The original lawsuit in Comer v. Murphy Oil alleged tort claims against several oil companies about the effect of global warming on Hurricane Katrina. The district court dismissed the claims in that original suit on standing and political question grounds; then, after a Fifth Circuit panel initially reversed in part; the appeal was dismissed after recusals made en banc review impossible after a vote to grant review by the full Court. In this new case, the plaintiffs refiled, the district court dismissed on the grounds of res judicata since its original ruling was not affected by the appeal, and the Fifth Circuit affirmed. No. 12-60291 (May 14, 2013). The Court reviewed the policies behind the doctrine of res judicata and declined to create an equitable exception to the doctrine for this case.
After sidestepping an issue about the Rooker-Feldman doctrine in the context of mortgage servicing earlier this year, the Fifth Circuit revisited the topic in Truong v. Bank of America, 717 F.3d 377 (2013). After a review of the doctrine (“‘Reduced to its essence, the Rooker/Feldman doctrine holds that inferior federal courts do not have the power to modify or reverse state court judgments’ except when authorized by Congress.”), the Court found that it did not prevent a claim arising from alleged misconduct during the course of a foreclosure case. On the merits, however, the claim failed because of an exemption in Louisiana’s unfair trade practices act for “[a]ny federally insured financial institution,” and the Court affirmed dismissal on that basis.
In 2011 in J. McIntyre Machinery v. Nicastro, the Supreme Court revisited the issue of specific personal jurisdiction over a manufacturer based on putting a product into the “stream of commerce.” 131 S. Ct. 2780 (2011). While the fractured Court did not produce a majority opinion, the plurality and a 2-Justice concurrence expressed concern about a view of that doctrine that would allow jurisdiction in a particular state based on a manufacturer’s general intent to do business across the country. The Fifth Circuit directly addressed that language in Ainsworth v. Moffett Engineering, No. 12-60155 (May 9, 2013), finding that the plurality was not controlling, and that the 2-Justice concurrence was decided on the limited ground that no formulation of the doctrine would allow jurisdiction based on that manufacturer’s small number of shipments into the forum. Because the defendant in Ainsworth had over 100 shipments during the relevant time, jurisdiction was appropriate. Language from past Circuit cases that may be inconsistent with McIntyre was noted but kept in place for now.
After the Army disclosed that a property was once a bomb range, the developer sued the law firm that advised on the issuance of bonds for the development. Coves of the Highland Development District v. McGlinchey Stafford PLLC, No. 12-30096 (May 7, 2013, unpublished).The Fifth Circuit affirmed summary judgment for the firm, principally on the ground that the developer bought the property before it retained the firm as bond counsel. Of general interest, the parties’ dispute about the engagement letter pitted a general description of the firm’s work “regarding the source of payment and security for the Bonds” against a specific statement that the firm would rely on the developer for “complete and timely information on all developments pertaining to the Bonds . . . .”
Another 2013 mortgage case affirmed judgment for a mortgage servicer on contact, promissory estoppel and tort claims about an unsuccessful HAMP modification negotiation. The holding of note is that the plaintiffs’ DTPA claim failed as a matter of law. James v. Wells Fargo Bank, No. 12-10861 (May 3, 2013, unpublished). (quoting Montalvo v. Bank of America, 864 F. Supp. 2d 567, 595 (W.D. Tex. 2012) (“Texas federal courts have recently addressed DTPA claims like [plaintiff]’s claim and concluded that a person seeking a loan modification under the HAMP using a loan servicer is not a consumer under the DTPA.”)
This blog’s author will speak on federal litigation trends at the Dallas Bar Association’s Business Litigation Section meeting next Tuesday, May 14, at noon in the Belo Mansion in downtown Dallas. Here is a copy of the PowerPoint. Also, LTPC colleague Richard Smith, who presides over 600 Commerce about the Dallas Court of Appeals, will speak about recent cases from that Court at the DBA Appellate Section meeting on Thursday May 16, also at Belo. Please come by, we look forward to seeing you in person.
While of limited precedential value because it uses “plain error” review, Ward v. Rhode touches on the role of websites in personal jurisdiction. No. 12-41201 (May 3, 2013, unpublished). Plaintiff alleged that the defendants placed a false “Scam Alert” about Plaintiff’s debt settlement services on a website. The court observed: “The [Defendants’] website is interactive to the extent that it allows users to post their opinions about the debt-counseling services that they have used. However, it neither allows users to purchase products online, nor sells subscriptions to view its content. Therefore, the nature of the exchange of information is not commercial.” (citing Mink v. AAAA Dev. LLC, 190 F.3d 333, 336 (5th Cir. 1999)). Accordingly, it was “not clear or obvious” that the website’s interactivity with Texans and the commercial nature of that interaction was sufficient to establish jurisdiction.
