal under 28 U.S.C. § 1292(b) because it found no substantial ground for difference of opinion, and entered judgment on those matters pursuant to Fed. R. Civ. P. 54(b).  No. 13-30516 (June 10, 2014).  The Fifth Circuit found that judgment improper, and thus dismissed on jurisdictional grounds for lack of a final and appealable order. Rather than sounding the “death knell” of claims as required by Rule 54, the Court concluded that the rulings would allow “Tetra and Maritech to prevail completely nor not at all on their indemnification claim against Continental, depending on the resolution of certain ‘factual issues.'”  “Thus, what we are presented with here is a request by the district court for us to sign off mid-litigation on legal questions it considers non-contentions.  Since the inception of the federal judiciary, however, our role has been to review final decisions of trial courts, not to tinker with ongoing cases through piecemeal appeals . . . “

In the published opinion of Davoodi v. Austin ISD, the Fifth Circuit revisited the recurring question of how substantial a federal question must be to create jurisdiction (and thus, allow removal). No. 13-50823 (June 16, 2014).  Notably, the Court did not analyze whether the plaintiff stated a claim under federal law in the causes of action alleged in his pleading.  Rather, the decision turns on how much the pleaded facts involved violation of federal law.  This focus contrasts with the framework of Howery v. Allstate Ins. Co., which rejected jurisdiction because “[f]rom its context, it appears that Howery’s mention of federal law merely served to describe types of conduct that violated the DTPA, not to allege a separate cause of action under the FCRA,” and because a violation of federal law was not an “essential element” of Howery’s state law claims.  243 F.3d 912, 918-919 (5th Cir. 2001).  

Davoodi sued in Texas state court, alleging state law claims for “national origin discrimination” and intentional infliction of emotional distress, and a claim for “retaliation” without a specified basis in state or federal law. The first of the two paragraphs in the “Facts” section of the petition said:

“On or about June 2, 2011 Plaintiff filed a Charge of Discrimination with the EEOC and the Texas Human Rights Commission.  (See Charge attached as Exhibit ‘A’ and fully incorporated herein).  This charge alleged that Defendant discriminated against Plaintiff based on his National Origin (Iranian).  On February 3, 2012 the EEOC issued a Dismissal and Notice of Rights.  The Texas Human Rights Commission did not issue a dismissal/right to sue.”  

The Court noted that the incorporation of the Charge made it “part of [plaintiff’s] complaint for all purposes,” and created federal jurisdiction because the Charge contained the averment and claim: “I have been and continue to be discriminated against, in violation of Title VII of the 1964 Civil Rights Act, as amended, [and] the Texas Commission on Human Rights Act, as amended, because of my national origin (Iranian).”  The Court remanded as to the Rule 12 dismissal of the case, however, to allow the plaintiff a chance to replead under Lozano v. Ocwen Federal Bank, 489 F.3d 636 (5th Cir. 2007).

The movant’s Rule 12 arguments, as reflected in the appellate record excerpts, address whether the plaintiff’s pleading stated a claim for “retaliation” under either state or federal law.  The Fifth Circuit did not engage the basis for that claim in its analysis of federal question jurisdiction, focusing entirely on the fact allegations described above and the statement made to the EEOC.  Allstate can be reconciled with Davoodi  because the mention of federal law in the Allstate pleading is substantially smaller, as a percentage of the overall allegations.  That analytical framework — different than Allstate‘s focus — may invite new removals based on a “percentage-based” analysis of a pleading’s factual allegations.

A company received “PRP” (Potentially Responsible Party) letters from the EPA, followed by a “Unilateral Administrative Order” requiring the company to do remedial work.  Its CGL insurer denied coverage, contending that these administrative communications under CERCLA were not a “suit” that triggered the duty to defend.  McGinnes Industrial Maintenance Corp. v. Phoenix Ins. Co., No. 13-20360 (June 11, 2014, unpublished).  The insured argued that the word “suit” was ambiguous and thus led to coverage; the insurer argued that a broad reading of “suit” was inconsistent with the word “claim” in the policy and the word “petition” in the usual phrasing of the Texas “eight corners” rule.  Finding the issue important and that “the parties each make reasonable arguments” about it, the Fifth Circuit certified this question to the Texas Supreme Court: “Whether the EPA’s PRP letters and/or unilateral administrative order, issued pursuant to CERCLA, constitute a ‘suit’ within the meaning of the CGL policies, triggering the duty to defend.”  That Court has now answered yes and the case has been remanded for further proceedings.

