A Michigan bankruptcy judge ruled yesterday that Detroit is eligible for protection under Chapter 9 of the U.S. Bankruptcy Code, overruling numerous objections filed by labor unions, pension funds and other interested parties. Almost immediately following the ruling, a notice of appeal was filed by Counsel 25 of the American Federation of State, County & Municipal Employees (“AFSCME”).
With $18 billion in estimated liabilities, in July 2013 Detroit became the largest American city ever to file a municipal bankruptcy. Various parties contested the city’s eligibility for Chapter 9 protection, arguing, among other things, that Detroit had failed to negotiate in good faith with creditors prior to entering bankruptcy. In November 2013, the court held a nine-day trial to determine eligibility – a common gatekeeping event in municipal bankruptcies. In a bench ruling summarizing his forthcoming 140-page opinion, Judge Steven Rhodes of the U.S. Bankruptcy Court for the Eastern District of Michigan found that the city is eligible, having demonstrated its insolvency and that good faith negotiations with creditors were impossible under the circumstances.
Judge Rhodes also denied requests that his opinion be appealable directly to the Sixth Circuit, ruling that motions to appeal must first be filed in the bankruptcy court. Following the bench ruling, AFSCME quickly filed both a notice of appeal to the District Court for the Eastern District of Michigan and a motion for leave to appeal, which was the course of action recommended by the Ninth Circuit in Silver Sage Partners, Ltd. V. City of Desert Hot Springs, 339 F.3d 782, 787 (9th Cir. 2003). AFSCME’s motion for leave to appeal is based primarily on grounds that a Chapter 9 eligibility order is appealable as of right either (i) as a final order issued under section 921(c) of the Bankruptcy Code or (ii) as a collateral order under the collateral order doctrine. Alternatively, AFSCME argues that the appeal should be granted because the contested issues meet the (admittedly inapplicable, but helpful) certification standards employed by district courts and found under 28 U.S.C. § 1292(b) (involves a controlling issue of law, substantial ground for difference of opinion).
Detroit’s eligibility for bankruptcy protection may not immediately be heard by the Court of Appeals. But because the appealability of a municipal bankruptcy eligibility order represents an issue of first impression in the circuit, this case is likely to wind up in front of the Sixth Circuit very soon.
In Strayhorn v. Wyeth Pharms., Inc., decided this Monday, the Sixth Circuit affirmed the complete dismissal of claims against makers of generic drugs under the Supreme Court’s decisions in PLIVA, Inc. v. Mensing, 131 S. Ct. 2567 (2011), and Mutual Pharmaceutical Co. v. Bartlett, 133 S. Ct. 2466 (2013). Judge Gilman’s opinion reads those cases as broadly holding that state law failure-to-warn claims based on generic drugs are preempted by the FDA’s requirement that the labels on generic drugs conform to the labels on the brand-name drugs. Disregarding plaintiffs’ “most artful efforts to dress up a relatively simple failure-to-warn claim in a great variety of tort and contract causes of action,” the opinion held that each of those claims was preempted because for requiring a change to either the drug or the label—a “course of action . . . available to a generic manufacturer under federal law.” It also rejected plaintiffs’ argument that advertising and promotional materials are not part of a drug’s label. Finally, the decision dismissed claims against the brand-name manufacturers because the plaintiffs only purchased the generic version.
In her dissent, Judge Stranch disagreed with the majority’s characterization of state law, believing that Tennessee courts might find that brand-name drug manufacturers have a duty to warn consumers that purchase generic drugs. She also criticized the catch-22 result that the majority’s decision produced, which precludes customers from suing both generic and brand-name manufacturers in these circumstances.
In a high profile criminal sentencing case, the Sixth Circuit yesterday refused to grant retroactive effect to the Fair Sentencing Act of 2010 concerning the disparity between crack and powder cocaine. United States v. Blewett. Ten judges joined the majority result with seven judges dissenting in four separate opinions. (Although the Sixth Circuit only has fifteen active judges, two senior judges sat on the en banc court presumably because they were members of the original panel that heard this case.).
