Total Gas, the American subsidiary of the large French energy concern, sued for a declaratory judgment that FERC could not impose certain penalties under the Natural Gas Act. But while FERC had begun an administrative proceeding against Total, that case had to proceed through several more steps before any penalty would be assessed. Accordingly, the dispute was not ripe for adjudication. The “step by step” analysis of ripeness in this case appears to be of general applicability to other cases involving conditions precedent. Total Gas v. FERC, No. 16-20642 (June 8, 2017).

The common situtation of a loan modification raised two general issues – (1) given the princple that “all parts of a contract should be read so that none will be rendered meaningless,” the outcome is not clear if a modification has a signature line, when companied by “contratual language [that] indicated that once the [borrowers] performed, their loan would be modified automatically and [the servicer] would be bound by the Agreement” – and (2) given that the Statute of Frauds in Texas for loan agreements generally involves oral agreements or agreements that clearly require signature by both parties, it is not clear if “the written offer itself, along with the attached Modification Agreement” would satisfy that status. Owens v. Specialized Loan Servicing LLC, No. 16-20557 (June 5, 2017).

I spoke a few days ago about recent Fifth Circuit opinions at the University of Texas Conference on State & Federal Appeals; here is a copy of the PowerPoint that I used.

Vine v. PLS Financial Services presents the infrequently-encountered waiver of arbitration rights by litigation conduct. PLS made a short-term loan to Vine; to obtain such a loan, a PLS customer must present a blank or post-dated check sufficient to cover the loan amount and a finance charge. PLS and Vine had a broad, general arbitration agreement. The Fifth Circuit found that PLS waived that right when it submitted inaccurate “worthless check affidavits” under Texas law after Vine defaulted. It held that the issue of waiver by litigation conduct, as distinct from waiver by failure to comply with a contractual condition precedent, was appropriate for the court rather than an arbitrator. And, the general clause here did not have specific language about that particular waiver issue. A dissent questioned whether submitting the affidavits amounted to “substantial invocation” of the judicial process, as required for waiver of an arbitration right. No. 16-50847 (May 19, 2017, unpublished).

Guilbeau bought real property and sued Hess Corporation for alleged contamination resulting from oil and gas drilling done several years before. Acknowledging that the Louisiana Supreme Court had not ruled on the precise issue presented – whether the “subsequent purchaser” rule applied to mineral interests – the Fifth Circuit concluded that Louisiana law would bar Guilbeau’s claim. A consensus of Louisiana intermediate courts, applying the most analogous authority from that state’s Supreme Court, reasoned “that while mineral rights in the lessee are real rights, a lessor’s rights, including the right to sue for damages, are personal and do not automatically transfer with the property” absent an assignment. Guilbeau v. Hess Corp., No. 16-30971 (April 18, 2017).

The Fifth Circuit reversed a JNOV on liability for breach of contract in Kerr v. Mapei Corp., holding: “The jury was presented with two alternative, but plausible, accounts of the formation and authorization of a contract. The jury reasonably selected one of those alternatives.” As to consequential-type damages for lost profits for other sales, however, the Court affirmed the judgment for the defendants, finding that the plaintiff’s damages model “was not supported by any empirical analysis or any evidence outside of the [contract] relationship . . . (e.g., real-world sales, customer surveys, or current market demand).” In particular, it noted the lack of evidence that the substantial business opportunity related to the contract would recur, the fact that the contract was terminable at will, and the lack of weight for a party’s own “unsubstantiated, self-serving speculations” about future business. No. 16-10430 (June 30, 2017 (revised), unpublished).

The Herculean effort of settling the many lost-profits claims related to the Deepwater Horizon accident led to a claims process described by the Fifth Circuit as follows – “Somewhat simplified, and more than somewhat condensed, the claims process works as follows: The Claims Administrator compares a claimant’s financial performance prior to and after the spill. If the former is greater than the latter, BP is liable for the difference.
Causation is, in all other respects, presumed.”

Efforts to implement this process led to guidelines “requiring the Claims Administrator to move, smooth, or otherwise reallocate revenue for claimants engaged in construction, education, agriculture, and professional services. Claimants in these four industries tend to be paid in lump sums, which are capable of generating damages awards that do not comport with tort principles.”

Mindful that in an earlier dispute about these issues, the Court had reminded that “[i]n interpreting a settlement, surely some weight has to be given to what damages recoverable in civil litigation actually are,” the Court reversed the use of these particular guidelines: “[W]e decline to re-write the Settlement Agreement under the guise of contractualinterpretation. When we said . . . that the Claims Administrator should ‘process claims in accordance with economic reality,’ we assumed that doing so would comport with the text of the Settlement Agreement. . . . [, which] grants claimants the right to choose their own Compensation Period.” Lake Eugenie Land & Devel. v. BP, No. 15-30377 (May 23, 2017).

A business named “Renegade Swish” sued Wright in Texas state court for breach of an employment agreement. Wright counterclaimed for violations of the FLSA. For reasons not explained in the opinion, Swish then nonsuited its contract claims, moved to realign the parties so it would be the new defendant, and removed the case to federal court based on federal jurisdiction. The Fifth Circuit held that Swish lacked an objectively reasonable basis for removal, citing both precedent (primarily, Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U.S. 826 (2002)), and the text of 28 U.S.C. § 1441(a), which refers to removal by “defendants.” The Court did not credit Swish’s reliance on the pending motion to realign, declining to “invite federal courts to dream of counterfactuals when actual litigation has defined the parties’ controversy,” and rejected the cases cited by Swish as not presenting a meaningful conflict: “As compared to [a controlling case]m where the disagreement among the courts was ‘hotly contested,’ any disagreement here is tepid and lopsided.” Renegade Swish v. Wright, No. 16-11152 (May 22, 2017).

While arising from the Federal Circuit’s patent jurisdiction rather than the Fifth Circuit, the Supreme Court’s unanimous May 22 decision in TC Heartland LLC v. Kraft Foods Group Brands LLC is of great interest to all local corporations involved in patent litigation: “As applied to domestic corporations, ‘reside[nce]’ in [28 U.S.C.] § 1400(b) refers only to the State of incorporation.”

Green Tree Servicing, LLC v. Clayton involved an unusual argument about the “first-to-file rule, in the context of two actions pending before the same district judge. The Fifth Circuit observed: “[T]he concerns undergirding the firstto-file rule are not triggered when the cases are before the same judge. The first-to-file rule is aimed at avoiding both conflicting rulings on similar issues and duplicative rulings. But when the same judge is deciding both cases, there is no danger of conflicting rulings.” No. 16-60726 (May 18, 2017, unpublished).

Document logs are a necessary, if unloved, feature of privilege disputes. A privilege log is inherently difficult to create, since it must describe the relevant documents but not reveal the privileged information in them. And because a log often lists many documents on the same subject, it can quickly become dull and repetitive. But proper preparation of a log is key to litigating about privilege, as the Fifth Circuit recently held in EEOC v. BDO Seidman LLP when it rejected the sufficiency of the defendant’s log in an employment case. No. 16-20314 (May 4, 2017). The opinion provides four practical tips for attorneys involved in privilege disputes.

The case began when Hang Bower, a former HR manager at BDO Seidman, alleged that she had been subjected to gender discrimination. In response to an EEOC subpoena, BDO prepared a privilege log listing 278 documents. The EEOC filed an enforcement action in federal court, offering a declaration from Bower in support. In it, she said that many of the communications “were made for the primary purpose of conveying business directives or factual information.” She also said that “BDO required her . . . to include in HR-related emails a false designation that the communication was prepared ‘at the request of legal counsel.’”

The magistrate judge found that BDO’s log was adequate, declined to do an in camera review of the documents, and denied relief to the EEOC. The district judge affirmed and the Fifth Circuit reversed, identifying four particular areas of concern:

1. Substance. “[N]umerous log entries fail to identify a sender, recipient, date, or provide a substantive description of the subject matter . . . [s]ome entries have only vague descriptions such as ‘discrimination claim,’ ‘internal investigation,’ or ‘work environment claim’”
2. Email chains. “Emails involving counsel are also problematic, as the log’s descriptions do not indicate whether a particular entry consists of one email or a string of emails – a distinction that may be dispositive as to whether the privilege applies.”
3. Business/Legal distinction. “[N]ot only does the log include conclusory descriptions of ‘legal advice,’ it does so in the context of communications with in-house counsel – an area court have acknowledged presents unique challenges . . . further compounded where HR personnel, such as Bower, are involved.” The Court noted the issues raised in Bower’s declaration.
4. Disclosure. “[T]he log leaves open questions about (1) whether emails courtesy copied to a third party remained privileged . . . (2) whether matters communicated to attorneys were done so with the intention of remaining privileged . . . and (3) whether non-attorney individuals to whom communications were sent were within the sphere of confidence . . . .”

Because the log lacked sufficient detail to establish BDO’s prima facie case of attorney-client privilege as to all the entries, the Fifth Circuit found that the magistrate judge’s legal analysis was flawed and remanded. The Court observed: “Although we leave to the district court’s discretion how to proceed on remand, we note that in camera review will likely be necessary given the facts and circumstances of this case.”

In addition to reminding about four key components of a good privilege log, this opinion reinforces the importance of evidence in resolving a privilege dispute. Bower’s declaration raised questions about the information in the log, which could not be resolved by the log entries themselves. Counsel preparing a privilege log thus needs to not only consider the completeness of the log entries, but how those entries will be supported by evidence and in camera review if there are further proceedings.

For a recent CLE presentation, I prepared the attached one-page chart to summarize the Fifth Circuit’s recent holdings about discovery.

The district court in Salas v. GE Oil & Gas ordered arbitration in 2014 and dismissed the case. The arbitration did not proceed. Each side blamed the other; the district court had a status conference in 2016; and afterwards, withdrew its earlier order and reopened the case. The Fifth Circuit found that the district court lacked jurisdiction to do so, as its 2016 order “did not fall within the narrow scope of th[e] ancillary jurisdiction” provided by section 4 of the FAA: “The court neither determined whether the parties’ agreement to arbitrate was valid nor enforced that agreement. Instead, the court found that the parties had ‘failed’ to arbitrate and withdrew its prior order compelling arbitration. This was not permitted under the FAA.” No. 16-20379 (May 12, 2017).

In Slade v. Progressive Insurance, a putative class survived a challenge to its damages model based on Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). The Fifth Circuit concluded that the class avoided Scylla “by essentially rerunning Defendant’s calculation of actual cash value [for a damaged car] but with a lawful base value, Plaintiffs’ damages theory only pays damages resulting from the allegedly unlawful base value.” But the class then encountered Charybdis when a new issue arose from that calculation: “[B]y accepting Defendant’s condition score calculation as is, [named] Plaintiffs may have impermissibly waived unnamed class members’ ability to assert a future claim contesting Defendants’s computation” of a figure called “the condition factor.” This potential waiver raised a question as to whether the class representatives could adequately represent the class memebrs who might wish to challenge that factor, and the Court remanded for further consideration of that aspect of class certification. The Court also reminded that “a fraud class action cannot be certified when individual reliance will be an issue”; a particularly relevant reminder after the recent approval of class certification in Torres v. SGE Management, 838 F.3d 629 (5th Cir. 2016) (en banc). No. 15-30010 (May 9, 2017).

The receiver for the Allen Stanford businesses alleged that Stanford Coins and Bullion made fraudulent transfers to Dilllon Gage, a wholesaler of coins and precious metals. The receiver lost at trial and the Fifth Circuit affirmed in Janvey v. Dillon Gage, Inc., No. 15-1121 (May 5, 2017). The Court noted conflicting evidence about SCB’s subjective belief as to its ability to pay all creditors, supported by objective evidence about its saleable inventory at the relevant time. The Court also found no reversible error in a jury charge that did not expressly define “intent,” or in the instructions given on other aspects of a fraudulent transfer claim under Texas law.

I am speaking on the topic “Ethics 2017: Recent Federal Court Decisions to Know” on Friday, May 5, to the Plano Bar Association (noon at Palio’s Pizza, yum) – here is the PowerPoint that I will be using.

In the case of In re Hermesmeyer, No. 16-11189 (May 2, 2017, unpublished), the Fifth Circuit found no abuse of discretion in the $500 sanction imposed by the district court as a result of the below Q-and-A between the court and counsel:

THE COURT: Okay. Let’s see. There were some—there were two objections filed, and I believe both of them were related to the possibility of a sentence above the top of the advisory guideline range. Did I read those correctly, Mr. Hermesmeyer?

MR. HERMESMEYER: Your Honor, I think they have more to do with legality of whether such a sentence would be permissible or appropriate.

THE COURT: I’m sorry, I was wondering if I’m correct in thinking that both of the objections have to do with the possibility of a sentence above the top of the advisory guideline range. What is the answer to that?

MR. HERMESMEYER: Your Honor, just what I said.

THE COURT: I’m not sure I understand how that answered my question. I’ve asked the question again. Would you please answer the question either yes or no.

MR. HERMESMEYER: Your Honor, I would stand on what I previously said. Thank you.

THE COURT: Mr. Hermesmeyer, you get very close to being held in contempt of court. Would you answer my question?

MR. HERMESMEYER: I have no further response, your Honor.

THE COURT: Okay. Mr. Hermesmeyer, I’ve ordered you to answer my question, and you’ve refused to answer it. I conside that you’re in civil contempt of court, and also you’re in violation of one of the local rules that requires attorneys to appropriately conduct themselves and to respond and answer orders of the Court. I’m going to give you another opportunity to answer my question. And if you would like, if you decline to answer my question, I’ll give you an opportunity at this time to respond to my suggestion that you will be held in civil contempt of court and held in violation of the local rule concerning the conduct of attorneys, if you refuse to answer my question. You may proceed.

[Pause in proceedings.]

THE COURT: Okay. Apparently you’re not going to respond. I’m ordering that you are in violation of the local rule. Let me get the exact number of it.

HERMESMEYER: Your Honor, at this point I would move to withdraw from the representation of [the defendant] given the indications that the Court has made. [He] needs an attorney that’s not under the threat of civil contempt or whatever sort of contempt
that the Court is indicating at this point.

THE COURT: I deny that motion. Rule of Criminal Procedure LCR 57.8(b) says: A presiding judge, after giving an opportunity to show cause to the contrary, may take any appropriate disciplinary action against a member of the bar for conduct unbecoming a member of the bar and failure to comply with any order of the Court. I consider that you have violated that rule in both respects. I’ll give you an opportunity—I’ve given you an opportunity to show cause why you shouldn’t be disciplined for that and you’ve declined to respond, so I’m ordering that you pay a $500 fine, and that it be paid by 2:00 today, and be paid to the office of the clerk of court here in Fort Worth.

In Austin v. Kroger Texas LP, the Fifth Circuit reversed a summary judgment for the defendant in a slip-and-fall case. On the merits, among other holdings of general interest, the Court noted:

• “[A] janitor with fifteen years’ experience is competent to testify about the effectiveness of cleaning products and methods.”;
• When coupled with evidence from “Kroger’s handbook” and the manager’s testimony about “the safety practice at the store,” the plaintiff raised a fact issue;
• “[T]he fact that [Plaintiff] had successfuly cleaned a much smaller spill . . . with a dry mop does not conclusively demonstrate that Spill Magic was not necessary for [him] to safely clean a much larger and more serious spill.”

Procedurally, the Court instructed that the trial court should proceed under “the more flexible Rule 54(b)” on remand rather than “the heightened standard of Rule 59(e),” asking that it “construe the procedural rules with a preference toward resolving the case on the merits and avoiding any dismissal based on a technicality.” No. 16-10502 (April 14, 2017).

An insured disputed whether he had claimed ownership of a particular piece of property in a conversation with an insurance agent, Specifically, while testifying in his deposition that he did not remember the specific questions asked, the conversation did not last very long – implying that the agent simply assumed his ownership of the propertuy. “[H]owever,  n both his answer to State Farm’s complaint and his response to State Farm’s request for admission, [the insured] admitted to telling the agent who took his insurance application that he was the owner of the property and to stating as much in his application. The district court concluded that these facts were judicially admitted, and therefore rejected Appellants’ argument as an impermissible ‘attempt to create a dispute around a material fact already admitted.’” State Farm v. Flowers, No. 16-60310 (April 26, 2017).

In a break from the usual topics about federal procedure, today’s post about the case of Foster v. Woods provides some practical advice for private investigators. Foster, a licensed private investigator, tailed a car into a school parking lot and observed it for a short period before realizing that the driver was his target’s teenaged son. Unfortunately for Foster, the son observed him and told a friend, whose father was the local sheriff. After Foster left the school grounds the sheriff arrested him and unsuccessfully attempted to prosecute him for having brought a firearm onto school grounds (although Foster held a concealed-carry permit, and neither he nor the firearm left the car while in the school parking lot. Foster sued for wrongful arrest; the Fifth Circuit affirmed summary judgment for the sheriff: “Relevant here, Woods knew that Foster was not a student, that he followed a student’s vehicle into a student parking lot posted with a ‘no trespassing” sign, and that Foster remained in the lot for some time as students were arriving for school. . . . Given the facts known to Woods, he had knowledge that would warrant a reasonable officer to believe that Foster violated the trespass statute.” Advice – use caution when entering private property.

In DeLeon v. Abbott, the Fifth Circuit affirmed an award of $585,470.30 in attorneys’ fees and $20,202.90 in costs arising from the Texas counterpart to Obergefell v. Hodges, 135 S. Ct. 2584 (2015). The panel majority observed that “the essential goal in shifting fees (to either party) is to do rough justice,” and that as a result, “[w]e can hardly think of a sphere of judicial decisionmaking in which appellate micromanagement has less to recommend it.” A dissent, observing that “deference is a blank check,” approved of the bulk of the award but took issue with it as to time spent on (a) an unsuccessful third-party motion to intervene; (b) interacting with the media; and (c) coordinating with supportin amici. No. 15-51241 (April 18, 2017, unpublished).

