A bankruptcy trustee sued to avoid an alleged fraudulent transfer, in the form of payments under a guarantee, in MC Asset Recovery v. Commerzbank AG, No. 11-10070 (March 20, 2012).  The Court found that the trustee had standing, even though the debtor’s creditors had been paid in full, because recovery would benefit the estate.  Op. at 7.  Then, applying the Restatement’s “significant relationship” framework and focusing on policy issues, the Court applied New York fraudulent conveyance law (which reached guarantees) as opposed to Georgia law (which did not).  Op. at 12-13.  The lower court’s dismissal of the case was vacated and reversed.

In a detailed opinion that surveyed differing Circuit opinions on several topics, the Court found that “the purchase or sale of securities (or representations about the purchase or sale of securities) is only tangentially related to the fraudulent scheme alleged” in state class actions about the Allen Stanford scandal.  Roland v. Green (March 19, 2012).  Therefore, the Securities Litigation Uniform Standards Act (SLUSA) did not preclude those actions.  The opinion will likely have a significant influence on future cases about the scope of SLUSA in the Fifth Circuit.

Bepco v. Santa Fe Minerals presented the appeal of a remand order, which was based in part on a contractual waiver issue (reviewable) and in part on a timeliness issue (not generally reviewable).  No. 11-30986 (March 15, 2012).   While the timeliness issue was arguably not presented within 30 days of the removal, the Court held: “Whether a removal defect is not raised by a plaintiff in the motion to remand, or is raised more than 30 days after removal, does not matter.  . . . [W]hat does matter is the timing of the remand motion.”  Op. at 8.  Because the motion itself was timely, and thus satisfied the statutory time limit, and because the remand order relied on a permissible statutory ground for remand, the Court dismissed the appeal for lack of appellate jurisdiction.  Id.

The Fifth Circuit has had a  about the application of Daubert, and its effect on the roles of judge and jury.  In Huffman v. Union Pacific Railroad, the Court moved to the other end of the technical spectrum, and analyzed the sufficiency of evidence in a FELA case about a former railway worker’s alleged on-the-job injuries.  No. 09-40736 (March 13, 2012)  After thorough analysis of the worker’s allegations, the Court held that expert testimony on causation was not necessary to support a jury finding for the worker, but found that the worker had not presented enough evidence about the type of injury to satisfy even that standard.  Op. at 21-22.   Judge Southwick wrote for the majority, joined by Judge Owen, and Judge Dennis dissented.  The case analyzes FELA precedent but is of substantially broader interest on general causation issues.  The Court also briefly analyzed and rejected a judicial estoppel argument.  Op. at 7-8.

As a counterpoint to some recent cases that have set limits on arbitrability, the Court rejected two court challenges to a $17 million arbitration award in a dispute about coal pricing.  Rain CII Carbon, LLC v. ConocoPhillips Co., No. 11-30669 (March 9, 2012).  The losing party argued that the arbitrator had failed to follow a specified “baseball” procedure, but the Court found that the arbitrator’s treatment of the proposed award was within the scope of his power to correct clerical issues.  Op. at 5.  The Court also found that the award was “reasoned” under prior case law: “The only description of a reasoned award in this circuit was rendered in a footnote: . . . ‘[A] reasoned award is something short of findings and conclusions but more than a simple result.'”  Id. (citing Sarofim v. Trust Co. of the West, 440 F.3d 213, 215 n.1 (5th Cir. 2006)).  The Court suggested that the parties could have contracted for more detailed findings and conclusions.   Op. at 8.

In Technical Automation Services Corp. v. Liberty Surplus Ins. Corp. the Court addressed, sua sponte, an issue about the jurisdiction of a U.S. magistrate judge after the Supreme Court’s recent opinion limiting bankruptcy court jurisdiction, Stern v. Marshall, 131 S. Ct. 2594 (2011).  No. 10-20640 (March 5, 2012).  The Court concluded that Stern did not directly overrule the prior Circuit precedent of Puryear v. Ede’s, Ltd., 731 F.2d 1153 (5th Cir. 1984) and held: “[W]e will follow our precedent and continue to hold, until such time as the Supreme Court or our court en banc overrules our precedent, that federal magistrate judges have the constitutional authority to enter final judgments on state-law counterclaims.”  Op. at 12.  On the merits, the Court reversed the lower court’s ruling that an “eight corners” analysis of an insurance coverage issue precluded consideration of a claim of mutual mistake.  Op. at 15.

