Daniel Sherman v. William LaMothe, et al

Filing 511128859

Daniel Sherman v. William LaMothe, et al

Doc. 511128859

Case: 09-10416

Document: 00511128859

Page: 1

Date Filed: 06/02/2010

IN THE UNITED STATES COURT OF APPEALS United States Court of Appeals FOR THE FIFTH CIRCUIT Fifth Circuit FILED
June 2, 2010 N o . 09-10416 Lyle W. Cayce Clerk

In the Matter of: VELOCITA WORLDWIDE LOGISTICS INC, Debtor - - -- - -- - -- - -- - -- - -- - -- - -- - -- - D A N IE L SHERMAN, A p p e l la n t v. W I L L I A M LAMOTHE; RAJAN SOBHANI; CHRIS BRACK; DANIEL E S T R A D A ; SCOTT STUDEBAKER; JAMES MICHAEL WALSH; BRANDON ROBINSON; PATRICK STRYER, A p p e lle e s

A p p e a l from the United States District Court for the Northern District of Texas U S D C No. 3:08-CV-1516

B e fo r e GARZA, DeMOSS, and CLEMENT, Circuit Judges. E M I L I O M. GARZA, Circuit Judge: D a n ie l Sherman (the "Trustee"), bankruptcy trustee for Velocita W o r l d w id e Logistics, Inc. ("Velocita"), appeals the district court's judgment a f fir m in g the bankruptcy court and declining to imply a right of contribution

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No. 09-10416 a m o n g defendants who agreed to be jointly and individually liable for a payment a s part of the settlement agreement for a state tort action. I T h e eight appellees (collectively, the "Employees")1 worked for Velocita, a s h i p p in g company. A competing shipping company, Exel Global Logistics

(" E x e l" ), sued Velocita and the Employees for trade secrets violations. After s e v e r a l months of acrimonious litigation, the parties settled the case. In

a d d itio n to dozens of pages of injunctions against Velocita and individually t a ilo r e d injunctions against the Employees, the settlement agreement contained a clause requiring a $1.85 million payment to Exel. In the payment clause, V e lo c it a and the Employees agreed to be "jointly and individually" liable to pay E x e l $1.85 million. Velocita paid the entire $1.85 million and later entered b a n k r u p tc y when it could not meet the demands of its creditors. The Trustee brought suit against the Employees, attempting to force them t o pay their pro rata share of the $1.85 million to Velocita. Since the settlement a g r e e m e n t made no mention of contribution, the Trustee relied on an implied c o n tr a ct u a l right to equitable contribution. Both the bankruptcy court and the d is t r ic t court denied relief. The Trustee timely appealed to this court. II This appeal asks us to consider whether Texas law would imply a right of c o n t r ib u t io n for a co-obligor of a settlement agreement that paid more than its p r o p o r t io n a te share of the settlement.2 The Trustee relies primarily on Faires v . Cockrill, 31 S.W. 190 (Tex. 1895), and Merchants' National Bank v. McAnulty,

Although the underlying suit involved ten employees, only eight are party to the instant appeal. Since the appeal is taken from the district court's summary judgment ruling, our review is de novo. Mongrue v. Monsanto Co., 249 F.3d 422, 428 (5th Cir. 2001). We apply the same standards as the district court. Id.
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No. 09-10416 3 3 S.W. 963 (Tex. 1896), two century-old Texas cases that recognize an implied r ig h t to contribution. The Employees argue that the doctrine announced in t h e s e cases has only been applied to sureties and guaranties in the 100 years s in c e it was announced, and caution against expanding its application here. Under Texas law, a claim for contribution is separate from the underlying to r t or contract. "The obligation to contribute is not founded upon contract . . . b u t upon principles of equity and natural justice which requires [sic] that one s h a ll not be made to bear more than his just share of a common burden to the a d v a n t a g e of his co-obligors." McKelroy v. Hamilton, 130 S.W.2d 1114, 1116 (T e x . Civ. App. 1939). The reasoning that underlies the right of contribution is t h a t the co-obligors have made an implied promise to bear the burden equally: " [i]n suits for contribution the right of action is on the implied promise for r e im b u r s e m e n t and not upon the debt." Miller v. Miles, 400 S.W.2d 4, 7 (Tex. C iv . App. 1966) (emphasis added). Texas courts have long allowed actions for contribution in guaranty and s u r e t y cases even where the right was not set out in the note or contract. O c c a s io n a lly , Texas courts have recognized the right to contribution in language b r o a d enough to be construed to cover the situation here. See, e.g., Employers C a s . Co. v. Transp. Ins. Co., 444 S.W.2d 606, 609 (Tex. 1969) ("The general c o n tr i b u t i o n rule is announced in 18 AM. JUR.2D 16, Contribution § 7, in this la n g u a g e : `The primary requisites of the equitable right to contribution . . . are ( 1 ) a situation wherein the parties are in aequali jure under some common o b lig a t io n or burden, and (2) compulsory payment or other discharge, by the p a r ty seeking contribution, of more than his fair share of the common obligation o r burden.'"). Other cases have defined the right to implied contribution more n a rr o w ly . "Under Texas law, there is a very limited right of contribution on a b r e a c h of contract claim; that is, a contribution right exists among co-guarantors o n a note, or in any situation where there is an implied promise of co-obligors to 3