The case of Decatur Hospital Authority v. Aetna Health Inc. involved a remand order, granted on the basis of timelieness (a ruling not ordinarily appealable because of 28 USC § 1447(c)), but where the notice of removal referred to the federal officer removal statute (made reviewable by the less-well-known § 1447(d)). The Fifth Circuit concluded that its review involved “[n]ot particular reasons for an order, but the order itself,” and went to affirm the remand and a related fee award, finding that the defendant did not learn new facts from an interrogatory answer that were not also contained in the original petition. No. 16-10313 (April 18, 2017).

Oubre, struck by an errant forklift, sued Schlumberger for his injuries. To avoid a limitations problem, he cited a choice-of-law provision in the Master Service Agreement between his employer and Schlumberger. The provision ultimately did not help him, and the Fifth Circuit observed that it “does not pose a renvoi issue.” Oubre v. Schlumberger, Ltd., No. 16-41446 (April 5, 2017, unpublished). That term, accurate although infrequently-used, is defined by Black’s as “[t]he doctrine under which a court, in resorting to foreign law, also adopts the foreign law’s conflict-of-laws principles, which may in turn refer the court back to the law of the forum.”

At oral argument, the appellant in a technical dispute about the appointment of arbitrators “argued for the first time that ‘if maritime jurisdiction applies, then . . . there is appellate jurisdiction over the appeal.'” The Fifth Circuit observed: “We do not usually allow parties to raise a new argument for the first time at oral argument. . . . Of course, an argument that this court lacks jurisdiction cannot be waived, but here the argument is that the court has jurisdiction, a matter the appellant is required to prove.” Bordelon Marine, LLC v. Bibby Subsea ROV, LLC, No. 16-30847 (April 14, 2017, unpublished).

Streamline Production Systems v. Streamline Manufacturing involved trademark litigation between businesses with similar names. The Fifth Circuit affirmed theury’s findings about the distinctiveness of the plaintiff’s mark and the likelihood of confusion, observing that the various factors did not all point the same way but “there is not a complete absence of evidence” to support what the jury found. The court reversed on remedy, however, finding that the “reasonable royalty” damages went beyond the scope of the infringement, and that the award of unjust enrichment was not supported by evidence of lost profits or willful action by the defendant. No. 16-20046 (revised April 14, 2017).

Sun-Tzu famously counseled, “[a]ll armies prefer high ground to low and sunny places to dark.” The defendant airline in Conservation Force v. Delta Air Lines artfully changed the ground for conflict in a case about its policies toward shipments involving big game hunts. The plaintiff complained that the airlines’ policy of not accepting the shipment of lion, leopard, elephant, rhino and buffalo hunting trophies violated the airlines’ legal duty to treat all shippers equally. The Fifth Circuit agreed with the district court’s conclusion “that, despite a duty to treat all shippers equally, a common carrier does not have to treat all cargo equally.” No. 16-11062 (March 20, 2017, unpublished).

In Smitherman v. Bayview Loan Servicing LLC, the Fifth Circuit order a limited remand to the district court, so that court could supplement the record about the defendant’s citizenship and then make findings. The district court, however, went on to vacate the judgment it had entered previously and remand the case to state court. The Fifth Circuit observed: “Because the district court lacked the authority to do so, we construe it[]s order to be an indicative ruling made pursuant to Federal Rule of Civil Procedure 62.1(a)(2). Accordingly, we REMAND this case to the district court and DISMISS the appeal as moot and relinquish jurisdiction pursuant to Federal Rule of Appellate Procedure 12.1(b).” No. 16-20328 (March 29, 2017, unpublished).

“[W]here a plaintiff seeks to rely on epidemiological evidence, Texas law requires that the stifues show a statistically significant doubling of the risk of developing their alleged inuiries. . . . The studies relied on by the Plaintiffs and their experts do not . . . One of these studies did not quantify the risk of developing Plaintiffs’ chromuim-related-acute-irritation injuries at all and the other study did not find a doubling of the risk.” McManaway v. KBR, Inc., No. 15-20641 (March 27, 2017) (applying Merck & Co. v. Garza, 347 S.W.3d 256 (Tex. 2011)).

In Ocwen Loan Servicing LLC v. Berry, a dispute about a home equity loan, the Fifth Circuit confirmed that “we now must follow the Texas Supreme Court’s holding in [Wood v. HSBC Bank USA, N.A., 505 S.W.3d 542 (Tex. 2016)] that no statute of limitations applies to a borrower’s allegations of violations of section 50(a)(6) of the Texas Constitution in a quiet title action, rather than our prior holding in [Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667 (5th Cir. 2013)].” In so doing, the Court reminded that “the issues-not-briefed-are-waived rule is a prudential construct that requires the exercise of discretion,” and addressed the applicability of Wood notwithstanding the appellant not discussing the case in its opening brief, noting that the underlying issues had been briefed, and that the Court had received supplemental briefing on the pure question of law presented about the application of Wood. No. 16-10604 (March 29, 2017).

Moore sued the Governor of Mississippi, alleging that the presence of the Confederate battle flag in the Mississippi state flag (right) violated Moore’s rights under the Equal Protection Clause. The Fifth Circuit affirmed dismissal on standing grounds, distinguishing cases involving the First Amendment’s Establishment Clause because of the distinct injuries addressed by the two Constitutional provisions. The Court concluded: “The assumption that if [Plainitff] had no standing to sue, no one would have standing, is not a reason to find standing.” (citations omitted). Moore v. Bryant, No. 16-60616 (March 31, 2017).

Plaintiffs alleged that a terrible crime would have been averted with a faster response to a 9-1-1 call. The Fifth Circuit, applying City of Dallas v. Sanchez, 494 S.W.3d 722 (Tex. 2016), found a lack of proximate cause (and thus, immunity applied) because “plaintiffs have not plausibly alleged that any of the intervening parties would have acted differently,” including the call center operator and emergency personnel on the scene. The allegations on the general subject of response time were too speculative to satisfy Twombly (footnote 4). And “‘even if the brief delay in relaying Cook’s location ‘contributed to circumstances that delayed potentially life-saving assistance, the [delay] was too attenuated from the cause of [Cook’s] death . . . to be a proximate cause.” Cook v. City of Dallas, No. 16-10105 (March 29, 2017).

Several crawfishermen sued about the effects of canal dredging on the Atchafalaya Basin fisheries. As to one defendant company, the Fifth Circuit affirmed summary judgment in its favor, reviewing each of the documents cited by plaintiffs and finding that none raised a genuine issue of material fact as to actual dredging activity by that company, on the pipelines at issue in this case. As to another, the Court reversed on procedural grounds, finding that the district court should have considered a deposition transcript and responses to requests for admissions offered by the plaintiffs when (1) their proffer had a foundation in the terms of the case management order, (2) the evidence was probative, and (3) it was information obtained from that defendant.  In re Louisiana Crawfish Producers, No. 16-30353 (March 28, 2017). (The opinion notes that crawfish are known by several other names, including “yabbies,” a tidbit that was not known to this author.)

Defendant hosted a website with a public forum called “HairTalk.” Plaintiffs sued for copyright infringement when celebrity photos, to which they owned the rights, were posted by third-party users on HairTalk without their consent. The Fifth Circuit affirmed summary judgment for Defendant, adopting the “volitional conduct” requirement for direct infringement cases, and observing: “[I]t does not make sense to adopt a rule that could lead to the liability of countless parties whose role in the infringement is nothing more than setting up and operating a system that is necessary for the functioning of the Internet.” BWP Media USA v. T&S Software, No. 16-10510 (March 27, 2017).

An architecture firm held a large judgment against a bankruptcy debtor, and contended that the failure of the debtor’s insurer to object to that claim barred further dispute about the insurer’s liability. The Fifth Circuit disagreed, concluding that “in this no asset bankruptcy case, nothing in the court proceedings required claims allowance, no notice was provided to parties in interest to object to claims, and no bankruptcy purpose would have been served by the bankruptcy court’s adjudicating [the firm’s claim.” Kipp Flores Architects v. Mid-Continent Casualty Co., No. 16-20255 (March 24, 2017).

Reviewing the requirements for the application of judicial estoppel, the Fifth Circuit reversed the resolution of a case about insurance coverage of attorneys fees in Aldous v. Darwin Nat’l Assurance Co., No. 16-10537 (March 16, 2017). The Court found that the district court misapplied judicial estoppel when it “unjustifiably read the [key] supplemental declaration in isolation,” and made several “small antecedent errors” leading up to that ruling, including its reading of the relevant earlier decision.

Air Evac contended that the Airline Deregulation Act preempted Texas workers compensation laws about reimbursement for air-ambulance services. This claim led to a dispute about the scope of Eleventh Amendment liability and the landmark Constitutional case of Ex parte Young, 209 U.S. 123 (1908). In a methodical analysis of Young’s history and purpose, the Fifth Circuit concluded that Air Evac could sue: “[T]he balance-billing prohibition works in concert with state defendants’ implementation of the reimbursement system, serving as a backstop against alternative methods of fee collection. State defendants’ pervasive authority to oversee and enforce Texas’ workers’-compensation system satisfies the Ex parte Young exception.” Air Evac EMS, Inc. v. State of Texas, No. 16-51023 (March 20, 2017).

Adams LLC, formed in July 2010, bought a number of assets from Adams Produce Company, Inc., and sought to prosecute a Deepwater Horizon claim for damages suffered by Adams Inc. Unfortunately, “[a]lthough substantially alll of Adams Inc.’s assets and liabilities were transferred as part of the transaction, it is undisputed that Adams Inc. retained certain assets and liabilities. Adams Inc. and Adams LLC are two distinct entities, and the asset transfer that occurred here was not just a change in form.” BP Exploration v. Claimant ID 100169608, No. 16-30482 (March 8, 2017, unpublished).

The Fifth Circuit affirmed a summary judgment for the defendants in the FCA case of Abbott v. BP Exploration & Production; after describing the alleged fact issues about “whether engineers approved the various stages of construction of the Atlantis [offshore oil platform],” it noted: “Rarely does the pursuit of an individual’s FCA claims lead to an investigation requested by Congress. But that is the case with these Plaintiffs, whose insistence on the alleged issues with the Atlantis led to Congressional hearings, an investigation by a federal agency, and the [De[artment of the Interior] Report,” which “found no grounds to suspend the operation of the Atlantis or revoke BP’s designation as an operator.” No. 16-20028 (March 14, 2017).

The Clarion-Ledger reports that Judge E. Grady Jolly of Mississippi will retire on his 80th birthday in October 2017, creating another vacancy on the Fifth Circuit for President Trump to fill. The same paper has a good description of the process for filling the vacancy. Judge Jolly has served the Fifth Circuit with distinction for 35 years; his skill and grace will be greatly missed.

In an interesting parallel to the ongoing litigation about travel bans (which most recently produced a District of Hawaii opinion granting a TRO), the Fifth Circuit denied en banc review in Defense Distributed v. U.S. Dep’t of State, which affirmed a preliminary injunction about the use of 3-D printing technology to make certain firearms. A dissent observes: “Certainly there is a strong public interest in national security. But there is a paramount public interest in the exercise of constitutional rights, particularly those guaranteed by the First Amendment . . . ” No. 15-50759 (March 15, 2017).

Tower Credit garnished the debtor’s wages. In defense of a later preference action, Tower argued that its garnishment was effective when served (taking it outside the preference period), not when the debtor in fact received money. The Fifth Circuit disagreed: “The combination of Supreme Court precedent and the overwhelming weight of persuasive authority applying § 547(e)(3) make clear that a debtor’s wages cannot be transferred until they are earned. Thus, we hold that a creditor’s collection of garnished wages earned during the preference period is an avoidable transfer made during the preference period even if the garnishment was served prior to that period.” Tower Credit v. Schott, No. 16-30274 (March 13, 2017).

In affirming sanctions for vexatious litigation in connection with bankruptcy proceedings, the Fifth Circuit noted, in particular: “Appellants’ . . . repeated attempts to litigate issues that have been conclusively resolved against them or that they had no standing to assert and by their unsupported and multiple attempts to remove . . . the trustee.” Carroll v. Abide, No. 16-30996 (March 13, 2017).

Attorney Martinez sued another law firm (“HLG”) for various torts related to the firm contacting his clients about alleged overbilling. The firm asserted absolute immiunity as a defense and the Fifth Circuit agreed, in a fact-specific holding, that the evidence “demonstrate[s] that the allegedly tortious statements at issue in this case were made in relation to a proposed arbitration and are therefore absolutely privileged under Texas law.” The firm already represented two Martinez clients in connection with the potential arbitration; the new clients did not originate contact with the firm; and all of them ultimately retained the firm. Martinez v. Hellmich Law Group, PC, No. 16-50305 (March 8, 2017, unpublished). This case joins a line of similar holdings in recent years in favor of attorney immunity.

The owner of the Golden Nugget casino in Lake Charles withheld $18.7 million from payments to its general contractor, who then filed a statutory lien (a “privilege” in Louisiana parlance) on the property. The relevant statute requires the contractor to file “within sixty days after the filing of the notice of termination or substantial completion of the work.” If “substantial completion” refers to an event, the contractor’s filing was not timely; if, however, it refers to a filing that certifies substantial completion, the contractor’s filing was timely, as the owner did not record such a certification. The Fifth Circuit concluded that, while the statute was ambiguous, the related provisions and the apparent industry practice supported the contractor’s position: “The [statute] places the burden on an owner to cut of potential claims when a contract has been recorded, whether it is a general contractor or a subcontractor.” Golden Nugget Lake Charles LLC v. W.G. Yates & Sons Constr. Co., No. 16-30496 (March 6, 2017).

In Richard v. Anadarko Petroleum Corp., the Fifth Circuit required reformation of a contract on the grounds of mutual mistake, to the detriment of non-party Liberty Mutual, acknowledging that “[c]ourts must guard against parties’ ‘attempts to make an end-run around the parol-evidence rule,’ which forecloses the use of parol evidence to interpret unambiguous terms, ‘by framing [their] argument[s] as a request for reformation.” Here, reformation was appropriate even considering the effect on Liberty Mutual, given (1) its lack of reliance on the contract, (2) the general consistency of the terms in the reformed contract with industry practice, and (3) course of performance. No. 16-30216 (March 2, 2017).

Federal Insurance agreed to pay defense costs in ongoing commercial litigation against its insureds, subject to its position that under the policy, payment of defense costs deplete the policy limits. The relevant clause said: “[T]he Limit of Liability under the Fiduciary Coverage Section is $1 million, subject to a $1 million aggregate limit, and a $10,000.00 Retention, with Defnse Costs eroding or depleting those limits.” The Fifth Circuit agreed with Federal, rejecting arguments based on the limit potentially implicating conflict-of-interest concerns for counsel, and policy issues raised by applicable state statutes in the health care area. In sum: “Under Mississippi law, insurance policies are to be enforced according to their provisions.” Federal Ins. Co. v. Singing River Health System, Ni. 15-60774 (March 1, 2017).

Litigation about the intellectual property rights to the name “Communicat-R” (here, applied to a specialized type of whiteboard) led to a jury trial. The Fifth Circuit affirmed, finding no abuse of discretion in this instruction: “Trademarks can be abandoned through non-use. A trademark is abandoned if it is proven by a preponderance of the evidence, that (1) the use of trademark was discontinued; and (2) an intent not to resume such use.” The Court rejected a request for additional language about “excusable nonuse,” finding that it would either be redundant or not entirely accurate in the context of this case. The Court also rejected sufficiency challenges to liability and damages, illustrating the operation of the federal standard for the grant of a new trial. Vetter v. McAtee, No. 15-20575 (March 1, 2017).

Gatheright bought sweet potatoes from Clark, paying with two post-dated checks. When they were returned for insufficient funds, Clark instituted criminal proceedings against Gatheright, which were ultimately dismissed after Gatheright spent several weeks in jail. Gatheright then sued Clark for malicious prosecution and abuse of process. The Fifth Circuit affirmed summary judgment for Clark, observing that “$16,000 in bad checks . . . [is] a sum greater than what the Mississippi Supreme Court has previously found would prompt a reasonable person to institute criminal proceedings.” Based on that observation, the Court rejected arguments about whether a post-dated check was a proper basis for a “false pretenses” prosecution in Mississippi, and about the effect of Gatheright’s filing for personal bankruptcy. Gatheright v. Clark, No. 16-60364 (Feb. 23, 2017, unpublished).

It is well-settled nationally that “an appellate court may not alter a judgment to benefit a nonappealing party” because “it takes a cross-appeal to justify a remedy in favor of an appellee.” Greenlaw v. United States, 554 U.S. 237, 244–45 (2008). The Fifth Circuit treats that principle as jurisdictional. See, e.g., Amazing Spaces, Inc. v. Metro Mini Storage, 608 F.3d 225, 250 (5th Cir. 2010) (“[T]his circuit follows the general rule that, in the absence of a cross-appeal, an appellate court has no jurisdiction to modify a judgment so as to enlarge the rights of the appellee or diminish the rights of the appellant.”) Some other Circuits, however, take a different view. See, e.g., Am. Roll-On Roll-Off Carrier LLC v. P&O Parts Baltimore, Inc., 479 F.3d 288, 295 (4th Cir. 2007) (“This circuit views the cross-appeal requirement as one of practice, rather than as a strict jurisdictional requirement.”) (Thanks to my LPCH colleague Russ Herman for pointing this out.)

