In this edition of Litigation Roundup, U.S. District Judge Ada Brown gets her first crack at handling multidistrict litigation after 12 putative class action lawsuits over the AT&T data breach are transferred to her, the former president of a Texas energy company goes to prison and a trio of attorneys representing Southwest Airlines gets a stay on an order that they undergo religious liberty training.
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Dallas County Court-at-Law
Another Suit Filed Against Massage Envy
Massage Envy was recently sued in Dallas County district court by one of its former massage therapists who alleges a male coworker sexually assaulted her during a massage appointment.
The woman who filed the suit is identified as R.Q. and is represented by Anna Greenberg of Blizzard Greenberg. The law firm is also representing several other clients in suits alleging a pattern of misconduct by the company. In October 2023, the firm secured a $1 million settlement for another sexual assault lawsuit it brought against Massage Envy.
R.Q. booked a massage appointment with her coworker to address upper neck and back pain but alleges that multiple times during the session, her coworker put his hands in her underwear and groped her. After reporting it to Massage Envy management, R.Q. alleges the company told her coworker about the complaint and, rather than firing him, transferred him to a franchise in Fort Worth. He was later fired.
“Massage Envy’s culture of cover-ups and negligence is extremely dangerous,” Greenberg, who represents R.Q., said in a statement. “The lawless cycle of inconsequential trainings and employee transfers does nothing to protect customers and fellow employees from harm.”
The lawsuit was filed June 3 and has been assigned to Dallas County Court-at-Law No. 5 Judge Nicole Taylor.
Counsel for Massage Envy had not filed an appearance as of Monday.
The case number is CC-24-04079-E.
District Court Clark County, Nevada
Shareholder Derivative Suit Tossed Based on Pleading Errors
A group of shareholders who were suing a company that designs, develops and operates datacenters cannot proceed with their lawsuit alleging breach of fiduciary duty and unjust enrichment after a judge in Nevada found pleading errors mandated dismissal.
Clark County, Nevada District Court Judge Joe Hardy determined in an 11-page order issued June 5 that the plaintiffs suing Applied Digital Corporation had failed to meet the pleading standards to avoid dismissal of their suit. The lawsuit was brought in response to allegedly misleading statements APC and some members of its board of directors had made about the early repayment of a loan by a subsidiary company, SAI Computing.
The plaintiffs, led by Robert Weich, filed suit in November. ADC moved to dismiss in April.
Judge Hardy wrote that the plaintiffs failed to first demand that the board of directors pursue the claim before filing this derivative action and alternatively failed to “set forth with particularity” why such a demand would have been futile.
“The amended complaint fails to identify the specific statements plaintiff contends were false or misleading. In his opposition, plaintiff contends that the false or misleading statements related to Applied Digital’s cryptocurrency mining business segment and the intended use of the loan from B. Riley Commercial Capital and B. Riley Securities,” Judge Hardy wrote. “With respect to the former, the amended complaint does not identify which specific statements were allegedly false or misleading. Nor does the amended complaint identify the speaker of any allegedly false or misleading statement, what information was known to any director that would have rendered such statements false or misleading when they were made, or when any particular information should have been disclosed by Applied Digital.”
Applied Digital Corporation is represented by Noelle M. Reed,Abby Davis, Brent HansonandArgirios J. Nickas of Skadden, Arps, Slate, Meagher & Flom and Patrick G. Byrne and Bradley T. Austin of Snell & Wilmer.
The plaintiffs are represented by James M. Ficaro of The Weiser Law Firm and John P. Aldrich of Aldrich Law Firm.
The case number is A-23-881629-B.
Southern District of Texas
Ex-President of Energy Co. Sentenced to Prison
The former president of a Texas energy company who pleaded guilty to a kickback and insider trading scheme has been sentenced to six-and-a-half years in prison and ordered to forfeit $5.5 million and pay $6.5 million in restitution.
U.S. District Judge George C. Hanks Jr. sentenced Matthew Clark, 56, of Needville, on June 7 on one count each of conspiracy to commit honest services wire fraud, prohibited commodities transactions and commodities insider trading.
Clark was indicted in February 2022 and entered a guilty plea in March of this year. Prosecutors alleged Clark, who was a natural gas trader as well, directed his company’s trades to Houston-based Classic Energy, a brokerage firm owned by coconspirator Matthew Webb, 54, of Tiki Island. In return, Clark received more than $5.5 million in kickbacks. The government alleged Clark conspired with two other men in furtherance of the fraud — John Ed James, 54, of Katy, and Peter Miller, 49, of Puerto Rico. Webb, James and Miller have all entered guilty pleas for their roles as well.
Clark is represented by Dan Cogdell, Brent Newton and Anthony Osso of Cogdell Law Firm.
The prosecutors are Leslie S. Garthwaite, Della Sentilles, David Hamstra and Grace Murphy.
