In this edition of Litigation Roundup, we offer an update from the most recent hearing in the lawsuit stemming from the $788 million sale of Primexx Energy, a threatened lawsuit over the death of Congresswoman Eddie Bernice Johnson yields a settlement, and six officers and directors of a Houston-based clinic see an end to a $285 million breach claim.
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Court of Public Opinion
Settlement Reached, Without Suit, Over Rep. Eddie Johnson’s Death
Six months after saying he intended to file a lawsuit against Baylor Scott & White Health System and Baylor Scott & White Institute for Rehabilitation over the death of Congresswoman Eddie Bernice Johnson, attorney Les Weisbrod recently announced a settlement was reached without any litigation being filed.
Rep. Johnson died Dec. 31, 2023, after Weisbrod said she contracted an infection in the rehabilitation facility where she was recovering from back surgery. In a press conference in January, Weisbrod said the congresswoman had been left in her own feces and that her cause of death was osteomyelitis of the lumbar spine.
At a press conference June 27, Weisbrod lamented Texas’ damages cap in medical malpractice lawsuits and announced the hospital system would be renaming a nursing scholarship in honor of Johnson and would establish the Eddie Bernice Johnson Lives Foundation.
The goal of the foundation is to “support organizations dedicated to enriching, sustaining and ensuring the education, health economic and cultural survival of a diverse community, the Eddie Bernice Johnson STEM Academy; and organizations to support women’s rights, stable families and initiates for peace in the world.”
Details of the resolution were not disclosed, but Weisbrod said it will allow Johnson’s family to “do good in the congresswoman’s name.”
Weisbrod, who practices at Miller Weisbrod Olesky, said he intends to push lawmakers on both sides to work during the next legislative session to increase the caps on medical malpractice.
“That’s one of the things we hope will come out of this,” he said.
Harris County District Court
Surrogacy Escrow Funds Management Co. Accused of Defrauding Client
A mother-to-be who entrusted $61,250 to a company that manages escrow funds for surrogate mothers has filed suit against the company, accusing it of emptying her account of the funds that were intended to pay for her surrogate’s prenatal care.
Marieke Slik filed suit against Surrogacy Escrow Account Management and its owner Dominique Side on June 21, alleging the company that does business as SEAM LLC had failed to hold up its end of the bargain to review a surrogate’s expenses and dispense funds accordingly.
Harris County District Judge Jeralynn Manor has issued a temporary restraining order freezing the company’s assets and bank accounts in Side’s name. The order remains in effect until July 17, when Judge Manor has scheduled a hearing on Slik’s motion for a temporary injunction.
“The defendants have left hundreds of surrogates throughout the country — who are pregnant with a child that does not belong to them — with no way to pay for necessary prenatal care,” the lawsuit alleges. “What’s more, without access to their escrow funds, hundreds of intended parents are unable to financially assist their surrogates or ensure the safe delivery of their babies.”
Defendants in the lawsuit include Surrogacy Escrow Account Management, which does business as Seam LLC, Life Escrow, Dominique Side, who is also known as Dominique Q. Hawkins and Dominique Quran, and Anthony Hall, who does business as 7800 Amelia Studios and 2061 Records.
Slik is the only plaintiff in this lawsuit, but the petition alleges more than 600 families who collectively had more than $10 million in escrow funds have been “defrauded” by SEAM.
Slik is represented by Marianne G. Robak and Lori Hood of Shackelford, McKinley & Norton.
Counsel for the defendants had not filed an appearance as of Monday.
The case number is 2024-39298.
Dallas County District Court
Primexx Moves to End Suit Over $788M Sale
Lawyers seeking to bring an early end to a lawsuit over Blackstone’s “rushed” $788M sale to Callon Petroleum told a judge in Dallas recently that the plain language of a contract allowed the move.
Primexx Energy Corporation lawyer Jeremy Fielding, of Kirkland & Ellis, argued Friday the lawsuit brought by Primexx Energy Fund LP against 13 defendants doesn’t need to go any further because it presents a “simple case involving a pure question of law” and urged 298th District Judge Emily Tobolowsky in Dallas to toss the case.
Primexx Energy Corporation ran the partnership that owned the oil and gas company. Fielding argued the motion for summary judgment on behalf of his client, BPP HoldCo, a Blackstone subsidiary, and former PEC CEO Christopher Doyle.
But Bryan Caforio of Susman Godfrey, who represents Primexx Energy Fund, said summary judgment should be denied because the defendants failed to show they exercised their duties of good faith and fair dealing, loyalty and care to PEF, which is “fatal” to their case.