Recipients of Section 8 housing assistance sued mortgage originators, complaining that the originators either denied or discouraged the recipients’ credit applications by not considering their Section 8 income, in violation of the Equal Credit Opportunity Act. The Fifth Circuit affirmed the dismissal of claims by recipients who had only inquired about, rather than actually starting, the application process, as well as claims based on Wells Fargo’s policies about the purchase of mortgages in the secondary market. It reversed as to one group of applicants, however, finding under Iqbal and the substantive law that they “plausibly alleged that AmeriPro refused to consider their Section 8 income in assessing their creditworthiness as mortgage applicants, and that they received mortgages on less favorable terms and in lesser amounts than they would have had their Section 8 income been considered.” Alexander v. AmeriPro, No. 15-20710 (Feb. 16, 2017).

I commented today on Dallas’s Fox 4 News about how the potential deployment of the National Guard about illegal immigration could implicate the Posse Comitatus Act.

Just before filing for bankruptcy, Mr. Wiggins signed a “Partition Agreement” in which he and his wife divided their ownership of their home into two separate property interests. The Fifth Circuit affirmed the bankruptcy court’s conclusion that this was a fraudulent transfer: “When it became clear that Mr. Wiggains would file bankruptcy to satisfy his outstanding debts, the couple entertained various options and made their best estimate on ultimate financial benefits by having only Mr. Wiggains file after the Partition Agreement was recorded. Allowing Mrs. Wiggains to sidestep the statutory limits for homestead exemptions and obtain approximately $500,000 in proceeds that otherwise are for creditors would lay waste to the provisions of the Bankruptcy Code involved here.” Wiggains v. Reed, No. 15-11249 (Feb. 14, 2017).

Texas Lawyer reports that six candidates are under consideration for the two vacancies on the Fifth Circuit – “Texas Supreme Court Justice Don Willett; U.S. District Court Judge Reed O’Connor of Fort Worth; former Texas solicitor general James Ho; Andy Oldham, a deputy general counsel to Gov. Greg Abbott; Michael Massengale, a justice on Houston’s First Court of Appeals; and Brett Busby, a justice on Houston’s Fourteenth Court of Appeals” – the full story appears here.

Press coverage of Judge Neil Gorsuch’s nomination to the Supreme Court has noted his intelligent and accessible writing style, including use of a sentence diagram (left) in a criminal case that turned on what elements of the crime required proof of intent. In the same spirit, in dissent from the denial of en banc rehearing in a highly technical case about protection of the dusky gopher frog (right), Judge Edith Jones used a pair of Venn diagrams to illustrate her view of how the Endangered Species Act should operate (below left), contrasted with the panel opinion’s (below right). Markle Interests v. U.S. Fish & Wildlife Service, No. 14-31008 (Feb. 14, 2017).

CitiMortgage sought to foreclose on Maldonado’s home; in the subsequent litigatoin, it offered summary judgment evidence that he owed a balance of $533,960.80. In response, Maldonado “disputed the amounts that CitiMortgage claimed in attorneys’ fees, inspection fees, escrow, taxes, and late charges,” but did “not provide any evidence of what the correct amounts should be.”  Maldonado v. CitiMortgage, No. 16-20541 (Jan. 23, 2017, unpublished).

The issue in United States ex rel. Vavra v. Kellogg Brown & Root, Inc. was whether KBR was liable for kickbacks taken by two employees. The Fifth Circuit held that the answer is fact-specific: “[T]he proper test for imputing knowledge under [the AKA] is that corporations are liable ‘only for the knowing violations of those employees whose authority, responsibility, or managerial role within the corporation is such that their knowledge is imputable to the corporation.'”  As for the effect of the alleged kickback, even though “[i]t is true that the district court did not make any findings as to particular service problems [the employee] intended to influence in an improper manner through his gratuities . . . it is enough to connect the gratuity with the specific kind of treatment sought in a way that establishes impropriety,” which was done here “[b]ecause of the nature of the treatment [the employee] sought.” No. 15-41623 (Feb. 3, 2017).

Foster sued about a foreclosure; the state court granted a TRO (so no foreclosure occurred); and the mortgage servicer defendants removed and obtained summary judgment. Foster challenged the denial of her motion to remand, arguing that she did not improperly join the substitute trustee appointed to conduct the foreclosure sale. The Fifth Circuit affirmed: “[B]reach of a trustee’s duty does not constitute an independent tort; rather, it yields a cause of action for wrongful foreclosure. A claim of wrongful foreclosure cannot succeed, however, when no foreclosure has occurred.” Foster v. Deutsche Bank, No. 16-11045 (Feb. 8, 2017).

A group of real estate companies paid Prime LLC for consulting services. While the contract allowed termination with 60 days notice, the group and Prime agreed to end the contract without using the notice provision. A creditor complained that this termination made a fraudulent transfer, and the Fifth Circuit agreed that the claim was at least facially plausible: “While the value of the notice period lost by failure to adhere to the notice provision remains an issue for further development in the district court, at this stage we think the notice requirement secured measurable economic benefit to Prime. Assuming the facts alleged surrounding this transaction to be true, as we must under Rule 12(b)(6), Plaintiff has alleged an asset, cognizable as such under TUFTA, that was constructively transferred.” Hometown 2006-1 1925 Valley View LLC v. Prime Income Asset Management LLC, No. 15-10881 (Feb. 2, 2017)

On Dallas’s Fox 4 News, following the lead of the Matrix movies, I characterize the nominee as “Scalia Reloaded”:

Defendants removed, the plaintiff moved to remand, and the the district court granted the motion. It found a waiver of the right to remove, noting this contract provision: “The Parties hereto hereby irrevocably and unconditionally consent to the sole and exclusive jurisdiction of the courts of Harris County in the State of Texas for any action, suit or proceeding arising out of or relating to this Agreement or the Proposed Transaction . . . .” The defendants claimed ambiguity (which would make the waiver no longer be “clear and unambiguous,” and thus not satisfy the demanding standard in this area) from (1) the definition of “Proposed Transaction,” (2) the definitions of the relevant parties, and the use of “Proposed Transaction” in the above part of the relevant clause, but not in another, similar provision later in it. The Fifth Circuit rejected these arguments and affirmed, but also affirmed the denial of any award of attorneys’ fees. Grand View PV Solar Two, LLC v. Helix Elec., Inc., No. 16-20384 (Feb. 1, 2017). The opinion is a good summary of the law on this topic, which has not been addressed in detail recently.

The receiver of the Allen Stanford businesses sued several investors for receiving fraudulent conveyances. In earlier appeals, the Fifth Circuit resolved other thresehold issues in these cases; in Janvey v. Alguire, the Court reviewed the denials of the defendants’ motions to compel arbitration. It affirmed, rejecting their arguments based on arbitration clauses in various Stanford-related documents: “Because the Receiver may sue on behalf of any of the Stanford entities that has a claim against the defendants, becausehe has chosen to sue on behalf of the Bank, which has not consented to arbitrate claims against any of the defendants [except for one, who waived the issue], and because none of the equitable doctrines urged by the defendants applies, the Receiver cannot be compelled to arbitate his claims against these defendants.” No. 14-10945 et al. (Jan. 31, 2017).

Heniff Transportation, a trucking company, sued Trimac Transportation, alleging that Trimac did not properly clean a tanker-trailer, resulting in contamination and a damages claim against Heniff by its customer. Trimac argued that Heniff’s state law claims were preempted by the Carmack Amendment, a federal law that addresses actions about lost or damaged goods, arising from interstate transportation of the goods by a common carrier. The Fifth Circuit agreed, finding that washing a tanker-trailer was “plainly” such a service, directly analogous to specific examples given by the statute. This statute, not widely known outside trucking litigation, can bear significantly on UCC claims involving transported goods. Heniff Transportation v. Trimac Transportation, No. 16-40553 (Jan. 30, 2017).

The “Gulf Council” manages fisheries in the federal waters of the Gulf of Mexico.With respect to red snapper, its statutory grant of authority requires it to establish “seprate quotas for recreational fishing . . . and commercial fishing.” A group of private anglers complained that the authority to set those two quotas precluded the ability to set a quota for fishing from charter vessels. The Fifth Circuit disagreed, finding that neither the canon that “expressing one item of a commonly associated group or series excludes another left unmentioned,” nor that “a specific statute prevails over an inconsistent general statute” compelled a ruling in favor of the anglers: “Amendment 40 does not create a separate quota for charter fishing; it subdivides the recreational sector into private and charter components.” Coastal Conservation Association v. U.S. Dep’t of Commerce, No. 16-30137 (revised Jan. 26, 2017).

A church in Hattiesburg, Mississippi proved that its insurer did not properly handle its claim resulting from tornado damage (right), resulting in a damages award of over $1,000,000. The Fifth Circuit affirmed against challenges by both sides; as to the church’s request for punitive damages, it held: “Taking the facts in the light most favorable to Mount Carmel, GuideOne’s alleged conduct did not rise to the necessary level of an independent tort that would warrant punitive damages. Mount Carmel merely alleges that GuideOne had ‘knowledge of the financial harm that would result’ from its cancellation of the policy. But this type of knowledge is likely present for many cancellations and alone is not sufficient to rise to the level of an independent tort. Accordingly, it does not warrant punitive damages.” GuideOne Elite Ins. Co. v. Mount Carmel Ministries, No. 15-60915 (Jan. 23, 2017, unpublished).

The relator in a reverse False Claims Act case alleged that DuPont concealed its obligation to pay penalties under the Toxic Substances Control Act. After a careful review of the statute, its history, and policy considerations, the Fifth Circuit reversed the denial of summary judgment to DuPont: “Simoneaux’s position yields an extraordinarily broad construction of the FCA. If his reading . . . were correct, reverse-FCA liability could attach from the violation of any federal statute or regulation that imposes penalties. . . . For example, 45 C.F.R. § 3.42(e) prohibits roller-skating at the National Institutes of Health, and a person violating that regulation “shall be fined under title 18, United States Code, imprisoned for not more than 30 days, or both.” 40 U.S.C. § 1315(c)(A). Under Simoneaux’s reasoning, roller-skating at the NIH results in a penalty ‘of not less than $5,000’ and three times the fine assessed under Title 18. And any private person who saw the roller-skater could bring a qui tam action against him. The statutory definition of ‘obligation’ cannot bear the weight of that interpretation.” United States ex rel. Simoneaux v. duPont, No. 16-30141 (revised Dec. 14, 2016).

Defendants moved for summary judgment, on the ground of qualified immunity, in a case arising from a fatal police shooting. The district court “disregarded the testimony of [Officer] Copeland and two eyewitnesses, finding that because there was ‘no video evidence of the actual shooting[,]’ the ‘testimony of Copeland, the eyewitness, and the 9-1-1 caller . . . should not be accepted until subjected to cross examination.'” The Fifth Circuit reversed; in addition to a ground based on qualfied immunity law, the Court held that under general Rule 56 principles: ”There is no evidence to suggest that the pair was biased, and the district court specifically found that the heirs ‘[did] not offer any evidence to contradict the eyewitnesses’ statements.’ Because their testimony was ‘uncontradicted and unimpeached,’ the district court was required to give it credence. Failure to do so amounted to an inappropriate ‘credibility determination[].'” Orr v. Copeland, No. 16-50023 (Dec. 22, 2016).

In Netsch v. Sherman, the appellants’ counsel missed the 14-day deadline for an appeal from bankruptcy court. The district court denied relief and the Fifth Circuit affirmed; while noting that all relevant factors were either neutral or favored appellants, it concluded:”[T]he bankruptcy court concluded that the reason for the delay weighed strongly against finding excusable neglect. In its analysis of this factor, the bankruptcy court emphasized that the parties had been subject to the Federal Rules of Bankruptcy Procedure throughout the adversary proceeding, these rules were unambiguous, and Appellants’ counsel confused the Federal Rules of Bankruptcy Procedure with the Federal Rules of Civil Procedure. The bankruptcy court also indicated that confusing bankruptcy procedure with civil procedure does not constitute excusable neglect. Consequently, the court held that the reason for the delay should be given greater weight than other factors.” No. 16-10432 (Dec. 22, 2016, unpublished).

Defendants won an intellectual property dispute with Plaintiff, and then sought recovery of $1 million in attorneys fees. This request led to the surprisingly complicated question of exactly what claims were in the case when the Defendants won. The Fifth Circuit concluded: “The [Texas Theft Liability Act] claim in the [First Amended Complaint]–the operative complaint at
the time of the attorneys’ fee award—was never held to be preempted [by federal copyright law]. [Our earlier opinion on the merits] addressed only the TTLA claim as it was pleaded in the Original Petition and did not consider the TTLA claim in the FAC. This is significant because the TTLA claim in the FAC was distinct from that in the Original Petition and specifically omitted allegations that were equivalent to copyright, with the intention of avoiding preemption. And the district court also never held that the FAC’s TTLA claim was preempted. Rather, the TTLA claim in the FAC was litigated and dismissed on the merits during summary judgment, and therefore it was proper to award attorneys’ fees under the TTLA because that law supplied the rule of decision.” Spear Marketing v. Bancorpsouth Bank, No. 16-10155 (revised Jan. 12, 2017). This opinion echoes the complexity in other recent cases that addressed the substance of preemption issues involving federal copyright law.

Foremost Insurance declined to pay a claim made by Charles Pendleton about the destruction in a fire of his 1956 Mercedes 190SL (an example of which appears to the right), arguing that he set the fire. A jury agreed and the Fifth Circuit affirmed. One of Pendleton’s grounds was that the district judge exceeded the scope of Fed. R. Evid. 404(b) by allowing evidence about other “similar accidents surrounded by similar circumstances regarding insurance” involving Pendleton. The Court found no harm as “ample evidence” supported the jury’s verdict in favor of Foremost, including the police investigation of the accident scene, further review of the accident by a forensic fire investigator and a mechanic/accident reconstructionist, and evidence about ownership of the other vehicle. Foremost Ins. Co. v. Pendleton, No. 16-60240 (Jan. 13, 2017, unpublished).

NNN Realty disputed its obligations under a guaranty, noting that the definition of “borrower” in the instrument listed sixteen entities (all of which contained “NNN” in some fashion), concluding with the conjunction “and.” Thus, argued NNN, all of those entities had to be in default to trigger its obligations. The Court rejected this argument, noting the overall structure of the guaranty and related security instrument, as well as the usage of similar terms. It gave little weight to textual arguments about the definition that arose from a misplaced parenthetical. While many of the grammatical arguments – especially as to the the erroneous parenthetical – are unique to the facts of this case, the broader analysis about the interplay between a collectively-defined term and individual obligations applies in many business settings. WBCMT 2007 C33 Office 9720, LLC v. NNN Realty Advisors, Inc., No. 15-20086 (Dec. 22, 2016).

Lowe brough a class action, alleging that company management breached its fiduciary duties to the employee pension plan, and that KPMG aided those breaches by ignoring the underfunding of the plan. KPMG contended that these claims necessarily implicated its engagement agreement with the company, which contained an arbitration clause, and thus required arbitration under the “direct-benefit estoppel” doctrine. Here, “Lowe did not know about the Engagement Letters, and has disclaimed any reliance on the Letters, and her claims rely on common law tort theories, not on the Letters.” The Court concluded that “[i]f that choice makes it harder for [Lowe] to prove her case, so be it,” but her claims as currently stated did not depend on KPMG’s engagment agreement and thus did not have to be arbitrated.” Lowe v. KPMG, No. 16-60263 (Jan. 5, 2017, unpublished).

The first ever Bench-Bar conference for the Northern District of Texas will be held on January 27 at the Four Seasons in Las Colinas. Here is the schedule and registration information; it looks to be a great program and the beginning of a strong tradition.

Several unpublished opinions from the Fifth Circuit in recent weeks, most recently Smitherman v. Bayview Loan Servicing LLC, No. 16-20328 (Jan. 11, 2017, unpublished), have ordered limited remands to the district court “to permit supplementation of the record and to make findings regarding . . . citizenship.” Once completed, “the district court’s amended opinion shall return” to the panel “for appropriate action.” It appears that the Court is reviewing case files not only to confirm appellate jurisdiction, but also the necessary facts to support federal subject matter jurisdiction as well.

Jarrod Burle, a commercial fisherman, made a claim for lost income with the Deepwater Horizon settlement. He then obtained loans, in the form of “pre-settlement funding contracts,” from Woodbridge Baric Pre-Settlement Funding, LLC. After receiving payment from the settlement system, he paid $20,000 back to Woodbridge. A special master then sought to recover that payment from Woodbridge after Burle was found to have made a fraudulent claim. The Fifth Circuit reversed a judgment against Woodbridge, rejecting an analogy between Woodbridge and an attorney with a contingent fee contract, and applying the more general rule that “[b]ecause Woodbridge Baric’s claim for the repayment of the loan was not purely contingent upon the success of Burrle’s claims for compensation, the failure of this contingency did not extinguish [its] claim and does not prevent [it] from asserting its valid interest in defense of its right to retain the funds as a bona fide payee.” In re Deepwater Horizon, No. 15-30599 (revised Jan. 9, 2017).

Johnson-Williams sued MERS about a foreclosure. She lost a Rule 12(b)(6) motion filed by MERS, then her own motion for leave to amend, and finally a motion for reconsideration. She appealed, and the Fifth Circuit observed the limited scope of her appeal, as the notice referred only to the district court’s order as to the amendment.  Johnson-Williams v. MERS, No. 16-10276 (Jan. 4, 2017, unpublished).

“In 2004, an Iraqi insurgent group kidnapped and murdered twelve Nepali men as they traveled through Iraq to a United States military base to work for . . . a Jordanian corporation that had a subcontract with . . . Kellogg Brown Root.” Adhikari v. Kellogg Brown & Root, Inc., No. 15-20225 (Jan. 3, 2017). The Fifth Circuit affirmed the dismissal of tort claims against KBR brought by the representatives of the deceased, including a claim based on the Alien Tort Statute.