The case number is 4:22-cr-00055.
Western District of Texas
Jury Returns $10.3M Verdict in Patent Infringement Case
SVV Technology Innovations recently convinced a jury in Waco that it was entitled to $10.3 million in damages based on Acer Inc.’s infringement of four patents covering LED display technology held by SVV.
The jury of seven deliberated for about three hours before issuing the ruling in favor of SVV. The panel agreed that Acer had infringed patents invented by Sergiy Vasylyev, who founded the optics and lighting company.
SVV, which also does business as Lucent Optics, filed the lawsuit that was assigned to U.S. District Judge Alan D. Albright in June 2022. Jury selection in this case took place May 30 and testimony began June 3. Jurors heard three days of testimony before beginning deliberations June 6.
SVV is represented by Warren McCarty, Daniel Pearson, Seth Reich, Aisha Mahmood Haley and Bjorn Blomquist of Caldwell Cassady & Curry and Robert Katz of Katz Law Firm
Acer is represented by Craig Kaufman, Jerry Chen and Kaiwen Tseng of TechKnowledge Law Group and Eric H. Findlay and Brian Craft of Findlay Craft.
The case number is 6:22-cv-00640.
Eastern District of Texas
DISH’s Sling TV Draws Patent Infringement Suit
Quantum Technology Innovations has accused DISH Network of infringing its patent for distributing video content via its Sling TV offering.
Quantum’s patent covers technology that enables the delivery of “high-bandwidth content over a network,” such as the internet or television, to a large number of people. Sling TV allows users who download an app to stream live television and on-demand content.
The case, filed June 5, has been assigned to U.S. District Judge Rodney Gilstrap.
Quantum is represented by Randall T. Garteiser, Christopher A. Honea and M. Scott Fuller of Garteiser Honea.
Counsel for DISH had not filed an appearance as of Monday.
The case number is 2:24-cv-00420.
U.S. Judicial Panel on Multidistrict Litigation
Judge Brown Gets 12 Proposed Class Action Suits Over AT&T Data Breach
The U.S. Judicial Panel on Multidistrict Litigation has decided U.S. District Judge Ada Brown of the Northern District of Texas will preside over at least 12 proposed class action lawsuits stemming from an AT&T data breach.
In an order issued June 5, the panel transferred the lawsuits that had been pending in both the Northern District of Texas and the Western District of Oklahoma. The three-page ruling also notes this will be the first MDL Judge Brown presides over.
“On the basis of the papers filed and the hearing session held, we find that these actions involve common questions of fact, and that centralization in the Northern District of Texas will serve the convenience of the parties and witnesses and promote the just and efficient conduct of this litigation,” the panel held. “These putative class actions present common factual questions concerning an alleged data security breach announced by AT&T in March 2024 concerning the personal information of over 70 million former and current AT&T customers released on the dark web.”
The panel noted that 18 additional overlapping putative class actions regarding the same data breach are pending in seven districts: the Northern District of California, Eastern District of California, Southern District of California, Northern District of Georgia, Northern District of Illinois, Western District of Missouri, and Eastern District of Texas.
The MDL number is 3114.
First District Court of Appeals
Law Firm Can’t Compel Arbitration with HOA Client
A Houston appellate panel recently determined that a law firm cannot move to arbitration a lawsuit in which a former client accuses it of charging “needless and excessive” fees because it failed to prove the existence of an arbitration agreement.
In an opinion issued June 4, the First Court of Appeals sided with Eaglewood Homeowners Association and determined its lawsuit against Vethan Law Firm and Charles Vethan can proceed in the courts. According to the opinion, in 2019, the HOA paid the firm a $15,000 retainer to represent it in a dispute with a vendor and authorized the firm to pay itself directly out of the HOA bank account.
“According to the Association, over the course of six months, VLF billed more than $40,000 in legal fees and paid itself ‘immediately via electronic payments pulled directly out of the Association’s bank account,’” the opinion states.
In 2020, the HOA’s newly-retained counsel told the Vethan Law Firm to “stand down” and “stop work,” but the lawsuit alleged the firm billed an additional $14,300 in fees after that and refused to return the retainer.
At a hearing on the motion to compel arbitration, the law firm presented the court with its engagement agreement that contained an arbitration provision but “offered no affidavits or other testimony to authenticate the VLF engagement agreement or any of its exhibits,” according to the opinion.
That failure to authenticate the document was fatal to the law firm’s arbitration request, the panel held.
Justices Richard Hightower, Veronica Rivas-Molloy and April L. Farris sat on the panel.
The Vethan Law Firm is represented by its own Joseph L. Lanza.
Eaglewood HOA is represented by Shannon A. Lang and Jessica Hughes of Lang & Associates.
The case number is 01-23-00881-CV.
