Justia U.S. 5th Circuit Court of Appeals Opinion Summaries

In 2020, Illumina, a for-profit corporation that manufactures and sells next-generation sequencing (NGS) platforms, which are crucial tools for DNA sequencing, entered into an agreement to acquire Grail, a company it had initially founded and then spun off as a separate entity in 2016. Grail specializes in developing multi-cancer early detection (MCED) tests, which are designed to identify various types of cancer from a single blood sample. Illumina's acquisition of Grail was seen as a significant step toward bringing Grail’s developed MCED test, Galleri, to market.However, the Federal Trade Commission (FTC) objected to the acquisition, arguing that it violated Section 7 of the Clayton Act, which prohibits mergers and acquisitions that may substantially lessen competition. The FTC contended that because all MCED tests, including those still in development, relied on Illumina’s NGS platforms, the merger would potentially give Illumina the ability and incentive to foreclose Grail’s rivals from the MCED test market.Illumina responded by creating a standardized supply contract, known as the "Open Offer," which guaranteed that it would provide its NGS platforms to all for-profit U.S. oncology customers at the same price and with the same access to services and products as Grail. Despite this, the FTC ordered the merger to be unwound.On appeal, the United States Court of Appeals for the Fifth Circuit found that the FTC had applied an erroneous legal standard in evaluating the impact of the Open Offer. The court ruled that the FTC should have considered the Open Offer at the liability stage of its analysis, rather than as a remedy following a finding of liability. Furthermore, the court determined that to rebut the FTC's prima facie case, Illumina was not required to show that the Open Offer would completely negate the anticompetitive effects of the merger, but rather that it would mitigate these effects to a degree that the merger was no longer likely to substantially lessen competition.The court concluded that substantial evidence supported the FTC’s conclusions regarding the likely substantial lessening of competition and the lack of cognizable efficiencies to rebut the anticompetitive effects of the merger. However, given its finding that the FTC had applied an incorrect standard in evaluating the Open Offer, the court vacated the FTC’s order and remanded the case for further consideration of the Open Offer's impact under the proper standard. View "Illumina v. FTC" on Justia Law

The Securities and Exchange Commission (“SEC”) sued Defendant as well as other individual Defendants and corporate entities for securities violations. Defendant appealed the district court’s order appointing a receiver over all corporations and entities controlled by him. A central dispute between the parties is what test the district court should have applied before imposing a receivership. Defendant argued the district court abused its discretion because it did not apply the standard or make the proper findings under the factors set forth in Netsphere (“Netsphere factors”). The SEC responded that Netsphere is inapplicable and the district court’s findings were sufficient under First Financial.   The Fifth Circuit vacated the district court’s order appointing a receiver. The court granted in part Defendant’s motion for a partial stay pending appeal. The court explained that, as Defendant points out, the district court’s order denying the stay discussed events and actions that took place after the receivership was already in place. Accordingly, the court vacated the appointment of the receiver and remanded so that the district court may consider whether to appoint a new receivership under the Netsphere factors. The court immediately suspended the receiver’s power to sell or dispose of property belonging to receivership entities, including the power to complete sales or disposals of property already approved by the district court. The court explained that the suspension does not apply to activities in furtherance of sales or dispositions of property that have already occurred or been approved by the district court. The court clarified that “activities in furtherance” do not include the completion of the sale of any property. View "SEC v. Barton" on Justia Law

A Listeria outbreak led to a shutdown of Blue Bell factories and a nationwide recall of its products. Consequently, Blue Bell suffered a substantial financial loss. A shareholder of Blue Bell Creameries brought a derivative action against Blue Bell’s directors and officers, alleging a breach of fiduciary duties. The shareholder, on behalf of Blue Bell, alleged that Blue Bell’s officers and directors breached their fiduciary duties of care and loyalty by failing “to comply with regulations and establish controls.” The Blue Bell Defendants appealed the district court’s grant of summary judgment in favor of Discover Property & Casualty Insurance Company and the Travelers Indemnity Company of Connecticut.   The Fifth Circuit affirmed. Here, only the duty to defend is at issue because the parties have stipulated that “If the district court finds there is no duty to defend, it may also find there is no duty to indemnify, but otherwise the duty to indemnify will not be a subject of the Parties’ motions.” Accordingly, the court wrote that it is confined by Texas’s “eight-corners rule,” which directs courts to determine an insurer’s duty to defend based on: (1) the pleading against the insured in the underlying litigation and (2) the terms of the insurance policy. The court explained that while it disagrees with the district court’s determination as to whether the directors and officers are “insureds” in relation to the shareholder lawsuit, it agreed with its determination that the complaint in the shareholder lawsuit does not allege any “occurrence” or seek “damages because of bodily injury.” Each issue is independently sufficient for affirmance. View "Discover Property Cslty v. Blue Bell" on Justia Law

