9-0, the Supreme Court reversed the Fifth Circuit’s panel opinion in Mississipi ex rel. Hood v. AU Optronics Corp., 571 U.S. ___ (Jan. 14, 2014).  After review of CAFA’s language and structure, that Court concluded that an action brought on behalf of consumers by a state was not a “mass action” that could allow removal, since it has only one plaintiff, and the claims of the relevant consumers cannot be counted without “unwieldy inquiries.”  The Supreme Court characterized the “mass action” provision of CAFA as a “backstop” to prevent the repackaging of a class action.

After a recent panel remanded an appeal about the Deepwater Horizon settlement for further proceedings about its payment formula, another panel examined challenges to the settlement based on the guidelines of Rule 23, the Rules Enabling Act, and Article III.  In re Deepwater Horizon — Appeals of the Economic and Property Damage Class Action Settlement, No. 13-30095 (Jan. 10, 2014).  The panel found that, at the stage of certifying a settlement class, it did not violate those guidelines to have class members who may not be able to prove causation or damages on the merits: “It is sufficient for standing purposes that the plaintiffs seek recovery for an economic harm that they allege they have suffered, because we assume arguendo the merits of their claims at the Rule 23 stage.”  In particular, the panel found that outcome consistent with Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011), as it requires evidence “that a particular contention is common, but not that it is correct.”  The panel also found no abuse of discretion in the district court’s handling of subclasses or damage calculations.  A dissent contended: “Absent an actual causation requirement for all class members, Rule 23 is not being used to simply aggregate similar cases and controversies, but rather to impermissibly extend the judicial power of the United States into administering a private handout program.

From recent cases described on this blog, here are three basic tips for business cases in 2014:

 1.            Plead like a mystery writer.  Like a skilled crime novelist, the civil rights plaintiff in Jabaray v. City of Allen survived a Rule 12 motion by detailing motive and opportunity – the mayor’s alleged personal investment in the real estate at issue, and his role and involvement in the relevant city agencies.  No. 12-41054 (Nov. 25, 2013, unpubl.)

2.            Eyewitnesses help make fact issues.  Plaintiff claimed a barge came loose during Hurricane Katrina and damaged a bridge.  Defendant said that Plaintiff’s theory required the impossible – that the barge move upstream against hurricane-force wind.  The Fifth Circuit found a fact issue from eyewitnesses who saw and heard things consistent with Plaintiff’s theory.  “There is a great deal of testimony supporting Lafarge’s position, to be sure, and little to support the Parish’s, but we are mindful of the summary judgment standard.”  St. Bernard Parish v. Lafarge North America, No. 13-30030 (Dec. 19, 2013, unpubl.)  This reasoning could extend to admissible testimony about the commercial context of an agreement, or its course of performance.

3.            Keep experts on Earth.  The Court found that an expert in a toxic tort case made unsupported assumptions about (a) the plaintiff’s work hours, (b) what he did at work, (c) where he worked, and (d) whether the ventilation worked.  ”To be sure, reliable expert testimony often involves estimation and reasonable inferences from a sometimes incomplete record. . . . Here, however, the universe of facts assumed by the expert differs frequently and substantially from the undisputed record evidence.”  Moore v. International Paint LLC, No. 13-30281 (Nov. 15, 2013, unpubl.)

A recurring issue in federal litigation arises from cases that “overstay their welcome” in the federal courthouse; for example, where only state law claims remain after dismissal of federal claims.  A variation of that situation arose in Energy Management Services LLC v. City of Alexandria, where a city sued its electricity provider.  After that litigation was removed to federal court, the city then removed a second suit, brought by its utility consulting firm, on the ground of supplemental jurisdiction — after the first case had been settled.  12-31184 (Jan. 9, 2014).  The remand order was certified for interlocutory appeal and the Fifth Circuit reversed, finding that there was no original jurisdiction over the second case as required by the removal statute.  The Court acknowledged that the district court could have continuing jurisdiction over matters related to the original settlement, which could potentially even extend to such matters involving third parties — but here, the second case had no connection to those settled matters.

Su, a citizen of Taiwan, served on the board of Vantage, an offshore drilling contractor. Vantage is incorporated in the Cayman Islands with its principal place of business in Texas.  Vantage sued Su in Texas state court for breach of fiduciary duty and related claims.   Su removed, remand was denied, and the district court certified the jurisdictional issue for interlocutory appeal.  Vantage Drilling Co. v. Su, No. 13-20379 (Jan. 7, 2014). The Fifth Circuit reversed and ordered remand, relying primarily upon  Chick Kam Choo v. Exxon Corp., 764 F.2d 1148 (5th Cir. 1985).  Section 1332(a)(2) requires complete diversity, and section 1332(c)(1) deems a corporation a citizen of “every State and foreign state” in which it is incorporated — thus, “there are aliens on both sides of the litigation, complete diversity is lacking, and there can be no diversity jurisdiction.”  Su argued that Choo could be read to allow federal jurisdiction to protect against local bias, but the Court rejected that argument as inconsistent with the statute.

