United States Court of Appeals

for the Fifth Circuit

No. 21-40648

National Oilwell Varco, L.P., 

Plaintiff—Appellee/Cross-Appellant,

versus

Auto-Dril, Incorporated, 

Defendant—Appellant/Cross-Appellee.

Appeal from the United States District Court

for the Eastern District of Texas

USDC No. 5:15-CV-27

Before Richman, Chief Judge, and King and Higginson, Circuit 

Judges.

King, Circuit Judge:

This dispute began with a patent infringement suit in 2009. In 2011, 

the parties settled, but discord over that settlement re-emerged in later 

litigation. Now, the parties appeal various holdings that both preceded and 

followed a trial regarding their 2011 Settlement Agreement. We hold that we 

lack jurisdiction over Auto-Dril’s counterclaim for being fraudulently 

induced into entering the Settlement Agreement. For the remaining issues, 

we REVERSE the rulings of the district court and REMAND for further 

proceedings consistent with this opinion.

United States Court of Appeals

Fifth Circuit

FILED

May 12, 2023

Lyle W. Cayce

Clerk

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I.

In 2004, Varco, L.P. (“Varco”), an oil and gas drilling company, 

purchased the assets of another drilling company, including U.S. Patent No. 

5,474,142 (the “’142 Patent”). The ’142 Patent covers technology that 

automatically controls a drill bit to be used in oil and natural gas extraction 

based on drilling fluid pressure. In March 2005, following the asset sale, 

Varco’s parent company, Varco International, Inc., and a competitor, 

National Oilwell, Inc., completed a merger to form National Oilwell Varco, 

Inc. It was understood that Varco, as Varco International, Inc.’s operating 

company, would transfer its assets to the newly formed entity’s operating 

company: Plaintiff-Appellee/Cross-Appellant National Oilwell Varco, L.P. 

(“NOV”).

In 2009, NOV filed an action in the United States District Court for 

the Eastern District of Texas alleging that Defendant-Appellant/CrossAppellee Auto-Dril, Inc. (“Auto-Dril”) infringed the ’142 Patent (the 

“Underlying Action”). In November 2011, Auto-Dril and NOV entered into 

a confidential settlement agreement that was intended to end their litigation 

over the ’142 Patent (the “Settlement Agreement”). Under the terms of the 

Settlement Agreement: (1) Auto-Dril was granted a license to the ’142 Patent 

in exchange for a licensing fee of $900,000 to be paid in sixteen quarterly 

installments of $62,412.05; (2) NOV agreed “on behalf of itself and Varco” 

that it would not “bring or maintain any claim or action against Auto-Dril” 

for infringement of the ’142 Patent; (3) the parties agreed to file a joint 

motion to dismiss the pending litigation concerning the ’142 Patent; and (4) 

“[e]xcept for claims arising from” the Settlement Agreement, each party 

agreed to release the other from various claims. The Settlement Agreement 

states that “[t]he Parties represent and warrant to each other that the person 

signing this Agreement on their respective behalf’s [sic] is authorized to sign 

same and that the Agreement shall be binding upon any entity on whose 

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3

behalf this Agreement is signed.” NOV also represented and warranted that 

“no other persons or entities have or have had any interest in the claims, 

demands, obligations, or causes of action referred to in this Agreement.” The 

Settlement Agreement is governed by the laws of Texas. Despite only NOV 

and Auto-Dril being listed as parties to the Settlement Agreement, Greg 

Martin, Vice President of NOV, signed the Settlement Agreement on behalf 

of both NOV and Varco. In the final judgment dismissing the action, the 

district court retained jurisdiction over the Settlement Agreement “in the 

event of a dispute concerning that agreement, to interpret and enforce the 

agreement, if necessary.”

In March 2015, Auto-Dril sued NOV for infringing U.S. Patent No. 

6,994,172 (the “’172 Patent”) in the United States District Court for the 

Western District of Texas in Waco (the “Waco Action”). Later that month, 

NOV filed a separate action against Auto-Dril in the Eastern District of Texas 

in Texarkana for breach of the Settlement Agreement (the “Texarkana 

Action”). Specifically, NOV asserted that it had been released from claims 

relating to the ’172 Patent under the Settlement Agreement, that it had not 

infringed the ’172 Patent, and that the ’172 Patent was otherwise invalid, 

among other claims. In May 2015, Auto-Dril amended its complaint in the 

Waco Action and included a new count for fraud, alleging that NOV either 

knew or recklessly represented that it owned the ’142 Patent throughout the 

Underlying Action when it in fact did not own that patent.

In January 2016, the court in the Waco Action granted a motion to 

transfer venue to the Southern District of Texas in Houston (the “Houston 

Action”). In February 2016, NOV and Auto-Dril filed a motion in the 

Texarkana Action stating that they had “agreed to resolve claims relating to 

the 2011 Settlement Agreement in this Court, and resolve 

infringement/validity claims regarding [the ’172 Patent] in the . . . Southern 

District of Texas.” The parties thus moved the court to, inter alia, (1) permit 

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NOV to file an amended complaint that only included contract claims and (2) 

provide Auto-Dril two weeks to answer the amended complaint, at which 

time it would need to assert any claims under the Settlement Agreement. The 

court in the Texarkana Action granted the motion. NOV subsequently 

amended its complaint in the Texarkana Action in accordance with its motion 

and the court’s implementing order. In March 2016, Auto-Dril filed its 

answer and counterclaims, asserting the same claim for fraud that it brought 

in the Waco Action and a claim for breach of the Settlement Agreement as 

well. In June 2016, NOV again amended its complaint to include an additional 

breach-of-contract claim, alleging that Auto-Dril failed to make the 

remaining four payments under the Settlement Agreement. NOV now 

asserts that Auto-Dril failed to remit only the final three payments in 

accordance with testimony elicited at trial.

