Sixth Circuit: Foreign Currency Scheme Doesn’t Pay

In United States v. Teadt, the Sixth Circuit affirmed the convictions of Michael Teadt, Bradford Huebner, and Charles Emmenecker for their roles in a $24 million currency fraud scheme. Huebner and Emmenecker teamed up with another man who claimed to be a foreign-currency expert and sold and marketed Iraqi dinars. The men claimed that the dinars would increase in value based on speculation of an imminent currency revaluation by the Iraqi government, and vaguely referenced a fictional statute in order to bolster their investors’ confidence. The three then established hedge funds and sold almost 1,000 “inception investors’ seats” at $750 each. Meanwhile, Teadt applied for subsidized job training benefits in order to cover costs of the hedge fund business. The defendants were convicted of assorted counts of wire fraud, mail fraud, money laundering, and structuring.

 On appeal, the Court rejected each of the defendants’ varying arguments. Using a manifest miscarriage of justice standard of review for failure to renew their motions for acquittal after the close of the evidence, the Court denied each defendant’s sufficiency of the evidence argument. Teadt’s testimony gave rise to a reasonable inference that he intended to commit mail fraud, and the record was not devoid of evidence sufficient for the jury to disbelieve Huebner’s and Emmenecker’s allegedly sincere beliefs about the revaluation of the dinar.

Next, the Court affirmed the amount of restitution ordered by the district court under the Mandatory Victims Restitution Act (“MVRA”). The Court seemingly lauded Huebner for “creatively” claiming “that since many of the purchasers do not consider themselves victims, they cannot be recognized as such under the law.” Despite the creativity of this argument, the Court nevertheless found that the MVRA does not require a victim to subjectively believe that he or she has been harmed. The Court also found that the victims suffered an actual loss because the dinars “are worth much less than the price they paid and likely always will be,” and that the district court could impose joint-and-several liability in order to fully compensate the victims.

Finally, the Court found no prosecutorial or juror misconduct. Despite the defendants’ claim that the prosecutor improperly referred to evidence of cash deposits into Emmenecker and Teadt’s accounts that was not in the record, the Court held that the prosecutor “was merely conceding that the government had no direct evidence of how Teadt or Emmenecker benefitted monetarily from the crimes.” The Sixth Circuit also concluded that the issue of sleeping jurors did not deprive Emmenecker of his Fifth Amendment due process rights or his Sixth Amendment right to an impartial jury.

 

Sixth Circuit Weighs In on Statute of Repose Circuit Split

Recently, the Sixth Circuit was compelled to take a side of the jurisdictional split on the issue of whether a statute of repose can be tolled by a pending class action certification. The split arises out of the 1974 Supreme Court decision in American Pipe& Constr. Co. v. Utah, 414 U.S. 538 (1974), which held that pending certification of a class tolled a statute of limitations for members of the purported class, preserving the individual right to file suit for a limited time after the class action ended. The Tenth Circuit extended American Pipe to allow the tolling of statutes of repose. Joseph v. Wiles, 223 F.3d 1155, 1167 (10th Cir. 2000). The Second Circuit, though, held that a judicial expansion of a statute of repose would violate the Rules Enabling Act, and refused to extend American Pipeline. See Police & Fire Ret. Sys. Of City of Detroit v. IndyMac MBS, Inc., 721 F.3d 95, 107-108 (2d Cir. 2013). 

Last month, in Stein v. Regions Morgan Keegan Select High Income Fund, Inc., the Sixth Circuit confronted the same issue. In that case, the plaintiffs-investors attempted to file suit after the Securities Act’s statute of repose had run, relying on American Pipeline to argue that the statute had been tolled while their class certification was pending. The Sixth Circuit, however, was persuaded by the Second Circuit’s reasoning and refused to extend the American Pipeline holding to a statute of repose. The Court found that because statutes of repose confer a substantive right on “defendants… to be free of liability after a certain absolute period of time” it could not endorse the contrary view that a defendant’s “potential liability should not be extinguished simply because the district court left the class certification unresolved.” (quoting Joseph).  

