Court Opinion

ID: 9394298
Source: CourtListenerOpinion
Date Created: 2023-05-13 00:00:38.790942+00
Date Added: 2024-06-11T17:18:58.664278
License: Public Domain

Case: 21-40648     Document: 00516749565         Page: 1   Date Filed: 05/12/2023

           United States Court of Appeals
                for the Fifth Circuit                         United States Court of Appeals
                                                                       Fifth Circuit

                                                                     FILED
                                                                 May 12, 2023
                                  No. 21-40648                   Lyle W. Cayce
                                                                      Clerk

   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.
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                                    No. 21-40648

                                         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/Cross-
   Appellee 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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   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 asserts that 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, Auto-
   Dril 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 Auto-
   Dril’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

           2
             Auto-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.”5 In 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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                                    No. 21-40648

   (“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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                                         No. 21-40648

   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, Auto-
   Dril 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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                                     No. 21-40648

   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-of-
   contract 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.

                                         25