*District Judge for the Southern District of Texas, sitting by

designation.

 

**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this opinion should not be published and is not precedent except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.

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_______________________

No. 96-20847

_______________________

ANGLO-DUTCH (TENGE) L.L.C.,

Plaintiff-Appellee-Cross-Appellant,

versus

GERALD M. WALSTON,

Defendant-Appellant-Cross-Appellee.

_________________________________________________________________

Appeal from the United States District Court

for the Southern District of Texas

(H-96-CV-1812)

_________________________________________________________________

February 11, 1999

Before KING, Chief Judge, and JONES, Circuit Judge, and WERLEIN,*

District Judge. 

EDITH H. JONES, Circuit Judge:**

The instant appeal would be convoluted enough were it

confined to the merits of the questions at bar, which center around

the authority to hire and fire the manager of a multi-tiered 

international business venture with a number of participants and

limited liability companies. But the matter is not that straight-
2

forward. It also involves parallel litigation in state court,

culminating in an arbitration award that bears significantly on the

matters before this court. This opinion will attempt to interweave

the related strands of litigation and explain why it is our

conclusion that resolution of the business dispute, from the

standpoint of the parties’ substantive claims and counterclaims, is

now moot, while the attorneys fee award in favor of Anglo-Dutch

(Tenge) (ADT) lacks legal support and must be reversed. 

To make a long story short, ADT filed suit against

Walston in Texas state court seeking an injunction to enforce its

firing of Walston as the managing director of a joint venture to

develop oil in the former Soviet Republic of Kazakhstan. ADT

sought damages based on Walston’s interference with its contractual

relations with other tiered companies in the joint venture and with

other investors. It also accused Walston of misuse of confidential

or proprietary information. The claims all sounded in tort, and

the complaint sought injunctive relief, damages and attorneys fees

under Texas law.

Walston removed this case to federal court. While

Walston was challenging ADT’s authority to terminate him in the

federal court proceedings, litigation had erupted between ADT and

other members of the joint venture in state court concerning the

parties’ management authority. Temporary restraining orders in

both suits were granted and vacated; multiple hearings occurred;

fortunately, the intricate procedural details are unnecessary to

recount here. 
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In federal court, several hearings occurred within one

month, and the district court concluded that a very narrow

declaratory judgment was more appropriate than the injunctive

relief originally sought by ADT. Accordingly, he accepted an

amendment of ADT’s complaint, wrote a brief opinion stating that

ADT had authority to terminate Walston and had effectively done so

on May 17, 1996, and entered this as a declaratory judgment.

Later, the court awarded ADT attorneys fees against Walston. After

further post-trial skirmishing, Walston appealed. 

In the meantime, the state court proceedings resulted in

an arbitration decree, of which this court takes judicial notice.

The arbitration award concluded that ADT

was validly terminated as the administrative

member of Tenge Development, L.L.C., by the

non-administrative members of Tenge

Development, L.L.C., effective as of May 31,

1996. 

This award, originally issued subject to a confidentiality order,

was never brought to the attention of the federal district court.

It was, however, entered on August 12, 1996, after the district

court rendered his initial opinion, but while a number of other

matters were being vigorously disputed before him.

On appeal, Walston asserts numerous challenges to the

events and result in the district court. He contends that the

district court should not have entered a declaratory judgment since

ADT had no authority to sue under the relevant corporate

agreements; that ADT never requested declaratory relief; that

Walston was given no notice that the hearings in which he
4

participated would be dispositive of the case; and that the court

erred in dismissing his counterclaims. He also asserts that ADT

never had the authority to terminate him. These issues are all

theoretically interesting, but even as the parties were appearing

before Judge Hughes in early July, 1996, prior to the arbitrator’s

decision that ADT’s status as administrative partner had terminated

at the end of May, there was a premonition of the futility of the

district court’s ruling on the merits. As of the July, 1996

hearing, the parties were representing to the court that Walston

had essentially been re-hired by other members of the joint

venture, and he was at that moment in Kazakhstan working on the

venture’s business. Walston’s counsel re-confirmed at oral

argument on appeal that his client had been re-hired by the joint

venture about a month after his termination. 

Seen in the light of the subsequent actions of the

investors and the arbitration ruling, the dispute between ADT and

Walston boils down to a temporary interruption in Walston’s

employment. Further, Walston was caught in the middle of a dispute

among the investors that evidently worked itself out in other

litigation.

This is not to say that it was improper for the district

court to resolve the case on the merits at the time judgment was

rendered. The court was well aware of the state litigation and

endeavored to issue a narrow ruling that would not hamstring any of

the parties in their future dealings. Further, for whatever

reason, the district court was never informed of the arbitration
5

ruling in time to reconsider his opinion concerning the scope of

ADT’s authority in the joint venture. It appears, however, that

ADT’s term of authority over Walston was short-lived, and its

continuing ability to pursue this litigation as a representative of

the joint venture is in doubt. Consequently, the only “live” issue

now in dispute between the parties is Walston’s liability for ADT’s

attorneys fees. 

For purposes of resolving this dispute, we shall assume

arguendo that the district court properly concluded that ADT had

authority to terminate Walston’s employment with the joint venture;

that the district court could permit ADT to amend its complaint and

refine the question of its capacity to sue as well as add a prayer

for declaratory relief; that the district court’s somewhat

unorthodox set of hearings was dispositive; and that declaratory

relief was properly issued against Walston. We may also conclude

arguendo that if the district court erred in none of these matters,

Walston’s counterclaims, which simply responded tit-for-tat to the

claims of ADT, were also properly dismissed. 

But even if we make all these assumptions, the award of

attorneys fees is still incorrect. In federal court, attorney fees

may be shifted to the losing party, overcoming the American rule

that parties pay their own attorneys, only if applicable

substantive law permits such awards or if they are authorized by

the inherent power of the court to control its proceedings.

Alyeska Pipeline Serv. Co. v. Wilderness Soc’y., 421 U.S. 240, 247,

95 S.Ct. 1612, 1616 (1975). There is no evidence to suggest, and
6

the district court did not condition its award against Walston on

the sort of intemperate conduct that would justify “an inherent

power” award of attorneys fees. 

ADT argues primarily that attorneys fees were proper

pursuant to the Texas Declaratory Judgment Act, Texas Civ. Prac. &

Rem. Code § 37.009, but this is wrong for two reasons. First, this

court has held that such an award is impermissible, inasmuch as the

Texas Declaratory Judgment Act represents a procedural, not

substantive basis for fee-shifting. Utica Lloyd’s of Texas v.

Mitchell, 138 F.3d. 208, 210 (5th Cir. 1998). Second, declaratory

judgment was never requested by ADT pursuant to Texas law; instead,

the district court awarded the relief sua sponte. See Fed. R. Civ.

Proc. 57, Advisory Committee Note. The district court was thus

acting pursuant to the federal Declaratory Judgment Act, 28 U.S.C.

§ 2201, which does not authorize fee shifting. Under the

circumstances, the attorneys fee award against Walston must be

reversed. 

For the foregoing reasons, we conclude that the parties’

dispute on the merits of this appeal is now moot, in that no

significant controversy continues to exist between them, but that

the attorneys’ fee award issued when the case was not moot must be

reversed. 

The merits of the appeal are DISMISSED as moot; attorneys

fee judgment of the district court is REVERSED.