The ATS is a cryptic part of the Judiciary Act of 1798, stating: “The district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.” In 2013, the Supreme Court clarified and limited the extraterritorial scope of the statute in Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1658. Applying Kiobel, the panel majority found no ATS claim stated, despite the strong policy against the human trafficking that was alleged to be involved in this case. A dissent read Kiobel to establish a “touch and concern” test as to contact with the United States, and would have found a cognizable ATS claim pleaded on these facts.

The unsuccessful plaintiff in Dawson v. RockTenn Services, Inc. sued because of injuries he suffered while delivering sulfuric acid to a paper mill. In yet another opinion that endorses careful recordkeeping, the Fifth Circuit affirmed judgment for the defendants: “Under Rock-Tenn’s operating procedures, Martin Transport’s drivers were required to, and apparently did, check that the pressure-release line was ‘free from defects and
void of other materials’ prior to each delivery. Martin Transport’s drivers delivered acid to the mill at least daily, often twice daily, without ever apparently notifying Rock-Tenn of any defect in the pressure-release line. In the absence of any countervailing evidence to suggest that a reasonable person in Rock-Tenn’s position would have undertaken further inspection or maintenance of the pressure-release line, there is no basis for imputing RockTenn with constructive knowledge of an alleged defect in that line.” No. 16-30112 (Dec. 27, 2016, unpublished).

In LLOG Exploration Co. v. Signet Maritime Corp., after affirming a declaratory judgment about delay damages under a maritime towage contract, the Fifth Circuit found that it lacked jurisdiction over the related award of attorneys’ fees: “[I]n its award of fees and costs to LLOG, the district court did not set a set a specific amount. This court held in S. Travel Club, Inc. v. Carnival Air Lines, Inc., 986 F.2d 125, 131 (5th Cir. 1993), ‘that an order awarding attorney’s fees or costs is not reviewable on appeal until the award is reduced to a sum certain.'” No. 15-31123 (Dec. 23, 2016, unpublished).

In a dispute about a home loan, the district court wrote an opinion found for the defendant mortgage servicer in all respects, including its counterclaim for judicial foreclosure. The final judgment, unfortunately, did not address that claim or otherwise contain “catch-all” language. Because “[t]he district court’s ‘final judgment’ neither adjudicates ‘all claims . . . of all parties,’ nor expressly styles itself as a partial final judgment pursuant to Rule 54(b). . . . this Court has no appellate jurisdiction and cannot review the merits of the case.” Wease v. Ocwen Loan Servicing LLC, No. 16-10521 (Dec. 29, 2016, unpublished).

Attached, some excellent proofreading advice for your briefs, motions, and letters in 2017! Best wishes for the New Year from 600Camp. (A tip of the hat to @AnalyticalGrammar)

Sessa Capital, a hedge fund, supported the election of certain directors to the board of Ashford Prime, a hotel business. Ashford’s management rejected their applications, contending that they were incomplete. Litigation ensued, in which Sessa sought an injunction against the June 10, 2016 board election. The district court denied relief; Sessa appealed, and a motions panel of the Fifth Circuit denied an interim stay.

Since that election proceeded, mootness became an obvious appellate issue. The Fifth Circuit noted that “Sessa did not ask the district court to stay the [June 10] election,” and also “never sought the invalidation of the shareholder election in the district court” — requests that, had they been made, could potentially have kept the dispute alive. To the contrary, the Court observed that “Sessa repeatedly made a tactical decision to seek only prospective relief. When the district court contemplated pressing the reset button by staying the shareholder election and allowing Sessa to resubmit the questionnaires, Sessa vehemently opposed this solution.” Accordingly, the Court dismissed the appeal as moot. Ashford Hospitality Prime, Inc. v. Sessa Capital, No. 16-10671 (Dec. 16, 2016, unpublished).

Two manufacturers of baby products (specifically, pacifiers and “sippy cups”), disputed the enforcement of a contract provision that said: “Distributor hereby acknowledges and agrees not to copy or utilize any of LNC’s . . . product design . . . without LNC’s written permission.” While “the district court imposed the requirement that the design be either confidential or protectable as intellectual property in order to fall within the definition of ‘product design,'” the Fifth Circuit disagreed and reversed because of the plain meaning of the terms chosen by the parties: “On its face, the clause applies to any of LNC’s product designs, which would include those in the public domain.” The court rejected arguments based on analogies and appeals to principles of (non-contractual) intellectual property law. Luv N’ Care, Ltd. v. Gruopo Rimar, No. 16-30039 (Dec. 16, 2016).

While the Court did address the merits, and its enthusiasm for the appeal was tempered by the many cases brought to it about the BP Deepwater Horizon settlement, the Fifth Circuit offered this cautionary note about briefing the standard of review: “Bailey’s opening brief skips this step — it does not acknowledge the standard of review, and offers no arguments to show that the district court abused its discretion. Bailey therefore has waived an issue necessary to the success of the appeal.” Claimant v. BP Exploration & Production, No. 16-30642 (Dec. 13, 2016, unpublished).

Plaintiff accused defendant (and his employer) of sexual assault while incarcerated at a privately-run detention center. Defense counsel had recordings of calls made by the plaintiff, from the facility, suggesting that the encounters were consensual. Counsel did not identify the recordings in their Rule 26 initial disclosures, and did not make the recordings available until the plaintiff’s deposition, after questioning her about the conversations. The district court sanctioned defense counsel for inadequate disclosure and the Fifth Circuit affirmed, concluding that “some evidence serves both substantive and impeachment functions and thus should not be treated as ‘solely’ impeachment evidence” under Rule 26. Olivarez v. GRO Group, Inc., No. 16-50191 (Dec. 12, 2016).

A good reminder about following the right substantive standard appears in Clark v. Boyd-Tunica Inc., in which an employee of “Sam’s Town” disputed her termination for drinking at work. The employer relied on tests performed by a reputable company, which it rechecked after she complained about them. The Fifth Circuit sided with the employer: “The focus of the pretext inquiry is not whether the alcohol in Clark’s sample was, in fact, attributable to her improper consumption of alcohol, but whether Sam’s Town reasonably believed it was and acted on that basis.” No. 16-60167 (Dec. 9, 2016).

On December 7, Judges Graves, Higginbotham, and Jolly heard oral argument in the high-profile False Claims Act case of Harman v. Trinity Industries. A recording of the full argument is available online, and the Texas Lawbook published a thorough summary shortly after the argument.

Montano v. Orange County, in affirming a substantial jury verdict about the mistreatment of a county prisoner, states several important principles about the appellate review of jury trials. This post focuses on one — the degree of specificity required of a defendant’s JMOL motion under FRCP 50(a), such that arguments in a later 50(b) motion will be seen as renewed rather than new (and thus waived).

The applicable legal standard had three elements; the county moved on the ground that the plaintiff had “no evidence of a constitutionally deficient policy, custom or practice,” going on to focus on the first element. The county later argued that the phrase “constitutionally deficient” necessarily included the other two elements, but the district court and Fifth Circuit disagreed. The purpose of the “specific grounds” requirement in Rule 50(a) is “to make the trial court aware of the movant’s position and to give the opposing party an opportunity to mend its case” – here, the County “did not clearly separate the points upon which [it] requested judgment, did not delineate which of its arguments applied to which of Plaintiffs’ claims, and blurred the lines of Plainitffs’ claims through its obtuse recitation of the case law.” No. 15-41432 (Nov. 29, 2016). Later posts will address other points made by this opinion about the review of jury verdicts.

Plaintiff sued Defendant for breach of contract, alleging a failure to deliver Defendant’s 2010 cotton crop to Plaintiff. Defendant contended that an anticipatory repudiation occurred. The Fifth Circuit reminded that the proposal of new contract terms, absent a statement of intent not to perform the present contract, does not create an anticipatory repudiation. As a counterpoint, the Court cited a Texas appellate case in which the appellant not only proposed new terms, but also “‘definitely manifested’ that he would not longer perform the terms of his original contract when he . . . drove the appellee out to a deserted county road, threatened to sue him, [and] stated that he was ‘mad enough to smash the appellee’s face in.'” Plains Cotton Cooperative Ass’n v. Gray, No. 16-10806 (Dec. 5, 2016) (unpublished).

After the recent opinion of Retractable Technologies v. Becton Dickinson Co., followers of the Fifth Circuit’s antitrust cases should also note that on October 31, the Supreme Court declined to review MM Steel v. JSW Steel, 806 F.3d 835 (5th Cir. 2015).

The Fifth Circuit’s recent opinion in Retractable Technologies Inc. v. Becton Dickinson Co. reversed a $340 million antitrust judgment and placed significant limits on the activity to which the antitrust laws apply. Judge Edith Jones wrote for the panel, joined by Judges Jacques Wiener and Stephen Higginson. No. 14-41384 (Dec. 2, 2016).

Plaintiff Retractable Technologies Inc. (“RTI”) and Defendant Beckton Dickinson (“BD”) were competing manufacturers of syringes. Retractable sued for false advertising under the Lanham Act, and alleged that BD attempted to monopolize the syringe market in violation of section 2 of Sherman Act.

As summarized by the Court, the antitrust verdict in RTI’s favor “rest[ed] upon three types of ‘deception’ by its rival: [1] patent infringement . . . [2] two false advertising claims made persistently; and [3] BD’s alleged ‘tainting the market’ for retractable syringes in which it alone competed with RTI.”

The Court found that each of these three liability theories failed.

First, as to patent infringement, the Court observed that by its very nature, a patent grants a limited monopoly. Thus, “patent infringement invades the patentee’s monopoly rights, causes competing products to enter the market, and thereby increases competition,” meaning that it “is not an injury cognizable under the Sherman Act.”

Second, the false advertising claims involved BD’s admittedly inaccurate claims to have the “world’s sharpest” needles with “low waste space.” But even these statements “may have been wrong, misleading, or debatable,’ . . . they were all “arguments on the merits, indicative of competition on the merits.” (quoting Stearns Airport Equip. Co. v. FMC Corp., 170 F.3d 518, 522 (5th Cir. 1999)).

After a thorough analysis of different standards used to evaluate antitrust claims based on allegedly false advertising, the Court concluded: “The broader point . . . is the distinction embodied in our precedents between business torts, which harm competitors, and truly anticompetitive activities, which harm the market.” RTI did not make such a showing here.

Finally, the “taint” claim alleged that BD refused to make needed repairs to its retractable needle design, in hopes of persuading purchasers that all such syringes – including RTI’s – were inherently unreliable, until some time after RTI’s patents expired and BD could use RTI’s design to revitalize and take over the retractable syringe market. The Court called this theory “illogical,” since selling a bad product would only serve to benefit RTI’s competitors, and would not serve BD well in any attempt to expand its brand once RTI’s technology became available.

While reversing on the antitrust claim and the substantial damages associated with it, the Court went on to remand for reconsideration of what Lanham Act remedies for false advertising might still be appropriate.

This case is a forceful reminder that a good business tort claim does not equate to a good antitrust claim – or, even any antitrust claim at all. It is also a reminder of two broader points about how the Fifth Circuit approaches business tort claims arising from federal law.

On the one hand, that Court allows vigorous litigation of federal claims within their proper boundaries, as it recently did in affirming a nine-figure judgment arising from an antitrust conspiracy claim in MM Steel LP v. JSW Steel (USA), Inc., 806 F.3d 835 (5th Cir. 2015). (Notably, Judge Stephen Higginson, who was on the panel in the Retractable case, wrote the opinion in MM Steel.)

But on the other hand, the Court carefully polices the boundaries of those claims, as it did here, and as it also did in its painstaking comparison between state law trade secret claims and federal copyright claims in GlobeRanger Corp. v. Software AG, 836 F.3d 477 (5th Cir. 2016). The “siren song” of treble damages under the Sherman Act is a compelling one, but the pathway to such damages is carefully guarded.

The issue in Moneygram Int’l v. Commissioner of Internal Revenue was whether MoneyGram could take advantage of a favorable deduction rule for “banks,” unhelpfully defined in the Internal Revenue Code with a sentence beginning: “[T]he term ‘bank’ means a bank or trust company . . . .” Turning to the specific requirements of the definition, the Fifth Circuit concluded that the Tax Court “erred by interpreting ‘deposit’ to include the requirement that MoneyGram ‘hold its customers’ funds for extended periods of time,'” and by requiring that a “loan” be made for interest. A dissent criticized the majority’s “[n]itpicking some of the definitions of a loan . . . .” No. 15-60527 (Nov. 15, 2016, unpublished).

I was on the trial team that won a $146 million verdict in Pecos, Texas last week;here is the Dallas Morning News’s recent story on the case.

Plaintiffs alleged that the government of Antigua was complicit in Allen Stanford’s fraudulent scheme; it defended under the Foreign Sovereign Immunities Act. With respect to liabilty under the “commercial activity” exception to the Act, the Fifth Circuit found too attenuated a connection to the United States. As to the scheme itself, “[w]hile Antigua may have helped facilitate Stanford’s sale of the fraudulent CDs, Stanford’s criminal activity served as an intervening act interrupting the causal chain between Antigua’s actions and any effect on investors.” And as to a more specific claim based on Antigua’s failure to repay loans to Stanford, “the financial loss in this case was not directly felt by Plaintiffs, who are investors and customers of Stanford . . . The financial loss due to Antigua’s failure to repay the loans was most directly felt by Stanford who was the actual lender in the loan transactions.” Frank v. Commonwealth of Antigua & Barbuda, No. 15-10788 (Nov. 22, 2016).

OneBeacon Ins. Co. v. Welch & Assocs. involved insurance coverage for an attorney malpractice claim, arising for an exclusion for knowledge about “any actual or alleged act, error, omission or breach of duty arising out of the rendering or the failure to render professional legal services.” Since even the carrier agreed that “[o]n its face, this covers every single thing an attorney does or does not do, wrongful or not,” the Fifth Circuit found that the exclusion could not be applied literally without making the contract illusory. Focusing on the alleged “wrongful act,” the Court found that the relevant lawyer’s awareness of a discovery order and potential dispute was not equivalent to knowledge that a rare death-penalty sanction award would result. The Court also sustained an award of additional violations for an intentional violation of the Insurance Code with respect to the handling of the claim. No. 15-20402 (Nov. 14, 2016).

Robert dePerrodil successfully sued for the injuries he suffered when a wave hit the boat he was on. He recovered damages based upon his plan to work until age 75; the defendant argued that the “court erred by using the plaintiff’s stated retirement goal, rather than the BLS average.” The Fifth Circuit affirmed, noting that dePerrodil had a “‘very reasonable’ goal, considering his medical history, work history, and future medical prognosis,” distinguishing other cases in the area that turned on more vague testimony. Perrodil v. Bozovic Marine, Inc., No. 16-30009 (Nov. 17, 2016, unpublished).

Last year, the Fifth Circuit certified these two questions to the Texas Supreme Court:

1. Does a lender or holder violate Article XVI, Section 50(a)(6)(Q)(vii) of the Texas Constitution, becoming liable for forfeiture of principal and interest, when the loan agreement incorporates the protections of Section 50(a)(6)(Q)(vii), but the lender or holder fails to return the cancelled note and release of lien upon full payment of the note and within 60 days after the borrower informs the lender or holder of the failure to comply?

2. If the answer to Question 1 is “no,” then, in the absence of actual damages, does a lender or holder become liable for forfeiture of principal and interest under a breach of contract theory when the loan agreement incorporates the protections of Section 50(a)(6)(Q)(vii), but the lender or holder, although filing a release of lien in the deed records, fails to return the cancelled note and release of lien upon full payment of the note and within 60 days after the borrower informs the lender or holder of the failure to comply?

The Texas Supreme Court answered both questions “no” in Garofolo v. Ocwen Loan Servicing, No. 15-0437 (Tex. May 20, 2016). Accordingly, the Fifth Circuit affirmed the dismissal of the plaintiff’s contract claim in Garofolo v. Ocwen Loan Servicing, No. 14-51156 (Oct. 3, 2016, unpublished).

Color Star Growers (a wholesale distributor of flowers) went into bankruptcy; their lenders sued the Verbeeks in Texas state court, alleging that they fraudulently induced the loans to Color Star. The Verbeeks sought a defense from the D&O carrier for their company. The insurer successfully obtained summary judgment based on the policy’s “Creditor Exclusion” and the Fifth Circuit affirmed. The exclusion said: “The Insurer shall not be liable to pay any Loss on account of, and shall not be obligated to defend, any Claim brought or maintained by or on behalf of . . . [a]ny creditor of a company or organization in the creditor’s capacity as such, whether or not a bankruptcy or insolvency proceeding involving the company or organization has been commenced.” Rejecting the Verbeeks’ arguments that the state court plaintiffs were suing as “administrative agents” or “investors” rather than creditors, the Court observed that “the alleged facts giving rise to the underlying litigation relate entirely to the state court plaintiffs’ loan agreements with Color Star . . . .” The Court went on to affirm as to the duty to indemnify as well. Marke Am. Ins. Co. v. Verbeek, No. 15-51099 (Sept. 27, 2016, unpublished).

Hays, a cardiologist suffering from epilepsy, sued HCA for wrongful discharge as a result of mishandling his illness. The Fifth Circuit agreed that his tortious interference claim against HCA had to be arbitrated, because its viability depended on reference to the employment agreement between him and the specific hospital where he worked. It also affirmed on the theory of “intertwined claims estoppel,” making an Erie guess that the Texas Supreme Court would recognize this theory, and concluding that “Hays’s current efforts to distinguish amongst defendants and claims are the archetype of strategic pleading intended to avoid the arbitral forum, precisely what intertwined claims estoppel is designed to prevent.” Hays v. HCA Holdings, No. 15-51002 (Sept. 29, 2016).

