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6th Circuit Appellate Blog


Incentivizing Class Representatives

Posted in News and Analysis

The Sixth Circuit has never held either way on the propriety of making incentive payments to class representatives in class action settlements.  The closest the Court has come to approving the practice (at least in some circumstances) is a passing remark in the 2003 decision Hadix v. Johnson that “there may be circumstances where incentive awards are appropriate.”  More recently, however, the Sixth Circuit has expressed some skepticism. 

Last year, we reported here (and here) on In re Dry Max Pampers Litigation, where the Sixth Circuit rejected a class action settlement that provided no monetary relief to the unnamed class yet awarded $2.73 Million to class counsel in attorney’s fees.  But the opinion also included an interesting discussion of incentive awards in which the Court quipped: “to the extent that incentive awards are common, they are like dandelions on an unmowed lawn—present more by inattention than by design.”  The Sixth Circuit did not have occasion to issue a formal rule on incentive awards in In re Dry Max Pampers Litigation; however, the Court observed that the justification for incentive payments is strongest where class representatives receive only a fraction of their likely damages and thus have reason to care about the mechanisms governing the remainder of settlement recovery.  In contrast, the argument for incentive payments is most dubious where class representatives are made whole (or more than whole) and thus have no incentive to care about the remainder of recovery.  

Even without a formal rule, In re Dry Max Pampers Litigation appears to be having some effect on incentive awards and class action settlements.  Earlier this year, in Michel v. WM Healthcare Solutions, Inc., the Southern District Ohio reduced an incentive award from $10,000 to $3,000, citing In re Dry Max Pampers Litigation and commenting that “the best approach to approving any amount of an incentive award is a conservative one.”  Noting the Sixth Circuit’s observation that incentive awards are most defensible where the incentive is only a fraction of the recipient’s likely damages, the District Court lowered the incentive award to a point below what it considered to be the likely damages for one of the class representatives.   

The law governing incentive payments in the Sixth Circuit is still unclear.  However, to the extent that incentive awards are “like dandelions on an unmowed lawn,” those dandelions are starting to get cut.  It remains for the Sixth Circuit to determine if they can persist at all and, if so, under what circumstances. 

Practitioner Discipline: Sixth Circuit More Likely Than Not to Uphold Sanctions

Posted in News and Analysis

A review of Sixth Circuit appeals mentioning “sanctions” in the last twelve months turned up fewer than a dozen cases, but an overview of their holdings reveals a few insights for practitioners in the Circuit. Given that the standard for review of the imposition of sanctions is generally “abuse of discretion,” it is not too surprising that the Sixth Circuit upheld sanctions in just over half of the cases presented, but the reasons for overturning sanctions prove just as interesting.

Out of nine sanctions cases uncovered, the Sixth Circuit affirmed five, but whether the panel hearing the case affirmed the sanctions summarily or with substantial discourse varied. This usually depended on whether the party whom the court sanctioned clearly abused the system (e.g., suing the Democratic Party for fraudulently misrepresenting Barack Obama’s qualifications to become president held to be clearly baseless and thus “frivolous”), repeatedly evidenced disrespect for the court or other parties, or raised a substantial question of factual support in the record for the sanctions (e.g., bad faith motions and lack of preparedness for mediation).

Two cases involving sanctions were remanded to district court specifically on the sanctions issue—one for lack of a final order and one for the district court’s failure to address a party’s request for them.

At least one case vacating sanctions from a lower court is worth noting. In Llanez-García, 735 F.3d 483 (2013), the district court issued a public reprimand sanctioning the public defender in the case in part for supposedly “ignor[ing] the rules of criminal procedure.” But when the public defender appealed, the Sixth Circuit vacated the sanctions in a sternly worded opinion, first holding that 28 USC § 1927 provided no basis for non-monetary sanctions by a district court, then further holding that the record in that case provided no support for sanctions under the district court’s inherent power. In the other case vacating sanctions, Premium Balloon Accessories v. Creative Balloons Mfg., 573 F. App’x 547 (2014), the Court simply noted the record did not support either the statutory or “inherent power” sanctions imposed by the district court.

