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High Court Asked to Tackle Non-Random Case Assignments; Sixth Circuit Already Uses Them

Posted in News and Analysis, Supreme Court

Last week, Motorola Mobility LLC petitioned the Supreme Court to review a recent adverse antitrust decision by the Seventh Circuit. In the appeal, Motorola claims that the Seventh Circuit is on the wrong side of a circuit split over the Foreign Trade Antitrust Improvements Act, but—perhaps more interestingly—has asked the Supreme Court to overturn the Seventh Circuit’s allowance of non-random case assignments.

Recently, the Seventh Circuit has garnered headlines for its practice of allowing a motions panel to retain a case for a decision on the merits, sometimes even without briefing and argument. In fact, Motorola alleges, “Seventh Circuit judges hearing applications to permit an interlocutory review regularly assign to themselves the merits of cases they find particularly significant and interesting, rather than leaving the case to the ordinary random assignment process.” Judges Posner and Easterbrook both received personal criticism from Motorola, which specifically claims that “it is common for Judge Posner [on a motions panel] to decide antitrust cases on the merits without further briefing or argument.”

In its petition, Motorola noted that the Seventh Circuit’s practice under its internal rules of allowing motions panels to retain cases is “unique among the circuits.” At least with respect to the Sixth Circuit, the Seventh Circuit’s practice is different.  The Sixth Circuit’s internal operating procedures are designed to ensure transparency of panel assignment (borne in the aftermath of some prominent disputes about this well over a decade ago). In fact, under the Sixth Circuit’s own internal rules: “active judges are assigned to one of the two sitting weeks at random . . .” and that “[j]udges are later assigned to panels during the sitting weeks using an automated routine [based on which active judges have the longest intervals between sitting pairing],” with the goal being “to give every judge the opportunity to sit with as many different colleagues as possible.” Thus, random assignments are the rule of this Circuit, which has not adopted a procedure similar to the Seventh’s. To be sure, there can be certain advantages by allowing a motions panel to retain control over a case as the merits panel, particularly if resolving the motion required substantial investment of judicial time, and efficiency militated in favor of keeping the case with that panel. But having rules that explain the procedure and provide clarity (and consistency) to litigants is critically important.

U.S. Supreme Court Unanimously Reverses Sixth Circuit in Closely Watched Securities Fraud Case

Posted in News and Analysis, Recent Cases, Supreme Court, Uncategorized

The U.S. Supreme Court unanimously reversed the Sixth Circuit yesterday in a securities fraud action brought against Omnicare, Inc., a Cincinnati pharmaceuticals services company, under Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k.  See Omnicare Inc. v Laborers District Council Construction Industry Pension Fund, Case No. 13-435 (2015) (PDF).  In siding with Omnicare, the Supreme Court has afforded public companies leeway in making public statements that turn out to be untrue.

Back in 2005, in connection with a public offering of common stock, Omnicare filed a registration statement containing two statements expressing the company’s view that it was in compliance with federal and state law.  Pension funds that had purchased Omnicare stock in the public offering sued Omnicare under Section 11 claiming that the company’s receipt of payments from drug manufacturers violated anti-kickback laws.  The pension funds thus claimed that Omnicare’s legal compliance statements constituted “untrue statements[s] of . . . material fact” and that Omnicare “omitted to state [material] facts necessary” to make those statements not misleading.

The district court dismissed all claims against Omnicare, ruling that the pension funds failed to allege that Omnicare knew the statements at issue were false.  A three-judge panel of the Sixth Circuit disagreed and unanimously reversed.  See Ind. State Dist. Council v. Omnicare, Inc.., 719 F.3d 498 (6th Cir. 2013) (PDF).  The Sixth Circuit acknowledged that the statements at issue expressed Omnicare’s “opinion” of legal compliance, rather than “hard facts.”  The panel concluded, however, that the pension funds only had to allege that the stated belief was objectively false; they did not need to assert that anyone at Omnicare disbelieved the opinion at the time it was expressed.

