Speculative Risk Is Not “Substantial Prejudice”: Fifth Circuit Tightens Sanctions Due Process and Bars Johnson Double-Counting in CEATS v. TicketNetwork

Introduction

In this second trip to the Fifth Circuit, CEATS, Inc.—an intellectual property entity that licenses online ticketing patents—challenged post-remand sanctions imposed for violating a pretrial protective order governing TicketNetwork’s affiliate list. The district court, after this Court’s first vacatur, revisited sanctions and again imposed a litigation-ending injunction and nearly $500,000 in fees, and it found “bad faith” on the same evidentiary record. CEATS and its former CEO, Milford Skane, appealed.

The Court’s per curiam opinion, while unpublished under Fifth Circuit Rule 47.5, delivers consequential guidance on three fronts:

• Scope of remand and law-of-the-case: a district court may, where the mandate is ambiguous and no contrary finding was made, make new “bad faith” findings on remand.
• Sanctions due process and Rule 37(b): litigation-ending sanctions require proof of substantial (palpable, non-speculative) prejudice; a closed record developed without the targeted non-party and denial of discovery can violate due process.
• Attorney fee doctrine: the lodestar carries a strong presumption of reasonableness; courts must avoid Johnson-factor “double-counting,” and must weigh limited success when setting fee awards.

This commentary parses the opinion’s holdings and reasoning, the precedents that shaped them, and the practical impact on sanctions practice, protective orders, and fee petitions in the Fifth Circuit and beyond.

Summary of the Opinion

• Mandate/law-of-the-case: The district court was not barred from reassessing sanctions and expressly finding bad faith on remand. The prior panel vacated the injunction because the court equated recklessness with bad faith; it did not find an absence of bad faith. The mandate’s text acknowledged the possibility of reimposing the injunction.
• Due process for non-party sanctions: Reversing monetary sanctions against Skane, the Court held he was not afforded due process post-remand. Given the size of the sanctions and that the record was developed without his participation, refusing additional discovery denied a meaningful opportunity to mount a defense—particularly on mens rea.
• Litigation-ending injunction (Rule 37(b)): Reversing the “Litigation Bar” against CEATS and Skane, the Court held there was no substantial or palpable prejudice to TicketNetwork. Hypothetical risks—“a bell that cannot be unrung”—did not suffice absent evidence of actual harm.
• Attorneys’ fees: The district court adequately explained the lodestar rates and hours, but abused its discretion by enhancing the lodestar 5% based on Johnson factors 1 (time and labor) and 7 (time limitations), which were already baked into the lodestar. The Court vacated the award and directed reconsideration, emphasizing the “degree of success” factor and noting the absence of harm and the fee’s excess over CEATS’s jury award.
• Tolling motion: Because the Litigation Bar will not be reimposed, the district court’s dismissal of CEATS’s tolling motion as moot was vacated.

Analysis

Precedents Cited and Their Role

• Law-of-the-case / Mandate rule:
  • United States v. Pineiro, 470 F.3d 200 (5th Cir. 2006); Tollett v. City of Kemah, 285 F.3d 357 (5th Cir. 2002); Crowe v. Smith, 261 F.3d 558 (5th Cir. 2001).
  • These cases anchor the principle that issues decided on appeal—expressly or by necessary implication—bind on remand. But where the appellate court did not decide an issue (e.g., whether the record supports bad faith), the trial court may address it.
  • United States v. Matthews, 312 F.3d 652 (5th Cir. 2002) and United States v. Bell Petroleum Services, 64 F.3d 202 (5th Cir. 1995) emphasize implementing the letter and spirit of the mandate and interpreting it reasonably.
• Inherent powers and due process:
  • Chambers v. NASCO, Inc., 501 U.S. 32 (1991): inherent powers exist but must be exercised with great caution.
  • Roadway Express, Inc. v. Piper, 447 U.S. 752 (1980): sanctions require fair notice and opportunity to be heard.
  • In re Moore, 739 F.3d 724 (5th Cir. 2014), and Williams v. Lockheed Martin Corp., 990 F.3d 852 (5th Cir. 2021): standard of review and limits on sanctions discretion.
• Rule 37(b) litigation-ending sanctions:
  • Law Funder, LLC v. Munoz, 924 F.3d 753 (5th Cir. 2019): the four heightened findings required for litigation-ending sanctions—willful/bad-faith violation, client responsibility, substantial prejudice, and inadequacy of lesser sanctions.
  • FDIC v. Maxxam, Inc., 523 F.3d 566 (5th Cir. 2008); Matta v. May, 118 F.3d 410 (5th Cir. 1997): abuse-of-discretion review.
  • FDIC v. Conner, 20 F.3d 1376 (5th Cir. 1994): “substantial” or “palpable” prejudice—not theoretical risk—must be shown.
• Fee-shifting and the lodestar:
  • Hensley v. Eckerhart, 461 U.S. 424 (1983): lodestar as the objective anchor; degree of success as the most critical factor.
  • Perdue v. Kenny A., 559 U.S. 542 (2010): strong presumption the lodestar is sufficient; enhancements rare and exceptional.
  • La. Power & Light Co. v. Kellstrom, 50 F.3d 319 (5th Cir. 1995): clear-error review for lodestar inputs; abuse-of-discretion for adjustments.
  • Shipes v. Trinity Industries, 987 F.2d 311 (5th Cir. 1993); Jason D.W. v. Houston ISD, 158 F.3d 205 (5th Cir. 1998): caution against Johnson double-counting.
  • Farrar v. Hobby, 506 U.S. 103 (1992); Migis v. Pearle Vision, 135 F.3d 1041 (5th Cir. 1998); Combs v. City of Huntington, 829 F.3d 388 (5th Cir. 2016): degree of success can warrant fee reduction.
• Standards cannot be waived: Cargill v. Garland, 57 F.4th 447 (5th Cir. 2023), aff’d, 602 U.S. 406 (2024), underscores that parties cannot waive standards of review—relevant to the clear-and-convincing dispute, though the Court ultimately decided on prejudice grounds.