The high-profile injunction case of Defense Distributed, Inc. v. U.S. Dep’t of State involved the federal government’s effort to prevent the online distribution of 3D printing files for the critical “lower receiver” component of the AR-15 rifle. The district court declined to grant a preliminary injunction against enforcement of the relevant laws and the Fifth Circuit affirmed. In an observation broadly applicable to litigation about online postings, the Court noted: “If we reverse the district court’s denial and instead grant the preliminary injunction, Plaintiffs-Appellants would legally be permitted to post on the internet as many . . . files as they wish . . . [which] would remain online essentially forever, hosted by foreign websites such as the Pirate Bay and freely available worldwide.” A thorough and strongly-worded dissent took issue with the First Amendment ramifications of the panel opinion; a petition for en banc rehearing has been filed and is pending as of this post. No. 15-50759 (Sept. 20, 2016).

On September 16, 2013, Defendants obtained a magistrate judge’s report that recommended dismissal of Plaintiffs’ complaint. On September 18, Defendants served – but did not file – a motion for sanctions, stating that it would not be filed until the 21-day Rule 11(c)(2) “safe harbor” period passed. Plaintiffs objected to the report on September 30; Defendants filed their motion on October 18; and after adoption of the report and further briefing, the district imposed $25,000 in sanctions in mid-2014. The Fifth Circuit rejected Plaintiffs’ challenge to the sanction based on the safe harbor period, reasoning — “Given that Plaintiffs could have formally or informally disavowed their claims during the 21-day period after Defendants served their motion, but instead elected to continue pursuing their claims, the district court did not abuse its discretion in rejecting Plaintiffs’ ‘safe harbor’ argument.” Margetis v. Ferguson, No. 16-40563 (Nov. 10, 2016, unpublished).

The NLRB consistently holds that an agreement requiring arbitration of individual claims (and thus foreclosing class actions) violates federal labor law; the Fifth Circuit consistently reverses the NLRB on this point. After again reversing the NLRB and citing the Circuit’s “rule of orderliness” about deference to prior panel decisions, the Court noted the NLRB’s remarkably candid litigation position: “The Board concedes that this court has squarely rejected both of those decisions, and that our precedents necessitate rejecting its arguments here. The Board further acknowledges that it seeks to manufacture a circuit split in order to ‘facilitate Supreme Court review.'”  Employers Resource v. NLRB, No. 16-60034 (Nov. 1, 2016, unpublished).

A steel-hulled tugboat, owned by Marquette, allided with the fiberglass-hulled SES Ekwata, rendering the Ekwata unusable. In the resulting litigation, the plaintiff won damages and an award of sanctions under the district court’s inherent power. On appeal, “Marquette asserts that the fee award was unwarranted because Marquette had a good faith basis to challenge the quantum of damages and thus in proceeding through a trial. But even if true, this fact did not justify Marquette’s intransigence on liability or the means by which Marquette defended [Plainitff’s] damages claim—namely, one expert who, according to the
district court’s findings, opined on value ‘without including any comparables, without considering the equipment on the vessel, without an accurate description of the vessel, and without reliable underlying information” and a second expert who, according to the district court’s findings, “not only failed to correct the glaringly incorrect information set forth in [the first expert’s] report, but incorporated it into his own.” Accordingly, the Fifth Circuit affirmed. Moench v. Marquette Transp. Co. (revised October 13, 2016).

Michael Swoboda sued Continental Enterprises, claiming that it conducted an investigation into alleged trademark infringement led to his wrongful discharge. He sought the production of documents that Continental alleged were protected as work product. The district court allowed the discovery and denied the intervention by Heckler & Koch, the gunmaker whose rights about the G36 submachine gun (above) were at issue and had retained Continental.

The Fifth Circuit reversed, holding: “Continental’s work product privilege argument was overruled because Continental is a company that engages in investigative work, and the district court concluded that the discovery that Swoboda sought was produced in Continental’s ordinary course of business, i.e., in the course of a Continental investigation. HK is a gun manufacturer. Investigations are not a part of HK’s ordinary course of business. Some of the discovery that Swoboda sought was, from HK’s perspective, prepared in anticipation of litigation. We have held that an applicant-intervenor should be allowed to intervene when it ‘has a defense not available to the present defendant.’ HK has a defense unavailable to Continental, and it should have been allowed to present that defense in the district court.” Swoboda v. Manders, No. 16-30074 (Oct. 31, 2016, unpublished).

The parties to McCloskey v. McCloskey disputed whether a debt was non-dischargeable as a child support obligation. Rejecting the application of the somewhat protean doctrine of judicial estoppel, the Fifth Circuit held: “Bankruptcy courts must ‘look beyond the labels which state courts—and even parties themselves—give obligations which debtors seek to discharge.’  A party may argue in bankruptcy court that an obligation constitutes support even if she has urged to the contrary in state court. Therefore, appellees are not judicially estopped from bringing this claim.” No. 16-20079 (Oct. 31, 2016, unpublished). (Compare the recent case of Galaz v. Katona, which applied judicial estoppel in a bankruptcy case based on inconsistent statements made in earlier state court litigation about ownership interests. No. 15-50919 (Oct. 28, 2016, unpublished).

Cal Dive International sued Schmidt (a commercial diver), and Edwards (Schmidt’s attorney in a previous personal injury suit against Cal Dive), alleging that Schmidt had misrepresented his injuries, and seeking restitution of contingent fees paid to Edwards. Cal Dive specifically alleged that it did not believe Edwards knew of the purported fraud. Edwards sought coverage for defense costs, and the Fifth Circuit reversed a judgment in his favor: “Cal Dive’s complaint, for which Edwards seeks defense from Continental, contains no allegations against Edwards, save for his receipt of settlement funds in the nature of attorney’s fees as a result of his client’s alleged fraud. Acts or omissions in the rendering of legal services by Edwards to his client, Schmidt, are simply not at issue.” Edwards v. Continental Casualty Co., No. 15-30827 (Nov. 2, 2016).

The defendant pharmacy in an FCA case provided “PPDs” — prompt payment discounts; the plaintiff alleged that they were intended to induce Medicare and Medicaid referrals. The Fifth Circuit disagreed, holding: “At best, the evidence supports a finding that Omnicare did not want unresolved settlement negotiations to
negatively impact its contract negotiations with [skilled nursing facility] clients and was, likewise, avoiding confrontational collection practices . . . . Although Omnicare may have hoped for Medicare and Medicaid referrals, absent any evidence that Omnicare designed its settlement negotiations and debt collection practice to induce such referrals, Relator cannot show an [anti-kickback statute] violation.” Ruscher v. Omnicare, Inc., No. 15-20629 (Oct. 28, 2016).

In Marshall v. Hunter, a removed action, the Fifth Circuit addressed a notice of appeal from a state court ruling made before ruling about personal jurisdiction. The Court declined to hear the appeal, saying: “while state court orders and rulings remain in effect upon removal, they do not become appealable orders of the district court until the district court adopts them as its own.” No. 16-20646 (Oct. 20, 2016, unpublished).

The receiver for Allen Stanford’s businesses sought to recover the proceeds of large certificates of deposit from two investment entities associated with the Libyan government. The district court dismissed one of the entities pursuant to the Foreign Sovereign Immunities Act, and allowed the claim against the other to proceed.  The Fifth Circuit reversed as to that entity, finding that the instruments at issue “did not require any act in the United States, much less the act of funneling money through the Stanford scheme or any Stanford entities in the United States,” and that the entity’s “commercial activity was limited to its obligations under teh . . . CDs, which . . . did not require any activity in the United States.” Janvey v. Libyan Inv. Auth., Nos. 15-10545 & 10548 (Oct. 26, 2016).

A group of optometrists won judgment against Wal-Mart for $1,395,400, consisting entirely of statutory penalties relating to Wal-Mart’s influence over their working hours. After withdrawing the initial panel opinion and then receiving answers to certified questions in Forte v. Wal-Mart Stores, Inc., No. 15-0146 (Tex. May 20, 2016), the Fifth Circuit again concluded that “the district court’s judgment regarding damages must be vacated; attorneys’ fees are the only matter that remains in the case.” Forte v. Wal-Mart Stores, Inc., No. 12-40854 (Oct. 27, 2016).

Celebrate Halloween with these Five Recent Cases to Know. And don’t forget to vote for Super Lawyers by this Friday, October 28!

Bonnie Pereida’s estate successfully brought RICO claims against a dealer in rare coins, arguing that it systematically deceived Ms. Pereida about the quality of the coins she bought from it. The Fifth Circuit agreed with the estate that the RICO claim survived her, finding that “RICO’s remedial purpose predominates” over its penal purposes. But, it reversed as to the proof of a “pattern of racketeering activity,” finding that the relevant time period was too short and did not qualify as “open-ended.” It noted that on remand, the plaintiff could potentially still elect a remedy in common-law fraud where this problem would not arise.

During that analysis, the Court offered a telling general comment: “[Plaintiff] contends that the Defendants waived this challenge to the ‘pattern’ element by raising it for the first time in their motion for a new trial. It should have been raised, he argues, in a motion for summary judgment so he would have known that this was a contested issue. The argument says a lot about modern civil litigation in which summary judgment, rather than trial, has become the focus. But when a case does go to trial, the burden is on the plaintiff to prove every element.” Malvino v. Dellniversita, No. 15-41435 (Oct. 20, 2016) (emphasis added).

The preliminary injunction said: “Plaintiffs may contact former and current . . . employees . . . of the Debtor if and only if a written request is made by Plaintiffs’ counsel to counsel for SkyPort, and counsel for SkyPort either a) agrees to the proposed contact or b) does not respond within 1 business day,” and: “Plaintiffs are temporarily enjoined from: pursuing any and all claims or causes of action, derivative or direct, against all of the Defendants.”

Nevertheless, the trial court found that Plaintiffs’ counsel and Plaintiffs’ financial advisor “continued to pursue evidence and witnesses―namely Cole [Skyport’s former president]. They encouraged Cole to pursue her own claims . . . in other courts by arranging for her counsel, providing for a “loan” for her counsel’s retainer, and pursuing financial support for the state court litigation.”

The Fifth Circuit affirmed a substantial award of sanctions, reflecting the attorneys fees incurred to rectify the situation. The Court rejected defenses based on whether (1) the award was civil or criminal in nature, (2) fees alone could be the basis of the sanction awarded, (3) the injunction no longer was in effect, (4) the alleged violations were inadvertent, and (5) the individuals sanctioned were not subject to the order. Goldman v. Bankton Fin. Corp., No. 15-2-243 (Oct. 12, 2016, unpublished).

Apache Corporation had an insurance policy for computer fraud, which said: “We will pay for loss of, and loss from damage to, money, securities and other property resulting directly from the use of any computer to fraudulently cause a transfer of that property from inside the premises or banking premises: (a) to a person (other than a messenger) outside those premises; or (b) to a place outside those premises.” (emphasis added) The Fifth Circuit, after a “detailed — albeit numbing — analysis of the cited authorities,” concluded that the weight of the case law did not create coverage under this policy for the following events:

1. Apache received a call from a vendor (actually, a criminal posing as the vendor) asking that Apache change its payments to a new bank account.
2. Apache asked for a formal request on the vendor’s letterhead; one arrived about a week later by email with an attachment on letterhead (from a domain used by the criminals to further pose as the vendor);
3. Apache called the number on the letterhead to verify the request, and after thinking it had confirmed the authenticity of the request, began sending payments to a new bank account.

While computer use obviously played a role in the deception, the Court noted: “To interpret the computer-fraud provision as reaching any fraudulent scheme in which an email communication was part of the process would . . . convert the computer-fraud provision to one for general fraud.” Apache Corp. v. Great Am. Ins. Co., No. 15-20499 (Oct. 18, 2016, unpublished).

The parties in AIG Specialty Ins. Co. v. Tesoro Corp. disputed whether limitations had run on an insurance coverage claim involving the identity of the named insured (and in turn, whether that entity owned a refinery subject to difficult environmental remediation orders). As a matter of contract law, the Court agreed that mere receipt of an insurance policy does not necessarily bar a reformation claim. But under Texas limitations principles, the insured could not establish that the insurer had “specialized knowledge” about the subject of refinery ownership, or that the mistake in the policy was inherently undiscoverable — especially then “the mistake is evident from the face of the document.” No. 15-50953 (Oct. 17, 2016).

The Romans sued Ford Motor Co. and a Houston AutoNation dealer. The dealer moved to compel arbitration; the district court denied the motion; and the dealer appealed. Unfortunately, the Fifth Circuit was “not satisfied, based on the record before it, that [the dealer] does not share citizenship with the Romans.” Reminding that the Federal Arbitration Act is not an independent basis for federal jurisdiction, the Court vacated the district court’s order and remanded for determination of subject matter jurisdiction — with instructions to dismiss if diversity was not established. Roman v. AutoNation Ford Gulf Freeway, No. 16-20047 (Oct. 13, 2016, unpublished).

The plaintiff in Isner v. Seeger Weiss LLP alleged that counsel misrepresented the compensation that she would receive under a large Vioxx settlement. The defendants won; two features of the master settlement agreement were particularly important. First, it said that claimants would receive a payment under  “criteria to be determined by the Claim Administrator” and “according to guidelines to be established by the Claims
Administrator” — thus, “the method of calculation was . . . specifically reserved for
the decision of the Claims Administrator at a later date.” Second, under the heading “NO GUARANTEE OF PAYMENT,” the release said: “I FURTHER ACKNOWLEDGE THAT I UNDERSTAND THIS RELEASE AND THE AGREEMENT AND THAT THERE IS NO GUARANTEE THAT I WILL RECEIVE ANY SETTLEMENT PAYMENT OR, IF ANY SETTLEMENT PAYMENT IS MADE, THE AMOUNT THEREOF.” No. 15-31070 (Oct. 11, 2016, unpublished).

Interlocutory appeal of discovery issues is largely foreclosed under the restrictive view of the “collateral order” doctrine adopted by Mohawk Industries v. Carpenter, 130 S. Ct. 599 (2009). Another, rarely-traveled path appears in Cazorla v. Koch Foods of Miss., in which the district court and Fifth Circuit agreed that an interlocutory appeal under 28 U.S.C. § 1292(b) of a difficult discovery issue involving parallel private employment litigation and immigration proceedings. The specific issue address is important but narrow; the procedural holding is notable for how unusual and important a discovery issue must be to come within the ambit of the interlocutory appeal statute. No. 15-60562 (Sept. 27, 2016).

In April 2014, Burger King Europe sued on a guaranty to recover allegedly unpaid franchise fees (the “Personal Guarantee Litigation”). In September 2014, that guarantor and the franchise owners sued Burger King Europe for tortious interference and a declaratory judgment (the “Franchise Agreement Litigation”). Burger King asserted the defense of forum non conveniens, in favor of Germany, as specified in the parties’ agreement. Acknowledging some confusion about the applicable legal standard for waiver, the Fifth Circuit agreed with the district court that the filing of the Personal Guarantee Litigation did not waive Burger King’s ability to assert forum non conveniens in the later case against it. That said, the Court found an abuse of discretion in denying the plaintiffs’ leave to amend to add new defendants and new tort claims, noting that the motion was timely and not obviously moot. SGIC Strategic Global Investment Capital, Inc. v. Burger King Europe GMBH, No. 15-10943 (Oct. 10, 2016).

In Monaco v. TAG Investments, the parties disputed the dischargeability of a $171,942.03 debt, based on the alleged misapplication of funds subject to Texas’s powerful Construction Trust Fund Act. The Fifth Circuit focused on a defense provided by that statute, which applies when “the trust funds not paid to the beneficiaries of the trust were used by the trustee to pay the trustee’s actual expenses directly related to the construction or repair of the improvement.” The Court accepted the explanation that “$124,053 went to salaries and overhead and an additional $50,400.00 went to superivision of this project,” noting that “payment of these sums as reasonable was approved by TAG’s architect.” Accordingly, the defense applied and the debt was dischargeable. No. 15-51085 (Oct. 6, 2016).

The plaintiffs in Sims v. Kia Motors brought products liability claims about the design of a fuel tank. Their main engineering expert “employed a ‘differential diagnosis approach, a scientific technique that essentially involves the process of elimination.” While a potentially reliable technique, the Fifth Circuit noted that it “has cautioned that “the results of a differential diagnosis are far from reliable per se..’ . . . “[M]erely “ruling out” other possible explanations is not enough to establish reliability; experts must also have some scientific basis for ‘ruling in’ the phenomenon they allege.” Here, where “the record does not reflect any reliable facts or data ‘ruling in'” the expert’s theory about how the fuel tank behaved in the accident, “the district court did not abuse its discretion in excluding it.” No. 15-10636 (revised Oct. 11, 2016).

Hoffman v. L&M Arts arose from the sale of a 1961 Rothko painting (right) by Sotheby’s in 2010; a previous owner alleged that this sale revealed facts about her own sale, in violation of a confidentiality provision in the sales contract that said: “All parties agree to make maximum efforts to keep all aspects of this transaction confidential indefinitely.” The Fifth Circuit ruled for the defense in all respects, concluding that:

• The original owner did not state a fraud claim against the relevant gallery, based on its alleged misrepresentation of its authority to act on behalf of an unnamed buyer, or its alleged misrepresentation about representing an entity or individual.  (Notably, the owner did not argue in the district court that equitable relief could still be appropriate without proof of damage), or its claim that the piece would “disappear” into its client’s private collection.
• The contract did not require secrecy about the fact of the sale, based on the plain meaning of the term “aspect,” other provisions in the agreement, and the Texas policy against restraints on alienability.
• The questions about damages associated with the alleged breach either reflected speculative bargains, incorrect damages measures, or a disgorgement theory that is not well-supported as a Texas contract remedy.

No. 15-10046 (Sept. 28, 2016).

In Torres v. S.G.E. Management LLC, the en banc Fifth Circuit reversed a panel opinion about a class action involving an alleged pyramid scheme. The case alleged RICO claims about the multi-level marketing program associated with Stream Energy; the panel rejected class certification, finding that individual causation issues would predominate at trial.