Federal Rule of Bankruptcy Procedure 8002(a) says that the notice of appeal from bankruptcy to district court must be filed within 14 days of the judgment or order at issue. Here, Smith filed his notice of appeal to district court thirty days after entry of final judgment. Smith v. Gartley, No. 13-50154 (Dec. 16, 2013).  After reviewing the continuing validity of its older precedent of In re Stangel, 219 F.3d 498 (5th Cir. 2000), which held that this deadline is jurisdictional, the Fifth Circuit looked to In re Latture, 605 F.3d 830 (10th Cir. 2010), which reached the same conclusion. Because “the statute defining jurisdiction over bankruptcy appeals, 28 U.S.C. § 158, expressly requires that the notice of appeal be filed under the time limit provided in Rule 8002,” the time limit is jurisdictional.

In Coleman v. H.C. Price Co., a toxic tort case, the Fifth Circuit certified to the Louisiana Supreme Court the question whether that state’s one-year limitations statute for survival actions is “prescriptive” (limitations does not run until the cause of action accrues, based on the plaintiff’s actual or constructive knowledge), or or “preemptive” (the cause of action is extinguished even if it has not accrued).  No. 13-30150 (Dec. 18, 2013, unpublished). The issue is significant, as the opinion says: “the answer will define the time period governing all survival actions brought in Louisiana . . . .”

Venable had a heart attack on a drilling barge; he and its owner agreed to settle for $350,000.  The Louisiana Workers’ Compensation Corporation initially indicated its agreement, but withdrew consent when it became evident that he would need a heart transplant.  Venable v. Louisiana Workers’ Compensation Corporation, No. 12-30965 (Dec. 30, 2013).  Litigation ensued as to whether the LWCC could rely upon section 933 of LHWCA, which gives a carrier such as LWCC a veto right with substantial procedural safeguards.  The Fifth Circuit reversed summary judgment for Venable.  After a thorough and succinct review of the black-letter law on federal question jurisdiction, the Court found that section 933 gave the LWCC a defensive right that did not implicate Venable’s “well-pleaded complaint.”  It also found that the tentative nature of the LWCC’s alleged consent foreclosed ancillary jurisdiction over the claimed settlement under Kokonnen v. Guardian Life, 511 U.S. 375 (1994).

This blog’s author is giving the Fifth Circuit Update at the State Bar’s Annual Litigation Update Institute in Austin on January 10; here is a draft of the anticipated PowerPoint.

He will also be in an audience debate (open to the public) on the afternoon of January 8 at SMU, hosted by the SMU Communications Department and the Bush Institute.  The topic will be presidential power, the other participants are the debate coaches at the Universities of Houston and North Texas and the director of the Dallas Urban Debate Association.

The lower courts agreed that the sale of a pipeline system from a bankruptcy estate was free and clear of an obligation to pay certain fees to “Newco.”  Newco Energy v. Energytec, Inc., No. 12-41162 (Dec. 31, 2013).  The Fifth Circuit reversed, finding that the obligations arose from a covenant that ran with the land.  First, the Court found that the lower courts’ reservation of the “free and clear” issue was sufficient to avoid section 363 of the Bankruptcy Code, which would otherwise moot the appeal for failure to get a stay.  On the merits, the Court focused on “horizontal privity” between the parties at the time the covenant was created, expressing doubt that Texas in fact imposed such a requirement, but finding it satisfied in the conveyances here.  (discussing Wayne Harwell Props. v. Pan Am. Logistics Center, Inc., 945 S.W.2d 216, 218 (Tex. App.–San Antonio 1997, writ denied)).  The Court also concluded that the payment obligation ran with the land, as it related to transportation from the land and was secured by a lien on the entire pipeline.  (distinguishing El Paso Refinery, LP v. TRMI Holdings, Inc., 302 F.3d 343 (5th Cir. 2002)).

Waltner v. Aurora Loan Services LLC welcomes the New Year with three bread-and-butter issues in business litigation.  No. 12-50929 (Dec. 31, 2013, unpublished).  First, a party’s failure to answer on time does not require the “drastic remedy” of a default judgment, especially when a plaintiff shows no prejudice from the failure to timely answer.  The granting of a default judgment is a discretionary ruling by the district court.  Second, damages for lost use of property are not reliance damages that can be recovered with a promissory estoppel claim.  Rather, they are consequential losses — a form of expectation damages.  Finally, while Fed. R. Civ. P. 26(g)(2) says that a court “must strike” unsigned discovery responses “unless a signature is promptly supplied” after the error is identified, the district court has discretion in determining what is “prompt” and in what weight to give the lack of prejudice to the opposing party.