According to the majority, its ruling comports with every other circuit in the country. Consistent with that case law as well as precedent from the Sixth Circuit, the majority could divine no basis in the Fair Sentencing Act to suggest that Congress intended a retroactive effect. Judge Rogers, offering what the majority references as the “lead” dissent, focuses on the anomalous distinction about retroactivity when arising from a sentencing guideline versus a statutory minimum. Judge Rogers dismissed contrary authority from other circuits as well as prior panels at the Sixth Circuit as “not binding” and instead engaged in the basic statutory analysis.
The result here is interesting both in terms of the alignment of the judges as well as the number and differing perspectives of the dissents. One might expect that with nearly all circuits taking a uniform approach on the question, this case would be an easy one for the Court. But that certainly was not the case, as it spawned nearly 80 pages of opinions. What appears to be driving the overall analyses, apart from statutory text, is basic concerns about fairness (it is, after all the Fair Sentencing Act). It is unlikely that this opinion, even as splintered as it is, will attract attention from the Supreme Court in light of the lack of a clear circuit split. However, several of the judges made pleas for congressional intervention, but it will remain to be seen whether Congress will heed that call.
The Supreme Court on Friday agreed to take up a qualified immunity decision out of the Sixth Circuit. In Plumhoff v. Rickard, police officers fatally shot a driver and passenger following a high-speed chase of their vehicle near the Arkansas-Tennessee border. Leading up to the chase, an officer had stopped the vehicle and asked the driver to step out of the car; the driver instead drove away. Pursuing officers ultimately fired a series of shots at the vehicle, killing both the driver and passenger. The officers involved were sued under 42 U.S.C. § 1983 for constitutionally excessive use of force. The Sixth Circuit denied their claims to qualified immunity.
The key issue presented in the officers’ petition is whether a subsequent decision can be applied to earlier conduct to determine what was clearly established law at the time the force was used. The chase took place in 2004. Three years later, the Supreme Court issued the decision in Scott v. Harris, concluding that police did not use unconstitutionally excessive force when ramming a vehicle fleeing a high-speed chase. The Sixth Circuit denied qualified immunity in Plumhoff by distinguishing the officers’ behavior from the force used in Scott. Based on this analysis, the officers contend that the Sixth Circuit “erred in analyzing whether the force was supported by subsequent case decisions as opposed to prohibited by clearly established law at the time the force was used.”
Relatedly, the petition also argues that the officers’ conduct was reasonable. Contending that the panel evaluated clearly established law at too high a level of generality, the petition asserts that the officers’ conduct did not violate clearly established law on what constitutes excessive force when the police take steps to stop a fleeing vehicle. The high court thus could take the opportunity to provide further guidance on the standards governing police conduct in a high-speed chase.
Last week in United States of America v. Gabriel Llanez-Garcia, the Sixth Circuit vacated sanctions imposed against an assistant federal public defender and dismissed the sanctions proceedings against her. In a strongly-worded repudiation, the panel found no indication of the bad faith required to warrant sanctions under a court’s inherent authority. Noting that “[a]n attorney’s reputation is her most valuable possession,” the Sixth Circuit pronounced that its opinion “closes the book on a regrettable chapter in [the public defender’s] career, clears her of all claims that her conduct in this matter was sanctionable, and removes any taint of public censure on her reputation.”
At issue in the sanctions proceedings was the public defender’s use in discovery of Federal Rules of Criminal Procedure 16 and 17(c). Squire Sanders represented the National Association of Criminal Defense Lawyers in their amicus in support of the public defender on the interplay between Rules 16 and 17(c). Representing a man arrested and deported after a vehicle stop by the Ohio State Highway Patrol (“OSHP”), the public defender first made a general discovery request to the government under Rule 16. Next, she caused subpoenas to issue to the OSHP and the Border Patrol under Rule 17(c) for records relating to the stop, including the dash-cam video. Contending that the Rule 17(c) subpoenas were improper, the assistant U.S. attorney on the case moved to quash and to sanction the public defender. The government later withdrew its request for sanctions.