Texas Supreme Court
Harris County Wants Stay on Universal Income Program Lifted
A trio of Yetter Coleman attorneys are helping represent Harris County in its bid to get the Texas Supreme Court to vacate an administrative stay barring it from disbursing funds as part of its guaranteed basic income pilot program.
In the motion filed June 6, Grant B. Martinez, Justin P. Tschoepe and Jason R. LaFond are listed as of counsel for the county. Harris County is also represented by its own Christian D. Menefee, Jonathan G.C. Fombonne, Neal Sarkar, Tiffany S. Bingham, Christopher Garza, and Eleanor Matheson of Ryan Cooper.
The Texas Supreme Court issued the administrative stay on April 23 after Harris County District Court Judge Ursula Hall denied Texas’ request for a temporary injunction on April 18. Texas appealed to the Fourteenth Court of Appeals but then sought emergency relief from the state’s high court in light of Harris County’s plans to start distributing funds on April 24.
“Through the administrative stay, the state has effectively received a long and indefinite injunction without regard to the merits — despite being denied that same relief by two lower courts,” Harris County argued. “Prior to the stay, the status quo was Harris County’s ten month-long implementation of a presumptively constitutional pilot program designed to provide aid to the needy and to collect data for future policy decisions. That status quo has been disrupted for over six weeks without any ruling on the motion or mandamus petition.”
Harris County told the court that it has had plenty of time to decide on Texas’ motion and that it has “apparently never allowed” an administrative stay “to linger for so long.”
Texas filed a letter response on June 7 telling the court it wouldn’t respond to Harris County’s arguments unless the court requests it do so.
Texas is represented by Lanora Pettit of the Texas attorney general’s office.
The case number is 24-0325.
Fen-Phen Attorney Wants Rehearing
George Fleming and his law firm have asked the Texas Supreme Court for rehearing a few weeks after the court issued a unanimous ruling determining several thousand of his former clients can proceed with a lawsuit accusing him of wrongfully docking funds from their fen-phen litigation settlements.
The motion for rehearing filed June 3 urges the court to decide the dispute “based on the merits of the preclusion arguments, rather than on judicial estoppel.” In May, the Texas Supreme Court determined Fleming was barred — judicially estopped — from arguing the claims of his former clients were substantially similar after he earlier defeated class certification by arguing the claims were too distinct and, therefore, not suitable for class treatment.
Fleming’s about-face on whether the claims of his former clients were similar or distinct came in the wake of his win in a bellwether trial against six former clients referred to in court documents as the Harpst plaintiffs.
“Even if judicial estoppel had been pleaded and proved, the trial court had good reasons for rejecting it. Harpst did not have the jury charge that Fleming wanted,” Fleming argued in the motion for rehearing. “That jury charge (a) shifted the burden of proof to the defense and (b) required Fleming to get over a higher hurdle than it should have. We objected to the charge, but having won on it, we submit that the findings deserve effect.”
Fleming and his firm are represented byDavid M. Gunnof Beck Redden and Murray Fogler, Jas Brar and Michelle Gray of Fogler, Brar, O’Neil & Gray.
The plaintiffs are represented by Paul S. Kirklin of The Kirklin Law Firm.
The case number is 22-0166.
U.S. Court of Appeals for the Fifth Circuit
Southwest Airlines Gets Religious Liberty Training Paused
Lawyers for Southwest Airlines, who had been ordered by U.S. District Judge Brantley Starr to undergo religious liberty training after he held them in civil contempt, have won a stay from the Fifth Circuit halting the sanction during the appeals process.
In the June 7 order, the court found that the order issued by Judge Starr on Aug. 7 “likely exceeded the district court’s civil contempt authority.” The order came after a jury sided with flight attendant Charlene Carter, who alleged she was fired after sending anti-abortion messages to her union president.
Judge Starr ordered three Southwest attorneys — Kerrie Forbes, Kevin Minchey and Chris Maberry — to undergo religious liberty training from The Alliance Defending Freedom after finding they had failed to notify flight attendants that the law forbids employment discrimination on the basis of religion.
Southwest’s directive to flight attendants said the court had ordered the airline to inform its employees that it “does not discriminate” against employees on the basis of religion and sent a separate memo to flight attendants “stating that its employees must abide by the types of policies over which Southwest fired Carter and that it believed its firing of Carter was justified because of those policies.”
“We agree with Southwest that ‘religious-liberty training’ will not compel compliance with the order nor compensate Carter,” the panel wrote. “To start, ‘[c]ivil contempt differs from criminal contempt in that it seeks only to coerc[e] the defendant to do what a court had previously ordered [it] to do.’ Because the court did not previously order Southwest’s lawyers to attend religious-liberty training, we are skeptical that it can do so in the civil contempt context.”
The panel wrote that it appears “at least in part” Judge Starr intended to punish the attorneys for what he viewed as flouting his holding, but held that the “punitive sanctions likely exceeded the scope of the court’s civil-contempt authority.”
