Court Opinion

ID: 4695275
Source: CourtListenerOpinion
Date Created: 2021-06-14 18:01:25.762396+00
Date Added: 2024-06-11T08:05:34.479820
License: Public Domain

Case: 20-20319     Document: 00515897930          Page: 1    Date Filed: 06/14/2021

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

                                                                       FILED
                                                                   June 14, 2021
                                   No. 20-20319                   Lyle W. Cayce
                                                                       Clerk

   L.A. Public Insurance Adjusters, Incorporated,

                                                             Plaintiff—Appellee,

                                       versus

   Timothy John Nelson,

                                                         Defendant—Appellant.

                  Appeal from the United States District Court
                      for the Southern District of Texas
                            USDC No. 4:18-CV-950

   Before Owen, Chief Judge, and Jolly and Dennis, Circuit Judges.
   James L. Dennis, Circuit Judge:*
          Timothy John Nelson worked for L.A. Public Insurance Adjusters,
   Inc. (“LAPIA”) as a public insurance adjuster.           After their business
   relationship soured as a result of a dispute over the amount of commissions
   Nelson was owed, LAPIA terminated Nelson’s employment and filed suit

          *
            Pursuant to 5th Circuit Rule 47.5, the court has determined that this
   opinion should not be published and is not precedent except under the limited
   circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 20-20319      Document: 00515897930          Page: 2    Date Filed: 06/14/2021

                                    No. 20-20319

   against him in state court. Nelson counterclaimed, seeking to recover the
   unpaid commissions, and then removed the case to federal court.
          For nearly two years, LAPIA failed to file an answer to Nelson’s
   counterclaims, only finally seeking leave to file the document after the parties
   had fully briefed cross summary judgment motions. The district court
   accepted LAPIA’s answer without explanation, then granted the company
   summary judgment based on a new defense theory that had been raised for
   the first time in LAPIA’s belated answer.          Because LAPIA failed to
   demonstrate that its failure to initially file an answer was the product of
   “excusable neglect” as is required to obtain an extension of time once a filing
   period has elapsed under the Federal Rules of Civil Procedure, we
   REVERSE the district court’s grant of summary judgment to LAPIA and
   its denial of Nelson’s motion for partial summary judgment and REMAND
   this case for further proceedings.
   I. Facts and Procedural History
          LAPIA entered into a contract with Nelson to employ him as a public
   insurance adjuster, a professional who handles claims made with insurance
   companies on behalf of policy holders. Nelson began working for LAPIA on
   November 18, 2017, but after a dispute arose over the amount of the
   commissions Nelson was due, the company terminated his employment only
   79 days later on February 5, 2018.
          LAPIA then filed suit against Nelson in Texas state court, seeking
   damages for disparaging comments Nelson allegedly made about the
   company while soliciting his former clients, as well as an injunction enforcing
   a non-compete clause in Nelson’s employment contract. On March 26,
   2018, Nelson filed an answer in the state court and asserted counterclaims
   against LAPIA and LAPIA’s owner Eric Ramirez for the unpaid commissions

                                          2
Case: 20-20319          Document: 00515897930              Page: 3      Date Filed: 06/14/2021

                                           No. 20-20319

   Nelson was allegedly owed.1 The same day, Nelson removed the suit to the
   United States District Court for the Southern District of Texas based on the
   federal court’s diversity jurisdiction.
          LAPIA did not file an answer to Nelson’s counterclaim within the
   time specified by Federal Rule of Civil Procedure 81(c)(2),2 a fact that the
   district court orally noted during a February 9, 2019 hearing at which
   Ramirez was present when the court stated that Nelson could move for a
   default judgment based on LAPIA’s failure to answer.                      Without first
   attempting to file a belated answer, LAPIA moved for partial summary
   judgment on Nelson’s counterclaim on June 14, 2019, contending that
   Nelson was not owed any commissions because he had failed to obtain the
   proper Texas state licensing to work as a public adjuster.
          Nelson responded on July 5, 2019, and cross-moved for partial
   summary judgment.            Nelson argued that, under Federal Rule of Civil

