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Sixth Circuit Raises More Questions than Answers on Attorney Fee Awards

Posted in News and Analysis, Recent Cases

In Smith v. Service Master Corp., the Sixth Circuit vacated an attorney fee award of over $500,000, largely because the district court did not provide sufficient findings to support the award.  The underlying case was brought under the Fair Labor Standards Act, and the plaintiffs recovered approximately $80,000 in the litigation.  After the conclusion of the case, counsel sought an award of over a $500,000 for the services provided, and the Sixth Circuit vacated the five-page order that awarded them those fees.

The Sixth Circuit, in this opinion, noted, but did not resolve, several open issues concerning availability of fees and costs.  The first issue implicated whether expenses for electronic legal research are recoverable.  The Court noted that Sixth Circuit law “is unsettled” on this issue, and it specifically noted a split within districts of this Circuit as well as a circuit split.  However, the uncertainty continues, because the Court did not have to resolve these issues.  The entries provided by plaintiffs’ counsel were not sufficient to establish that each charge was reasonably related to the issues raised in the case, prompting a remand from the Court.  Next, the Court tackled the issue of the appropriateness of the rates charges by law clerks and associates, which were higher than prevailing market rates for Tennessee because the law firm was from California.  Again, the Court noted some uncertainty concerning what the “relevant market” is for the purpose of awarding fees, but it did not decide this issue but instead remanded because the district court did not adequately explain or discuss the governing criteria.  A similar result obtained for fees for unsuccessful motions, issues, and claims.

Although this case does not decide very much, it is a good reminder for what counsel should do in order to secure a fee award that will withstand appellate scrutiny.  In this case, it appears that counsel did not provide sufficient detail, which led to a district court award that likewise left much to the imagination.  More thorough work on the front end of seeking fees can avoid the time, expense, and delay of an appeal and remand.

Sixth Circuit Judges Also Active in Scholarly Journals

Posted in News and Analysis

Despite the nearly 5,000 appeals that were filed in the Sixth Circuit last year, the Circuit’s judges also find time to actively contribute to academia and scholarly journals. In the past several years, at least five judges have published over fifteen articles, discussions, or memorials in scholarly journals, covering topics ranging from constitutional law, to pro bono work, to technology in the law.

Judge Sutton is by far the most prodigious academic writer in the circuit, having published seven articles in the past four years. Judge Sutton has written about a wide variety of topics, including state constitutional law, a critique of Richard Posner’s 2008 book How Judges Think, and standards of judicial review in first amendment cases. Judge Donald has published several articles in recent years as well, covering summary judgment in employment discrimination cases (which we also recently analyzed here), technology in the law, and African-Americans in law practice. Judge Moore’s memorials of Case Western Reserve Faculty have been published by her former university’s law review. Finally, Judge Keith,who has been a judge in the Circuit for over 35 years, also stays active in academia, having recently published an article on pro bono work.

If you are preparing for oral argument, and looking for additional background on your panel, it may be helpful to search and see what articles your judges may have authored. These articles can provide some insights on the judges’ thinking and personalities.

Sixth Circuit: Applicant Can’t Sue For Rejection Based On Whistleblowing At Prior Job

Posted in News and Analysis, Recent Cases

The Sixth Circuit held yesterday in Vander Boegh v. EnergySolutions, Inc. that a job applicant is not considered an “employee” under the False Claims Act and the Energy Reorganization Act, and therefore cannot avail himself of the Acts’ retaliation provisions.  The plaintiff, a former landfill manager who had reported environmental violations at his prior job, alleged that defendant refused to hire him because of his earlier whistleblowing.  Analyzing both statutes’ retaliation provisions thoroughly—consulting two dictionaries, a Restatement, and legislative history—the Court concluded that neither protected job applicants, who were neither employees (as required by the ERA), nor “employ[ee]-like” (as the Court found to be required by the FCA).

According to the Court, this is the first Circuit-level decision on this question. It will be interesting to see whether other circuits follow suit.

Sixth Circuit Weighs in on Antitrust Class Action Standards in Real Estate Case

Posted in News and Analysis, Recent Cases

Last week, the Sixth Circuit issued its opinion affirming summary judgment for the defendants in Hyland v. Home Services of America, Inc., a class action by former clients of several large real estate firms, who alleged that the firms engaged in antitrust behavior by colluding to inflate their commission rates in violation of the Sherman Act.

In 2005, the Kentucky Real Estate Commission abolished its ban on realtors offering rebates to incentivize the use of their services after the U.S. government brought an antitrust suit against the KREC. The class members in Hyland alleged that during the four years prior to the end of the KREC ban, the defendant firms conspired to charge “supra-competitive” commissions of at least 6%, and that the ban helped all of the “defendant firms collude[] to keep commissions at an artificially inflated rate.” The defendants countered that as “full-service” brokerage firms in the “inelastic” real estate market (in which homeowners are not induced to sell homes based on a broker’s commission rate), the 6% fee was not only merited, but also made economic sense.

