Caryll Bentley v. Robert Langguth ( 2018 )

Case: 16-50872 Document: 00514493943 Page: 1 Date Filed: 05/31/2018
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 16-50872
Fifth Circuit
FILED
May 31, 2018
LAURA HAMPTON, Lyle W. Cayce
Clerk
Plaintiff – Appellant,
v.
EQUITY TRUST COMPANY,
Defendant – Appellee.
Appeal from the United States District Court
for the Western District of Texas
USDC No. 1:12-CV-250
Before REAVLEY, ELROD, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
Laura Hampton sued Equity Trust Company in federal court for
allegedly aiding and abetting a Ponzi scheme involving real-estate loan
participation agreements. After the federal court dismissed Hampton’s claims
based on a forum-selection clause designating Ohio as the proper venue,
Hampton sued Equity Trust in both Ohio and Texas state courts. After two
* Pursuant to Fifth Circuit Rule 47.5, the court has determined that this opinion
should not be published and is not precedent except under the limited circumstances set forth
in Fifth Circuit Rule 47.5.4.
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years of litigating against Hampton on the merits in Texas, and with an
impending trial in Texas state court, Equity Trust moved in the federal court
to enjoin the Texas proceedings. We VACATE the federal court’s injunction.
I.
This case arises out of an alleged Ponzi scheme operated in the Austin
area involving real-estate loan participation agreements. Laura Hampton and
other investors originally sued Robert Langguth, Claudia Lee Langguth, and
Equity Trust Company in federal court, alleging violations of the Texas
Securities Act. Equity Trust is a passive custodian for self-directed individual
retirement accounts (IRAs). Hampton opened a self-directed IRA with Equity
Trust and signed an IRA application, thus agreeing to be bound by the terms
and conditions of a Custodial Account Agreement. Section 8.15 of that
Agreement states that “[a]ny suit filed against [the] custodian arising out of or
in connection with this agreement shall only be instituted in the county courts
of Lorain County, Ohio . . . and you agree to submit to such jurisdiction . . . .”
The Agreement also contains a choice-of-law provision stating that Ohio law
would govern the interpretation of the Agreement.
Equity Trust moved to dismiss the claims of the account-holding
plaintiffs for improper venue under Federal Rule of Civil Procedure 12(b)(3)
based on the forum-selection clause in the agreements that the accountholders
had executed with Equity Trust. (Eight of the plaintiffs in the federal lawsuit
had not opened accounts with Equity Trust and did not have formal
relationships with the company; the federal court termed these plaintiffs the
“non-accountholders.”) In January 2013, the federal court dismissed
Hampton’s and the other accountholders’ claims “without prejudice to being
2
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refiled in Ohio should accountholders believe that appropriate.” 1 Hampton did
not appeal the federal court’s dismissal order.
The next month, Hampton and the other accountholders from the federal
case sued Equity Trust, the Langguths, and another entity in Ohio state court,
alleging violations of the Texas Securities Act, as well as several mostly fraud-
related common law claims. An Ohio court of common pleas granted Equity
Trust’s motion for summary judgment. An Ohio appellate court reversed the
grant of summary judgment and remanded for further proceedings in the court
of common pleas. 2
A day after Hampton sued Equity Trust in Ohio, the eight non-
accountholders (those who had not executed agreements with Equity Trust)
filed a lawsuit in Travis County, Texas, against Equity Trust, the Langguths,
and another entity, alleging violations of the Texas Securities Act and mostly
fraud-related common law claims nearly identical to the claims filed in Ohio.
One of these eight plaintiffs was the Hampton Trust, for which Laura Hampton
served as trustee. Several months later, in July 2013, the Texas plaintiffs filed
a first amended petition in which Hampton joined the lawsuit in her individual
capacity. On its first page, the amended petition stated: “Laura Grace
Hampton . . . is proceeding in her individual capacity as well as her capacity
as Executrix . . . .”
In April 2015, Equity Trust filed supplemental special exceptions to the
Texas plaintiffs’ first amended petition contending that, to the extent Hampton
was asserting claims in her individual capacity, her claims were proper only in
Ohio. However, Equity Trust appears not to have pursued a hearing on its
1 The non-accountholders moved for dismissal of their claims without prejudice, which
the federal court granted.