This small sample of recent cases limits extrapolations about attorney sanctions in the Sixth Circuit, but indicates at the least that the Circuit takes these matters seriously. Finally, it is important to note that those seeking official discipline of opposing counsel ought to be cautious and must have a firm legal basis and factual support for the sanctions. Careful review of the Circuit’s recent guidance in this area is a must.

ERISA Forum Selection Clauses And Skidmore Deference

Posted in News and Analysis, Recent Cases

In Smith v. Aegon Companies Pension Plan (No. 12-5492), the Sixth Circuit decided whether to enforce a forum selection clause that was included in an ERISA plan seven years after the plaintiff’s benefits accrued.  The Secretary of Labor filed an amicus brief arguing that such clauses are incompatible with ERISA, which requires access to federal courts.  In an opinion that may conflict with decisions from the Second and Fourth Circuits, Judge Batchelder wrote that the Secretary’s position is not entitled to Skidmore deference because that position had only been expressed in two amicus briefs and because it was based only on standard statutory interpretation—it was not a long-held agency position or an exercise of the agency’s expertise.

The opinion then explained that ERISA’s policy of providing “ready access to the Federal courts” and its venue provision stating that actions “may be brought” in federal court (see 29 U.S.C. § 1132) are not contravened by a plan that allows for suit in just one federal court.  It then points out that a forum selection clause both encourages uniformity in the decisions interpreting the plan and lowers the administrative costs of the plan.

Judge Clay dissented on the basis that the text and legislative history of ERISA show that Congress expressly sought to eliminate any jurisdictional or procedural obstacles that might prevent enforcement.  He also points out that claimants in ERISA suits are often “retirees on a limited budget, sick or disabled workers, widows and other dependents” that are “the least likely to have the financial or other wherewithal to litigate in a distant venue.”  Notably, Judge Clay did not find fault with the majority’s decision not to extend Skidmore deference to the agency amicus brief.

Ansfield v. Omnicare: Another Attempt to Clarify Securities Pleading Standards

Posted in Recent Cases, Supreme Court

In a significant decision on federal securities pleading standards, the Sixth Circuit—led in this case by Judge Karen Nelson Moore—has attempted to clarify the previously and self-admittedly “muddied” waters of pleading standards in securities litigation. Last year, the Sixth Circuit diverged from the Second and Ninth as to whether § 11 of the Securities Act of 1933 imposes strict liability on a defendant corporation that makes untrue statements of material fact in connection with securities registration statements (with the Sixth Circuit holding that § 11 does impose strict liability), and the Supreme Court granted certiorari to resolve the split this term.

In an attempt to resolve a similar problem with the pleading standards for § 10(b) of the Securities Exchange Act of 1934, the panel in Ansfield announced new, comprehensive, and hopefully comprehendible standards for evaluating a plaintiff’s pleadings in a § 10(b) action. The Court noted that, in order to meet FRCP 9(b) and the PSLRA’s pleading standards, plaintiffs in these actions must make factual allegations both that a defendant made a false or misleading statement or omission, and that the misrepresentation or omission “concerned a material fact.” However, the Court criticized its own precedent in this area, noting that in past cases the Circuit has “failed to recognize that” a different framework applies to “cases based on affirmative misrepresentations,” as opposed to omissions, “and that different rules apply when the misrepresentation or omission concerns hard [objectively verifiable], as opposed to soft [speculation or opinion], information.”

As to “soft misrepresentations,” the Court adopted the First Circuit’s approach that pleading the defendant’s knowledge of the falsity of the statements essentially “raises the bar” for pleading the scienter requirement of § 10(b). The Court also took the time to point out that whether pleadings of “soft omissions” will meet the higher scienter bar ultimately will depend on the facts of the case. In discussing the materiality element of § 10(b), the Court merely noted that the element involves a heavily fact-based inquiry into which the district courts and the circuit must “tread lightly” and engage carefully. Finally, the Court reached the scienter requirement of § 10(b) as it relates to corporations. The Court once again disagreed with the Second and Ninth Circuits, but not by choosing one side of the circuit split on the issue. Rather, this time the Sixth Circuit established its own formulation of who within a corporation is able to commit material misrepresentations or omissions attributable to the defendant-corporation as a whole.