The Court affirmed almost all of a series of immunity rulings by the district court in the consolidated litigation against the Corps of Engineers arising from Hurricane Katrina.  In re Katrina Canal Breaches Litigation (March 2, 2012).  While most of the opinion focuses on issues unique to flood control, it provides a crisp summary of the requirements of the National Environmental Policy Act as to environmental impact statements, and concludes with a brief summary of the standards for mandamus relief in the federal system.  Op. at 27.  The Court declined to grant a writ of mandamus to stay an upcoming trial because its opinion affirmed the immunity rulings that the district court would use for that trial.  (A subsequent opinion mooted the mandamus issue because it changed the disposition of the merits.)

Lofton v. McNeil Consumer & Specialty Pharmaceuticals presented a failure-to-warn claim based on a severe reaction to a common pain medicine.  No. 10-10956 (Feb. 22, 2012).  The Court concluded that the specific claim at issue, based on Tex. Civ. Prac. & Rem. Code § 82.007, required litigation about whether “fraud on the FDA” had occurred and was thus preempted.  Op. at 13-14.   The Court acknowledged a circuit split on this preemption issue, and also noted that it was not addressing an issue about the severability of the Texas statute because that issue was raised for the first time on appeal.

In McGee v. Arkel Int’l, the Court addressed the thorny choice-of-law issue raised by a conflict between limitations provisions.  No. 10-30393 (Feb. 16, 2012).  It found that Iraqi law was adequately proven under Fed. R. Civ. P. 44.1 through an expert’s affidavit, which included a translation and cited a generally consistent website.  Op. at 13-14 (noting that defendant “did not put forth any alternative translation and has not suggested how the [plaintiff’s] translation might be inaccurate”).  The Court found that the action was time-barred under Louisiana law, was not shown to be time-barred under Iraqi law, and thus fell within a rarely-used Louisiana law allowing the action to proceed as “warranted by compelling considerations of remedial justice.”  Op. at 18 (citing La. Civ. Code art. 3549).

Here is a helpful summary of the “Federal Court s Jurisdiction and Venue Clarification Act of 2011,” H.R. 394, P.L. 112-63, which took effect in January 2012.

In Shcolnik v. Rapid Settlements, bankruptcy creditors had obtained a $50,000 arbitration award of attorneys fees against the debtor, and appealed a summary judgment that the award was dischargeable.  No. 10-20800 (Feb. 8, 2012).  The Fifth Circuit reversed, finding an issue of fact as to whether the fee award arose from “willful and malicious injury by the debtor” in pursuing meritless claims, and was thus nondischargeable.  Op. at 5-6 (citing 11 U.S.C. § 523(a)(6)).  (The debtor’s threats included a “massive series of legal attacks . . . which will likely leave you disbarred, broke, professionally disgraced, and rotting in a prison cell.”  A thoughtful dissent questioned whether the majority’s ruling would deter legitimate litigation demands, and whether the Court was inserting itself into matters resolved by the arbitrator.  Op. at 9.

In the case of In re Dell, Inc., the Court reviewed the settlement of a shareholder class action against the arguments of two objectors.  No. 10-50688 (Feb. 7, 2012).  The Court first held that a class member does not have to file a proof of claim to have standing to object.  Op. at 5.  The Court then reviewed and rejected several objections to the fairnes of the settlement, reminding that a full evidentiary hearing is not necessarily required at a fairness hearing.  Op. at 10.  Finally, the Court found no abuse of discretion in awarding an 18% fee to the attorneys ($7.2 million) instead of requiring a “lodestar” calculation, rejecting a strict reading of In re High Sulfur Content Gasoline Prods. Liab. Litig., 517 F.3d 220, 228 (5th Cir. 2008) (which stated: “This circuit requires district courts to use the ‘lodestar method’ to ‘assess attorneys’ fees in class action suits.”).

In National Casualty Co. v. Western World Insurance, the Court addressed basic coverage issues under Texas law about auto insurance.  No. 10-41012 (Feb. 3, 2012).  It held that loading a patient into an ambulance is “use” of a an auto within the meaning of one policy, op. at 6 (citing Mid-Century Ins. v. Lindsey, 997 S.W.2d 153 (Tex. 1999)), but did not fall within a “use” exclusion to another policy, reminding that the standard for construing a coverage provision is different than for an exclusion from coverage. Op. at 11.  The Court also found that a “professional services” and an “other insurance” exclusion did not apply.

