L.A. Pub Ins Adjusters v. Nelson ( 2021 )

Case: 20-20319 Document: 00515897930 Page: 1 Date Filed: 06/14/2021
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
June 14, 2021
No. 20-20319 Lyle W. Cayce
Clerk
L.A. Public Insurance Adjusters, Incorporated,
Plaintiff—Appellee,
versus
Timothy John Nelson,
Defendant—Appellant.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:18-CV-950
Before Owen, Chief Judge, and Jolly and Dennis, Circuit Judges.
James L. Dennis, Circuit Judge:*
Timothy John Nelson worked for L.A. Public Insurance Adjusters,
Inc. (“LAPIA”) as a public insurance adjuster. After their business
relationship soured as a result of a dispute over the amount of commissions
Nelson was owed, LAPIA terminated Nelson’s employment and filed suit
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
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against him in state court. Nelson counterclaimed, seeking to recover the
unpaid commissions, and then removed the case to federal court.
For nearly two years, LAPIA failed to file an answer to Nelson’s
counterclaims, only finally seeking leave to file the document after the parties
had fully briefed cross summary judgment motions. The district court
accepted LAPIA’s answer without explanation, then granted the company
summary judgment based on a new defense theory that had been raised for
the first time in LAPIA’s belated answer. Because LAPIA failed to
demonstrate that its failure to initially file an answer was the product of
“excusable neglect” as is required to obtain an extension of time once a filing
period has elapsed under the Federal Rules of Civil Procedure, we
REVERSE the district court’s grant of summary judgment to LAPIA and
its denial of Nelson’s motion for partial summary judgment and REMAND
this case for further proceedings.
I. Facts and Procedural History
LAPIA entered into a contract with Nelson to employ him as a public
insurance adjuster, a professional who handles claims made with insurance
companies on behalf of policy holders. Nelson began working for LAPIA on
November 18, 2017, but after a dispute arose over the amount of the
commissions Nelson was due, the company terminated his employment only
79 days later on February 5, 2018.
LAPIA then filed suit against Nelson in Texas state court, seeking
damages for disparaging comments Nelson allegedly made about the
company while soliciting his former clients, as well as an injunction enforcing
a non-compete clause in Nelson’s employment contract. On March 26,
2018, Nelson filed an answer in the state court and asserted counterclaims
against LAPIA and LAPIA’s owner Eric Ramirez for the unpaid commissions
2
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Nelson was allegedly owed.1 The same day, Nelson removed the suit to the
United States District Court for the Southern District of Texas based on the
federal court’s diversity jurisdiction.
LAPIA did not file an answer to Nelson’s counterclaim within the
time specified by Federal Rule of Civil Procedure 81(c)(2),2 a fact that the
district court orally noted during a February 9, 2019 hearing at which
Ramirez was present when the court stated that Nelson could move for a
default judgment based on LAPIA’s failure to answer. Without first
attempting to file a belated answer, LAPIA moved for partial summary
judgment on Nelson’s counterclaim on June 14, 2019, contending that
Nelson was not owed any commissions because he had failed to obtain the
proper Texas state licensing to work as a public adjuster.
Nelson responded on July 5, 2019, and cross-moved for partial
summary judgment. Nelson argued that, under Federal Rule of Civil
1
Nelson later voluntarily dismissed his counterclaim against Ramierz, LAPIA
voluntarily dismissed its claims against Nelson, and only Nelson’s counterclaim against
LAPIA is at issue in this appeal.
2
Federal Rule of Civil Procedure 81(c)(2) states as follows:
(2) Further Pleading. After removal, repleading is unnecessary unless the
court orders it. A defendant who did not answer before removal must
answer or present other defenses or objections under these rules within the
longest of these periods:
(A) 21 days after receiving--through service or otherwise--a copy
of the initial pleading stating the claim for relief;
(B) 21 days after being served with the summons for an initial
pleading on file at the time of service; or
(C) 7 days after the notice of removal is filed.
3
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Procedure 8(b)(6),3 because LAPIA had not filed an answer denying the
allegations that were contained in his counter-complaint, the company must
be deemed to have admitted to all of them except those relating to the amount
of damages. LAPIA in turn responded that Nelson had originally filed his
counterclaims in Texas state court, and under Texas Rule of Civil Procedure
92,4 the company was not required to file an answer and was considered to
have generally denied all of Nelson’s allegations.