The Supreme Court disagreed with the Sixth Circuit’s ruling.  In a unanimous opinion written by Justice Kagan, the High Court held that a statement of opinion does not constitute an “untrue statement of . . . fact” merely because the stated opinion turns out to be incorrect.  The Court stated that the Sixth Circuit’s contrary ruling “wrongly conflates facts and opinions.”  As Justice Kagan explained, “a statement of fact (‘the coffee is hot’) expresses certainty about a thing, whereas a statement of opinion (‘I think the coffee is hot’) does not.”  This distinction, the Court held, is incorporated in Section 11 “by exposing issuers to liability not for ‘untrue statement[s]’ full stop (which would have included ones of opinion), but only for ‘untrue statement[s] of . . . fact.’”  The Supreme Court ultimately remanded the case for a determination whether the pension funds sufficiently had alleged that Omnicare omitted facts from its registration statement that would render its opinion misleading in light of the entire context.

In clarifying the standard of liability under Section 11 for statements of opinions in registration statements, the Supreme Court’s Omnicare decision resolves a Circuit split created by the Sixth Circuit when it declined to follow the Second and Ninth Circuits, both of which had held that allegations of knowledge of falsity are required in Section 11 cases.

EPA Goes 1-1 In Clean Air Act Cases at Sixth Circuit

Posted in News and Analysis, Recent Cases

The Sixth Circuit handed down a pair of decisions brought under the Clean Air Act within days of each other, although interestingly they were issued by different panels.  See Sierra Club v. United States Environmental Protection Agency, and St. Marys Cement, Inc. v. United States Environmental Protection Agency.  The EPA received split decisions in these two cases.  In the first case, Sierra Club, the Sixth Circuit addressed both the Sierra Club’s standing and then the EPA’s determination that the Cincinnati-Hamilton metropolitan area had obtained national air quality standards for particulate matter based on a regional cap and trade program that reduced the flow of interstate pollution.  On the threshold standing question, the Court considered whether the Sierra Club had representational standing to bring claims on behalf of its members.   The Sixth Circuit noted that it had never decided the question of representational standing in the context of a petition for direct appellate review of a final agency action, and accordingly turned to the decision from its sister circuits.  Consistent with the other circuits, the Sixth Circuit held that the petitioner had the burden of production similar to that required at summary judgment.  Because the Sierra Club attached declarations to its opening brief from appropriate individuals, and they covered the necessary elements to establish Article III standing, the Court turned to address the merits.

The Court cited the familiar Chevron standard, noting that general deference afforded the EPA in interpreting and applying this complex statute.  Given the statutory context, the Court found it sufficiently ambiguous to clear the first Chevron step.  Although the Court upheld one aspect of the challenge based on the deference given to the EPA, it rejected another largely based on a prior decision by the Circuit, Wall v. EPA, 265 F.3d 426 (6th Cir. 2001).  The Court rejected EPA’s efforts to distinguish Wall and ultimately determined that the EPA acted in violation of the Clean Air Act in this particular re-designation request.

The EPA fared better in the St. Marys Cement case regarding requirements that factories add new pollution limiting technology.  In this case, St. Marys submitted two separate comments, one timely and one not.  Ultimately, the Court held that arguments premised on the latter set of comments were waived because they were not timely submitted, offering another gentle reminder about preservation of arguments and issues for subsequent review.  With respect to the arguments that were preserved, the Court cited the familiar arbitrary and capricious standard for administrative review, and found no apparent flaws commanding vacatur in the EPA’s decision.  The EPA engaged in a case-by-case review and had reasons underlying its proposal that St. Marys install the applicable technology at its plant.  The Court refused to let St. Marys second guess the EPA’s technical and scientific views:  “Maybe time will prove St. Marys right on some of these fronts; maybe not.  But arbitrary and capricious review does not ask who was right.  It asks whether the EPA followed a defensible process in assessing who is right.”

