Justia Contracts Opinion Summaries

Carol Rose, a prominent figure in the American Quarter Horse industry, entered into a series of agreements with Lori and Philip Aaron in 2013. The Aarons agreed to purchase a group of Rose’s horses at an auction, lease her Gainesville Ranch with an option to buy, and employ her as a consultant. The relationship quickly soured after the auction, with both sides accusing each other of breaches. Rose locked the Aarons out of the ranch and asserted a stable keeper’s lien for charges exceeding those related to the care of the Aarons’ horses. The Aarons paid the demanded sum and removed their horses. Litigation ensued, including claims by Jay McLaughlin, Rose’s former trainer, for damages related to the value of two fillies.The bankruptcy filings by Rose and her company led to the removal of the ongoing state-court litigation to the United States Bankruptcy Court. After trial, the bankruptcy court ruled in favor of the Aarons on their breach of contract and Texas Theft Liability Act (TTLA) claims, awarding damages and attorneys’ fees, and in favor of McLaughlin on his claim. The United States District Court for the Eastern District of Texas reversed the bankruptcy court’s rulings on the Aarons’ claims and McLaughlin’s claim, vacating the damages and fee awards.On appeal, the United States Court of Appeals for the Fifth Circuit affirmed the district court’s reversal of the damages award for the Aarons’ breach of contract claim, holding that the Aarons failed to prove damages under any recognized Texas law measure. The Fifth Circuit reversed the district court’s judgment on the TTLA claim, holding that Rose’s threat to retain the Aarons’ horses for more than the lawful amount could constitute coercion under the TTLA, and remanded for further fact finding on intent and causation. The court also reversed and remanded the judgment regarding McLaughlin’s claim, finding his damages testimony legally insufficient. The court left the issue of attorneys’ fees for further proceedings. View "Rose v. Equis Equine" on Justia Law

Yellow Corporation, a major trucking company, ceased operations and filed for bankruptcy in 2023. As a result, it withdrew from several multiemployer pension plans, triggering withdrawal liability—an amount owed to the pension plans to cover unfunded vested benefits for employees. The pension plans, which had received substantial federal funds under the American Rescue Plan Act of 2021 (ARPA) to stabilize their finances, filed claims against Yellow’s bankruptcy estate for withdrawal liability. The dispute centered on how much of the ARPA funds should be counted as plan assets when calculating Yellow’s liability, as well as whether certain contractual terms could require Yellow to pay a higher withdrawal liability than statutory minimums.The United States Bankruptcy Court for the District of Delaware reviewed the claims. It upheld two regulations issued by the Pension Benefit Guaranty Corporation (PBGC): the Phase-In Regulation, which requires ARPA funds to be counted as plan assets gradually over time, and the No-Receivables Regulation, which bars plans from counting ARPA funds as assets before they are actually received. The Bankruptcy Court found these regulations to be valid exercises of PBGC’s authority and not arbitrary or capricious. It also ruled that two pension plans could enforce a contractual provision requiring Yellow to pay withdrawal liability at a higher, agreed-upon rate, rather than the rate based solely on its actual contributions.On direct appeal, the United States Court of Appeals for the Third Circuit affirmed the Bankruptcy Court’s order. The Third Circuit held that the PBGC’s regulations were valid under ARPA and ERISA, as Congress had expressly delegated authority to the PBGC to set reasonable conditions on the allocation of plan assets and withdrawal liability. The court also held that pension plans could enforce contractual terms requiring higher withdrawal liability, as the statutory scheme sets a floor, not a ceiling, for such liability. View "In re: Yellow Corporation" on Justia Law

