By Jill A. Gautreaux

Effective June 6, 2019, Act 164 of the 2019 regular session of the Louisiana legislature legalized the use of Cannabidol (CBD) for certain applications.  The Act permits the use of industrial hemp, which was declassified from being a Schedule 1 controlled dangerous substance by the US Congress last year in the 2018 Farm Bill.  Industrial hemp is derived from the Cannabis Sativa L species of plant, exclusive of the plants of Genus Cannabis that meet the definition of marijuana, as defined by La. R.S. 40:961.

The Louisiana Legislature recognizes industrial hemp as an agricultural commodity and has authorized its cultivation.  Industrial hemp growers must be either a USDA-licensed hemp grower or licensed by the Louisiana Department of Agriculture and Forestry and registered with the Louisiana Department of Health and Human Services in accordance with Louisiana’s Food, Drug and Cosmetic law.  The rules and regulations governing the cultivation of industrial hemp will be promulgated once the USDA rules on the subject are promulgated. The CBD product cannot be used as an inhalant or in alcoholic beverages and food products (unless and until approved by the FDA), or claim to be a dietary supplement.  The CBD product is subject to specific labeling requirements, including having a disclaimer that the product has not been evaluated by the FDA and having a scannable bar code that links the product with its certificate of analysis.  CBD must have a concentration of not more than 0.3% of delta-9 tetrahydrocannabidol (THC) by dry weight basis.  Lab analysis of the CBD product must be performed to insure compliance with regulations and a certificate of analysis must be filed with the Louisiana Department of Health and Human Services.

The Louisiana Office of Alcohol and Tobacco Control (ATC) has been charged with the licensing of wholesalers and retailers of CBD products.  A list of the wholesalers’ and retailers’ registered products must be provided to the ATC.  The application to become a CBD wholesaler or retailer is now available from the ATC, but formal rules and regulations to govern such licensees are not yet promulgated.  The application/annual licensing fee is $175.00.

Sales of CBD products will be subject to a three (3%) percent tax rate, in addition to applicable State and local sales taxes.  The additional taxes have been earmarked for the Early Childhood Education Fund.

By Tod J. Everage

Today, the U.S. Supreme Court resolved a Circuit Split, holding that punitive damages are not recoverable to a seaman under an unseaworthiness claim. The Court, in a 6-3 ruling, sided with the U.S. Fifth Circuit’s analysis under McBride and reversed the U.S. Ninth Circuit’s decision in Dutra v. Batterton. The Court followed Townsend, in which the Court previously allowed punitive damages for failure to pay maintenance and cure under General Maritime Law, but recognized the distinction between such a claim and the historical prohibition of punitive damages for unseaworthiness claims. The Court reasoned that unseaworthiness in its current form was purely the Court’s own invention, which came after the passage of the Jones Act. In what is sure to be good news for vessel owners and Jones Act employers, the Supreme Court re-enforced the governance of the Miles uniformity principle between maritime statutory law and maritime common law.

The Court’s full decision can be read here.


By: Katie M. HollowellDevin Ricci, and Eric Lockridge

A recent United States Supreme Court decision handed down in May addressed what occurred when contract, bankruptcy, and intellectual property laws intersected.[1] In Mission Products Holdings, Inc. v. Tempnology, LLC nka Old Cold, LLC, the Supreme Court was presented with the question of whether a debtor’s rejection of an executory contract rescinded the rights conveyed with that contract. Holding that a rejection of the contract is a breach, the Supreme Court found, using traditional contract principles, that the rights at issue survive the debtor’s breach.

The rights at issue were Mission Products Holdings, Inc.’s (“Mission”) non-exclusive rights to use Tempnology, LLC’s (“Tempnology”) trademarks. As part of an exclusive distribution licensing agreement in 2012, Tempnology granted Mission a non-exclusive trademark license to use in distributing Tempnology’s products. The parties’ agreement was set to expire in July 2016, but in 2015 Tempnology filed a Chapter 11 Petition for Relief. Chapter 11 of the United States Code (the “Bankruptcy Code”) allows a debtor or its trustee to “reject” an executory contract, meaning the debtor can cease performing under the contract.[2] Tempnology took advantage of this provision and requested the Bankruptcy Court’s approval to reject its contract with Mission.