While the summary judgment cross-motions remained pending,
LAPIA’s attorney moved for and was granted leave to withdraw, and LAPIA
retained new counsel. Then, on January 12, 2020—approximately 22
months after Nelson had filed his counterclaims and six months after Nelson
had moved for partial summary judgment based on LAPIA’s failure to
answer—LAPIA moved for leave to finally file an original answer to Nelson’s
counterclaims. Seemingly acknowledging acknowledged that its prior
counsel had been mistaken about there being no need for the company to file
an answer to Nelson’s counterclaims. LAPIA asserted that it had been “at
the total mercy of” its prior attorneys, who had not informed the company
that no answer had been filed, and stated that its new attorney had sought to
rectify the situation as soon as he became aware of the omission. Arguing
that it should not be punished for the conduct of its former counsel, LAPIA
asked that it be permitted to file an answer out-of-time pursuant to Federal
3
Federal Rule of Civil Procedure 8(b)(6) provides as follows: “(6) Effect of Failing
to Deny. An allegation--other than one relating to the amount of damages--is admitted if a
responsive pleading is required and the allegation is not denied. If a responsive pleading is
not required, an allegation is considered denied or avoided.”
4
Texas Rule of Civil Procedure 92 provides, in relevant part, “When a
counterclaim or cross-claim is served upon a party who has made an appearance in the
action, the party so served, in the absence of a responsive pleading, shall be deemed to have
pleaded a general denial of the counterclaim or cross-claim.”
4
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Rule of Civil Procedure 6(b)(1)(B),5 which permits an extension of the time
limits contained in the Federal Rules if a deadline was not met because of
“excusable neglect.” Although LAPIA claimed in its motion that the
company was “not adding or changing any theory of liability,” the proposed
answer that was attached to the motion contained a new defense that the
company had not raised in its previous summary judgment filings: that
Nelson was not entitled to commissions because he had not yet completed a
three-month probationary hiring period at the time of his termination.
On March 23, 2020, the district court seemingly granted LAPIA’s
motion for leave to file an answer out-of-time, stating in a “management
order” that “[t]he answer of L.A. Public Insurance Adjusters, Inc., is
accepted” without further explanation. One week later, LAPIA filed a
second summary judgment motion, this time pressing its new theory that
Nelson was not entitled to commissions because had only been “tentatively
hired . . . as a probationary employee.” The district court soon after denied
Nelson’s summary judgment motion and granted summary judgment to
LAPIA, reasoning that “[d]uring the three-month probation, the company
had the right” under the terms of Nelson’s employment contract “to
terminate him without notice or compensation other than wages.” Because
the district court determined that commissions did not qualify as “wages”
5
Federal Rule of Civil Procedure 6(b)(1) states as follows:
(b) Extending Time.
(1) In General. When an act may or must be done within a specified time,
the court may, for good cause, extend the time:
....
(B) on motion made after the time has expired if the party failed to
act because of excusable neglect.
5
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under the contract, the court ruled that Nelson would take nothing on his
claim against LAPIA. Nelson timely appealed.
II. Standard of Review
We review a district court’s grant or denial of an extension of time
under Federal Rule of Civil Procedure 6(b) for an abuse of discretion.
Geiserman v. MacDonald, 893 F.2d 787, 793 (5th Cir. 1990). By contrast, we
review a district court’s summary judgment ruling de novo, applying the same
standard as the district court. United States v. Caremark, Inc., 634 F.3d 808,
814 (5th Cir. 2011).
III. Analysis
With some exceptions that are not pertinent to this case, Federal Rule
of Civil Procedure 6(b) permits a district court to extend the various timelines
set forth in the Federal Rules of Civil Procedure. If done prior to the
expiration of the time limit at issue, a court may extend the period for any
reason, upon a party’s motion or even on its own initiative. FED. R. CIV. P.
6(b)(1)(A). However, once a time limit has run, it may be extended only upon
a party’s motion and only if the court finds that “the party failed to act
because of excusable neglect.” FED. R. CIV. P. 6(b)(1)(B).
