A hedge fund that bought pieces of loans to a Texas corporation sued the borrower's directors. The hedge fund alleged breach of fiduciary duty. But it didn't claim that the firm had ceased operations.
The hedge fund argued in response to the directors' motion to dismiss that the absence of such a charge didn't matter.
Today, the U.S. District Court for the Northern District of Texas ruled that it does matter. The Court pointed to the fact that Texas has no statute that allows creditors to sue derivatively and that Texas cases applying Texas common law have never permitted such a derivative claim except under the "trust fund" doctrine. That doctrine requires that the corporation have ceased operations.
The defect in the complaint proved fatal to it, although the Court did allow the hedge fund 21 days to try to replead if it can.
[Barry Barnett, who wrote this post, represents the directors in the case, Aurelius Capital Master, Ltd. v. Acosta, No. 3:13-cv-173-P (N.D. Tex.).]
Juror No. 2 claimed that Juror No. 1 had threatened her with a "fork" and later vowed to "cut" her.
Juror No. 2 told the judge that "I feel I'm not safe" as a result of taunts by the eight other members of the jury.
Counsel for Exxon agreed to excuse Juror No. 2 but also moved to strike Juror No. 1. The district court did let Juror No. 2 go but kept No. 1.
The jury awarded $104.69 million to the City of New York for Exxon's role in causing methyl tertiary butyl ether (MTBE) to enter water wells in Queens. Exxon argued on appeal that the district court should have excused Juror No. 1 also.
The Second Circuit affirmed. The panel pointed out that only Juror No. 2 showed any sign of fearing Juror No. 1. It held:
With this established, we easily conclude that the relief Exxon sought -- removal of Juror No. 1 -- would have done nothing to change the outcome of the case; it would simply have left an eight- rather than nine-person verdict.
In re Methyl Tertiary Butyl Ether ("MTBE") Products Liability Litig., No. 10-4135-cv, slip op. at 106 (2d Cir. July 26, 2013).
A Houston jury awarded Wellogix $94.4 million for Accenture's misappropriation of trade secrets in software that helped oil and gas companies track and manage costs of drilling wells. The judge cut the award to what Wellogix asked for -- $26.2 million in actual damages plus $18.2 million in punies. And today the Fifth Circuit affirmed. Wellogix, Inc. v. Accenture, L.L.P., No. 11-20816 (5th Cir. May 15, 2013).
The case might pass without remark except for the respect the panel showed for the jury's work on the case. In the opening paragraph, the court set the tone by quoting Supreme Court decisions from more than 60 years ago on the test for setting aside a verdict:
"Only when there is a complete absence of probative facts to support the conclusion reached does a reversible error appear." Lavender v. Kurn, 327 U.S. 645, 653 (1946).
"But juries are not bound by what seems inescapable logic to judges." Morissette v. United States, 342 U.S. 246, 276 (1952).
See Wellogix, slip op. at 1 & 2.
The panel went on to approve the jury's finding of misappropriation and its awards of actual and exemplary damages.
To which Blawgletter says "wow" and "way to go".
Oil and gas cases seem to supply more than their share of fights about the meaning of contract terms. Why? We suspect it has something to do with money.
Take Total E&P USA, Inc. v. Kerr-McGee Oil & Gas Corp., No. 11-30038 (5th Cir. Mar. 12, 2013). In that case, two of three lessees of acreage that lies offshore Louisiana, Total and Statoil, refused to pay overriding royalties to Kerr-McGee and others. The third lessee, Chevron, did pay. Why the difference? Total and Statoil asserted that a sentence in the assignments of the overriding royalty interests entitled them to suspend payment of overrides until the lease produced 87.5 million barrels of "oil equivalent". The sentence provided:
The overriding royalty interest assigned herein shall be calculated and paid in the same manner and subject to the same terms and conditions as the landowner's royalty under the Lease.
Total and Statoil claimed that, because a federal statute entitled them to "suspend" payment of royalties that they otherwise owed to the United States as lessor until the lease reached the 87.5 million barrel threshhold, neither did they have to pay the overrides during the suspension.
Think again, the Fifth Circuit held. The panel ruled that what it called the "calculate and pay" language did not clearly and explicitly entitle the lessees to piggyback their overriding royalty obligations on the statutory suspension. The case thus went back to the district court for more work.