An executory contract, according to the Supreme Court, is one in which “performance remains due to some extent on both sides.” When a debtor rejects the executory contract, it will repudiate any further performance. The Supreme Court held, according to 11 U.S.C. § 365(g), that rejection of the contract constituted a breach.

The parties agreed on two consequences of Tempnology’s rejection: (1) Tempnology could cease its performance and (2) Mission could assert a pre-petition claim in Tempnology’s bankruptcy for damages. Mission’s claim would be pre-petition because upon rejection, the breach is deemed to occur immediately before the Petition for Relief was filed.[3] But, Tempnology contended one more consequence flowed from its rejection – Mission’s rights to use its trademark terminated. The Bankruptcy Court agreed, and terminated Mission’s trademark license. The Bankruptcy Court Appellate Panel disagreed and reversed, which in turn was reversed and the Bankruptcy Court’s decision reinstated by the First Circuit. The First Circuit agreed with the Bankruptcy Court that Mission’s license had terminated upon rejection.

The Supreme Court, however, held that 11 U.S.C. § 365(g) states rejection constitutes a breach and “breach” is not a specialized bankruptcy term. Thus, the consequences of rejection are those that occur upon breach in normal contract law – a contract granting a license that is breached does not revoke the license or prevent the licensee from doing what the license allows. Interestingly, the Supreme Court qualified this holding, stating that the license continues subject to any special contractual term or applicable state law.

Furthermore, the Supreme Court found Tempnology’s argument that special considerations of trademark law meant the license should terminate to be unavailing. The Supreme Court looked to 11 U.S.C. § 365’s illustrative provisions, such as the one in 11 U.S.C. § 365(n), applicable to patent law.[4] The Supreme Court noted that these provisions were enacted in response to special situations and were Congress’s response to particular cases. Their enactment did not erase the general rule in 11 U.S.C. § 365(g) that rejection constitutes breach. The Supreme Court reversed the First Circuit’s decision, holding Mission’s trademark licensing right survived Tempnology’s rejection of the contract.

The Supreme Court’s holding could have interesting implications for contract drafting techniques involving trademark and other intellectual property rights in the event the licensor ends up in bankruptcy. How the Supreme Court would rule when faced with a particular contract provision governing such a situation remains to be seen. But the case serves as a lesson to practitioners to consider carefully the ramifications of rejection of an executory contract in bankruptcy.


[1] Mission Products Holdings, Inc. v. Tempnology, LLC nka Old Cold, LLC, 587 U.S. ___ (2019).

[2] See 11 U.S.C. § 365(a).

[3] 11 U.S.C. § 365(g)(1).

[4] See, e.g., 11 U.S.C. §§ 365(h), (i), and (n).

By: Jessica C. Engler

Outsourcing of basic business functions is increasingly popular. While businesses would once perform data management in-house and rely on their on-site server infrastructure to store data, businesses today are frequently turning to cloud storage providers and other third-parties to hold and manage data. These third party vendors are frequently charged with holding sensitive personal information, such as protected health information, social security numbers, and payment card information, supplied to them by their customers.

In a breach involving multiple entities in the data-supply chain, companies rely on their contracts to avoid liability—regardless of whether the breach originated with the consumer-facing company, a third party processor, a third party cloud storage provider, or another entity. Yet, in some cases, indemnity clauses inside the vendor agreements aren’t as comprehensive as believed at the time they were negotiated. A recent opinion from the Sixth Circuit, on appeal from the U.S. District Court for the Western District of Tennessee, Spec’s Family Partners Ltd. v. First Data Merchant Services, LLC, highlights the importance of indemnity agreements and consequential damage waivers in the data breach context.[1]

Spec’s Family Partners, Ltd. (“Spec’s”) operates a chain of liquor stores that allow customers to purchase goods using payment cards backed by payment networks like MasterCard and Visa. These payment networks contract with issuing banks, which issue payment cards to consumers, and acquiring banks, which sponsor merchants in the system and process the transactions. Intermediary companies like First Data Merchant Services, LLC (“First Data”) frequently contract with acquiring banks to facilitate transaction processing from merchants.