Sixth Circuit Weighs In On Taxing of eDiscovery-related Costs

Posted in Recent Cases

The Sixth Circuit in Colosi v. Jones Lang LaSalle Ams., Inc. issued the latest circuit level opinion on the taxing of eDiscovery-related costs under 28 U.S.C. §1920(4).  In Colosi, the Sixth Circuit upheld the district court’s decision to allow the taxation of costs for the imaging a computer hard drive.  The Court reasoned that imaging the computer fell within the definition of  “making copies” in § 1920(4) and was therefore allowable under a plain reading of the statute “provided the image file was necessarily obtained for use in the case.”  In Colosi, the party opposing the taxation of costs for computer imaging pointed to the Third Circuit’s decision in Race Tires America, Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158 (3d Cir. 2012).  That decision adopted a narrow view of § 1920(4), rejected the taxation of a variety of eDiscovery-related costs, and allowed costs sought in that case for “only the scanning of hard copy documents, the conversion of native files to TIFF, and the transfer of VHS tapes to DVD.”  The Colosi Court, while commending the concern in Race Tires about expanding § 1920(4) to encompass a wide variety of eDiscovery expenses not contemplated by Congress, rejected the Race Tires analysis as “overly restrictive.”  The Sixth Circuit concluded that the appropriate analysis under § 1920(4) only required answering the “context-dependent question of whether the prevailing party necessarily obtained its copies for use in the case.”  In Colosi, the Court emphasized that the producing party tendered its entire computer in response to the production request and demanded that the requesting party use a vendor to obtain an image.  This informed the Court’s view in Colosi that the image of the computer was “for use in the case” and therefore taxable as costs under a plain reading of § 1920(4).

While they reached different conclusions on the taxing of costs for computer imaging, the analysis in Colosi and Race Tires is essentially consistent.  The Sixth Circuit upheld the costs in Colosi because the entire computer was tendered for production and the image was therefore “for use in the case.”  While Race Tires criticized the notion of taxing costs for computer imaging, it did so in reference to imaging that came earlier in the eDiscovery process and that was more analogous to collection and search than to production.  See Race Tires, 674 F.3d at 169 (noting that “[h]ard drives may need to be imaged, the imaged drives may need to be searched to identify relevant files, relevant files may need to be screened . . . [b]ut that does not mean that the services leading up to the actual production constitute ‘making copies’”).  Thus, Race Tires employed the same type of “context-dependent” analysis urged by the Sixth Circuit in Colosi.

The Colosi decision is nonetheless significant because of its focus on a plain reading of §1920(4) and the conclusion that “making copies” generally encompasses electronic duplication.  Parties seeking to recover costs may point to this language in support of requested costs for duplication activities earlier in the eDiscovery process and seek to tie them to eventual production.  The Colosi analysis may also encourage litigants to make some types or sources of electronically stored information available for inspection (as opposed to review and production) in an effort to recover more eDiscovery costs.  Litigants are likely to face continued uncertainty regarding taxation of costs for eDiscovery and other technology-related activities unless and until they are addressed more specifically in § 1920.

Sixth Circuit Ends Driehaus’s Defamation Case

Posted in Recent Cases

Just over a week ago, the Sixth Circuit issued an opinion in Susan B. Anthony List v. Driehaus, the free speech saga that even made it to the Supreme Court last term. Although the case before the Supreme Court focused on SBA Lists’s standing to sue over an Ohio election law, the Sixth Circuit put an end to the other half of the lawsuit: Driehaus’s defamation counterclaim against SBA List.

The case began shortly before the Affordable Care Act was passed in 2010. Then-congressman Steve Driehaus denounced the bill for not preventing federal tax dollars from funding abortion, and alleged he would not vote for the bill unless it was amended to prohibit this. However, he voted for the ACA without the abortion funding prohibition, and the SBA List—an anti-abortion political group—published several ads criticizing Driehaus for voting for a bill that “include[d] taxpayer-funded abortion.” Prior to the 2010 midterm elections, Driehaus filed a complaint with the Ohio Elections Commission, alleging that SBA List violated Ohio election law by making false statements about him regarding his stance on the ACA and abortion. SBA List sued Driehaus and the OEC in federal court, alleging that the Ohio law violated its First Amendment free speech rights; Driehaus counterclaimed for defamation.

Before the Sixth Circuit was Driehaus’s appeal from SBA List’s summary judgment victory on the defamation counterclaim. (The other half of the lawsuit had already gone before SCOTUS over the standing issue.) In granting summary judgment to SBA List, the district court relied on recent Supreme Court case law to hold that, “as a matter of law, associating a political candidate with a mainstream political position, even if false, cannot constitute defamation.” The Sixth Circuit denied the district court’s categorical proclamation concerning the First Amendment, nonetheless affirming summary judgment for SBA List.