          1
             Nelson later voluntarily dismissed his counterclaim against Ramierz, LAPIA
   voluntarily dismissed its claims against Nelson, and only Nelson’s counterclaim against
   LAPIA is at issue in this appeal.
          2
              Federal Rule of Civil Procedure 81(c)(2) states as follows:
          (2) Further Pleading. After removal, repleading is unnecessary unless the
          court orders it. A defendant who did not answer before removal must
          answer or present other defenses or objections under these rules within the
          longest of these periods:
                    (A) 21 days after receiving--through service or otherwise--a copy
                    of the initial pleading stating the claim for relief;
                    (B) 21 days after being served with the summons for an initial
                    pleading on file at the time of service; or
                    (C) 7 days after the notice of removal is filed.

                                                 3
Case: 20-20319         Document: 00515897930              Page: 4       Date Filed: 06/14/2021

                                          No. 20-20319

   Procedure 8(b)(6),3 because LAPIA had not filed an answer denying the
   allegations that were contained in his counter-complaint, the company must
   be deemed to have admitted to all of them except those relating to the amount
   of damages. LAPIA in turn responded that Nelson had originally filed his
   counterclaims in Texas state court, and under Texas Rule of Civil Procedure
   92,4 the company was not required to file an answer and was considered to
   have generally denied all of Nelson’s allegations.
           While the summary judgment cross-motions remained pending,
   LAPIA’s attorney moved for and was granted leave to withdraw, and LAPIA
   retained new counsel.          Then, on January 12, 2020—approximately 22
   months after Nelson had filed his counterclaims and six months after Nelson
   had moved for partial summary judgment based on LAPIA’s failure to
   answer—LAPIA moved for leave to finally file an original answer to Nelson’s
   counterclaims.       Seemingly acknowledging acknowledged that its prior
   counsel had been mistaken about there being no need for the company to file
   an answer to Nelson’s counterclaims. LAPIA asserted that it had been “at
   the total mercy of” its prior attorneys, who had not informed the company
   that no answer had been filed, and stated that its new attorney had sought to
   rectify the situation as soon as he became aware of the omission. Arguing
   that it should not be punished for the conduct of its former counsel, LAPIA
   asked that it be permitted to file an answer out-of-time pursuant to Federal

           3
            Federal Rule of Civil Procedure 8(b)(6) provides as follows: “(6) Effect of Failing
   to Deny. An allegation--other than one relating to the amount of damages--is admitted if a
   responsive pleading is required and the allegation is not denied. If a responsive pleading is
   not required, an allegation is considered denied or avoided.”
           4
              Texas Rule of Civil Procedure 92 provides, in relevant part, “When a
   counterclaim or cross-claim is served upon a party who has made an appearance in the
   action, the party so served, in the absence of a responsive pleading, shall be deemed to have
   pleaded a general denial of the counterclaim or cross-claim.”

                                                4
Case: 20-20319          Document: 00515897930              Page: 5         Date Filed: 06/14/2021

                                           No. 20-20319

   Rule of Civil Procedure 6(b)(1)(B),5 which permits an extension of the time
   limits contained in the Federal Rules if a deadline was not met because of
   “excusable neglect.” Although LAPIA claimed in its motion that the
   company was “not adding or changing any theory of liability,” the proposed
   answer that was attached to the motion contained a new defense that the
   company had not raised in its previous summary judgment filings: that
   Nelson was not entitled to commissions because he had not yet completed a
   three-month probationary hiring period at the time of his termination.
          On March 23, 2020, the district court seemingly granted LAPIA’s
   motion for leave to file an answer out-of-time, stating in a “management
   order” that “[t]he answer of L.A. Public Insurance Adjusters, Inc., is
   accepted” without further explanation. One week later, LAPIA filed a
   second summary judgment motion, this time pressing its new theory that
   Nelson was not entitled to commissions because had only been “tentatively
   hired . . . as a probationary employee.” The district court soon after denied
   Nelson’s summary judgment motion and granted summary judgment to
   LAPIA, reasoning that “[d]uring the three-month probation, the company
   had the right” under the terms of Nelson’s employment contract “to
   terminate him without notice or compensation other than wages.” Because
   the district court determined that commissions did not qualify as “wages”

