In this edition of Litigation Roundup, split panels of the U.S. Court of Appeals for the Fifth Circuit hit pause on the transfer of a lawsuit challenging the Consumer Financial Protection Bureau’s plan to cap credit card late fees and nix a nearly $240,000 sanction against the former CEO of Highland Capital Management. In lower courts, Texas reaches a $6.6 million settlement over a 2019 petrochemical fire and Charif Souki is found by a bankruptcy judge to owe at least $100 million to his creditors.
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Southern District of Texas
Bankruptcy Judge Finds Souki Owes $100M
U.S. Bankruptcy Judge Christopher Lopez issued an order April 1 that Charif Souki, the cofounder of Tellurian Inc. and well-known player in the liquified natural gas industry, owes at least $100 million to lenders who funded an LNG project in Louisiana.
Souki had borrowed $120 million to fund the Driftwood LNG project and secured it with an 800-acre ranch outside of Aspen, Colorado, a luxury racing yacht and 25 million shares of Tellurian. Judge Lopez wrote that the Driftwood project “had great promise” and could have resulted in shares of Tellurian being worth hundreds of millions of dollars had it been seen through.
But Souki defaulted on the loans before the project reached the “final investment decision” stage. In March of 2022 shares of Tellurian did reach a value that, had they been sold, would have repaid Souki’s debt in full, Judge Lopez explained, but that didn’t happen.
Souki alleged in a lawsuit that the secured lenders “destroyed the value of the ranch” and “did not dispose of the Tellurian shares and Souki’s luxury yacht in a commercially reasonable manner,” according to the order.
“Based on the evidence and applicable law, the secured parties acted in good faith and were commercially reasonable … in every aspect of disposing the collateral,” Judge Lopez wrote. “So plaintiffs lose on all their claims. The court also finds that the lenders are still owed at least $100 million in damages.”
Judge Lopez’ order also ended Souki’s counterclaim seeking more than $100 million.
Souki is represented by Joseph P. Rovira, Tad Davidson and Philip M. Guffy of Hunton Andrews Kurth.
Lead plaintiff Strudel Holdings is represented by Paul Yetter, Timothy S. McConn, David Gutierrez, Amy Farish, Casey Downing and Jamie Aycock of Yetter Coleman and Aaron Power and Joshua W. Wolfshohl of Porter Hedges.
The case number is 23-90757.
Texas, Feds Reach Proposed $6.6M Settlement Over Chemical Fire
Five years after a fire raged for days at the Houston-area facility owned by petrochemical and petroleum storage company Intercontinental Terminals Company, a proposed settlement has been reached that would end litigation brought by Texas and the U.S. government.
In exchange for $6.6 million, the governments agreed to drop claims that ITC violated the Comprehensive Environmental Response, Compensation, and Liability Act when it released hazardous chemicals during the three-day fire in March 2019. ITC storage tanks were found to have discharged hundreds of thousands of barrels of petrochemical products into Tucker Bayou, the Houston Ship Channel and surrounding waterways.
Environmental experts found the chemical releases damaged surrounding ecological resources and habitats.
The parties filed a civil complaint and consent decree April 2, triggering a 30-day notice and comment period open to the public.
“I’m pleased we were able to secure this natural resource damages settlement after the serious destruction caused by the fire at Deer Park. This fire burned for three days, spewing hazardous chemicals into our air, water, and land,” said Attorney General Ken Paxton. “Texas’s environmental enforcement suit against ITC is still pending. All companies operating in our state must take the utmost precaution to prevent any such disaster from harming our citizens and our environment.”
Counsel information for ITC wasn’t available Monday.
Texas is represented by Assistant Attorney General Katie B. Hobson. The federal government is represented by Hannah L. Frazier, Todd Kim, Alamdar S. Hamdani and Daniel Hu of the Department of Justice.
The case number is 4:24-cv-01207.
Eastern District of Texas
Texarkana Jury Awards $10.26M for Willful Patent Infringement
Pantech Corporation and Pantech Wireless were recently awarded $10.26 million in damages by a jury that found OnePlus Technology had willfully infringed five patents covering wireless and mobile device user interface technology.
