by Kelsi White
Vikas WSP, Ltd., v. Economy Mud Prods. Co., __ F.4th __, No. 20-20309, 2022 WL 92861 (5th Cir. Jan. 10, 2022).
In Vikas, the Fifth Circuit considered a district court’s jurisdiction to consider various claims arising from breach of a settlement agreement entered in that same court when the district court retains jurisdiction to enforce the settlement.
The underlying lawsuit involved a dramatic (i.e., involving allegations of maiming and arson) and international commercial dispute between an Indian supplier of guar gum, Vikas, and its customer, Economy. When Vikas and Economy settled their lawsuit, the district court had dismissed the case with prejudice but retained jurisdiction to enforce the settlement. After the settlement fell apart, the parties brought various claims concerning the settlement, including breach of contract and fraud. The district court held that Vikas, the supplier, had breached the settlement agreement, struck Vikas’s pleadings as a sanction, and entered summary judgment on fraud against Vikas, finding that the breaches of the settlement were so egregious that Vikas must have intended to defraud Economy. The district court catalogued various “bad facts” for Vikas that had occurred throughout the litigation, including: a hard drive lost on a train in India that the court had ordered Vikas to produce; Vikas’s swapping out lawyers; and Vikas’s forgery and fabrication of evidence. As fraud damages, the district court awarded Economy $40 million—the amount it had paid under the settlement thus far—and its costs.
The Fifth Circuit reasoned that summary judgment on the fraud claim required reversal because the district court did not have subject matter jurisdiction to consider tort claims arising from the settlement. Those claims fell outside the court’s power to enforce the settlement because fraud has “no necessary connection with the settlement’s enforcement or nonenforcement.” A district court cannot “reach new issues or issues that only relate to the settlement” solely based on its retained jurisdiction to enforce the settlement—i.e., without some independent basis for jurisdiction. The critical distinction here is between the jurisdiction of any federal court versus the particular court that entered the settlement agreement. While a federal court generally could have subject matter jurisdiction to hear the fraud claim, that does not mean the parties may reopen a closed case and bring that fraud claim before the same district court.
For the sanctions order in which the district court struck Vikas’s pleadings, the Fifth Circuit vacated it on either of two grounds: (i) an advisory judgment if the district court intended to strike Vikas’s pleadings in the underlying lawsuit that had already been dismissed; or (ii) an abuse of discretion if the district court intended to strike Vikas’s post-settlement motions because the decision lacked any explanation of its legal basis.
Finally, the Fifth Circuit held that the judgment on Vikas’s breach of the settlement agreement required reversal and remand for factual findings because the district court’s order was too brief and conclusory to allow for meaningful appellate review.
A key takeaway from Vikas is that a party cannot make a particular district court into an assigned judge with ongoing jurisdiction over any offshoot disputes that arise from a settlement. If a party wants to reserve the right to return to a particular district court in a contentious settlement for tort claims that may arise in the future, the party needs to request specific language to that effect in the dismissal order. The Fifth Circuit left for another day the question of whether it would find such language sufficient to supply a particular court with subject matter jurisdiction but doing so will take your case outside of the holding in Vikas.
Guzman v. Allstate Assurance Co., 18 F.4th 157 (5th Cir. Nov. 10, 2021).
The Fifth Circuit reversed summary judgment for an insurer by holding that the plaintiff/insurance beneficiary submitted sufficient evidence to create a fact dispute based on two “self-serving” affidavits.
In Guzman, the plaintiff sought to recover life insurance benefits after her husband died from a seizure. After the insurer initiated an investigation and obtained medical records disclosing the husband was a smoker (previously undisclosed to the insurer), the insurer rescinded the policy and refunded the premium. The plaintiff brought a breach-of-contract claim for wrongful rescission and violations of the DTPA and Texas Insurance Code.
The summary-judgment evidence included (1) medical records—most of which, if not all—described the husband as a smoker and (2) deposition and affidavits from the plaintiff and the husband’s sister that they never saw him smoke or smelled smoke on him or his belongings. The Fifth Circuit held the plaintiff’s evidence established a fact dispute that precluded summary judgment. In rejecting the district court’s discounting of the plaintiff’s evidence as “self-serving,” the Fifth Circuit explained that a “self-serving” affidavit or deposition may not be discounted solely because it is self-serving; doing so amounts to an improper credibility determination. Instead, if the testimony satisfies the requirements of Federal Rule of Civil Procedure 56(c)(4) (i.e., is based on personal knowledge) and provides particularized factual testimony (i.e., not vague or conclusory), then a genuine fact dispute exists. The Fifth Circuit also noted that there was other medical evidence that contradicted the husband’s status as a smoker.
