In this edition of Litigation Roundup, a Texas federal judge threatens to toss a minority investor suit against Blackstone Inc., a Houston boutique notches a PTAB win against Apple, the Texas Supreme Court agrees to hear a suit stemming from the handling of a fen-phen settlement, and two other cases reversed by the Fifth Circuit.
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Northern District of Texas
Judge Threatens Dismissal in Primexx Investors’ $788M Sale Suit
U.S. District Judge Ed Kinkeade issued an order June 15 telling the minority investors who brought a lawsuit alleging that one of the largest private equity firms in the world, Blackstone Inc., committed breach of contract and breach of fiduciary duty that, based on their complaint, he doesn’t have jurisdiction to hear the lawsuit.
Primexx Energy Opportunity Fund minority investors accuse Blackstone, the majority owner of Primexx, of effectively rendering their roughly $200 million in investments “almost totally worthless, while generating hundreds of millions of dollars for Blackstone” when it forced a “quick” and “rushed” sale of the company below its fair value to Callon Petroleum in August 2021.
The plaintiffs filed the lawsuit May 4, alleging an independent third-party had valued the company at $1.43 billion the month before the sale, in June 2021.
Judge Kinkeade wrote that the complaint had two fatal flaws: It alleged only state-law claims against Blackstone Holdings and there’s no diversity of citizenship among the parties.
“Prior to dismissing the case on its own motion, the court will afford plaintiffs an opportunity to amend their complaint to sufficiently demonstrate a basis for this court’s subject matter jurisdiction or for either party to otherwise respond to this order by July 13, 2023,” he wrote.
Primexx Energy Opportunity Fund is represented by Stephen Shackelford Jr., Terrell W. Oxford, Bryan J.E. Caforio, Lindsey Godfrey Eccles, Marc M. Seltzer and Sarah Hannigan of Susman Godfrey.
Counsel for the defendants had not made an appearance as of Monday.
The case number is 3:23-cv-00985.
Oversight Board Authority Case Gets Sent to Mediation
U.S. District Judge Karen Gren Scholer has appointed Royal Ferguson, a retired federal judge, to mediate a dispute where a John Doe is challenging the authority of the U.S. Public Company Accounting Oversight Board, despite Doe telling the court he couldn’t afford the former Western District of Texas judge’s $4,000-per-side fee.
But in the June 13 order, Judge Scholer did write that “the mediator may, in the mediator’s sole discretion, alter the rate charged for mediation based on the parties’ financial resources.” She denied Doe’s request to send the case to a magistrate judge for mediation.
Doe, who identifies himself as an accountant who previously worked as an auditor at a firm in Colombia, filed suit in January, asking the court to stop the PCAOB “from continuing its unlawful and unconstitutional prosecution of him in secret disciplinary proceedings” on grounds that it violates the U.S. Constitution.
He alleges he became the target of a PCAOB investigation in 2019 stemming from his alleged failure to cooperate with an audit of an unnamed company’s 2015 financial statements. He is being represented in this lawsuit pro bono.
The mediation must be completed by Oct. 31, according to the order.
The PCAOB is represented by Donald Verrilli Jr. and Elaine J. Goldenberg, Ginger D. Anders, Dahlia Mignouna and Elissa A. Walter of Munger Tolles & Olson, Paul Watler, Marc Fuller and Hannah Walsh of Jackson Walker and Jeffrey Lamken of MoloLamken. The United States is represented by Richard Guiltinan of the Department of Justice.
The case number is 3:23-cv-00149.
Patent Trial and Appeal Board
Arigna Technology Beats Unified Patents, Apple at PTAB
Houston-based intellectual property boutique Heim, Payne & Chorush recently notched two wins at the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board against Unified Patents and Apple on behalf of client Arigna Technology.
The wins for the Ireland-based technology company were handed down June 13 and 14, respectively. Unified Patents was attempting to invalidate an Arigna patent that covers technology used in the automotive industry in hybrid and electric vehicles that prevents damage to high-voltage integrated circuits in the event of an overcurrent.
Apple had requested inter partes review of an Arigna patent, attempting to contest two claims covering semiconductor technology
Arigna’s lead attorney, Michael Heim of Heim, Payne & Chorush, issued a statement to The Lawbook crediting the firm’s “hard work and a deep dive into the technology” for securing the win.
“We began by doing an extensive technical analysis of the patented inventions and the asserted prior art,” he said. “That helped us develop a full understanding of the important distinctions between the two and how to best explain those differences to the panel.”
Arigna is also represented by Chris Limbacher of Heim, Payne & Chorush.
Apple is represented by Paul R. Hart and Adam P. Seitz of Erise IP.
The case numbers are IPR2022-00285 and IPR2023-00453.
Texas Supreme Court
High Court Will Hear Fen-Phen Settlement Estoppel Case
In a list of orders issued Friday, the Texas Supreme Court granted a petition for review attorney George Fleming had lodged with the high court in May 2022, agreeing to hear the case that asks whether thousands of former clients can proceed with a lawsuit accusing him of fiduciary and contractual breaches in the handling of a fen-phen product liability settlement.
The plaintiffs in this case, led by Rebecca Wilson, are about 4,000 individuals who sued Fleming and his firm alleging he had deducted certain costs from their settlements without authorization. The parties agreed to a trial plan under which six bellwether plaintiffs were selected.
After Fleming prevailed at that trial, he moved for summary judgment arguing the remaining plaintiffs were collaterally estopped from bringing the same claims against him. A trial court agreed and dismissed the case.