After a recent example of attorneys fees that were not “inextricably intertwined” under Texas law, the Fifth Circuit followed this month with a practical example of the Texas requirement of “presentment” of a contract claim before fees may be recovered. In Playboy Enterprises, Inc. Sanchez-Campuzano, the Court reminded that the pleading of presentment is procedural, and thus not a requirement in the federal system.  No. 12-40544  (Dec. 23, 2013, unpublished).  It is, however, a substantive requirement.  In this case, sending a “Notice of Default” under a primary obligation was enough to “present” a claim for liability on a guaranty, noting the “flexible, practical understanding” of the requirement by Texas courts. The Court distinguished Jim Howe Homes v. Rodgers, 818 S.W.2d 901 (Tex. App.-Austin 1991, no writ), which found that service of a DTPA complaint was not presentment of a later-filed contract claim, on the ground that the “Notice” here went beyond mere service of a pleading.  For thorough review of this principle, and other key points about fee awards, please consult the book “How to Recover Attorneys Fees in Texas” by my colleagues Trey Cox and Jason Dennis.)

New York Life v. Cannatella involved the interpleader of life insurance benefits.  The Fifth Circuit affirmed the award of $750 in attorneys fees to the insurance company who filed the action, agreeing that the company was “disinterested,” and identifying these factors about a fee award to a party in its position: “1) whether the case is simple or involved; 2) whether the stakeholder performed any unique services for the claimants or the court; 3) whether the stakeholder acted in good faith and with diligence; 4) whether the services rendered benefited the stakeholder; and 5) whether the claimants improperly protracted the proceedings.”  No. 12-30663 (Dec. 23, 2013, unpublished).

Gregg Costa, a recent appointee to the Galveston division of the Southern District of Texas, has been nominated by President Obama to the Fifth Circuit.  A Rehnquist clerk and the lead prosecutor in the Allen Stanford case, Judge Costa enjoys substantial bipartisan support for his intellect and abilities.

A barge moored at a facility operated by Lafarge came loose during Hurricane Katrina and caused extensive damage.  The district court granted summary judgment to Lafarge, finding that the plaintiff’s damage theory was not scientifically credible in light of the observed weather conditions at the time.  St. Bernard Parish v. Lafarge North America, Inc., No. 13-30030 (Dec. 19, 2013, unpublished).  The Fifth Circuit agreed that “[t]here is a great deal of testimony supporting Lafarge’s position, to be sure, and little to support the Parish’s, but we are mindful of the summary judgment standard.”  It reversed, however, noting eyewitness testimony that was not consistent with the defendant’s expert analysis. The Court distinguished and limited Ralston Purina v. Hobson, 554 F.2d 725 (5th Cir. 1977), which involved an unusual theory about the behavior of starving chickens, on the ground that its plaintiff could not prove the facts that his theory required.

The parties’ agreement said: “Upon payment of the Lease Termination Fee, TTE will not longer have any obligations under Section 9.1A.”  The district court found that the structure of the agreement meant that provision did not apply to all of the relevant buildings.  The Fifth Circuit disagreed: “While such a divisions may be analytically satisfying, it is unsupported by any other language in the MOU, such as, for example, a paragraph heading identifying a particular provision as only relating to one warehouse.”  APL Logistics Americas, Ltd. v. TTE Technology, Inc., No. 13-10352 (Dec. 13, 2013, unpublished).

Among other issues in Farkas v. GMAC Mortgage LLC, a borrower disputed whether he had received proper notice of the servicer’s identity, arguing that only the current mortgagee could send effective notice.  No. 12-20668 (Dec. 2, 2013, unpublished).  The Fifth Circuit affirmed a judgment against him on the grounds of quasi-estoppel, noting: “The duration and regularity of these continued payments to mortgage servicers who had not been identified by current mortgagees constitute acquiescence to the validity of notice of transfer from one mortgage servicer to the next.  The equitable relief afforded by quasi-estoppel assures that a party’s position on a given issue is more than a matter of mere convenience but is instead a stance to which it is bound.”

Alphonse lost his home to foreclosure.  He then sued in federal court, alleging unfair trade practices.  Alphonse v. Arch Bay Holdings LLC, No. 13-30154 (Dec. 11, 2013, unpublished).  The district court dismissed based on the Rooker/Feldman doctrine, but by the time the Fifth Circuit took up the case, all parties conceded that ruling was incorrect because of Truong v. Bank of America, 717 F.3d 377, 381-83 (5th Cir. 2013).  The appellees urged affirmance based on res judicata from the foreclosure proceeding, but the Fifth Circuit remanded for further factual development.  The party to the foreclosure proceeding was a “Series 2010B” that owned the mortgage; the parties to the federal case were that entity’s parent and its mortgage servicer; and the Court was not convinced that the pleadings — standing alone — established the right relationships to find preclusion.  The Court also remanded for further consideration of whether Delaware law about 2010B entities applied to third party claims, noting a potential exception the “internal affairs” doctrine in choice-of-law analysis.