The Supreme Court has granted certiorari in the case of In re Atlantic Marine Construction, 701 F.3d 736 (5th Cir. 2012), which declined to grant mandamus relief to enforce a forum selection clause. The questions for review indicate that the Court plans to resolve a circuit split about the standard for enforcement of a forum selection clause, when the forum of suit would otherwise be proper under the federal venue statutes. One view uses the test for “improper venue,” while another analyzes the issue under a 1404(a) convenience framework.
The insurance policy said: “Whenever any Assured has information from which the Assured may reasonably conclude that an occurrence covered hereunder involves an event likely to involve this Policy, notice shall be sent to Underwriters as soon as practicable . . . ” Ins. Co. of N. Am. v. Board of Commissioners of the Port of New Orleans, No. 12-30705 (May 1, 2013, unpublished). Clarifying an earlier opinion (and mandate) about this notice provision, the Fifth Circuit held: “[T]he duty of coverage is triggered for each underwriter who receives notice under the policy. . . We do not, however, hold the converse of this conclusion. In other words, we do not hold that all underwriters under the policy must receive notice as a condition precedent to a duty of coverage being triggered for any individual underwriter under the policy.”
The Fifth Circuit affirmed the district court’s confirmation of an arbitration award against challenges by both sides. One party argued that there was no agreement to arbitrate, and the Court resolved that issue under general contract law principles: “Signature[] lines may be strong evidence that the parties did not intend to be bound by a contract until they signed it. But the blank signature blocks here are insufficient, by themselves, to raise a genuine dispute of material fact.” The other party disputed the handling of postjudgment interest, but the Court concluded that the panel had only awarded post-award interest, leaving the district court free to impose the statutory postjudgment rate upon confirmation. The Court noted that parties may contract to have the arbitrator resolve the appropriate postjudgment rate. Tricon Energy Ltd. v. Vinmar Int’l, Ltd., No. 12-20100 (May 3, 2013).
The plaintiffs in AFLAC v. Biles sued in state court, alleging that AFLAC paid death benefits to the wrong person, and that the signature on the policy application was forged. No. 12-60235 (April 30, 2013). AFLAC moved to compel arbitration in the state court case and simultaneously filed a new federal action to compel arbitration. The state court judge denied AFLAC’s motion without prejudice to refiling after discovery on the issue of the signatures’ validity. In the meantime, the federal court granted AFLAC’s summary judgment motion and compelled arbitration after hearing expert testimony from both sides on the forgery issue. The Fifth Circuit affirmed, finding that Colorado River abstention in favor of the state case was not required, and that the order compelling arbitration was allowed by the Anti-Injunction Act because it was “necessary to protect or effectuate [the federal] order compelling arbitration.” The Court also found no abuse of discretion in the denial of the respondents’ FRCP 56(e) motion, since it sought testimony that would only be relevant if the witness admitted outright to forgery.
In Versata Software v. SAP America, the Federal Circuit affirmed jury verdicts that will likely lead to a judgment in excess of $400 million. That Circuit’s review of a verdict is “reviewed under regional circuit law,” as to which the Court observed: “The Fifth Circuit applies an ‘especially deferential’ standard of review ‘with respect to the jury verdict.'” (citing Brown v. Bryan County, 219 F.3d 450, 456 (5th Cir. 2000)). In affirming the award for a reasonable royalty, the Court quoted the recent case of Huffman v. Union Pacific R.R., which discussed “inference on the basis of common sense, common understanding and fair beliefs, grounded on evidence consisting of direct statement by witnesses or proof of circumstances from which inferences can fairly be drawn.” 675 F.3d 412, 421 (5th Cir. 2012). (Huffman is nominally about the causation requirements of FELA, but its analysis easily extends to other basic Daubert issues.)
The Fifth Circuit wrote in five areas of particular interest for commercial litigation during the first 1/3 of 2013:
Mandatory arbitration. While an employer’s Dispute Resolution Program encouraged mediation, it still required arbitration if other options did not succeed. Klein v. Nabors Drilling, 710 F.3d 234 (5th Cir. 2013).
Daubert. Opinions about railroad safety were “transparently subjective” when the witness relied solely on “education and experience” and could not tie his opinions to specific safety standards. Brown v. Illinois Central Railroad, 705 F.3d 531 (5th Cir. 2013).
Personal jurisdiction. When the plaintiff bought a shaved-ice machine in Louisiana and “unilaterally transported” it to Mississippi, Mississippi had no jurisdiction over the Louisiana-based manufacturer. Irvin v. Southern Snow Manufacturing, No. 11-60767 (5th Cir. March 13, 2013, unpublished).
Injunctive relief and trade secrets. The Court largely affirmed a preliminary injunction about pharmaceutical development in Daniels Health Sciences v. Vascular Health Sciences, reviewing the standards for proof of a trade secret and irreparable injury. 710 F.3d 579 (5th Cir. 2013).
Mortgage servicing. A series of unpublished opinions rejected claims against mortgage servicers and lenders (usually arising from failed loan modification negotiations) involving the Statute of Frauds, negligent misrepresentation, estoppel, waiver, the validity of a MERS assignment and unreasonable collection efforts.