Nonetheless, the district court issued sanctions on three grounds. First, the court found that the public defender improperly issued Rule 17(c) subpoenas without first making a sufficiently specific request to the government for the information under Rule 16. Second, the court faulted the public defender for issuing an early-return subpoena, meaning that the date for return of documents or appearance did not correspond to any scheduled hearing. Third, the court found sanctionable that the Rule 17(c) subpoena was issued without court approval.
Reversing, the Sixth Circuit emphasized repeatedly that, to justify inherent-authority sanctions, the sanctioned attorney must have engaged in bad-faith conduct. Setting out the inherent-authority standard, the court explained in a key passage: “Our analytical goal is not to determine whether [the public defender] was right or wrong on the merits. . . . Concluding that [the public defender] engaged in bad-faith conduct . . . requires finding that the claims she advanced were meritless, that she knew or should have known it, and that she had an improper motive for doing so.” Under this standard, the Sixth Circuit found no indication of bad faith.
The panel declined the invitation to provide controlling guidance concerning Rule 17(c) procedures, but did hold that a defendant need not first ask the government for discovery under Rule 16 before subpoenaing evidence under Rule 17(c). The court reached similar conclusions on the other two grounds for sanctions – whether correct or not, there was no support for the conclusion that the public defender’s issuance of an early-return subpoena, and her failure to get court approval of the subpoena, were done in bad faith. In reaching its conclusion, the Sixth Circuit highlighted conflicting authority and the practice of other attorneys that was consistent with the public defender’s actions.
The Sixth Circuit earlier this week decided an issue recently left open by the United States Supreme Court as to whether the Court or an arbitrator is to decide whether classwide arbitration is available under an arbitration clause. In Reed Elsevier, Inc. v. Crockett, Case No. 12-3574 (Nov. 5, 2013) (pdf), the Court examined whether a determination of classwide arbitrability was a “gateway dispute,” which is reserved for judicial determination unless the parties clearly and unmistakably provide otherwise, or a “subsidiary question,” which grows out of the dispute and bears on its final disposition, and is thus reserved for the arbitrator once a court decides that the parties have agreed to resolve a particular dispute through arbitration.
Faced with a plurality determination in Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003) that classwide arbitrability was a subsidiary question, the Sixth Circuit recognized that the question remained an open one. The Sixth Circuit identified four reasons supporting its decision that a determination of whether the parties had agreed to classwide arbitration is a gateway decision, presumed to be reserved for the judiciary unless the parties clearly and unmistakably provide otherwise: 1) that the loss of arbitration’s putative benefits of lower costs and greater efficiencies in classwide arbitration should not be presumed by simply agreeing to submit disputes to an arbitrator; 2) confidentiality concerns in classwide arbitrations may frustrate parties’ assumptions when they agreed to arbitrate; 3) the commercial stakes at issue in class arbitration (here in excess of $500 million) are comparable to that of class litigation; and 4) due process concerns of absent classmembers can be better addressed through opt in proceedings in court. In sum, the Court recognized that whether the parties arbitrate one claim or 1,000 in a single proceeding is no mere detail, and thus is not a subsidiary question.
Turning to whether the arbitration clause before it “clearly and unmistakably” assigned to an arbitrator the question whether the agreement permitted classwide arbitration, the Court held that it did not as the arbitration clause did not mention classwide arbitration at all, much less mention who would decide the issue. After concluding that there was no clear and unmistakeable assignment to the arbitrator and thus the Court would decide whether class arbitration was available, the Sixth Circuit quickly disposed of the attorney’s arbitration request, holding that “the principal reason to conclude that this arbitration clause does not authorize classwide arbitration is that the clause nowhere mentions it.”