In March 2017, the court in the Texarkana Action ruled on the parties’ 

cross motions for summary judgment. In its ruling, the court determined that 

NOV did not own the ’142 Patent. NOV then moved to dismiss for lack of 

federal subject matter jurisdiction in April 2017. In its motion, NOV argued 

that because the court held that NOV never owned the ’142 Patent, NOV 

lacked standing in the Underlying Action, and therefore, the court lacked 

jurisdiction to make rulings in the Underlying Action, including its order 

retaining jurisdiction over disputes involving the Settlement Agreement. The 

court disagreed, holding that NOV could not collaterally attack the court’s 

jurisdiction in the prior, final Underlying Action based on principles of claim 

preclusion.

Meanwhile, the court in the Houston Action ruled that the ’172 Patent 

was invalid and unenforceable, and Auto-Dril’s claims in the Houston Action 

were eventually dismissed in April 2018.

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In April 2021, as trial approached in the Texarkana Action, the district 

court in that case granted summary judgment for NOV on Auto-Dril’s 

breach-of-contract counterclaim, reasoning that Auto-Dril “failed to 

produce evidence of damages.” A jury trial was held later that month. The 

jury ultimately found that Auto-Dril did not “fail to comply with the 

[Settlement Agreement],” NOV “commit[ted] fraud against Auto-Dril,” 

and Auto-Dril “should . . . have discovered the fraud” “in the exercise of 

reasonable diligence” by October 21, 2011. The jury awarded Auto-Dril 

$5,000,000 in compensatory damages for the fraud. NOV then moved for 

entry of judgment on the verdict and for judgment as a matter of law 

(“JMOL”), while Auto-Dril moved for entry of judgment on the jury’s fraud 

and damages findings.

The district court ultimately granted NOV’s motions with respect to 

Auto-Dril’s fraud claim, denied the remaining motions, and dismissed 

NOV’s breach-of-contract claim with prejudice. First, in ruling on the fraud 

claim, the court reasoned that the jury found that Auto-Dril should have 

discovered NOV’s fraud by October 21, 2011 because that was the date on 

which Auto-Dril filed a motion to dismiss in the Underlying Action alleging 

that NOV did not own the ’142 Patent. Because Auto-Dril entered into the 

Settlement Agreement in November 2011, the court ruled that a fraud “could 

not have ‘arisen out of’ an agreement signed weeks later.” The court also 

noted that had it “not granted JMOL in NOV’s favor on Auto-Dril’s fraud 

claim, it would have entered a take-nothing judgment” because the fraud 

claim was otherwise barred under Texas’s four-year statute of limitations.

Second, the court exercised its inherent authority to dismiss NOV’s claim 

for breach of the Settlement Agreement due to the jury’s fraud finding. 

Specifically, the court held that NOV’s repeated assertions that it owned the 

’142 Patent in the Underlying Action amounted to a “fraud on the court” 

and “an abuse of the judicial process.” The court would not allow NOV to 

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maintain its breach-of-contract claim because, although “Auto-Dril’s owner 

admitted to not making the last three payments required under the 

Settlement Agreement, the jury nonetheless found that Auto-Dril had not 

breached the Agreement.”

Both parties now appeal the district court’s rulings in the Texarkana 

Action. After the appeals had been filed, NOV filed a motion to dismiss both 

appeals for lack of subject matter jurisdiction, making similar arguments to 

those that it presented in the Texarkana Action. That motion has been 

carried with the case.

II.

We begin by addressing NOV’s two jurisdictional challenges: first,

NOV assertsthat federal subject matter jurisdiction is lacking over this entire 

action; second, NOV contends that Auto-Dril’s fraud claim is outside the 

bounds of federal jurisdiction. “[E]very federal appellate court has a special 

obligation to ‘satisfy itself not only of its own jurisdiction, but also that of the 

lower courts in a cause under review,’ even though the parties are prepared 

to concede it.” Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541 

(1986) (quoting Mitchell v. Maurer, 293 U.S. 237, 244 (1934)). “Issues of 

subject matter jurisdiction are questions of law reviewed de novo.” Pershing, 

L.L.C. v. Kiebach, 819 F.3d 179, 181 (5th Cir. 2016).

A.

First, NOV argues that the district court’s holding that NOV did not 

own the ’142 Patent retroactively stripped the court in the Underlying Action 

of jurisdiction. NOV thus contends that the court never possessed 

jurisdiction over this case because the court in the Underlying Action lacked 

the authority to retain jurisdiction in the first instance.

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Parties may not waive the issue of subject matter jurisdiction, and a 

court may likewise raise this issue at any time sua sponte. Ins. Corp. of Ir. v. 

Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982). “A party that 

has had an opportunity to litigate the question of subject-matter jurisdiction 

may not, however, reopen that question in a collateral attack upon an adverse 

judgment.” Id. at 702 n.9; see also Chicot Cnty. Drainage Dist. v. Baxter State 

Bank, 308 U.S. 371, 376 (1940) (“If the jurisdiction be not alleged in the 

proceedings, their judgments and decrees are erroneous, and may, upon a 

writ of error or appeal, be reversed for that cause. But they are not absolute 

nullities.” (quoting McCormick v. Sullivant, 23 U.S. (10 Wheat.) 192, 199 

(1825))). “The question is not whether the issue of subject matter was 

actually litigated, but instead whether the parties had the opportunity to raise 

the question.” Royal Ins. Co. of Am. v. Quinn-L Cap. Corp., 960 F.2d 1286, 

1293 (5th Cir. 1992) (citing Republic Supply Co. v. Shoaf, 815 F.2d 1046, 1053 

(5th Cir. 1987)).