Federal Rule of Civil Procedure 81(c) clarifies several applications of
the Federal Rules in an action that has been removed to federal court from
state court. Rule 81(c)(2) specifically provides the timeline for a party’s filing
an answer or similar document asserting its defenses if it did not already do
so in state court prior to removal. It states that an answer or its equivalent
must be filed within either 21 days of the party’s receiving a copy of a pleading
by any method, 21 days of the party’s being served, or 7 days after the notice
of removal was filed, whichever is latest. FED. R. CIV. P. 81(c)(2)(A)-(C).
6
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It is undisputed that LAPIA did not file an answer or its equivalent
within the required period.6 Thus, under Rule 6(b)(1)(B), the district court
was permitted to accept LAPIA’s untimely answer only if the court found
that the company’s failure to comply with the deadline was the result of
“excusable neglect.”
In Pioneer Investment Services Co. v. Brunswick Assocs. LP, 507 U.S.
380, 382 (1993), the Supreme Court examined the concept of “excusable
neglect” while interpreting Federal Rule of Bankruptcy Procedure
9006(b)(1), which was modeled after and is substantially identical to Federal
Rule of Civil Procedure 6(b)(1).7 The Court rejected the notion that the Rule
permitted a late filing only when circumstances beyond a party’s control
prevented filing before the deadline, stating that the ordinary meaning of
neglect “encompasses both simple, faultless omissions to act and, more
commonly, omissions caused by carelessness.” Id. at 388. But the Court
indicated that not all careless omissions would qualify; “[b]ecause Congress
has provided no other guideposts for determining what sorts of neglect will
be considered ‘excusable,’” the Court explained, “the determination is at
bottom an equitable one, taking account of all relevant circumstances
surrounding the party’s omission.” Id. at 395. These include but are not
limited to “the danger of prejudice to the [opposing party], the length of the
delay and its potential impact on judicial proceedings, the reason for the
6
LAPIA does not now argue that its former counsel’s understanding of the law was
correct—that is, that because the company was not required to file an answer to Nelson’s
counterclaim in state court under Texas Rule of Civil Procedure 92, Federal Rule of Civil
Procedure 81(c)(2) did not require it to file an answer in federal court after the case was
removed.
7
The nation’s circuit courts have “uniform[ly] . . . extend[ed] Pioneer beyond the
context of bankruptcy,” United States v. Clark, 51 F.3d 42, 44 (5th Cir. 1995) (collecting
cases), and our court has applied the analysis specifically to a Rule 6(b) motion, see Adams
v. Travelers Indem. Co. of Connecticut, 465 F.3d 156, 161 n. 8 (5th Cir. 2006).
7
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delay, including whether it was within the reasonable control of the movant,
and whether the movant acted in good faith.” Id.As an initial matter, LAPIA argued below that the company was not
informed by its former counsel that no answer had been filed and should not
be penalized for its former attorneys’ mistake. But the Pioneer Court
explicitly disclaimed the supposition that a client’s ill-advised reliance on its
counsel may be a justification for a late filing. Id. at 396. The party
“voluntarily chose [his] attorney as his representative in the action,” the
Court reasoned, “and he cannot now avoid the consequences of the acts or
omissions of this freely selected agent.” Id. at 397 (quoting Link v. Wabash
R. Co., 370 U.S. 626, 633-34 (1962)). “Any other notion would be wholly
inconsistent with our system of representative litigation, in which each party
is deemed bound by the acts of his lawyer-agent and is considered to have
notice of all facts, notice of which can be charged upon the attorney.” Id.(quoting Link, 370 U.S. at 634). “Consequently, in determining whether” a
party’s failure to meet a deadline “was excusable, the proper focus is upon
whether the neglect of [the party] and their counsel was excusable.”8 Id.(emphasis in original).
We thus must consider whether LAPIA’s former counsel’s mistaken
belief that no answer was required constitutes excusable neglect. Our court
has held that, in most cases, an attorney’s simple misunderstanding of the
Federal Rules “weighs heavily against a finding of excusable neglect.”
