In Re: Deepwater Horizon ( 2017 )

REVISED January 9, 2017
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 15-30599 FILED
January 6, 2017
Lyle W. Cayce
IN RE: DEEPWATER HORIZON Clerk
-------------------------------------------
LAKE EUGENIE LAND & DEVELOPMENT, INCORPORATED; ET AL,
Plaintiffs
v.
BP EXPLORATION & PRODUCTION, INCORPORATED; ET AL,
Defendants
WOODBRIDGE BARIC PRE-SETTLEMENT FUNDING, L.L.C.,
Movant - Appellant
v.
LOUIS J. FREEH, Special Master,
Appellee
Appeal from the United States District Court
for the Eastern District of Louisiana
Before BENAVIDES, DENNIS, and SOUTHWICK, Circuit Judges.
JAMES L. DENNIS, Circuit Judge:
No. 15-30599
Woodbridge Baric Pre-Settlement Funding, L.L.C. (Woodbridge Baric),
appeals the district court’s order that it pay $20,000 in restitution to the
Deepwater Horizon Court-Supervised Settlement Program. In 2012
Woodbridge Baric loaned Jarrod Burrle $24,000. Woodbridge Baric and Burrle
agreed that Burrle would not be required to repay the loan if his economic loss
claims in connection with the Deepwater Horizon oil spill fail unless he had
misrepresented his claim to Woodbridge Baric, in which case Burrle agreed to
indemnify Woodbridge Baric and hold it harmless. In 2013, the settlement
program paid over $50,000 on one of Burrle’s claims, and Burrle’s attorneys
paid Woodbridge Baric $20,000 of those funds in partial repayment of the loan.
Subsequently, Louis Freeh, appointed by the district court as a special master
to investigate misconduct in the administration of the settlement program,
determined that Burrle’s claim was fraudulent and moved the court to order
Burrle and others, including Woodbridge Baric, to make restitution for the
funds paid in connection with that claim. The district court granted the motion
as to Woodbridge Baric, finding that Woodbridge Baric would be unjustly
enriched if allowed to retain the $20,000 from Burrle. For the following
reasons, we reverse the district court’s judgment against Woodbridge Baric.
I
In 2010, Burrle filed claims for compensation, including a claim for lost
income from commercial fishing, with the Gulf Coast Claims Facility, which
was tasked with processing claims related to the Deepwater Horizon oil spill.
In early 2012, Burrle entered into three separate “pre-settlement funding
contracts” with Woodbridge Baric. 1 Under these contracts, Woodbridge Baric
1 In an October 2001 opinion, the Office of the Attorney General of the State of
Louisiana opined that pre-settlement funding contracts constitute a consumer loan as
defined in the Louisiana Consumer Credit Law. La. Atty. Gen. Op. No. 2001-160, 2001 La.
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agreed to loan Burrle a total of $24,000, referred to as an “advance,” at a
specified interest rate. 2 Each of the three contracts provided that “[i]n the
event [Burrle does] not recover any money from the ‘lawsuit/claim,’ [Burrle]
shall not be obligated to repay the advance to [Woodbridge Baric].” The
contracts also provided that if Burrle’s representations to Woodbridge Baric
regarding his claims were false, he would be required to indemnify Woodbridge
Baric for its losses and expenses, including the principal amount of the loan. 3
In December 2012, the district court approved the Deepwater Horizon
Economic and Property Damages Settlement Agreement in a class action
concerning the Deepwater Horizon oil spill. In accordance with the settlement
agreement, the district court established the Deepwater Horizon Court-
Supervised Settlement Program to implement and administer the settlement
agreement, including the processing of individual claims for compensation.
AG LEXIS 489. The special master does not dispute that Woodbridge Baric’s pre-settlement
funding contracts with Burrle were consumer loan agreements.
2 The contracts purported to “assign[ ] an interest” in Burrle’s claims to Woodbridge
Baric. However, as the special master points out, the Deepwater Horizon settlement
agreement prohibits the assignment of rights or claims arising out of the Deepwater Horizon
incident and declares any such assignment “void, invalid, and of no force and effect.”
3 Specifically, the pre-settlement funding contracts provided, in relevant part:
5. Representations and Warranties: To induce “Woodbridge
Baric” to pay “Me” [Burrle] the Advance and to take an
assignment and or right of first distribution of my
“Lawsuit/Claims,” “I” hereby make the following
representations and warranties under penalty of perjury . . . “I”
understand that “Woodbridge Baric” is relying on the below
representations and warranties to pay me the Advance. In the
event any of my representations and warranties below are
untrue, “I” agree to indemnify and hold harmless
“WOODBRIDGE BARIC” against all losses, expenses [and] costs
(including the Advanced Amount . . . ).