The Sixth Circuit proceeded to construe Ohio defamation law as applied to Driehaus’s claim. First, the court analyzed the “falsity” of SBA List’s statements, noting that the threshold for “truth” is quite low. The court pointed out that “Driehaus vocally opposed the [ACA] because of his concerns about federal funding for abortions but he then voted for it anyway despite the absence of his desired language.” Thus, his own change in position demonstrated that SBA List’s “statements had some truth, were substantially true, or were subject to differing interpretations,” which was enough to make them “not false” for purposes of the defamation claim. Turning to the “fault” prong of the claim, the court could find “no evidence to support Driehaus’s claim that SBA List ‘knew’ the statements were false”; rather, “SBA List did then, and does now, believe emphatically that the statements are true: that the [ACA] includes taxpayer funding for abortions.”

In affirming summary judgment for the SBA List, the Sixth Circuit not only put an end to this aspect of a multifaceted case, but also demonstrated the power of the well-known and age-old rule that the threshold for a politician’s success on a defamation claim is very high, particularly with regards to the standard for a defendant’s “truth” and “malice.”

Class Actions at the Sixth Circuit: A Twelve-Month Review

Posted in News and Analysis

A look at appeals in class actions in the Sixth Circuit over the past year reveals several interesting points about these often high stakes lawsuits. First, out of the seventeen cases turned up using a commercial research service, the Sixth Circuit was more slightly more likely to grant review of the district court’s decision on certification, by a ratio of about 5:4. This small edge in favor of review might be surprising to some, but in light of the fact that Rule 23(f) confers broad discretion on appellate courts as to whether to review a class certification decision, this near 50-50 split is not quite unexpected over just twelve months’ analysis.

Of course, in its own oft-cited case law in this area, the Sixth Circuit has held that it will only reverse a district court’s class certification decision upon “a strong showing that the district court’s decision was a clear abuse of discretion.” Thus, in the opinions reviewing grants or denials of class certification, the court was also pretty evenly split on its review of district courts’ orders. That is, in the two cases directly reviewing certification orders, one was affirmed and one was remanded with an expanded analysis of the class. In the several cases reviewing denials of certification, two were simply affirmed, but one was reversed and remanded for a “more rigorous Rule 23 analysis.” In light of these cases and this language, it is clear that the Sixth Circuit does not take the crucial certification step of class actions nor Rule 23’s imperatives lightly.

Finally, it is worth noting that in another sizable group of cases tuned up in this broad class action search, the court reviewed orders and judgments in class actions where certification itself was not at issue or was only marginally at issue. These instances usually resulted from cases where class certification issues were resolved at the district court level insofar as they were moot, not appealed (such as at least one decision in a settlement class action), or involved fee disputes over ongoing class actions (like the one we covered here). Thus, a sizable portion of the Sixth Circuit’s review in class actions involves much more than simply a review of certification.

Sixth Circuit Defines “Public Disclosure” Bar to False Claims Act Suits, Weighs in on Circuit Split

Posted in Recent Cases

Late last month, the Sixth Circuit issued a decision in United States ex rel. Whipple v. Chattanooga-Hamilton County Hospital Authority, a False Claims Act case against a hospital for fraudulent Medicare and Medicaid claims, and held that internal government disclosures in previous investigations do not trigger the “public disclosure” bar of the FCA.

In 2006, an anonymous tip spurred a government investigation of the Hospital Authority (d/b/a Erlanger Medical Center). Health and Human Services’ Office of Inspector General opened a formal administrative investigation into the matter in 2008. Thereafter, Erlanger retained Deloitte Financial Advisory Services to perform an internal audit, and after Deloitte uncovered improper billing practices, Erlanger voluntarily refunded the government nearly $500,000 and the administrative investigation closed. Then, in 2010, Whipple disclosed his qui tam claims to the government. After he filed a complaint in 2011, the government refused to intervene, and Erlanger moved to dismiss the action.

Erlanger contended, and the district court agreed, that the government’s knowledge of Erlanger’s improper billing during the government’s administrative investigation constituted “public disclosure” for purposes of the FCA. The FCA’s public disclosure bar forbids jurisdiction over qui tam actions based on allegations publicly disclosed through a government hearing, a congressional or GAO audit or investigation, or by the news media. In reversing the district court and holding that the FCA “does not bar jurisdiction over qui tam actions based on disclosures of allegations or transactions to the government,” the Sixth Circuit joined a strong majority of its sister circuits that have held likewise. The Seventh Circuit stands alone as the only federal appeals court to have held that public disclosure “includes the disclosure of an alleged false claim to a competent public official who has managerial responsibility for that very claim.”