In 2012 and 2013, Spec’s payment card network was compromised; the attackers installed malware and accessed customer payment data. After the issuing banks reimbursed the affected consumers for the fraudulent charges and replaced cards, Visa and MasterCard issued assessments on the acquiring bank, Citicorp Payment Services, Inc. (“Citicorp”). Citicorp then demanded payment from First Data, which then sought reimbursement from Spec’s. Spec’s refused to pay, relying on the consequential damages waiver in its Merchant Agreement with First Data (“MSA”). In response, First Data began withholding the proceeds of routine payment card transactions from Spec’s, placing them in a reserve account. At the time suit was filed, First Data had withheld approximately $2.2 million, and the total would ultimately reach $6.2 million.

The district court sided with Spec’s, holding that card brand assessments constituted consequential damages (and not “third-party fees and charges”), recovery for which was waived under the MSA. The district court later granted summary judgment in favor of Spec’s, holding that First Data materially breached the MSA when it held funds to reimburse itself for the breach assessments. First Data appealed the grant of summary judgment, and the Sixth Circuit undertook a de novo review of both the contract interpretation and summary judgment decision.[2]

On appeal, First Data claimed that the contract’s indemnification clause assigns responsibility to Spec’s as it stated that Spec’s must indemnify First Data, Visa, and MasterCard, and hold them harmless from and against:

any and all claims, demands, losses, costs, liabilities, damages, judgments, or expenses arising out of or relating to (i) any material breach by [Spec’s] of its representations, warranties or agreements under this Agreement; [or] (ii) any act or omission by [Spec’s] that violates . . . any operating rules or regulations of Visa or MasterCard . . .

Investigation of the data incidents revealed that Spec’s had failed to comply with the Payment Card Industry Data Security Standard[3] (“PCI DSS”) prior to the attacks, which had left it vulnerable to breaches. First Data argued that Spec’s failure to comply plus this contractual clause obligate Spec’s for the third party assessments. However, the MSA also contained the following limitation of liability:


The ultimate question before the Sixth Circuit was whether the card brand assessments passed on by First Data constituted “consequential damages.” Applying classic constructs of contract interpretation, the Sixth Circuit observed that Tennessee law defines consequential damages (or “special damages”) to be damages that “are the natural consequences of the act complained of, though not the necessary results.”). The Sixth Circuit found the data breaches, which resulted in assessments were a natural result of Spec’s PCI DSS non-compliance, but did not necessarily follow from that non-compliance. Citing Spec’s argument, the Sixth Circuit observed that a non-compliant merchant might never suffer a data breach: “Though certainly a foreseeable consequence of a weak data security, the issuance of assessments nevertheless constitutes consequential damages because it did not necessarily follow from Spec’s Family’s non-compliance.”[4] Therefore, the Sixth Circuit confirmed that First Data retained liability for the assessments under the MSA and, consequently, that First Data materially breached the MSA by withholding payment to Spec’s.

First Data countered before the district court and on appeal that Spec’s first breached through its PCI non-compliance. The courts were not persuaded by this argument because, after the first breach in 2012, Spec’s began focusing becoming more PCI compliant.[5] Spec’s hired a PCI consultant, and Spec’s paid a $10,000 non-compliance fine levied by Visa without contest.[6] After the 2012 breach, First Data and Spec’s continued to perform under the MSA, so the district court—and subsequently the Sixth Circuit—determined that the PCI non-compliance could be considered cured and/or did not rise to the level of a breach “vital to the existence of the contract.”

This case highlights the importance of indemnity clauses and consequential damage waivers in data vendor contracts. While a company may be successful in negotiating a favorable indemnity agreement, that indemnity can be undercut by a general consequential damages waiver. Particularly in data breach claims as seen in Spec’s Family Partners, that waiver of consequential damages can result in millions of dollars in liability. Rather than generic waivers and indemnification clauses, parties negotiating contracts that will require sensitive data sharing may want to consider carve-outs specific to data breaches or cyber liability. Parties may also consider breaking out the limitations into categories, based upon the type, cause, or amount of the damages. The parties may also look to cyber insurance to provide coverage. None of these approaches are mutually exclusive nor comprehensive, and parties should discuss all of these with concepts with data counsel when negotiating vendor contracts.