This decision could incentivize potential class members to opt out of a class, out of a fear that if the class is not certified, they will lose their individual claim due to the expiration of a statute of repose (or at a minimum, they should monitor class proceedings closely). It will be interesting to see if Stein will affect courts’ decisions to certify classes late in the game, knowing that plaintiffs may be unable to subsequently file individually, or if it will generally speed up the certification process.  In any event, this case again highlights the significance of the distinction between statutes of limitations and statutes of repose.

This post was written by Taylor Gamm, a summer associate in SPB’s Cincinnati office.

 

SIXTH CIRCUIT UNVEILS NEW WEBSITE

The Sixth Circuit has recently released a link to the new website that it will launch on June 27, 2016.   The new website is based on a national model template for federal court websites, which some courts are already currently using. For example, the Seventh Circuit already uses this format. The new format promises to make things easier on practitioners, especially those of us who practice in multiple different jurisdictions, by trying to include a measure of standardization between the various websites. For anyone who has comments on the website, they can be directed to CA06-Webmaster@ca6.uscourts.gov.

 

The Sixth Circuit Likes to Play Logic Games

Yesterday, the Sixth Circuit released a decision that will surely strike close to the hearts of every attorney and law school student. In Binno v. American Bar Association, the court found that the ABA was not the responsible party for the plaintiff’s harm, which allegedly resulted from his experience with the LSAT. More specifically, Angelo Binno filed suit against the ABA on grounds that, because he is blind, he is “incapable of perceiving spatial relationships or performing the necessary diagramming to successfully complete the logic-games questions….” And due to the ABA 503 Standard, which provides that a law school must require applicants to take a “valid and reliable admission test,” law schools were unwilling or unable to provide a waiver that would allow Binno to be exempt from taking the LSAT and reporting his scores.

The court first rejected Binno’s claim by determining that he could not establish Article III standing. Although the LSAT is the only “valid and reliable” test listed by the ABA, the majority reasoned that because the ABA allows schools to find an alternative to the LSAT, because it does not require a certain weight to be given to the LSAT score, and because it does not control the content of the LSAT, Binno could not demonstrate that the ABA caused his harm. The court further found that even if the ABA made Standard 503 optional, a law school could still choose to require the LSAT in their admissions process; therefore, Binno’s claim also failed the redressability prong of Article III standing.

Second, the court found that even if Binno could establish standing, his complaint nevertheless failed because he is also unable to establish a claim under the ADA. Title III of the ADA requires private entities that “offer” admissions examinations to do so with appropriate accommodations for those with disabilities. Because the ABA is unable to control the content, how, or where the exam is administered, the Court found that it is also unable to “offer” the exam. The court therefore concluded that the ABA cannot be in violation of Title III.

In light of recent successful litigation against the LSAC for claims mirroring Binno’s, the majority was “left puzzled by Binno’s failure to litigate against the LSAC.” In his concurrence, Judge Griffin, however, found that the majority’s reliance on the argument that Binno “somehow sued the wrong party” overlooks one of Binno’s critical allegations: the ABA previously permitted law schools to give individual LSAT waivers. The concurrence thus concludes that the causation and redressability elements of Article III standing were met, as this allegation makes clear that the ABA does have some control over whether Binno is required to take the LSAT and report his scores (but ultimately agreed with the majority on the merits).

 

Shipwreck Case Leads to Sanctions

The saga of a shipwreck treasure trove continues in Williamson, et al. v. Recovery Limited Partnership, et al., “yet another skirmish in the legal battle over the treasure from the S.S. Central America,” a shipwreck discovered over 130 years after it sank in September 1857. (Earlier litigation has previously been a topic of this blog, and can be found here.) In this appeal, the Sixth Circuit reviewed the imposition of sanctions against Richard Robol, the defendants’ attorney, for hampering the enforcement of a court order in bad faith. After the district court issued the contempt order in 2006, the defendants turned over to plaintiff Dispatch Printing Company an inventory of the gold that they sold to the California Gold Marketing Group from February 15 to September 1, 2000. The defendants failed to turn over any prior inventories. Counsel maintained throughout this litigation that the defendants “produced the one and only inventory that the company had.” However, in 2013, a receiver hired by Dispatch discovered another hidden treasure – this time in the form of thirty-six file cabinets full of treasure inventories – in the basement of a duplex that counsel owned and partially leased to the defendants. After this discovery, Dispatch filed a motion requesting the court to exercise its inherent powers to sanction counsel for bad-faith conduct during the litigation.