BONUS: Monks can sell caskets. A Louisiana law that barred a Benedictine monastery from selling caskets was struck down as unconstitutional under “rational basis” review. St. Joseph Abbey v. Castille, ___ F.3d ___, No. 11-30757 (5th Cir. March 20, 2013). “The deference we owe expresses mighty principles of federalism and judicial roles. The principle we protect from the hand of the State today protects an equally vital core principle – the taking of wealth and handing it to others . . . as ‘economic’ protection of the rulemakers’ pockets.”
A putative plaintiff class alleged violations of federal securities law by alleged misstatements about asbestos liabilities, the quality of certain receivables and the claimed benefits of a merger. Erica P. John Fund Inc. v. Halliburton, Inc., No. 12-10544 (April 30, 2013). Reviewing recent Supreme Court cases about relevant evidence at the certification stage, including one that reversed the Fifth Circuit about proof of loss causation, the Court held: “price impact fraud-on-the-market rebuttal evidence should not be considered at class certification. Proof of price impact is based upon common evidence, and later proof of no price impact will not result in the possibility of individual claims continuing.” (citing Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds, ___ U.S. ___ (Feb. 27, 2013)) The Court rejected a policy argument about the potential “in terrorem” effect of not considering such potentially dispositive evidence about the merits at the certification stage. The district court ruling about this evidence, and the resulting class certification, were affirmed.
The Court released a revised opinion in National Rifle Association v. Bureau of Alcohol, Tobacco, Firearms & Explosives, a gun control case of broad general interest that has grown in social significance since its original release in October of 2012. No. 11-10959 (revised April 29, 2013). A thoughtful opinion rejects a Second Amendment challenge to restrictions on handgun purchases by 18-to-20 year-olds, noting: “considerable historical evidence of age- and safety-based restrictions on the ability to access arms . . . .” The Court rejected challenges to the standing of the NRA as an organization to sue on behalf of members with personal interests in the dispute. This case was found to control in a later dispute about a similar law, NRA v. McCraw, No. 12-10091 (revised May 22, 2013).
Continuing a series of opinions about mortgage servicing, the Fifth Circuit addressed an “incoherent and rambling” challenge to an assignment through the Mortgage Electronic Registration System (MERS) in Martins v. BAC Home Loans Servicing, No. 12-20559 (April 26, 2013, unpublished). Notwithstanding its criticism of the argument presented, the Court firmly adopted the position of “[n]umerous district courts” that the “show-me-the-note” theory — under which only the holder of the original wet-ink signature note can begin a nonjudicial foreclosure — is not valid in Texas because “foreclosure . . . enforces a deed of trust, rather than the underlying note.” (citing Wells v. BAC Home Loans Servicing, 2011 WL 2163987 (W.D. Tex. Apr. 26, 2011)). The Court went on to reject a challenge to the adequacy of the price paid at foreclosure (92% of the most recent appraisal) and an estoppel-based challenge to a failed discussion of a HAMP modification.
The plaintiff in RBIII, L.P. v. City of San Antonio sought damages after the City of San Antonio razed a property without providing prior notice. No. 11-50626 (April 23, 2013). After a jury trial it recovered $27,500 in damages. The Fifth Circuit found that a key jury instruction on the City’s defenses “improperly cast the central factual dispute as whether or not the Structure posed an immediate danger to the public, when the issue should have been whether the City acted arbitrarily or abused its discretion in determining that the Structure presented an immediate danger.” Accordingly, “[b]ecause this error in the instructions misled the jury as to the central factual question in the case,” the Court reversed and remanded for further proceedings. The Court’s analysis summarizes how federal courts address the issue of harm in erroneous jury instructions that the Texas Supreme Court has engaged in the Casteel line of cases.
The defendant in R&L Investment Property LLC v. Hamm alleged fraudulent inducement into a land sales contract, and the plaintiff responded that a ratification occurred when the defendant signed a modification of a related lien note and deed of trust. (April 19, 2013). The Fifth Circuit agreed with the plaintiff, following the principle that “instruments pertaining to the same transaction may be read together . . . as if they were part of a single, unified instrument.” Because the defendant not only executed the ratification, but received the benefit of the related bargain, its claim for damages was foreclosed. (citing Fortune Production Co. v. Conoco, Inc., 52 S.W.3d 671, 678 (Tex. 2000)).
Creditors sought to assert state law tort claims that had at one point belonged to a bankruptcy estate. Wooley v. Haynes & Boone LLP No. 11-51106 (Apr. 18, 2013). The Fifth Circuit found that the reservation language in the reorganization plan was too vague to satisfy the requirements of the Code as to these claims: “Neither the Plan nor the disclosure statement references specific state law claims for fraud, breach of fiduciary duty, or any other particular cause of action. Instead, the Plan simply refers to all causes of action, known or unknown. As noted, such a blanket reservation is not sufficient to put creditors on notice.” The opinion reviews the handful of Fifth Circuit opinions that establish the guidelines on this basic topic in bankruptcy litigation, and contrasts with another recent opinion that found a set of avoidance claims had been properly reserved.