With regard to the first element of § 10(b) (material misrepresentations), the Court held that the plaintiffs in Ansfield pled sufficient facts to withstand the defendants’ motion to dismiss, having alleged both material and objectively false misrepresentations by the defendants. However, as to scienter, the Court held that the defendants did not make the misrepresentations with the necessary scienter (“intent to defraud the public”), nor could their statements be imputed to the corporation as a whole, and so the plaintiffs’ claim failed for this reason.

This case is designed to have a lasting effect on pleading standards, and we will continue to monitor this area to see how these standards are implemented in practice.

Sixth Circuit Declines to Enjoin Ohio’s Code of Judicial Conduct

Posted in News and Analysis, Recent Cases

In a published decision on Wednesday, the Sixth Circuit affirmed an Ohio district court’s denial of a preliminary injunction against the state’s Judicial Code of Conduct in Ohio’s upcoming Supreme Court elections. Joseph Platt, a former Ohio Supreme Court candidate, sought an injunction against the Code’s prohibition on his openly endorsing other candidates, personally and directly soliciting campaign funds, and receiving campaign contributions outside of a limited time frame. Platt alleged that these regulations muzzled his First Amendment right to free speech, but only sought their injunction as applied to non-sitting judicial candidates.

The Sixth Circuit devoted a substantial part of its opinion to addressing the issue of Platt’s standing to bring the challenge, but determined with finality that he met Article III’s requirements to bring the suit. First, because Platt “claim[ed] an interest in engaging in protected speech,” because the threat of prosecution under the Code was credible, and because plaintiffs in this type of inquiry do not bear a heavy burden to show standing under the First Amendment, Platt could claim a “particularized injury.” Second, even though Platt had not filed the necessary follow-up forms to be a judicial candidate in the 2014 election (or even to be a write-in candidate), because his challenges were “capable of repetition yet evading review,” his case was not moot, and therefore the Court could consider the merits of the injunction.

In affirming the district court’s denial of the preliminary injunction, the panel clarified the Circuit’s standard of review for appeals of preliminary injunctions in First Amendment cases. Noting the mixture of abuse-of-discretion and de novo review that past Sixth Circuit decisions have applied to First Amendment preliminary injunctions, the Court reasoned that an appellate court reviews de novo a district court’s legal conclusions under the four-factor preliminary injunction test, but reviews the overall decision to grant or deny the injunction for abuse of discretion. In Platt’s case, the panel upheld the district court’s legal conclusions regarding the First Amendment, noting that “Ohio has compelling state interests” in enforcing the Code, and has “narrowed its Code to comport with” Sixth Circuit free speech precedent. Finally, because Platt is no longer actually running for office, the need for “expediency” demanded in preliminary injunction suits had largely ceased, and the public-interest factor did not tip in his favor.

Of course, the result of the panel’s decision is merely to allow Ohio’s judicial elections to proceed as normal. But it also allows Platt’s merits challenge to the Code to go forward in district court. Given recent developments in this area of free speech jurisprudence and the Supreme Court’s grant of certiorari in a similar case from Florida, it is worth watching this case both in Ohio and nationally.

SCOTUS To Hear Ohio Case, Decide Whether Mandatory Reporters Are “Agents of Law Enforcement” Under Confrontation Clause

Posted in News and Analysis, Recent Cases, Supreme Court

We posted previously on some Sixth Circuit cases that will get attention from the Supreme Court this term.  In addition to those, the Supreme Court granted cert last week in another case of interest from within the Circuit – the Ohio Supreme Court’s 4-3 decision in Ohio v. Clark, which held that a preschooler’s identification of his abuser was “testimonial”—and therefore inadmissible under the Confrontation Clause.  The court held that the teacher’s statutory mandate to report suspected abuse rendered the teacher an “agent of law enforcement,” and therefore applied the more demanding “primary purpose” test (rather than the “objective witness” test that would have applied to a non-agent of law enforcement).

