Federal Civil Court Update

The following are summaries of opinions issued by the Fifth Circuit in May 2023. The summaries are overviews of particular aspects of the opinions; please review the entire opinions.

JURISDICTION: In an ancillary action to enforce a settlement agreement, parties could not collaterally challenge jurisdiction in the settled original proceeding and could sue only to enforce the settlement agreement.

Nat’l Oilwell Varco, L.P. v. Auto-Dril, Inc., No. 21-40648, 2023 WL 3411189 (5th Cir. May 12, 2023).

In the original action, National Oilwell Varco (“NOV”) sued Auto-Dril for patent infringement. The parties settled, with Auto-Dril purchasing a license from NOV and both parties releasing all claims against each other. The district court retained jurisdiction “to interpret and enforce” the settlement agreement.

Later, the parties sued each other to enforce the settlement agreement. The parties then learned that NOV never acquired ownership of the patent underlying the original action. In response, Auto-Dril added a claim for fraud and NOV moved to dismiss for lack of jurisdiction. The district court rejected Auto-Dril’s fraud claim and NOV’s jurisdictional challenge.

On appeal, the court turned away NOV’s challenge to the district court’s jurisdiction to enforce the settlement agreement. NOV argued that, because it never owned the patent, NOV lacked standing in the original action and so the district court never had any jurisdiction to retain as necessary to enforce the settlement agreement.

The court held that NOV is precluded from collaterally attacking the final order in the original action, including the district court’s jurisdiction. The court rejected NOV’s argument that issue preclusion should not apply because NOV, as the original plaintiff, lacked the motivation to litigate jurisdiction. The court reasoned that NOV had the burden to establish jurisdiction in the original action, which is all the motivation necessary.

But the court held that the district court’s ancillary jurisdiction to enforce the settlement agreement did not extend to Auto-Dril’s fraud claim because that claim went beyond enforcement.

The court denied Auto-Dril’s attempt to distinguish recent precedent holding the same—Vikas WSP, Ltd. v. Economy Mud Products Co., 23 F.4th 442 (5th Cir. 2022). The court concluded that the district court’s order retaining jurisdiction “to interpret and enforce the agreement” did not broaden its retained jurisdiction beyond enforcement.

PRESERVATION: Where parties stipulated that setoff defense would not be mentioned at trial, defendant had to at least raise defense in opposition to plaintiff’s motion for entry of final judgment following trial.

Janvey v. GMAG, LLC, 2023 WL 3720203 (5th Cir. May 30, 2023).

After Stanford International Bank was exposed as a Ponzi scheme and placed into receivership, the receiver (Janvey) sued investors to claw back funds.

The receiver sued Magness and related entities on a theory of fraudulent transfer. The pretrial order did not include any setoff defense. Magness prevailed at trial, but the Fifth Circuit reversed and directed judgment in the receiver’s favor. On remand, the receiver moved for entry of final judgment. Magness opposed but did not raise any setoff defense. The court entered final judgment. Magness posted a supersedeas bond to stay the judgment while he pursued further appeals.

Later, after exhausting those appeals, Magness opposed the release of funds held for supersedeas and sought leave to file a complaint for setoff. In the parallel receivership proceeding, Magness sought leave to file the same complaint. Leave was denied in both actions.

The receiver argued that Magness waived or forfeited his setoff defense by failing to include the defense in the pretrial order. Generally, issues not included in the pretrial order are waived. Magness responded that the parties stipulated that they would not reference the defense at trial, so failing to include the defense in the pretrial order was not fatal.

On a second appeal, the court declined to resolve that dispute, holding instead that Magness forfeited the setoff defense by failing to raise it in opposition to the receiver’s motion for entry of judgment following remand from the first appeal.

The court rejected Magness’s argument that the setoff defense arose only after all appeals from final judgment were exhausted. The court held that Magness’s setoff defense was ripe after trial and before final judgment. Thus, Magness failed to make the timely assertion of a right and therefore forfeited any setoff defense. AL

Jason LaFond is an Austin-based appellate litigator with significant experience before the Fifth Circuit. He is senior counsel at Yetter Coleman LLP.