A medical device distributor sued a former employee, alleging that he breached a non-compete agreement, his duty of loyalty, and misappropriated trade secrets after joining a competitor. The employee responded with counterclaims and third-party claims. During the litigation, the employee filed for Chapter 7 bankruptcy, which stayed the district court proceedings. In the bankruptcy case, the distributor filed a proof of claim for damages, which the employee did not contest. The bankruptcy court allowed the claim, and the distributor received a partial distribution from the bankruptcy estate. The employee also waived his right to discharge, leaving him potentially liable for the remaining balance.After the bankruptcy case closed, the United States District Court for the District of Vermont lifted the stay. The distributor sought summary judgment for the balance of its allowed claim, arguing that the bankruptcy court’s allowance of its claim should have preclusive effect. Initially, the district court denied this request, finding that using claim preclusion offensively would be unfair. Upon reconsideration, however, the district court reversed itself and granted summary judgment to the distributor for the remaining balance, holding that claim preclusion applied.On appeal, the United States Court of Appeals for the Second Circuit reviewed the district court’s grant of summary judgment de novo. The Second Circuit held that, even if claim preclusion could sometimes be used offensively, it could not be applied in this case because it would be unfair to the employee, who had less incentive to contest the claim in bankruptcy. The court vacated the district court’s judgment in favor of the distributor and remanded the case for further proceedings. The main holding is that claim preclusion cannot be used offensively to secure a judgment for the balance of an allowed bankruptcy claim under these circumstances. View "Thermal Surgical, LLC v. Brown" on Justia Law

Fraunhofer-Gesellschaft zur Förderung der angewandten Forschung e.V. (Fraunhofer) is a non-profit research organization that developed and patented multicarrier modulation (MCM) technology used in satellite radio. In 1998, Fraunhofer granted WorldSpace International Network, Inc. (WorldSpace) an exclusive license to its MCM technology patents. Fraunhofer also collaborated with XM Satellite Radio (XM) to develop a satellite radio system, requiring XM to obtain a sublicense from WorldSpace. XM later merged with Sirius Satellite Radio to form Sirius XM Radio Inc. (SXM), which continued using the XM system. In 2010, WorldSpace filed for bankruptcy, and Fraunhofer claimed the Master Agreement was terminated, reverting patent rights to Fraunhofer. In 2015, Fraunhofer notified SXM of alleged patent infringement and filed a lawsuit in 2017.The United States District Court for the District of Delaware initially dismissed the case, ruling SXM had a valid license. The Federal Circuit vacated this decision and remanded the case. On remand, the district court granted summary judgment for SXM, concluding Fraunhofer's claims were barred by equitable estoppel due to Fraunhofer's delay in asserting its rights and SXM's reliance on this delay to its detriment.The United States Court of Appeals for the Federal Circuit reviewed the case and reversed the district court's summary judgment. The Federal Circuit agreed that Fraunhofer's delay constituted misleading conduct but found that SXM did not indisputably rely on this conduct in deciding to migrate to the high-band system. The court noted that SXM's decision was based on business pragmatics rather than reliance on Fraunhofer's silence. The case was remanded for further proceedings to determine if SXM relied on Fraunhofer's conduct and if it was prejudiced by this reliance. View "Fraunhofer-Gesellschaft v. Sirius XM Radio Inc." on Justia Law

Cashman Equipment Corporation, Inc. (Cashman) was contracted by Cardi Corporation, Inc. (Cardi) to construct marine cofferdams for the Sakonnet River Bridge project. Cashman then subcontracted Specialty Diving Services, Inc. (SDS) to perform underwater aspects of the cofferdam installation. Cardi identified deficiencies in the cofferdams and sought to hold Cashman responsible. Cashman believed it had fulfilled its contractual obligations and sued Cardi for breach of contract, unjust enrichment, and quantum meruit. Cardi counterclaimed, alleging deficiencies in Cashman's construction. Cashman later added SDS as a defendant, claiming breach of contract and seeking indemnity and contribution.The Superior Court denied SDS's motion for summary judgment, finding genuine disputes of material fact. The case proceeded to a jury-waived trial, after which SDS moved for judgment as a matter of law. The trial justice granted SDS's motion, finding Cashman failed to establish that SDS breached any obligations. SDS then moved for attorneys' fees, which the trial justice granted, finding Cashman's claims were unsupported by evidence and lacked justiciable issues of fact or law. The trial justice ordered mediation over attorneys' fees, resulting in a stipulated amount of $224,671.14, excluding prejudgment interest.The Rhode Island Supreme Court reviewed the case and affirmed the Superior Court's amended judgment. The Supreme Court held that the trial justice did not err in granting judgment as a matter of law, as Cashman failed to provide specific evidence of justiciable issues of fact. The Court also upheld the award of attorneys' fees, finding no abuse of discretion. Additionally, the Court determined that the attorneys' fees were not barred by the Bankruptcy Code, as they arose post-confirmation and were not contingent claims. View "Cashman Equipment Corporation, Inc. v. Cardi Corporation, Inc." on Justia Law

