IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 10-10185

Summary Calendar

PROVIDENT FINANCIAL INC., Assignee of SMI Marketing Inc.,

Plaintiff

SMI MARKETING, INC.,

Intervenor Plaintiff - Appellant

v.

STRATEGIC ENERGY L.L.C.,

Defendant - Appellee

Appeal from the United States District Court

for the Northern District of Texas

USDC No. 3:07-CV-700

Before HIGGINBOTHAM, SMITH, and HAYNES, Circuit Judges.

PER CURIAM:

*

SMI Marketing, Inc. (“SMI”) appeals a district court’s order denying it an

award of attorneys’ fees after SMI won a suit against Strategic Energy L.L.C.

(“Strategic”) for breach of contract. Because Pennsylvania law, which governed

United States Court of Appeals

Fifth Circuit

F I L E D

December 6, 2010

Lyle W. Cayce

Clerk

 Pursuant to 5TH CIR. R. 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 CIR.

R. 47.5.4.

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the substantive issues in this case, does not allow recovery of attorneys’ fees for

SMI’s cause of action, we find no error in the district court’s decision. Therefore,

we AFFIRM.

I. Facts and Procedural History

We provide a short summary of the facts and procedural history as they

relate to the attorneys’ fee issue, as neither SMI nor Strategic appealed the

merits of the judgment in favor of SMI on the breach of contract claim.

When Strategic failed to pay commissions to SMI for customer contracts

procured by SMI on Strategic’s behalf, Provident Financial Inc. (“Provident”),

SMI’s assignee, filed suit in Texas state court against Strategic seeking to

recover the commissions. Strategic removed the case to the United States

District Court for the Northern District of Texas. SMI intervened as a plaintiff,

also seeking recovery of the unpaid commissions. While the case was in state

court, Strategic asserted a general denial of all claimed entitlement to relief, as

well as a specific denial that SMI and Provident were entitled to attorneys’ fees.

None of the parties disputed that, pursuant to a contractual choice-of-law

provision, Pennsylvania law governed the substantive issues in the case.

However, SMI and Provident asserted that they were entitled to attorneys’ fees

under Texas law. Strategic also stated that attorneys’ fees were governed by

Texas law in its brief in support of a motion for judgment on partial findings,

filed the same day as the parties’ Joint Pretrial Order.

The parties filed a Joint Pretrial Order on September 11, 2009. In this

Pretrial Order, under the heading “A Statement of Stipulated Facts,” the parties

stipulated as follows: “The Agreement is governed by and is to be construed,

enforced, and performed in accordance with the laws of the Commonwealth of

Pennsylvania without regard to principles of conflicts of law.” Both parties’

discussion of attorneys’ fees tracked Texas law, stating that recovery was

conditioned on success of the substantive claims, but neither party cited a

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specific statute. The section of the Order on contested issues did not include

whether Pennsylvania law allowed a party to recover attorneys’ fees in a breach

of contract action.

The case was tried without a jury. During opening statements, Strategic

argued that Pennsylvania law prevented recovery of attorneys’ fees by SMI and

Provident. Following the trial, the court advised the parties of its rulings on

primary issues of fact and law, and the parties subsequently agreed on the form

of judgment. The court entered its final judgment on the merits on November

24, 2009.

On December 7, 2009, Provident and SMI filed motions for attorneys’ fees.

Following briefing by the parties, the magistrate judge denied both motions. The

court found that, under Pennsylvania law, a party could not recover attorneys’

fees in a breach of contract action absent a contractual provision or statutory

right providing for such recovery. The court further found that Strategic’s

statement in its motion for judgment on partial findings that Texas law applied

to the attorneys’ fees issue was an erroneous statement on a question of law.

Therefore, it did not constitute a binding judicial admission. Finally, the court

found no evidence to support a claim that Strategic’s conduct during the

proceedings warranted an award of attorneys’ fees under a Pennsylvania statute

proscribing bad faith conduct. SMI timely appealed.