A federal court dismissing an action pursuant to Federal Rule of Civil 

Procedure 41(a)(2) may retain jurisdiction over the enforcement of a 

settlement agreement relating to that dismissal. Kokkonen v. Guardian Life 

Ins. Co. of Am., 511 U.S. 375, 381 (1994). A court may choose to exercise its 

retained enforcement powers based on its ancillary jurisdiction over the 

settlement agreement. Id. Here, in its order dismissing the Underlying 

Action pursuant to Rule 41(a)(2), the court retained its jurisdiction over the 

Settlement Agreement, which permitted the court to later enforce that 

agreement through its ancillary jurisdiction. But according to NOV, the 

court’s ancillary jurisdiction was abrogated when it held that NOV never 

owned the ’142 Patent, as this was the only basis for NOV’s standing in the 

Underlying Action. Consequently, NOV contends that the court in the 

Underlying Action never had the authority to retain jurisdiction over the 

Settlement Agreement, and that court’s order retaining jurisdiction cannot 

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presently serve as the jurisdictional anchor for the court in the Texarkana 

Action.

But NOV is now precluded from collaterally attacking the Underlying 

Action. “Under the doctrine of issue preclusion, ‘a prior 

judgment . . . foreclos[es] successive litigation of an issue of fact or law 

actually litigated and resolved in a valid court determination essential to the 

prior judgment.’” Herrera v. Wyoming, 139 S. Ct. 1686, 1697 (2019)

(alteration in original) (quoting New Hampshire v. Maine, 532 U.S. 742, 748–

49 (2001)). The Underlying Action was dismissed via a final order, and NOV 

was afforded the opportunity to litigate the issue of subject matter 

jurisdiction throughout the Underlying Action. See Royal Ins. Co. of Am., 960 

F.2d at 1293. NOV counters that it neither had the opportunity nor motive 

to litigate jurisdiction in the Underlying Action because it was the plaintiff in 

that suit. But our holding in Royal Insurance does not distinguish between 

plaintiffs and defendants, and we have subsequently applied that holding to 

litigants who were plaintiffs in their respective underlying actions. See, e.g., 

Frank C. Minvielle LLC v. Atl. Refin. Co., 337 F. App’x 429, 432–33 (5th Cir. 

2009) (per curiam); Winograd v. Fowler, 184 F.3d 816 (5th Cir. 1999) 

(unpublished per curiam). Furthermore, NOV fails to cite any authority that 

would otherwise demonstrate that acting as a plaintiff in an underlying action 

or otherwise lacking motivation vitiates one’s opportunity to litigate subject 

matter jurisdiction. NOV had an opportunity to litigate subject matter 

jurisdiction when it initially filed the Underlying Action, asserting in its 

complaint that “[t]his Court has subject matter jurisdiction under 28 U.S.C. 

§§ 1331 and 1338.” Indeed, every plaintiff filing a new action is required to 

represent the basis for the court’s jurisdiction under the Federal Rules of 

Civil Procedure. Fed. R. Civ. P. 8(a)(1) (“A pleading that states a claim 

for relief must contain . . . a short and plain statement of the grounds for the 

court’s jurisdiction. . . .”).

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NOV also argues that its jurisdictional argument is not precluded 

based on our holding in Giannakos v. M/V Bravo Trader, 762 F.2d 1295 (5th 

Cir. 1985) (per curiam). In that case, the plaintiff, Giannakos, sued Scullin 

for failure to compensate for services rendered. Id. at 1297. Scullin then 

moved to dismiss for lack of subject matter jurisdiction, but the parties 

entered into a settlement agreement that was adopted by the court before it 

could rule on the pending motion. Id. Later, Giannakos applied to the court 

for an order to enforce the settlement agreement, which the court entered. 

Id. On appeal, Scullin contended that the court’s latest order was invalid 

because it lacked jurisdiction over the underlying controversy. Id. Giannakos 

countered that Scullin was estopped from challenging the court’s jurisdiction 

after already agreeing to the settlement agreement and that there were 

alternative bases for jurisdiction. Id. at 1297–98. We ultimately held that 

there were insufficient facts demonstrating that the district court possessed 

jurisdiction, and thus vacated the order enforcing the settlement agreement 

and remanded to the district court so that it could determine whether 

jurisdiction in fact existed. Id. at 1297–99.

NOV contends that the facts in Giannakos are akin to those in our 

case, and therefore, we should hold as the Giannakos Court did and permit a 

challenge to the district court’s jurisdiction in the Underlying Action. We 

find this argument unpersuasive. It is unclear whether the proceedings in 

Giannakos were all part of a single case or two separate cases, i.e., one that 

culminated in the settlement agreement and another concerning 

enforcement of the settlement agreement. In its opinion, the Giannakos 

Court does not specify whether the district court ever entered a final 

judgment that dismissed the initial matter upon the parties agreeing to 

settle—the only judgment mentioned is the judgment by the district court 

enforcing the settlement agreement. Therefore, it is plausible that all of the 

proceedings in Giannakos arose in a single case: Scullin merely challenged the 

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district court’s jurisdiction over a continuous and unresolved single suit and 

did not collaterally attack a prior action. Furthermore, this reading 

harmonizes Giannakos with Insurance Corp. of Ireland, 456 U.S. 694, and 

Chicot County Drainage District, 308 U.S. 371, Supreme Court precedent that 

preceded Giannakos and which would control if such harmony is not possible.

Accordingly, the district court had the requisite subject matter jurisdiction to 

enforce the Settlement Agreement.

