In Re: Deepwater Horizon

Case: 16-30717 Document: 00513990533 Page: 1 Date Filed: 05/12/2017
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 16-30717 FILED
May 12, 2017
Lyle W. Cayce
IN RE: DEEPWATER HORIZON Clerk
________________________
LOUIS J. FREEH, Special Master,
Appellee
v.
LAKE EUGENIE LAND & DEVELOPMENT, INCORPORATED, ET AL,
Plaintiffs
v.
BP EXPLORATION & PRODUCTION, INCORPORATED, ET AL,
Defendants
v.
CRYSTAL SEAFOOD COMPANY, INCORPORATED, DWH Claimant
100100245,
Claimant - Appellant
v.
PATRICK A. JUNEAU, In His Capacity as Claims Administrator and
Trustee,
Movant - Appellee
Case: 16-30717 Document: 00513990533 Page: 2 Date Filed: 05/12/2017
No. 16-30717
Appeal from the United States District Court
for the Eastern District of Louisiana
Before DAVIS, CLEMENT, and COSTA, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:
Appellant Crystal Seafood Company, Inc. appeals a district court order
holding Crystal and two of its officers (the Trans) jointly and severally liable
for a $1,034,228.42 payment that Crystal received pursuant to the BP
settlement. 1 For the reasons set out below, we AFFIRM.
I.
In 2013, the district court appointed a Special Master to examine and
investigate suspicious past or pending claims submitted to the Deepwater
Horizon Economic Claims Center (“DHECC”). The district court further
ordered the Special Master to initiate legal action to “clawback” any already
paid fraudulent claims.
In 2015, the Special Master and the Claims Administrator filed a joint
clawback motion seeking to recoup $1,034,228.42 that the DHECC paid to
Crystal Seafood Company, Inc. In order to obtain this $1,034,228.42, Crystal
was required to and did swear, inter alia, that it did not constitute a “failed
business” under the terms of the settlement agreement. The Special Master
and the Claims Administrator alleged that this misstatement constituted
fraud, and sought to have the district court order Crystal and any individuals
who benefitted from Crystal’s misstatement to remit the full $1,034,228.42 to
the DHECC.
For a brief history of the events leading up to the BP settlement, see generally In re
1
Deepwater Horizon, 732 F.3d 326, 329 (5th Cir. 2013).
2
Case: 16-30717 Document: 00513990533 Page: 3 Date Filed: 05/12/2017
No. 16-30717
On May 24, 2016, the district court granted the clawback motion without
a hearing, holding that there is no genuine dispute of material fact that Crystal
was a failed business under the terms of the settlement agreement and that
Crystal’s sworn statement to the contrary constituted fraud. The district court
then went on to pierce Crystal’s corporate veil and hold two of Crystal’s officers,
Loc “Victor” Tran and Christopher Tran, jointly and severally liable with
Crystal for the $1,034,228.42 owed.
Crystal – and only Crystal – now appeals.
II.
Pursuant to the settlement agreement, we review the district court’s
grant of a clawback motion without a hearing as a grant of summary judgment.
We review a district court’s grant of summary judgment de novo, viewing all
facts and drawing all inferences in a light most favorable to the non-moving
party. 2 Summary judgment is proper when there is “no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.” 3
III.
We treat a DHECC clawback motion as a common law fraud claim
brought under general maritime law. To prove common law fraud, the Special
Master and the Claims Administrator must establish: (1) that the claimant
knowingly or recklessly (2) made a material misrepresentation (3) that he
intended to be acted upon, and was in fact acted upon, to the detriment of the
DHECC. 4
Crystal alleges that there is, at a minimum, a genuine dispute of
material fact as to the first and second elements. We address each below.
2 Burell v. Prudential Ins. Co. of Am., 820 F.3d 132, 136 (5th Cir. 2016).
3 Fed. R. Civ. P. 56(a).
4 See In re Deepwater Horizon, 643 F. App'x 377, 381 (5th Cir. 2016) (unpublished).
3
Case: 16-30717 Document: 00513990533 Page: 4 Date Filed: 05/12/2017
No. 16-30717
A.
We first consider whether Crystal made a material misrepresentation.
The settlement agreement defines a failed business as, inter alia, a
business that subsequent to May 1, 2010, but prior to December 31, 2011: (1)
ceased operations and wound down, or (2) initiated or completed a liquidation
of substantially all of its assets.
