In this edition of Litigation Roundup, the Fifth Circuit issues a rare ruling reviving a covid-related coverage fight between SXSW and its insurer, the U.S. Chamber of Commerce takes steps at the Fifth Circuit to enjoin a looming rule that would cap credit card late fees and a Houston-area property management company beats back a race and sexual orientation discrimination lawsuit.
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Western District of Texas
Chamber of Commerce Appeals ‘Effective Denial’ of Injunction in CFPB Case
The U.S. Chamber of Commerce on Monday appealed to the U.S. Court of Appeals for the Fifth Circuit in its lawsuit challenging the Consumer Financial Protection Bureau’s rule capping credit card late fees, seeking an injunction to halt its May 14 implementation.
The move comes after U.S. District Judge Mark T. Pittman on Wednesday seemingly took exception to the Chamber’s motion for expedited consideration of its motion for a preliminary injunction. In a two-page order detailing the court’s heavy case load, he concluded by saying “the court does not have the luxury to give increased attention to certain cases just because a party to the case thinks their case is more important than the rest.”
“There are simply too many cases that demand the court’s full attention,” he wrote.
The Chamber’s five-page notice of appeal states that in light of Judge Pittman’s “effective denial” of its preliminary injunction request, it now needs relief from the Fifth Circuit to avoid “serious or irreparable harm.”
“Plaintiffs’ members must also notify current cardholders in writing of any changes they may make to the terms of their cardholder agreements to mitigate the late fee change at least 45 days prior to making those terms effective,” the Chamber wrote. “To time those changes with the final rule’s May 14, 2024 effective date, such notices would need to be received by customers by March 29, 2024. As a result, plaintiffs will suffer irreparable harm absent an immediate injunction.”
This lawsuit was originally assigned to U.S. District Judge Reed O’Connor, but he recused himself from the case March 14 after Accountable.US, which bills itself as a government watchdog group, raised concerns about Judge O’Connor’s personal investments in credit card issuing companies constituting a conflict of interest.
The Chamber is represented by Michael Murray and Tor Tarantola of Paul Hastings, Derek Carson and Philip Vickers of Cantey Hanger, Thomas Pinder and Andrew Doersam of the American Bankers Association and Jennifer B. Dickey and Maria C. Monaghan of the U.S. Chamber’s litigation center.
The CFPB is represented by its own Stephanie Garlock of Washington, D.C.
The case number in the district court is 4:24-cv-00213. A case number for the Fifth Circuit appeal wasn’t available Monday.
Southern District of Texas
Locke Lord Teams Gets Win in Discrimination Case Against Property Management Group
U.S. District Judge George C. Hanks Jr. signed an order March 19 dismissing a discrimination lawsuit that had been brought by a former resident against the apartment where she lived and its property management group.
Shayla Anderson and her boyfriend Robert Edwards filed suit in August 2021, alleging the staff at the Houston-area apartment where they resided repeatedly discriminated against them based on race, sexual orientation and gender preference. Anderson is Black and transgender, according to court documents, and Edwards is Black and “of varying sexual orientation.”
The couple had alleged staff referred to Anderson as “sir” instead of “ma’am” and used “threatening and offensive body language” in interactions with her.
Judge Hanks noted in his 18-page final judgment that they had been allowed to live at the apartment for years on a month-to-month lease without paying rent “even when their past-due rent totaled more than $20,000.” The judge also found the couple failed to produce any evidence that their maintenance requests were handled differently than those lodged by other residents.
“Similarly, Anderson proffers no support for her alleged instances of intentional misgendering or for her claim that the ‘weird body language and looks’ by the complex’s staff were motivated by racial or sex-based discrimination,” the court held.
Locke Lord partner Mia Lorick, who was SunRidge Management Group’s lead attorney, issued a statement calling the victory “huge” and reiterating that her client strives “to provide a welcoming environment to people of all backgrounds.”
“There is always a challenge when discrimination is alleged because we take such allegations very seriously,” Lorick said. “Shayla Anderson is a Black, transgender woman and we’re sensitive to issues that she may have faced in her life. However, those personal issues do not mean that she was discriminated against. In this case, there was no evidence of discrimination. If anything, Grand Fountain Apartments and SunRidge Management Group were understanding and accommodating.”
Judge Hanks had orally granted SunRidge’s motion to dismiss the lawsuit in August but didn’t issue the written explanation of his reasoning until last week.
Anderson is represented by Keith Robinson Nguyen of Houston.
SunRidge is also represented by Aditi Deal and Emma T. Doineau of Locke Lord.
The case number is 4:21-cv-02511.
Social Media Influencers Beats Back Criminal Securities Fraud Charges
A group of eight social media influencers who had been charged in a criminal securities fraud lawsuit in December 2022 have been cleared of wrongdoing after U.S. District Judge Andrew S. Hanen on March 20 dismissed all charges against them.
Edward Constantin, Perry Matlock, Thomas Cooperman, Gary Deel, Mitchell Hennessey, Daniel Knight, John Rybarczyk and Stefan Hrvatin had been charged with orchestrating a “pump and dump” scheme in which they used their followers to increase the price of certain stocks and then sold them.