While the Fifth Circuit rarely addresses a “rear-ender” car crash case, it did so deftly in Fair v.Allen, No. 11-30467 (Feb. 3, 2012), in which the appellant sought reversal of a $38,000 judgment.  With no Daubert issue presented, the Court reviewed the conflicting testimony of medical experts and found it sufficient — under both Louisiana state law and the Federal Rules — to support the verdict and judgment.  The specific issues are unlikely to recur soon, but the framework of the opinion is a good illustration of a basic sufficiency review.

The dispute in Preston Exploration v. GSF, LLC was whether a contract to sell certain oil and gas leases satisfied the Texas Statute of Frauds (“SOF”).  (No. 10-20599, Feb. 1, 2012)  Acknowledging that the parties’ documents envisioned future title work, the Court reversed the district court’s conclusion that this remaining work barred the contracts’ enforcement under the SOF, stating: “Such analysis reflects the conflating of two distinct principles — whether parties come to a meeting of the minds as to the subject matter of a contract with whether a writing’s legal description is sufficient to meet the statute of frauds.”  Op. at 7.

Bass v. Stryker Corp. presents a highly technical analysis of whether state law claims about a hip implant are preempted by the federal Medical Device Amendments to the Food, Drug, and Cosmetics Act.  No. 11-10076 (Jan. 31, 2012)  The Court found that the manufacturing claims could proceed as “parallel claims that do not impose different or additional requirements than the FDA regulations,” and that certain implied warranty claims survived because they were based on violations of federal requirements.  Op. at 19, 23.  The Court affirmed the dismissal on preemption grounds of other claims, including an alleged failure to warn.   The opinion provides a thorough example of how Twombly applies to a Rule 12 motion based on preemption.

The Supreme Court wrote two major personal jurisdiction opinions in 2011: Goodyear Dunlop Tires v. Brown, 131 S. Ct. 2846, about general personal jurisdiction based on product sales into a state, and J. McIntyre Machinery v. Nicastro, 131 S. Ct. 2780, analyzing specific personal jurisdiction based on a “stream of commerce” theory.  In ITL International v. Constenla, S.A., the Fifth Circuit’s first lengthy personal jurisdiction opinion since then, the Court found that a defendant’s acceptance of 55 shipments of goods in Mississippi was “purposeful contact[],” but went on to find no specific jurisdiction because the parties’ trademark dispute had too weak a link to those contacts.  No. 10-60892 at 11 (Jan. 31, 2012) The Court did not address general jurisdiction and thus did not directly engage the Goodyear case.

In Amco Energy v. Capco Exploration (No. 11-20264, Jan. 30, 2012), the Court addressed two fundamental business tort issues.  The first involved a professional negligence claim about the evaluation of certain oil properties — the majority found that the professional’s contract did not extend to the matters complained of and thus created no professional duty, while the dissent “cannot fathom how one can conclude that there was no contract” for those matters.  Op. at 8, 10, 23.   The second found a contractual disclaimer of reliance that defeated a fraud claim, continuing the recent development of law on that issue in Italian Cowboy Partners, Ltd. v. Prudential Ins. Co., 341 S.W.3d 323, 333 (Tex. 2011) and LHC Nashua Partnership Ltd. v. PDNED Sagamore Nashua LLC, 659 F.3d 450, 460 (5th Cir. 2011).  Op. at 17.

The plaintiff in Arena v. Graybar Electric Company (No. 10-31096, Jan. 25, 2012) asserted a federal claim under the Miller Act (the statute for contractors’ claims on government projects) and related state law claims.  The Court found that failure to comply with a bonding requirement was fatal to the Miller Act claim, and thus to supplemental jurisdiction over the state claims.  The district court allowed an amendment to assert diversity jurisdiction, but the Court remanded for consideration of evidence submitted in response to that amendment that would defeat diversity if credited.   Echoing its recent decision in Enochs v. Lampasas County, 641 F.3d 155 (5th Cir. 2011), which voided a judgment on state law claims after dismisal of the federal claim, the Court reminded: “The court’s reasoning of judicial efficiency to resolve [plaintiff’s] state-law claims comes into play only when jurisdiction is proper.”  Op. at 9.

