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6th Circuit Appellate Blog


Insurance Won’t Have To Pay Claim For Fire In Basement Pot-Growing Operation

Posted in Recent Cases

Earlier this week, in Nationwide Mutual Fire Ins. Co. v. McDermott, the Sixth Circuit affirmed a district court’s determination that damages from a butane fire in a basement marijuana lab would not be covered by the homeowner’s insurance policy, but not for the reasons one might expect.

The Court’s holding was based on the homeowner’s failure to inform the insurance company of the change in use of the basement, which had previously been a laundry and storage area.  Rejecting the claimant’s attempt to analogize the 28-plant operation to “buying a houseplant,” the Court pointed out that the insurer “would have declined coverage altogether” if it had known about the true use of the basement and concluded that requiring coverage “would make [the insurer] liable for a risk it did not assume.”  By evaluating the marijuana operation in the same way as it would any other potentially hazardous use of a residence, the Court avoided any thorny questions about marijuana’s legal status (while the claimant was a licensed medical marijuana “caregiver” under Michigan law, marijuana remains illegal under federal law).

In addition to teaching a valuable lesson about the dangers of smoking near butane, this case underscores the importance of keeping an insurer up to date on any changes that may affect coverage.

SCOTUS Watch: An Update on Sixth Circuit Cases at the High Court

Posted in News and Analysis, Supreme Court

Although the Supreme Court has not issued any merits opinions on Sixth Circuit cases before the High Court since we covered M&G Polymers USA v. Tackett here, the Court did issue a new round of orders on Monday.

Most notably, the Court did not grant certiorari in any new cases. In particular, this means that that the Sixth Circuit’s decision in King Cole Foods v. United States will stand. There, the U.S. Department of Agriculture Food and Nutrition Service disqualified the plaintiffs from the Supplemental Nutrition Assistance Program (SNAP) for violating SNAP’s regulations. The plaintiffs sought reversal of these sanctions, but the Sixth Circuit affirmed the district court’s dismissal of the complaint.

Also on Monday, the Court heard oral argument in the Sixth Circuit case of Coleman v. Tollefson, which presents the Court with the issue of whether, under the “three strikes” provision of the Prison Litigation Reform Act, 28 U.S.C. § 1915(g), a district court’s dismissal of a lawsuit counts as a “strike” while it is still pending on appeal or before the time for seeking appellate review has passed. In that case, the Sixth Circuit held that the district court “properly denied pauper status to [Coleman] in his civil suit, even though one of his three previous case dismissals (‘strikes’) was still on appeal when this case was brought.” With that decision, the Sixth Circuit joined the Seventh as the small minority in an 8-2 circuit split on the issue.

We will of course continue to monitor Coleman as it proceeds through the Supreme Court’s review, as well as the other cases out of the Sixth Circuit seeking review at SCOTUS.

Choice of Law and Bankruptcy Transfers: Sixth Circuit Tackles Both in Personal Injury Case

Posted in Recent Cases

In a split decision issued late last week, the Sixth Circuit overturned a Michigan district court’s disposition of a tort suit from North Carolina arising out of allegedly faulty breast implants. In noting that “a venue transfer is not alchemy,” the court also construed complex choice-of-law issues in light of the Bankruptcy Code.

Over 20 years ago, the plaintiff in the case, Pamela Sutherland, received silicone breast implants—manufactured by Dow Corning Corporation—in North Carolina, and then sued Dow when she developed health problems after the surgery. Subsequently, Sutherland opted out of the multidistrict litigation class that was eventually created based on similar claims against Dow Corning. Finally, after Dow declared bankruptcy in Michigan (the location of its headquarters), Sutherland’s claim was transferred to the Eastern District of Michigan under 28 U.S.C. § 157(b)(5) as “related to the bankruptcy.” The district court held that Sutherland’s claim was time-barred under Michigan’s statute of limitations, and granted summary judgment to Dow.

Judge Stranch, writing for the majority, engaged in an examination of the complex interplay between choice-of-law rules and the Bankruptcy Code, eventually concluding that because North Carolina law applied to Sutherland’s claim in the Michigan district court, factual issues regarding the tolling of the statute of limitations precluded summary judgment.