Pantech, which is based in South Korea and Cedar Park, Texas, filed suit against OnePlus, based in Shenzhen, China, in June 2022. The case went to the jury on March 25 and trial lasted five days. The panel returned its verdict March 29.
The jury rejected OnePlus’ argument that two of the asserted patents were invalid. For infringing those two patents, the jury awarded $2.85 million in damages. It awarded $7.41 million for infringement of the other three.
Pantech alleged in its amended complaint filed in July 2022 that it had made “continuous and good faith efforts to negotiate” with OnePlus to reach a licensing agreement for use of the patented technology.
“However, defendant has not engaged in good faith discussions or negotiations with Pantech Corp. or Pantech Wireless,” the complaint alleged.
U.S. District Judge Robert W. Schroeder III presided over the case.
Pantech is represented by Graham M. Buccigross and James A. Fussell III of Mayer Brown.
OnePlus is represented by David M. Airan of Leydig Voit & Mayer.
The case number is 5:22-cv-00069.
U.S. International Trade Commission
Locke Lord Team Prevails for Houston Company in ITC Investigation
On April 1, the International Trade Commission issued a final determination that Huizhou Green Giant Technology misappropriated a trade secret relating to the manufacturing of raised, metal garden beds and barred the importation of the offending products for one year.
The final determination also triggered a cease and desist order banning the sales of products using the trade secrets in the U.S. for one year.
The investigation was launched in October 2022 on behalf of Houston-based Vego Garden, which specializes in modular gardening. The ITC additionally found that another company Utopban Limited, had engaged in false advertising involving the products.
Vego Garden had alleged manufacturer Green Giant, based in Guangdong, China, and Hong Kong-based Utopban, which sells Green Giant’s raised, metal garden beds, misappropriated three trade secrets after Vego Garden began using a Chinese manufacturing company to make its products.
Those three trade secrets were: product development research relating to its 8-inch raised beds; product materials research related to a protective film that protects the beds’ finish during manufacturing and shipping; and product manufacturing trade secrets relating to machinery that produces waves, curves and bends in the metal panels.
Vego Garden provided evidence that it had lost $6.57 million in revenue to Green Giant and Utopban.
Vego Garden is represented by Ziwen Zhu, Bryan Harrison and Mark Hannemann of Locke Lord.
Counsel information for Huizhou Green Giant Technology and Utopban Limited was not available Monday.
The investigation number is 337-TA-1334.
Fourteenth Court of Appeals, Houston
Firm Can’t End Malpractice Suit under TCPA
A three-justice panel issued a ruling April 2 that the law firm Adams and Reese and its Houston partners Adam Massey and Cassandra Walsh cannot use the Texas Citizens Participation Act to bring an early end to a legal malpractice lawsuit brought against them by former client Emerald Electrical Consultants.
Massey, Walsh and the law firm had argued that Emerald filed suit in response to their right to petition, which invokes the TCPA — the state’s anti-SLAPP law intended to bring a quick end to baseless lawsuits intended to chill First Amendment rights. The ruling affirms Harris County District Judge Rabeea Sultan Collier’s October 2022 ruling allowing the lawsuit to proceed.
According to the opinion, Emerald is a Georgia company that specializes in constructing electrical substations and providing associated consulting and technical services. In 2021 the company began constructing a project in Texas, called the Golden Pass Project, and in May contacted Adams and Reese for advice on ensuring that it would be paid on time for work it did.
The firm, including Massey, advised liens related to the project “could be perfected within 45 days after Emerald’s work on the project was completed and to revisit the issue then, when and/or if Emerald was not paid.”
“But, under the applicable version of the Texas Property Code, if a lien claim arises from a debt incurred by a subcontractor, the claimant must give written notice of the unpaid balance to the original contractor ‘not later than the 15th day of the second month following each month in which all or part of the claimant’s labor was performed or material delivered,’” the opinion explains.
After Emerald was not paid for work it did, it contacted the firm on July 20, 2021 “to ensure collection of its invoices” and was connected with Walsh who advised what the deadlines were for filing notice letters and a lien affidavit. Emerald instructed the firm and Walsh to send the necessary letters and file the lien affidavit “if and/or when necessary.”