The employee handbook in Carey v. 24 Hour Fitness contained an arbitration provision and a “Change-in-Terms” clause giving the employer “the right to revise, delete, and add to the employee handbook.”  No. 10-20845 (Jan. 25, 2012).  The  Court affirmed a finding that the arbitration provision was illusory, and thus unforceable.  Op. at 4 (citing  Morrison v. Amway Corp., 517 F.3d 248, 257 (5th Cir. 2008)).  The Court contrasted In re Halliburton Co., 80 S.W.3d 566, 569-70 (Tex. 2002), in which a clause was enforced when the employer’s right to amend the arbitration provision was specifically limited as to present disputes,  and favorably cited Weekley Homes v. Rao, 336 S.W.3d 413, 415 (Tex. App.–Dallas 2011, pet. denied), in which a provision requiring notice of a handbook was not sufficient to make an arbitration provision non-illusory.

Bohnsack v. Varco presented a post-judgment appeal of successful claims for fraud and misappropriation of trade secrets about an oil drilling device called the “Pit Bull.”  No. 10-20741 (Jan. 23, 2012).  The Court ruled: (1) the evidence was sufficient to hold the defendant liable for statements of its outside counsel, to show that those statements were a “material factor” to the plaintiff, and to establish injury from lost profits (op. at 13-16); (2) the fraud damages awarded were benefit-of-the-bargain damages, not compensable under common-law fraud (op. at 16-20 (discussing Haase v. Glazner, 62 S.W.3d 795 (Tex. 2001))); (3) fraudulent inducement failed because the defendant’s statements only induced negotiations, not entry into a contract (op. at 22); and (4) the damages were compensable as misappropriation of a trade secret, under the broad definition of “use” in Texas law, and in light of damages evidence sufficient to show “the value a reasonably prudent investor would pay for the trade secret.”  Op. at 25-26.

Two individuals, involved in a political struggle about a camera system for traffic lights, sought to intervene of right in a lawsuit between the City of Houston and the system’s contractor.  City of Houston v. American Traffic Solutions (No. 11-20068, Jan. 24, 2012).  The Court reviewed the general requirements of Fed. R. Civ. P. 24(a)(2) but observed that “[b]riefing does not reveal any cases directly on point” to this situation.  Op. at 4.  The Court reversed the district court’s denial of intervention, observing that “[a] court must be circumspect about allowing intervention of right by public-spirited citizens,” but finding that these individuals were exceptionally involved in the political background for the system, and that the City was not necessarily an adequate representative for them in light of the specific history of this system and litigation.  Op. at 4-5.

The plaintiff in Kocurek v. CUNA Mutual Insurance sued for fraud about the sale of an insurance policy in 2005 on her husband’s life.  (No. 10-51042, Jan. 24, 2012).  The defendant persuaded the district court to dismiss on the pleadings, arguing that she lacked standing because she was not a beneficiary of the 2005 policy, and that the policy had a “one policy only” clause that barred claims under an earlier policy.  The Court disagreed and reversed, characterizing the plaintiff’s claims as relating to the “practice of selling multiple policies to the same individual,” op. at 4-5, and finding the “one policy only” provision potentially ambiguous and thus not a proper basis for dismissal on the pleadings.  Op. at 5.   The Court affirmed dismissal of a DTPA claim, as the plaintiff was not the “consumer” who brought the policy.  Op. at 5-6.

In a complicated case about jurisdiction over a challenge to administrative action, the Court addressed the general effect of presumptions under the Federal Rules of Evidence and Rule 301 in particular.  City of Arlington v. FCC (No. 10-60039, Jan. 23, 2012).  The Court reminded that under the “bursting-bubble” approach of Rule 301, “the only effect of a presumption is to shift the burden of producing evidence with regard to the presumed fact.”  Op. at 42.  Accordingly, “once a party introduces rebuttal evidence sufficient to support a finding contrary to the presumted fact, the presumption evaporates,” and “[t]he burden of persuasion with respect to the ultimate question at issue remains with the party on whom it originally rested.”  Id. 

The question in Haggard v. Bank of the Ozarks was whether a guarantor’s liability was limited under Texas law to the last $500,000 due on the note of the principal obligor.  (No 11-10154, Jan. 19, 2012).  Comparing language in the guaranty which limited liability “to the last to be repaid $500,000, of the principal balance of the loan,” with other terms that excused the creditor bank from first trying to collect from the principal, the Court found the guaranty ambiguous and reversed a summary judgment for the bank.  Op. at 7, 8.  (citing, as to the limitation language, NH Properties v. Mittleider, 267 F. App’x 375 (5th Cir. 2008)).  The Court reminded that a “guaranty agreement is construed strictly in favor of the guarantor,” so “[i]f the guaranty is ambiguous, then the court must apply the ‘construction which is most favorable to the guarantor.'”  Op. at 8.