          5
              Federal Rule of Civil Procedure 6(b)(1) states as follows:
                     (b) Extending Time.
                     (1) In General. When an act may or must be done within a specified time,
                     the court may, for good cause, extend the time:
                             ....
                             (B) on motion made after the time has expired if the party failed to
                             act because of excusable neglect.

                                                 5
Case: 20-20319       Document: 00515897930          Page: 6     Date Filed: 06/14/2021

                                     No. 20-20319

   under the contract, the court ruled that Nelson would take nothing on his
   claim against LAPIA. Nelson timely appealed.
   II. Standard of Review
          We review a district court’s grant or denial of an extension of time
   under Federal Rule of Civil Procedure 6(b) for an abuse of discretion.
   Geiserman v. MacDonald, 893 F.2d 787, 793 (5th Cir. 1990). By contrast, we
   review a district court’s summary judgment ruling de novo, applying the same
   standard as the district court. United States v. Caremark, Inc., 634 F.3d 808,
   814 (5th Cir. 2011).
   III.   Analysis
          With some exceptions that are not pertinent to this case, Federal Rule
   of Civil Procedure 6(b) permits a district court to extend the various timelines
   set forth in the Federal Rules of Civil Procedure. If done prior to the
   expiration of the time limit at issue, a court may extend the period for any
   reason, upon a party’s motion or even on its own initiative. FED. R. CIV. P.
   6(b)(1)(A). However, once a time limit has run, it may be extended only upon
   a party’s motion and only if the court finds that “the party failed to act
   because of excusable neglect.” FED. R. CIV. P. 6(b)(1)(B).
          Federal Rule of Civil Procedure 81(c) clarifies several applications of
   the Federal Rules in an action that has been removed to federal court from
   state court. Rule 81(c)(2) specifically provides the timeline for a party’s filing
   an answer or similar document asserting its defenses if it did not already do
   so in state court prior to removal. It states that an answer or its equivalent
   must be filed within either 21 days of the party’s receiving a copy of a pleading
   by any method, 21 days of the party’s being served, or 7 days after the notice
   of removal was filed, whichever is latest. FED. R. CIV. P. 81(c)(2)(A)-(C).

                                           6
Case: 20-20319        Document: 00515897930              Page: 7       Date Filed: 06/14/2021

                                         No. 20-20319

           It is undisputed that LAPIA did not file an answer or its equivalent
   within the required period.6 Thus, under Rule 6(b)(1)(B), the district court
   was permitted to accept LAPIA’s untimely answer only if the court found
   that the company’s failure to comply with the deadline was the result of
   “excusable neglect.”
           In Pioneer Investment Services Co. v. Brunswick Assocs. LP, 507 U.S.
   380, 382 (1993), the Supreme Court examined the concept of “excusable
   neglect” while interpreting Federal Rule of Bankruptcy Procedure
   9006(b)(1), which was modeled after and is substantially identical to Federal
   Rule of Civil Procedure 6(b)(1).7 The Court rejected the notion that the Rule
   permitted a late filing only when circumstances beyond a party’s control
   prevented filing before the deadline, stating that the ordinary meaning of
   neglect “encompasses both simple, faultless omissions to act and, more
   commonly, omissions caused by carelessness.” Id. at 388. But the Court
   indicated that not all careless omissions would qualify; “[b]ecause Congress
   has provided no other guideposts for determining what sorts of neglect will
   be considered ‘excusable,’” the Court explained, “the determination is at
   bottom an equitable one, taking account of all relevant circumstances
   surrounding the party’s omission.” Id. at 395. These include but are not
   limited to “the danger of prejudice to the [opposing party], the length of the
   delay and its potential impact on judicial proceedings, the reason for the