2 At oral argument in this appeal, counsel for Equity Trust stated that while it is not
part of the record, it was her understanding that Hampton had voluntarily dismissed her
claims in Ohio without prejudice, with the right to refile those claims by February 2018.
3
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special exceptions, and apparently no hearing was ever set. A month later,
Equity Trust filed an amended answer to the Texas plaintiffs’ second amended
petition and original crossclaim, asserting as a one-sentence affirmative
defense that the forum-selection clause in Hampton’s contract with Equity
Trust barred Hampton’s claims in Texas state court. In June 2015, Equity
Trust filed amended responses to requests for disclosure in which it asserted
the same. At no point did Equity Trust file a motion to dismiss or a motion to
transfer venue in Texas state court. Discovery—which included the deposition
of Laura Hampton—was complete by mid-July 2015.
At the close of discovery, Equity Trust filed a series of motions for
summary judgment against Hampton and the other plaintiffs in Texas state
court. Equity Trust filed traditional motions for partial summary judgment
seeking judgment on the merits: (1) on plaintiffs’ aiding and abetting breach of
fiduciary duty and fraud claims; (2) on plaintiffs’ claims under the Ohio
Corrupt Practices Act; (3) on the statutes of limitations; and (4) on res
judicata. 3 Even in its summary-judgment motion based on res judicata, Equity
Trust did not specifically discuss the forum-selection clause in Hampton’s
contract nor argue that the Texas state court should defer to the federal court.
Rather, Equity Trust simply contended that Hampton’s claims should be
dismissed because they were barred by the final judgment of an Ohio court of
common pleas, which granted summary judgment to Equity Trust on
Hampton’s claims. As noted above, however, an Ohio appellate court
3 In its summary-judgment motions on the aiding and abetting breach of fiduciary
duty and fraud claims and on the statutes of limitations, Equity Trust mentioned in footnotes
that it was also filing a motion for partial summary judgment against Hampton based on res
judicata. The footnotes state that, as a consequence, the other summary-judgment motions,
as they apply to Hampton, may be mooted by the state court’s ruling on the res judicata
motion. A similar footnote appears in the summary-judgment motion on the Ohio Corrupt
Practices Act claims.
4
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eventually reversed the grant of summary judgment and remanded for further
proceedings in the court of common pleas.
The Texas state court conducted a hearing on Equity Trust’s summary-
judgment motions. Following mediation, the parties informed the state court
that only three plaintiffs still required rulings, including Laura Hampton in
her individual capacity and in her capacity as an executrix. The Texas state
court then denied all of Equity Trust’s summary-judgment motions except its
motion on res judicata, regarding which the state court stayed all further
action pending a final ruling from the Ohio appellate court. After the Ohio
appellate court reversed the grant of summary judgment to Equity Trust,
Hampton filed a motion to lift the stay in the Texas case. In the interim, Equity
Trust resolved the claims of all plaintiffs in the Texas case except Hampton’s
individual claims. 4 The Texas state court granted Hampton’s motion to lift the
stay, denied Equity Trust’s res judicata summary-judgment motion, and set
Hampton’s case for trial.
After losing on summary judgment and with the case set for trial, Equity
Trust immediately applied for a permanent injunction in the same federal
court that had issued the 2013 order. Equity Trust argued that it met the
requirements for succeeding on the merits under the Anti-Injunction Act’s
relitigation exception and that the federal court had authority to issue an
injunction. In response, Hampton argued that she was not seeking state-court
relief inconsistent with the 2013 order and that Supreme Court precedent did
not permit applying the relitigation exception in this case. Hampton also
contended that even if the relitigation exception did apply, Equity Trust
4 Hampton’s motion to lift the stay in the Texas case states that the case was originally
set for trial in October 2015 but that it “did not proceed to trial because the remaining
plaintiffs’ claims against Equity Trust were dismissed by agreement. As such, the only
claims that remain pending in this case against Equity Trust are those asserted by Laura
Hampton. This case is ready for a new trial setting, and is ready for trial.”