The court started with a narrow question of first impression for the Circuit: Whether a change of venue under § 157(b)(5) alters the state substantive law applied to the lawsuit. Moving to the observation that Congress did not intend to alter substantive law with § 157(b)(5), the court reasoned that, were the case simply a “traditional” change of venue under 28 U.S.C. § 1404, the transferee court’s (North Carolina’s) choice-of-law rules would apply. Finding support both in a recent decision by the Second Circuit in a similar case and in the underlying policy rationale of preventing forum-shopping, the court held: that § 157(b)(5) did not operate to displace North Carolina’s choice-of-law rules, that North Carolina’s choice-of-law rules would apply North Carolina law, and that sufficient factual disputes about the application of the state’s statute of limitations precluded summary judgment.

Judge Sutton dissented from the court’s opinion, and would have held that Sutherland’s claim failed on two grounds. First, Judge Sutton argued that the majority “leapt over” the fact that Sutherland did not preserve her choice-of-law argument in the district court because she inadequately discussed it in opposing summary judgment. Second, he would not have even reached the issue of the Bankruptcy Code’s effect on the choice-of-law issues. This is because, in his view, under the “discovery rule” of either North Carolina or Michigan law, the clock started to tick on her claim in 1989 when she should have discovered her injuries from the implants, making her 1993 filing too late.

Federal Questions, Removal, and Remand: Sixth Circuit Affirms Dismissal of Class Action FICA Claim

Posted in Recent Cases

In a published decision this week, the Sixth Circuit reviewed the dismissal of an employee’s claim for excessive withholding of FICA taxes against her employer. In affirming the district court’s refusal to remand the federal tax case and subsequent outright dismissal of the claim, the court examined artful pleading, administrative remedies, and the timing of removal notices.

Berera v. Mesa Medical Group began when Berera, a nurse practitioner, sued her former employer, Mesa, alleging that Mesa had withheld not only Berera’s FICA tax share from her paycheck, but also Mesa’s own share. Berera instituted a putative class action against Mesa in Kentucky state court, alleging that their practice of improperly withholding their FICA share from employees’ wages was widespread. After receiving a transcript from a hearing in state court, Mesa removed the case to federal court, asserting that the FICA issue and CAFA provided federal jurisdiction. Concluding that Berera’s claim for “unpaid wages” due to Mesa’s paycheck adjustment was actually a FICA claim in disguise, and that tax law required Berera to first file a claim with the IRS, the district court dismissed her suit.

In affirming the district court’s ruling, the Sixth Circuit first held that, the “artful pleading” exception to the well-pleaded rule, Berera could not simply recast her fundamental claim for excessive FICA withholding as state-law claims for unpaid wages, despite Berera’s complaint not explicitly mentioning FICA in her complaint. Second, the court examined 26 U.S.C. § 7422(a), which requires a taxpayer to file a complaint with the IRS prior to suing for “wrongfully collected” revenue. Finding support in the Third and Fifth Circuits, the court held that Berera’s failure to comply with this statutory requirement mandated the dismissal of her claim. Finally, the court held that Berera’s original complaint did not put Mesa on notice that the case contained a federal cause of action. Thus, Mesa’s timing of removal was proper because it did not receive “solid an unambiguous information” that it could remove until the state court hearing in which Berera’s counsel conceded that her claim was based on FICA computations, and because the court deemed a transcript hearing to be an “other paper” for purposes of removal under 28 U.S.C. § 1446(b)(3).

It is worth noting that the Sixth Circuit modified the dismissal of Berera’s case to be without prejudice in order to allow her to pursue he FICA claim with the IRS and possibly eventually the U.S. government. Furthermore, although the maxim holds that the plaintiff generally is the “master of her complaint,” as the court demonstrated in its thorough examination of the artful pleading doctrine, a litigant cannot avoid federal court and mandatory statutory or administrative remedies just by cleverly recasting a legal issue.

Sixth Circuit Takes A Hard Look At Statutory Attorney’s Fees

Posted in Recent Cases

In a published opinion last week, the Sixth Circuit examined and rejected the award of more than $500,000 in attorney’s fees to People First of Tennessee in relation to its work in 2008 on a contempt motion against the State of Tennessee for violating court orders related to the closure of a state mental health facility. In so doing, the court stressed the necessity of a causal connection between work performed and results obtained in order to receive statutory attorney’s fees under 42 U.S.C. § 1988, and that such fees cannot merely issue in search of a successful action to attach to.