 The Sixth Circuit began its analysis with addressing the applicable law involved in a court’s inherent powers to sanction bad-faith conduct. The Court found the precedent that the district court used inapplicable. First, the three-prong Big Yank test was inapplicable because that test “contemplates a situation in which a plaintiff has filed a frivolous lawsuit.” Second, the fraud-on-the-court doctrine was inapplicable because that test “deals with courts’ inherent power to vacate their judgments.” To resolve the confusion, the Court clarified the appropriate legal test: “[W]hether Robol hampered the enforcement of a court order in bad faith.” After finding that counsel did hamper the enforcement of a court order, the Court turned to the bad-faith inquiry and examined “whether Robol knew that the defendants possessed the undisclosed inventories or was willfully blind to their existence when he made his misrepresentations to the court.” Dispatch’s evidence included a letter, admiralty litigation in Virginia, and testimony from the employee who created and maintained the inventories and the financial advisor for the receiver, all of which convinced the Court that counsel intentionally misled the district court in order to hamper the court order.

 The Court then turned to the calculation of sanctions, finding that the $224,580 awarded to Dispatch was not a windfall because the sanctions are not meant to be solely restitutive. Precedent establishes “that courts have broad discretion under their inherent powers to fashion punitive sanctions.” This case is the latest in a series of cases by the Circuit assessing the applicability of inherent authority sanctions, and the Court seemed to appreciate some lack of precision in its prior cases.  This opinion thus seeks to clarify the test and provide guidance when litigating such a sensitive issue.

 

SIXTH CIRCUIT FLIPS CLASS SETTLEMENT ORDER

One of the frequent givens in current civil litigation is a protective order that shields material produced in discovery.  Those orders often require the filing of certain material under seal.  The tension between public interest in open access to records and business interests in confidentiality/trade secrets came to a head in yesterday’s opinion, Shane Group, Inc. v. Blue Cross Blue Shield of Michigan.  That case involved a class settlement of antitrust claims brought against Blue Cross Blue Shield arising out of an alleged “most favored nation” scheme with certain hospitals.  Before reviewing the substance of the attack on the class settlement, the Sixth Circuit expounded upon the district court’s order that sealed key aspects of the pleadings.

The Court drew a “stark” distinction between basic discovery exchanged between the parties and materials filed with the court.  In light of the historic openness of judicial proceedings, the Court recognized that a more exacting standard must be met in order to file materials under seal.  In this case, given that the district court sealed key exhibits and filings, the Sixth Circuit found that members of the class that might object to the settlement had access to only “fragmentary information” about the conduct giving rise to the litigation.  In addition, the court faulted the parties’ basis for sealing this information as “brief, perfunctory, and patently inadequate.”  Finding an abuse of discretion, the Court held that “the parties and the district court plainly conflated the standards for entering a protective order under Rule 26 with the vastly more demanding standards for sealing off judicial records from public view.”  Nor was this error harmless, because it deprived class members of the ability to participate meaningfully in the Rule 23 process by denying them the ability to review the basis for the proposed settlement.

Beyond the sealing issue, the Court also criticized certain aspects of the district court’s order approving the settlement.  For instance, the Sixth Circuit noted that the district court did not elaborate the likelihood of success issue, and instructed the court on remand to devote more attention to this matter.  Likewise, the court attacked the billing rates of plaintiffs’ counsel that were approved by the district court, characterizing them as “Bentley rates, not Cadillac rates.”  If the district court were to approve such rates, it would need to provide more of an explanation than it did initially.  Finally, the Sixth Circuit raised concerns about the incentive awards given to class representatives.  Echoing some recent decisions from the Court on this issue, the Sixth Circuit expressed concern about “a bounty” that might not be fair to the overall class.

This case is worth a careful read for a number of reasons.  First, we have all dealt with protective order and sealing issues and this represents the Sixth Circuit’s latest word on the subject.  You can be sure that district courts will be sensitive to sealing issues in light of the tenor of this opinion.  Relatedly, consistent with some other recent class settlement decisions from the Circuit, this again sheds light on the issues that both class and plaintiffs’ counsel must be cognizant of in seeking approval of a class settlement.  The Sixth Circuit will not just rubber stamp approval because the plaintiffs and defendant agree. An adequate record must be made that will enable the Circuit to review and assess the propriety of the settlement.