“They cannot succeed without introducing facts to establish that they complied with at least the base level of the agreed duty of good faith and fair dealing and the base level of loyalty and care that can never be excluded, and they do not even attempt to establish that here,” Caforio said. “That means they cannot succeed and this case must move forward to a jury.”
The judge allowed the parties to argue for an hour without posing any questions. She also heard arguments for nearly an hour on motions from nine defendants who are affiliates of BPP HoldCo and one from a former board member and high-ranking employee of Blackstone Inc, the parent company of BPP HoldCo, trying to persuade the judge the lawsuit lacks allegations or evidence showing specific jurisdiction over them. The judge asked no questions in that hearing either.
In 2016, Primexx Energy Partners, Ltd, operating in the Delaware Basin, entered into a partnership with Blackstone, one of the world’s largest alternative investment firms. They signed a partnership agreement that included a “drag-along” provision that gave the majority owners the power to decide when to sell and at what price, Fielding asserted.
In 2021, the Blackstone limited partner in the investment invoked the drag-along right to force the sale to Callon Petroleum Company for $788 million. The sale was approved in August, but in June an independent third-party had valued the company at $1.43 billion, according to plaintiffs. The sale generated hundreds of millions of dollars for Blackstone, the plaintiffs said.
Plaintiffs received $10 million from the sale, said Chris Patton of Lynn Pinker Hurst & Schwegmann, who is representing the Blackstone defendants and its former senior managing director, Angelo Acconcia. Caforio attempted to rebut that, saying one plaintiff received nothing.
Fielding focused on two cases that he says support his argument the Primexx case should be thrown out: Cruz v. Ghani, which was decided in 2018 by the Fifth Court of Appeals, and John Masek Corp. v. Davis, which was decided in 1992 by the First Court of Appeals. In both cases, the courts of appeals ruled a breach did not occur because the contracts permitted the defendants’ actions. In the Cruz case, one of the partners had started a competing MRI center. In the Masek case, one of the partners forced the dissolution of the company, which the contract permitted.
The plaintiffs’ claims are based on “the existence of a duty that does not exist,” Fielding said.
But Caforio pointed out the appellate courts in those cases ruled on jury verdicts, not motions for summary judgment, to argue Tobolowsky should deny the motion for summary judgment. He presented Shannon Medical Center v. Triad Holdings, a case decided by the Fourteenth Court of Appeals, to argue a partner must satisfy the duty of care even when executing a particular transaction specifically authorized in the partnership agreement.
To make his case, Caforio pointed to plaintiffs’ allegation that two days before Blackstone informed the PEC Board of its intent to sell, PEC CEO Doyle told a board member that Callon’s offer was far too low. That illustrates the defendants knew the sale was a bad deal and breached their duty of good faith and fear dealing, Caforio said.
“The only way this drag along right means anything is if they are in compliance and Shannon Medical is exactly on point for this,” Caforio said. “It is not an implied duty that we are talking about. It is expressly in the contract.”
Plaintiffs originally filed the lawsuit in state court in December 2022. But according to a joint motion to dismiss for improper venue, a forum-selection clause in the partnership agreement mandated any court proceeding be brought solely in the U.S. District Court in Dallas. However, U.S. District Judge Ed Kinkeade decided last year that his court did not have subject matter jurisdiction to hear the case and plaintiffs refiled the case in state court.
Primexx Energy Opportunity Fund, LP, and Primexx Energy Opportunity Fund II, LP, are also represented by Sarah Hannigan and Stephen Shackelford of Susman Godfrey.
Primexx Energy Corporation is also represented by Zack Ewing of Kirkland & Ellis.
The Blackstone entities and Angelo Acconcia are also represented by Leo Park and Yaman Desai of Lynn Pinker Hurst & Schwegmann.
Christopher Doyle is represented by Taylor Levesque of Locke Lord.
The case is Primexx Energy Opportunity Fund, LP, et al vs. Primexx Energy Corporation, et al and the case number is DC-23-10916.
U.S. Bankruptcy Court, Delaware
Judge Tosses $285M in Claims Against Nobilis Health Execs
U.S. Bankruptcy Judge Craig T. Goldblatt recently determined six officers and directors of Nobilis Health Corporation, a Houston-based company that operates a chain of ambulatory and surgical health clinics, will not have to face claims they provided inaccurate financial statements.
Earlier in the litigation, Judge Goldblatt had dismissed claims against six other Nobilis officers and directors. The bankruptcy proceeding began in 2019, when Nobilis filed for Chapter 7 bankruptcy after insurers stopped paying for certain procedures performed at Nobilis’ more than 30 facilities.
The trustee accused the company’s officers and directors of breaching fiduciary duties by causing debtors to change practice and stop writing off receivables that had been outstanding for more than a year to “deceive lenders into extending credit.”