Emerald attempted to resolve the payment dispute with Canyon Power Solutions in mediation, and the firm advised Emerald that its lien rights were intact and that it was in a strong position to collect what it was owed.
After mediation failed, Canyon sued Emerald in federal court. And after Canyon moved for summary judgment, the firm advised Emerald that “its position on the entire lien amount was weak” and amended the lien affidavit to remove the amounts that Emerald invoiced to Canyon for work done on the Golden Pass Project in March, April and May because the deadlines had passed for those amounts before any notice letters were sent.
And then the firm advised Emerald that because it was representing an owner of the Golden Pass Project it could no longer represent Emerald because of that conflict of interest.
Not long after, Emerald filed this legal malpractice lawsuit.
“Because we conclude that the Firm failed in its initial burden to show that Emerald’s allegations are based on or in response to the exercise of the right to petition by the Firm or its attorneys, we overrule the sole issue presented,” the panel held.
Chief Justice Tracy Christopher and Justices Ken Wise and Kevin Jewell sat on the panel.
Adams and Reese, Massey and Walsh are represented by Murray Fogler and Robin O’Neil of Fogler, Brar, O’Neil & Gray.
Emerald Electrical is represented by Dylan B. Russell of Hoover Slovacek.
The case number is 14-22-00741-CV.
Texas Supreme Court
Justices Grant Rehearing of Mandamus Petition in Attorney Sex Tape Case
On Friday, the state’s high court changed its mind and agreed to reconsider a petition for writ of mandamus lodged by a woman who claims she has been forced to pick between violating a trial court’s discovery order or violating federal law forbidding the dissemination of child pornography.
Magdoline Elhindi’s first request for relief — asking that she be allowed to first turn over a video she believes to be child pornography to the FBI — was narrowly denied by the Texas Supreme Court in January.
Elhindi filed suit against attorney Hamilton Rucker in Harris County district court in May, alleging he violated the Texas Relationship Privacy Act by distributing an intimate video of her without her knowledge or consent.
Elhindi and Rucker began an intimate relationship in July 2020, according to court documents. He handled her divorce case, which was finalized in July 2021. She alleges that in May 2021, Rucker surreptitiously filmed her engaging in sexual activity and later sent that video to a third party, which is the basis of her lawsuit.
During discovery, Rucker requested Elhindi hand over all videos of him that she had in her possession. She objected to production of one video apparently filmed in June 2021, alleging that when Rucker sent it to her, he said it depicted him having sex with a 14-year-old girl in Egypt.
Disseminating the video that depicted child pornography, Elhindi argued, would be unlawful. Rucker alleges the video actually depicts him having sex with his now wife, whom he married in June 2022.
Harris County District Judge Donna Roth ordered she give the video to Rucker.
But the FBI sent Elhindi a letter requesting the video and warning her not to give it to anyone else until its agents made a determination as to whether the video does depict child pornography.
Elhindi is represented by Kenton J. Hutcherson of Hutcherson Law in Dallas.
Rucker is represented by Peyton Z. Peebles III of Shellist Peebles McAlister in Houston.
The amici legislators are represented by Christopher A. Klement of Fee, Smith & Sharp.
The case number is 23-1040.
U.S. Court of Appeals for the Fifth Circuit
Oral Arguments Heard in Anadarko Investors Class Action
On Thursday a three-judge panel heard oral arguments in a case where Anadarko Petroleum is arguing a group of investors were wrongly granted class certification.
The investors argue Anadarko misled them about the potential of a new oil field, while Anadarko has argued there was a separate cause for the 2017 stock drop that precipitated this lawsuit.
In May 2017, the price of Anadarko’s stock fell about 8 percent after the company announced a test well in the Shenandoah oil field in the Gulf of Mexico came up dry, resulting in a $900 million write-down on its investment.
But within an hour after that announcement, Colorado officials announced they had determined Anadarko was responsible for a fatal gas explosion that happened at a residential area in that state a month earlier and would be requiring all energy companies to inspect all oil and gas lines within 1,000 feet of occupied homes.