B.

Alternatively, NOV argues that our recent decision in Vikas WSP, 

Ltd. v. Economy Mud Products Co., 23 F.4th 442 (5th Cir. 2022), barred the 

district court in the Texarkana Action from considering Auto-Dril’s fraud 

claim because that claim fell outside of the court’s retained jurisdiction.

In that case, Vikas sued Economy for breach of contract. Id. at 447. 

The parties eventually agreed to a settlement, and the district court retained 

jurisdiction to enforce the settlement agreement when dismissing the action 

with prejudice. Id. at 448. Vikas later moved the court to enforce the 

settlement agreement. Id. At summary judgment on the enforcement action, 

the district court ruled for Economy on its counterclaim for fraud, holding 

that Vikas breached the settlement agreement and that its breach was so 

egregious that it must have fraudulently induced Economy to enter into the 

settlement agreement. Id. at 450, 447. On appeal, we reversed the district 

court’s summary judgment ruling for Economy. First, we determined that 

the district court properly retained jurisdiction to enforce the settlement 

agreement but that its retention of jurisdiction did not “authorize the district 

court to reach new issues or issues that only relate to the settlement.” Id. at 

452. We reasoned that while a court “may decide ‘whether and under what 

terms’ to enforce the settlement, . . . it may go no further without an 

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independent basis for jurisdiction.” Id. (quoting Wise v. Wilkie, 955 F.3d 430, 

436 (5th Cir. 2020)).

Next, we held that the district court did not retain jurisdiction over 

Economy’s fraud claim. Unlike other contractual defenses, we explained 

that, in Texas, fraud is also a distinct tort—“‘an independent legal duty’ that 

is ‘separate from the existence of the contract itself.’” Id. (quoting Formosa 

Plastics Corp. USA v. Presidio Eng’rs & Contractors, 960 S.W.2d 41, 47 (Tex. 

1998)). We thus held that even in a case of fraudulent inducement, “the fraud 

has no necessary connection with the settlement’s enforcement or 

nonenforcement” and to rule that jurisdiction existed in such a case “would 

stretch retained jurisdiction too far.” Id. at 452–53; see also id. at 453 n.2 

(citing Fazio v. Cypress/GR Hous. I, L.P., 403 S.W.3d 390, 398 (Tex. Ct. App.

2013) (en banc) (“While a contract undoubtedly can affect the scope of a legal 

duty to not commit fraud and is essential in determining the measure of 

damages for fraudulent inducement, the tort itself . . . does not arise from the 

contract’s operation—it [is] a pre-contract tort to induce [the contract of 

sale].”)).

The fraud claim in Vikas is similar to Auto-Dril’s fraud claim in this 

case. Both claims contend that a counterparty to a settlement agreement 

fraudulently induced the party asserting its fraud claim into entering said 

settlement agreement. Accordingly, Auto-Dril’s fraud claim is a tort claim 

falling outside the scope of the district court’s retained jurisdiction.

Auto-Dril’s attempt to distinguish Vikas is unavailing. Auto-Dril 

argues that the language the district court used to retain jurisdiction over the 

Settlement Agreement in this case is broader than the language used by the 

district court in Vikas. The relevant portion of the Vikas order reads: “This 

court retains jurisdiction to enforce the settlement.” Final Dismissal Order, 

Vikas WSP Ltd. v. Econ. Mud Prods. Co., No. 4:13-CV-3426 (Doc. 50) (Dec. 

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5, 2014). In the present case, the district court’s implementing order reads: 

“this Court shall retain jurisdiction over the [Settlement Agreement], in the 

event of a dispute concerning that agreement, to interpret and enforce the 

agreement, if necessary.” Without citation to authority, Auto-Dril asserts 

that the power to “interpret” the Settlement Agreement provides the district 

court with jurisdiction over tort claims requiring a court’s interpretation of 

that agreement. Auto-Dril provides no analysis regarding its non-obvious 

reading of the court’s implementing order. A less strained reading of the 

court’s order in our case is that the two words “interpret” and “enforce” 

work together so that a court may interpret the Settlement Agreement to aid 

in the enforcement of that agreement.

Auto-Dril ascribes too much meaning to the word “interpret.” To 

accept Auto-Dril’s reading would allow a single inexplicit word to “stretch 

retained jurisdiction too far.” See Vikas, 23 F.4th at 453. Therefore, the 

district court lacked the requisite subject matter jurisdiction to consider 

Auto-Dril’s fraud claim.

1

III.

Our jurisdictional holding above leaves one non-mooted issue that 

Auto-Dril raises on appeal: whether the district court erred in granting 

summary judgment for NOV on Auto-Dril’s counterclaim for breach of the 

Settlement Agreement.

We review a “grant of summary judgment de novo, applying the same 

legal standards as the district court.” Petro Harvester Operating Co. v. Keith, 

954 F.3d 686, 691 (5th Cir. 2020) (quoting Tradewinds Env’t Restoration, Inc. 

v. St. Tammany Park, LLC, 578 F.3d 255, 258 (5th Cir. 2009)). “Summary 

1 Auto-Dril appeals the district court’s JMOL ruling on its fraud claim. We need 

not consider this appeal in light of our jurisdictional holding.

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judgment is appropriate when ‘the movant shows that there is no genuine 

dispute as to any material fact and the movant is entitled to judgment as a

matter of law.’” United States v. Nature’s Way Marine, L.L.C., 904 F.3d 416, 

419 (5th Cir. 2018) (quoting Fed. R. Civ. P. 56(a)).