Mandatory reporter duties—which in most states apply to protect not only children, but also the elderly and/or disabled—vary widely across states.  If the Supreme Court held that such a duty automatically makes one an agent of law enforcement, the term might cease to have meaning in the many states whose laws require members of the general public to report abuse.  However, statutes are worded differently—not all contain the additional provision in the Ohio statute stating that “children services agencies shall investigate each report of known or suspected child abuse in cooperation with law enforcement,” which the Ohio Supreme Court cited as support for its decision.  Thus, the Supreme Court could affirm the Ohio Supreme Court’s “agent of law enforcement” analysis, while narrowly limiting it based on the statutory language in a manner that sends a clear message to states about how they could revise their statutes to avoid similar outcomes.

Separate Opinions of Sixth Circuit Judges Influence Other Circuits

Posted in News and Analysis

Not only are Sixth Circuit opinions discussed by other circuits, Sixth Circuit concurrences and dissents—which we previously found to occur in the Sixth Circuit at twice the average rate—are too. Over a recent approximately 18-month period (May 2013 to Sept 2014) separate writings from Sixth Circuit decisions have been cited 47 times by federal courts outside the Sixth Circuit, with 17 of the citations coming from fellow courts of appeal, primarily the Tenth (4), Second (3), and Fourth (3) circuits.

Judges Clay and Sutton tie for the most separate writing citations by an appellate court (three each) and for the most separate writing citations overall (six each). Judge Sutton was nearly always (5 times) cited in concurrence, while Judge Clay was more often cited in dissent (4 times). Other highly cited judges were Judge Moore (cited five citations, mostly concurrences), Judge Boggs (four citations, mostly dissents), and Judge White (four citations, mostly concurrences). District judges sitting by designation were responsible for three of the 47 citations. When considering individual judges’ citation counts, it is important to keep in mind the relative lengths of judges’ tenure, since judges who have served for longer will have had more opportunities to write separately.

All but two of the citations came from judges currently on the bench, perhaps indicating that separate writings remain relevant for relatively short periods of time. A separate opinion is likely to be of interest to other courts while the controversy that generated it remains “live,” but once a question is definitively resolved—whether by the Supreme Court, Congress or other developments—it becomes highly unlikely that a prior dissent would be cited on that issue. Even if the resolution followed the separate opinion, future decisions will cite the resolving SCOTUS case or statute. On the other hand, majority opinions (unless reversed or superseded) will continue to be cited.

Some attorneys question the value of separate writings in appellate opinions, but as this brief empirical survey demonstrates, such writings can resonate well beyond the Circuit itself. Although not as frequently cited as majority opinions, we can see that even the Sixth Circuit’s separate writings can impact cases before other Circuits.

Will Sixth Circuit Case Provide a Basis to Overrule Iqbal?

Posted in News and Analysis, Recent Cases

We have previously covered on this blog a number of cases testing and defining the contours of Twombly and Iqbal.  Some courts, including the Sixth Circuit, have struggled to apply this consistently, although in most cases the question of the application is often tied closely to the specific allegations at hand.  Therefore, it is sometimes difficult to ascertain exactly what level of impact Twombly and Iqbal have on particular cases.  A cert petition just filed from a case arising out of the Sixth Circuit D’Ambrosio v. Marino poses an intriguing question by expressly asked the Supreme Court to overrule Iqbal.  The case is a Section 1983 action arising out of the wrongful conviction of Mr. D’Ambrosio, whose civil case was dismissed for lack of appropriately specific allegations in the complaint.  The D’Ambrosio petition squarely asked the Court to overrule Iqbal as out of step with the Supreme Court’s prior precedent, emphasizing the confusion that has been created in the wake of Twombly/Iqbal.  So, in light of the importance of this issue to pleadings filed every day in federal court, the obvious question is: does this cert petition stand a chance?  Stay tuned. . .