The litigation underlying the appeal began in 1992 when the United States sued Tennessee over its operation of an institutional home for people with mental disabilities. The district court found against Tennessee and issued a comprehensive consent decree to remediate the situation, after which People First intervened in the case on behalf of the facility’s residents as a class. Over the course of litigation, multiple contempt findings, settlements, and contempt orders issued against Tennessee. After having received over $3.6 million in fees during this litigation, in 2011 People First filed its nineteenth application for fees, alleging it was owed an additional $800,000 in connection with its work on a stricken contempt motion and “general monitoring” of the ongoing execution of the decrees.

In overturning the district court’s ultimate award of $557,711 to People First, the Sixth Circuit stressed the necessity of a causal connection between such a fee award and the order or success produced by the work behind those fees. While acknowledging that § 1988 fee awards can issue for work performed in the course of defending work performed enforcing a prior decree, here People First’s contempt motion that allegedly produced the fees in question had been stricken from the docket in 2009 and never renewed. Thus, the court observed that “People First [is] in the difficult position of seeking fees for a motion that the district court never granted,” and so could not recover the fees under § 1988.

The court went on to analyze Tennessee’s separate appeal of $100,000 of fees, which had been awarded for People First’s “general monitoring work.” Citing Supreme Court precedent, the Sixth Circuit noted that, in these cases, “general monitoring fees” must be backed by work that was necessary to enforce a prior order. The court also noted a circuit split as to whether “post-judgment monitoring work can be compensable without a court order.” However, the court found it unnecessary to weigh in on this split, because it held that People First had not made a prima facie showing that its $100,000 of monitoring work was necessary in light of a court-appointed monitor who had performed $10.6 million-worth of monitoring.

The court did note that People First’s work had benefitted the class of persons on whose behalf it intervened, and pointed out several times that People First had been compensated on eighteen separate occasions for its work. However, the court indicated in no uncertain terms that, given the strictures of § 1988, a prima facie case of necessity and a causal connection between work performed and actual results obtained is vital to obtain fees incurred in the process of defending a prior decree.

Sixth Circuit Bankruptcy Appellate Panel Affirms $200,000 Attorney Sanctions

Posted in Recent Cases

In a sternly-worded, sixty-page opinion last week, the Sixth Circuit’s Bankruptcy Appellate Panel affirmed a bankruptcy court’s $200,000 sanctions order against an attorney that arose from a plethora of litigation over an ultimately disallowed claim in what became a complicated bankruptcy. We have previously posted about the Circuit’s trend in upholding sanctions, and this bankruptcy case followed that trend. However, the litigation also implicated issues of statutory construction and circuit precedent, as well as provided what was essentially a roadmap for sanctionable conduct in bankruptcy.

The case of In re Royal Management, Inc. began ordinarily enough, with a Chapter 11 petition and a liquidation trust in 2008. The attorney at the heart of the conflict—Dennis Grossman—first appeared in late 2008, a month after his clients’ asserted unsecured claim against the bankruptcy estate was denied. A flurry of motions by Grossman followed every step of the process of disallowing the claim and a new claim, including a merits appeal to the district court, the Sixth Circuit itself, and eventually to the Supreme Court (which denied certiorari in 2012).

The first sanctions motion was filed by the liquidation trustee of the bankruptcy estate in 2009, largely because of Grossman’s voluminous motions practice and because of his misrepresentations of the claim against the estate, including his failure to disclose key facts that characterized the claim as a personal loan rather than a loan to the bankrupt. In response, Grossman sought the bankruptcy judge’s recusal. Ultimately, the bankruptcy judge sanctioned Grossman $207,004, mostly for expenses incurred by the trustee in litigating Grossman’s innumerable motions through 2012.

On appeal, the bankruptcy appellate panel spent twenty-eight pages detailing Grossman’s behavior and “dilatory practices” during the litigation. Citing Sixth Circuit precedent, the panel first observed that the bankruptcy court possessed the inherent power to sanction Grossman under 28 U.S.C. § 1927. Noting that sanctions are imposed in order to “punish aggressive tactics that far exceed zealous advocacy” and require a finding of bad faith, the court went on to hold that a “comparison of Grossman’s arguments to the record shows he is second-guessing actions of the Trustee to justify his own vexatious conduct.” Furthermore, because he “repeatedly interjected substantive arguments previously briefed into routine procedural motions,” thereby requiring a response from the liquidation trustee, Grossman unnecessarily drained the trust of its funds and was required to pay those back.