Federal courts “look to state law for rules governing contract 

interpretation.” F.D.I.C. v. Firemen’s Ins. Co. of Newark, 109 F.3d 1084, 1087 

(5th Cir. 1997) (per curiam). The Settlement Agreement is governed by the 

laws of Texas. Under Texas law,

[i]n construing a written contract, the primary concern of the 

court is to ascertain the true intentions of the parties as 

expressed in the instrument. To achieve this objective, courts 

should examine and consider the entire writing in an effort to 

harmonize and give effect to all the provisions of the contract so 

that none will be rendered meaningless. No single provision 

taken alone will be given controlling effect; rather, all the 

provisions must be considered with reference to the whole 

instrument. . . . If the written instrument is so worded that it 

can be given a certain or definite legal meaning or 

interpretation, then it is not ambiguous and the court will 

construe the contract as a matter of law.

Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983) (citations omitted).

The elements of a claim for breach of contract are: “(1) the existence 

of a valid contract; (2) the plaintiff performed or tendered performance as 

the contract required; (3) the defendant breached the contract by failing to 

perform or tender performance as the contract required; and (4) the plaintiff 

sustained damages as a result of the breach.” USAA Tex. Lloyds Co. v. 

Menchaca, 545 S.W.3d 479, 501 n.21 (Tex. 2018). “The goal of measuring 

damages for a breach-of-contract claim is to provide just compensation for 

any loss or damage actually sustained as a result of the breach.” Tex. Ear Nose 

& Throat Consultants, PLLC v. Jones, 470 S.W.3d 67, 79 (Tex. Ct. App. 

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2015). “The normal measure in such cases is the benefit of the bargain, which 

seeks to place the injured party in the economic position it would have been 

in had the contract been performed,” i.e., expectancy damages. Id.; see also 

49 David R. Dow & Craig Smyser, Tex. Prac. Series: 

Contract Law § 10.7 (“It is sometimes said that expectancy damages 

are the ‘normal measure’ of damages. What this phrase probably means is 

that benefit-of-the-bargain damages is the most commonly sought measure 

or type of damages. It is not in any sense superior to the other measures.” 

(footnote omitted)). Alternatively, a plaintiff may seek reliance damages, 

which are measured by “the amount necessary to compensate that party for 

a loss already suffered.” Sun Oil Co. (Del.) v. Madeley, 626 S.W.2d 726, 734 

(Tex. 1981). Put another way, reliance damages “seek to put the injured party 

in the position he would have been in had he not relied on the promise.” 

Zenor v. El Paso Healthcare Sys., Ltd., 176 F.3d 847, 866 (5th Cir. 1999) (citing 

Fretz Constr. Co. v. S. Nat’l Bank of Hous., 626 S.W.2d 478 (Tex. 1982)); see 

also Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 817 (Tex. 

1997) (“Out-of-pocket [reliance] damages measure the difference between 

the value the buyer has paid and the value of what he has received.”). Such 

damages include expenditures made by the aggrieved party in performance 

of the contract. Mistletoe Express Serv. of Okla. City v. Locke, 762 S.W.2d 637, 

638 (Tex. App. 1988) (citing Restatement (Second) of 

Contracts § 349 (1981)); see also 24 Williston on Contracts

§ 64:4 (4th ed. 2022) (“This measure of recovery [for reliance damages] 

includes expenditures incurred by the nonbreacher in preparing to perform 

or in performance . . . .”).

At summary judgment, the district court reasoned that Auto-Dril 

received the benefit of its bargain because it did not suffer either expectancy 

or reliance damages. According to the court, for expectancy damages, AutoDril was “in the same position it would have been in had NOV performed—

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by owning the ’142 Patent.” And regarding reliance damages, the court held 

that Auto-Dril received the benefits it remitted for the $900,000 licensing 

fee: an end to the Underlying Action and “a license to practice the ’142 

Patent moving forward.” On appeal, Auto-Dril argues that the district court

incorrectly calculated its reliance damages. Auto-Dril contends that it never 

received a license for the ’142 Patent from NOV because NOV did not own 

the patent, thus making the licensing fee wholly unnecessary. 

It is undisputed that NOV did not own the ’142 Patent at the time the 

Settlement Agreement was signed. And the Settlement Agreement states 

that Auto-Dril would be granted a license for the ’142 Patent in exchange for 

the licensing fee. Apart from the exchange of the licensing fee and the license 

for the ’142 Patent, the exchange between the parties in the Settlement 

Agreement was symmetrical: the parties agreed to dismiss the Underlying 

Action and mutually release one another from all related matters. It is thus 

far from obvious to us that the licensing fee was in exchange for anything 

other than the license, especially considering the symmetry of the remaining 

terms and their differing subject matter. Therefore, we are doubtful that

Auto-Dril would have agreed to the remainder of the Settlement 

Agreement’s terms—including agreeing to pay a $900,000 licensing fee—

without receiving the license. If our doubts are indeed correct, then AutoDril’s performance, i.e., its $900,000 remittance, would likely constitute 

reliance damages. The parties devoted scant attention to this issue below (as 

they do in this court). So, at the very least, there was a genuine dispute of 

material fact regarding whether the parties would have entered into the 

Settlement Agreement absent a license for the ’142 Patent, all else being 

equal. 