“Whether the training would benefit Carter is rather speculative,” the panel wrote. “The Southwest attorneys, on the other hand, would likely suffer a violation of their constitutional rights.”
Judges Edith Brown Clement, Kurt D. Engelhardt and Cory T. Wilson sat on the panel.
Carter is represented by Matthew B. Gilliam of the National Right to Work Legal Defense Foundation and Bobby G. Pryor and Matthew D. Hill of Pryor & Bruce in Rockwall.
Southwest is represented byShay DvoretzkyandParker Rider-Longmaidof Skadden, Arps, Slate, Meagher & Flom and Paulo B. McKeeby and Brian K. Morris of Reed Smith.
The trial court case number is 3:17-cv-02278 and the case number on appeal is 23-10836.
Hilcorp Gets Toss of Mineral Royalty Lease Dispute Affirmed
A few weeks after the Texas Supreme Court on May 17 answered a certified question from the Fifth Circuit, a panel of judges of that court has determined U.S. District Judge Keith P. Ellison got it right when he dismissed a lawsuit brought by two royalty holders against Hilcorp Energy.
Anne Carl and Anderson White, who are successors in interest to a mineral lease covering two wells in Brazoria County, appealed to the Fifth Circuit in May 2022, trying torevive their lawsuit alleging Hilcorp erred in calculating what it owed them by not paying royalties on gas it used off-lease for post-production services like transport and processing.
The Fifth Circuit phoned a friend, asking the Texas Supreme Court to answer two questions central to resolving the dispute.
1) AfterRandle, can a market-value-at-the well lease containing an off-lease-use-of-gas clause and free-on-lease-use clause be interpreted to allow for the deduction of gas used off lease in the post-production process?
2) If such gas can be deducted, does the deduction influence the value per unit of gas, the units of gas on which royalties must be paid, or both?
Randlerefers to the Texas Supreme Court’s 2021 ruling inBlueStone Natural Resources II v. Randle,in which the justices determined BlueStone had improperly deducted post-production costs from royalties paid to lessors.
The Texas Supreme Court answered “yes” to question one and, in an unusual move, declined to answer the second question because the parties didn’t brief that issue while the case was pending before the court.
“In a characteristically thorough and well-reasoned opinion, the Supreme Court of Texas held that the lease plainly required the deduction of post-production costs, and the use of gas from the well for post-production operations was such a cost — even when that use occurred off lease,” the Fifth Circuit wrote in affirming dismissal.
Judges James L. Dennis, Jennifer Walker Elrod and James C. Ho sat on the panel.
Hilcorp is represented byStephen CrainandJeffrey L. Oldhamof Bracewell andAndrew Zeveof White & Case.
The landowners are represented by Rex A. Sharp, Heather Hacker, Hammons P. Hepner, Ryan Hudson and Greg Wright of Sharp Law.
The case number is 22-20226.
SEC Private Fund Rule Struck Down
A rule promulgated by the U.S. Securities and Exchange Commission that required certain disclosures from private funds and their managers was struck down by the Fifth Circuit June 5.
The rule was adopted by the SEC in August 2023 and the industry groups who filed suit to challenge it — the National Association of Private Fund Managers, Alternative Investment Management Association, American Investment Council, Loan Syndicators and Trading Association, Managed Funds Association and the National Venture Capital Association — alleged it would have fundamentally changed the way private funds and their advisers are regulated.
The SEC had said the rule was needed to protect investors and prevent fraud, deception or manipulation by investment advisers, but the Fifth Circuit found the federal agency failed to explain how its rule would accomplish that goal.
“Section 206(4), as amended, specifically requires the Commission to ‘define’ an act, practice, or course of business that is ‘fraudulent, deceptive, or manipulative’ before the Commission can prescribe ‘means reasonably designed to prevent’ ‘such’ act, practice, or course of business,” the panel wrote. “The Commission largely fails to ‘define’ the fraudulent acts or practices that the final rule purportedly is designed to prevent.”
The industry groups had argued that because private funds are generally not available to retail customers, Congress intentionally exempted private funds from the same restrictions and regulations imposed on mutual funds and other retail-focused investment vehicles. The groups argued the requirements were onerous and noted that, according to the SEC’s own estimate, implementation and compliance with the new requirements would cost $5.4 billion and millions of hours of employee time.
Judges Kurt D. Englehardt, Leslie H. Southwick and Cory T. Wilson sat on the panel.
The petitioners are represented by Eugene Scalia and Helgi Walker, Brian Richman, Max Schulman, Robert Batista, and Stephen Hammer of Gibson, Dunn & Crutcher
The SEC is represented by its own Jeffrey Berger, Megan Barbero and Ezekiel Hill.
The case number is 23-60471.