The Leas joined a wholesale membership club, and made a $100 payment that day as part of the down payment.  Their contract did not include the starting date, interval, or date of the month when their installment payments would be due over the next 3 years for the $4,000 membership fee.  Lea v. Buy Direct LLC, No. 13-20281 (June 12, 2014).  The Fifth Circuit found that TILA applied because the Leas had entered a credit transaction, even if they had not bought any goods yet.  Then, recognizing that “[Defendant’s] decision to leave the contract blanks unfilled was, at least in part, an accomodation to the Leas,” the Court nevertheless reversed the district court’s summary judgment for the club on the Leas’ TILA claim.  “Perhaps our reversal falls into the category of letting no good deed go unpunished.  Another perspective, though, is that TILA provides an unvarying set of rules that protect consumers who might otherwise voluntarily waive what they should not.”  Thus, although “[w]e do not perceive any harm here . . . harm is not a prerequisite for [TILA] relief.”

Adding to an April opinion about the proper scope of review for a Rule 12(b)(6) motion, the Fifth Circuit reminded that — In addition to the pleading itself — a court may consider “the documents attached to the complaint, the documents attached to the motion to dismiss which were referred to in the complaint and central to Plaintiffs’ claim, as well as taking judicial notice of matters of public record.”  Mitchem v. Fannie Mae, No. 13-10904 (June 9, 2014, unpublished).  Mitchem provides citations to published Fifth Circuit authority for each of these points.

1.  Request a limiting instruction to help preserve evidentiary error:  “Moreover, even if there is merit to this distinction, [Defendant] never requested a limiting instruction during trial that would have enabled the jury to consider the evidence regarding insurance only for permissible purposes. Where ‘counsel never requested a more complete limiting instruction,’ the district court ‘cannot [be] fault[ed] . . . for failing to give one spontaneously.” Eagle Suspensions, Inc. v. Hellmann Worldwide Logistics, Inc. (June 9, 2014, unpublished).

2.  Renew earlier issues to help preserve charge error: “Essentially, [Defendant] now argues that the district court should have recalled [Defendant’s] federal preemption argument from January and February 2013 when drafting the final jury instructions on March 20, 2013, even though [Defendant] itself never referenced this federal preemption argument in [Defendant’s] objections to the proposed jury instructions. . . . [A]  party cannot merely rely on ‘‘the fact that the court is already aware of its position as an excuse for a failure to make a specific, formal objection at the charge conference.’  Rule 51 specifically requires parties to make their objections after the proposed jury charge has been drafted and distributed for comment.”  Id. (quoting Jimenez v. Wood County, 660 F.3d 841, 845-46 (5th Cir. 2011) (en banc)).

Two boats collided.  The district court dismissed the resulting tort litigation in favor of Mexico on forum non conveniens grounds.  Cotemar S.A. de C.V. v. Hornbeck Offshore Services, No. 13-20230 (May 21, 2014, unpublished).  After that dismissal, the plaintiff seized the offending vessel in Louisiana (still there at the time of this writing).  The Fifth Circuit reversed and remanded for further analysis.  The first point dealt with a potential time bar in the Mexican system.  “If access to relief in the Mexican courts has become time-barred for reasons not of Appellants’ ‘own making,’ then the Mexican courts are no
longer an available alternative forum.”  (citing Veba-Chemie AG v. M/V Getafix, 711 F.2d 1243, 1248 n.10 (5th Cir. 1983)).   Second, the “supervening change of circumstances” arising from the vessel seizure may affect the balancing of private and public factors, because a transfer to Mexico would now likely result in duplicative proceedings.

At the recent University of Texas Conference on State and Federal Appeals, Fifth Circuit Clerk Lyle Cayce gave a  presentation about the Court that included a demonstration of a remarkable new technology.  After an attorney files a brief, the Court has software that quickly adds hyperlinks for all case and record citations (which is the reason for the recent local rule change to standardize the form for record references).  Those links are then available to the judges and staff on their computers and tablets.  Among other implications, this new technology means that pre-argument, review of the record is no longer limited to the parties’ record excerpts.

The district court held that under Texas law, a creditor may not garnish on a judgment, after entry of judgment but prior to the filing of an appeal.  The Fifth Circuit affirmed, relying upon Waples-Platter Grocer Co. v. Texas & Pacific Railway Co., 68 S.W. 265 (Tex. 1902) [a case from the court of Chief Justice Reuben Gaines and the governorship of Joseph Sayers, a period “notable for the number of disasters that the state faced” such as the Galveston Hurricane and the invasion of the boll weevil].  JGM Holdings LLC v. T-Mobile USA, Inc., No. 13-10678 (May 19, 2014, unpublished).  The Fifth Circuit rejected an argument that the later overruling of a holding in Waples about res judicata implicitly overruled this holding about garnishment.