II. Standard of Review

We review a district court’s legal conclusions, including decisions on

choice-of-law issues, de novo. Mumblow v. Monroe Broad., Inc., 401 F.3d 616,

620 (5th Cir. 2005). We review a trial court’s findings of fact for clear error. Id.

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III. Discussion

The contents of the Pretrial Order guide our decision in this case. Our

circuit abides by the rule that a joint pretrial order signed by both parties

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supersedes all pleadings and governs the issues and evidence to be presented at

trial. Quick Techs., Inc. v. Sage Grp. PLC, 313 F.3d 338, 345 n.5 (5th Cir. 2002)

(citation and quotations omitted). “Each party has an affirmative duty to allege

at the pretrial conference all factual and legal bases upon which the party

wishes to litigate the case.” Trinity Carton Co. v. Falstaff Brewing Corp., 767

F.2d 184, 192 n.13 (5th Cir. 1985). “Failure to do so may implicate waiver of the

issue at the discretion of the trial court, subject to considerations of fairness and

efficient administration of justice.” Id.

Here, both parties stipulated that Pennsylvania law applied to the

substantive issues in this case in the Joint Pretrial Order. The Pretrial Order

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superseded any other pleadings, including any statements by the parties that

Texas law governed the request for attorneys’ fees. For SMI to be relieved of its

3

We note that the Joint Pretrial Order contained in the record on appeal is signed

1

only by Strategic’s counsel. Given SMI’s reliance upon it and reference to it as the parties’

pretrial order, however, we conclude that SMI waived any argument as to its authenticity.

In addition to the statement already quoted, under the summary of the claims and 2

defenses thatit submitted, SMI stated that“Pennsylvania law, when applied to the simple and

unambiguous provisions in the Agreement, holds clearly that: . . . (vi) Provident and SMI are

entitled to an award of attorneys’ fees in this matter as any such award is conditioned on

success on their substantive claims.” Likewise, Strategic used the same opening language

about Pennsylvania law and then specifically stated that “[n]either Provident nor SMI are

entitled to an award of attorneys’ fees in this matter as any such award is conditioned on

success on their substantive claims.” 

We note that we are not bound to accept stipulations as to questions of law. Equitable 3

Life Assurance Co. v. MacGill, 551 F.2d 978, 983 (5th Cir. 1977); Overton v. Austin, 748 F.2d

941, 957 (5th Cir. 1984) (citing MacGill). Entitlement to attorneys’ fees is generally a question

of law. MacGill, 551 F.2d at 983. Thus, to the extent that the parties made erroneous

stipulations on a question of law, we are not bound to accept those stipulations. However, the

parties are bound to their factual stipulations, which “have the effect of withdrawing a fact

from issue and dispensing wholly with the need for proof of the fact.” Christian Legal Soc’y

Chapter of the Univ. of Cal. v. Martinez, 130 S. Ct. 2971, 2983 (2010) (citation omitted). 

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stipulations, it must show that manifest injustice would result. See FED. R. CIV.

P. 16(6) (stating that a pretrial order controls the subsequent course of action

unless modified at trial to prevent manifest injustice); MacGill, 551 F.2d at 983

(refusing to enforce a party’s stipulation that a Florida statute entitled its

opponent to recover attorneys’ fees if it prevailed because the Florida Supreme

Court denied such recovery and enforcing the stipulation would therefore result

in manifest injustice).

Our choice-of-law analysis confirms the parties’ stipulation regarding

Pennsylvania law, and SMI cannot show manifest injustice. Under Texas

choice-of-law principles, contractual choice-of-law clauses are given effect if the

4

law chosen by the parties (1) has a reasonable relationship to the parties and the

chosen state and (2) is not contrary to a fundamental policy of the state. Int’l

5

Interests, L.P. v. Hardy, 448 F.3d 303, 306-07 (5th Cir. 2006). Strategic’s

principal place of business is in Pennsylvania, thus establishing a reasonable

relationship. See Salazar v. Coastal Corp., 928 S.W.2d 162, 167 (Tex.