Smyth, a partner in a bankrupt entity, complained that the bankruptcy court had no jurisdiction to authorize the sale of claims he sought to assert individually. Smyth did not obtain a stay of the sale order, however, rendering the appeal moot: “When an appeal is moot because an appellant has failed to obtain a stay, this court cannot reach the question of whether the bankruptcy court had jurisdiction to sell the claims.” Smyth v. Simeon Land Development LLC (April 18, 2013, unpublished).
The owner of technology for identifying promising sites for gold mines sued an engineering firm for misusing its confidential information. Target Strike, Inc. v. Marston & Marston, Inc., No. 12-50221 (April 17, 2013, unpublished). The Fifth Circuit found it appropriate to exercise jurisdiction after dismissal of the federal claim, when the claim had been litigated for an extended period and the timing of the remand motion seemed tactical “when the judicial tide appeared to turn . . .” (That holding contrasts with a recent opinion that found an abuse of discretion in not remanding a case once all federal claims were eliminated at an early stage of the proceedings. Enochs v. Lampasas County, 641 F.3d 155 (5th Cir. 2011) (citing Parker & Parsley v. Dresser Indus., 972 F.2d 580 (5th Cir. 1992))). The Court went on to find the plaintiff’s claim time-barred because the sites were known to the plaintiff and the defendant’s activity was public.
Hari Aum LLC v. First Guaranty Bank examined how Louisiana law handles documentation about a mortgage securing future indebtedness. No. 11-31218 (April 16, 2013). Article 3298 of the Civil Code recognizes such mortgages so long as basic requirements are satisfied. Articles 1839 and 3338 require the filing of certain instruments in the public record for them to have full legal effect. The Court concluded that a pledge and a modification to the original mortgage did not need to be recorded “as long as these alterations did not exceed the total indebtedness under the pre-existing [mortgage], which they did not.”
A lawyer’s letter making a settlement offer contained a paragraph accusing the other side of giving a witness money for favorable testimony. The accused party then sued for defamation. In Lehman v. Holleman, applying Mississippi law, the Fifth Circuit affirmed that such statements are absolutely privileged from liability because they are “plainly related” to an underlying judicial proceeding. No. 12-60814 (April 15, 2013, unpublished).
The plaintiff in Hyde & Hyde, Inc. v. Mount Franklin Foods LLC asserted conversion claims about certain packaging equipment, based on an alleged assignment as part of a settlement agreement. No. 12-50675 (Apr. 15, 2013, unpublished). Applying Connecticut law, the Court distinguished between assignments of claims involving property damages as opposed to personal injury: “When a tort is committed against a person, the injury is fixed to that individual; when a tort involving property occurs, the harm is claimed by whoever owns or has the right to the property at issue.” Id. at 8. While concluding that Connecticut thus allows assignment of conversion claims, the Court found that general language in the agreement about “all” of the other party’s “rights and interests in the equipment” was not sufficient to make an assignment as it did not “describe the assignment of claims ‘with such particularity as to render [them] capable of identification.'” Id. at 9.
Arbitrators awarded a videogame developer a perpetual license in certain intellectual property. The district court vacated the award on the ground that the award went against the essence of the developer’s contractual relationship with the game publisher. Timegate Studios, Inc. v. Southpeak Interactive, LLC (April 9, 2013). The Fifth Circuit acknowledged that the FAA’s deference to arbitrators reaches its boundary if they “utterly contort[] the evident purpose and intent of the parties” with an award that does not “draw its essence” from the parties’ contract. Here, particularly in light of the arbitrator’s findings about the publisher’s intentional wrongdoing, the Court found the license “was a permissible exercise of the arbitrator’s creative remedial powers” even if it was not wholly consistent with the parties’ contract. The Court reviewed cases about arbitrators who exceeded their given authority and found them inapplicable to this situation: “Timegate committed an extraordinary breach of the Agreement, and an equally extraordinary realignment of the parties’ original rights [was] necessary to preserve the essence of the Agreement.”
The Court released a revised opinion in Hornbeck Offshore Services LLC v. Salazar, which reversed a finding of civil contempt against the Department of Interior about the deepwater drilling moratorium after the Deepwater Horizon incident. No. 11-30936 (Nov. 27, 2012, revised April 9, 2013). The new opinion is streamlined to answer concerns of the original dissent; a revised dissent acknowledges those revisions but still expresses concern that “the majority opinion’s approach may give incentive for litigants creatively to circumvent district court orders.”