Crystal is a shrimp processor. It buys shrimp, processes them, and sells
them for redistribution.
In terms of operations, it is undisputed that Crystal processed the last of
its shrimp approximately one year before the oil spill, in April or May 2009. It
is also undisputed that Crystal sold the last of its frozen inventory
approximately three months after the oil spill, in August 2010.
In terms of liquidation, it is undisputed that Crystal submitted profit
and loss statements to the DHECC – under oath – illustrating that Crystal
stopped taking a depreciation expense 5 on its processing equipment the month
of the oil spill, in May 2010. It is also undisputed that Crystal submitted tax
returns to both the DHECC and the Internal Revenue Service (“IRS”) – under
oath – representing that Crystal “disposed” of all of its assets on or before
December 31, 2010.
Based upon this information, the district court held that Crystal was a
failed business and was therefore ineligible for the $1,034,228.42 that it
received. This finding was, again, based upon Crystal’s own sworn statements.
Crystal took a depreciation expense in every month prior to May 2010 –
therefore, the district court held that Crystal initiated a liquidation of
substantially all of its assets subsequent to May 1, 2010. Crystal “disposed” of
5 26 U.S.C. § 167(a) allows corporations such as Crystal to reduce their taxable income
a reasonable allowance for the exhaustion, wear and tear, and obsolescence of property used
in the trade or business.
4
Case: 16-30717 Document: 00513990533 Page: 5 Date Filed: 05/12/2017
No. 16-30717
all of its assets on or before December 31, 2010 – therefore, the district court
held that Crystal completed a liquidation of substantially all of its assets prior
to December 31, 2011.
Crystal attacks its own 2010 tax returns on two grounds. First, it
provides the affidavit of Victor Tran. Tran attests that Crystal “continues to
own . . . well more than a million dollars” worth of processing equipment and
implies that Crystal’s 2010 tax returns were in error. It is, nonetheless, well-
established that a non-movant “cannot create a genuine issue of fact sufficient
to survive summary judgment simply by contradicting his or her own previous
sworn statement . . . without explaining the contradiction or attempting to
resolve the disparity.” 6 Tran’s implicit assertion that Crystal’s 2010 tax
returns were in error – without further explanation – does not raise a genuine
dispute of material fact. 7
Second, Crystal asserts that its new lawyer, who was retained after the
district court granted the now-contested clawback motion, has learned that
Crystal’s accountant made some mistakes on Crystal’s 2010 tax returns.
Specifically, some of the equipment listed as “disposed,” Crystal continues to
own. Crystal did not raise this argument in the district court. We therefore
decline to address it, “keeping with our precedent that arguments not raised
6 Cleveland v. Policy Mgmt. Sys. Corp., 526 U.S. 795, 806 (1999); see also S.W.S.
Erectors, Inc. v. Infax, Inc., 72 F.3d 489, 495 (5th Cir. 1996) (same).
7 Because Victor Tran’s affidavit does not raise a genuine dispute of material fact
pursuant to Cleveland, we need not address the district court’s reliance on Scott v. Harris,
550 U.S. 372, 380 (2007) (holding that “[w]hen opposing parties tell two different stories, one
of which is blatantly contradicted by the record, so that no reasonable jury could believe it, a
court should not adopt that version of the facts for purposes of ruling on a motion for summary
judgment”), and Bartucci v. Jackson, No. 04-2977, 2006 WL 2631925, at *5 (E.D. La. Sept.
13, 2006) (noting that “while many courts have accepted a plaintiff's own affidavit, deposition,
or verified pleadings to defeat summary judgment, a number of courts have rejected this proof
when the plaintiff's statements are self-serving and conclusory”).
5
Case: 16-30717 Document: 00513990533 Page: 6 Date Filed: 05/12/2017
No. 16-30717
before the district court are waived and cannot be raised for the first time on
appeal.” 8
Crystal materially misrepresented itself as an ongoing business when it
filed its claim in 2012. With respect to that point, there is no genuine dispute
of material fact.
B.
In order to satisfy the scienter element of common law fraud, the Special
Master and the Claims Administrator must establish that Crystal knew or
should have known that it was a failed business when it filed its claim in 2012.