A business taxpayer claimed a deduction for a loan.  The Fifth Circuit affirmed the Tax Court’s finding that the transaction was not a loan.  DF Systems v. Commissioner of Internal Revenue, No. 13-60322 (Dec. 10, 2013, unpublished).  Noting that “the absence of a formal loan agreement is not determinative,” and acknowledging board minutes and the taxpayer’s testimony supporting the conclusion that it was a loan, the Court stressed the “absence of . . . objective economic indicia of genuine debt” — determinable sum to be repaid, specified interest rate, repayment schedule, maturity date, or collateral.  The Court’s analysis is of general interest in other business situations involving arguments about “form over substance.”

In Croft v. Lowry, the debtor filed for bankruptcy after judgment was entered against him for attorneys fees and sanctions in two lawsuits.  No. 13-50020 (Dec. 10, 2013).  The debtor sought to lift the stay to pursue appeals of those judgments; the adverse parties in the lawsuits opposed, arguing that the debtor’s defensive appellate rights were estate property and could be sold.  The district court ruled for the debtor and the Fifth Circuit reversed.  Noting that only two courts have addressed this issue, and reached different results, the Court concluded that the rights had quantifiable value and were thus “property” under Texas law. The Court noted that the rights had value to the estate, since appellate success would reduce liability, as well as the judgment creditors, who may be willing to pay some amount to avoid litigation expense and reversal risk.  “Whether the defensive appellate rights are sold depends upon whether the parties can agree on the value of those rights, not whether they have any value at all.”  (emphasis in original)

Seventy property owners sued St. Bernard Parish, alleging that it wrongfully demolished their properties in the wake of Hurricane Katrina (which flooded virtually every structure in that hard-hit area).  The Parish’s insurer disputed coverage.  Lexington Ins. Co. v. St. Bernard Parish Gov’t, No. 13-30300 (Dec. 6, 2013, unpublished).  Among other arguments, the insurer argued that there was no coverage because the policy had a $250,000 retention limit per occurrence, and each demolition (none of which involved more than that amount) should be viewed as a separate occurrence.  The district court and Fifth Circuit ruled for the Parish.  The Fifth Circuit noted that the limit applied “separately to each and every occurrence . . . or series of continuous, repeated, or related occurrences,” and that the phrase “related” has a broad meaning in the insurance context, covering logical or causal connections between acts or occurrences.   Here: “[T]he acts alleged in the underlying actions are related because they all resulted from St. Bernard’s ordinance condemning those properties that remained in disrepair following Hurricane Katrina. The fact that the properties in the underlying action were demolished at different times, in varying degrees, and at different locations, does not mean that these acts are not related.”

The plaintiff in Weeks Marine Inc. v. Standard Concrete Products Inc. fell from a crane during a bridge construction project.  No. 12-20610 (Dec. 6, 2013).  He sued Weeks Marine, the general contractor, who in turn sought indemnity from Standard Concrete, the manufacturer of the “concrete fender modules” for the project.  The district court granted summary judgment for the manufacturer and the Fifth Circuit affirmed.  A broader indemnity obligation in the original purchase order was limited by the additional terms and conditions to “actual damages relating to workmanship of Seller’s (Standard Concrete) product.”  Accordingly, the plaintiff’s claims, related to a steel component of the product made by another company, were not covered: “The steel modules are a component that Standard Concrete used to make its product; they are not the product itself. Standard Concrete’s products are the pre-cast concrete fender modules. The common usage of ‘product’ distinguishes this term from components, tools, and equipment used in the manufacturing process.”

Mississippi brought six parens patriae actions alleging inappropriate charges for credit card “ancillary services” in violation of state law.  Defendants removed under CAFA and on the ground of complete preemption, and the district court denied remand. Hood v. JP Morgan Chase & Co. (Dec. 2, 2013).  The Fifth Circuit reversed.  As to CAFA, it found that defendants (who have the burden) did not establish that any plaintiff had a claim of $75,000 – especially when Mississippi offered evidence that the average yearly charge at issue was around $100.  The Court also observed that the defendants likely had similar information in their records.  The Court acknowledged that federal usury laws have the effect of complete preemption, but found that the charges at issue in these cases could not be characterized as “interest” within the meaning of those laws.

In Ortega v. Young Again Products, the plaintiff sued a judgment creditor and its counsel, claiming that they took assets that belonged to him rather than the judgment debtor.  No. 12-20592 (Nov. 27, 2013, unpublished).  The Fifth Circuit recognized that Texas extends qualified immunity to claims by a third-party against an attorney for conduct requiring the “office, professional training, skill, and authority of an attorney.”  The focus is on the type of conduct, not its merit.  Accordingly, removal of the case was proper because the attorney was fraudulently joined, and dismissal for various reasons was affirmed.