NOV counters that, regardless of the above uncertainty, Auto-Dril 

received the benefits of its bargain because Varco, the true owner of the ’142 

Patent, was authorized to license the ’142 Patent and covenanted not to sue

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Auto-Dril for its use of the patent. But although Greg Martin, Vice President 

of NOV,signed the Settlement Agreement on behalf of Varco, the agreement 

does not list Varco as one of its parties. And Varco is otherwise mentioned 

only once in the Settlement Agreement. Under a section titled “Immunity 

for Existing Products”: “NOV agrees, on behalf of itself and Varco . . . that 

it will not bring or maintain any claim or action against Auto-Dril . . . alleging 

that Auto-Dril’s making, having made, using, selling, offering to sell, renting, 

leasing, using, importing or otherwise exploiting or disposing of the 

Navigator or Navigator Pro [devices subject to the Underlying Action] of 

Auto-Dril infringes the ’142 Patent.” The parties do not devote any 

meaningful analysis to this issue,

2 which was insufficiently addressed in the 

litigation below as well.

Consequently, two issues affecting the parties’ bargain, and whether 

Auto-Dril suffered damages, remain unresolved: (1) whether they would 

have agreed to the terms of the Settlement Agreement knowing that NOV 

did not own the ’142 Patent and (2) whether Varco is a party to the 

Settlement Agreement. Due to the unresolved ambiguity and lingering 

counterfactual uncertainty, we are unconvinced that there was no genuine 

dispute of material fact that Auto-Dril was not entitled to damages at 

summary judgment. This was the sole basis for the district court’s dismissal 

of Auto-Dril’s counterclaim for breach of the Settlement Agreement. 

Accordingly, we remand Auto-Dril’s counterclaim to the district court.3

2Auto-Dril cites only one controlling case, Willis v. Donnelly, 199 S.W.3d 262 (Tex. 

2006), for the proposition that “courts generally cannot bind a nonparty to a contract 

because the nonparty never agreed to the contract’s terms.” But this proposition is 

inapposite to the issue that Auto-Dril raised below and on appeal: whether Varco is a party 

to the Settlement Agreement, not whether it could be bound as a non-party.

3

It is possible that the district court may not have to resolve both issues on remand. 

If Varco is a party to the Settlement Agreement, then the court need not address whether 

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IV.

Next, we turn to the remaining issues raised by NOV, beginning with 

NOV’s argument that the district court erred when it dismissed NOV’s

claim for breach of the Settlement Agreement under its inherent authority.

“We review de novo a district court’s invocation of its inherent power 

and the sanctions granted under its inherent power for an abuse of 

discretion.” In re Moore, 739 F.3d 724, 729 (5th Cir. 2014) (quoting Positive 

Software Sols., Inc. v. New Century Mortg. Corp., 619 F.3d 458, 460 (5th Cir. 

2010)). The courts have certain implied and inherent powers that are 

the parties would have entered into the Settlement Agreement knowing that NOV did not 

own the ’142 Patent. If Varco is indeed a party, then Auto-Dril would have received an 

actual license for the ’142 Patent in exchange for the licensing fee upon execution of the 

Settlement Agreement.

The dissent contends that Varco was bound by the Settlement Agreement and that 

Auto-Dril received the benefit of its bargain, meaning that Auto-Dril breached the 

Settlement Agreement in failing to remit the final three installment payments. But that is 

belied by the text of the agreement. Varco is not listed as a party to the Settlement 

Agreement in the section explicitly listing the parties. No authority has been cited for the 

proposition that an entity may be bound by its signature alone in such a scenario. And the 

evidence surrounding the drafting of the Settlement Agreement is instructive, to the extent 

a court were to hold that the relevant provisions are ambiguous. See Nat’l Union Fire Ins. 

Co. of Pittsburgh v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995) (“Only where a 

contract is first determined to be ambiguous may the courts consider the parties’ 

interpretation . . . and admit extraneous evidence to determine the true meaning of the 

instrument.”). Auto-Dril specifically requested that both NOV and Varco be parties to the 

Settlement Agreement, but NOV expressly rejected including Varco. Furthermore, it is 

unclear whether NOV could effectively license the ’142 Patent through its control of Varco 

solely through the parent-subsidiary relationship. While NOV agreed “on behalf of itself 

and [Varco] . . . that it [would] not bring or maintain any claim or action against Auto-Dril,” 

nowhere did it explicitly promise to preclude a suit by Varco. Nor could it necessarily make 

such a guarantee. For example, NOV would have no way of preventing such a suit if Varco 

had been spun off or sold. That Auto-Dril appears to have received what it had sought is 

not synonymous with it receiving the benefit of its actual, bargained-for contract. To hold 

otherwise would impermissibly disregard the corporate form and ignore the text (and, if 

necessary, drafting history) of the Settlement Agreement.

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“governed not by rule or statute but by the control necessarily vested in 

courts to manage their own affairs so as to achieve the orderly and expeditious 

disposition of cases.” Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991) 

(quoting Link v. Wabash R.R. Co., 370 U.S. 626, 630–31 (1962)). These 

powers include the “outright dismissal of a lawsuit” and a court’s ability to 

“vacate its own judgment upon proof that a fraud has been perpetrated upon 

the court.” Id. at 45, 44. “Because of their very potency, inherent powers 

must be exercised with restraint and discretion. A primary aspect of that 

discretion is the ability to fashion an appropriate sanction for conduct which 

abuses the judicial process.” Id. at 44–45 (citation omitted). Accordingly, 

“we uphold a lower court’s decision to invoke its inherent sanctioning power 

only if clear and convincing evidence supports the court’s finding of bad faith 

or willful abuse of the judicial process.” Moore, 739 F.3d at 730.

“To establish fraud on the court, ‘it is necessary to show an 

unconscionable plan or scheme which is designed to improperly influence the 

court in its decision.’” First Nat’l Bank of Louisville v. Lustig, 96 F.3d 1554, 

1573 (5th Cir. 1996) (quoting Rozier v. Ford Motor Co., 573 F.2d 1332, 1338 

(5th Cir. 1978)).