“While the term recklessness is not self-defining, the common law has
generally understood it in the sphere of civil liability as conduct violating an
objective standard: action entailing an unjustifiably high risk of harm that is
either known or so obvious that it should be known.” 9 “A person's state of mind
is rarely susceptible of proof by direct evidence, so specific intent to defraud
may be, and most often is, inferred from the totality of the circumstances,
including indirect and circumstantial evidence.” 10 That inference, pursuant to
our precedent, can be drawn not only as a matter of fact, but also as a matter
of law.
For example, in Brown v. Parker Drilling Offshore Corp., we inferred
that Brown intentionally concealed prior back problems on a pre-employment
medical questionnaire, even though Brown argued that he did not believe that
his prior back problems constituted what the questionnaire described as “back
trouble.” 11 The evidence established that Brown well-understood that his prior
back problems constituted “back trouble.” 12 In fact, one of Brown’s previous
8 LeMaire v. La. Dep't of Transp. & Dev., 480 F.3d 383, 387 (5th Cir. 2007).
9 Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 68 (2007) (internal quotations omitted).
10 United States v. Philip Morris USA Inc., 566 F.3d 1095, 1118 (D.C. Cir. 2009).
11 410 F.3d 166, 172—75 (5th Cir. 2005).
12 See id. at 172—173.
6
Case: 16-30717 Document: 00513990533 Page: 7 Date Filed: 05/12/2017
No. 16-30717
employers – not Parker Drilling – had fired him for failing to disclose his prior
“back trouble” on a pre-employment medical questionnaire. 13 We therefore
held that Brown intentionally concealed his prior back problems “as a matter
of law.” 14
Similarly, in Meche v. Doucet, we inferred that Meche intentionally
concealed prior spinal injuries on a pre-employment medical questionnaire,
even though Meche argued that he did not consider “his pre-existing condition
to be a matter of importance.” 15 Meche had “sustained three prior work-related
low back and neck” injuries, for which he “received disability payments and
sued his former employers.” 16 We therefore held that “Meche intentionally
concealed his prior [spinal] injuries as a matter of law.” 17
Crystal argues that we should view this appeal through the lens of “a
small family business with unsophisticated owners trying to maneuver a
complex claims process to save their livelihood.” However, like in Meche, “the
record does not establish [that either Victor or Christopher Tran] lacked the
literacy skills necessary to read and review” the forms and documents that
Crystal submitted to the DHECC. 18
Ultimately, it is undisputed that Crystal: (1) processed the last of its
shrimp approximately one year before the oil spill, in April or May 2009; (2)
sold the last of its frozen inventory approximately three months after the oil
spill, in August 2010; (3) stopped taking a depreciation expense the month of
the oil spill, in May 2010; and (4) submitted tax returns to both the DHECC
and the IRS representing that it “disposed” of all of its assets on or before
13 See ibid.
14 Id. at 174.
15 777 F.3d 237, 241 (5th Cir.), cert. denied, 136 S. Ct. 111 (2015).
16 Id. at 247.
17 Id. at 248.
18 See ibid.
7
Case: 16-30717 Document: 00513990533 Page: 8 Date Filed: 05/12/2017
No. 16-30717
December 31, 2010. Guided by this mountain of circumstantial evidence, we,
like the district court, conclude that the Special Master and the Claims
Administrator have proven scienter as a matter of law. Crystal either knew or
should have known that it was a failed business when it filed its claim in 2012.
IV.
Lastly, Crystal argues that the district court erred in holding Victor and
Christopher Tran personally liable. Because the Trans have not sought to
appeal the judgment of the district court, and because Crystal has not
identified a genuine obstacle preventing the Trans from filing their own
appeal, we hold that Crystal lacks standing to champion the rights of the
Trans.
“The doctrine of standing asks whether a litigant is entitled to have a
federal court resolve his grievance.” 19 “Whether a party has standing to appeal
‘involves both constitutional limitations on federal-court jurisdiction and
prudential limitations on its exercise.’” 20 Constitutionally, the right to lodge an
appeal in federal court is reserved to those who have “suffered an injury in fact,
thus giving [them] a sufficiently concrete interest in the outcome of the issue
in dispute.” 21 This “flows from Article III's case-or-controversy requirement,”
and we assume that Crystal has suffered such an injury for purposes of this
appeal. 22
Prudentially, the right to lodge an appeal in federal court is generally
reserved to those who seek to protect their “own legal rights and interests.” 23
19 Kowalski v. Tesmer, 543 U.S. 125, 128 (2004).
20 Rohm & Hass Tex., Inc. v. Ortiz Bros. Insulation, 32 F.3d 205, 208 (5th Cir. 1994)
(quoting Warth v. Seldin, 422 U.S. 490, 498 (1975)).