The trustee was seeking damages totaling $285 million.
“Discovery failed to produce evidence that would permit a reasonable finder of fact to conclude that the defendants breached their fiduciary duties,” Judge Goldblatt wrote. “To be sure, the evidence would be sufficient to permit a finding that the defendants participated in the company’s decision to take an aggressive accounting position. But in light of the deferential standard imposed by the business judgment rule, that is insufficient to give rise to a claim of breach of fiduciary duty.”
He wrote there was no evidence in the record that could lead a reasonable juror to conclude “that it was the accounting errors, rather than the underlying economic reality the debtors faced in view of the change in insurer behavior, that caused the business failure.”
The defendants are represented by Jason Dennis, Kent Krabill, Pat Disbennett, Leo Park, David Akere, and Andy Kim of Lynn Pinker Hurst & Schwegmann.
Disbennett has since joined the U.S. Securities and Exchange Commission.
Defendant and former Nobilis CEO Harry J. Fleming is represented by Paul Genender, Jake Rutherford and Marco Vasquez of Paul Hastings.
Defendant Steve Ozonian is represented by Andrew Gray of Latham & Watkins.
The trustee, Alfred T. Giuliano, is represented by John T. Carroll III of Cozen O’Connor and Steven M. Coren, Janice Felix and Benjamin M. Mather of Kaufman, Coren & Ress.
The case number is 21-51183.
Third Court of Appeals, Austin
Panel Poised to Toss AG’s Challenge to Austin Transit Plan
The parties involved in a lawsuit challenging the legality of the funding model for a major light rail project in Austin have been put on notice by the appellate court that the case may soon be sent back to the trial court.
The deputy clerk of the court, Chris Knowles, issued a letter to counsel for both sides June 28.
“After an initial review, it appears that this court lacks jurisdiction over this matter. The court has directed me to request that you file a response explaining how this court may exercise jurisdiction over this appeal,” the letter reads. “Please file your response with the Clerk of this Court on or before July 8, 2024. Failure to do so may result in the dismissal of this appeal.”
Travis County District Judge Eric Shepperd is presiding over the case where the city of Austin is seeking to have its bond issuances to fund the project validated by the court and a group of taxpayers are simultaneously asking the court to stop the city and Austin Transit Partnership from issuing bonds.
Those types of actions, pursuant to Texas Government Code, require a mandatory trial date. Trial in this dispute began March 18 with the admission of evidence and was recessed until June 17.
But rather than resuming trial, an appeal from the Texas attorney general — who argues ATP isn’t authorized to issue bonds — halted proceedings again. When the attorney general inserted his office into the dispute on April 18, he argued the court had to first determine whether the city and ATP qualified as “issuers” under the law before jurisdiction could be established.
This appeal came before Judge Shepperd ruled on that motion from the attorney general.
The city of Austin and the Austin Transit Partnership Local Government Corporation are represented by Paul Trahan and Emily Wolf of Norton Rose Fulbright, Elliot Clark, Jeff Nydegger and Matthew Hines of Winstead and Rosemarie Kanusky of McCall Parkhurst & Horton.
The attorney general is represented by Alyssa Bixby-Lawson and Thomas Bevilacqua of the office of the attorney general.
The case number is 03-24-00395-CV.
U.S. Court of Appeals for the Fifth Circuit
Permanent Injunction Upheld in American Rescue Plan Act Challenge
A unanimous three-judge panel in a June 25 ruling held that the terms Congress attached to funds states received from the American Rescue Plan Act was an unconstitutional exercise of its spending power and affirmed the district court’s permanent injunction.
Congress barred states that accepted some of the $200 billion in the pandemic-related economic recovery funds from using the money to “directly or indirectly offset” reductions in state tax revenue.
“In exercising its power under the Spending Clause, Congress has a constitutional obligation to cut a clear deal with the states when they accept federal funding,” the panel wrote. “Because the challenged provision is not clear about what it requires of the states, it falls short of that obligation and is impermissibly ambiguous.”
The ruling enjoins that provision and affirms an earlier decision by U.S. District Judge Matthew Kacsmaryk and also follows two other circuit courts that reached the same conclusion.
Judges Jennifer Walker Elrod, James C. Ho and Andrew S. Oldham sat on the panel.
The states are represented by Lanora Pettit of the Texas attorney general’s office, Justin Matheny of the Mississippi attorney general’s office and Elizabeth Murrill of the Louisiana attorney general’s office.
The federal government is represented by Daniel Winik and Alisa Klein of the Department of Justice in Washington, D.C.
The case number is 22-10560.
Editor’s Note: Krista Torralva contributed to this report.