5
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waived application of the forum-selection clause. Following a bench trial, the
federal court granted Equity Trust’s request for a permanent injunction,
barring Hampton from pursuing any claims in conflict with the 2013 order
against Equity Trust in any Texas state court. 5 This timely appeal followed. 6
II.
We have appellate jurisdiction over the federal court’s final judgment
permanently enjoining the Texas litigation. 28 U.S.C. § 1291; Duffy &
McGovern Accommodation Servs. v. QCI Marine Offshore, Inc., 448 F.3d 825,
827 (5th Cir. 2006).
We review the federal court’s grant of injunctive relief under an abuse-
of-discretion standard. Abraham v. Alpha Chi Omega, 708 F.3d 614, 620 (5th
Cir. 2013). A federal court abuses its discretion if it: “(1) relies on clearly
erroneous factual findings when deciding to grant or deny the permanent
injunction, (2) relies on erroneous conclusions of law when deciding to grant or
deny the permanent injunction, or (3) misapplies the factual or legal
conclusions when fashioning injunctive relief.” Dresser-Rand Co. v. Virtual
Automation Inc., 361 F.3d 831, 847 (5th Cir. 2004) (quoting Peaches Entm’t
Corp. v. Entm’t Repertoire Assocs., Inc., 62 F.3d 690, 693 (5th Cir. 1995)). We
review the waiver of a contractual right de novo and any findings of fact
underlying the waiver determination for clear error. SGIC Strategic Glob. Inv.
5 The federal court order states: “Plaintiff Laura Hampton and those persons in active
concert or participation with her, are immediately and permanently enjoined and restrained,
directly or indirectly, whether for themselves or on behalf of Hampton, and regardless of
capacity, from pursuing in violation of or in contrast with this court’s January 31, 2013 Order
any claims or causes of action by Hampton against Equity Trust Company in Texas courts,
whether in Cause No. D-1-GN-13-000747 in the 353rd District Court of Travis County, Texas,
or in any other Texas court.”
6 A little over two months after the notice of appeal was filed, the appeal was dismissed
under Federal Rule of Appellate Procedure 42(b) as to all appellants and appellees except
Appellant Laura Hampton and Appellee Equity Trust, pursuant to Hampton’s unopposed
motion.
6
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Capital, Inc. v. Burger King Europe GmbH, 839 F.3d 422, 426 (5th Cir. 2016);
see also Aptim Corp. v. McCall, 888 F.3d 129, 140 (5th Cir. 2018).
III.
A.
Hampton raises two main issues on appeal. Hampton first argues that
the federal court erred in enjoining the state-court proceedings under the
relitigation exception to the Anti-Injunction Act. 7 Specifically, Hampton
contends that the federal court erred in exercising jurisdiction under the Anti-
Injunction Act, and that even if the court had jurisdiction, it erred in applying
a claim-preclusion analysis rather than an issue-preclusion analysis.
Hampton also argues that, even if the federal court properly exercised
jurisdiction under the Anti-Injunction Act, Equity Trust waived the
application of the forum-selection clause by substantial litigation on the merits
for over two years in Texas state court. We do not reach the first issue, because
even assuming arguendo that the federal court did not err in interpreting the
Anti-Injunction Act to permit an injunction here, waiver of the forum-selection
clause is unequivocally established on this record.
B.
Hampton argues that Equity Trust waived the application of the forum-
selection clause. According to Hampton, Equity Trust is attempting to take a
second bite at the apple after litigating and conducting discovery for over two
years in state court only to return to federal court for an injunction on the eve
of trial after its summary-judgment motions were denied.
7 The Anti-Injunction Act states that “[a] court of the United States may not grant an
injunction to stay proceedings in a State court except as expressly authorized by Act of
Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its
judgments.” 28 U.S.C. § 2283.