The en banc court disagreed, reasoning: “The Defendants’ challenge to predominance rests on their belief that th[e] causation element will require individualized proof. But that premise . . . is at odds with recent decisions from the Supreme Court and this court emphasizing that RICO claims predicated on mail and wire fraud do not require first-party reliance to establish that the injuries were proximately caused by the fraud.” Accordingly, “[b]ecause pyramid schemes are per se mail fraud, which include inherent concealment about the deceptive payment scheme, one who participates in a pyramid scheme can be harmed ‘by reason of’ the fraud regardless of whether he or she relied on a misrepresentation about the scheme.” Additionally, the Court concluded that “if the Plaintiffs prove that Ignite is a fraudulent pyramid scheme, they may use a common inference of reliance to prove proximate causation under RICO.”

This is a significant ruling from a court that is generally considered hostile to class actions, in an area of the economy – multi-level marketing programs – that involves millions of participants. No. 14-20129 (Sept. 30, 2016) (en banc).

The unfortuante Noreen Johnson sought to recover from her insurer after her home suffered wind damage from Hurricane Isaac, and then caught fire roughly two years later. The insurer successfully defended against her claim based on her failure to cooperate as required by the policy. In addition to showing her failure to provide required information, the insurer was able to establish prejudice, in that (1) “by significantly altering the state of the house before GeoVera’s agent could appraise it, Johnson effectively negated GeoVera’s appraisal right, as GeoVera could no longer inspect the extent of the smoke damage,” and (2) “by refusing to sit for an examination under oath until over a year after the fire . . . [t]he delay caused Johnson to forget information vital to protect GeoVera from fraud during the claims process.” Johnson v. GeoVera Specialty Ins. Co., No. 15-30803 (Sept. 27, 2016, unpublished).

ERISA litigation about investment management presents a tension between the administrators’ fiduciary obligations, on the one hand, and discouraging needless litigation, on the other. After the Supreme Court’s most recent guidance about an ERISA fiduciary’s “duty of prudence” in Amgen Inc. v. Harris, 136 S. Ct. 758 (2016), the Fifth Circuit found that the plaintiffs in Whitley v. BP. PLC failed to meet their pleading burden: “The amended complaint states that BP’s stock was overvalued prior to the Deepwater Horizon explosion due to “numerous undisclosed safety breaches” known only to insiders. In other words, the stockholders theorize that BP stock was overpriced because BP had a greater risk exposure to potential accidents than was known to the market. Based on this fact alone, it does not seem reasonable to say that a prudent fiduciary at that time could not have concluded that (1) disclosure of such information to the public or (2) freezing trades of BP stock—both of which would likely lower the stock price—would do more harm than good. In fact, it seems that a prudent fiduciary could very easily conclude that such actions would do more harm than good.” No. 15-20282 (Sept. 26, 2016).

The plaintiff in Cowart v. Erwin achieved the difficult result of winning a jury trial on an Eighth Amendment claim against a detention officer. The opinion details the proof that satisfied a sufficiency review — multiple favorable eyewitnesses (and multiple unfavorable ones as well) throughout the entire incident in question, along with helpful and contemporaneous photographs and medical records (among others). “Objective” video evidence was not dispositive when it “is not necessarily inconsistent with eye witness accounts of what transpired at the jail on the day in question.”  No. 15-10404 (Sept. 20, 2016).

Graves v. Colvin provides an exceptionally clear illustration of harmless error:

1. Graves challenged the Social Security Administration’s determination that she was not disabled.
2. A regulation governing ALJ hearings on such matters provides: “Occupational evidence provided by a VE or VS [vocational expert or vocational specialist] generally should be consistent with the occupational information supplied by the DOT [“Dictionary of Occupational Titles”] . . . At the hearings level, as part of the adjudicator’s duty to fully develop the record, the adjudicator will inquire, on the record, as to whether or not there is such consistency.”
3. Graves lost, and argued in court that the ALJ failed to ask this required question.
4. But — “‘Procedural perfection in administrative proceedings is not required’ as long as ‘the substantial rights of a party have not been affected.’ Graves does not even attempt to show that the vocational expert’s testimony was actually inconsistent with the DOT. Nor has she otherwise demonstrated prejudice. Hence, the ALJ’s procedural error was harmless and does not warrant reversal.”

No. 16-10340 (Sept. 21, 2016).

Insurance coverage litigation provided another example of the tension between the “Scylla” of pleading — the “plead more detail” command from Twombly and Iqbal — and its “Charybids” — the principle of insurance law that “[a]ll doubts regarding the duty to defend are resolved in favor of the insured.” Fed Ins. Co. v. Northfield Ins. Co., No. 14-20633 (Sept. 16, 2016). Here, ltigation about pollution liability led to a dispute about whether a “pollution exclusion” eliminated the duty to defend. The Fifth Circuit reversed a summary judgment in favor of the insurer, noting: “ExxonMobil’s petition does not attach any of the petitions in the Louisiana Litigation. ExxonMobil’s petition provides very little information about the nature of the claims made in the Louisiana Litigation, for which ExxonMobil seeks indemnity and defense costs from [the insured].” As a result, “because of the breadth and generality of the allegations in ExxonMobil’s state court petition, we cannot say that all of the claims fall clearly within the exclusion.”

What better way to celebrate 600Camp.com’s fifth birthday than with Emeril’s muffaletta recipe? Thanks to all blog readers for years of support and encouragement.

The plaintiff in GlobeRanger Corp. v. Software AG won a $15 million judgment for misappropriation of trade secrets. The Fifth Circuit affirmed, holding:

1. After a thorough review of Circuit precedent – not all entirely consistent – “that GlobeRanger’s trade secret misappropriation claim requires establishing an additional element than what is required to make out a copyright violation: that the protected information was taken via improper means or breach of a confidential relationship. Because the state tort provides substantially different protection than copyright law, it is not preempted.”
2. Recognizing the “jurisdictional Catch-22” created by that ruling, and referring back to an earlier panel opinion from the time of the case’s removal: “As the complaint [then] alleged only conversion of intangible property for which there is equivalency between the rights protected under that state tort and federal copyright law, complete preemption converted the conversion claim into one brought under the Copyright Act that supported federal question jurisdiction at the time of removal and supplemental jurisdiction after it was dismissed.”
3. Found that GlobeRanger had offered sufficient evidence of: (1) what specifically constituted its claimed trade secrets; (2) whether Software AG acquired trade secrets improperly or with notice of impropriety, particularly in light of federal contracting regulations; and (3) whether Software AG “used” any trade secret.

The opinion concluded with an unfortunately apt observation about the business litigation that is the focus of this blog: “This case demonstrates the unfortunate complexity of much of modern civil litigation. A trial involving a single cause of action—misappropriation of trade secrets (plus a derivate conspiracy claim)—has resulted in an appeal raising numerous issues that span the lifecycle of the lawsuit: jurisdiction; preemption; federal contracting regulations; expert testimony on damages; and jury instructions.

In response to a summary judgment motion in a suit for unpaid overtime, plaintiff Garcia offered affidavit testimony that he “was told” certain favorable salary information. The record was unclear as to who told him that information. On appeal from an adverse ruling, the Court noted: “Garcia first argues that the district court erred by discounting, as hearsay, Garcia’s statement in his affidavit about what he was ‘told,’ because ‘taking the evidence in the light most favorable to Garcia, a party-opponent told Garcia this information.’ However, courts are not required to view evidence presented at summary judgment in the light most favorable to the nonmoving party on the question of admissibility; rather, ‘the content of summary judgment evidence must be generally admissible,’ and ‘[i]t is black-letter law that hearsay evidence cannot be considered on summary judgment’ for the truth of the matter asserted.” Garcia v. U Pull It Auto Truck Salvage, Inc., No. 16-20257 (Sept. 15, 2016, unpublished).

In Smith Group JJR, PLLC v. Forrest General Hospital, a dispute about an architect’s fee, the appellant argued that “the district court erred by considering extrinsic evidence bearing on the meaning of the term ‘actual contstruction cost’ in the parties’ agreement. This issue – the proper role of extrinsic evidence in determining the meaning of a contract, produces frequent litigation and frequent differences of opinion between district courts and the Fifth Circuit. Here, the court found a waiver of these arguments before the trial court, reminding that “citing cases that may contain a useful argument is simply inadequate to preserve that argument for appeal; ‘to be preserved, an argument must be pressed, and not merely intimated.'” No. 16-60134 (Sept. 9, 2016, unpublished). (This post was picked as one of the top five of the week by the Appellate Advocacy blog on the Law Professor Blogs Network!)

Here is my PowerPoint from my “Fifth Circuit Update” presentation at the Advanced Civil Appellate Course in Austin. Note that it includes some initial notes on Globeranger-AG v. Software AG, a major intellectual property opinion released earlier this week.

An Italian company sued the American subsidiary of the Venezuelan national oil company in Louisiana over a contract obligation. “Why did the Italian company file suit in a forum located many thousands of miles away from both where it is headquartered and where it performed the contracts? To try and take advantage of the single business enterprise theory under which Louisiana courts have allowed companies in certain circumstances to be held liable for the acts of their affiliates.” This manuever did not succeed, as the American subsidiary was incorprated in Delaware: “Applying Louisiana law to hold a Delaware corporation responsible for its foreign affiliate’s alleged breach of a contract in Venezuela would substantially undermine the high bar Delaware sets for disregarding corporate separateness. It would also be at odds with the expectations of the parties. Given the provision in its contract providing that Venezuelan law would govern any disputes, Energy Coal had no reasonable expectation that it could seek recourse under the laws of Louisiana.” Energy Coal SPA v. Citgo, No. 15-30863 (Sept. 1, 2016, unpublished).

In trademark and trade dress litigation between Diageo, the maker of Crown Royal (left) and Mexcor, who makes Texas Crown Club (right), Diageo stipulated that “Mexcor did not infringe its marks until Mexcor sold its very first Texas Crown Club bottle in a bag bearing the Texas Crown Club logo” during the fourth quarter of 2011. Despite this concession, the Fifth Circuit concluded that Mexcor was not entitled to judgment on related issues when it “failed to urge that these counterclaims be presented to the jury after the district court denied its motions for JMOL.” The Court went on to remand the permanent injunction against Mexcor for revisoin, noting that the injunctoin could not extend to a type of bag that Mexcor had established its legal entitledment to use, and observing as to the last, “catch-all” provision of the injunction: “We are hesitant to approve such open-ended language, particularly because in other contexts this court has held that such ‘obey the law’ injunction orders are not permitted.” Diageo North America, Inc. v. Mexcor, Inc., No 15-20630 (Sept. 2, 2016, unpublished). (The opinon also notes the distinction between “whisky” (distilled in Scotland) and “whiskey” (distilled in the U.S. or Ireland), although none of these countries are the source of the liquor in this case, which the parties spelled “whisky.”)

A recurring theme in my CLE presentations about the Fifth Circuit is that the phrase “a conservative court” is largely meaningless. To be sure, a majority of Fifth Circuit judges were appointed by Republican presidents, and many judges on the court have “conservative” philosophies, but what that actually means in a specific case about separation of power between judge and jury, trial and appellate courts, branches of government, etc. can vary a great deal.

Consider the recent 8-7 vote against en banc rehearing in Passmore v. Baylor Health, discussed in yesterday’s post, which involved a close Erie question about state law pre-suit requirements. In a slide I just prepared for the upcoming Advanced Civil Appellate course in Austin, you can see the nominees of Republican presidents in red and those of Democratic presidents in blue — the “for” vote was 5-2 and the “against” vote was 5-3. (The judges with stars by their names joined a dissent.) Perhaps that split just shows that this technical issue is not ideological, but I think it also shows that there is far more to judicial philosophy than the simple label of “conservative.”

The Fifth Circuit recently denied en banc review — by a “photo finish” 8-7 vote — of Passmore v. Baylor Health System, which concluded that Texas’s expert report requirements for medical malpractice cases were procedural and did not apply in federal court under the Erie doctrine. A dissent argued that this vote was inconsistent with the recent en banc opinion in Flagg v. Stryker Corp. that analyzed a comparable requirement of Louisiana law.

Jefferson v. Certain Underwriters at Lloyds visited the intricate rules surrounding appellate review of remand orders. Here: “Dismissals of non-diverse parties allow for the exercise of diversity jurisdiction, and the propriety of remand in a properly removed case is judged on the basis of the district court’s jurisdiction over the claims remaining at the time of remand, not the time of removal.” Accordingly, “the district court had no discretion to remand this case if the remaining parties were diverse at the time of removal.” No. 15-30211 (Aug. 15, 2016, unpublished).

Jones, the sole shareholder of a bankrupt business, moved to intervene in a lawsuit between the trustee for the business and Bank of America — two weeks after the parties had filed a stipulation of dismissal that the district court accepted. The district court denied Jones’s motion; he appealed, and the Fifth Circuit affirmed. As to the stipulation of dismissal, the appeal was untimely; as to the intervention, while Jones’s late arrival did not bar his motion outright, it heavily influenced the relevant factors against him. Sommers v. Bank of America, No. 15-20775 (Aug. 26, 2016).

Cotton v. Certain Underwriters at Lloyds, a dispute about payment for wind damage from Hurricane Isaac, presented an issue about who was entitled to sue. The Fifth Circuit reminded that “‘Standing’ . . . is a label used to describe different things in the law.” One use is “whether a party has a right to sue under a contract.” That use, which presents “an issue of ‘contract interpretation,'” is “entirely distinct from ‘standing’ for purposes of Article III” and its jurisdictional consequences. No. 15-31005 (Aug. 1, 2016).

Continuing a theme in cases involving attorney liability (most notably the recent Stanford-related opinion in Troice v. Proskauer Rose, 816 F.3d 341 (5th Cir. 2015)), the Fifth Circuit affirmed summary judgment for the law firm involved in a disputed foreclosure: “Under Texas law, the doctrine of qualified immunity has ‘long authorized attorneys to practice their profession, to advise their clients and interpose any defense or supposed defense, without making themselves liable for damages.” Lassberg v. Bank of America, No. 15-40196 (Aug. 23, 2016, unpublished).

For some time, the Golf Channel and the receiver for Allen Stanford’s affairs have disputed whether the Channel gave value in exchange for the purchase of roughly $6 million in advertising. The Channel contended that it did by giving exactly the advertising that Stanford ordered; the receiver disagreed, noting that Stanford was running a valueless Ponzi scheme. On certification from the Fifth Circuit, the Texas Supreme Court sided with the Channel, holding that under the Texas version of the Uniform Fraudulent Transfer Act, the Channel gave value from an objective perspective. The Fifth Circuit accepted that holding as to this case, but noted: “The Supreme Court of Texas’s answer interprets the concept of ‘value’ under TUFTA differently than we have understood ‘value’ under other states’ fraudulent transfer laws and under section 548(c) [of] the Bankruptcy Code.” Janvey v. Golf Channel, No. 13-11305 (Aug. 22, 2016).

Whitlock, a truck driver, sued his employer for racial discrimination, alleging that the stated reason for discharge (running a red light at a loading dock) was pretextual. As to discriminatory discharge, “[t]he complaint fails to specify the [comparable] white employees’ work violations” and “fails to allege the white employees’ jobs” with the employer. As to hostile work environment, the complaint alleged that the workplace “was difficult [to] endure,” “caused stress related problems,” and that “[a] white employee was allowed to ride around in a pickup ruck without doing his job but given credit for the work done by African-American employees. The Fifth Circuit affirmed dismissal on the pleadings; this case illustrates a straightforward application of Rule 12 where the substantive law clearly dictates a certain level of detail about the claim. Whitlock v. Lazer Spot, Inc., No. 16-30139 (Aug. 15, 2016, unpublished).

In Wilson v. Navika Capital Group LLC, the appellants filed this notice of appeal  from adverse rulings in an FLSA dispute. The Fifth Circuit found that the reference in the notice to “Plaintiffs Wilson et al.” did not satisfy the requirements of Fed. R. Civ. P. 3 in light of the entire record — a case in which “the plaintiffs  .. were in ‘continual flux’ at the district court, as various groups of plaintiffs were dismissed at different times.” The notice was sufficient as to two plaintiffs specifically named in named in the style of the case as shown on the notice, as Rule 3 says — “The notice of appeal must: specify the party or parties taking the appeal by naming each one in the caption or body of the notice.” No. 15-20204 (Aug. 8, 2016, unpublished).

Icy litigation about the “sno-ball” market in New Orleans led to a series of sanctions motions, requiring the Fifth Circuit to evaluate the potential chilling effect of sanctions. (The opinion cites this informative article about the technical development of shaved-ice treats.) The Court held:

1. “If SnoWizard made material misrepresentations about the validity of various trademarks and patents [in other litigation], Southern Snow should have introduced those claims during its litigation over the validity of those trademarks and patents during the trial”;
2. Alleged “obstructive acts” during those proceedings “are not criminal conduct” and thus “cannot act as a predicate offense for a civil-RICO claim”;
3. Dismissal without prejudice is not a sufficient predicate for a later malicious prosecution claim; and
4. Conversely, the various sanctions and damages theories advanced were “no so obviously foreclosed by precedent as to make them legally indefensible.”

The Court concluded: “”The parties could have shaved down the overwhelming costs in time, expense and scarce judicial resources that this litigation has consumed it they could have abandoned their unrelenting desire to crush the opposition.” Snow Ingredients, Inc. v. Snowizard, Inc., No. 15-30393 (Aug. 15, 2016). (The opinion echoes the similiarly frosty relations between the parties in the recent case of  Yumilicious v. Barrie, involving a dispute about frozen yogurt franchises.)