Generally speaking, only the most egregious misconduct, such 

as bribery of a judge or members of a jury, or the fabrication of 

evidence by a party in which an attorney is implicated, will 

constitute a fraud on the court. Less egregious misconduct, 

such as nondisclosure to the court of facts allegedly pertinent 

to the matter before it, will not ordinarily rise to the level of 

fraud on the court.

Rozier, 573 F.2d at 1338 (citations omitted) (quoting United States v. Int’l Tel. 

& Tel. Corp., 349 F. Supp. 22, 29 (D. Conn. 1972), aff’d, 410 U.S. 919 (1973)).

Here, NOV’s conduct did not rise to the level of a fraud on the court. 

Specifically, there is not clear and convincing evidence that NOV was 

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cognizant that it did not own the ’142 Patent while it was litigating the 

Underlying Action. In sanctioning NOV, the district court stated that “[i]n 

front of this Court, NOV accused Auto-Dril of infringing a patent that NOV 

had no right to assert,” referring to the Underlying Action. The court also 

relied on the jury’s finding that “NOV’s conduct rose to the level of fraud.”

But the court’s jury instructions state a more lenient standard for fraud than 

the standard required for a fraud on the court.4 The key differences between 

these standards are the requisite intent and the unlawful conduct that is

bound with such intent. As we explained in Rozier, “only the most egregious 

misconduct” qualifies as a fraud on the court. 573 F.2d at 1338 (quoting Int’l 

Tel. & Tel. Corp., 349 F. Supp. at 29). In Rozier, all of the examples of

egregious misconduct necessarily include the implicated party’s willfulness

to actively deceive. Here, though, the jury was instructed that it could find 

that fraud occurred upon a showing of mere recklessness—a less culpable 

state of mind than willfulness. Indeed, actions attributable to recklessness are 

more akin to the “[l]ess egregious misconduct” that the Rozier Court 

recognized did not constitute a fraud on the court. Id. (quoting Int’l Tel. & 

Tel. Corp., 349 F. Supp. at 29). Relatedly, there is no evidence that NOV’s 

assertions regarding its ownership of the ’142 Patent in the Underlying 

4 The jury was instructed that:

Fraud occurs when—

1. a party makes a material misrepresentation, and

2. the misrepresentation is made with knowledge of its falsity or 

made recklessly without any knowledge of the truth and as a 

positive assertion, and

3. the misrepresentation is made with the intention that it should be 

acted on by the other party, and

4. the other party relies on the misrepresentation and thereby suffers 

injury.

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Action amounted to an “unconscionable plan or scheme . . . designed to 

improperly influence the court in its decision.” First Nat’l Bank, 96 F.3d at 

1573 (quoting Rozier, 573 F.2d at 1338).

The district court also provided no explanation as to how NOV abused

the judicial process. See Chambers, 501 U.S. at 44–45. Furthermore, NOV’s 

untrue assertions in the Underlying Action were devoid of the intent required 

to show “bad faith or willful abuse of the judicial process.” See Moore, 739 

F.3d at 730. That NOV committed a fraud on the court or otherwise abused 

the judicial process cannot be substantiated by clear and convincing evidence.

Accordingly, the district court erred in invoking its inherent authority to 

dismiss NOV’s claim for breach of the Settlement Agreement. Because it 

first dismissed NOV’s claim for breach of the Settlement Agreement before 

addressing the merits, the district court never ruled on NOV’s JMOL 

motion. Therefore, on remand, the district court should consider the merits 

of NOV’s motion.

V.

NOV also contends that the district court improperly allowed James

Ray, Auto-Dril’s founder, to provide expert testimony during trial, even 

though he was testifying as a lay witness. Ray testified that he believed he 

could stop remitting licensing fees for the ’142 Patent because he was 

fraudulently induced into entering the Settlement Agreement.

We review a district court’s rulings on the admission of lay and expert 

testimony for an abuse of discretion. United States v. El-Mezain, 664 F.3d 467, 

511 (5th Cir. 2011). The opinion testimony of a lay witness is limited to 

testimony that is: “(a) rationally based on the witness’s perception; (b) 

helpful to clearly understanding the witness’s testimony or to determining a 

fact in issue; and (c) not based on scientific, technical, or other specialized 

knowledge within the scope of Rule 702.” Fed. R. Evid. 701. “An opinion 

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is not objectionable just because it embraces an ultimate issue.” Id. 704(a). 

But “Rule 704(a) ‘does not allow a witness to give legal conclusions.’” 

United States v. Williams, 343 F.3d 423, 435 (5th Cir. 2003) (quoting United 

States v. Izydore, 167 F.3d 213, 218 (5th Cir. 1999)). “In evaluating challenged 

testimony, the court must distinguish ‘between an impermissible opinion on 

an ultimate legal issue and “a mere explanation of the [witness’s] analysis of 

facts which would tend to support a jury finding on the ultimate issue.”’” 

United States v. Keys, 747 F. App’x 198, 207 (5th Cir. 2018) (per curiam) 

(alteration in original) (quoting United States v. Buchanan, 70 F.3d 818, 833 

n.20 (5th Cir. 1995)).

NOV argues that Ray’s testimony included legal conclusions on 

multiple occasions. For example, Ray responded in the affirmative when 

asked, “do you believe you were fraudulently induced to enter into the 

[Settlement Agreement].” Later, he was asked for his “understanding and 

not a legal opinion” about whether “Auto-Dril was releasing a claim for 

fraudulent inducement of the [Settlement Agreement].” Ray responded, 

“It’s my understanding, since it was fraudulent inducement, as come up 

awhile ago, that the agreement goes away.”5In the context of Ray’s 

testimony, these statements cannot be interpreted as anything other than 

legal conclusions. Even if they were admitted in order to demonstrate why 

Ray decided to cease paying the licensing fees, that would have no bearing on 

whether Auto-Dril had breached the Settlement Agreement and constitutes 

irrelevant testimony. See Fed. R. Evid. 401(b) (“Evidence is relevant 

if . . . the fact is of consequence in determining the action.”); id. 402 

5 NOV also references testimony that it objected to on different grounds or that 

was later stricken. This testimony is thus inapplicable to its arguments.