[1] Case No. 17-5884/5950 (Before J. Batchelder, J. Cook, and J. Kethledge) (available at

[2] Spec’s also appealed the district court’s reduction of prejudgment interest from Tennessee’s standard 6.25% to 1.79% under federal law. The Sixth Circuit ultimately affirmed the 1.79% interest rate.

[3] The PCI DSS is a security standard for organizations that handle branded credit cards from major credit card providers (i.e., Visa, MasterCard, Discover Financial Services, American Express, and JCB International)

[4] The Sixth Circuit noted that their interpretation was consistent with the “only other federal appeals court” to address this precise issue—the Eighth Circuit in Schnuck Markets, Inc. v. First Data Mech. Servs. Corp., 852 F.3d 732 (8th Cir. 2017).

[5] See Spec’s Family Partners Ltd. v. First Data Merch. Serv. Corp., 2017 WL 4547168 (W.D. Tenn. Jul. 7, 2017).

[6] Id. at 8.

By David Nelson and Beau Bourgeois

In humanity’s never ending quest for perfection, being close to perfect is still failure. If you grew up playing sports you undoubtedly heard a grizzled coach disgustedly say, “[c]lose only counts in horseshoes, hand grenades and atomic warfare.” However, under the Doctrine of Substantial Performance (and the related “Economic Waste” theory), construction projects may be another example of when close is good enough.

At its core a construction contract contains the agreement between the owner and contractor specifying what the contractor agrees to build in exchange for the amount the owner agrees to pay. In many cases owners hire an architect or engineer to develop plans and specifications to specify exactly what the contractor must build. Logically, it would seem that an owner should not be required to pay if the contractor did not build exactly what it agreed to build. Isn’t a party entitled to exactly that for which it bargained? The answer is– not always.

For example, assume that the owner specified that all lumber used must be manufactured by company A, but the contractor actually used lumber manufactured by company B. If the error was not discovered until after the project was nearing completion, and the wood was of similar quality, consider the potential inequity that would result if the contractor was required to completely tear down and rebuild using company A’s lumber just to be paid. The Doctrine of Substantial Performance is designed to address this potential inequity, by limiting an owner’s damage to the loss in value as opposed to the cost of repair when a contractor has substantially performed and the cost of full performance far outweighs the value to the owner.

Under Louisiana law, where a contractor substantially performs a building contract, he is entitled to the contract price less the damages that the owner can prove are attributable to the contractor’s breach by failing to strictly to comply with the plans and specifications.[1] The contractor bears the initial burden of proving substantial performance (that the thing is fit for its intended purpose), but then the burden of proof shifts to the owner to prove that a deficiency in the work exists, that the deficiency was the result of faulty material or improper workmanship or failure to comply with the plans and specifications, and the damages sustained as a result.[2]

Thus, to be entitled to payment the contractor must only prove that it substantially performed the contract. This is a question of fact to be decided by the trial court.[3] Substantial performance occurs when a building is fit for its intended purpose even if certain deficiencies or omissions in construction exist.[4] The factors to consider in determining whether substantial performance is reached include “[1] the extent of the defect or non-performance, [2] the degree to which the purpose of the contract is defeated, [3] the ease of correction, and [4] the use or benefit to the owner of the work already performed.”[5] The jurisprudence on this issue indicates that “substantial performance by a contractor is readily found, despite the existence of a large number of defects in both material and workmanship, unless the structure is Totally [sic] unfit for the purpose for which it was originally intended.”[6]

The Doctrine of Substantial Performance does not unfairly deprive the owner of that to which it bargained, but does shift the burden of proof to the owner. Once the contractor proves that it substantially performed the contract, the burden shifts to the owner to prove:

  1. the existence and nature of the defects;
  2. that the defects were the result of faulty materials, improper workmanship, or the failure to follow the plans and specifications; and,
  3. the cost of repair or completion.

An owner seeking to obtain specific performance or a reduction in the contract price in the amount required to “perfect” or fully complete the work must prove both the necessity of such “perfection” and that the benefit of full performance outweighs the costs.[7] Following the above example, if the owner could prove that the lumber used by the contractor was structurally unsound he/she would likely be entitled to require the complete demolition and rebuild of the structure. In that case the benefit to the owner (a structural sound structure) would outweigh the considerable cost to the contractor. On the other hand, if the lumber used by the contractor was only proven to have a shorter useful life than that of lumber from manufacturer A, the owner’s remedy may be limited to the diminished value of the structure.