In Young v. Gannett Satellite Information Network, Inc., a divided Sixth Circuit panel affirmed a $100,000 defamation verdict against a newspaper based on an article that it published about a police officer. The case revolves around an article written by a reporter that claimed that the officer had sex with a woman while on the job. However, when the officer had been fired, an arbitrator ultimately reinstated him based on (among other things) the lack of evidence of that allegation. Nevertheless, the newspaper reported the incident as if it were fact.
The majority’s opinion, written by Judge Rogers, explained that an independent review was required of the verdict for constitutional reasons, but there were reasons compelling deference to the jury’s verdict: “thus, while we must make an independent determination regarding whether there is sufficient evidence of the existence of actual malice, we can properly defer to the jury on historical facts, credibility determinations, and elements of statutory liability.” In dissent, Judge Moore attacked this standard based on First Amendment concerns. Judge Moore would not “hedge” on this de novo review and accord greater deference to the jury’s findings as the majority did.
The majority also questioned whether the actual malice standard applied at all in this case because the individual was a rank and file police officer, rather than a public official. Although it is not clear whether that aspect of the Court’s decision was anything beyond dicta, Judge Moore criticized that in dissent, citing various other circuits that have found police officers to be public officials for the purposes of the actual malice standard of defamation.
Needless to say, in cases like this, there are countervailing interests that often clash on the First Amendment front. The divided nature of the decision here therefore may be of little surprise. But this case does provide a good road map of what not to do as a reporter, as the Court criticized the reporter’s lack of follow up investigation or seeking comment from the police officer. It is unclear whether those actions would have ultimately altered the outcome, but certainly they would have postured the newspaper in a better light.
The Sixth Circuit recently shed light on a district court’s discretion to award sanctions under 28 U.S.C. § 1927 in an unpublished opinion, Meathe v. Ret, Case Nos. 12-2479, 12-2507. In Meathe v. Ret, the plaintiff filed shareholder suit which the defendants sought to dismiss on summary judgment. The plaintiff then moved to amend his complaint. In opposition to the plaintiff’s motion to amend, the defendants requested sanctions against plaintiff’s counsel under 28 U.S.C. § 1927, but did not file a separate sanctions motion. Section 1927 states that “[a]ny attorney . . . who so multiples the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” The district court dismissed the case by denying plaintiff’s motion to amend and granting defendants’ motion for summary judgment, but did not address defendants’ request for sanctions.
The Sixth Circuit affirmed the district court’s “well-reasoned opinion” dismissing the case, but held that the district court “should have addressed the defendants’ request for sanctions” and “exercised its discretion in that regard.” The Court found that the issue of sanctions was squarely before the district court (albeit without a motion), and “close enough to warrant at least some discussion.” Specifically, the Court held that a separate motion requesting Section 1927 sanctions was not required – and that Rule 11 cases requiring a separate motion were not applicable. Because of the district court’s “espoused skepticism of the meritoriousness and propriety of the case,” the Sixth Circuit remanded to the district court to determine whether sanctions should be imposed against plaintiff’s counsel.
It will be interesting to see whether this case has any lasting impact on the practice of sanctions, but it does seem to place a burden on the district courts to address such arguments even if they are not formally raised by motion. Perhaps influencing the Sixth Circuit here was the overall merits (or lack thereof) to the case, which may have dictated this result. But the case certainly sends the message to district judges that it may avoid a remand by addressing sanctions squarely in these types of scenarios.
The Sixth Circuit continued its pro-arbitration march in Tilman v. Macy’s, Inc. In this case, the Court reversed the district court’s denial of arbitration and held that an arbitration agreement had been formed notwithstanding the absence of any signed document from the plaintiff (a former employee of Macy’s). The Sixth Circuit’s opinion chronicles the history of communications between Macy’s and the plaintiff, including documents sent to plaintiff that purport to be binding on her unless she specifically opted out of the agreement. Notably, the plaintiff disputed that she ever received the documents that were mailed to her, but the Sixth Circuit made quick work of this issue, relying on the presumption that she received the materials because they were properly addressed and posted, and thus the receipt can be presumed. This presumption was significant because it obviated the need for a trial or evidentiary hearing on consent.