SCOTUS: Dismissal of Claim Under FTCA “Exceptions” Does Not Bar Second Suit

The Supreme Court unanimously affirmed the Sixth Circuit yesterday in Simmons v. Himmelreich, holding that the Federal Tort Claims Act’s “judgment bar” provision does not apply to claims that are dismissed under the “Exceptions” provision of the FTCA.  The FTCA permits plaintiffs to sue the federal government for certain torts committed by government employees.  But there’s a catch: the FTCA contains a “judgment bar,” providing that a judgment in an FTCA suit precludes any future suit against individual federal employees. 

Plaintiff, a prisoner, had initially sued the federal government under the FTCA, alleging that prison officials’ negligence had caused his beating by a fellow inmate. However, the FTCA includes a number of “Exceptions,” see 26 U.S.C. § 2680, including any claim based on the “exercise or performance [of] . . . a discretionary function.”  § 2680(a).  The plaintiff’s first suit was dismissed under this exception, and he brought a second suit against individual prison employees.  The district court granted summary judgment to the defendants, on the ground that plaintiff’s first dismissal triggered the FTCA’s judgment bar.  In a unanimous per curiam opinion, Sixth Circuit reversed, holding that the judgment bar did not apply because “district courts lack subject-matter jurisdiction over an FTCA claim when the discretionary-function exception applies” and therefore dismissal in such cases does not “implicat[e] the FTCA’s judgment bar.” 

The Supreme Court affirmed, relying on the explicit language of the “Exceptions” provision declaring that provisions of the FTCA, of which the judgment bar is one, “shall not apply to” the listed exceptions.  The also Court drew an analogy to common-law claim preclusion, explaining that a dismissal on the merits would have triggered the judgment bar because it “would have given him a fair chance to recover damages for his beating.”   

At least two other Sixth Circuit decisions have already been reversed this term: Sheriff v. Gillie and White v. Wheeler.  We have previously blogged about Supreme Court reversal rates among the circuits, and look forward to doing so again when all opinions for this term are issued.

 

Judge Boyce Martin, Jr. Passes Away

Former Sixth Circuit Judge Boyce Martin of Louisville has passed away.  The Louisville Courier-Journal has a nice article about Judge Martin’s life here. One of Judge Martin’s more recent memorable decisions was his ode to bourbon in the Maker’s Mark case (which we certainly enjoyed). Several have commented about how spirited Judge Martin was at oral argument, and I certainly experienced that. In fact, in one oral argument, Judge Martin offered a few suggestions about blog posts for me to consider! As we recently reported, President Obama has nominated a successor to Judge Martin’s seat, but it remains to be seen whether the Senate will take any action.  

 

Kentucky Supreme Court Justice Hughes Nominated For Sixth Circuit Seat

Earlier this year, President Obama announced the nomination of Kentucky Supreme Court Justice Lisabeth T. Hughes for the Sixth Circuit vacancy created by Judge Martin’s retirement.  Justice Hughes served as a judge in various Kentucky courts for nearly a decade before her appointment to the Supreme Court of Kentucky in 2007.  If confirmed, she will join several former state court judges on the Sixth Circuit, including Judge Cook (Ohio), Judge Griffin (Michigan), Judge Donald (Tennessee), and Judge White (Michigan). We reported two years ago that Justice Hughes was being considered for the Court. While all eyes are currently on the appointment of Judge Garland to the Supreme Court, it is questionable whether any circuit-level appointments will clear the Senate at this time.  If she were confirmed, Justice Hughes would join seven other active female judges on the Sixth Circuit, meaning that half of the active judges would be female. We’ll continue to monitor any progress on the confirmation of Justice Hughes.

Annual Judges’ Night Dinner to be Held on June 8th

The Cincinnati/Northern Kentucky Chapter of the Federal Bar Association will once again host the annual Judges’ Night Dinner on Wednesday, June 8th.  It is always a great event and often attended by most of the 6th Circuit judges, as well as numerous local district court and magistrate judges.  This year’s featured speaker will be General William Suter, former Clerk of the United States Supreme Court.  If you are interested in attending, please click here for more information.

LexBlog