Judge Hanen explained in his 12-page order that the 2023 U.S. Supreme Court ruling in Ciminelli v. United States “limited the scope of the fraud statute by holding that, despite deceitful conduct involved, it does not cover fraudulent schemes whose object is to harm a victim’s right to have accurate information; only schemes that harm a victim’s traditional property right are actionable.”
“The most glaring issue in the indictment is the dearth of factual allegations that connect the alleged ‘scheme’ to the deprivation of the other investors’ traditional property interests (i.e., allegations demonstrating that the object of the scheme involved harm to victims.),” Judge Hanen wrote.
“These allegations adequately allege that obtaining financial gain was an object of the defendants’ scheme to defraud; obtaining financial gain, however, is only half of the equation,” Judge Hanen wrote. “It is the other half of the equation — harming a victim’s traditional property right — that is lacking.”
Laura M. Kidd Cordova, a partner at Jackson Walker who represents Hennessey, issued a statement praising the ruling.
“It was clear to me from the beginning that he did not commit any crime, and it is incredibly gratifying that the judge recognized that and dismissed all charges against him,” she said.
A separate but related civil lawsuit brought by the U.S. Securities and Exchange Commission that has also been assigned to Judge Hanen remains pending. Judge Hanen entered a stay in that case in January at the request of the United States, which intervened in the lawsuit. The SEC accuses the eight defendants of being “seasoned stock manipulators” who have earned at least $100 million since January 2020 through the alleged scheme.
“They encourage their followers to purchase the selected stocks, often claiming that they likewise have bought or intend to buy these stocks for themselves and hold them,” the complaint alleges. “Instead, the defendants sell their shares into the demand that their deceptive promotions generate.”
Hennessey is also represented by Michael Murtha of Jackson Walker. Constantin is represented by Matthew Ford of Ford O’Brien Landy. Matlock is represented by Luis Alejandro Reyes of Ashcroft Law Firm. Counsel information for Cooperman wasn’t available Monday. Deel, Hrvatin and Knight are representing themselves. Rybarczyk is represented by Eric Rosen of Dynamis and Philip Hilder, Stephanie McGuire and Quentin Williams of Hiler & Associates.
John J. Liolos and Thomas Carter of the Department of Justice are the lead prosecutors. Amy Burkart and David D’Addio of the SEC represent the federal agency in the civil lawsuit.
The case numbers are 4:22-cr-00612 and 4:22-cv-04306.
Western District of Louisiana
16 States Sue Over LNG Export Ban
The federal government has been sued by a group of 16 states, including Texas, challenging the Biden administration’s decision to stop approving applications to export liquified natural gas.
The states bringing suit are Louisiana, Alabama, Alaska, Arkansas, Florida, Georgia, Kansas, Mississippi, Montana, Nebraska, Oklahoma, South Carolina, Texas, Utah, West Virginia and Wyoming. The states filed suit March 21 seeking a declaration from the court that the LNG export ban exceeds the government’s authority, violates the Administrative Procedure Act and is “arbitrary and capricious.”
The states are also seeking injunctive relief that would vacate or stay the LNG export ban.
Texas Attorney General Ken Paxton issued a statement alleging the ban “subverts our constitutional structure.”
“The ban will drive billions of dollars in investment away from Texas, hinder our ability to maximize revenue for public schools, force Texas producers to flare excess natural gas instead of taking it to market and annihilate critical jobs,” he said.
The case has been assigned to U.S. District Judge James D. Cain Jr.
The states are represented by their respective attorneys general and by Tyler R. Green and Daniel Shapiro of Consovoy McCarthy.
Counsel for the federal government had not filed an appearance as of Monday.
The case number is 2:24-cv-00406.
U.S. Court of Appeals for the Fifth Circuit
Haynes Boone Associates Get Pro Bono Win for Sleep-Deprived Inmate
A lawsuit brought by a Texas prisoner who alleged the Department of Criminal Justice was violating his Eighth Amendment right to be free from cruel and unusual punishment by only allowing two and a half hours of uninterrupted sleep a night recently had his lawsuit revived.
The March 22 ruling reviving the claims brought by Michael Garrett, who’s been in prison for 30 years, marked the second time the Fifth Circuit has sided with him in this dispute. He’s been fighting the sleep deprivation practice in court since 2013, records show.
A judge dismissed that initial suit under the Prison Litigation Reform Act for failure to state a claim, but the Fifth Circuit reversed after finding Garrett had “plausibly” alleged the sleep deprivation he experienced could violate the Eighth Amendment.
Bedtime at the Estelle Unit where Garrett resided was 10:30 p.m. and breakfast began around 2 a.m., but inmates were required to be awake at 1 a.m. for a bed check. Garrett alleged other factors — bright lights, slamming doors and yelling inmates — interrupted the little sleep prisoners were allowed.