Chevron and the Republic of Ecuador have beaten and bloodied each other for two decades now in what seems like just about every U.S. and Ecuadoran court that exists. The fight relates to claims in arbitration that Chevron predecessor Texaco polluted oil fields in Ecuador. Background here. And it has so far resulted in a multi-billion-dollar arbitral award and a court judgment that Ecuador has yet to collect.
The dispute landed before the Fifth Circuit after Ecuador tried to get discovery from an American, John Connor, and his firm, GSI Environmental. The district court denied Ecuador's request for aid in obtaining the discovery on the ground that the arbitral entity didn't qualify, under 28 U.S.C. 1782, as a "foreign or international tribunal" under Fifth Circuit precedent.
The Fifth Circuit reversed on the basis of judicial estoppel. Chevron, the panel pointed out, had over and over again gotten discovery through U.S. courts by claiming that the arbitral entity did constitute an "international tribunal" and therefore could not now deny the entity's status as an IT. Republic of Ecuador v. Connor, No. 12-20123 (5th Cir. Feb. 13, 2013).
Happy Valentine's Day!
Fix in your mind an image -- of an offshore drilling rig. One that looks like a big boat. You see the derrick. It sits atop and in the middle of the boat. And then you notice something odd. The derrick has two tops, from each of which a string of metal depends. What gives?
Steady there. You've just spotted the tell-tale signs of an invention that one of the world's largest offshore drillers, Transocean (yes, that Transocean), got patents on three times over. The "dual drawworks" design allows drillers to do two things at once -- such as drill two wells or lower a blow-out preventer while lifting drill pipe out of the borehole. Which sure sounds like a good idea, especially for rigs that prospect in very deep water.
But another drilling firm, Maersk, deemed the invention "obvious", which the Court in KSR Int'l Co. v. Teleflex, Inc., 550 U.S. 398 (2007), confirmed will make a patent invalid. And Maersk seemed to have a point. If all the world uses a single drawworks, what could appear more blazingly obvious -- patent, even! -- than simply adding a second?
Except that sort of thinking gets you only so far. As the Federal Circuit pointed out, as it reviewed a judgment against Transocean on the obviousness issue, the fact that you could combine distinct ideas that others had imagined before you doesn't make the combination obvious. Looking at "objective factors" that tend to suggest or negate obviousness can make the difference. And it did in this case.
The Transocean design produced "commercial success" (oil and gas people wanted its dual-drawworks rigs), won "industry praise" (the same people said nice things about those rigs), generated "unexpected results" (the rigs worked better than people thought they would), prompted "copying" (by envious competitors), parodoxically earned "industry skepticism" (that the rigs would not work well), resulted in "licensing" (by more candid competitors), and met a "long-felt but unsolved need" (for the doing two jobs at once thing). Transocean Offshore Deepwater Drilling, Inc. v. Maersk Drilling USA, Inc., No. 11-1555 (Fed. Cir. Nov. 15, 2012).
Bonus: Check out the cool video.
| | | | |
A great many of your bigger companies require new hires to sign contracts that convey to the employers any "Intellectual Property" that the workers "make or conceive" during the term of employment. Courts treat such assignments as valid in spite of the at-will nature of the relationship.
But what happens if a worker conceives an invention before starting the new job and inking the contract but doesn't make it until later? Does the invention belong to her or to the employer?
The Federal Circuit ruled in Preston v. Marathon Oil Co., No. 11-1013 (Fed. Cir. July 10, 2012), that the company wins in that situation. It concluded that Yale Preston lost his ownership of a patentable invention, which improved the flow of methane gas from wells that tapped wet coal seam beds, when he executed "the April Employee Agreement". In paragraph 1(b) of that writing, Preston "hereby assign[ed] to MARATHON all Intellectual Property" that he "made or conceived . . . during the term of employment with MARATHON which (1) relate to the present or reasonably anticipated business of the MARATHON GROUP, or (2) were made or created with the use of Confidential Information or any equipment, supplies, or facilities of the MARATHON GROUP."
Even if Preston had "conceived" the invention before he began work for Marathon, the court noted, he had not "made" it (or, as the patent jocks say, "reduced it to practice") until after he joined the Marathon team. Id. at 17. That made all the difference:
The plain language of [the contract] indicates that any "invention" that is "made or conceived" by an employee while employed at Marathon constitutes "Intellectual Property" and is therefore automatically is [sic] assigned to Marathon under Paragraph 3. (emphasis added). Thus, if Preston's invention was not both made and conceived prior to his employment, it constitutes "Intellectual Property" under Paragraph 1 of the April Employeet Agreement.