But the intermediate appellate court revived the suit, holding Fleming failed to prove the remaining plaintiffs had agreed to be bound by the bellwether verdict.
As of Monday, a date had not been set for oral arguments.
Fleming and his firm are represented by David M. Gunn of Beck Redden and Murray Fogler, Jas Brar and Michelle Gray of Fogler, Brar, O’Neil & Gray.
The plaintiffs are represented by Paul S. Kirklin of The Kirklin Law Firm.
The case number is 22-0166.
U.S. Court of Appeals for the Fifth Circuit
Death Penalty Sanctions Walked Back in Patent Infringement Case
On Monday a three-judge panel unanimously sided with CEATS, holding that U.S. District Judge Rodney Gilstrap wrongly imposed “litigation-ending sanctions without first finding bad faith” and also wrongly failed “to consider essential factors in its calculation of attorney fees.”
CEATS, a nonpracticing patent holding company, owns certain patents related to online ticketing technology. It brought a patent infringement lawsuit against TicketNetwork Inc. more than a decade ago that ended in a settlement under which CEATS received a lump-sum payment and ongoing royalty and TicketNetwork received a license to use the patents.
Later, in related litigation, a jury found CEATS’ patents were invalid, prompting TicketNetwork to file suit asking for a declaration that it hadn’t infringed the patents and that the license agreement was unenforceable.
CEATS filed counterclaims accusing TicketNetwork of breaching the licensing agreement and sought an accounting of payments it was due after TicketNetwork stopped payments.
TicketNetwork later voluntarily dropped its claims after losing a summary judgment bid but litigation continued on CEATS’ counterclaims.
A jury sided with CEATS and the entity was awarded compensatory damages, fees and costs. But after that jury trial was over and while CEATS’ claim for attorney fees was pending, CEATS asked the court to compel TicketNetwork to provide a list of affiliates websites it allows to view and sell TicketNetwork’s inventory.
Judge Gilstrap eventually ordered TicketNetwork to provide the list but prohibited CEATS from using the “highly confidential” list for any purposes outside the present litigation. Judge Gilstrap also prohibited CEATS’s in-house representatives from viewing the document and made CEATS certify that the list wouldn’t be viewed by “attorneys who are identifying or targeting licensing products.”
Later, CEATS’ CEO, Milford Skane, asked the company’s litigation consultants, Sonja McAuliffe and Brian Billett, for a “non-confidential” version of the list to use in global settlement negotiations with TicketNetwork. Skane emailed a settlement demand to TicketNetwork’s CEO and attached the list “as a starting point for negotiations,” according to the opinion, seeking a settlement between $10 million and $99 million.
TicketNetwork asked the court to sanction CEATS and Skane, McAuliffe and Billett for violating the protective order. Judge Gilstrap found the trio had violated his protective order and that CEATS had done so as well because Skane’s violation “occurred within the course and scope of his employment as CEO.”
Judge Gilstrap enjoined CEATS and the trio from seeking licensing fees, suing or seeking damages from TicketNetwork for 30 months and additionally imposed joint and several liability on CEATS and the individuals ordering they pay attorney fees, costs and expenses racked up prosecuting the protective-order violation.
The Fifth Circuit upheld Judge Gilstrap’s sanction against CEATS but vacated the part of the order that imposed liability against the three individuals and the part that imposed the licensing bar.
Judges Don R. Willett, Jennifer Walker Elrod and Catharina Haynes sat on the panel
CEATS is represented by Michael J. Sullivan and Brian Leske of Ashcroft Law Firm and Timothy A. Burnett and George L. Hampton IV of Hall Griffin.
TicketNetwork is represented by David Brandon Conrad, Carl Edward Bruce, Matt Colvin, Aaron P. Pirouznia and John Thornburgh of Fish & Richardson.
The case numbers are 21-40705 and 22-40028.
Lawsuit Challenging New Braunfels Short-Term Rental Ban Revived
A group of residents challenging as unconstitutional the City of New Braunfels’ ban on short-term rentals of certain residential properties had their lawsuit revived on appeal.
In a two-page opinion issued June 16, a panel determined 2-1 that dismissal of the suit had been premature.
“The district court ordered dismissal by approving a few conclusory paragraphs in a magistrate judge’s recommendation,” the court held. “This court’s relevant case law, however, indicates that some factual development may often occur in these cases, and that summary judgment may often follow. We make no prediction on the future course of this case, but based on the complaint’s well-pled allegations, plaintiffs are entitled to engage in discovery in an attempt to surmount the currently high bar for challenging local zoning ordinances under the Constitution.”
U.S. Magistrate Judge Jeffrey C. Manske had issued a report in July 2021 recommending the lawsuit be dismissed.
In a footnote, the court wrote that Judge Catharina Haynes dissented from the majority and would have sided with U.S. District Judge Alan Albright’s September 2022 decision to toss the case.
The ruling in this case came just days after the Dallas City Council voted to enact a similar short-term rental ban in areas with single-family zoning.
Judges Edith H. Jones and Edith Brown Clement also sat on the panel.
New Braunfels is represented by Greg Alan Waldrop and Ryan D.V. Greene of Terrill & Waldrop.
The plaintiffs are represented by J. Patrick Sutton of Austin and Chance Weldon, Robert E. Henneke and Christian G. Townsend of the Texas Public Policy Foundation.
The case number is 22-50908.