App.—Houston [14th Dist.] 1996, no writ); Chase Manhattan Bank, N.A. v.

Greenbriar N. Section II, 835 S.W.2d 720, 725 (Tex. App.—Houston [1st Dist.]

1992, no writ). Further, we find no violation of a fundamental state policy, as

Texas courts have denied attorneys’ fees if prohibited by the state law

Ultimately, we need not engage in an in-depth analysis as to what type of stipulations the

parties made, as we find that Pennsylvania law governed this case regardless of the

stipulations.

To determine which state’s substantive laws control, we follow the choice-of-law 4

principles of the forum state. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941);

Smith v. EMC Corp., 393 F.3d 590, 597-98 (5th Cir. 2004).

In Caton, we held that a federal court has an obligation to apply the forum state’s

5

choice-of-law rules even if the parties are in agreement as to the controlling law. Caton v.

Leach Corp., 896 F.2d 939, 942 (5th Cir. 1990); see also Kreger v. Gen. Steel Corp., No. 07-575,

2010 U.S. Dist. LEXIS 86043, at *32 (E.D. La. July 19, 2010) (citing Caton and stating that

while other circuits might have concluded that choice of law questions can be stipulated or

waived, the Fifth Circuit has not). 

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designated in a choice-of-law provision. Smith, 393 F.3d at 597-98. Thus,

Pennsylvania law governed the substantive issues in this case and,

consequently, the award of attorneys’ fees. Ingalls Shipbuilding v. Fed. Ins. Co,

410 F.3d 214, 230 (5th Cir. 2005) (“The award of attorneys’ fees is governed by

the law of the state whose substantive law is applied to the underlying claims.”);

Kucel v. Heller & Co., 813 F.2d 67, 73 (5th Cir. 1987) (noting that Texas law may

control the award of fees, not because Texas is the forum state, but only because

Texas law governs the other substantive rights).

Additionally, we find unpersuasive SMI’s contention that Strategic waived

any argument that attorneys’ fees in this case were unrecoverable under

Pennsylvania law because Strategic failed to assert such an argument as an

affirmative defense. Although reliance on a statute prohibiting recovery may

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be an affirmative defense subject to waiver, Strategic did not rely on such a

statutory bar or plea in avoidance. See, e.g., Ingraham v. United States, 808 F.2d

1075, 1079 (5th Cir. 1987) (stating that an avoidance in pleadings is an

“allegation or statement of new matter, in opposition to a former pleading,

which, admitting the facts alleged in such former pleading, shows cause why

they should not have their ordinary legal effect” (citation omitted)). Rather,

Strategic denied an intrinsic element of SMI’s claim for attorneys’ fees—that

Pennsylvania law allowed recovery of fees in a breach of contract action, absent

We reject the notion that the Pennsylvania rules of civil procedure govern this case. 6

Although in a diversity case, Pennsylvania law may determine whether a defense constitutes

an affirmative defense, the Federal Rules of Civil Procedure govern how a party must plead

that defense in federal court. See FED. R. CIV. P. 8; FED. R. CIV. P. 81(c); Granny Goose Foods

v. Bhd. of Teamsters & Auto Truck Drivers, 415 U.S. 423, 437 (1974) (“More importantly, once

a case has been removed to federal court, it is settled that federal rather than state law

governs the future course of proceedings, notwithstanding state court orders issued prior to

removal.”); Arismendez v. Nightingale Home Health Care, Inc., 493 F.3d 603, 610 (5th Cir.

2007) (stating that in a diversity action, “substantive state law determines what constitutes

an affirmative defense” and the Federal Rules of Civil Procedure “provide the manner and

time in which defenses are raised and when waiver occurs” (citation omitted)).