The plaintiff raised a variety of challenges to the opt out structure of the agreement, but the Sixth Circuit found little reason to be concerned, relying on basic state contract law concerning offer and acceptance. The Court acknowledged, however: “We recognize that opt out schemes for accepting arbitration contain a risk greater than in opt in systems that some employees do not know what they have agreed to…But we cannot say that under Michigan law an opt out system is inherently insufficient, and under the facts of this case a contract was created.” The Court also emphasized the employee’s conduct following the communication of the arbitration offer — she continued her employment without returning an opt out form. And the Court placed the burden clearly on the plaintiff “to show that she did not voluntarily and knowingly waive her right to a jury trial.”
This case is instructive in terms of the means for securing arbitration notwithstanding the absence of a signed agreement. This has particular relevance in the employee and consumer areas, especially with respect to mailing agreements to arbitrate.
Another aspect of note in this case is that the Court pointed out that it granted a stay pending appeal of the arbitration issue. Some of the circuits are split on whether a stay should be automatic when appealing the denial of an arbitration motion. The Court invited additional briefing on the question of whether the appeal of the denial of a motion to compel arbitration divests the district court of jurisdiction to proceed, but based on its disposition of the case, the Court declined to answer that question. That is certainly unfortunate, because this is an issue that is a recurring one when dealing with appeals of arbitration denials. It looks like we will have to wait until the next case to get an answer to this question.
Very few cases concerning disqualification of counsel actually make it to the federal appellate level, which makes the Sixth Circuit’s decision in Bowers v. The Ophthalmology Group both unusual and noteworthy. The case involved a question of disqualification of counsel based on prior representation and whether that prior representation was “substantially related” to the present representation. A divided Sixth Circuit, finding that it was, determined that defense counsel had to be disqualified and the case remanded to the trial court for proceedings without the disqualified counsel.
The underlying lawsuit involved a Title VII employment suit brought by a doctor who was a partner in an ophthalmology group. The district court had granted summary judgment in favor of the defendant and had denied the disqualification motion as moot. The disqualification motion was premised on the fact that defense counsel’s law firm had previously represented the plaintiff when she attempted to establish an additional ophthalmology practice a few years earlier. The law firm resisted the motion, submitting documentation to support its argument that there was no conflict from the prior attorney-client relationship.
The case accordingly turned on whether the prior representation was substantially related, and the Sixth Circuit noted that “we have not explored previously the contours of what constitutes substantially related, so we take this opportunity now to do so.” Given the dearth of authority on this issue, the Sixth Circuit turned to a district court decision from Kansas and a law review article to help determine the appropriate standard. The majority held: “the court must look to the general type of information that the potentially conflicted lawyer would have been exposed to in a normal or typical representation of the type that occurred with the now adverse client.” Based on this approach, the Court determined that the law firm likely would have obtained confidential information concerning the plaintiff’s relationship with her partners, which yielded a substantial risk that confidential information could be used against her in this proceeding. Because of the need for disqualification, the Court also vacated the summary judgment grant and directed that further proceedings take place without disqualified counsel participating.
Judge Griffin dissented, emphasizing that motions for disqualification are generally disfavored. The heart of his criticism of the majority’s approach is that he believes that the majority largely relied on speculation rather than evidence as the justification for disqualification (thereby effectively making it much easier to secure disqualification). Therefore, he would have concluded that the prior representation was not substantially related and did not warrant disqualification.
Given the lack of authority at the circuit level, this case could certainly have a significant impact in the area of disqualification of counsel and the meaning of substantially related. Since model rules use similar language, we can expect to see this case cited as authority in multiple jurisdictions. It goes without saying that anyone considering a disqualification motion (or counsel analyzing whether they may be subject to a disqualification motion) should take a careful read of this opinion.