           6
            LAPIA does not now argue that its former counsel’s understanding of the law was
   correct—that is, that because the company was not required to file an answer to Nelson’s
   counterclaim in state court under Texas Rule of Civil Procedure 92, Federal Rule of Civil
   Procedure 81(c)(2) did not require it to file an answer in federal court after the case was
   removed.
           7
             The nation’s circuit courts have “uniform[ly] . . . extend[ed] Pioneer beyond the
   context of bankruptcy,” United States v. Clark, 51 F.3d 42, 44 (5th Cir. 1995) (collecting
   cases), and our court has applied the analysis specifically to a Rule 6(b) motion, see Adams
   v. Travelers Indem. Co. of Connecticut, 465 F.3d 156, 161 n. 8 (5th Cir. 2006).

                                                7
Case: 20-20319        Document: 00515897930              Page: 8       Date Filed: 06/14/2021

                                         No. 20-20319

   delay, including whether it was within the reasonable control of the movant,
   and whether the movant acted in good faith.” Id.
           As an initial matter, LAPIA argued below that the company was not
   informed by its former counsel that no answer had been filed and should not
   be penalized for its former attorneys’ mistake. But the Pioneer Court
   explicitly disclaimed the supposition that a client’s ill-advised reliance on its
   counsel may be a justification for a late filing. Id. at 396. The party
   “voluntarily chose [his] attorney as his representative in the action,” the
   Court reasoned, “and he cannot now avoid the consequences of the acts or
   omissions of this freely selected agent.” Id. at 397 (quoting Link v. Wabash
   R. Co., 370 U.S. 626, 633-34 (1962)). “Any other notion would be wholly
   inconsistent with our system of representative litigation, in which each party
   is deemed bound by the acts of his lawyer-agent and is considered to have
   notice of all facts, notice of which can be charged upon the attorney.” Id.
   (quoting Link, 370 U.S. at 634). “Consequently, in determining whether” a
   party’s failure to meet a deadline “was excusable, the proper focus is upon
   whether the neglect of [the party] and their counsel was excusable.”8 Id.
   (emphasis in original).
           We thus must consider whether LAPIA’s former counsel’s mistaken
   belief that no answer was required constitutes excusable neglect. Our court
   has held that, in most cases, an attorney’s simple misunderstanding of the
   Federal Rules “weighs heavily against a finding of excusable neglect.”
   Midwest Emps. Cas. Co. v. Williams, 161 F.3d 877, 880 (5th Cir. 1998) (quoting
   Halicki v. Louisiana Casino Cruises, Inc., 151 F.3d 465, 470 (5th Cir. 1998)), a
   determination that coincides with the rulings of many of our sister circuits,

           8
            A party who is prejudiced by its counsel’s inexcusable negligence is of course free
   to separately pursue whatever remedies are available to a client for an attorney’s deficient
   representation.

                                                8
Case: 20-20319       Document: 00515897930         Page: 9    Date Filed: 06/14/2021

                                    No. 20-20319

   see Halicki, 151 F.3d at 470 n.5 (collecting cases). Our court has “left open
   the possibility that some misinterpretations of the federal rules may qualify
   as excusable neglect,” but we have emphasized that “such is the rare case
   indeed.” Id. at 470; Williams, 161 F.3d at 880. We have therefore held that
   a district court abused its discretion by granting an extension of time based
   on an attorney’s misreading of a time-limit set by the Federal Rules even
   when the district court had found that the intricacies of the Rule at issue were
   “a trap for the unwary.” Williams, 161 F.3d at 880.
          To be sure, the interaction of Texas Rule of Civil Procedure 92 and
   Federal Rule of Civil Procedure 81(c)(2) is more complex than many
   applications of the Federal Rules, potentially implicating a conflict between
   state and federal procedure. But even if we were inclined to excuse LAPIA’s
   overlooking Rule 81(c)(2)’s directive that “[a] defendant who did not answer
   before removal must answer or present other defenses or objections under
   these rules,” the totality of the circumstances would not justify permitting
   the late filing in this case.
          Most significantly, the answer that LAPIA eventually filed was
   unfairly prejudicial to Nelson and greatly impacted the course of the
   proceedings. Prior to its belated answer, LAPIA never sought to assert the
   probationary-period defense; the company’s original summary judgment
   motion instead argued that Nelson was not entitled to commissions because
   he was not properly licensed. By permitting LAPIA to file its answer out-of-
   time, the district court allowed the company to pull an abrupt about-face
   nearly two years after its answer was originally due, inserting a new surprise
   defense into the proceeding that not only had not, but also could not have been
   previously raised.
          This is because, in arguing that Nelson was not entitled to
   commissions because he had not completed the probationary employment