7
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In the arbitration context, we have held that “[w]aiver will be found
when the party seeking arbitration substantially invokes the judicial process
to the detriment or prejudice of the other party.” In re Mirant Corp., 613 F.3d
584, 588 (5th Cir. 2010) (quoting Walker v. J.C. Bradford & Co., 938 F.2d 575,
577 (5th Cir. 1991)). However, in the context of forum-selection clauses, we
have noted that “[t]here is a lack of authority determining whether federal or
state law principles control the standard for determining a party’s waiver of
rights under a forum selection clause.” Wellogix, Inc. v. SAP Am., Inc., 648 F.
App’x 398, 401 (5th Cir. 2016) (unpublished).
While we have not yet decided—nor have the parties here asked us to
decide—whether the waiver determination for forum-selection clauses is
governed by federal or state law, we have articulated waiver determinations
in this context in two different ways. See SGIC Strategic, 839 F.3d at 426–27,
426 n.13 (discussing two waiver approaches and holding that appellants failed
to show waiver under either approach); Wellogix, 648 F. App’x at 401–02
(same). The first approach is a traditional inquiry that asks whether a party
“intentionally or voluntarily relinquished its rights under the clause.”
Wellogix, 648 F. App’x at 401. The cases articulating this approach hold that
waiver of a forum-selection clause requires: “(1) an existing right, benefit, or
advantage; (2) actual or constructive knowledge of its existence; and (3) actual
intent to relinquish that right.” SGIC Strategic, 839 F.3d at 426 (quoting GP
Plastics Corp. v. Interboro Packaging Corp., 108 F. App’x 832, 836 (5th Cir.
2004)). “Waiver can also occur if a party engages in ‘conduct so inconsistent
with the intent to enforce the right as to induce a reasonable belief that it has
been relinquished.’” Id. (quoting N. Am. Specialty Ins. Co. v. Debis Fin. Servs.,
513 F.3d 466, 470 (5th Cir. 2007)). Under the second approach, “the party to
the forum selection clause waives its right if it (1) substantially invokes the
judicial process in derogation of the forum selection clause and (2) thereby
8
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causes detriment or prejudice to the other party.” Id. at 426–27 (quoting
Wellogix, 648 F. App’x at 402); accord In re ADM Inv’r Servs., Inc., 304 S.W.3d
371, 374 (Tex. 2010).
“To invoke the judicial process, a ‘party must, at the very least, engage
in some overt act in court that evinces a desire to resolve the . . . dispute
through litigation . . . .’” Mirant, 613 F.3d at 589 (quoting Subway Equip.
Leasing Corp. v. Forte, 169 F.3d 324, 329 (5th Cir. 1999)). Litigation on the
merits can substantially invoke the judicial process. See id. (“By seeking to
prove its own allegations to the district court, [appellant] invoked the judicial
process to a greater degree than it would have by filing a mere ‘perfunctory
motion to dismiss.’” (quoting Williams v. Cigna Fin. Advisors, Inc., 56 F.3d 656,
661 (5th Cir. 1995))). “In addition to invocation of the judicial process, the
party opposing arbitration must demonstrate prejudice before we will find a
waiver of the right to arbitrate.” Id. at 591 (quoting Nicholas v. KBR, Inc., 565
F.3d 904, 910 (5th Cir. 2009)). “Prejudice in the context of arbitration waiver
refers to delay, expense, and damage to a party’s legal position.” Id. (quoting
Nicholas, 565 F.3d at 910). An untimely assertion of the right bears on the
question of prejudice. Nicholas, 565 F.3d at 910; see also Mirant, 613 F.3d at
591 (holding that appellant failed to make a timely demand for arbitration
where it “waited eighteen months before moving to compel arbitration while it
attempted to obtain a dismissal with prejudice from the district court”). In
Mirant, we determined that “listing the right to compel arbitration as an
affirmative defense in [appellant’s] answer and reserving that right in its
motions to dismiss” was insufficient to show a timely assertion of a right to
arbitrate where appellant also delayed in asserting that right. 613 F.3d at 591.