Midwest Emps. Cas. Co. v. Williams, 161 F.3d 877, 880 (5th Cir. 1998) (quoting
Halicki v. Louisiana Casino Cruises, Inc., 151 F.3d 465, 470 (5th Cir. 1998)), a
determination that coincides with the rulings of many of our sister circuits,
8
A party who is prejudiced by its counsel’s inexcusable negligence is of course free
to separately pursue whatever remedies are available to a client for an attorney’s deficient
representation.
8
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see Halicki, 151 F.3d at 470 n.5 (collecting cases). Our court has “left open
the possibility that some misinterpretations of the federal rules may qualify
as excusable neglect,” but we have emphasized that “such is the rare case
indeed.” Id. at 470; Williams, 161 F.3d at 880. We have therefore held that
a district court abused its discretion by granting an extension of time based
on an attorney’s misreading of a time-limit set by the Federal Rules even
when the district court had found that the intricacies of the Rule at issue were
“a trap for the unwary.” Williams, 161 F.3d at 880.
To be sure, the interaction of Texas Rule of Civil Procedure 92 and
Federal Rule of Civil Procedure 81(c)(2) is more complex than many
applications of the Federal Rules, potentially implicating a conflict between
state and federal procedure. But even if we were inclined to excuse LAPIA’s
overlooking Rule 81(c)(2)’s directive that “[a] defendant who did not answer
before removal must answer or present other defenses or objections under
these rules,” the totality of the circumstances would not justify permitting
the late filing in this case.
Most significantly, the answer that LAPIA eventually filed was
unfairly prejudicial to Nelson and greatly impacted the course of the
proceedings. Prior to its belated answer, LAPIA never sought to assert the
probationary-period defense; the company’s original summary judgment
motion instead argued that Nelson was not entitled to commissions because
he was not properly licensed. By permitting LAPIA to file its answer out-of-
time, the district court allowed the company to pull an abrupt about-face
nearly two years after its answer was originally due, inserting a new surprise
defense into the proceeding that not only had not, but also could not have been
previously raised.
This is because, in arguing that Nelson was not entitled to
commissions because he had not completed the probationary employment
9
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period, LAPIA denies that Nelson satisfied a condition precedent to
LAPIA’s performance under the contract. See Solar Applications Eng’g, Inc.
v. T.A. Operating Corp., 327 S.W.3d 104, 108 (Tex. 2010) (“A condition
precedent is an event that must happen or be performed before a right can
accrue to enforce an obligation.” (quoting Centex Corp. v. Dalton, 840
S.W.2d 952, 956 (Tex. 1992))). Under Federal Rule of Civil Procedure 9(c),9
a party claiming the nonoccurrence of a condition precedent must specifically
deny the occurrence in its initial pleadings, setting forth the allegation with
particularity. And a party who does not deny the occurrence of a condition
precedent in a responsive pleading may not later rely on such a theory,
including at the summary judgment stage. E.E.O.C. v. Serv. Temps Inc., 679
F.3d 323, 331–32 (5th Cir. 2012).
Consequently, even if LAPIA’s original counsel had been correct
about the interaction of Texas Rule of Civil Procedure 92 and Federal Rule
of Civil Procedure 81(c)(2) and LAPIA had not been required to file an
answer, the company would not have been able to raise the probationary-
employment-period defense as a ground for or defense against summary
judgment. Texas Rule of Civil Procedure 92 provides that a party who has
already entered an appearance in the case and against whom a counterclaim
is asserted is “deemed to have pleaded a general denial of the counterclaim”
if they do not file a responsive pleading. And “a general denial that all
conditions precedent ha[ve] been satisfied . . . is insufficient” to raise the
nonoccurrence of a condition precedent under Rule 9(c). Serv. Temps Inc.,
679 F.3d at 331 (citing Trinity Carton Co. v. Falstaff Brewing Corp., 767 F.2d
9In full, Federal Rule of Civil Procedure 9(c) states: “Conditions Precedent. In
pleading conditions precedent, it suffices to allege generally that all conditions precedent
have occurred or been performed. But when denying that a condition precedent has
occurred or been performed, a party must do so with particularity.”
10
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184, 192 (5th Cir. 1985)). It was only the district court’s allowance of a wholly
new answer—filed years into the life of the case and after the parties had fully
briefed cross-summary judgment motions based on wholly different issues—
that permitted LAPIA to assert this alternative defense theory in a second
summary judgment motion.