As part of his representations and warranties under the contracts, Burrle guaranteed that
any information he provided to Woodbridge Baric relating to his claim or to Woodbridge
Baric’s decision to provide him with funding was “accurate and complete in all respects.”
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No. 15-30599
Shortly after the settlement program began operations, Burrle refiled his
claims for compensation with the program.
In 2013, the settlement program approved Burrle’s commercial fishing
claim and paid him $50,015.87. Following receipt of the claim payment,
Burrle’s attorneys paid Woodbridge Baric $20,000 on Burrle’s behalf as a
partial repayment of its loan. Several months later, the district court
appointed the special master, directing him to investigate claims submitted to
the settlement program and initiate legal action to “clawback” funds paid on
fraudulent claims. After investigating Burrle’s claims, the special master
determined that they were fraudulent. The special master then filed a motion
asking the district court to require Burrle and third parties who benefitted
from the settlement program’s payment on Burrle’s commercial fishing claim
to return that payment.
The district court ultimately granted the special master’s motion, finding
that Burrle submitted fraudulent documents and made false statements in
connection with his claim. In addition to ordering Burrle to repay all funds
paid on his claim to the settlement program, the district court ordered Burrle’s
lawyers and Woodbridge Baric to repay the funds they received in connection
with his claim. As to Woodbridge Baric, the district court determined that it
would be unjustly enriched if allowed to retain the funds, reasoning that
Woodbridge Baric’s right to Burrle’s repayment of the loan was contingent
upon the success of Burrle’s claims, which ultimately failed. Thus, the district
court entered judgment against Woodbridge Baric in the amount of $20,000.00.
Woodbridge Baric appeals.
II
As an initial matter, the parties disagree on the relevant standard of
review on appeal. The special master argues that the district court’s judgment
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No. 15-30599
was a decision to grant relief from a judgment under Federal Rule of Civil
Procedure 60(b), which is reviewed for abuse of discretion. Woodbridge Baric
responds that the district court’s entry of a final judgment against it was
essentially a grant of summary judgment, and thus review is de novo.
However, we need not decide the nature of the district court’s ruling. Even if
characterized as a decision to grant relief from a judgment under Rule 60(b),
this court reviews de novo any question of law underlying the district court’s
decision. See Frazar v. Ladd, 457 F.3d 432, 435 (5th Cir. 2006). Because the
parties’ respective arguments pertain only to questions of law, we will review
the district court’s determinations as to those questions de novo. See id.
“It is a long-standing legal principle that a person who has conferred a
benefit upon another in compliance with a judgment, or whose property has
been taken thereunder, is entitled to restitution if the judgment is reversed or
set aside, unless restitution would be inequitable.” Mohamed v. Kerr, 91 F.3d
1124, 1126 (8th Cir. 1996) (citations, alteration, and internal quotation marks
omitted); accord United States v. Morgan, 307 U.S. 183 (1939); Atlantic Coast
Line R. Co. v. Florida, 295 U.S. 301, 309 (1935); RESTATEMENT (THIRD) OF
RESTITUTION & UNJUST ENRICHMENT § 18 (“A transfer or taking of property,
in compliance with or otherwise in consequence of a judgment that is
subsequently reversed or avoided, gives the disadvantaged party a claim in
restitution as necessary to avoid unjust enrichment.”). Thus, it is well
established that when a prior judgment is invalidated, the district court has
inherent equitable power to enforce restitution of what has been done in
compliance with its prior judgment. See, e.g., Baltimore & O. R. Co. v. United
States, 279 U.S. 781, 786 (1929); Morgan, 307 U.S. at 198.
The court’s power being equitable in nature, restitution pursuant to this
power is a matter of equity rather than a matter of right. Atlantic Coast Line,
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No. 15-30599
295 U.S. at 310; Mohamed, 91 F.3d at 1126. To prevail, a party seeking
restitution “must show that the money was received in such circumstances that
the possessor will give offense to equity and good conscience if permitted to
retain it.” Id. at 309. “The question no longer is whether the law would put
[the possessor] in possession of the money if the transaction were a new one.
The question is whether the law will take it out of his possession after he has
been able to collect it.” Id. at 310.
Relevant to the instant case, it is a generally recognized rule of equity
that a third party who receives funds in good faith from a judgment creditor in
satisfaction of a debt is not liable to repay those funds in restitution. See, e.g.,
Mohamed, 91 F.3d at 1126 (“[E]quity will not compel restitution from a third
party who receives monies, in good faith, from the initial judgment creditor in
payment of a debt.”); see also Equilease Corp. v. Hentz, 634 F.2d 850, 853 (5th
Cir. 1981) (applying Florida law and stating, “[I]t is patently unfair to require
an innocent payee who has received and used the money to satisfy a debt to
repay the money”); RESTATEMENT § 67(1)(a) (a bona fide payee who “accepts
the funds in satisfaction or reduction of the payee’s valid claim as creditor” is
not liable to repay the funds). Relying on this rule, Woodbridge Baric argues
that it is a bona fide payee who received funds from Burrle in partial
satisfaction of a valid claim. In this regard, Woodbridge Baric notes that it
made a $24,000 loan to Burrle and that it is undisputed that it had no
knowledge of the fraudulent nature of Burrle’s settlement program claim.