Contractors who worked on a bankrupt hospital project disputed their relative lien priorities. First National Bank v. Crescent Electrical Supply, No. 12-10386 (April 5, 2013). The threshold question under Texas law was when work was “visible from inspection,” and was not “preliminary or preparatory.” (citing Tex. Prop. Code §§ 53.123 and 53.124 and Diversified Mortgage Investors v. Lloyd D. Blaylock General Contractor, 576 S.W.2d 794 (Tex. 1978)). In affirming the district court’s reversal of the bankruptcy court, the Fifth Circuit credited a stipulation by a party that was signed by counsel of record for another company, noting this was a “unique circumstance[],” where “the parties’ interests were significantly aligned and [the] party did not have record counsel of its own . . . .” The Court also found that the force of the stipulation overcome later testimony by the party’s president, when he admitted that the company had not yet obtained a permit at the time of its earliest work.
Wagner v. BellSouth Telecommunications underscores a recent holding that a reduced credit rating is not enough to establish damage under the Fair Credit Reporting Act. 12-31080 (April 5, 2013, unpublished). The opinion also reminds that to recover mental anguish damages under the FCRA, a plaintiff must offer “evidence of genuine injury, such as the evidence of the injured party’s conduct and the observations of others,” and to demonstrate “a degree of specificity which may include corroborating testimony or medical or psychological evidence in support of the damage award.” (quoting Cousin v. Trans Union Corp., 246 F.3d 359, 371 (5th Cir. 2001)). The Court also reviewed basic limitations principles under the FCRA and its Louisiana state analog.
Two unpublished cases offer nuts-and-bolts insight on pleading requirements. A pro se copyright infringement complaint failed when the plaintiff “[d]id not plausibly allege that the defendants copied any original work of authorship by her.” Richards v. BP Exploration & Production, No. 12-30508 (April 3, 2013, unpublished). A qui tam suit under the False Claims Act failed to allege fraud with sufficient particularity. The Court noted that while Fed. R. Civ. P. 9(b) applies to FCA claims, its application there is “context specific and flexible,” and a plaintiff can plead with enough particularity “without including all the details of any single court-articulated standard–it depends on the elements of the claim in hand.” Nunnally v. West Calcasieu Cameron Hospital, No. 12-30656 (April 3, 2013, unpublished) (quoting United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 189-90 (5th Cir. 2009)).
The employee in Klein v. Nabors Drilling signed an Employee Acknowledgement Form that agreed to resolve disputes through the Nabors Dispute Resolution Program, describing the Program as “a process that may include mediation and/or arbitration.” No. 11-30824 (Feb. 26, 2013). The Fifth Circuit reminded that the basic legal framework asks: (1) is there a valid agreement to arbitrate? and (2) does the dispute fall within the scope of the agreement? Here, the parties did not dispute that they had a valid agreement, or that Klein’s age discrimination claim was a “dispute” within the meaning of the Program — the novel issue was whether the parties agreed that arbitration was mandatory. The Court carefully reviewed the Program and found that while it “preserve[d] options for nonbinding dispute resolution before final, binding arbitration,” it clearly stated that it “create[d] an exclusive procedural mechanism for the final resolution of all Disputes” and thus required arbitration of Klein’s claim.
Teta v. Chow involved a WARN Act claim asserted by a putative class in bankruptcy court. No. 12-40271 (March 29, 2013, revised April 19, 2013). The Fifth Circuit began its review by comparing the rules for adversary proceedings, which automatically adopt Fed. R. Civ. P. 23, with those for a class proof of claim, which would not automatically implicate that rule. Applying Rule 23, the Court agreed that factors unique to the bankruptcy process can be considered in certification of a class by a bankruptcy court, but remanded for additional explanation by the district court on the issues of numerosity and superiority. A dissent would simply reverse the denial of class certification.
In affirming summary judgment for the defense in an employment case, the Fifth Circuit reminded: “Although we appreciate and encourage vigorous representation by counsel, we will not tolerate representation that is ‘zealous’ to the point of false or misleading statements. A footnote to that reminder noted: “‘zealous’ is derived from ‘Zealots,’ the sect that, when besieged by the Roman Legions at Masada, took the extreme action of slaying their own families and then committing suicide rather than surrendering or fighting a losing battle.” Branch v. Cemex, Inc., No. 12-20472 (March 26, 2013, unpublished).
A steady flow of mortgage servicing cases in 2013 continued with Smith v. JPMorgan Chase (March 22, 2013, unpublished). In affirming summary judgment for the lender on several issues, the Court made two holdings of note. First, an incomplete RESPA response, provided less than sixty days before suit was filed, could not support a contract or negligent misrepresentation claim when it caused no damage. Second, the statement: “Defendants’ agents made harassing phone calls 8-10 times per day. I quit answering our phone, but the constant ringing caused us to have to unplug our home phone and to only use our cell phones” did not raise a fact issue on a claim of unreasonable collection efforts, when “Defendants’ detailed call records, on the other hand, indicated that calls were not answered, phone numbers were disconnected, and messages were left, but, on days when there were multiple calls, only two calls were made.”