Nor does the length of LAPIA’s delay in seeking leave to file an
answer weigh in favor of finding excusable neglect on the part of the
company. Though LAPIA asserts that it was unaware that no answer had
been filed on its behalf, the company’s claimed ignorance is belied by the fact
that, nearly a year before the company requested leave to file an answer, the
company’s owner was present at a hearing when the district court specifically
noted that Nelson could move for a default judgment on the ground that
LAPIA had failed to file the document as required. And more fundamentally,
as related above, the Supreme Court has stated that in “our system of
representative litigation, . . .each party . . . is considered to have notice of all
facts, notice of which can be charged upon the attorney.” Pioneer, 507 U.S.
at 397 (quoting Link, 370 U.S. at 634); see also Pryor v. U.S. Postal Serv., 769
F.2d 281, 287 (5th Cir. 1985) (“This Court has pointedly announced that a
party has a duty of diligence to inquire about the status of a case . . . .”).
LAPIA must be deemed to have been aware of the nonfiling by the
February 9, 2019 hearing at the latest, but, rather than seeking to rectify the
issue immediately, the company steadfastly maintained it was not required to
file an answer. It was not until January 12, 2020—nearly two years after the
answer was originally due, nearly a year after LAPIA’s failure to answer was
recognized by the district court, six months after Nelson moved for partial
summary judgment on the ground that no answer had been filed, and five-
and-a-half months after LAPIA responded arguing that no answer was
needed—that LAPIA finally conceded its mistake and sought to correct it.
As we have said, the excusable neglect inquiry “is at bottom an equitable
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one,” Pioneer, 507 U.S. at 395, and “[o]ne who fails to act diligently cannot
invoke equitable principles to excuse that lack of diligence.” Baldwin Cty.
Welcome Ctr. v. Brown, 466 U.S. 147, 151 (1984).
In sum, the totality of the circumstances here weighs heavily against a
finding that LAPIA’s failure to file a timely answer was the product of
excusable neglect. It is not clear from the district court’s sparse order that
the court even found excusable neglect, but we have little trouble
determining that it clearly erred if it did so. And, because excusable neglect
is a prerequisite for an extension of time under Rule 6(b)(1)(B), the district
court abused its discretion by granting LAPIA leave to file its answer out-of-
time. See Williams, 161 F.3d at 880.
In the absence of an answer denying the allegations in Nelson’s
counter-complaint, LAPIA must be deemed to have admitted those
allegations that are unrelated to damages. See FED. R. CIV. P. 8(b)(6). And,
as stated, LAPIA was not permitted to rely on its probationary-employment-
period defense, a denial of a condition precedent, without specifically
pleading it in response to Nelson’s counter-complaint. See Serv. Temps Inc.,
679 F.3d at 331-32. Accordingly, the district court also erred by granting
LAPIA’s summary judgment motion and denying Nelson’s motion for
partial summary judgment.
***
Based on the foregoing, we REVERSE the district court’s grant of
summary judgment to LAPIA and denial of Nelson’s motion for partial
summary judgment and REMAND this case for further proceedings
consistent with this opinion.
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Priscilla R. Owen, Chief Judge, dissenting:
With respect, I dissent. The district court did not abuse its
considerable discretion in concluding that excusable neglect was the cause of
counsel’s failure to file an answer to the counterclaim. The counterclaim was
originally filed in state court, and no answer was required under state
procedural rules.1 After the case was removed, L.A. Public Insurance failed
to file an answer to the counterclaim in federal court. When the district court
permitted L.A. Public to file an answer after the deadline for doing so had
passed, discovery was ongoing. The defense raised in that answer was based
on contractual provisions that were plain and straightforward. Those
contractual provisions stated that probationary employees were to be paid
only wages for hours completed. Nelson was still in the three-month
probationary period specified in his contract when his employment was
terminated, 79 days after he was hired. His counterclaim sued for
commissions, to which he was not entitled under his contract. These facts
were not in dispute, and the district court rendered judgment in favor of L.A.
Public. I would affirm the district court’s judgment.
1
Tex. R. Civ. P. 92.
13