Plaintiff, an investor and venture capitalist and the CEO of InterOil Corporation (“InterOil”), developed a business relationship. Throughout that relationship, Plaintiff (and “entities controlled and beneficially owned by him”) provided loans, cash advances, and funds to the CEO and InterOil. Plaintiff and the CEO continued to have a business relationship until 2016, at which point the CEO’s actions and words made Plaintiff concerned he would not receive his shares back from the CEO. In late 2017, as part of a larger suit against the CEO, Plaintiff and Aster Panama sued the J.P. Morgan Defendants for (1) breach of trust and fiduciary duty, (2) negligence, and (3) conspiracy to commit theft. The district court granted summary judgment on all counts relating to the J.P. Morgan defendants and awarded them attorneys’ fees under the Texas Theft Liability Act (“TTLA”).   The Fifth Circuit affirmed. Under Texas law, the only question is whether the J.P. Morgan Defendants expressly accepted a duty to ensure the stocks were kept in trust for Plaintiff or Aster Panama. That could have been done by express agreement or by the bank’s acceptance of a deposit that contained writing that set forth “by clear direction what the bank is required to do.” Texas courts require a large amount of evidence to show that a bank has accepted such a duty. Here, no jury could find that the proffered statements and emails were sufficient evidence of intent from the J.P. Morgan Defendants to show an express agreement that they “owe[d] a duty to restrict the use of the funds for certain purposes.” View "Civelli v. J.P. Morgan Chase" on Justia Law

Petitioner filed a complaint with OSHA, asserting that Saybolt and Core Labs had violated Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, Title VIII of the Sarbanes-Oxley Act, 18 U.S.C. 1514A(a), by retaliating against him for blowing the whistle on an alleged scheme to violate Colombian tax law. OSHA, an ALJ, and the Board all rejected petitioner's complaint. The court concluded that petitioner did not demonstrate that he engaged in protected conduct because he did not complain, based on a reasonable belief, that one of six enumerated categories of U.S. law had been violated. Petitioner had not demonstrated that he engaged in any protected activity, and given this, the court could not say that Core Labs knew that petitioner engaged in a protected activity that was a contributing factor in the unfavorable actions of withholding petitioner's pay raise and ultimately terminating him. Accordingly, the court affirmed the Board's dismissal of petitioner's complaint because he had not demonstrated that his claim fell within the scope of section 806. View "Villanueva v. U.S. Dept. of Labor" on Justia Law

Muse, Nelson, and Weiss, and two others formed DGP. The five individuals were DGP’s limited partners; its general partner was MNW LLC, consisting of Muse, Nelson, and Weiss. DGP contracted to buy Gas Solutions and Prospect agreed to lend DGP 95% of the purchase price, subject to due diligence. The agreement prevented DGP from negotiating with other lenders. Prospect’s investigation raised concerns and it informed DGP that it would not make the loan. After DGP threatened to sue, Prospect agreed to pay DGP $3.295 million as reimbursement for DGP’s expenses and DGP agreed to assign Prospect its right to buy Gas Solutions. DGP assigned the purchase contract to DGP’s general partner, MNW, owned by Muse, Nelson and Weiss, who then sold Prospect their individual membership interests, transferring the contract to Prospect. Despite a mutual release, DGP sued Prospect alleging fraud, breach of fiduciary duty, and tortious interference with contract. Prospect counterclaimed alleging breach of the covenant not to sue. The district court granted summary judgment in favor of Prospect and awarded attorneys’ fees in its award. The Fifth Circuit affirmed, rejecting an argument that the covenants did not bind the individuals. Under an interpretation of the agreement giving effect to all its terms, Nelson and Muse breached the agreement by funding DGP’s lawsuits and violated the release and covenant not to sue.View "Dallas Gas Partners, L.P. v. Prospect Energy Corp" on Justia Law