                                          9
Case: 20-20319        Document: 00515897930              Page: 10       Date Filed: 06/14/2021

                                          No. 20-20319

   period, LAPIA denies that Nelson satisfied a condition precedent to
   LAPIA’s performance under the contract. See Solar Applications Eng’g, Inc.
   v. T.A. Operating Corp., 327 S.W.3d 104, 108 (Tex. 2010) (“A condition
   precedent is an event that must happen or be performed before a right can
   accrue to enforce an obligation.” (quoting Centex Corp. v. Dalton, 840
   S.W.2d 952, 956 (Tex. 1992))). Under Federal Rule of Civil Procedure 9(c),9
   a party claiming the nonoccurrence of a condition precedent must specifically
   deny the occurrence in its initial pleadings, setting forth the allegation with
   particularity. And a party who does not deny the occurrence of a condition
   precedent in a responsive pleading may not later rely on such a theory,
   including at the summary judgment stage. E.E.O.C. v. Serv. Temps Inc., 679
   F.3d 323, 331–32 (5th Cir. 2012).
           Consequently, even if LAPIA’s original counsel had been correct
   about the interaction of Texas Rule of Civil Procedure 92 and Federal Rule
   of Civil Procedure 81(c)(2) and LAPIA had not been required to file an
   answer, the company would not have been able to raise the probationary-
   employment-period defense as a ground for or defense against summary
   judgment. Texas Rule of Civil Procedure 92 provides that a party who has
   already entered an appearance in the case and against whom a counterclaim
   is asserted is “deemed to have pleaded a general denial of the counterclaim”
   if they do not file a responsive pleading. And “a general denial that all
   conditions precedent ha[ve] been satisfied . . . is insufficient” to raise the
   nonoccurrence of a condition precedent under Rule 9(c). Serv. Temps Inc.,
   679 F.3d at 331 (citing Trinity Carton Co. v. Falstaff Brewing Corp., 767 F.2d

           9
            In full, Federal Rule of Civil Procedure 9(c) states: “Conditions Precedent. In
   pleading conditions precedent, it suffices to allege generally that all conditions precedent
   have occurred or been performed. But when denying that a condition precedent has
   occurred or been performed, a party must do so with particularity.”