In D.R. Horton Inc. v. NLRB, the Fifth Circuit reviewed an NLRB decision that invalidated an arbitration agreement as to collective or class claims related to employment.  No. 12-60031 (Dec. 3, 2013).  The court deftly sidestepped a difficult constitutional issue, presently before the Supreme Court, about President Obama’s “recess appointments” to the NLRB.  On the merits, the Court reversed the NLRB.  The Board relied upon Section 7 of the NLRA, which guarantees the right “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”  The Court found that this statute did not create a right to pursue collective or class claims in court that trumped the language and policy goals of the Federal Arbitration Act.  A recent Texas Lawbook article discusses the significance of this opinion for employers.

In a 9-0 opinion, the Supreme Court reversed a Fifth Circuit panel about the enforcement of a forum selection clause.  Atlantic Marine Construction v. U.S. District Court for the Western District of Texas, 571 U.S. ___ (December 3, 2013).  The panel opinion questioned enforceability when the district of suit was otherwise proper under the federal venue statutes; a strong dissent by Judge Catharina Haynes argued otherwise. The Supreme Court endorsed her position: “When the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause.  Only under extraordinary circumstances unrelated to the convenience of the parties should a §1404(a) motion be denied. And no such exceptional factors appear to be present in this case.”  Procedurally, while the Supreme Court noted in its introduction that the case arose in a mandamus context, it nowhere discusses how that posture affects the analysis — a significant point that divided the Fifth Circuit’s recent en banc vote in the case of In re Radmax.  

Two new briefing rules took effect in the Fifth Circuit on December 1.  The first eliminates the requirement of a separate statement of the case, and consolidates a matter’s procedural and substantive history into a single statement of facts.  The second standardizes record citations.  “For multiple record cases, parties will cite ‘ROA’ followed by a period, followed by the Fifth Circuit appellate case number of the record they reference, followed by a period, followed by the page of the record. For example, ‘ROA.13 12345.123.’  In single record cases, parties cite the short citation form, ‘ROA,’ followed by a period, followed by the page number. For example, ‘ROA.123.'”  This standardized form should help the Court in electronically matching record citations and the actual record.

The case of Carey Salt Co. v. NLRB dealt with a technical labor law question as to when negotiations between management and a union had reached an impasse.  No. 12-60757 (Nov. 21, 2013).  The general framework it uses, though, is of broad interest in court-ordered mediation, contractual dispute resolution clauses, and other situations where a party’s good faith in negotiation can come into question.  The opinion is centered on the factors identified in Taft Broadcasting Co., 163 N.L.R.B. 475, 478 (1967): “(1) the parties’ bargaining history; (2) the parties’ good faith; (3) the duration of negotiations; (4) the importance of issues generating disagreement; and (5) the parties’ contemporaneous understanding of the state of negotiations.”  That NLRB case also noted the general importance of overall “good faith.”

Borrowers alleged that their lender knowingly accepted an inaccurate fair market value of their home, for purposes of a home equity loan, in violation of the Texas Constitution.  Gonzalez v. U.S. Bank, N.A., No. 13-10342 (Nov. 29, 2013, unpublished).  The lender won summary judgment and the Fifth Circuit affirmed.  The borrowers first pointed to a tax appraisal, which the Court rejected because “under Texas law, tax valuations are legally insufficient evidence of fair-market value.”  Second, the borrowers pointed to one of their affidavits, which the Court also rejected as “conclusory and unsubstantial” and insufficient to prove notice to the lender.  The Court briefly reviewed other summary judgment cases involving similar “self-serving” affidavits.

“The Daubert reliability analysis applies to, among other things, ‘the facts underlying the expert’s opinion.'”  Moore v. International Paint LLC, No. 13-30281 (Nov. 15, 2013, unpublished).  In this case, the Fifth Circuit affirmed the exclusion of expert testimony about a plaintiff’s cumulative benzene exposure, citing these problems with his assumed facts: (1) assuming an hourly rate of $6,00, when his rates were in fact $6.99, $7.44, and $8.00; (2) assuming, contrary to the plaintiff’s deposition testimony, that he always worked with paint indoors, that his respirator always failed within an hour, and he never received a replacement; (3) assuming, contrary to other deposition testimony, that the indoor spaces where the plaintiff worked were always unventilated; and (4) assigning an arbitrary number, with no record support, to the amount of time the plaintiff worked as a sandblaster rather than a painter.  “To be sure, reliable expert testimony often involves estimation and reasonable inferences from a sometimes incomplete record. . . . Here, however, the universe of facts assumed by the expert differs frequently and substantially from the undisputed record evidence.”

Due to the nature of its case load, the Fifth Circuit does not often give practical advice on how to plead under Twombly and Iqbal.  It has written a handful of cases in the area, though, and the new opinion of Jabaray v. City of Allen adds to that group.  No. 12-41054 (Nov. 25, 2013, unpublished).  Jabary alleged constitutional claims arising from the revocation of the Certificate of Occupancy for his business (a “restaurant, hookah bar, and tobacco store” that also sold “K2” for a time.)  The Fifth Circuit affirmed the Rule 12 dismissal of most defendants, but reversed as to two.  The holding of general interest relates to the pleading of the mayor’s involvement in the decision, which was found adequate — the court specifically noted that the pleading said the mayor had suggested to Jabary that he move his business, and that the mayor had a potential financial motive because he owned another business in the relevant mall.