U.S. District Judge Charles Eskridge sided with the investors and granted class certification, prompting Anadarko to file notice of appeal in August.
Judges Carolyn Dineen King, James C. Ho and Kurt D. Engelhardt sat on the panel.
Anadarko is represented by Kevin Orsini and Lauren Rosenberg of Cravath, Swaine & Moore and George T. Shipley of Shipley Snell Montgomery.
The class is represented by Joseph Daley of Robbins Geller Rudman & Dowd, Elton Kendall of Kendall Law Group and Thomas R. Ajamie of Ajamie Law.
The case number is 23-20424.
Split Panel Says Not So Fast on Transfer of CFPB, Chamber of Commerce Spat
U.S. District Judge Mark T. Pittman did not have authority to transfer a lawsuit while an appeal from his denial of a preliminary injunction remained pending with the Fifth Circuit, a split panel ruled Friday.
The U.S. Chamber of Commerce had filed suit against the Consumer Financial Protection Bureau challenging a rule that would cap credit card late fees. On March 28, Judge Pittman found the case didn’t belong in Texas but in Washington, D.C., where the CFPB is headquartered and where three of the six plaintiffs and eight of 10 attorneys involved are also headquartered.
Judge Don R. Willett, writing for the majority, explained that the court’s decision is not an announcement of “a broad rule regarding inter-circuit transfers.”
“Indeed, we do not even reach the question of where this case rightly belongs,” Judge Willett wrote. “Our decision today is exceedingly narrow and procedural, focused not on the correctness of the district court’s transfer order but rather on whether the court had jurisdiction to enter it. On these facts, it did not.”
Judge Stephen A. Higginson wrote in a dissent that he would have denied the mandamus petition because Judge Pittman’s conclusion that the lawsuit doesn’t belong in the Northern District of Texas “is fact-based and sound.”
“Indeed, the district court’s prompt transfer of the case, after explaining in detail why the case was improperly before it, dutifully heeds our admonishments to district courts to prioritize ruling on motions to transfer,” Judge Higginson wrote. “By granting mandamus, the majority reverses course today.”
“Worse still, the majority’s grant of mandamus also threatens to impossibly hamstring district courts by effectively declaring that our district judges cannot manage their dockets to sequence threshold questions before difficult merits questions and cannot transfer cases if there are motions pending.”
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.
Judge Andrew S. Oldham joined in the majority opinion.
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. The case number in the Fifth Circuit is 24-10266.
Panel Splits, Undoes Contempt Sanction in Highland Capital Bankruptcy
A divided panel of the Fifth Circuit on April 4 issued a 2-1 ruling that a bankruptcy court abused its discretion when it held James Dondero, the former CEO of Highland Capital Management, in civil contempt and slapped him with a $239,655 sanction.
The sanction was handed down after the bankruptcy court found Dondero violated an order barring him from suing Highland’s current CEO outside of bankruptcy court when entities he controls added court-appointed CEO James P. Seery as a defendant in a district court lawsuit.
Judge Andrew S. Oldham, joined by Judge Kurt D. Engelhardt, wrote that the “civil contempt power is limited” and sanctions must be calculated to either “coerce the contemnor into compliance with a court order or compensate another party for the contemnor’s violations.”
“Highland incurred virtually all its contempt-related expenses because the bankruptcy court permitted extensive discovery and conducted a marathon evidentiary hearing to unearth Dondero’s role in filing the motion,” Judge Oldham wrote. “But Dondero’s intentions were relevant only to criminal contempt — a sanction the bankruptcy court was powerless to impose.”
Judge Oldham’s opinion instructs the bankruptcy court to “limit any sanction award to the damages Highland suffered” because the motion was filed in the wrong court.
Judge James L. Dennis wrote in a dissent that he “sincerely” disagrees with the majority and would have affirmed the bankruptcy court’s sanction in full.
Dondero is represented by solo practitioner Joseph Carl Cecere Jr.
Highland Capital is represented by Roy Theodore Englert Jr. of Kramer Levin Naftalis & Frankel.
The case number is 22-11036.