Both waiver approaches are easily satisfied here. Equity Trust
substantially invoked the judicial process to Hampton’s detriment. Equity
Trust was on notice as of July 2013 that Hampton was pursuing claims in her
9
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individual capacity in Texas state court. Equity Trust delayed almost two
years before filing special exceptions arguing that Hampton’s claims were
proper only in Ohio based on a forum-selection clause. Equity Trust then failed
to pursue a hearing on its special exceptions. See Brooks v. Hous. Auth., 926
S.W.2d 316, 322 (Tex. App.—El Paso 1996, no writ) (“Appellant had the burden
to obtain a timely hearing to present her special exceptions to the trial court
and obtain a ruling.”). In addition, Equity Trust never filed a motion to dismiss
in Texas state court. Cf. In re AIU Ins. Co., 148 S.W.3d 109, 120–21 (Tex. 2004)
(determining that defendant did not waive reliance on a forum-selection clause
where defendant filed a motion to dismiss based on the forum-selection clause
five months after plaintiff filed the lawsuit); In re ADM, 304 S.W.3d at 374
(“Simultaneously filing an answer and motion to transfer venue with a motion
to dismiss falls short of substantially invoking the judicial process to
[plaintiff’s] detriment or prejudice.”). Nor did Equity Trust file a motion to
transfer venue. Cf. 5 Dorsaneo, Texas Litigation Guide § 61.04 (LEXIS 2018)
(“In general, a defendant waives the right to object to venue if the defendant
fails to properly object before or concurrently with the defendant’s first
responsive pleading other than a special appearance motion.”).
We need not decide whether these litigation choices constitute sufficient
invocation of the judicial process for the purposes of waiver. This is because
after ignoring readily available mechanisms for invoking the forum-selection
clause, deposing Hampton, completing discovery, and delaying two years,
Equity Trust filed a summary-judgment motion based on res judicata that was
an “overt act” for judgment on the merits, “evinc[ing] a desire to resolve
the . . . dispute through litigation.” See Mirant, 613 F.3d at 589 (quoting
Subway Equip., 169 F.3d at 329). In this summary-judgment motion, Equity
Trust did not specifically discuss the forum-selection clause, nor did it argue
that the Texas state court should defer to the federal court or send the case to
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Ohio. Rather, Equity Trust simply contended that summary judgment should
be granted in favor of Equity Trust and against Hampton. 8 Accordingly,
Equity Trust substantially invoked the judicial process.
This substantial invocation of the judicial process caused detriment to
Hampton. “A party cannot keep its right to demand arbitration in reserve
indefinitely while it pursues a decision on the merits before the district court.”
Id. at 591. Nor could Equity Trust indefinitely reserve the right to seek
enforcement of a forum-selection clause while it sought a merits determination
in state court. Incredibly, Equity Trust contends that it “vigorously asserted
the [2013 order] and the forum-selection clause at every opportunity.” A review
of the record belies this assertion. In addition to the significant delay, allowing
Equity Trust to invoke the forum-selection clause at the eleventh hour—after
Hampton has survived summary judgment and is ready for a jury trial—would
obviously damage Hampton’s legal position. See id. at 592 (an eighteen-month
delay “wasted judicial resources and disadvantaged [appellee]”). Thus, Equity
Trust has substantially invoked the judicial process to Hampton’s detriment.
Moreover, Equity Trust has intentionally and voluntarily relinquished its
rights under the forum-selection clause through “conduct so inconsistent with
the intent to enforce the right as to induce a reasonable belief that it has been
relinquished.” SGIC Strategic, 839 F.3d at 426 (quoting N. Am. Specialty, 513
F.3d at 470). 9
8 Moreover, Equity Trust’s contention that the grant of summary judgment from an
Ohio court of common pleas barred Hampton’s claims under res judicata was undermined
when the Ohio appellate court reversed the trial court’s judgment.
9 See also Martin v. Yasuda, 829 F.3d 1118, 1125, 1128 (9th Cir. 2016) (citing Mirant
to support the proposition that “[a] statement by a party that it has a right to arbitration in
pleadings or motions is not enough to defeat a claim of waiver” and declining to allow
defendants “to gain an unfair advantage by virtue of their litigation conduct”).
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IV.
Accordingly, we VACATE the federal court’s permanent injunction
enjoining the Texas state-court proceedings.
12