Legal Reasoning

1) Mandate Rule and Law-of-the-Case: Room to Revisit Bad Faith

The first appeal vacated the litigation-ending injunction because the district court conflated “recklessness” with “bad faith,” not because the record foreclosed bad-faith findings. Moreover, the prior opinion explicitly contemplated the possibility of reimposition, signaling an ambiguous mandate. Applying Matthews and Bell Petroleum, the Court held the district court did not flout the law-of-the-case or the mandate by reevaluating bad faith on remand, even on the same record.

2) Due Process for Non-Party Sanctions: A Meaningful Chance to Mount a Defense

The Court reversed monetary sanctions against Skane, emphasizing two points:

• Sanctions of this magnitude (approaching $500,000) require robust procedural safeguards.
• Where the evidentiary record was developed over years without the non-party’s participation (and where a key witness died before remand), denying targeted discovery deprives the individual of a meaningful opportunity to contest pivotal elements like mens rea.

This is a context-specific application of Roadway Express and Chambers: while due process does not mandate discovery in every sanctions proceeding, here the combination of a closed record, the centrality of intent, the quantum of sanctions, and evidentiary gaps rendered additional discovery essential to due process.

3) Litigation-Ending Sanctions Under Rule 37(b): “Substantial Prejudice” Means Actual, Palpable Harm

The district court’s “Litigation Bar” was a litigation-ending sanction; thus, the Law Funder elements applied, including proof that the violation “substantially prejudice[d]” TicketNetwork. The Court found the record devoid of concrete harm:

• No evidence that competitors “poached” affiliates or that any affiliate was sued because of the disclosure.
• CEATS is not a competitor in TicketNetwork’s market; it is a patent-licensing entity, not a ticket marketplace.
• Sending the list to Ticket’s own CEO as part of (unsuccessful) settlement overtures did not inherently inflict harm.
• Costs of investigating/enforcing the protective order are compensable by fees, but they do not establish “substantial prejudice” for the draconian remedy of a litigation bar.

The Court rejected the “bell that cannot be unrung” rationale when unaccompanied by evidence of actual injury. Under Conner, theoretical or speculative risks do not meet the “substantial” or “palpable” prejudice threshold required to end litigation.

4) Attorneys’ Fees: Lodestar Explained; Johnson Enhancement Vacated; Limited Success Matters

The panel approved the revised lodestar explanation: the technical nature of forensic work, counsel’s national expertise, and local familiarity justified the rate differentials, and one associate’s rate was properly trimmed. But it vacated the 5% enhancement for two reasons:

• Double-counting: Johnson factor 1 (time and labor) and factor 7 (time limitations) were already reflected in the reasonable hours and rates. Enhancing the lodestar for those same considerations violated Shipes and Jason D.W.
• Rarity of enhancements: Under Perdue, enhancements are “rare” and “exceptional,” and the complexity/technicality of the matter alone does not qualify.

The Court further highlighted Hensley/Farrar’s “degree of success” as the “most critical factor.” Having reversed the litigation bar for lack of substantial prejudice and found no actual harm from the violation, TicketNetwork’s success on sanctions was limited. The panel signaled a likely downward adjustment under Johnson factor 8 (amount involved and results obtained) on remand, noting the fee award exceeded CEATS’s underlying jury recovery.