Placid Oil filed for bankruptcy and the claim bar date, published in the Wall Street Journal, passed in 1987. “By the early 1980s, Placid was aware, generally, of the hazards of asbestos exposure and, specifically, of Mr. Williams’s exposure in the course of
his employment. Prior to the Plan’s confirmation, no asbestos-related claims
had ever been filed against Placid, and the Williamses did not file any proof of
claim.”  Williams v. Placid Oil Co., No. 12-11120 (May 27, 2014).  Applying In re: Crystal Oil, 158 F.3d 291 (5th Cir. 1998), the Fifth Circuit affirmed summary judgment in the Williamses subsequent tort suit against Placid: “Although Placid knew of the dangers of asbestos and Mr. Williams’s exposure, such information suggesting only a risk  to the Williamses does not make the Williamses known creditors. Here, Placid had no specific knowledge of any actual injury to the Williamses prior to its bankruptcy plan’s confirmation.”  (Donald Rumsfeld’s 2002 discussion of the broader philosophical point is reviewed here.)

Aspen Technology Inc v. M3 Technology Inc. affirmed an $11 million judgment in a suit to enforce a noncompetition agreement.  Nos. 12-20388 & 13-20268 (May 29, 2014, unpublished).  Most of the grounds are fact-specific and substantially influenced by spoliation matters.  On a key copyright issue, the Court held: “Aspen’s registration of its derivative materials permits Aspen to bring a claim that M3 had infringed preexisting versions of its software,” aligning the Fifth Circuit with several other courts that have addressed the point.  The Court removed roughly $500,000 in attorneys fees arising in prior litigation from the award for tortious interference, noting that the opposing party in that litigation was also a party in this case, removing the fee claim from the “equitable exception” to the rule that a contract or statute must allow recovery of fees.

Ayala was killed by a propane heater explosion; his estate sued the manufacturer for damages.  Ayala v. Enerco Group, 13-30532 (May 28, 2014, unpublished).  Ayala’s wife testified that he was generally careful with the heater, although she did not observe him at the time of the accident.  An expert identified several possible defects with the heater, but: “[There was no evidence to suggest the Ayalas’ heater itself was defective. He did not perform a structural analysis of the Mr. Heater or destructive testing of an example unit. His conclusions supporting that there could be a leak were based solely on the nature of the item itself. McPhate also admitted that he could not rule out other potential sources of a propane leak other than a defect in the heater, such as a faulty propane bottle or a failure by Mr. Ayala to secure the valve properly on the heater.”  Accordingly, the estate’s claims failed.  A sanctions award against the plaintiff’s counsel under 28 U.S.C. § 1927 for filing a second lawsuit was reversed because that filing did not show a “persistent” pattern of vexatious litigation as required by that statute.

Two cases warn against skipping foundational steps (or “not showing your work”):

1.  The dismissal of Garcia v. Jenkins Babb, LLP was affirmed for failure to allege facts sufficient under Iqbal to show that an FDCPA claim arose from a consumer transaction; more specifically, “giv[ing] no indication what item was purchased or what service was paid for, much less explain how the item or service was intended for personal or family use.”  No. 13-10886 (May 29, 2014, unpublished).  (The case returned, and dismissal was again affirmed, in Israel v. Primary Financial Services, No. 14-10012 (May 28, 2015, unpublished)).

2.  An award of sanctions was reversed and remanded in Arnold v. Fannie Mae when “the
district court abused its discretion by failing to adequately articulate the authority, the basis, and the reasoning for the sanctions” under Rule 11, inherent power, or 28 U.S.C. § 1927.

The plaintiffs in Garziano v. Louisiana Log Home, Inc. made 88 percent of the installment payments for a build-it-yourself log cabin kit, and then defaulted.  No. 13-60291 (May 29, 2014, unpublished).  The log cabin company won summary judgment against several contract and tort claims by the purchasers.  Before final judgment was entered, however, it came to light that the company had resold several of the logs and actually was ahead on the transaction overall.  The district court denied a Rule 59(e) motion about this information and entered judgment.  The Fifth Circuit reversed, finding that the district court should not have focused on plaintiffs’ erroneous characterization of the issue as “unjust enrichment,” and by doing so, “essentially granted LLH an impermissible double recovery—making the earnest money provision an unenforceable penalty.”  The Court remanded “with instructions for the district court to make findings on the amount of actual damages that LLH suffered and to amend the judgment to remit to the Garzianos any monies paid to LLH under the contract that were in excess of LLH’s actual damages.”  (The defendant offers several packages for log homes, all of which look elegant and cost-effective to this author.)