On remand, U.S. District Judge Nelva Ramos presided over a two-day bench trial in 2018 and found that Garrett “could not establish a cause-and-effect relationship between his sleep schedule and any medical complaint” because he “did not offer any expert testimony establishing that a lack of sufficient uninterrupted sleep has, within reasonable medical probability,” caused his health conditions.
Garrett filed notice of appeal with the Fifth Circuit in November 2022. The panel held Judge Ramos had applied the wrong standard in denying Garrett relief.
“Here, the district court held that, ‘to establish that the [Department’s] building schedule poses a substantial risk of serious harm,’ Garrett bears the ‘burden of proof to show that sleep deprivation is sufficiently linked to his health complaints.” But the case law makes clear that Garrett must only show a substantial risk of serious harm — not actual harm,” the panel wrote. “Yet, despite acknowledging that Garrett needed only to show a ‘substantial risk’ of serious harm, the district court nonetheless required evidence of actual harm to Garrett’s health. That is the wrong standard.”
Haynes Boone associate Chris Knight, who became involved with the case in 2019 and argued it to the Fifth Circuit, said in a statement that the ruling was an “important victory and key step in Mr. Garrett’s decade-long quest for an ordinary night’s sleep.”
“The court’s decision is also important because it aligns with U.S. Supreme Court precedent and abrogates multiple decisions that had applied the incorrect standard,” he said. “We’re proud to be part of it.”
Judges Edith Brown Clement, Kurt D. Engelhardt and Andrew S. Oldham sat on the panel that remanded the case back to the trial court.
Garrett is also represented by Chance Fletcher and Wes Dutton of Haynes Boone.
Texas is represented by Coy Westbrooks, Michael J. Calb and Jacob Przada of the state attorney general’s office.
The case number is 22-40754.
SXSW Gets Second Shot to Sue Insurer over $1M Settlement Coverage
SXSW, the entity that hosts the popular annual festival in Austin, will get another chance to convince a trial court that its insurer should cover the cost of a $1 million settlement reached with aggrieved 2020 ticketholders who could not attend the canceled event during the pandemic.
A three-judge panel of the Fifth Circuit on March 21 determined that SXSW’s reading of a provision in the Federal Insurance Company policy, which would require the insurer cover the settlement, “is plainly reasonable.”
U.S. District Judge Robert Pitman had agreed with Federal that the “contract exclusion” — which states the insurer isn’t liable for loss “based upon, arising from or in consequence of any liability in connection with any oral or written contract or agreement to which an Organization is a party” — meant the insurer did not have to cover the settlement with lead plaintiff Maria Bromley and other ticketholders.
Federal argued that the act of purchasing a ticket was tantamount to entering a contract with SXSW.
SXSW appealed that ruling to the Fifth Circuit in July. The panel wrote that its ruling was informed in part by the Texas Supreme Court’s “repeated instructions to ‘strictly’ construe exclusions against the insurer.”
“Because the source of liability and motivation for the Bromley Complaint was SXSW’s failure to refund 2020 festival tickets — which is not a professional service — the professional services exclusion does not apply,” the court wrote.
Judges Andrew S. Oldham, Don R. Willett and Kurt D. Engelhardt sat on the panel.
SXSW is represented by Peter Kennedy of Graves, Dougherty, Hearon & Moody and David A. Gauntlett of Gauntlett & Associates.
Federal Insurance is represented by Tony Draper, Avniel Adler and Paul Matousek of Walker, Wilcox, Matousek.
The case number is 22-50933.
U.S. Court of Appeals for the Federal Circuit
Apple Loses Bid to Transfer Patent Case from Texas to California
A panel of Federal Circuit judges determined on March 18 that Apple Inc. will have to face a patent infringement lawsuit brought against it by Carbyne Biometrics in the Western District of Texas where it was filed and not in the Northern District of California where the tech company was seeking to have the case sent.
In July 2023, Apple sought to move the case out of Texas. U.S. District Judge Alan Albright in December orally declined to transfer the case and this appeal followed in January. Apple is accused of infringing six patents via its Apple Cash platform that cover authentication and security technologies.
Judge Albright had found that Apple had significant business operations in Austin and that it manufactured and developed some of the products in question there. Additionally, the cost of attending trial in Austin would be less for the inventor bringing the claims and many third-party employees and potential witnesses live in Austin, he held.
“Apple has not provided sufficiently compelling reasons to conclude that the district court clearly abused its discretion in making these fact-specific determinations, which plausibly support the district court’s denial of Apple’s transfer motion,” the panel wrote.
Chief Judge Kimberly A. Moore and Judges Richard G. Taranto and Raymond T. Chen sat on the panel.
Carbyne is represented by Charles E. Fowler Jr. and Joshua Budwin of McKool Smith in Austin.
Apple is represented by Melanie L. Bostwick and Melanie Hallums of Orrick, Herrington & Sutcliffe and James Batchelder, Douglas Hallward-Driemeier, Jodie Cheng Liu, Andrew T. Radsch and Cassandra B. Roth of Ropes & Gray.
The case number is 2024-111.