In rejecting Grossman’s numerous claims of error, the bankruptcy appellate panel clearly demonstrated the line between “zealous advocacy” and “vexatious litigation.” This case at the very least shows that throwing out every argument or assignment of error is not always worth the cost, and that at the worst, excessively zealous representation can hurt the client, the case, and even the attorney.

Circuits and Judges Weigh In On Proposed Reduction In Appellate Brief Word Count Limit

Posted in News and Analysis

We’ve posted previously about the proposal to reduce the word limit for federal appellate briefs from 14,000 to 12,500 words, explaining that the reduced limit would probably not be a problem in most cases, but might pose a formidable obstacle to more complex or record-intensive appeals.  Now, data from the Eighth Circuit indicates that, even with the current 14,000 word limit, only about 15% of briefs over 30 pages (briefs under 30 pages do not require a word count) exceed 12,500 words. (Hat Tip: How Appealing).  As Howard Bashman of “How Appealing” puts it, this makes the proposed decrease seem like “a solution in search of a problem.”

How Appealing also linked to an interesting alternate suggestion (not yet available on the comments site) by the National Immigration Justice Center: when submitting a brief between 12,500 and 14,000 words, counsel would have to make an “attestation” that the complexity of the issues and/or argument warrant the length of the brief.  It is possible that such a requirement might make attorneys think twice before exceeding 12,500 words. On the other hand, the attestation could become boilerplate.

The comment period does not end until February 17, but two circuits, (Tenth and D.C.) have already submitted comments supporting the decrease. Judge Easterbrook of the Seventh Circuit weighed in individually to oppose the decrease, pointing out that “[m]any cases in courts of appeals are every bit as complex as those in the Supreme Court,” and that “cases have more issues on average, and lawyers often must devote substantial space to discussing evidence.”  Judge Silberman of the D.C. Circuit disagreed with the analogy to Supreme Court practice,  and amicably quipped that  Judge Easterbrook’s position might stem from his “unique technique” in reviewing briefs: “if he is not persuaded by the opening brief, he stops reading.”  It is also worth noting that the Committee on Rules of Practice and Procedure is currently chaired by the Sixth Circuit’s own Judge Sutton, whose opinions embody his well-known preference for concise, straightforward legal writing.

Even if the proposed decrease is not adopted, appellate counsel would do well to take heed of the views and preferences expressed by judges and/or circuits in the comments when writing and—most importantly—editing their appellate briefs.

UPDATE: this post has been corrected to reflect that the Ninth Circuit’s comment did not oppose the decrease at issue here, but rather addressed a different proposed change. (H/T How Appealing).

Sixth Circuit in the Majority with Same-Day Audio of Oral Arguments

Posted in News and Analysis

We recently noticed this article about the availability of same-day audio recordings of oral arguments. It notes that the chair of the Judicial Conference Committee on Court Administration and Case Management has declined to recommend a policy change requiring same-day postings. However, the Sixth Circuit is ahead of the curve on this issue, as its oral arguments have been posted on its website since mid-2013, as we previously reported here. The article explains that the Sixth and seven other circuits all post audio online the day of argument, with two circuits posting within 24 hours, and the remaining three requiring parties to purchase or file a motion to obtain the recordings.

Justice Thomas, The Fourth Circuit, And Circuit Courts Acting Like Certiorari Courts

Posted in News and Analysis, Supreme Court

The issue of unpublished opinions has received extra attention this past week thanks to a dissent to a denial of certiorari by Justice Thomas.  His opinion criticizes the Fourth Circuit for using an unpublished opinion to allow itself to decide important cases without create binding law.  Though much of the media censure of the Fourth Circuit has focused on its high use of unpublished decisions, that’s not what Justice Thomas was getting at.  The percentage of unpublished decisions has risen sharply in all courts over the last 30 years.  The percentage of unpublished appellate decisions has risen from 50% of all decisions in 1980, to 70% in 1990, to 80% in 2000, and currently now sits at 88%.   In many circuits, including the Fourth, only one out of every sixteen decisions are published and are considered to be binding precedent.  But these high numbers are only a symptom of the enormous caseload shouldered by federal appellate judges—who must often draft short and simple opinions, especially in cases where the law is clearly defined.