After a recent merciful reception for an untimely notice of appeal, the Fifth Circuit reacted differently in M.D. v. Perry, No. 13-90045 (Nov. 19, 2013, unpublished).  The district court certified a large class of children in the Texas foster care system.  The State of Texas filed a petition for leave to appeal under Fed. R. Civ. P. 23(f), a day late.  Sidestepping the technical question whether the deadline was “jurisdictional” or simply “claims-processing,” the Court found it binding, noting that the “narrow window” set by the rule reflected a careful balance of policies.  The Court also rejected a request to suspend the deadline under Fed R. App. P. 2, noting that Fed. R. App. P. 26 expressly prohibits deadline suspension as to a petition for permission to appeal.

The Fifth Circuit continued its conservative approach to the construction of guaranties in McLane Foodservice Inc. v. Table Rock Restaurants, LLC, No. 12-50980 (Nov. 15, 2013).   In 1997, an investor in a restaurant chain guaranteed the chain’s debts to PFS, a division of Pepsioco.  Years later, McLane became the owner of PFS’s operations after a series of sales transactions.  In 2010, a customer of McLane called Table Rock went out of business, owing McLane over $400,000, and sought to collect on the original guaranty. The Fifth Circuit agreed with the district court that the guaranty only reached credit extended by PFS, that McLane was not an “affiliate” of PFS, and that “successors and assigns” language in the guaranty could not expand the scope of the underlying guaranty obligation.

A REIT sued the City of College Station, alleging that its zoning decisions were unconstitutionally irrational and unfair.  The City’s CGL policy covered liability arising from “wrongful act[s]” of city officials, with an exclusion for liability arising from eminent domain or condemnation proceedings.  City of College Station v. Star Insurance, No. 12-20746 (Nov. 14, 2013).  The district court granted summary judgment for the insurer and the Fifth Circuit reversed: “As [the REIT’s] constitutional and tortious interference claims may produce liablity that does not ‘arise out of’ [its] inverse condemnation action, [the insurer] is liable for the City’s defense costs.”

Twenty-four plaintiffs sued Citgo for alleged violations of the overtime pay laws.  The court’s second discovery order warned against destruction of personal emails by the plaintiff.  Then, after two evidentiary hearings, the court dismissed the claims of seventeen plaintiffs for violating that order (but not of an eighteenth), entering specific factual findings for each plaintiff.  Four more were then dismissed after another hearing and sets of findings.  Moore v. Citgo Refining & Chemicals Co., Nos. 12-41175 and 12-41292 (Nov. 12, 2013, unpublished).  The Fifth Circuit found no abuse of discretion, noting the clarity of the discovery order, the hearing of live testimony, and prejudice to Citgo (loss of the ability to show that the plaintiffs were sending personal emails “on the clock,” which had proven relevant in one of the cases that was not dismissed).  The Court also reversed and rendered for $50,000 in costs, finding that the district court’s reduction of taxable costs to $5,000 because of Citgo’s size and resources was not grounded in the applicable rule.

A classic problem in restitution law involves how to disgorge profits that result in part from wrongful conduct (i.e., taking a client) and in part from lawful action (i.e., doing quality work for that stolen client).  In Gulf & Mississippi River Transp. Co. v. BP Oil Pipeline Co., the Fifth Circuit addressed the profits of a pumping station located on a disputed tract of land. No. 12-30741 (Sept. 18, 2013).   Under the distinctive terminology of Louisiana law, the landowner argued that the profits were the “civil fruit” of the tract, and the pump operator argued that they came solely from the operation of the pumping business.  The Fifth Circuit remanded for clarification of “whether [the district court] was referring to natural fruits, civil fruits, or both” in its analysis of this point.  The discussion of the civil law in this area is difficult to follow because of the unusual vocabulary, but it provides an interesting perspective on a recurring remedies issue.

Plaintiffs sued Blackburn for breach of contract with respect to three promissory notes and for fraud in a stock transaction.  Highground, Inc. v. Blackburn, No. 13-30248 (Sept. 25, 2013, unpublished).  Plaintiffs recovered on the notes but not the fraud claim, and the bankruptcy court awarded $25,000 as a “fair fee” for that result.  Plaintiffs appealed, seeking fees for the fraud claim as well, arguing that their litigation was “inextricably intertwined” with the note claims.  Applying Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299 (Tex. 2006), the Fifth Circuit agreed with the lower court: “Appellants prevailed on the notes claim because Blackburn signed the notes without authority to do so, not because of the allegations of fraud relating to other aspects of the purchase agreement . . . .”  The case presents a clean example of claims against the same party that are nevertheless not “inextricably intertwined” for purposes of an attorneys fee award.  (For thorough review of this principle, and other key points about fee awards, please consult the book “How to Recover Attorneys Fees in Texas” by my colleagues Trey Cox and Jason Dennis.)