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(“Irrelevant evidence is not admissible.”). We thus conclude that the district 

court abused its discretion in admitting the above testimony.

Auto-Dril admits that it failed to make the final three licensing-fee 

payments under the Settlement Agreement. Furthermore, it is not apparent 

that the other evidence introduced at trial supports a finding that Auto-Dril 

did not breach the Settlement Agreement. Therefore, while reconsidering 

NOV’s JMOL motion on remand, see supra Part IV, the district court should 

consider how Ray’s inadmissible testimony may have infected the jury’s 

verdict on NOV’s claim for breach of the Settlement Agreement.

VI.

We hold that neither we nor the district court have subject matter 

jurisdiction over Auto-Dril’s fraud claim. We REVERSE the ruling granting

summary judgment for NOV on Auto-Dril’s claim for breach of the 

Settlement Agreement. We REVERSE the dismissal of NOV’s claim for 

breach of the Settlement Agreement and REMAND NOV’s JMOL motion 

for reconsideration. In light of our evidentiary holding, see supra Part V, the 

district court is instructed to consider how its admission of James Ray’s 

inadmissible testimony may have infected the jury’s verdict on NOV’s claim 

for breach of the Settlement Agreement when reevaluating NOV’s JMOL 

motion.

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Priscilla Richman, Chief Judge, concurring in part, dissenting in part:

I write separately because I would hold, as a matter of law, that Varco 

was bound by the Settlement Agreement and that Auto-Dril received all that 

it bargained for under the Settlement Agreement—the right to use the ’142 

patent without complaint from NOV or Varco. Despite receiving all that it 

bargained for, Auto-Dril failed to make the final three installment payments, 

thereby breaching the Settlement Agreement. I would affirm the district 

court’s dismissal of Auto-Dril’s breach-of-contract claim and remand 

NOV’s breach-of-contract claim for the district court to determine the 

damages owed by Auto-Dril. I concur in the majority opinion in all other 

respects.

The Settlement Agreement expressly extended its reach beyond NOV 

and Auto-Dril as parties and also bound Varco. Greg Martin signed the 

Settlement Agreement on Varco’s behalf, and the agreement stated that it 

“shall be binding upon any entity on whose behalf this Agreement is signed.” 

Martin had been a vice president at Varco. However, prior to the Settlement 

Agreement, all Varco employees and nearly all Varco assets were transferred 

to NOV. At that time, Martin became an NOV vice president. He was 

therefore well positioned to sign on behalf of Varco. Moreover, all agree that 

NOV was a party to the agreement, and the agreement stated that “NOV 

agrees, on behalf of itself and Varco, . . . that it will not bring or maintain any 

claim or action against Auto-Dril” relating to the ’142 patent. This language 

would be meaningless if Varco is not bound by the agreement. It is “our 

duty . . . to give effect to all contract provisions, and render none 

meaningless.”1 The majority opinion asserts in footnote 3 that “[w]hile 

1 King v. Dall. Fire Ins. Co., 85 S.W.3d 185, 193 (Tex. 2002) (citing Balandran v. 

Safeco Ins. Co. of Am., 972 S.W.2d 738, 741 (Tex. 1998)).

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NOV agreed ‘on behalf of itself and [Varco] . . . that it [would] not bring or 

maintain any claim or action against Auto-Dril,’ nowhere did it explicitly 

promise to preclude a suit by Varco.” I simply cannot square that assertion 

with the NOV’s promise and representation in the Settlement Agreement 

that “on behalf of itself and [Varco] . . . it [would] not bring or maintain any 

claim or action against Auto-Dril.” This is a plain statement that neither 

NOV nor Varco would sue Auto-Dril. Varco’s Vice-President signed this 

agreement on behalf of Varco.

Auto-Dril bargained for the right to use the ’142 patent unburdened 

by claims of infringement by NOV and Varco, and it received just that. The 

Settlement Agreement stated that, in exchange for the licensing fee of 

$900,000 to be paid in sixteen quarterly installments of $62,412.05, AutoDril would face no infringement claims by NOV or Varco. Just as the 

agreement required, neither NOV nor Varco brought or maintained any 

claims against Auto-Dril relating to the patent. Both NOV and Varco acted 

in accordance with the Settlement Agreement.

However, NOV did not receive the full benefits of its bargain because

Auto-Dril failed to remit the final three payments.2 NOV “tendered 

performance as the contract required,” but Auto-Dril “breached the 

contract by failing to perform or tender performance as the contract 

required.”3 As a result, NOV received less money than was promised under 

2 See Vikas WSP, Ltd. v. Econ. Mud Prods. Co., 23 F.4th 442, 457 (5th Cir. 2022)

(stating that whether breach occurred depended on whether party “was ‘paid in full’ as the 

settlement required”).

3 USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 501 n.21 (Tex. 2018).

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the agreement, “sustain[ing] damages as a result of the breach.”4 Therefore, 

Auto-Dril breached the Settlement Agreement as a matter of law.

* * *

I would affirm the district court’s dismissal of Auto-Dril’s breach-ofcontract claim and remand NOV’s breach-of-contract claim for the district 

court to determine the damages owed by Auto-Dril as a result of its breach.

4

Id.

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