Impact

Even as an unpublished decision, the opinion offers potent, practical guidance for sanctions practice in the Fifth Circuit:

• Sanctions due process: When seeking large monetary sanctions against non-parties—especially on a record built without their input—courts should provide targeted discovery opportunities to ensure a meaningful defense on intent and causation. Practitioners should ask for narrowly tailored discovery and identify specific evidentiary gaps tied to mens rea and prejudice.
• Protective-order violations and injunctions: A breach—even of “Outside Counsel Eyes Only” material—does not automatically justify litigation-ending remedies. The moving party must marshal evidence of actual, not conjectural, harm.
• Mandate management: If the appellate court vacates for legal error but does not find facts dispositive, trial courts may, consistent with the “spirit” of the mandate, revisit fact findings on remand. Litigants should read mandates holistically; language acknowledging the possibility of reimposition materially expands permissible scope.
• Fee awards discipline: The lodestar’s presumption is robust. Enhancements are rare and cannot recycle considerations embedded in hours and rates. Courts must also align fees to the “degree of success,” especially after partial reversals. Parties should brief limited success thoroughly, with concrete comparisons between relief sought and obtained.
• Designations in discovery: As a practice pointer, ensure confidentiality designations are visible at the native-file level (not just in containers) and that all authorized recipients are trained on protective-order limits. While the lack of a native-file designation did not excuse violations here, it became a factual wrinkle in the analysis.

Finally, Judge Edith Jones’s separate opinion underscores an institutional tension: whether to remand fee recalculations yet again or to cut the award at the appellate level to conserve judicial resources. Her view signals that repeated remands after substantial reversals may invite appellate recalibration in future cases.

Complex Concepts Simplified

• Law-of-the-case: Once an appellate court decides an issue, that decision generally binds the case later. But if the appellate court did not decide a question (e.g., whether conduct was in bad faith), the district court can address it on remand.
• Mandate rule: The district court must follow the appellate court’s directions—both their text and their purpose. Ambiguous mandates are read reasonably; if the opinion leaves reimposition open, that avenue remains.
• Inherent powers: Courts can sanction bad-faith conduct to protect the judicial process, but must do so cautiously and afford due process—notice and a real chance to be heard.
• Rule 37(b) litigation-ending sanctions: The harshest discovery sanctions (like striking claims, default, or injunctions ending litigation) require proof that the violation was willful/bad-faith, attributable to the client, caused substantial prejudice to the opponent, and that lesser sanctions would not suffice.
• Substantial prejudice: Actual, demonstrable harm—not hypothetical risks or generalized worries. Examples include lost evidence, blown deadlines, or concrete competitive injury.
• Lodestar and Johnson factors: The lodestar multiplies reasonable hours by reasonable rates. Johnson factors may adjust the lodestar up or down, but courts cannot “double-count” factors already reflected in the lodestar inputs. Enhancements are rare; reductions are common when success is limited.
• Degree of success: A touchstone for fee reasonableness. The smaller the victory compared to what was sought, the more likely a fee reduction is warranted.

Conclusion

This opinion delivers three significant clarifications. First, litigation-ending sanctions demand proof of palpable, not speculative, prejudice; protective-order breaches do not, without more, justify extinguishing claims. Second, due process in sanctions proceedings—particularly against non-parties facing substantial monetary penalties—may require targeted discovery when the record was built without their participation; denying it can be reversible error. Third, fee awards must honor the lodestar’s primacy, avoid Johnson double-counting, and reflect the degree of success actually achieved.

While nonprecedential, the decision is a careful blueprint for courts recalibrating sanctions and fees after partial appellate reversals. It sharpens the Fifth Circuit’s insistence on evidentiary rigor for “substantial prejudice,” procedural fairness for sanctioned non-parties, and disciplined fee analysis that neither inflates enhancements nor ignores limited success. Counsel on both sides of sanctions disputes should take note.

Key Takeaways

• Speculative harm is not “substantial prejudice” under Rule 37(b); proof of palpable injury is required for litigation-ending sanctions.
• Non-parties targeted for significant sanctions post-remand must be afforded a meaningful opportunity to defend—including discovery—when the existing record was developed without them.
• The lodestar is strongly presumed reasonable; do not enhance for factors already captured in hours and rates, and always account for limited success.
• Ambiguity in a mandate can permit renewed fact-finding on remand where the appellate court did not decide the issue.
• On remand, the district court must revisit TicketNetwork’s fee award without double-counting and with due regard for its limited success and the absence of demonstrated harm.

Procedural Disposition

• Reversed: monetary sanctions against Skane; reimposed litigation-ending injunction against CEATS and Skane.
• Vacated: dismissal of CEATS’s tolling motion as moot; attorneys’ fee award against CEATS.
• Remanded: for a revised fee calculation consistent with the opinion.

Concurring/Dissenting Opinion (Judge Jones)

Judge Jones concurred in almost all respects but would have reduced the fee award at the appellate level rather than remanding again, citing judicial economy and the district court’s resistance to modifying its prior sanctions. Her perspective highlights an emerging willingness among appellate judges to recalibrate fees directly after substantial reversals.