Still Waiting on Sixth Circuit’s Same-Sex Marriage Rulings As U.S. Supreme Court Denies Cert Petitions In Same-Sex Marriage Appeals From Three Other Circuits

Posted in News and Analysis, Recent Cases, Supreme Court

Earlier this morning, the U.S. Supreme Court denied seven cert petitions from five states, including Utah, Oklahoma, Virginia, Wisconsin, and Indiana, seeking review of rulings from the Fourth, Seventh, and Tenth Circuits striking down bans on same-sex marriage.  The High Court’s timing is uncanny because it was exactly two months ago today (August 6) that the Sixth Circuit heard oral arguments in five appeals in the battle over same-sex marriages.  We are still waiting for the Sixth Circuit’s decisions, but expect them to issue in short order (the Sixth Circuit’s average time between argument and decision is 2-3 months, although we can all agree that this is not an “average” case). 

This morning’s cert denials by the Supreme Court pave the way for gay marriages to go forward in a number of states.   And it will happen right away.  Rule 41(d)(2)(D) of the Federal Rules of Appellate Procedure states that the appellate court’s mandate must issue “immediately when a copy of a Supreme Court order denying the petition for writ of certiorari is filed.”  Sure enough, the Fourth Circuit already has lifted the stay of the mandate in the Virginia cases, while the Tenth Circuit has lifted the stay of the mandate in the Utah and Oklahoma proceedings.

Some media outlets are calling today’s cert denials a surprise given the high-profile issue involved.  But the denials are not really unexpected when you consider there has been little disagreement among lower courts over whether same-sex marriage bans are constitutional.  Perhaps the Court is waiting for a split to emerge (as we predicted in prior posts and media comments)All eyes are therefore on the Sixth Circuit’s forthcoming decisions to see whether they will be in line with other courts or whether the Sixth Circuit will blaze a different path.  We will continue to keep close watch.



Strict Construction in the Sixth Circuit: Why Ford Motor Co. Won’t Receive a $445 Million Tax Refund

Posted in News and Analysis, Recent Cases

In a published decision last Wednesday in a tax dispute spanning nearly 30 years, the Sixth Circuit denied Ford Motor Company’s demand for almost $450 million of interest on a tax refund from the IRS. The dispute began in the 1990s when the IRS sought nearly a decade’s worth of back taxes from Ford, which Ford remitted as “deposits in the nature of a cash bond.” Later, at Ford’s request, the IRS held the money as “advance tax payments” for accounting purposes. The IRS subsequently determined that Ford in fact had overpaid its taxes during the years in question and refunded the money with interest. However, Ford sought additional interest payments from the IRS beginning from the time the overpaid taxes were held as “deposits.” In denying Ford’s claims, the Sixth Circuit panel focused on the plain language of the tax statute at issue.

The thrust of Ford’s claim was that the IRS improperly calculated the amount of overpaid interest from the time Ford requested that the IRS covert its deposits into advance tax payments, rather than from the date when Ford first remitted the deposits. However, the Sixth Circuit had already heard the case once, having affirmed the district court’s grant of judgment on the pleadings for the IRS in 2012. But Ford appealed to the Supreme Court, and it remanded the case on jurisdictional and waiver-of-immunity issues. On remand, the Sixth Circuit determined that it had jurisdiction to hear the case under the tax code.

Reaching the merits, the Sixth Circuit noted that “[b]oth parties offer imaginative and convoluted theories to support their arguments,” but proceeded to use the canons of strict construction and plain language to adjudicate the dispute. Using Webster’s definitions, the panel reasoned that “[a] remittance is a payment when it is given to discharge a debt or obligation,” and so Ford’s entitlement to interest on its tax remittances depended on whether its “deposits” were remitted “to discharge a debt.” At the time Ford remitted the money, the Internal Revenue Code treated tax “deposits” as immediately refundable to a taxpayer. In turn, the court held that with such remittances, a “sophisticated taxpayer” like Ford intended to take advantage of this provision, to have the deposited funds immediately available, and not actually to “discharge a debt.” Thus, because Ford did not make a “payment” to the IRS within the meaning of the statute, Ford’s deposits could not be overpayments, and hence the IRS did not owe interest on them.

This case is notable not only for the fact that simple canons of statutory construction cost Ford a nearly $450 million tax refund, but also because it reminds court watchers that, at least in the Sixth Circuit, the practice of plain language interpretation (especially of tax statutes) remains alive and well.