The case of Time Warner Cable v. Hudson, (No. 01-5113) Jan. 13, 2012, presented a constitutional challenge to a Texas statute regulating cable TV providers, on the grounds that it unfairly discriminated against a group of them.   The Court discusses the plaintiffs’ standing at some length, holding that “[d]iscriminatory treatment at the hands of government” was a cognizable injury.  Op. at 5-8.

Texas Medical Providers v. Lakey, No. 11-50814 (Jan. 10, 2012), is a high-profile constitutional challenge to Texas laws requiring a physician who performs an abortion to show a sonogram to the woman.  The Fifth Circuit reversed a preliminary injunction against enforcement of the statute, finding that the plaintiffs failed to demonstrate a substantial likelihood of success on their First Amendment and vagueness challenges.  While most of the thorough opinion reviews the highly specific constitutional principles in this area, its treatment of the “likelihood of success” factor for a preliminary injunction is also of general interest to civil litigators.

In Davis-Lynch, Inc. v. Moreno, a company sued two individuals (among others) alleging RICO violations.  (No. 10-20859, Jan. 10, 2012)  The individuals asserted the Fifth Amendment in their answers, and then withdrew those assertions after the plaintiff filed a summary judgment motion.  The Court allowed one of those withdrawals, stating: “[A] party may withdraw its invocation of the Fifth Amendment privilege, even at a late stage in the process, when circumstances indicate that there is no intent to abuse the process or gain an unfair advantage.”  (Op. at 11)  It affirmed the denial of the other, noting that it was done at the “eleventh-hour” before the close of discovery.   (Op. at 12)  On the merits, the Court reversed a summary judgment for the plaintiff, finding deficiencies with the plaintiff’s allegations and proof of racketeering injury and activity.  (Op. at 13-20)  The Court cautioned against entry of “[a]n order that essentially amounts to a default judgment” in the summary judgment context.  (Op. at 21)   

In Jones v. Wells Fargo Bank, the Court affirmed liability for conversion when a bank “reaccepted [a check] into an account other than that of the named payee, without the proper endorsement.”  No. 11-10320 (Jan. 9, 2012).   The opinion provides detailed discussion of basic topics in the law of checks: who has the rights of a “holder” under UCC Article 3 (op. at 4-6), proper safeguards for check endorsements (op. at 8-10), and accountholder responsibilities for review of a bank statement.  (Op. at 11-13)  The opinion concludes with review of the “in pari delicto” defense, a significant issue in some corporate governance cases, and notes how the defense can apply differently to receivers as compared to bankruptcy trustees.  (Op. at 13-18)

In a dispute about termination of a Volvo truck franchise, Volvo sued the dealership under section 4 of the Federal Arbitration Act to compel arbitration.  Volvo Trucks v. Crescent Ford Truck Sales, No. 09-30782 (Jan. 5, 2012).  Both businesses were Delaware corporations.  The district court found federal question jurisdiction because some relief requested involved interpretation of a federal statute.  The Fifth Circuit applied the “look-through” approach of the Supreme Court in Vaden v. Discover Bank, 556 U.S. 49 (2009), under which a court first “assume[s] the absence of the arbitration agreement” to determine if federal jurisdiction would exist without it.  Under Vaden, the Court found that the substantive issues in dispute were governed by state law.  Op. at 6-9.  It also found that the federal issue on which declaratory relief was requested did not create jurisdiction because it “arises only as a defense or in anticipation of a defense.”  Op. at 12.

The Fifth Circuit and its courthouse are linked to life in the downtown of New Orleans – note that the clerk’s office will close at 4:00 on January 9 because of the BCS championship game at the Superdome that evening.

In Brown v. Oil States (No. 10-31257, revised Dec. 27, 2011), the plaintiff in a wrongful discharge case testified that he left his job because of racial harassment, and while that case was pending, testified in a personal injury case that he left the same job because of a back injury.  Finding that the plaintiff “plainly committed perjury” with this inconsistent testimony, the Court found no abuse of discretion in the sanction of dismissal of his employment suit.  (Op. at 13).