The Sixth Circuit also rejected Erlanger’s claims that limited third-party knowledge of the improper billing constituted public disclosure for purposes of the FCA’s bar. First at issue was AdvanceMed, the government’s Safeguard Contractor monitoring Medicare fraud and abuse in Tennessee, and which conducted the initial investigation into Erlanger. As to AdvanceMed, the court held that because they were acting for the government and had incentive to keep the information confidential, their knowledge did not amount to “public disclosure.” As to Deloitte, Erlanger’s third-party internal audit service, the court held that they, too, had incentive to keep their knowledge private and so their knowledge did not constitute a “public disclosure” under the FCA either.

This decision not only allows Whipple’s case to move forward on remand, but also clearly sets the contours of the FCA’s public disclosure bar. With at least five other circuits (as cited by the Sixth Circuit in its opinion) on the side of “limited” public disclosure, there might not be a race to SCOTUS to settle this split. However, at least in the majority of jurisdictions, mere prior government knowledge of FCA fraud is not sufficient to bar these types of qui tam actions.

En Banc Court Overturns Prior ERISA Decision

Posted in Recent Cases

Yesterday, the Sixth Circuit issued its en banc decision in Rochow v. Life Insurance Company of North America, No. 12-2074.   The original panel decision (which we previously discussed here) held that an ERISA plaintiff could recover under Section 502(a)(3), which allows for “appropriate equitable relief,” in addition to receiving his benefits under Section 502(a)(1)(B).  The district court had awarded $900,000 in benefits as well as $3.7 million for disgorgement of profits in equitable relief.  Judge McKeague, who dissented from the original panel opinoin, wrote the decision for the en banc court.

The Court’s holding can be easily summarized:  Absent a showing that the remedy for denial of benefits  remedy under 502(a)(1)(B) is inadequate to make plaintiff whole, a recovery under Section 502(a)(3) is unavailable.  This decision was animated by concerns that otherwise successful ERISA plaintiffs could collect huge damage awards:  “If an arbitrary and capricious denial of benefits implicated a breach of fiduciary duty entitling the claimant to disgorgement of the defendant’s profits in addition to recovery of benefits, then equitable relief would be potentially available whenever a benefits denial is held to be arbitrary or capricious. This would be plainly beyond and inconsistent with ERISA’s purpose.”  The Court also remanded for a determination of whether the plaintiff should have been awarded prejudgment interest.

The opinion generated a number of separate opinions.  Judge Gibbons agreed with the Court’s reasoning, but wrote to state that she believed that the district court violated the mandate from a prior appeal in that case when it ordered disgorgement after remand.  Judge White wrote to disagree with the assumption in both the majority and dissent that the question should be whether the disRochow’s fiduciary-duty claim is merely a repackaging of his benefits-denial claim.”  Finally, a strong dissent from Judge Stranch argues that there the defendant committed two distinct wrongs, allowing for both remedies.

SCOTUS Watch: Supreme Court Denies Certiorari in Massive Sixth Circuit Antitrust Case

Posted in Recent Cases, Supreme Court

On Monday, the Supreme Court issued its new round of orders from its February 27 conference. Among them was the denial of a petition for certiorari in a massive antitrust class action lawsuit—“likely the largest ever certified and upheld by a federal court of Appeals”—against manufacturers of polyurethane foam.

In Carpenter Co. v. Ace Foam (aka In re Polyurethane Foam Antitrust Litigation), after the district court certified the class of “potentially hundreds of millions” of purchasers of foam, the Sixth Circuit denied the defendant manufacturers’ petition for interlocutory review of the class certification. In seeking cert before the Supreme Court, the defendants argued that the classes, as certified, “contain vast numbers of uninjured members and (ii) individualized damages assessments are necessary to determine whether and to what extent any class member is entitled to damages.” Specifically, the petitioners wanted the Court to review whether the standing requirements of Article III apply to all members of a class certified under Rule 23, as well as whether the use of “aggregate damages models” was improper in certifying the class with individualized damages.

Although the High Court’s denial of certiorari (and the Sixth Circuit’s denial of interlocutory review, for that matter) were not momentous as a matter of law, they do allow this class action lawsuit to proceed, leaving several open questions on class issues post-Comcast.

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.