OTM, the owner of two boats, alleged a poor repair job by Diversified. The district court granted summary judgment for the defendant and the Fifth Circuit reversed, observing: “OTM concedes it has not attempted to prove the ‘precise cause’ of the engines’ malfunction; instead, it maintains it presented sufficient evidence to create the requisite
genuine dispute of material fact for whether the claimed substandard overhauls by Diversified caused the engines’ breakdown. . . . [A]t this stage, OTM is not required to prove exactly which part failed, or disprove that ‘the vessels’ other deteriorating parts or operator error’ was not the cause of the vessels’ breakdown . . . . ” Operaciones Tecnicas Marinas, SAS v. Diversified Marine Services, LLC, No. 15-30932 (Aug. 5, 2016, unpublished). The opinion illustrates the interaction between the requirements of Rule 56 and the requirement of Daubert case law that an expert adequately exclude alternative causes.

Thomas v. Chevron USA involved a suit for damages after a pirate attack off the shore of Nigeria. The Fifth Circuit reversed the districr court’s denial of leave to amend; on the key issue of duty, the Court observed: “Thomas alleged that Chevron knew about of the real risk of piracy in the region and of the specific threats received by the [ship]. He alleged that despite its knowledge, Chevron requested that the [ship] take an unaccompanied support trip that would pass by the source of the recent threats. Finally, he alleged that Chevron broadcast his route information and locations over easily-accessible VHF radios, through which they could be heard by pirates known to be in the area. These allegations are sufficient to suggest that the harm suffered by Thomas was reasonably foreseeable to Chevron and that Chevron consequently owed him a duty not to subject him to the conditions he encountered . . . .” No. 15-20490 (Aug. 11, 2016).

The losing party in an arbitration opposed confirmation on, among other grounds, a challenge to the disclosures made by JAMS. Specifically, the party complained that JAMS had not disclosed a relationship between the other side and another JAMS-affiliated arbitrator. This complaint did not meet the demanding standard for a disqualifying bias: “Here, the Arbitrator explicitly stated that he and Bates had never discussed this arbitration and that Bates did not know the Arbitrator was even at this hearing. In fact, there is no evidence that Bates had any relationship with the Arbitrator other than the fact that both serve as JAMS arbitrators. Most importantly, Cooper points to nothing in the record that would indicate that the Arbitrator had any prejudice against him.” Cooper v. WestEmd Capital Management LLC, No. 15-31068 (Aug. 9, 2016).

In a case about the scope of a “drilling rig” exclusion in an insurance policy, a party asked the Fifth Circuit to not follow a previous unpublished opinion because it was not binding precedent. The Court disagreed, stating: “While [Appellant] is correct, we find Cash’s reasoning compelling,” and then applying the precedents cited by the opinion. Nonbinding precedent has persuasive power. Richard v. Dolphin Drilling Ltd., No. 16-30003 (Aug. 1, 2016).

A former employee of a defense contractor sued for unpaid benefits; the forum selection clause said: “This Contract shall be governed by and interpreted exclusively under the laws of Kuwait and all disputes between the Parties shall be resolved exclusively in Kuwait.” Noting a potential threshold issue as to whether federal or Texas law governs the “validity” of a forum selection clause (while federal law clearly governs their “enforceability”), the Fifth Circuit found it enforceable under either standard. Kuwait – where the work was done – had a stronger interest in application of its laws than Texas, and the most relevant law was a statute of repose rather than limitation, which “operates as ‘a substantive definition of, rather than a procedural limitation on, rights.'” Barnett v. Dyncorp Int’l LLC, No. 15-10757 (July 26, 2016).

American Construction, the general contractor on a hotel construction project, signed a “joint check” agreement, by which it would pay its subcontractor (Cratus Development) and its supplier (Shelter Products) jointly for building materials. American’s agreement also included this term: “If Cratus Development does not start or complete work on this project, and/or becomes past due with Shelter Products, Inc. to the extent that Shelter Products, Inc. can no longer extend credit to Cratus Development[,] American Construction will make payments directly to Shelter Products, Inc. for all outstanding and unpaid invoices for materials delivered to the jobsite . . . . ” The Fifth Circuit affirmed the district court’s conclusion that this language, in the overall context of the parties’ business dealings, created a suretyship by American. Shelter Products Inc. v. American Construction Hotel Corp., No. 16-30001 (July 27, 2016, unpublished).

Tesoro, an oil refiner and marketer, submitted a claim to National Union under its commercial crime insurance policy, involving the forgery of key documents by a Tesoro employee about the account of Enmex, a substantial Tesoro customer. The Fifth Circuit reasoned that the “Employee Theft” provision of the policy required a showing of an unlawful taking, and that Tesoro failed to show had “the forged letters of credit and security agreement induced Tesoro to continue selling fuel to Enmex or what evidence supports this assertion . . . In sum, Tesoro failed to offer any evidence that it would have acted differently had it known the Enmex account was actually not secured.” Tesoro Refining v. National Union, No. 15-50405 (July 29, 2016).

Litigation about the failed drilling of an oil well led to insurance litigation under Louisiana’s Direct Action Statute. The district court granted summary judgment to the insured as to its insurers’ duty to indemnify, and the Fifth Circuit reversed, finding that the indemnity issue was not yet justiciable: “[I]t is readily apparent that ‘facts can be developed’ at trial that would support a finding that at least some of [the insured’s] conduct related to the failed directional drilling project triggered coverage under the relevant policies. Beyond the already existing testimony . . . [the insured] points to a number of witnesses who were not deposed but who could testify at trial on relevant issues such as subcontractors, surveyors, and consultants.” Solstice Oil & Gas LLC v. Seneca Ins. Co., No. 15-30874 (July 21, 2016).

A detailed review of tax statutes and other authorities resulted in affirmance of a judgment against Bombardier related to the taxation of its “Flexjet” program; the Court summarized: “Because the law and its application to the real world is continually evolving, it is only natural that guidance in Revenue Rulings evolves too. We find a consistent theme, though, in the IRS’s guidance from the earliest Revenue Rulings grappling with this issue: where an entity is responsible for nearly every service and precondition necessary to transport persons in an aircraft, and it charges for those services, it is providing taxable transportation – even if the bona fide owner of the aircraft itself is the person traveling.” Bombardier Aerospace Corp. v. United States, No. 15-10468 (July 25, 2016).

The ECF records for the Western District of Texas showed that the appellant in Sudduth v. Texas Health & Human Services Commission filed her notice of appeal on August 31 — one day late. Following Franklin v. McHugh, 804 F.3d 627 (2d Cir. 2015), the Fifth Circuit found the ECF notices dispositive and dismissed for lack of jurisdiction. The Court observed that the Western District local rules and Fed. R. App. P. 4(a)(5) allow a party to seek relief from the district court in the event of technical problems with the ECF filing, which the appellant did not do here. Finally, “Sudduth argues that she was not made aware of any jurisdictional defect until this court requested briefing on this issue and that, at the very least, Franklin should not be retroactively applied to her case because it is new law. But, as previously discussed, the local rules and procedures here were sufficiently clear as to the requirements for timely filing, and the onus is on Sudduth, not the court, to be aware of and cure any deficiencies in the notice of appeal.” No. 15-50764 (July 18, 2016).

Extensive tornado damage to a building at the University of Southern Mississippi led to a hard-fought dispute among insurers. The Fifth Circuit’s detailed affirmance of the district court’s opinion turned on this observation about the losing insurer’s postition: “Were this construction adopted, insurers who covered the same risk would be incentivized to enter into a stare-down, each waiting for the other to blink first in order to seize the opportunity to deny coverage. Such an outcome is neither reasonable nor commercially practicable.” Southern Ins. Co. v. Affiliated FM Ins. Co., No. 15060742 (July 21, 2016). (The opinion also features a rare appellate shout-out to T.S. Eliot’s The Hollow Men.)

Nicholson worked for Securitas, a security staffing company. She sued about her reassignment from a position as a receptionist at a Securitas customer. The Fifth Circuit partially reversed a summary judgment for Securitas, noting: “If Securitas failed to follow its usual practices in responding to a client’s desire to have an employee removed, such a deviation can support Nicholson’s claim that the company should have known of the alleged discrimination.” Nicholson v. Securitas, No. 15-10582 (July 18, 2016).

In Kubala v. Supreme Production Services, the parties disputed whether an arbitration agreement reached an employment claim that arose before entry into the agreement. The district court found that it did not and denied the motion to compel arbitration. The Fifth Circuit reversed, finding this delegation clause “strikingly similar” to the one at issue in Rent-A-Center v. Jackson, 561 U.S. 63 (2010): “The arbitrator shall have the sole authority to rule on his/her own jurisdiction, including any challenges or objections with respect to the existence, applicability, scope, enforceability, construction, validity and
interpretation of this Policy and any agreement to arbitrate a Covered Dispute.” The Court summarized: “The court appears to have thought that the question at the first step of the analysis is whether there is an agreement to arbitrate the claim currently before the court. But as we have explained, the only issue at the first step is whether there is any agreement to arbitrate any set of claims.” No. 15-41507 (July 20, 2016).

“We now make explicit what we have held in unpublished, nonprecedential opinions.  HUD regulations govern the relationship between the reverse-mortgage lender and HUD as insurer of the loan.  HUD regulations do not give the borrower a private cause of action unless the regulations are expressly incorporated into the lender-borrower agreement.” Johnson v. World Alliance Financial, No. 15-50881 (July 18, 2016).

In an uncommon example of a successful application for an appellate stay, the Fifth Circuit stayed the EPA’s rulings about Texas’s haze reduction plans. The Court found a likelihood of success on the merits, based on, inter alia, the degree of deference required by EPA, the lack of on-point authority supporting its position, and statutory limits on its power. As to irreparable injury, the Court noted the substantial compliance costs faced by power companies (to the point of risking “unemployment and the permanent closure plants”), and the lack of any mechanism for them to recover those costs if the EPA’s rule was invalidated.  The Court also noted “the threat of grid instability and potential brownouts,” as well as the potential injury from a violation of the federalism principles in the Clean Air Act. Finally, the court “agree[s] with Petitioners that the public’s interest in ready access to affordable electricity outweighs the inconsequential visibility differences that the federal implementation plan would achieve in the near future.” Texas v. EPA, No. 16-60118 (July 15, 2016).

A putative class of New Orleans landowners sought damages arising from the construction of a flood-control canal. The Fifth Circuit affirmed the denial of class certification, noting: “This lawsuit seeks to recover different damages caused by different acts committed by different defendants at different times over a five year period.” Even under Louisiana state law theories that arguably reduced the proof problems, the Court still found fatal problems as to “individual questions regarding causation” (and the exclusion of other potential causes), as well as damages: “Any . . . formula would at a minimum need to take account of the variances in age, size, type, construction, condition, soil composition, and location of the properties.” The Court distinguished other cases that affirmed class certifications as involving “single episodes of tortious conduct usually committed by a single defendant.” Crutchfield v. Sewerage & Water Board, No. 15-30709 (July 13, 2016).

In a fraudulent joinder analysis, the Fifth Circuit observed: “The Mastronardis’ claims against Estrada and Marin are insufficiently pled under either the federal standard or the revised Texas standard, which now tracks the federal standard.” Mastronardi v. Wells Fargo Bank, N.A., No. 15-11028 (June 29, 2016) (citing, inter alia, Tex. R. Civ. P. 91a.1). See also Int’l Energy Ventures v. United Energy Group, No. 14-20552 (March 31, 2016).

Granados slipped and fell on a puddle in Wal-Mart. The evidence showed that “[p]rior to the slip, a Wal-Mart employee named Mercedes Acosta had been mopping the store’s checkout area. According to video surveillance of the incident, she briefly mopped the entrance of the aisle in which Granados slipped about five minutes prior to the incident, coming within approximately five feet of the puddle’s location with her torso generally facing it. At her deposition, Acosta testified that although she normally looks for puddles and other hazards while cleaning, she did not see the puddle in which Granados slipped when she mopped the aisle. No other witness testified to seeing the puddle. However, an assistant manager at the store who viewed the puddle after Granados slipped testified that someone actively looking for hazards ‘should have noticed the puddle from approximately five feet away if it were present.” Unfortunately for Granados, this evidence did not establish actual knowledge of the puddle, and also did not establish constructive knowledge under Texas law, which emphasizes how long the puddle has been in place (a fact as to which she had no proof). Granados v. Wal-Mart Stores, Inc., No. 15-10837 (June 30, 2016, unpublished).

The unsuccessful parties in the arbitration of a real estate dispute challenged confirmation of the award. The Fifth Circuit rejected the argument that the phrase “any other misbehavior by which the rights of any party have been prejudiced in 9 USC § 10(a)(3) could be read as applying to the district court. It also rejected a discovery-related argument when “[t]he arbitrator decided not to issue subpoenas when the Investors failed to answer his questions about what evidence they needed from the two witnesses, who were outside the legal subpoena range, and who were less involved in the relevant transactions than the two Rainier witnesses who testified live at the hearing.” Rainier DSC 1 LLC v. Rainier Capital Management LP, No. 15-20383 (July 7, 2016).

In the trial of a dispute about the handling of another lawsuit, the plaintiffs’ lawyer in that other suit testified that he would not have settled for less than $3 million. On appeal, two expert reports were cited in opposition to that testimony, and the Fifth Circuit rejected them. It noted that the trial court was within its rights to credit the lawyer’s testimony, and that the reports had been prepared pretrial and thus could not have addressed that testimony. RSUI Indemnity Co. v. American States Ins. Co., No. 15-30976 (July 8, 2016, unpublished).

Fannie Mae foreclosed on an apartment complex, in part because its management allowed six liens to attach to the property in breach of the loan documents. Self, a guarantor sued for the remaining deficiency, sought discovery about the validity of the liens. The Fifth Circuit agreed with the district court that this request was not a reason for continuance of a ruling on Fannie Mae’s summary judgment motion: “[E]ven if Self could establish that the liens were paid off or expired, such information would not negate his failure to timely secure the release of record of the liens or otherwise timely cure the liens as required under the plain and unambiguous language in the parties’ loan documents.” Fannie Mae v. Self, No. 15-20466 (July 6, 2016, unpublished).

The district court required the plaintiff in an FLSA case to submit her phone to a forensic examiner. It then awarded significant sanctions when the defendants’ “inspection revealed that the text messages in question were not on [Plaintiff’s] phone, that the mobile application allegedly containing such text messages was not on the phone, and that the phone appeared to have been reset or newly activated only three days before the forensic inspection.” The Fifth Circuit found no abuse of discretion; footnote 2 of the opinion details several unsuccessful explanations and counterarguments offered by the plaintiff, which had no traction here but could be of interest in a future e-discovery dispute involving similar issues. Timms v. LZM, LLC, No. 15-20700 (July 5, 2016, unpublished).

Bacharach, upset by the handling of credit reporting by SunTrust, sued it under the FCRA. The Fifth Circuit affirmed summary judgment for SunTrust, noting:

• Reporting about a failed “flip” of commercial property — especially when the alleged losses involved lost rental income — did not fall within the scope of the FCRA;
• Evidence of other, unrelated payment problems during the relevant period negated the element of causation; and
• “Vague and conclusory deposition testimony” does not establish actionable emotional distress under the FCRA.

Bacharah v. Suntrust Mortgage, No. 15-31009 (June 30, 2016).

Individuals injured in an industrial accident sued DP Engineering; the resulting insurance coverage litigation turned on whether the policies’ “professional services” exclusion applies. As to the duty to defend, after careful review of the underlying pleadings, the Fifth Circuit found that “[t]he facts alleged do not include administrative, non-professional activities,” but rather all involved “injuries that ‘arise out of’ DP Engineering’s . . . allegedly negligent engineering services.” However, the Court found error in resolving the duty to indemnify on the pleadings, as “[t]he allegations in the underlying lawsuits . . . do not conclusively foreclose that facts adduced a trial may show DP Engineering also provided non-professional services, which would be covered under the policy.” Hartford Casualty Ins. Co. v. DP Engineering LLC, No. 15-10443 (June 29, 2016).

At issue in Meadaa v. Karsan (a case on a return trip to the Fifth Circuit) was whether investors were misled into believing they would acquire an ownership interest in a hotel, or whether the relevant statements were “an unfulfilled future promise.” The Fifth Circuit affirmed a finding that the statements were false and actionable under Louisiana law, noting the combined force of the sellers’ oral representations and followup letters to investors “specifying their individual interests in” the relevant company. No. 15-30413 (May 18, 2016).

Celebrate summer with 600 Summer Camp and five good cases to know from the Fifth Circuit in 2016 — and one special bonus!

In Harris v. Hahn, the Fifth Circuit addressed a challenge to a “residence requirement” – a common feature of public benefit and employment programs, not often challenged in court. This challenge addressed “the constitutionality of the residency requirements in the Hazlewood Act, which provides tuition waivers at public universities for certain Texas veterans who enlisted in Texas or were residents of Texas at the time they enlisted.” The Fifth Circuit found that Texas had rational reasons for the requirement, in that “the prospective benefit advances two interests—education and security—by offering a benefit to residents considering enlistment.” It noted in particular that this benefit was prospective, rather than retroactive; distinguishing it from some other situations that had been more problematic. The Court also found no impermissible restriction on the right to travel, noting that the program affected a relatively small percentage of the population and did not impose a penalty. No. 15-20105 (June 23, 2016).

• By short per curiam orders resulting from 4-4 votes, the Supreme Court affirmed the Fifth Circuit’s opinion that upheld an injunction of major parts of President Obama’s immigration program, Texas v. United States, 809 F.3d 134 (5th Cir. 2015), and an important opinion about the jurisdiction of Indian tribal courts, Dolgencorp v. Mississippi Band of Choctaw Indians, 746 F.3d 167 (5th Cir. 2014).
• These rulings are a “split decision” for Judge Jerry Smith, who wrote for the panel majority in Texas while dissenting in Dolgencorp.
• It is unfortunate that the political process has not produced a ninth Supreme Court Justice, so that the voice of the nation’s highest court could be heard on these important questions of public policy.