The case of International Fidelity Insurance v. Sweet Little Mexico Corporation (No. 11-40449, Dec. 22, 2011) rejected an argument that the U.S. Court of International Trade (“CIT”) had exclusive jurisdiction over a case between an importer and its surety about certain customs liabilities.  Op. at 4-10.  The Court then found no abuse of discretion in proceeding with that case even though there was a first-filed action in the CIT between the importer and U.S. Customs.  Acknowledging some overlap between the basic issue of customs liability and the secondary issue of the surety’s responsibility for that liability, the Court found that on these facts, “the ‘core issues’ in the two forums are not the same.”  Op. at 11.  The Court concluded that, based on the terms of the surety contract, the importer had to reimburse the surety for payments made “regardless of the outcome of the proceedings before the CIT.”  Op. at 13-16.  While the Court’s analysis of the “first-filed” and surety issues turns on the specific facts of the case, the issues addressed and the basic legal principles cited are broadly applicable to those topics.

The Court does not publish many opinions outside of the Daubert area that construe the Federal Rules of Evidence.  New judge Stephen Higginson, in a technical opinion about conditions of prison release for medical treatment, addressed an uncommon hearsay issue in Sealed Appellee v. Sealed Appellant, No. 10-11163 (5th Cir. Dec. 19, 2011).  The Court affirmed the admissibility of a probation officer’s letter under the “public records” exception of Fed. R. Evid. 803(8), despite its observation that the letter “does attribute some statements to [Appellant’s] sister.”  Op. at 7 (citing analysis of a similar issue in  Moss v. Ole South Real Estate, 933 F.2d 1300, 1309-10 (5th Cir. 1991)).

Today’s Texas Lawyer features a list of the Fifth Circuit’s “top ten” cases from 2011: http://tinyurl.com/78navn2

The case of Gilbane Building Co. v. Admiral Insurance (No. 10-20817, Dec. 12, 2011) involved an insurer’s duty to defend and indemnify an injury claim under Texas law.  The Court first reviewed the basic rules in the Circuit for an “Erie guess” about state law.  Op. at 4-5 & 8 n.2.  The Court found that Texas’s “express negligence” rule was limited to contractual indemnity and did not bear on whether the plaintiff was an “additional insured.”  The Court then applied Texas’s “eight corners” rule and found no duty to defend, reminding that this rule “consider[s] only the facts alleged in the pleadings and . . . not . . . factual assumptions or inferences that were not pleaded.”  Id. at 13.   The Court declined to recognize an exception to the “eight corners” rule for claims involving a plaintiff’s unpleaded contributory negligence.  Id. at 14-17.  The Court concluded by affirming the district court’s summary judgment for the insured on the duty to indemnify, applying a broader standard based on “the facts proven in the underlying suit.”  Id. at 17-18 & n.4 (acknowledging that “this may seem like an unusual result,” but referring to a similar result in D.R. Horton v. Markel Int’l Ins., 300 S.W.3d 740, 744 (Tex. 2009)).

Thompson v. Zurich American Insurance, No. 10-51013 (Dec. 2, 2011) presented a common law “bad faith” action under Texas law about handling of a workers compensation claim (Insurance Code rights being limited after Texas Mutual v. Ruttiger, No. 08-0751 (Tex. Aug. 26, 2011)).  After reminding that Rule 56 asks “whether a rational trier of fact could find for the non-moving party,” op. at 4, the Court reviewed Texas case law on several issues in light of Ruttiger, and found that on the facts presented, none of the following showed bad faith: (1) conflict between expert reports; (2) lack of personal treatment of the plaintiff by the expert; (3) the expert’s record of primarily working for insurance companies; (4) the expert’s analysis of “aggravation”; or (5) the insurer’s conduct after the initial review.  Op. at 5-13.  The footnotes in the opinion summarize the present state of Texas law on several “bad faith” claims-handling issues.

The Fifth Circuit addressed the doctrine of mistake under Louisiana law in Fruge v. Amerisure, 663 F.3d 743 (2011).  After reminding that choice-of-law issues are waived unless presented to the district court, the Court considered reformation of an insurance policy under general contract principles.  The Court began by noting that Louisiana law allows reformation in the case of mutual mistake, and consideration of extrinsic evidence to prove such a mistake, even if the policy language is unambiguous.  It reviewed different post-accident reformation scenarios, noting that a Louisiana statute generally precludes a post-accident reformation to rescind coverage, and concluded that a reformation claim based on mutual mistake was cognizable in the post-accident setting presented in this case.  The Court reversed and remanded, noting that the extrinsic evidence could potentially prove that no mistake occurred.