Spring Street, seeking to recover against Bayou and its owner Douglas Lam on defaulted promissory notes, claimed that certain transfers that defendants made were fraudulent: (1) Bayou's transfer of "hard assets" to LT Seafood when LT Seafood took over Bayou's retail operations at the 415 East Hamilton location; (2) Douglas Lam's transfer of his 49% interest in LT Seafood to DKL & DTL; and (3) DKL & DTL's subsequent transfer of this 49% interest to Vinh Ngo. The court concluded that Spring Street could pierce DKL & DTL's corporate veil on the basis of fraud and impose individual liability on the LLC members. Accordingly, the court affirmed the district court's summary judgment in favor of Spring Street with regard to these claims. However, the court concluded that Ten Lam and Ngo have raised a genuine dispute of fact as to both which "hard assets" Bayou transferred to LT Seafood and the value of those assets on the date of the transfer. Accordingly, the court vacated the judgment in regards to Spring Street's fraudulent transfer claim against Lam and Ngo for the amount of $150,000 and remanded for further proceedings. View "Spring Street Partners v. Lam, et al." on Justia Law

Petitioner challenged the IRS's determination that the gross income petitioners reported in 2003 and 2004 based on their ownership of a controlled foreign corporation should have been taxed at the rate of petitioners' ordinary income rather than the lower tax rate they had claimed. At issue was whether amounts included in petitioners' gross income for 2003 and 2004 pursuant to 26 U.S.C. 951(a)(1)(B) and 956 (collectively, "section 951 inclusions") constituted qualified dividend income under 26 U.S.C. 1(h)(11). The court concluded that section 951 inclusions did not constitute actual dividends because actual dividends required a distribution by a corporation and receipt by a shareholder and these section 951 inclusions involved no distribution or change in ownership; Congress clearly did not intend to deem as dividends the section 951 inclusions at issue here; and petitioners' reliance on other non-binding sources were unavailing. Accordingly, the court affirmed the judgment of the tax court. View "Rodriguez, et al. v. Commissioner of Internal Revenue" on Justia Law

This appeal arose from eleven notices of final partnership administrative adjustment (FPAAs) issued by the IRS with respect to three Limited Liability Companies (LLCs) treated as partnerships for tax purposes. The IRS claimed that the partnerships' transactions provided one partner with an illegal tax shelter to avoid taxes on his unrelated personal capital gain of the same approximate amount. The court affirmed the district court's determinations that (1) the FOCus transactions lacked economic substance and must be disregarded for tax purposes; (2) the negligence penalty was applicable and the partnerships were not entitled to the reasonable cause defense; and (3) the valuation misstatement penalty was inapplicable. The court vacated and rendered judgment for plaintiffs as to the remaining claims addressing the FPAAs premised on the government's alternative theory under Treasury Regulation 1.701-2 and the district court's approval of the alternative substantial understatement penalty. View "Nevada Partners Fund, et al. v. United States" on Justia Law

Three cases related to the Mexican reorganization of Vitro S.A.B. de C.V., a corporation organized under the laws of Mexico, were consolidated before the court. The Ad Hoc Group of Vitro Noteholders, a group of creditors holding a substantial amount of Vitro's debt, appealed from the district court's decision affirming the bankruptcy court's recognition of the Mexican reorganization proceeding and Vitro's appointed foreign representatives under Chapter 15 of the Bankruptcy Code. Vitro and one of its largest third-party creditors each appealed directly to the court the bankruptcy court's decision denying enforcement of the Mexican reorganization plan because the plan would extinguish the obligations of non-debtor guarantors. The court affirmed in all respects the judgment of the district court affirming the order of the bankruptcy court in No. 12-10542, and the court affirmed the order of the bankruptcy court in Nos. 12-0689 and 12-10750. The temporary restraining order originally entered by the bankruptcy court, the expiration of which was stayed by the court, was vacated, effective with the issuance of the court's mandate in Nos. 12-10689 and 12-10750. View "Ad Hoc Group of Vitro Noteholders v. Vitro S.A.B. de C.V." on Justia Law