643 F. App'x 377
5th Cir.2016Background
- The Deepwater Horizon Settlement Program (including a Seafood Compensation Plan) paid claims for lost commercial seafood-related income after the 2010 spill; the settlement retained court supervision and required interpretation under general maritime law and OPA.
- Special Master Louis J. Freeh was appointed to investigate possible fraud in the Settlement Program and was authorized to seek recovery of funds paid on fraudulent claims.
- Capt Jay, LLC and its employee Jason Zirlott submitted shrimping-related claims supported by tax returns and sworn statements representing that 2009 gross receipts derived from shrimp landings; the Program paid both claimants sums (and counsel took fees later returned).
- Freeh’s investigation concluded ~80% of Capt Jay’s 2009 revenue came from marine debris cleanup (not shrimping), and he moved to recover funds and bar both claimants from further participation in the Seafood Compensation Program.
- The district court found the claimants made knowing false statements (the Plan compensated shrimp landings, not debris cleanup), ordered restitution, and barred them from further Program participation; Capt Jay and Zirlott appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether general maritime law governs interpretation/enforcement of the Settlement Agreement | Capt Jay contended Alabama substantive law applies | Freeh argued general maritime law/OPA governs the Agreement | General maritime law (and OPA) governs the Agreement; applied by the court |
| Whether Capt Jay and Zirlott committed actionable common-law fraud | Capt Jay argued any misstatement was an innocent misunderstanding/ambiguity and Zirlott’s limited education | Freeh argued they knowingly misrepresented shrimp revenue and concealed debris-cleanup income to obtain payments | Court held elements of common-law fraud satisfied: material false representation, scienter, reliance, and injury; fraud established |
| Whether reliance by the Settlement Program was justified | Capt Jay claimed administrators could have discovered the debris-cleanup revenue and thus reliance fails | Freeh contended documents and sworn statements supported reasonable (justifiable) reliance and investigation was not required | Court held reliance was justifiable; administrators need not conduct active investigation absent patently apparent falsity |
| Whether barring claimants from future Program participation and ordering restitution was an appropriate sanction | Capt Jay said sanctions/judicial estoppel elements not met and punishment excessive | Freeh maintained inherent-court-power sanctions appropriate for fraud upon the court/Program | Court concluded due process was satisfied and, under its inherent powers, sanction (restitution and bar) was appropriate given bad-faith fraud |
Key Cases Cited
- Bell v. Schexnayder, 36 F.3d 447 (5th Cir. 1994) (district court's power to enforce settlement agreements)
- Chambers v. NASCO, Inc., 501 U.S. 32 (U.S. 1991) (courts may investigate and sanction for fraud on the court; inherent powers)
- In re Deepwater Horizon, 786 F.3d 344 (5th Cir. 2015) (standard for reviewing district court's supervision and inherent-power decisions in the MDL)
- Johnson v. GlobalSantaFe Offshore Servs., Inc., 799 F.3d 317 (5th Cir. 2015) (general maritime law as amalgam of common-law rules)
- E. River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (U.S. 1986) (characterizing general maritime law foundations)
- Field v. Mans, 516 U.S. 59 (U.S. 1995) (justifiable reliance standard in fraud claims)
- Chaves v. M/V Medina Star, 47 F.3d 153 (5th Cir. 1995) (abuse-of-discretion review for imposition of sanctions)
- Takeda Chem. Indus., Ltd. v. Mylan Labs., Inc., 549 F.3d 1381 (Fed. Cir. 2008) (bad-faith conduct may support sanctions even if not rising to fraud)