Buffalo Marine v. United States, an arcane Chevron case about cleanup expenses for an oil spill, reminds in discussion of a specific statutory defense under the Oil Pollution Act that: “While some contractual relationships are themselves contracts, other contractual relationships merely relate to contracts.  The fact that no contract exists between two parties does not preclude the parties from having a ‘contractual’ relationship.”  Op. at 7-8.  This reminder may provide useful insight in litigation about insurance coverage and contract interpretation cases that involve the term “contractual relationship.”

The case of Turner v. Pleasant presented a rare attack on a judgment by an “independent action in equity.”  The underlying dispute involved a personal injury case implicated by the misconduct surrounding disgraced former judge Thomas Porteous.  Op. at 2-5.  After a clearly-written summary of the pleading requirements of Twombly and Iqbal, op. at 6-7, the Court considered whether the action could proceed, even though similar allegations were made and rejected in an earlier request for relief.   The Court reversed the dismissal of the claim and remanded, concluding that the plaintiffs had sufficiently alleged: (1) a prior judgment which ‘in equity and good conscience’ should not be enforced, (2) a meritorious claim in the underlying case, (3) fraud, accident, or mistake which prevented the party from obtaining the benefit of that claim, (4) lack of fault or negligence by the party, and (5) absence of an adequate remedy at law.  Op. at 5-10 (citing and contrasting Addington v. Farmer’s Elevator Mutual, 650 F.3d 663 (5th Cir. 1981)).

In Brown v. Offshore Specialty Fabricators, the Court affirmed dismissal of a putative RICO class action involving workers on offshore oil and gas projects.  The Court agreed that the alleged violations of the Outer Continental Shelf Lands Act (“OCSLA”) occurred outside the United States and were not actionable, op. at 4-12, a conclusion that turned on the specific language of OCSLA rather than the issue of RICO’s extraterritorial reach recently addressed by the Supreme Court in Morrison v. National Australian Bank.  The Court went on to address standing under OCSLA, finding fatal problems with the failure of the remaining plaintiffs to have satisfied statutory notice requirements, or to allege a plan to obtain future employment as required by the statute’s focus on future injuries.  Op. at 12, 14.  On the issue of standing when several plaintiffs are involved, the Court reminded: “Because no plaintiff gave the type of notice required by the OCSLA, we need not reach the plaintiffs’ argument that notice by one plaintiff can serve as notice for all.”  Op. at 12.

The Court wrote at some length in Access Mediquip v. United Healthcare to clarify earlier cases about preemption of state law tort claims by ERISA.  Access claimed that United made representations about payment for certain medical devices for three insureds.  The Court rejected a reading of Transitional Hospitals v. Blue Cross, 164 F.3d 952 (5th Cir. 1999), that would find preemption if an alleged misrepresentation dealt with the extent of coverage.   Op. at 12-13.  “The dispositive issue . . . is therefore whether Access’s state law claims are dependent on, and derived from the rights of [the three insureds] to recover benefits under the terms of their ERISA plans.”  Op. at 13.  Under that framework, the Court found that Access’s claims for misrepresentation were not preempted by Transitional, but its unjust enrichment and quantum meruit claims were.  Op. at 18-19.  The opinion synthesizes several prior cases in this complicated, technical area of preemption law.

Stephen Higginson’s nomination to the Fifth Circuit has been confirmed by the Senate.

In a case of considerable practical importance as to litigation about arbitration clauses and appellate procedure generally, the Fifth Circuit addressed a party’s motion for a stay of district court proceedings during an appeal about the arbitrability of the matter in Weingarten Realty v. Miller.  The Court acknowledged a significant circuit split as to whether a notice of appeal automatically stayed district court decisions during an arbitrability appeal, with one school of thought (two circuits) holding that a case’s merit is a distinct matter from whether it is arbitrable, and another school (five circuits) holding that a notice of appeal automatically stays district court proceedings for efficiency reasons.  Op. at 3-4.   Recognizing that this issue turns on the application of Griggs v. Provident Consumer Discount, 459 U.S. 56 (1982), and its holding that a district court may adjudicate matters not involved in the appeal, the Court concluded that under prior Circuit precedent a notice of appeal did not create an automatic stay.  Op. at 7.  The Court went on to review the motion under the general four-factor test for a discretionary stay during appeal, and again declined to order a stay, primarily because it believed the movant had a low chance of success on the merits under the contract documents and the doctrine of equitable estoppel.  Op. at 7-8.