In affirming summary judgment for the real estate firms, the court quoted extensively from the district court’s order and its assessment of the plaintiffs’ evidence as insufficient to allege the existence of a conspiracy to fix real estate commissions in Kentucky. Unwilling to say that its precedent had established a “stringent” standard for summary judgment motions in antitrust cases, the panel held that the plaintiffs’ direct and circumstantial evidence of collusion “[fell] far short of the standard that it be ‘explicit and require[] no inferences,’” nor did the evidence rebut the conclusion that the firms’ conduct “was also consistent with permissible competition.”

The Circuit has been relatively busy with antitrust class actions lately, with the Supreme Court recently denying review in one of the Circuit’s significant decisions, which we covered here. Although in Hyland the court declined to label its antitrust class action precedent as “stringent,” the Sixth Circuit’s decision in this case does indicate that an abundance of circumstantial evidence will not be sufficient to allege an anticompetitive conspiracy when the evidence also indicates permissible and standard market behavior. We will of course continue to monitor any further developments in this case, as well as the Circuit’s general approach to antitrust cases and their class action counterpart.

Sixth Circuit: Spraying Naked Pretrial Detainees In Front Of Bystanders May Violate 4th Amendment

Posted in News and Analysis, Recent Cases, Supreme Court

A Sixth Circuit panel unanimously held last week in Williams v. City of Cleveland that pretrial detainees forced to “undress in the presence of other detainees and to have their naked genitals sprayed with delousing solution” stated a viable claim under § 1983 and the Fourth Amendment.  Judge Griffin wrote the opinion in which Judges Siler and Clay joined.  The Court’s holding was based on Florence v. Bd. of Chosen Freeholders, 132 S. Ct. 1510 (2012), in which the Supreme Court held—according to Justice Alito, who provided the bare majority with its fifth vote and wrote separately specifically to “emphasize the limits of [the] holding”—that “jail administrators may require all arrestees who are committed to the general population of a jail to undergo visual strip searches not involving physical contact by corrections officers.”

Chiding the district court for “substantially underestimat[ing] the gravity of the intrusion into [the detainees’] privacy,” the Sixth Circuit distinguished the City of Cleveland delousing procedure on two grounds: physical contact and the presence of other inmates. First, the Court held that contact with the spray counted as “physical touching,” noting repeatedly that the spray was allegedly intentionally aimed at detainees’ genitals.  Second, the Court held that “[t]he wider an audience for a strip search, the more humiliating it becomes, especially when the stripped individual is exposed to bystanders who do not share the searching officers’ institutional need to view her  unclothed.”  Given these distinctions, the Court concluded that prisoners had “plausibly alleged” that these two aspects of the procedure were unreasonable, given the allegedly available alternative of permitting detainees to apply delousing solution to themselves without other detainees present.  Although the Court reversed the district court’s dismissal of the plaintiffs’ claim, it allowed that, “[i]n the final analysis,” the City might be able to demonstrate the current procedure to be reasonable by providing evidence of “a good reason” for its invasive aspects.

Notably, the Court did not rely in any way on the fact that plaintiffs had been arrested for minor offenses (the named plaintiffs had only ended up in jail due to the suspension of their drivers’ licenses for unpaid fines), even though both Chief Justice Roberts’s  and Justice Alito’s concurrences in Florence hinted that lower courts ought to make an exception for such cases. It will be left to the district court on remand to address these and other potential issues.

SCOTUS Declines to Review Sixth Circuit Antitrust Decision

Posted in Supreme Court

Pending before the Supreme Court for its conference last Friday was a request for certiorari in the recent Sixth Circuit case of Dean Foods Company v. Food Lion, LLC. In an order issued today, the Supreme Court denied certiorari and allowed the decision to stand without further comment.

Dean Foods (also known as In re Southeastern Milk Antitrust Litigation), which we covered here, was notable for its application of Daubert in the antitrust context. In Dean, after a careful scrutiny of the record and proceedings below, the Sixth Circuit held that the district court improperly excluded the plaintiffs’ expert testimony, and thus that it also improperly concluded that that the plaintiffs failed to establish causation as part of their showing of antitrust injury. Dean appealed to the Supreme Court for a decision on the standard for antitrust plaintiffs’ production of evidence of causation in order to defeat a motion for summary judgment. However, the Court has declined to take up this issue, allowing the case to move forward in district court again under the Sixth Circuit’s standards.

Panel Ruling Opens the Door Wider for Civil RICO Claims Against “Open-Ended” Schemes

Posted in Recent Cases

How long does a defendant have to engage in alleged criminal activity in order for a civil RICO claim against it to survive a motion to dismiss?  According to the district court in Kalitta Air, LLC v. GSBD & Associates (6th Cir., No. 14-1027, Nov. 13, 2014) (unpublished) [PDF], an alleged pattern of predicate fraudulent acts spanning between 16 and 32 months and ostensibly including multiple victims from discrete schemes was not enough.  In reversing the district court’s dismissal order, however, the Sixth Circuit’s ruling demonstrates that the viability of RICO claims will not necessarily hinge on a calendar but may turn on whether the complaint sufficiently alleges an open-ended scheme.