A zealous borrower filed successive lawsuits against U.S. Bank, its attorneys, and MERS arising from a foreclosure.  Maxwell v. U.S. Bank, N.A.,13-20113 (Oct. 30, 2013, unpublished).  While MERS was not a party to the first two cases, it asserted res judicata, based on their dismissal, arguing that it was in privity with the defendants.  The Fifth Circuit cited Taylor v. Sturgell, 553 U.S. 880 (2008), which described how res judicata reaches “a variety of pre-existing substantive legal relationships between the person to be bound and a party to the judgment,” including “preceeding and succeeding owners of property, bailee and bailor, and assignee and assignor” as well as other relationships described as “privity.”  Here, the mortgage documents identified MERS as “nominee for” U.S. Bank, which satisfied Taylor.

A subcontractor’s policy excluded “property damage” to “your work.”  An endorsement added the general contractor as an additional insured “only with respect to liability for . . . ‘property damage’ . . . caused, in whole or in part, by . . . [y]our acts or omissions.”  “The policy defined “you” and “your” with reference to the subcontractor and the endorsement did not purport to modify that definition.  State Farm Auto Ins. v. Harrison County, No. 13-60001 (Sept. 16, 2013, unpublished).  The insurer argued that the additional insured could only “stand[] in shoes no larger than those worn by the primary policyholder.”  The Fifth Circuit did not disagree, but found that this specific endorsement created ambiguity when read along with the original policy, and thus affirmed the district court’s summary judgment in favor of coverage.

In an unpublished opinion that happened to come out the same day as the slightly-revised “robosigning” opinion of Reinagel v. Deutsche Bank, the Fifth Circuit briefly reviewed the requirements for a summary judgment affidavit in a note case.  RBC Real Estate Finance, Inc. v. Partners Land Development, Ltd., No. 12-20692 (Oct. 30, 2013, unpublished).  As to foundation, the affidavit purported to be based on personal knowledge, and said that “[a]s an account manager at RBC[, the witness] is responsible for monitoring and collecting the . . . Notes.” “Therefore, [he] is competent to testify on the amounts due . . . .”  As to sufficiency, the Court quoted Texas intermediate appellate case law: “A lender need not file detailed proof reflecting the calculations reflecting the balance due on a note; an affidavit by a bank employee which sets forth the total balance due on a note is sufficient to sustain an award of summary judgment.”

The district court dismissed the plaintiff’s False Claims Act case on October 31, 2012. Plaintiff filed a notice of appeal and motion to extend time on December 5, 2012 — 35 days later.  King v. University of Texas Health Science Center-Houston, No. 12-20795 (Nov. 4, 2013, unpublished).  Plaintiff argued that her attorneys (1) mistakenly believed there was a 60-day deadline, reasoning that the U.S. was the real party in interest, and (2) had busy trial dockets in November that kept them from noticing the error in time.  The district court granted the extension and the Fifth Circuit affirmed.  The Court applied Pioneer Inv. Servs. Co. v. Brunswick Assocs., Ltd., 507 U.S. 380, 385 (1993) and Halicki v. Louisiana Casino Cruises, Inc., 151 F.3d 465, 470 (5th Cir. 1998), and Court noted that while an attorney’s legal error or scheduling problems could constitute inexcusable neglect, here the defendant was not prejudiced and the rule at issue was ambiguous.  The Court also noted a distinction between review of a district court’s finding of excusable neglect and a finding that neglect was not excusable.

The Fifth Circuit has voted to rehear en banc the case of Department of Texas, VFW v. Texas Lottery Commission.  Texas allows charitable bingo if the sponsoring organization does not use the proceeds for political advocacy and several charities challenge that restriction on First Amendment grounds.  The case presents the challenging question whether this limitation violates the “unconstitutional conditions” doctrine.

CHS Inc. v. Plaquemines Holdings LLC presented the interaction of the Bankruptcy Code and an old section of the Louisiana Civil Code (involving cases from 1849, 1828, and 1913).  No. 13-30028 revised (Nov. 26, 2013).  The Louisiana Code provision provides: “When a litigious right is assigned, the debtor may extinguish his obligation by paying to the assignee the price the assignee paid for the assignment, with interest from the time of the assignment.”  As the Fifth Circuit noted: “The law is aimed at preventing unnecessary litigation by reducing the ability of third parties to buy and sell legal claims for profit.”   CHS, part owner of a tract of land along with a bankrupt company, attempted to redeem that company’s interest after it was sold as part of a dissolution case required by the bankruptcy.  The Court found that the sale, conducted pursuant to bankruptcy court orders, fell within a “judicial sale” exception to the Code provision that prevented CHS from using it here.  