Casey Cotton was involved in a car collision with Caleb and Adriane Crabtree, resulting in severe injuries to Caleb. The Crabtrees filed a lawsuit against Cotton and his insurer, Allstate, alleging that Allstate refused early settlement offers and failed to inform Cotton of these offers. While the claims against Allstate were dismissed, the claims against Cotton proceeded in the Lamar County Circuit Court. During the personal injury suit, Cotton declared bankruptcy, and his bankruptcy estate included a potential bad faith claim against Allstate. The Crabtrees, as unsecured creditors, petitioned the bankruptcy court to allow the personal injury suit to proceed to trial.The bankruptcy court directed that the suit against Cotton be liquidated by jury trial to pursue claims against Allstate for any resulting excess judgment. The Crabtrees sought an assignment of Cotton’s bad faith claim as a settlement of their unsecured claims in Cotton’s bankruptcy estate. Unable to afford the $10,000 up-front cost, they engaged Court Properties, LLC, to assist with financing. Court Properties paid the trustee $10,000 to acquire the bad faith claim, then assigned it to the Crabtrees in exchange for $10,000 plus interest, contingent on successful recovery from Allstate. Cotton was discharged from bankruptcy, and a jury verdict awarded the Crabtrees $4,605,000 in the personal injury suit.The Crabtrees filed an action in the United States District Court for the Southern District of Mississippi, which dismissed the case for lack of subject matter jurisdiction, finding the assignments champertous and void under Mississippi Code Section 97-9-11. The Crabtrees appealed to the United States Court of Appeals for the Fifth Circuit, which certified a question to the Supreme Court of Mississippi.The Supreme Court of Mississippi held that Mississippi Code Section 97-9-11 prohibits a creditor in bankruptcy from engaging a disinterested third party to purchase a cause of action from a debtor. The court clarified that solicitation of a disinterested third party to prosecute a case in which it has no legitimate interest violates the statute. View "Crabtree v. Allstate Property and Casualty Insurance Company" on Justia Law

Little Hearts Marks Family II L.P. ("Little Hearts") was a member of 305 East 61st Street Group LLC, a company formed to purchase and convert a building into a condominium. 61 Prime LLC ("Prime") was the majority member and manager, and Jason D. Carter was the manager and sole member of Prime. In 2021, the company filed for bankruptcy and sold the building to another company created by Carter. The liquidation plan established a creditor trust with exclusive rights to pursue the debtor’s estate's causes of action. Little Hearts sued Prime and Carter for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment, seeking damages for lost capital investment and rights under the Operating Agreement.The bankruptcy court dismissed all claims, ruling that they were derivative and belonged to the debtor’s estate, thus could only be asserted by the creditor trustee. The district court affirmed this decision.The United States Court of Appeals for the Second Circuit reviewed the case. The court affirmed the dismissal of the breach of fiduciary duty and aiding and abetting breach of fiduciary duty claims, agreeing that these were derivative and could only be pursued by the creditor trustee. However, the court vacated the dismissal of the breach of contract and breach of the implied covenant of good faith and fair dealing claims, determining that these were direct claims belonging to Little Hearts and could proceed. The unjust enrichment claim was dismissed as duplicative of the contract claims. The case was remanded for further proceedings consistent with this opinion. View "In re 305 East 61st Street Group LLC" on Justia Law

