Freeh v. Lake Eugenie Land & Development, Inc.
857 F.3d 246
| 5th Cir. | 2017Background
- Crystal Seafood (shrimp processor) received $1,034,228.42 from the DHECC under the Deepwater Horizon settlement after submitting sworn claims in 2012.
- The district court appointed a Special Master to investigate suspicious DHECC claims and to pursue clawbacks for fraudulent payments.
- The Special Master and Claims Administrator moved to recoup the payment, alleging Crystal had falsely sworn it was not a "failed business" under the settlement.
- Record facts: Crystal last processed shrimp in Apr/May 2009; sold its last frozen inventory in Aug 2010; stopped taking equipment depreciation in May 2010; and filed tax returns stating it disposed of all assets by Dec 31, 2010.
- The district court granted the clawback on summary judgment, finding (based on Crystal’s own sworn statements) that Crystal was a failed business and that two officers, Loc "Victor" Tran and Christopher Tran, were liable under veil-piercing; Crystal appealed (only Crystal appealed).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Crystal made a material misrepresentation to DHECC | Crystal contended its tax returns were erroneous and equipment was retained, creating a factual dispute | Special Master relied on Crystal’s sworn filings showing cessation/liquidation—arguing no genuine dispute | Held: Crystal materially misrepresented its status; no genuine dispute of material fact (summary judgment) |
| Whether Crystal acted with scienter (knowledge or recklessness) | Crystal portrayed itself as a small, unsophisticated family business lacking intent to defraud | Special Master pointed to the record circumstantial evidence (operations, inventory sales, depreciation, tax returns) showing Crystal knew or should have known | Held: Scienter established as a matter of law—Crystal knew or should have known it was a failed business |
| Whether Crystal could introduce post-judgment explanations for prior sworn statements | Crystal offered Victor Tran affidavit and later counsel’s account that accountant erred on 2010 returns | Special Master argued prior sworn statements control and belated explanations cannot create genuine dispute on appeal | Held: Tran affidavit insufficient to create dispute; new accountant- error argument waived for not being raised below |
| Whether Crystal has standing to challenge personal liability of the Trans | Crystal sought reversal of officers’ personal liability though Trans did not appeal | Special Master argued Crystal lacked prudential third-party standing to vindicate Trans’ rights | Held: Crystal lacks standing to challenge Trans’ personal liability (no close relation/proof of genuine obstacle), so cannot appeal on their behalf |
Key Cases Cited
- In re Deepwater Horizon, 732 F.3d 326 (5th Cir.) (background on BP settlement structure)
- Brown v. Parker Drilling Offshore Corp., 410 F.3d 166 (5th Cir. 2005) (intent to deceive may be inferred as matter of law from prior conduct and documentation)
- Meche v. Doucet, 777 F.3d 237 (5th Cir. 2015) (intent inferred from extensive prior related claims and benefits)
- Cleveland v. Policy Mgmt. Sys. Corp., 526 U.S. 795 (1999) (a party cannot create issue of fact by contradicting prior sworn statements without explanation)
- Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007) (recklessness defined as unjustifiably high risk either known or so obvious that it should be known)
- Kowalski v. Tesmer, 543 U.S. 125 (2004) (third-party standing framework and assumptions about Article III)
- Powers v. Ohio, 499 U.S. 400 (1991) (requirements and limits for third-party standing)
- Singleton v. Wulff, 428 U.S. 106 (1976) (permitting third-party standing in narrow circumstances)