The plaintiff in McKay v. Novartis, Inc. challenged the dismissal on preemption grounds, by an MDL court in Tennessee, of products liability claims about drugs made by Novartis. No. 13-50404 (May 27, 2014).  The Fifth Circuit rejected an argument about inadequate time to get certain medical records, noting that the plaintiffs “sought formal discovery of evidence that was available to them through informal means” (citing other cases from the Court on that general topic), and also observing that two years passed from the filing of suit until Novartis sought summary judgment.  The Court also affirmed the MDL court’s grant of summary judgment on Texas state law grounds about a breach of warranty claim, finding inadequate notice; as an Erie matter: “the majority of Texas intermediate courts have held that a buyer must notify both the intermediate seller and the manufacturer.”

Burnett Ranches, Inc. operates the sprawling Four Sixes and Dixon Creek ranches in the Texas Panhandle; its history runs to Captain Samuel “Burk” Burnett’s land dealings in the 19th Century with Comanche chief Quanah Parker.  The IRS contended that its current owner (Captain Burnett’s great-granddaughter) was subject to accrual rather than cash accounting pursuant to a law against “farm syndicate” tax shelters.  Burnett Ranches v. United States, No. 13-10403 (May 22, 2014).  The Fifth Circuit affirmed summary judgment for the ranch as to an exception to that law for active farm operators: “To accept the government’s overly expansive reading of § 464 by crediting its overly narrow reading of the Active Participation Exception would be to sanction ‘administrative legislation’ by an Article II executive agency.  This we decline to do, agreeing instead with the district court that the government’s efforts fail, grounded as they are in nothing more than the fact that legal title to Ms. Marion’s interest in Burnett Ranches stands in the name of her S corp.” Of general interest, the Court concluded that “interest” has a broad, nontechnical meaning so long as it does not have a “narrowing modifier.”

A barge accident caused a large oil spill in the Mississippi River.  In the first lawsuit about the incident, the district court placed liability solely on the tugboat operator, noting the (valid and enforceable) charter agreement between it and the barge owner.  In a later case, the barge owner contended that the agreements were void ab initio because the tugboat operator entered without intent to perform.  Gabarick v. Laurin Maritime (America) Inc., No. 13-30739 (May 21, 2014).  The Fifth Circuit agreed that the new position was barred by judicial estoppel. Key to its analysis was that while the barge owner’s positions were in the alternative in the first action, which would not create estoppel: “Once a court has accepted and relied upon one of a party’s several alternative positions, any argument inconsistent with that position may be subject to judicial estoppel in subsequent proceedings.”  The Court also concluded that the district court’s decision to stay the second case so the first could proceed did not compel an argument choice in that case that would make the application of judicial estoppel inequitable.

The Twombly line of cases emphasizes the importance of detail in pleading.  In the insurance context, however, too much detail can defeat coverage.  In State Farm v. Moseley, the Fifth Circuit affirmed a summary judgment for an automobile insurer as to the duty to indemnify, concluding that a “volunteer driver” for a healthcare provider fell within the policy’s “for a charge” exclusion.  The driver received compensation that, while focused on reimbursement for expenses, could yield profit depending on the route taken and the number of passengers.  As to the duty to defend, however, the Court reversed, finding that the following pleading did not unambiguously trigger the exclusion, as it did not allege that “(1) [Plaintiff] gave [Defendant] any payment for transporting her; (2) [Defendant] was operating a taxi service; or (3) the specific amount of compensation [Defendant] received for transporting [Plaintiff]”:

“11.  Upon information and belief, Defendant Elizabeth W. Mosley, owned, operated, and controlled, or in the alternative, was doing business as Mosley’s Transportation. Upon information and belief, the Defendant, Elizabeth W. [Mosley], owned, operated, and controlled, or in the alter- native, was doing business as LogistiCare of MS. Further, upon infor- mation and belief, the Defendant, Elizabeth W. Mosley . . . is in the business of transporting patients to and from their medical treatment facilities.

12. The Defendant, LogistiCare Solutions, LLC, in the regular course of business, operates and maintains a non-emergency medical transportation services business . . . .

13. That on or about March 19, 2010, the Deceased, Pearlie Graham, was being transported by the Defendant, Elizabeth W. Mosley, and riding as a guest passenger in a vehicle being driven and operated by the Defendant, Elizabeth W. Mosley, Individually and d/b/a Mosley’s Transportation and/or d/b/a LogistiCare of MS, or in the alternative, [] was acting in furtherance of and within the course and scope of her employment with Defendant, LogistiCare Solutions, LLC . . . . “

Celebrate Memorial Day this year with a refreshing Ramos Gin Fizz, one of the classic and unique New Orleans cocktails.