But Justice Thomas’ frustration with the Fourth Circuit is not about the volume of unpublished decisions.  He decried the panel’s decision to craft a well-reasoned 39-page opinion on an issue of some importance, complete with a dissent, and then choosing to leave it unpublished.  The issue, I believe, is that some circuits are treating unpublished decisions as a “proving ground” for difficult subjects. As explained here, the circuit may wait until there are multiple decisions – sometime contradictory – on an important subject before a panel feels comfortable with binding the circuit to a position.  Some other circuits appear to be using a similar approach.

The Fourth Circuit is lowering the number of precedential decisions, and slowing the development of the law, in return for achieving more consensus on precedent within the circuit.  Put another way, the circuit is acting a little bit like a certiorari court—picking and choosing the right issue at the right time to guide the development of the law.  One gets the feeling from his dissent that Justice Thomas would rather have the Fourth Circuit make its own precedent and allow the Supreme Court to decide when to take certiorari.  The Sixth Circuit is no stranger to unpublished opinions, which comprise nine out of every ten of its opinions.  But unlike some other circuits, the Sixth Circuit frequently cites and relies on its unpublished opinions as having both persuasive and precedential value–even if that value is not quite as high as that afforded to a published opinion.

Sixth Circuit Revives Detroit Law Firm’s $176,000 Claim Against FDIC

Posted in Recent Cases

Recently, the Sixth Circuit renewed Detroit-based Commercial Law Corporation’s (CLC) lawsuit against the Federal Deposit Insurance Corporation (FDIC) for $176,750 in deferred attorney’s fees for legal services provided by CLC to a now-failed Michigan bank. The Sixth Circuit overturned summary judgment for the FDIC, and while the court did not resolve the unpaid fees claim, it did clarify the interpretation of some important banking laws and the somewhat abstruse D’Oench doctrine.

The Sixth Circuit first explained the origins of D’Oench and its statutory analogues, which essentially “protect [the FDIC] . . . from misrepresentations made to induce or influence the action of [the FDIC].” The court noted that the Supreme Court’s 1942 D’Oench rule arose from a case in which a bond salesman attempted to escape liability to the FDIC for a demand note by asserting that the bank originally holding the note secretly promised not to collect on it; the Court refused to allow this. Congress essentially codified this rule in 1950 by providing in 12 U.S.C. § 1823(e) that an “agreement which tends to diminish or defeat the interest of the [FDIC] in any asset acquired by it under this section” must meet several requirements, including being in writing. Because CLC’s fee-deferral arrangement with HFSB did not meet § 1823’s requirements, the FDIC viewed it as unenforceable.

With this background in place, the court proceeded to dispose of the FDIC’s statutory and jurisprudential arguments against CLC’s claim. The FDIC first relied on § 1821, which states that an agreement failing a prong of § 1823 cannot form the basis of a claim against the FDIC. Leaning on the Fifth Circuit’s prior examination of this issue, the court reasoned that a broad application of § 1821 to any claim against the FDIC would prevent anyone who had provided services to the bank—without an agreement meeting § 1823’s requirements—would be unable to enforce the claim, including janitors and landscapers. The court thus held that § 1821 was limited to claims of the nature contemplated by § 1823 (i.e., loan-related transactions), which CLC’s claim was not.

Turning to D’Oench, the FDIC argued that Sixth Circuit precedent applied the doctrine broadly to “misleading or deceptive behavior toward the FDIC with regard to either [an acquired bank’s] assets or liabilities.” The Sixth Circuit responded with a more limited view: these precedents “speak of D’Oench in broad terms, but they do not justify a blanket extension of D’Oench to liabilities unrelated to traditional banking activities.” Thus, the FDIC’s attempted common-law defense to CLC’s claim also failed.

In remanding the case, the Sixth Circuit also held that the mere temporal proximity of the attorney’s liens on the bank properties did not warrant a conclusion that they violated § 1823 as a matter of law. In light of this and the court’s other holdings, it is important to note that this opinion does not guarantee a victory for CLC; indeed, the Sixth Circuit noted that CLC must still actually prove its claims on remand, and that the FDIC still may assert multiple defenses, including fraud. However, most importantly in the wake of this case, the FDIC may not rely on §§ 1821 and 1823 as a broad “statute of frauds”-type defense to vitiate any claim against it as the result of an acquired failed bank.