21 Powers v. Ohio, 499 U.S. 400, 411 (1991) (internal quotations omitted).
22 See Kowalsi, 543 U.S. at 129 (“Instead, we shall assume the attorneys have satisfied
Article III and address the alternative threshold question whether they have standing to
raise the rights of others.”).
23 See ibid. (quoting Warth, 422 U.S. at 499).
8
Case: 16-30717 Document: 00513990533 Page: 9 Date Filed: 05/12/2017
No. 16-30717
However, this prudential limitation, unlike its constitutional counterpart, is
not absolute. An appellant can protect the rights and interests of a third-party
so long as it can make two showings. First, the appellant must establish that
it and the third party have “a close relation,” 24 such that “their interests
coincide.” 25 The whole purpose behind this “‘close relation’ factor is to ensure
that the [appellant] will act as an effective advocate for the” party whose
interests it seeks to represent. 26 Second, the appellant must identify a “genuine
obstacle” 27 preventing the third party from “protect[ing] his or her own
interests.” 28 Relevant here, “[a] simple lack of motivation does not constitute a
‘genuine obstacle’ to asserting an interest” on appeal. 29
The Trans apparently “do not wish” to contest the judgment of the court
below. 30 Even nonparties – to the extent that the Trans are nonparties 31 – can
intervene after a judgment has been rendered, so long as intervention does not
prejudice the rights of the existing parties or substantially interfere with the
orderly processes of the district court. 32 What is more, Crystal has failed to
24 Powers, 499 U.S. at 411.
25 Wauchope v. U.S. Dep’t of State, 985 F.2d 1407, 1411 (9th Cir. 1993); see also Powers,
499 U.S. at 414 (discussing the “congruence of interests”); Harris v. Evans, 20 F.3d 1118,
1123 (11th Cir. 1994) (same).
26 Lepelletier v. F.D.I.C., 164 F.3d 37, 43 (D.C. Cir. 1999) (some internal quotations
omitted) (citing Singleton v. Wulff, 428 U.S. 106, 114—15 (1976)).
27 Singleton, 428 U.S. at 116.
28 Powers, 499 U.S. at 411.
29 Viceroy Gold Corp. v. Aubry, 75 F.3d 482, 489 (9th Cir. 1996).
30 Singleton, 428 U.S. at 114.
31 To the extent that Victor and Christopher Tran are nonparties, they may be able to
challenge any attempt to enforce this portion of the district court’s order. See Taylor v.
Sturgell, 553 U.S. 880, 884 (2008) (“[O]ne is not bound by a judgment in personam in a
litigation in which he is not designated as a party or to which he has not been made a party
by service of process.”).
32 Stallworth v. Monsanto Co., 558 F.2d 257, 266 (5th Cir. 1977) (internal quotations
omitted); see also Fed. R. Civ. P. 24; Baker v. Wade, 769 F.2d 289, 296—97 (5th Cir. 1985) (en
banc) (noting that a nonparty can only intervene if it “had no notice of the action” in the
district court and the other parties do not oppose its intervention on appeal), abrogated on
other grounds by Lawrence v. Texas, 539 U.S. 558 (2003).
9
Case: 16-30717 Document: 00513990533 Page: 10 Date Filed: 05/12/2017
No. 16-30717
even brief standing, which it has the burden to establish, 33 and which we lack
the right to infer. 34 For all of these reasons, we hold that Crystal lacks standing
to champion the rights of the Trans.
V.
The judgment of the district court is AFFIRMED.
33 Amato v. Wilentz, 952 F.2d 742, 750 (3d Cir. 1991) (noting that the party claiming
third party standing has the burden to “establish . . . third party standing”); cf. also Sierra
Club v. Babbitt, 995 F.2d 571, 575 (5th Cir. 1993) (“Where standing to appeal is at issue,
appellants must demonstrate some injury from the judgment below.”).
34 See FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990) (“It is a long-settled
principle that standing cannot be inferred argumentatively from averments in the pleadings,
but rather must affirmatively appear in the record.”).
10