Rudolph Rivas, a home builder and real estate developer, engaged the accounting firm Pitts & Pitts, operated by Brandon and Linda Pitts, for various accounting services from 2007 to 2017. The services included preparing quarterly financial statement compilations and tax returns. In 2016, errors were discovered in the financial statements prepared by the Accountants, leading to financial difficulties for Rivas, including overpayment of taxes and loss of credit, which allegedly forced his business into bankruptcy. Rivas sued the Accountants in August 2020, claiming negligence, fraud, breach of fiduciary duty, and breach of contract.The district court granted summary judgment for the Accountants on all claims. The Court of Appeals for the Fifth District of Texas affirmed the summary judgment on the negligence and breach of contract claims but reversed it on the fraud and breach of fiduciary duty claims, holding that these claims were not barred by the anti-fracturing rule and had sufficient evidence to survive summary judgment.The Supreme Court of Texas reviewed the case and held that the anti-fracturing rule barred Rivas's fraud claim because the gravamen of the claim was professional negligence. The Court also held that no fiduciary duty existed as a matter of law under the undisputed facts, thus the breach of fiduciary duty claim failed. Consequently, the Supreme Court of Texas reversed the judgment of the court of appeals and rendered judgment for the defendants on all claims. View "Pitts v. Rivas" on Justia Law

Serta Simmons Bedding, LLC, an American mattress manufacturer, executed financing deals in 2016 and 2020 with various lenders. Following financial struggles exacerbated by the COVID-19 pandemic, Serta filed for bankruptcy. The 2020 financing deal, known as the "uptier" transaction, involved Serta and some lenders (Prevailing Lenders) exchanging existing debt for new super-priority debt, which was controversial and led to multiple legal disputes.The bankruptcy court in the Southern District of Texas reviewed the case. Serta and the Prevailing Lenders sought a declaratory judgment that the 2020 uptier transaction was valid under the 2016 agreement's "open market purchase" exception. The bankruptcy court granted partial summary judgment in their favor, ruling that the term "open market purchase" was unambiguous and that the 2020 uptier was valid under this exception. The Excluded Lenders and LCM Lenders, who did not participate in the uptier, appealed this decision.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court held that the 2020 uptier transaction was not a permissible "open market purchase" under the 2016 agreement. The court found that an "open market purchase" refers to transactions on a specific market generally open to various buyers and sellers, such as the secondary market for syndicated loans. The 2020 uptier, conducted privately with individual lenders, did not meet this definition. The court reversed the bankruptcy court's ruling on this issue.Additionally, the court addressed the inclusion of an indemnity provision in Serta's bankruptcy reorganization plan, which aimed to protect the Prevailing Lenders from losses related to the 2020 uptier. The court found that this indemnity was an impermissible end-run around the Bankruptcy Code's disallowance of contingent claims for reimbursement and violated the Code's requirement of equal treatment for creditors. The court reversed the bankruptcy court's confirmation of the plan insofar as it included this indemnity. View "Excluded Lenders v. Serta" on Justia Law

Steven Andrew Clem, the former owner of a defunct homebuilding company, appealed a judgment regarding the nondischargeability of a debt incurred from a failed home construction project. An arbitration panel had found Clem personally liable to LaDainian and LaTorsha Tomlinson for breach of contract and violations of the Texas Deceptive Trade Practices Act (DTPA). Clem subsequently filed for Chapter 7 bankruptcy, and the Tomlinsons initiated an adversary proceeding. The bankruptcy court determined that Clem had obtained over $660,000 from the Tomlinsons through false representation or false pretenses, making the debt nondischargeable under 11 U.S.C. § 523(a)(2)(A).The bankruptcy court's decision was based on findings that Clem had committed fraud by nondisclosure during the performance of the contract, including failing to inform the Tomlinsons about the switch from concrete piers to helical steel piers, failing to disclose the puncturing of a water line, and misrepresenting the purchase of a Builder’s Risk insurance policy. The court also found that Clem failed to provide proper accounting for the Tomlinsons' funds. The district court affirmed the bankruptcy court's decision.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court concluded that the bankruptcy court erred in not applying collateral estoppel to the arbitration findings, which had already determined that Clem's actions did not constitute knowing violations of the DTPA or fraud. The appellate court found that the issues of fraudulent misrepresentation and nondisclosure had been fully litigated in the arbitration, and the arbitration panel had explicitly found no fraud or knowing DTPA violations.The Fifth Circuit reversed the bankruptcy court's judgment and rendered judgment in favor of Clem, holding that the Tomlinsons were collaterally estopped from relitigating the fraud claims and that Clem's conduct did not meet the criteria for nondischargeability under Section 523(a)(2)(A). View "Clem v. Tomlinson" on Justia Law