A company leased a railcar, and undertook to return it “cleaned of commodities,” which was defined to mean (among other things) “safe for human entry.” Sampson v. GATX Corporation, No. 12-30406 (March 19, 2013, unpublished). The district court concluded that this provision was only part of the contract devoted to allocation of the cost of cleaning. The Fifth Circuit disagreed, and found that the plaintiff had raised a fact issue about whether this contractual duty could give rise to tort liability to someone injured in the car, pursuant to section 324A of the Second Restatement of Torts.
In a rare but classical exercise of judicial review of a state law’s “rational basis,” the Fifth Circuit found a Louisiana economic regulation unconstitutional. The Associated Press and the Times-Picayune provide some initial commentary. The Louisiana State Board of Embalmers and Funeral Directors barred an abbey of Benedictine monks from selling caskets. In late 2012, the Fifth Circuit certified a question to the Louisiana Supreme Court about the Board’s authority, which that court declined to answer. The Fifth Circuit then reviewed the Board’s actions and agreed with the district court that the regulation was not rationally related to the state’s claimed interests in consumer protection or public health, affirming an injunction against its enforcement. St. Joseph Abbey v. Castille, No. 11-30757 (March 20, 2013). The Court emphasized both the limited role of “rational basis” review and its importance when it does apply: “The deference we owe expresses mighty principles of federalism and judicial roles. The principle we protect from the hand of the State today protects an equally vital core principle — the taking of wealth and handing it to others . . . as ‘economic’ protection of the rulemakers’ pockets.”
The Court released a revised opinion in Janvey v. Democratic Senatorial Campaign Committee, No. 11-10704 (originally issued October 23, 2012; revised March 18, 2013). The expanded opinion withdraws the earlier holding that a federal equity receiver has standing to assert creditors’ fraudulent transfer claims arising from a Ponzi scheme. The Court now holds that the receiver only has standing to assert the claims of the entities in receivership, but those entities are not considered to be “in pari delicto” with the operator of the scheme: “The appointment of the receiver removed the wrongdoer from the scene. The corporations were no more [the perpetrator’s] evil zombies.” Id. at 6 (quoting Eberhard v. Marcu, 530 F.3d 122, 132 (2d Cir. 2008), and citing Scholes v. Lehmann, 56 F.3d 750 (7th Cir. 1995) (Posner, C.J.)).
Materials Evaluation and Technology Corporation (“METCO”) had a CGL policy from Mid-Continent that it renewed annually beginning in 1997. The 2002 policy covered liability arising from a third-party contractual relationship while the 2003 policy did not. Two METCO employees were injured at a DuPont facility, DuPont settled their claim and sought indemnity from METCO pursuant to their contract, and Mid-Continent denied coverage based on the 2003 policy. Materials Evaluation & Tech Corp. v. Mid-Continent Casualty Co., No. 12-40186 (March 18, 2013, unpublished). METCO appealed a summary judgment for the insurer, arguing that Texas law presumes that an insurance policy renews on the same terms as the original. The Court reviewed METCO’s authority and found it was limited to those cases’ particular fact situations — generally involving a claim of misrepresentation or an issue of mutual mistake — and affirmed.
The parties in Silver Dream LLC v. 3MC Inc. settled a copyright dispute about jewelry sales “by agreeing, among other things, that the [individual defendants] would provide affidavits disclosing details of the infringing items.” No. 11-30968 (March 18, 2013, unpublished). The defendants warranted the affidavits would be “true, complete, and exact” but the agreement allowed termination only if the affidavits were discovered to be false within a year. The plaintiff took issue with the “qualified nature” of the affidavits as a reason to terminate the settlement, but the district court and Fifth Circuit stressed that the cancellation right was limited to a “false” statement. The plaintiff’s proof of alleged affirmative falsehoods in the affidavits was found to lack specificity. The Fifth Circuit also found no abuse of discretion in denying a motion for continuance to depose the individual defendants, noting delay in the request and a lack of specificity about what the plaintiff planned to establish.
The ALI’s publication of the Restatement (Third) of Restitution in 2011 stirred interest in the important but arcane principles that define unjust enrichment. The Fifth Circuit addressed a classic restitution situation in Boudreaux v. Transocean Deepwater, Inc., No. 12-30041 (March 14, 2013). A seaman sought recovery for maintenance and cure after an injury; Transocean successfully established a defense based on the seaman’s failure to disclose a previous medical condition; and Transocean sought restitution of money paid earlier. The majority rejected Transocean’s position, finding a lack of support in prior case law, and noting that the scienter element of Transocean’s defense was less demanding that a common-law fraud claim. (“We are offered no reason to depart from precedent. There is only the change of advocates and judges, by definition irrelevant to the settling force of past jurisprudence — always prized but a treasure in matters maritime.”) A dissent, briefly citing the Restatement, argued that one other circuit had endorsed such a claim, and that allowing the claim struck the proper policy balance.