The case of Texas Pipeline v. FERC involved a challenge to natural gas regulations as beyond FERC’s statutory authority.   The Court found that the regulations were beyond that authority, and accordingly, did not reach any issues where agency deference under Chevron could be appropriate.   See Op. at 5 (“[A]gencies cannot manufacture statutory ambiguity with semantics to enlarge their congressionally mandated border.”)  The Fifth Circuit has taken a conservative view of agency opinions about statutory authority in other thoughtful opinions, see, e.g., Mississippi Poultry v. Madigan, 31 F.3d 293 (5th Cir. 1994) (en banc) (construing the term “same” in statute governing regulation of poultry processing).

The case of Garriott v. NCsoft presented a challenge to a $28 million judgment for breach of an employee’s stock option contract.  After resolving a liability issue under South Korean law about the employee’s termination, the Court considered whether the judgment impermissibly considered post-breach stock appreciation.  The Court faulted the defendant for not raising its challenge to the damages calculation in a Daubert motion, evidence objection, or charge objection, and rejected the argument under “plain error” review.  Op. at 7-9 (“Displeased with the jury’s decision, NCSoft now asks for a mulligan.”)  The Court also found sufficient direct evidence, consistent with the expert models, as to when the employee would have sold his shares.  Op. at 9 (reminding that damages “may be too speculative if based on ‘assumptions without basis in the real world,'” but that the plaintiff “need not prove damages with mathematical certainty”).

The case of Weaver v. Texas Capital Bank first presented a jurisdictional question under the Rooker-Feldman doctrine.  Texas Capital Bank had obtained a state court default judgment against a guarantor, and contended that the guarantor’s later adversary proceeding attacking the basis for that liability was an impermissible federal attack on a final state court judgment.  The Court disagreed, finding that Rooker-Feldman was not implicated.  Op. at 5-7.  The Court went on to reverse, however, finding that the guarantor’s arguments to the bankruptcy court were defenses to the earlier state court action and thus barred by claim preclusion.  Op. at 8-11.  The opinion thoroughly reviews Texas claim preclusion law and its “transactional” approach to the application of the compulsory counterclaim rule.

Countrywide Home Loans sought to recover certain post-petition attorneys fees in a Chapter 13 bankruptcy case in Countrywide v. Velazquez.  The Court reviewed the provisions of the relevant Deed of Trust, and concluded that the word “and” in the phrase “do and pay for whatever is reasonable or appropriate to protect Lender’s interest in the Property and rights under this Security Instrument” did not require that a recoverable fee involve both the protection of the lender’s interest and the lien.  (Op. at 6-9 (citing Lanier v. Spring Cypress Investments, 1995 WL 489427 (Tex. App.–Houston [1st Dist.] Aug. 17, 1995, no writ)).  The Court “respectfully disagree[d]” with the unpublished affirmance of a different result by another panel earlier this year in Wells Fargo v. Collins.

The Court released a revised opinion in Barber v. Shinseki, in which the appellant sought review of a magistrate’s electronic order dismissing his case.  The Court first observed that the appellant did not appear to have consented to final disposition of his case by a magistrate as opposed to the district judge.  Op. at 3-4.  The Court went on to note that “[t]he electronic order entered by the magistrate judge . . . does not appear on any document–electronic or otherwise–other than as merely a separate entry on the docket sheet,” and thus did not comply with the requirement of Fed. R. Civ. P. 58 that “every judgment shall be set forth on a separate document.”  Op. at 4.  The Court noted that certain exceptions to Rule 58 were not applicable.  Op. at 4 n.2.  (The opinion was revised to “remove language indicating that all judgments must be set forth on paper documents” and to note that an appropriate document “may be electronic.”  Op. at 1.

The United States removed a case after entry of a default judgment against two doctors associated with the federal government (and after their motion for new trial was overruled by operation of law under Texas rules).  Oviedo v. Hallbauer (revised October 14, 2011)  After reviewing several potentially applicable removal statutes, the Court held: “The weight of authority thus holds that, by the time the government filed its notice of removal in this case, there was no pending case to remove, inasmuch as nothing remained for the state courts to do but execute the judgment.”  (Op. at 7)  Given this conclusion about the timeliness of the removal, the Court also rejected an argument based on the Federal Tort Claims Act that the state court may have lacked jurisdiction over this case.  (Op. at 8-10)