The Doctrine of Substantial Performance recognizes that there is no such creature as a perfect construction project and purports to balance the respective rights of the parties to achieve a fair and equitable result.


[1]  Airco Refrigeration Serv., Inc. v. Fink, 134 So. 2d 880, 882 (La. 1961).

[2]  Superior Derrick Servs., L.L.C. v. LONESTAR 203, 547 F. App’x 432, 439 (5th Cir. 2013) (citing Neel v. O’Quinn, 313 So. 2d 286, 290 (La. App. 3d Cir. 1975)).

[3] Id. (citing Rice v. Mesa General Contractor, LLC, 986 So. 2d 122, 129 (La. App. 5th Cir. 2008); Neel, 313 So. 2d at 290).

[4] Rice, 986 So. 2d at 219 (citing Mount Mariah Baptist Church, Inc. v. Pannell’s Associated Electric, Inc., 835 So. 2d 880 (La. App. 2d Cir. 2002)); Neel, 313 So. 2d at 290 (citing Master Maintenance Engineering, Inc. v. McManus, 292 So. 2d 284 (La. App.1st Cir. 1974); Jerrie Ice Co. v. Col-Flake Corporation, 174 F. Supp. 21 (E.D. La. 1959), affirmed 278 F.2d 508 (5th Cir. 1960)).

[5] Cosman v. Cabrera, 28 So. 3d 1075, 1080–81 (La. App. 1st Cir. 2009) (citing Mayeux v. McInnis, 809 So.2d 310, 313 (La. App. 1st Cir. 2001). See also Neel, 313 So. 2d at 290 (citing Airco, 134 So. 2d 880).

[6] Neel, 313 So. 2d at 291 (citing Clark v. Whitener, 296 So. 2d 393 (La. App. 2d Cir. 1974)).

[7] Id. at 290 (citing Nichols Ford Co., Inc. v. Hughes, 292 So. 2d 345 (La. App. 2d Cir. 1974); U-Finish Homes, Inc. v. Michel, 183 So. 2d 101 (La. App. 1st Cir. 1965)). See also Superior Derrick Servs., 547 F. App’x at 439–40; Cosman, 28 So. 3d at 1080.

By Ben Jumonville

A decision handed down by Louisiana’s Third Circuit Court of Appeal on February 21, 2019, is the first reported case to examine the remedy granted to oppressed shareholders by the Louisiana Business Corporation Act (LBCA), which became effective in 2015.

The LBCA introduced in Louisiana a version of what is known as the “oppression remedy,” which entitles a shareholder to withdraw from the corporation and force it to buy all of their shares at “fair value” if the shareholder can demonstrate that the corporation’s distribution, compensation, governance, and other practices are “plainly incompatible with a genuine effort on the part of the corporation to deal fairly and in good faith with the shareholder.”[1]

In Kolwe v. Civil and Structural Engineers, Inc., the Third Circuit reviewed the judgment from a trial held for the limited purpose of valuing the ownership interest of a shareholder who had exercised his right to withdraw on grounds of oppression from a closely held professional engineering firm organized as a Louisiana corporation.[2]

Specifically, the court considered whether it was appropriate to allow for “tax-affecting” when computing the value of the plaintiff’s shares in the corporation, which was taxed as an S corporation. “Tax affecting” in this context means to reduce the value of corporate earnings to account for tax liability, and there is an ongoing debate among legal and valuation professionals about how best to recognize the tax benefits of pass through entities, such an S corporation, in an appraisal. In Kolwe, the corporation’s valuation expert believed the value of the corporation’s receivables should be reduced or “tax affected” to reflect the tax liability that would accrue upon their collection, while the plaintiff’s expert excluded tax affecting in his valuation. The differing opinions on this issue alone resulted in a discrepancy of more than $250,000 in the experts’ respective valuations of the plaintiff’s shares.