Plaintiff purchased a shaved-ice machine in Louisiana, made by Southern Snow, a Louisiana-based business. She moved the machine to Mississippi, injured her hand while cleaning it, and sued for damages in Mississippi. Irvin v. Southern Snow Manufacturing, No. 11-60767 (March 13, 2013, unpublished). The Fifth Circuit agreed with the district court that she did not establish specific jurisdiction under a stream-of-commerce theory. Even assuming that Southern Snow had minimum contacts by making a substantial percentage of its sales into neighboring Mississippi, her claim did not arise out of those contacts because “Southern Snow sold the machine to a Louisiana customer and had no knowledge that, years later, Irvin unilaterally transported it into Mississippi.” General personal jurisdiction was not at issue. The Court’s emphasis on the “arising out of” factor echoes its recent opinion in ITL International v. Constenla, S.A., 669 F.3d 493 (5th Cir. 2012). The vagaries of snow cone sales produced another published Fifth Circuit opinion, on procedural due process and pleading issues, in Bowlby v. City of Aberdeen, 681 F.3d 215 (5th Cir. 2012).
An assignment of royalty interests for a continental shelf project had this “calculate or pay” clause: “The overriding royalty interest assigned herein shall be calculated and paid in the same manner and subject to the same terms and conditions as the landowner’s royalty under the Lease.” The parties disputed whether the clause simply required calculation of royalties in the same way as the government’s royalty, or allowed suspension of the assigned payments during a period when the government’s royalty right was suspended. Total E&P USA, Inc. v. Kerr-McGee Oil & Gas, No. 11-30038 (revised June 20, 2013). Applying Louisiana law, the majority found the clause ambiguous on that issue, and further reasoned that at the time of contracting, legal principles that eventually became settled and could resolve the ambiguity were not yet settled. Noting that no cross-appeal was taken, the Court reversed a summary judgment and remanded for consideration of extrinsic evidence. A succinct concurrence noted an additional reason for finding ambiguity based on the grammar of the clause. A dissent took issue with the majority’s analysis of other contract provisions and applicable law, and would have affirmed summary judgment about interpretation but reversed as to reformation for mutual mistake. Both the majority and dissent endorsed consideration of extrinsic evidence, for different reasons and purposes — a general topic which recurs with some regularity in the Court’s contract opinions.
The plaintiff in Smith Maritime v. L/B KAITLYN EYMARD sought recovery for property damage and lost profits from allegedly negligent welding on a crane on a boat. No. 12-30378 (Jan. 3, 2013, publication ordered March 11, 2013) The Fifth Circuit found the plaintiff’s tort claims for economic loss barred by East River Steamship Corp. v. Transamerica Delaval, which “held that a manufacturer in a commercial relationship has no duty under either a negligence or strict products-liability theory to prevent a product from injuring itself.” 476 U.S. 858, 871 (1986). The Court concluded that “modification of a vessel,” as distinguished from its “manufacture or repair,” was “a distinction without a difference” for purposes of East River. The Court recognized that the errant crane had damaged living quarters that were being added to the vessel, but those quarters were not “other property” outside the East River doctrine given the wording of the parties’ Asset Purchase Agreement.
Appellant sought review of an attachment order on the M/V OCEAN SHANGHAI. Appellee moved to dismiss the appeal, as the parties had settled, and the boat in question had left the jurisdiction (near the coast of Latvia as of the date of this post.) Farenco Shipping Co. v. Farenco Shipping PTE, Ltd., No. 12-31154 (March 4, 2013, unpublished). Appellant responded by asking for vacatur of the attachment order. Recognizing that this request raised the novel question of vacatur of an interlocutory order rather than a final judgment, the Fifth Circuit found no “exceptional circumstances” in either the parties’ settlement or the order’s potential collateral estoppel effect that would warrant its vacatur. With respect to the settlement, the Court observed that as a general matter: “Settlements are frequently made under difficult circumstances, and often represent the least bad of several bad options; this does not make such settlements involuntary.”
The Court released a revised opinion in PPI Technologies v. Liberty Mutual, which continues to affirm the dismissal of a coverage case for inadequate allegations of property damage. No. 12-40189 (March 1, 2013, unpublished). The opinion is now unpublished, contains a footnote stating: “Our holding is not intended to alter Texas pleading standards,” and discusses the allegations in Twombly-like language, stating: “The allegations in the underlying lawsuits are either for economic damages, and thus not covered, or are legal conclusions, rather than factual allegations as required.”