Woodbridge Baric also highlights that it was not a party to Burrle’s litigation
before the settlement program, notwithstanding its expectation of receiving a
share of the proceeds of his claims.
The district court concluded that Woodbridge Baric was not entitled to
retain the funds because its right to Burrle’s repayment of the loan was
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No. 15-30599
contingent upon the successful settlement of Burrle’s claims. Because Burrle’s
fraudulent claim ultimately failed, the district court determined that
Woodbridge Baric would be unjustly enriched if allowed to retain the funds. In
so concluding, the district court relied on an exception, recognized by some
courts, to the rule that bona fide third-party payees are not liable in restitution.
Under this exception, an attorney who receives a share of a judgment pursuant
to a contingency-fee agreement does not take the money as a bona fide payee.
E.g., Mohamed, 91 F.3d at 1127; Cox v. Cox, 780 N.E.2d 951, 962 (Mass. App.
Ct. 2002); see also RESTATEMENT § 18 cmt. g. This exception rests on the
premise that by conditioning his or her fees on success in litigation, the
attorney assumes the risk of non-recovery. E.g., Mohamed, 91 F.3d at 1127;
RESTATEMENT § 18 cmt. g. Because the initial judgment creditor ultimately
collects nothing after the judgment is reversed, the attorney is also entitled to
nothing pursuant to the terms of the fee agreement and is therefore liable to
repay the funds in restitution. Mohamed, 91 F.3d at 1127. Many authorities
have therefore likened an attorney with a contingency fee agreement to a real
party in interest or assignee pro tanto of the client’s judgment and thus view
the attorney as standing in the client’s shoes. See e.g., Mohamed, 91 F.3d at
1127; Excel Corp. v. Jimenez, 7 P.3d 1118, 1126 (Kan. 2000); Abrahami v. UPC
Const. Co., 670 N.Y.S.2d 457, 468 (N.Y. App. Div. 1998).
While the logic of this exception could arguably extend to non-attorneys,
so far, all of the cases that discuss this exception have involved attorneys. See,
e.g., Mohamed, 91 F.3d at 1127; Cox, 780 N.E.2d at 962; Excel Corp., 7 P.3d at
1126; Abrahami, 670 N.Y.S.2d at 468; Ehsani v. McCullough Family P’ship,
159 P.3d 407, 411 (Wash. 2007) (en banc). This is not surprising considering
that attorneys are far more likely than anyone else to condition their rights to
payment upon the results of litigation. But we need not decide whether this
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No. 15-30599
exception applies beyond the context of attorneys’ contingency fees because,
even assuming this exception could apply to non-attorneys, it would have no
application in this case.
Woodbridge Baric’s right to Burrle’s repayment of the principal amount
of its loan did not depend solely on the success of Burrle’s claims: Woodbridge
Baric’s contracts with Burrle expressly required Burrle to indemnify and hold
Woodbridge Baric harmless for the loss of the principal amount of the loan if
his representations to Woodbridge Baric regarding his claims were not
accurate and complete in all respects. Although Woodbridge Baric assumed
some of the risks associated with non-recovery in its contracts with Burrle, it
specifically disclaimed the risk that Burrle had asserted fraudulent claims and
withheld that information from it. 4 Accordingly, Woodbridge Baric was
entitled to Burrle’s full repayment of the principal under their contracts.
Where, as here, a “bona fide creditor is entitled to payment regardless of the
judgment’s validity, that creditor is not unjustly enriched by retention of the
payment after the judgment’s reversal.” Cox, 780 N.E.2d at 962. In other
4 We need not decide whether an attorney would be able to assert bona fide payee
status under similar circumstances, as that case is not before us. We note, however, that,
unlike lenders, attorneys have both a legal and an ethical duty to reasonably investigate the
facts prior to filing pleadings with the court. See, e.g., Callahan v. Schoppe, 864 F.2d 44, 46
(5th Cir. 1989) (“Rule 11 of the Federal Rules of Civil Procedure imposes a duty of reasonable
investigation into the facts and the law prior to filing a document with a court.”); Mod. Rules
Prof. Cond. § 3.1 (“A lawyer shall not bring or defend a proceeding, or assert or controvert an
issue therein, unless there is a basis in law and fact for doing so that is not frivolous.”); In re
Zohdy, 892 So. 2d 1277 (La. 2005) (lawyer who sought to intervene in chemical products
liability class action violated rules of professional conduct by failing to investigate whether
his clients were exposed to chemical). Courts may wish to consider an attorney’s disregard
for these duties in determining whether the attorney’s acceptance of payment pursuant to
his client’s fraudulent claim was in good faith. Cf. Excel Corp. v. Jimenez, 7 P.3d 1118, 1126
(Kan. 2000) (an attorney’s status as an officer of the court “places him on a different legal
footing,” and the court could not approve the retention of an attorney’s fees where the client
was guilty of fraudulent conduct in procuring the judgment).