The appellate court ultimately followed the trial court in denying the application of tax affecting when valuing the shares. In so ruling, the court reasoned that tax affecting equates to applying a discount to the value of the corporation’s shares in violation of the LBCA’s definition of “fair value,” which prohibits discounting for lack of marketability or minority status when determining fair value. In particular, the court went to great lengths to make clear that a “fair value” determination under the LBCA requires the corporation to be valued as a whole and then allocating to each share its pro rata portion of the total enterprise value, without applying any shareholder-specific discounts.

Whether the Kolwe decision will be followed by other courts remains to be seen, but the case nevertheless serves as a cautionary tale of the thorny issues related to valuing and acquiring ownership interests in closely held companies. Even when the owners of a company have in place an agreement dealing with the departure process of a principal, significant questions may still arise as to the value of their ownership interest if the agreement is not carefully drafted.


[1] La. R.S. 12:1-1435.

[2] 264 So. 3d 1262 (La. App. 3d Cir. 2019).

By: G. Trippe Hawthorne and Beau Bourgeois

On April 23, 2019, by a vote of 94-0, House Bill 273, which is an overall update and revision to Louisiana’s Contractor’s Licensing Law, passed out of the Louisiana House of Representatives.  The reengrossed version of the bill, including amendments made in the House Committee on Commerce and  those made on the House Floor is available here.

The bill was introduced and read in the Senate on April 24, 2019, and has been referred to the Senate Committee on Commerce, Consumer Protection and International Affairs.

HB 273 generally updates and modernizes the Louisiana Contractor’s Licensing Law, and gives the Louisiana State Licensing Board for Contractors more flexibility to manage and streamline the contractor licensing process. One potentially significant change to the enforcement provisions would be an increase in the maximum fine that can be assessed against a licensed contractor to 10% of the contract value.

By: G. Trippe Hawthorne

On May 8, 2019, by a vote of 91-0, House Bill 203, which is an overall update and revision to Louisiana’s Private Works Act, passed out of the Louisiana House of Representatives.  The reengrossed version of the bill, including amendments made in the House Committee on Civil Law and Procedure and  those made on the House Floor is available here.

The bill was introduced and read in the Senate on May 9, 2019.

HB 203 is the culmination of a project by the Louisiana State Law Institute which began in 2012 in response to Senate Resolution 158 calling on the Law Institute to study and propose revisions to the Private Works Act.

By A. Edward Hardin, Jr.

As was previously reported, in March, a Federal District Judge in Washington D.C. lifted a stay on the EEOC’s collection of pay data (known as “Component 2” data) from employers with EEO-1 reporting obligations.  The EEOC has now spoken regarding its collection of Component 2 data and stated that covered employers will be required to submit Component 2 data for both calendar years 2017 and 2018 by September 30, 2019.  Component 2 data includes information concerning hours worked and employee pay.  On its website, the EEOC specifically noted that covered employers must submit 2018 Component 1 data (i.e, numbers of employees by job category, race, ethnicity, and sex) by May 31, 2019.  The September 30, 2019 deadline does not upset the May 31 reporting deadline for Component 1 data.  Most private employers with 100 or more employees must comply with the EEO-1 reporting obligations.

By Tyler Moore Kostal

Over the past few years, Energy Intelligence Group (“EIG”) – the New York and London-based publisher of 15 newsletters for the oil and gas industry – has sued more than a dozen energy companies and investment houses, alleging violations of federal copyright law.  The alleged violations result from buying subscriptions to its publications (sent by email) and sharing with nonsubscribers in the office via email distribution.  EIG has reached confidential settlements in nearly all the cases.  The settlements reportedly include an agreement to buy more subscriptions.

One subscriber chose not to settle and faced a $585,000 jury verdict in Houston in December 2017.  EIG sued a $30 billion investment firm for sharing its five subscriptions of “Oil Daily,” which is $9 an article and $95 an issue, with others in the firm who did not have their own subscriptions.  EIG sought damages not just for its lost subscription revenue but also for all profits that the investment firm made from using the information in the newsletter.  The federal jury found the firm liable for copying 39 issues and determined the damages for each instance was $15,000.

It is clear that efforts used by some entities to protect their intellectual property can result in serious consequences.  EIG continues to file these lawsuits against existing energy and investment customers, as recently as this week.