The Deepwater Horizon rig operated under a drilling contract between BP and Transocean. The contract had indemnity provisions between BP and Transocean for pollution claims depending on whether the contamination originated above water. The contract also required Transocean to maintain BP as an additional insured under Transocean’s liability coverage. In Ranger Insurance v. Transocean Offshore, the parties agreed that BP was entitled to some coverage as an additional insured, but disputed whether that coverage reached pollution liability, since the spill originated below water in BP’s area of responsibility under the indemnity clauses. No. 12-30230 (March 1, 2013). The Fifth Circuit reasoned: (1) Texas law begins by examining the policy, which did not restrict pollution coverage when read in light of earlier cases involving similar clauses; (2) the terms of the drilling contract did not change that conclusion, as its indemnity provisions were sufficiently “discrete” from its additional insured provision. The opinion reviews what the Court saw as a consistent line of Fifth Circuit and Texas authority about the interplay of indemnity and “additional insured” clauses.
The Fifth Circuit affirmed a preliminary injunction about pharmaceutical development in Daniels Health Sciences v. Vascular Health Sciences. No. 12-20599 (March 5, 2013). The opinion offers a practical road map for basic issues in trade secret litigation. As to likelihood of success on the merits, the Court found adequate findings about damage, specific confidential information, a trade secret arising from a “compilation,” and a confidential relationship between the parties. As to irreparable injury, the Court found sufficient findings about reputational injury that was not speculative. While it found no abuse of discretion in the district court’s weighing of public and private interest factors, it did see a “close question” about the overall scope of the injunction in light of the conduct at issue and the defendant’s business plans and suggested that the district court “try to narrow the scope of its injunction on remand.”
The secured lender held a $39 million claim in the bankruptcy of a hotel development; a reorganization plan was approved over its objection in a “cram-down” that called for repayment of the debt over ten years at 5.5 percent interest (1.75 percent above prime on the date of confirmation). Wells Fargo v. Texas Grand Prairie Hotel Realty LLC (No. 11-11109, March 1, 2013). The parties agreed that this “prime-plus” approach was appropriate under the plurality in Till v. SCS Credit Corp., 541 U.S. 465 (2004), but disputed the proper rate. The Court rejected a threshold challenge based upon “equitable mootness” because it reasoned that the appeal could be resolved with “fractional relief” rather than rejection of the plan. On the merits, the Court reaffirmed that it would review the choice of a cramdown rate for clear error rather than de novo, citing In re: T-H New Orleans Limited Partnership, 116 F.3d 790 (5th Cir. 1997)). After a thorough review of Till and subsequent cases, the court found no clear error in this prime-plus rate in this factual context.
A creditor successfully made a “credit bid” under the Bankruptcy Code for assets of a failed golf resort. Litigation followed between the creditor and guarantors of the debt, ending with a terse summary judgment order for the guarantors: “This is not rocket science. The Senior Loan has been PAID!!!!” Fire Eagle LLC v. Bischoff, No. 11-51057 (Feb. 28, 2013). The Fifth Circuit affirmed in all respects, holding: (1) the bankruptcy court had jurisdiction over the dispute with the guarantors because it had a “conceivable effect” on the estate; (2) the issue of the effect of the credit bid was within core jurisdiction and did not raise a Stern v. Marshall issue; (3) core jurisdiction trumped a forum selection clause on the facts of this case; (4) a transfer into the bankruptcy court based on the first-to-file rule was proper; and (5) the creditor’s bid extinguished the debt. On the last holding, the Court noted that the section of the Code allowing the credit bid did not provide for fair-market valuation of the assets, unlike other Code provisions.
A federal jury awarded $4 million in compensatory damages for a car wreck. The district judge interpreted the award to include $2.2 million in noneconomic damages, and then reduced that portion of the award to $1 million because of Mississippi’s statutory cap on noneconomic damages. Learmonth v. Sears, Roebuck & Co., No. 09-60651 (Feb. 27, 2013, revised March 20, 2013). The plaintiff challenged the cap as violating the Mississippi Constitution’s jury trial guarantee and separation of power provisions. The Mississippi Supreme Court declined to answer certified questions about those issues. The Fifth Circuit found that the cap did not violate the Mississippi Constitution. The Court declined to consider an argument that the Erie doctrine prevented the district judge from segregating the verdict as a matter of state substantive law, finding that the point was not asserted timely and was thus waived.
The Bankruptcy Code requires that a plan receive a favorable vote from “at least one class of claims that is impaired under the plan.” 11 U.S.C. § 1129(a)(10). In Western Real Estate Equities LLC v. Village at Camp Bowie I, LP, thirty-eight unsecured trade creditors of a real estate venture voted to approve the debtor’s plan, while the secured creditor voted against it. No. 12-10271 (Feb. 26, 2013). The secured creditor complained that the consent was not valid because the plan “artificially” impaired the unsecured claims, paying them over a three-month period when the debtor had enough cash to pay them in full upon confirmation. Recognizing a circuit split, the Fifth Circuit held that section 1129 “does not distinguish between discretionary and economically driven impairment.” The Court conceded that the Code imposes an overall “good faith” requirement on the proponent of a plan, but held that the secured creditor’s argument here went too far by “shoehorning a motive inquiry and materiality requirement” into the statute without support in its text.