                                               10
Case: 20-20319      Document: 00515897930            Page: 11     Date Filed: 06/14/2021

                                      No. 20-20319

   184, 192 (5th Cir. 1985)). It was only the district court’s allowance of a wholly
   new answer—filed years into the life of the case and after the parties had fully
   briefed cross-summary judgment motions based on wholly different issues—
   that permitted LAPIA to assert this alternative defense theory in a second
   summary judgment motion.
          Nor does the length of LAPIA’s delay in seeking leave to file an
   answer weigh in favor of finding excusable neglect on the part of the
   company. Though LAPIA asserts that it was unaware that no answer had
   been filed on its behalf, the company’s claimed ignorance is belied by the fact
   that, nearly a year before the company requested leave to file an answer, the
   company’s owner was present at a hearing when the district court specifically
   noted that Nelson could move for a default judgment on the ground that
   LAPIA had failed to file the document as required. And more fundamentally,
   as related above, the Supreme Court has stated that in “our system of
   representative litigation, . . .each party . . . is considered to have notice of all
   facts, notice of which can be charged upon the attorney.” Pioneer, 507 U.S.
   at 397 (quoting Link, 370 U.S. at 634); see also Pryor v. U.S. Postal Serv., 769
   F.2d 281, 287 (5th Cir. 1985) (“This Court has pointedly announced that a
   party has a duty of diligence to inquire about the status of a case . . . .”).
          LAPIA must be deemed to have been aware of the nonfiling by the
   February 9, 2019 hearing at the latest, but, rather than seeking to rectify the
   issue immediately, the company steadfastly maintained it was not required to
   file an answer. It was not until January 12, 2020—nearly two years after the
   answer was originally due, nearly a year after LAPIA’s failure to answer was
   recognized by the district court, six months after Nelson moved for partial
   summary judgment on the ground that no answer had been filed, and five-
   and-a-half months after LAPIA responded arguing that no answer was
   needed—that LAPIA finally conceded its mistake and sought to correct it.
   As we have said, the excusable neglect inquiry “is at bottom an equitable

                                            11
Case: 20-20319     Document: 00515897930           Page: 12   Date Filed: 06/14/2021

                                    No. 20-20319

   one,” Pioneer, 507 U.S. at 395, and “[o]ne who fails to act diligently cannot
   invoke equitable principles to excuse that lack of diligence.” Baldwin Cty.
   Welcome Ctr. v. Brown, 466 U.S. 147, 151 (1984).
          In sum, the totality of the circumstances here weighs heavily against a
   finding that LAPIA’s failure to file a timely answer was the product of
   excusable neglect. It is not clear from the district court’s sparse order that
   the court even found excusable neglect, but we have little trouble
   determining that it clearly erred if it did so. And, because excusable neglect
   is a prerequisite for an extension of time under Rule 6(b)(1)(B), the district
   court abused its discretion by granting LAPIA leave to file its answer out-of-
   time. See Williams, 161 F.3d at 880.
          In the absence of an answer denying the allegations in Nelson’s
   counter-complaint, LAPIA must be deemed to have admitted those
   allegations that are unrelated to damages. See FED. R. CIV. P. 8(b)(6). And,
   as stated, LAPIA was not permitted to rely on its probationary-employment-
   period defense, a denial of a condition precedent, without specifically
   pleading it in response to Nelson’s counter-complaint. See Serv. Temps Inc.,
   679 F.3d at 331-32. Accordingly, the district court also erred by granting
   LAPIA’s summary judgment motion and denying Nelson’s motion for
   partial summary judgment.
                                       ***
          Based on the foregoing, we REVERSE the district court’s grant of
   summary judgment to LAPIA and denial of Nelson’s motion for partial
   summary judgment and REMAND this case for further proceedings
   consistent with this opinion.

                                          12
Case: 20-20319       Document: 00515897930         Page: 13   Date Filed: 06/14/2021

                                    No. 20-20319

   Priscilla R. Owen, Chief Judge, dissenting:
          With respect, I dissent.      The district court did not abuse its
   considerable discretion in concluding that excusable neglect was the cause of
   counsel’s failure to file an answer to the counterclaim. The counterclaim was
   originally filed in state court, and no answer was required under state
   procedural rules.1 After the case was removed, L.A. Public Insurance failed
   to file an answer to the counterclaim in federal court. When the district court
   permitted L.A. Public to file an answer after the deadline for doing so had
   passed, discovery was ongoing. The defense raised in that answer was based
   on contractual provisions that were plain and straightforward.          Those
   contractual provisions stated that probationary employees were to be paid
   only wages for hours completed.       Nelson was still in the three-month
   probationary period specified in his contract when his employment was
   terminated, 79 days after he was hired.           His counterclaim sued for
   commissions, to which he was not entitled under his contract. These facts
   were not in dispute, and the district court rendered judgment in favor of L.A.
   Public. I would affirm the district court’s judgment.

          1
              Tex. R. Civ. P. 92.

                                         13