In a 4-3 opinion written by Justice Kennedy, the Supreme Court affirmed the Fifth Circuit’s exhaustive analysis and validation of the admissions policies used by the University of Texas at Austin. Fisher v. University of Texas, No. 14–981 (U.S. June 23, 2016). The Dallas Morning News has an excellent summary of this case’s long history.

Bankruptcy debtors complained that the district court erred erred in overruling their objections to the bankruptcy court’s proposed findings of fact, noting that no responses were filed to those objections. The Fifth Circuit disagreed: “No statute or rule prohibits the district court from considering or ruling on the merits of an unopposed motion just because it is unopposed.”  (Of course, “[b]y failing to file objections or respond . . . [the adverse parties] have waived their right to appeal the proposed findings and to present any legal issues in opposition to them,” but “[t]hat waiver . . . has no impact on the district court’s authority to consider the merits of the objection.” Monge v. Rojas, No. 15-50180 (June 14, 2016, unpublished).

In Wright v. ANR Pipeline, the Fifth Circuit concluded that the plaintiff had not stated a plausible claim against a (nondiverse) employee of a pipeline company, and affirmed the remand of the matter to state court. It changed the disposition of the merits, however, reminding that because the improper joinder “inquiry does not concern the merits, where the court determines that defendant has been improperly joined and should be dismissed, that dismissal must be without prejudice.” No. 15-30741 (June 14, 2016, unpublished).

In EEOC v. Bass Pro Outdoor World LLC, the Fifth Circuit addressed a “pattern or practice” suit by the EEOC, which is related to a traditional class action certified under Fed. R. Civ. P. 23, but has additional features by statute. The Court observed several features of the Federal Rules that can reduce the risk of unfair prejudice in such a large-scale case — EEOC or otherwise — including bifurcation, sequenced special interrogatories during the liability phase, and careful attention to the availability of injunctive remedies. No. 15-20078 (

Continuing a line of cases involving careful scrutiny of injunctions by the Fifth Circuit, the Court again took issue with an order in Scott v. Schedler. The district court required Tom Schedler, Louisiana’s Secretary of State, to “maintain in force and effect his or her policies, procedures, and directives, as revised, relative to the implementation of the [National Voter Registration Act of 1993] with respect [to] coordination of the [Act] within Louisiana.” Schedler objected that the order was not sufficiently specific and the Fifth Circuit agreed: “[T]he injunction refers generally to the defendant’s policies without defining what those policies are or how they can be identified.” Noting that “[w]e are sensitive, of course, to the district court’s difficult position” in drafting a specific injunction without “dictating with intricate precision” state policy, the Court reviewed case law in the area and offered some guidance for remand. No. 15-30652 (June 15, 2016). While arising in the civil rights context, and not involving an effort to hold the Secretary in contempt, this opinion follows naturally from several other recent cases (link above) that have found insufficient specificity to justify sanctions.

I recently spoke at the University of Texas appellate course to provide an update on recent Fifth Circuit cases, here is my PowerPoint from that presentation.

Patterson sued Aker Subsea, in the Eastern District of Louisiana, for injuries he suffered while working on a boat off the coast of Russia. He asserted general personal jurisdiction under Fed. R. Civ. P. 4(k)(2) (which measures contacts in federal question cases with reference to the entire U.S., not just a single state), based on several secondment agreements by which Aker assigned its employees to an affiliate in Houston. Relying principally on Bowles v. Ranger Land Systems, 527 F. App’x 319 (5th Cir. 2013), the Fifth Circuit affirmed Aker’s dismissal, noting: “This court has declined to exercise general personal jurisdiction over a corporation where its most significant and continuous contact with the forum was having employees located there.” Patterson v. Aker Solutions Inc., No. 15-30690 (June 13, 2016).

Walker, a farmer, received a loan from Guaranty Bank, which acquired a production-money security interest in his crops. Walker then sold the crops to Agrex. Agrex applied a setoff to the sales price, based on problems in other dealings between Walker and Agrex. Guaranty then sued Agrex to recover the entire — pre-setoff — sales price. The Fifth Circuit affirmed judgment for Guaranty, reviewing the applicable UCC section and commentary, under which there is “no requirement that property by ‘received’ . . . for the property qualify as proceeds,” but only “that the property be traceable, directly or indirectly, to the original collateral.” Guaranty Bank & Trust Co. v. Agrex, Inc., No. 15-60445 (revised June 6, 2016).

Among other points raised in a challenge to a foreclosure on a Texas home equity loan, the trial court observed: “the curious backdating of the [assignment] confirms the suspicion that this document was generated to obscure the chain of title inquiry rather than to illuminate it.” In reversing the judgment below, on this point the Fifth Circuit held: “At least two Texas Courts of Appeals have considered this very question, and both have held that an assignment may have a retroactive ‘effective date.'”  Deutsche Bank v. Burke, No. 15-20201 (June 9, 2016, unpublished).

To acquire rights to use patented check processing technology, Chase paid for a license which contained a “Most Favored Licensee” clause. The licensor granted a similar license to another entity for what Chase contended was a significantly lower royalty. Chase sued and won judgment for roughly $70 million. The Fifth Circuit affirmed, agreeing with Chase’s characterization of the royalty as “paid-up lump sum” rather than “running,” and thus concluding that the MFL clause could apply retroactively and require a refund. A dissent saw the clause as only applying prospectively. The opinions identify a number of practical problems that can arise in drafting sophisticated royalty agreements about intellectual property. JP Morgan Chase Bank NA v. Dixon, No. 15-40905 (May 19, 2016).

In a significant and technical dispute about Clean Air Act liability related to emissions at Exxon’s complex in Baytown Texas, the Fifth Circuit touched on a matter of broader interest about restitution/calculation of “benefit.” In its analysis of a proper civil penalty, the Court noted that “the effect of spending money to achieve compliance is often not mitigation of economic benefit — rather, plaintiffs may point to such expenditures as evidence of the regulated entity’s economic benefit to the extent the delay in making those expenditures allowed the regulated entity to use the money it saved productively.” Environment Texas Citizens Lobby v. ExxonMobil Corp., No. 15-20030 (May 27, 2016).

After an investigation by special master Louis Freeh, the district court administering the Deepwater Horizon claims process imposed sanctions on a law firm that had exploited a relationship with a former staff attorney for the program. Among other arguments, the firm argued that the district court could not invoke its inherent power, because the program was not a court proceeding. The Fifth Circuit disagreed, noting that the district court had retained jurisdiction over administration of the program in the order that created it, so its “inherent authority to police seroius misconduct before it extended to the [program] over which it retained continuing and exclusive jurisdiction.” The Court distinguished Positive Software Solutions v. New Century Mortgage Corp., 619 F.3d 458 (5th Cir. 2010), which reversed a sanctions award about an arbitration, and FDIC v. Maxxam, Inc., 523 F.3d 566 (5th Cir. 2008), which involved “a proceeding that was not before the district court and did not challenge [its] authority.” In re Deepwater Horizon, No. 15-30265 (June 2, 2016).

The Fifth Circuit reversed an ALJ ruling in a labor dispute in DirecTV Holdings v. NLRB. The panel majority, noting that “the NLRB makes much of the fact that [the employee’s] initial suspension was transformed into a termination,” gave no weight to “unsupported speculation” as to why that change occurred. The dissent noted the timing of relevant events around the date of that decision, and gave weight to the ALJ’s credibility determinations as to the relevant witness. This exchange is a classic illustration of how reasonable minds can differ as to when an “inference” becomes impermissible “speculation.” No. 15-60257 (May 31, 2016, unpublished).

In Wills v. Arizon Structures, the parties disputed whether a Missouri judgment about arbitrability precluded a later motion to compel arbitration. The petitioners had been involved in the Missouri proceedings but obtained dismissal for lack of personal jurisdiction. The Fifth Circuit found that the judgment entered in Missouri against the business that employed them did not create a collateral estoppel bar. Privity, for purposes of claim or issue preclusion, does not ordinarily arise “based solely on an employment or corporate relationship.” And “[a] shared interest in compelling arbitration, by itself, does not warrant the conclusion that the parties are in privity such that the judgment denying [Employer’s] motion to compel arbitration binds Employees.” No. 15-41166 (May 27, 2016).

I recently published an article, titled “Convergence of Federal Rules 8(A) and 9(B) – The Fifth Circuit’s Application of Twombly and Iqbal” in the Southern University Law Review.

After Hall Street Associates LLC v. Mattel, Inc., 552 U.S. 576 (2008), the Fifth Circuit concluded that “manifest disregard of the law” was no longer available as a nonstatutory ground for vacatur of an arbitration award under the FAA. Since then, other circuits have considered whether “manifest disregard” can be a statutory basis for vacatur. In McKool Smith PC v. Curtis Int’l, the losing party in an attorneys fee dispute mounted such a challenge to the arbitrator’s award in favor of the firm, but the Court sidestepped the issue, finding support for the arbitrator’s rulings in the applicable Texas case law. No. 15-11140 (May 23, 2016, unpublished) (Almost simultaneously, the Texas Supreme Court rejected the “statutory basis” argument in Hoskins v. Hoskins, No. 15-0046 (May 20, 2016)).

Ronald Crose, an overly enthusiastic raver, took ecstasy and suffered a stroke not long after. A suit on his health insurance policy followed; at issue was an exclusion for “[l]oss due to being . . . under the influence of any narcotic.” The Fifth Circuit agreed that ecstasy was a “narcotic” within the meaning of the exclusion, rejecting as overly technical the argument that “narcotic” refers only to “drugs derived from a plant” (as opposed to a “hallucinogen” such as ectasy). The Court went on to find that under applicable Texas law, “due to” required more than “but for” causation, but did not require proof that the narcotic was the sole cause of injury. Crose v. Humana Ins. Co., No. 15-50559 (May 23, 2016).

Building on Wooten v. McDonald Transit Associates, Inc., 788 F.3d 490 (5th Cir. 2015), the Fifth Circuit found that a pro se plaintiff had adequately pleaded an ADEA claim in Haskett v. T.S. Dudley Land Co., No. 14-41459 (May 20, 2016, unpublished). Haskett attached his employer’s response to his EEOC charge as an exhibit to his complaint, and the employer argued that the statements in that response negated Haskett’s claim. The Court disagreed: “Haskett clearly did not adopt [his employer’s] allegations to the EEOC as his own for purposes of his complaint. They are therefore still ‘unilateral’ and to the extent they are in tension with the complaint itself, they cannot control.” (citing Bosarge v. Mississippi Bureau of Narcotics, 796 F.3d 435, 440 (5th Cir. 2015)).

Presenting a textbook Erie problem, Passmore sued Baylor Regional Medical Center about his back surgeries in federal court based on bankruptcy jurisdiction. The defendants obtained dismissal on the expert report requirements in section 74.351 of the Texas Civil Practice & Remedies Code. Reviewing the requirements of that statute, the requirements of the Federal Rules of Civil Procedure governing discovery, and district court opinions on the matter, the Fifth Circuit reversed, holding: “Section 74.351’s regulation of discovery and discovery-related sanctions sets it apart from the pre-suit requirements in the cases cited by the defendants and brings it into direct collision with Rules 26 and 37.”   Passmore v. Baylor Health Care System, No. 15-10358 (May 19, 2016).

Hazim, a resident of Kansas, sued S&D Ltd., a publisher based in the UK, about its handling of Hazim’s book. Their contract had Texas choice-of-law and forum-selection provisions. Finding that the specific terms of the forum selection provision were not dispositive, the Fifth Circuit held that under Int’l Energy Ventures Management LLC v. United Energy Group, 2016 WL 1274030 (5th Cir. March 31, 2016), Hazim did not establish personal jurisdiction: “[T]he contract was between a Kansas resident and a United Kingdom entity and contemplated performance in the United Kingdom and Kansas. Even accepting that the contract contained the Texas choice-of-law and forum selection provision (as the IVEM-UEG contract did) . . . the contract on which Hazim is suing is not sufficiently related to Texas[.]” Hazim v. Schile & Denver Book Publishers, No. 15-20586 (May 5, 2016, unpublished).

Carlson alleged injuries from the ProNeuroLight, an infrared therapy device. At trial, the defendants called a chiropractor with some experience using the device. The Fifth Circuit expressed skepticism about his qualifications, noting: “While he does make diagnoses and orders tests as part of his chiropractic and alternative medicine practice, [his] qualifications do not align with or support his challenged medical causation testimony.” The Court did not rule on that basis, however, instead finding that “a district court must . . . perform its gatekeeping function by performing some type of Daubert inquiry and by making findings about the witness’s qualifications to give expert testimony.”  Here, admitting the chiropractor’s testimony without taking those steps was an abuse of discretion. The Court found harm, noting that he was the sole defense witness, that his testimony was cited in closing, and that the defendants won. Accordingly, it reversed and remanded. Carlson v. Bioremedic Therapeutic Systems, Inc., No. 14-20691 (May 16, 2016).

Unsuccessfully, Plaintiff sued about the foreclosure on his home in state court in 2008, and again in federal court in 2012. The Fifth Circuit said he was “WARNED that further frivolous litigation will result in substantial sanctions under Rule 38 or this court’s inherent sanctioning power and will include monetary sanctions and restrictions on access to federal court.” Then, he filed a 60(b) motion, which he also lost, and which he also appealed. The Court dismissed his appeal as frivolous, sanctioned him $500, and barred him from future litigation about the foreclosure without leave of court. Fantroy v. First Financial Bank, No. 15-10975 (May 13, 2016, unpublished). (Some time ago, I wrote an article called “Loud Rules” with Wendy Couture about the nuances of this kind of judicial warning.)

The district court granted the plaintiff’s motion for conditional class certification under the Fair Labor Standards Act. The defendant sought mandamus review, and the Fifth Circuit held the petition in abatement for more information: ” Although there is generally no ‘inflexible rule requiring district courts to file a written order explaining their decisions,” in this case the district court’s ‘lack of explanation makes it impossible for us to determine’ whether mandamus relief would be appropriate here.” In re Schlumberger Tech. Corp., No. 16-20267 (May 13, 2016, unpublished).

In Carpenter Properties Inc. v. JP Morgan Chase Bank, the Fifth Circuit found that a contract had been modified notwithstanding a signature on a formal counteroffer, but then found no liability under a “corporate veil” theory as to Chase: “[M]ere frustration with Chase for its failure to pay a commission once Chase’s identity was known is insufficient to amount to frustration of contractual expectations regarding the party to whom Carpenter looked for performance . . . .” No. 15-60309 (May 4, 2016, unpublished).

The plaintiff in Watson v. City of Allen sued, in Texas state court, several Texas cities about the operation of their “red light camera” programs.No. 15-10732 (May 5, 2016). The cities removed based on his RICO claim and CAFA. Plaintiff then dropped the RICO claim and sought remand based on CAFA’s “local controversy” and “home state” exceptions. The district court kept the case, finding it untimely as to CAFA, finding supplemental jurisdiction over the remaining state-law claims, and dismissing many claims for lack of standing. The Fifth Circuit reversed, concluding:

1. The 30-day deadline in 28 U.S.C. § 1447(c) does not apply to CAFA mandatory abstention provisions, since it “does not deprive federal courts of subject matter jurisdiction, but rather, acts as a limitation upon the exercise of jurisdiction granted by CAFA.”
2. The CAFA motion was filed within a reasonable time of removal, when “[a]ll indications are that [Plaintiff] acted diligently to gather evidence,” and because “fifty-two days is simply not a very long time.”
3. The “home state” exception applied because “[t]his suit’s primary thrust is an attempt to declare unconstitutional red light camera scheme,” meaning that the State of Texas and its municipalities were the “primary defendants,” and not the companies hired to carry out the program.
4. The district court should have declined to exercise supplemental jurisdiction, since “Texas courts have a strong interest” in the remaining issues and the plaintiff’s “motion to amend . . . to delete the federal claims is not a particularly egregious form of forum manipulation, if it is manipulation at all.”

The case of In re Mole involved continuing fallout from proceedings involving impeached judge Thomas Porteous. Mole was accused of hiring an attorney who “had no useful experience in the type of litigation” at hand in an attempt to have Judge Porteous recuse himself. In disciplinary proceedings before the Eastern District of Louisiana, the first judge to hear the matter declined to sanction Mole, but the full court – reviewing the same record – suspended him for a year. The Fifth Circuit found that the en banc Eastern District could rule differently from the initial judge without giving it deference, and that sufficient evidence supported the sanction — in particular, “the $100,000 severance fee in the retention letter incentivizes the prospect of a recusal.” No. 15-30647 (May 4, 2016).

Baker sued DeShong under the Lanham Act about use of the phrase “HIV Innocence Group,” in connection with advocacy programs for individuals accused of infecting others with HIV. DeShong won and sought an award of attorneys fees. The Fifth Circuit concluded that after Octane Fitness v. Icon Health & Fitness, 134 S. Ct. 1749 (2014) (a patent case, but analogous to the similar Lanham Act provision), an award of fees to a defendant was not limited to bad faith and did not require a “clear and convincing” showing. To qualify as an “exceptional” case that justifies a fee award, the court should consider a “nonexclusive’ list of ‘factors,’ including ‘frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.” Baker v. DeShong, No. 14-11157 (May 3, 2016).

Dickson guaranteed a large debt owed by Community Home Financial Services. Community went into bankruptcy, disputing the extent and validity of its obligations to its lenders. Unfortunately for Dickson, his guaranty not only waived all defenses to enforcement, and stated that it created an obligation independent of Community’s, but also said it was not changed “by the partial or complete unenforceability or invalidity” of the guaranteed obligation. He also disputed the amount owing, but the Fifth Circuit agreed that the affidavit evidence he submitted “contained only another set of allegations” and did not preclude summary judgment against him. Edwards Family Partnership LP v. Dickson, No. 15-60683 (April 29, 2016).