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No. 09-10416 p a y their proportionate shares of a common obligation." Interstate Contracting C o r p . v. City of Dallas, No. 3:98-CV-2913-M, 2000 WL 1281198, at *4 (N.D. Tex. S e p t. 8, 2000) (unpublished), rev'd on other grounds, 407 F.3d 708 (5th Cir. 2 0 0 5 ). Notwithstanding the broad language quoted above, Texas courts, to the b e s t of our knowledge, have not found occasion to extend the contribution right im p l ie d in guaranty and surety agreements to other types of contracts. Because t h e doctrine has been limited to guaranty and surety agreements, it stands to r e a s o n that features of these contracts make them more conducive to equitable c o n tr ib u tio n than other types of contracts. An examination of the underlying r e a s o n s why Texas courts have allowed contribution only in these limited types o f agreements bears out this contention. First, in sureties and guaranties, the subject matter of the contract is ( g e n e r a lly ) money that has been lent to one party on the binding assurance of a n o th e r or others. Should the lendee fail to repay, the only contested item is c o m p le t e l y fungible and thus easily divisible, making pro rata liability simple to c a lc u la te and knowable in advance. Second, contribution accords with the

s e t t le d expectations of the guarantors: if there are three guarantors, in the a b s e n c e of contractual provisions to the contrary, each can expect to bear no m o r e than one-third of the amount at issue. The implied promise underlying the r ig h t to contribution is implied because it is expected and desired ex ante. D is a llo w in g contribution would force each guarantor in a multi-party guaranty t o gamble with his potential liability. g u a r a n tie s encourage. This would stifle the lending that

Third, contribution in the world of guaranties and

s u r e t ie s is both fair and efficient. It speeds the collection process for lenders and e n s u r e s that each of the guarantors or sureties is treated equally by default. In s u m , surety and guaranty contracts feature both an easily divisible subject

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No. 09-10416 m a tt e r and an unmistakable underlying intent as to how the parties will bear t h e risk of default by the lendee. A s su m in g arguendo that Texas courts would imply a right to contribution in settlement agreements as a general matter, we decline to do so here. The fa c t o r s that justify the contribution right implied in sureties and guaranties are a b s e n t here. First, the subject matter of the settlement agreement involved m o r e than money. Although a $1.85 million payment constituted one part of the a g r e e m e n t , the remainder comprised individually tailored injunctions against th e Employees and Velocita.3 Texas courts have recognized that the general rule o f an equally divided pro rata contribution is altered when, for example, coo b lig o r s shared unequally in the consideration received out of the note, in which c a s e "contribution may be prorated according to the benefits each received." D ittbe rn er v. Bell, 558 S.W.2d 527, 534 (Tex. Civ. App. 1977). In this case, the b e n e fit s that the individual Employees received from being released from the s u i t were presumably not equal. Some Employees must have been less involved i n the actions that Exel alleged were trade secret violations. The individually t a ilo re d injunctions support this contention: LaMothe, for example, faced an in ju n c tio n that was notably more strict than that faced by the other Employees. T h u s , contrary to the Trustee's arguments, implying a right to contribution w o u ld necessarily force the district court to open up the underlying settlement to determine an equitable division among the Employees.

The presence of disparate injunctions, in addition to money, distinguishes the instant case from Greenspan v. Green, 255 S.W.2d 917 (Tex. Civ. App. 1953). In Greenspan, a bankruptcy trustee was allowed to assert a contribution claim against a co-judgment debtor, even though the "joint judgment [was] without a provision for contribution between the co-debtors." Id. at 918. Although the case supports the Trustee's position, it is not entirely analogous because the underlying judgment only involved money, thus making it more similar to a surety or guaranty than the instant settlement agreement. Furthermore, at oral argument, the Trustee specifically disavowed any theory of recovery based on co-debtor status.

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No. 09-10416 T h e instant facts are in stark contrast to the situation in Dittberner, where t h e court was able to find the amount of consideration received by each party to th e promissory note as a percentage of the whole. Id. at 534. In cases where the p e r c e n t a g e that each party should bear is obvious from the face of the contract o r where the parties entered into the arrangement with their potential share of lia b ilit y allocated by existing law, it is relatively easy for the courts to calculate e a c h party's contribution. The implied promise on which the right of

c o n tr ib u tio n rests is more plausible in such cases. The difficulty of equitably a p p o r tio n in g contribution here weighs against implying the remedy. Additionally, nothing indicates that contribution would accord with the e x p e c ta tio n s of the Employees and Velocita. Allowing contribution would imply a n eleven-way promise that the Employees and Velocita would almost surely not h a v e made in the circumstances of this case.4 The Trustee has not pointed to a n y th in g in the record indicating that, ex ante, the Employees contemplated an a r r a n g e m e n t at all analogous to a guaranty. III I n conclusion, we do not find the obligations in the instant settlement a g r e e m e n t to be analogous to the obligations in surety and guaranty a g r e e m e n t s , the contractual arrangements in which Texas courts have allowed c o n tr ib u t io n claims against co-obligors. Here, where each party appears to have r e c e iv e d a different benefit from the settlement agreement, the shared burden is neither completely fungible nor easily divisible. Accordingly, we affirm the d i s tr ic t court's judgment that, on these facts, a right to contribution should not b e implied.

Each of the Employees had a different interest in Velocita; LaMothe, for example, appears to have been a principal in the company. We find it highly unlikely that the more "minor players" signed the agreement with the understanding that they could each be liable for approximately $200,000 of the payment to Exel.

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No. 09-10416 A F F IR M E D .

H A R O L D R. DeMOSS, JR., Circuit Judge, concurs in the judgment only.

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