Guzman is a helpful recitation of the proper treatment of self-serving affidavits at the summary-judgment stage and a useful guide (and citation) for plaintiffs opposing summary judgment based on their own testimony.
Domain Protection, L.L.C. v. Sea Wasp, L.L.C., __ F.4th __, Nos. 20-40411, 20-40518, 2022 WL 123408 (5th Cir. Jan. 13, 2022).
Sea Wasp is a helpful case for any federal practitioner evaluating a potential cross-appeal or responding to a Rule 12(b)(1) motion that raises tricky standing arguments.
In Sea Wasp, a complex commercial dispute between a domain name registrar, Sea Wasp, and its customer, Domain Protection, resulted in both sides losing in the district court—the defendant on liability and the plaintiff on damages—and generated three appeals. The plaintiff Domain Protection appealed its lack of a remedy; the defendant Sea Wasp appealed summary-judgment liability rulings and the denial of its recovery of attorney’s fees; and a sanctioned lawyer appealed the order against him. Both the plaintiff and defendant lost again on appeal; only the sanctioned lawyer’s appeal succeeded (and only in a limited sense: obtaining a remand). Considering the complexity of the procedural posture on appeal, the good news is that the factual details of the underlying dispute are not critical to gaining a general understanding of the jurisdictional and procedural holdings.
The Fifth Circuit first addressed Sea Wasp’s “cross-appeal” that the district court lacked jurisdiction because Domain Protection did not suffer an injury sufficient to give it standing. According to Sea Wasp, Domain Protection did not have a right to the domain name at issue because Domain Protection had received assignment of that domain name from someone without the power to assign it. Before addressing the standing argument, the Fifth Circuit noted that jurisdictional issues should be raised in responsive briefs, not a cross-appeal—a topic the Fifth Circuit expounds on further in a later part of the decision. In any event, the standing arguments failed. Sea Wasp conflated a contractual right to the domain names—a merits question—with the Article III injury requirement. The Fifth Circuit’s analysis of the merits versus standing distinction is a helpful one for anyone who has ever responded to an opponent attempting to disguise merits arguments as “standing” challenges in Rule 12(b)(1) motions.
As for Domain Protection’s appeal, Domain Protection sought some form of remedy in light of the zero dollars in damages the jury awarded: (i) return of the converted domain names, (ii) a statutory damage award, or (iii) attorney’s fees. None of these remedies were available, however. Domain Protection already had received possession of the relevant domain names for which it had offered evidence. Statutory damages under the Stored Communications Act were only available if Domain Protection proved actual damages, which it did not. Finally, the Stored Communications Act gives a court discretion to award attorney’s fees, and the district court reasonably declined to exercise that discretion.
Turning to Sea Wasp’s cross-appeal, the Fifth Circuit first considered Sea Wasp’s arguments challenging the summary-judgment rulings on liability. Sea Wasp was not an aggrieved party entitled to a cross-appeal because the district court’s judgment was in Sea Wasp’s favor (due to the lack of any damages proved by Domain Protection). Sea Wasp’s liability arguments should have been presented in a responsive brief—as alternative arguments to uphold the judgment in its favor—not as a cross-appeal, and this distinction was not a mere formality. The Fifth Circuit made clear that cross-appeals create delay and unnecessary complexity and should be cabined to their appropriate use.
Sea Wasp did, however, have a legitimate cross-appeal regarding its unsuccessful request for attorney’s fees, but that cross-appeal, unfortunately, lacked merit. Sea Wasp was not clearly a prevailing party; both sides had prevailed in some aspects of the suit.
Finally, the Fifth Circuit turned to the sanctioned attorney’s appeal. The district court sanctioned the attorney for apparently failing to disclose that he stood to gain if the plaintiff prevailed because he was a creditor of the plaintiff. The Fifth Circuit held that Federal Rule of Civil Procedure 7.1(a)(1) does not require such a disclosure. Those disclosures are for judicial disqualification, and the attorney’s name was already known to the court as counsel of record. Although an attorney’s general duty of candor might have required disclosure, that duty only arises if the undisclosed relationship has some relevance to the case—an issue that was never briefed. The Fifth Circuit remanded for briefing and a reasoned decision on whether the relationship had some relevance and needed to be disclosed.