On October 29, the Fifth Circuit released a revised opinion in Reinagel v. Deutsche Bank, N.A., 722 F.3d 700 (5th Cir. 2013), which rejected a borrower’s claims about alleged “robosigning” (and in the process, discussed the “show-me-the-note” argument under Texas law, for the sole purpose of adding a footnote to acknowledge Martins v. BAC Home Loans Servicing LP, 722 F.3d 249, 255 (5th Cir. 2013), which expressly addressed and rejected that argument.

“What does Judge X think about my issue?”  If Judge X has served on the Fifth Circuit for some time, his or her votes in two cases can provide good insight: (1) the denial of en banc rehearing in Huss v. Gayden, 585 F.2d 823 (5th Cir. 2009), a difficult Daubert case, and (2) the en banc opinion of In re Volkswagen,  545 F.3d 304 (5th Cir. 2008), which granted mandamus relief for the denial of a 1404 venue transfer motion from the Eastern District of Texas. A third case has now joined that list — the recent 7-8 vote to deny en banc rehearing for In re Radmax, 730 F.3d 285 (5th Cir. 2013).  The Radmax panel granted mandamus relief to compel an intra-district transfer under section 1404.  Judge Higginson, who dissented from the panel, also dissented from the en banc vote, pinpointing the issue as whether the ruling “propounds appellate mandamus power over district judges which the Supreme Court has said we do not have.”  The votes in Huss, Volkswagen, and Radmax signal much about a judge’s philosophy as to the power and role of a district judge.

Marceaux v. Lafayette City-Parish Consolidated Gov’t was a section 1983 case brought by former and current police officers against leaders of the Lafayette Police Department.  No. 13-30332 (Sept. 30, 2013).  “[T]he Officers communicated with the media concerning the case and maintained a website, www.realcopsvcraft.com (the “Website”), which contained: an image of the Lafayette Police Chief, a party in this suit; excerpts of critical statements made in the media concerning the Lafayette PD Defendants; certain voice recordings of conversations between the Officers and members of the Lafayette Police Department; and other accounts of the Lafayette PD Defendants’ alleged failings.” Acknowledging both the district court’s discretion to issue gag orders about such communications, and the powerful First Amendment protection against prior restraints, the Fifth Circuit found an abuse of discretion in ordering the shutdown of the entire website.  It remanded for consideration of a more narrowly-tailored order.

Employer sought to enforce two arbitration agreements in an employee handbook, which also gave Employer the right to unilaterally “supersede, modify, or eliminate existing policies.”  Scuderio v. Radio One of Texas II, LLC, No. 13-20114 (Oct. 24, 2013, unpublished).  Applying In re 24R, Inc., 324 S.W.3d 564 (Tex. 2010), the Fifth Circuit noted a distinction between an arbitration clause that is in a separate instrument from a handbook with such a provision, and a clause that is part of the handbook.  Here, “because the arbitration provision is in the handbook that contains the language allowing the employer to unilaterally revise the handbook, the agreement to arbitrate is illusory and unenforceable.”  See also Carey v. 24 Hour Fitness, 669 F.3d 202 (5th Cir. 2012) (finding another arbitration provision illusory in an employment setting).

The plaintiff in Delahoussaye v. Performance Energy Services LLC suffered back injuries while working on a drilling platform when a handrail fell on him.  No. 12-31222 (Oct. 24, 2013).  The district awarded general damages of $200,000, noting that the plaintiff had exaggerated his complaints of pain and was able to return to work.  The award was reviewed for clear error.  The Fifth Circuit reviewed prior awards in comparable cases and concluded that $200,000 was excessive in light of the district court’s other fact findings. Reviewing precedent that established a “maximum recovery” guideline based on 133% of the highest previous recovery for a similar injury, the Court remitted the damages to $86,450 (133 percent of $65,000, the highest comparable recovery found by the Court).  The plaintiff could accept the remitted award or have a new trial on damages.

The machinery of justice needs fuel to function.  An eloquent letter by the Judicial Conference of the United States summarizes today’s serious situation about the funding of the federal courts.  Please speak out.

A builder obtained a 6-figure judgment against an architect, for cost overruns and lost profits, resulting from the architect’s negligence.  Garrison Realty LP v. Fouse Architecture & Interiors, PC, No. 12-40764 (Oct. 21, 2013, unpublished).  The jury awarded distinct sums for negligence and negligent misrepresentation.  The Fifth Circuit found that the causes of action were duplicative in this context and reversed as to the inclusion of the smaller award in the final judgment. The Court also held that the defendant had waived an argument for a partial offset as a result of a prior lawsuit, finding that offset had not been pleaded as a defense, and that the plaintiff was prejudiced because it could have changed its trial proof had the issue been raised earlier.  (On the pleading issue, the Court noted that the defendant had alleged offset, but only claimed it was a bar “in whole” rather than “in whole or in part.”)