Id. (emphasis in original).
But Preston still might have an out, the panel said. In the contract, he had listed "CH4 Resonating Manifold" as one of his "unpatented inventions", which Marathon agreed "are NOT Intellectual Property and are NOT the property of MARATHON hereunder."
That didn't work either. The district court found, after a bench trial, that "Preston 'had little more than a vague idea [of the invention] before his employment with Marathon began". Id. That, the court held, did not count as "conception" of the invention because "an invention necessarily requires at least some definite understanding of what was invented." Id. at 20.
So there you have it. Before you sign that innocent-looking, standard-form, two-page employment agreement, think about whether you do have an "unpatented invention" rattling around in your brain, make sure you list it, and take steps to get it to the point at which it satisfies the Federal Circuit's test for conception of an "invention" -- "at least some definite understanding" of what you invented.
| | | | |
The Fifth Circuit ruled last week that the terms of an oil and gas lease could give a real estate firm the right to damages for drilling operations that hurt the firm's efforts to build and sell homes in a Shreveport subdivision. Greenwood 950, L.L.C. v. Chesapeake Louisiana, L.P., No. 11-30436 (5th Cir. June 12, 2012).
The lease covered 238 acres in Caddo Parish. It called for the lessee, Chesapeake, to confine its drilling work to a small part of the tract, a precise 16.5 acres. And Chesapeake kept that promise. But, because it blocked the main road into the tract, the lessor, Greenwood 950, alleged, Chesapeake injured Greenwood's prospects for turning the rest of the land into a bodacious Shreveport subdivision.
But, you ask, what does the lease say? It provides, as we learn on page 5 of the Fifth Circuit's opinion, that Chesapeake agreed to "repair all surface damages done by its operations or shall pay Lessor for all damages caused by any operations hereunder to any property, both real and personal, of Lessor and Lessor's tenant, if any".
Note the "or shall pay Lessor for all damages". Especially the "or".
The district court ruled, on motion for summary judgment, that the or clause meant "surface damages" and not injury to Greenwood's hopes for turning the tract into a cash cow. The Fifth Circuit begged to differ. It found the lease unclear and sent the case back to the district court. The promise to pay for "all" damages, the panel ruled, could cover harm to Greenwood's developmental hopes and dreams, which it assumed counted as "damages . . . to . . . property".
Blawgletter mainly wonders if hurting a real estate developer's plans for a subdivision amounts to harm to "property". Does a cause of action for consequential damages equal an interest in "property"? But perhaps a physical interference such as Chesapeake's with the doing of things necessary to make a real estate development viable does count as damages to property.
Do you think of Chicago as an oil and gas town? Dallas, yes; Houston, for sure; New Orleans, uh-huh; maybe Bismarck, North Dakota (for the shale gas); and perhaps even New York (because of trading oil futures on the NYMEX).
But wait up. Today Judge Richard Posner wrote about oil and gas leases. Forget that the leases covered acreage in Texas. And never mind that he mainly lays out some basics on "lessor", "lessee", "primary term", "secondary term", and "operator". Judge Posner represents Chicago the way J. R. Ewing does Dallas. And the fact that a Chicagoan wrote about oil and gas sort of tickled Blawgletter.
The case involved a not-so-mundane fight over contempt of an Indiana district court's order. The edict in question called on SonCo Holdings to pay a $250,000 bond to the Texas Railroad Commission, which deals with oil and gas matters in the Lone Star State, and to replace ALCO Oil & Gas as the leases' "operator", which handles drilling wells and so forth. Except the order didn't say the part about getting a new operator in So Many Words. Yet the judge held SonCo in "contempt" for not doing what the order required and as a "sanction" forced SonCo to sign the leases over to ALCO. SonCo appealed.
Judge Posner didn't buy SonCo's point that it didn't violate the order because the order didn't say in So Many Words "get a new operator to replace ALCO". "We said the order was poorly drafted, and meant it wasn't clear." Securities and Exchange Comm'n v. First Choice Mgmt. Svcs., Inc., No. 11-1702, slip op. 10 (7th Cir. May 1, 2012). That differs from calling the order "ambiguous". He noted that "context . . . can disambiguate . . . [and] does so in this case." Id.
The panel vacated the sanction, though, finding that the district court didn't explain how forcing SonCo to give the leases over to ALCO counted as compensation rather than punishment and therefore made the order one for civil contempt rather than the criminal kind.