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No. 15-30599
words, because Burrle’s payment to Woodbridge Baric discharged an
unconditional, bona fide obligation, Woodbridge Baric is not liable in
restitution to the settlement program. See id.
Treating an attorney with a contingency fee agreement as standing in
his or her client’s shoes is only warranted to the extent the attorney’s claim
against the client rests solely upon the now-failed contingency. See Mohamed,
91 F.3d at 1127 (remanding for determination of the portion of proceeds
retained by attorney that represented payment of a contingent fee); Abrahami,
670 N.Y.S.2d at 468 (holding that law firm was liable for restitution of
contingency fee but not of other, non-contingent fees following vacatur of
judgment); cf. Ehsani, 159 P.3d at 411 (“[T]here is no unjust enrichment vis-à-
vis the judgment debtor where a party receives only that to which he is entitled
under the terms of a valid, preexisting agreement with the judgment
creditor.”). Consider an attorney with a fee-for-service arrangement under
which the client is to pay the attorney $1,000, regardless of the result of
litigation. In this scenario, if an initially favorable judgment is subsequently
overturned or nullified, the attorney would not be liable to repay the fee in
restitution. See, e.g., Mohamed, 91 F.3d at 1126; see also RESTATEMENT
§ 67(1)(a). Now assume that the fee agreement also provides that in the event
the attorney obtains a favorable result in litigation, the client must pay the
attorney a total of $1,500. If the initially favorable judgment is subsequently
invalidated, must the attorney forfeit not only the $500 that were contingent
upon success in litigation but also the $1,000 he would have been entitled to
regardless of the outcome? We see no basis in precedent or in equity for
requiring such an odd result. Cf. Ehsani, 159 P.3d at 411; Abrahami, 670
N.Y.S.2d at 468; Cox, 780 N.E.2d at 958 n.12, 962 & n.19 (“[An] attorney is not
liable in restitution to the judgment debtor upon reversal of the judgment
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No. 15-30599
unless the judgment debtor . . . proves either that the payment did not
discharge an unconditional, bona fide obligation the client had to the attorney
or that, although the payment did discharge such an obligation, other
circumstances exist that make the attorney’s retention of the payment unjust,”
such as “breach of some duty, a violation of trust, bad faith, or fraud”).
Because Woodbridge Baric’s claim for the repayment of the loan was not
purely contingent upon the success of Burrle’s claims for compensation, the
failure of this contingency did not extinguish Woodbridge Baric’s claim and
does not prevent Woodbridge Baric from asserting its valid interest in defense
of its right to retain the funds as a bona fide payee. See Abrahami, 670
N.Y.S.2d at 468; see also Cox, 780 N.E.2d at 962. While the special master
argues that Burrle did not purport to pay Woodbridge Baric under the
warranty provisions of their agreements, Burrle nonetheless paid Woodbridge
Baric in partial satisfaction of a valid debt. 5 At bottom, Woodbridge Baric was
simply not unjustly enriched by its good faith acceptance of the funds from
Burrle in partial repayment of his debt. See Mohamed, 91 F.3d at 1126-27; see
also RESTATEMENT §§ 18 cmt. g, 67(1)(a) & (c).
III
For these reasons, the judgment of the district court is REVERSED.
5 At oral argument, the special master argued for the first time that Burrle may be
able to defend himself from Woodbridge Baric’s claim against him by asserting that the
interest rate the parties had agreed upon was usurious under Louisiana law. This argument
is forfeited. See Whitehead v. Food Max of Miss., Inc., 163 F.3d 265, 270 (5th Cir. 1998)
(“Needless to say, we do not generally consider points raised for the first time at oral
argument.”). In any case, as discussed above, Woodbridge Baric had loaned Burrle $24,000
but received only $20,000 in partial repayment of Burrle’s debt. The special master has not
established that a credit provider’s usurious interest rate relieves the consumer from the
obligation to repay the principal under Louisiana state law. Cf. LA. REV. STAT.
§ 9:3552(A)(1)(a) (providing that a credit provider’s violation of the provisions of this chapter,
including by charging an excessive interest rate, entitles the consumer to a refund of all loan
finance charges but not a refund of the principal).
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