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vexatious or similar conduct. See id. (noting that in determining whether a

7

defense constitutes an affirmative defense, the court inquires into whether the

“matter at issue fairly may be said to constitute a necessary or extrinsic element

in the plaintiff’s cause of action”). Thus, Strategic’s argument appears similar

to a defense that SMI failed to state a claim upon which relief can be granted,

and Strategic asserted such a defense in its reply to SMI’s complaint. Further,

Strategic’s denial of all allegations in SMI’s Prayer for Relief, as well as

Strategic’s specific denial that SMI was entitled to attorneys’ fees sufficed to put

this matter at issue. See FED. R. CIV. P. 8 (requiring short and plain statement

8

of claims and defenses); Simon v. United States, 891 F.2d 1154, 1157 (5th Cir.

1990)(noting that if a party raises an issue at a “pragmatically sufficient time,”

and the opposing party is not prejudiced in its ability to respond, there is no

waiver of the claim or defense (citation omitted)).

We also do not find that Strategic waived its argument that Pennsylvania

law denied recovery of attorneys’ fees because Strategic failed to assert this

defense with specificity in the Pretrial Order. The choice-of-law provision itself,

the stipulations as to Pennsylvania law in the Pretrial Order, and Strategic’s

opening arguments at the trial all provided notice to the district court and to

SMI and thus preserved the choice-of-law issue. See Emp’rs Ins. of Wausau v.

9

 SMI admitted in its reply brief that it could find no authority for the assertion that 7

the nonexistence of a statute providing recovery of attorneys’ fees constituted an affirmative

defense. 

We note that even if Strategic’s argument qualified as an affirmative defense and 8

Strategic failed to assert it properly, SMI still had the burden to prove that it was entitled to

attorneys’ fees under Pennsylvania law. 

Under Texas procedural law, a party wishing to assert a choice-of-law issue must

9

plead and prove the applicability of that law or request that the court take judicial notice of

it. Gevinson v. Manhattan Const. Co. of Okla., 449 S.W.2d 458, 465 n.2 (Tex. 1969); see also

TEX. R. EVID. 202 (detailing method of proving another state’s law). Otherwise, a Texas court

presumes that the law of the foreign jurisdiction is the same as the forum state and applies

the law of the forum state. Id. However, the Federal Rules of Civil Procedure and Evidence

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Occidental Petroleum Corp., 978 F.2d 1422, 1430 n.8 (5th Cir. 1992) (stating that

a party intending to raise a choice-of-law issue has an obligation to call the

applicability of another forum’s law to the court’s attention); Kucel, 813 F.2d at

73 (finding a party did not waive a choice-of-law provision, as the provision itself

provided notice, the party raised the issue in its motions to dismiss, and the

pretrial order did not preclude consideration of choice-of-law issues).

Finally, we reject SMI’s argument that it suffered prejudice because,

believing that Texas law applied to attorneys’ fees, SMI chose not to offer

evidence to establish an alternative ground of recovery for such fees under

Pennsylvania law. SMI bases this argument on Strategic’s allegedly meritless

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defense to the breach of contract issue, a matter squarely presented at trial and

not extraneous to the disputes already before the court. Having heard all the

evidence, including the evidence of Strategic’s alleged bad faith in asserting a

defense, the district court found insufficient support in the record for an award

of attorneys’ fees as a sanction for any conduct on the part of Strategic. As SMI

has not shown any error as to this holding, we will not disturb it, and SMI

cannot establish prejudice from the alleged surprise.

IV. Conclusion

Because we find no error in the district court’s decision to deny SMI’s

motion to obtain attorneys’ fees that are unrecoverable under Pennsylvania law,

we AFFIRM.

govern this case and under our circuit’s precedent, a party must simply bring the choice-of-law

issue to the court’s attention in time for the court to consider it. Kucel, 813 F.2d at 73. The

party need not plead and prove the content of the foreign law or show that it differs from the

law of the forum state, as federal courts must take judicial notice of the content of the laws of

every state. Id.

 Pennsylvania law allows a participant to receive counsel fees as a sanction against

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another participant for dilatory, obdurate, or vexatious conduct. 42 PA. CONS. STAT.

§ 2503(6), (7), (9) (2004).

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