The fundamental issue in Kalitta Air is whether, under the Rule 12(b)(6) standard, the plaintiff sufficiently alleged a RICO scheme that demonstrated the requisite “closed-ended continuity” (i.e., a closed period of repeated conduct) or “open-ended continuity” (i.e., past conduct that inherently projects into the future and threatens repetition).  The alleged facts in the case are involved but, in salient part, boil down as follows.  Kalitta contracted with GSB to buy jet fuel for Kalitta’s air-cargo business, after GSB claimed it could obtain a discounted price for the fuel based on purported connections with international banks and the Saudi royal family.  After providing $29 million to GSB in an escrow account facilitated by escrow agent First International over the course of many months, Kalitta discovered that GSB allegedly violated the contract, draining the escrow fund, converting Kalitta’s escrowed monies, and shortchanging Kalitta of some $4 million in fuel that it had purchased.  Kalitta brought contract, fraud and RICO claims against GSB and other related persons and entities, alleging a series of predicate acts that included a similar scheme of alleged fraud by GSB against another company, Arrow Air, as well as an allegedly fraudulent scheme involving home mortgages that made use of Kalitta’s escrowed funds.

In reversing the district court, District Judge Lee Rosenthal (S.D. Texas), sitting by designation, wrote for a unanimous panel that included Circuit Judges Sutton and Kethledge.  The panel found that, “[i]f proven, Kalitta’s well-pleaded factual allegations of the predicate acts, of another victim of a very similar scheme, and of the continued operation of GSB and First International, combine to support a plausible inference that GSB—the alleged RICO enterprise—used these and similar predicate acts as its ‘regular way of doing business’ and that it and the other defendants remain a threat to others.”  The panel further found that “[w]hile allegations that defendants breached an open-ended contract do not by themselves, or necessarily when combined with other allegations, state a RICO claim, the allegations in Kalitta’s amended complaint go beyond those asserting a mere contract dispute.”  In particular, the panel noted the nature of the contract between Kalitta and GSB: “Although either party could terminate on 60-days’ notice, the agreement could have continued indefinitely but for the fortuity of Kalitta’s discovery.”  The panel also noted that “even after the contracts ended, the defendants stripped the escrow account and sent invoices and emails with false statements to get Kalitta to resume the arrangement.”  Finally, the panel observed that “Arrow Air’s choice of whether to allege fraud or RICO claims in its own lawsuit does not foreclose Kalitta’s RICO claims in its action.  Kalitta’s allegations that GSB and other defendants used an escrow account to supply Arrow Air with less jet fuel than it paid for and to get the money earlier than the contract allowed make it plausible that Arrow Air was a victim of the same racketeering activity that deceived Kalitta.”  For these reasons, the panel found that Kalitta’s complaint sufficiently alleged a RICO claim that met the requirement of “open-ended continuity.”

Although the Sixth Circuit’s conclusion is properly driven by the terms of the contract between Kalitta and GSB as well as specifics regarding GSB’s allegedly fraudulent acts, the ruling in Kalitta Air increases the potential viability of RICO claims, making the statutory charge a more viable arrow in the business quiver.  Kalitta Air is worthy of review before filing a RICO complaint or moving to dismiss such an action.

Employment Cases & Summary Judgment: Trends in the Sixth Circuit

Posted in News and Analysis

A recent review of appeals of employment cases in the Sixth Circuit revealed the Court is more likely to uphold rather than overturn grants of summary judgment in favor of defendant-employers. In a solid 60% of appeals in these cases, the Circuit upheld summary judgment for the employer.

The survey involved an analysis of Sixth Circuit cases in the last twelve months that fell under the “labor and employment” classification and ended in district court with some level of summary judgment (whether entire or partial). Of the cases uncovered using this method, a mere 1% (two cases) involved appeals from summary judgment in favor of the plaintiff-employee, but both cases were dismissed for failing to meet an exception to the final appealable order rule. Another 8% resulted in a mixed “affirmed in part, reversed in part” disposition. Notably, just about one-third of the appeals resulted in complete reversal of the defendants’ summary judgment victory in district court.

Also uncovered were the most frequently-litigated statutes in these types of employment cases. Assuming that appeals of summary judgment in the employment context fairly represent appeals in employment cases in the Sixth Circuit generally, the major extrapolation from this survey is that employee claims most frequently involve accusations of discrimination and the invocation of the ADA’s protections. At least one-third of all cases involved discrimination claims of some sort (whether racial, ethnic, gender, etc.), and about one-fifth specifically alleged retaliatory actions by the employer. A distant second to ADA claims were those under the ADEA and FMLA. Finally, about one-fifth of cases involved some government entity as a defendant, and about half of those raised § 1983 claims.

Although the sample size is small, it does tell us a few things about employment appeals in the Circuit. Summary judgment for employers is upheld more often than not, but 60% is by no means an “overwhelming” majority. Recall that the overall affirmance rate at the Circuit is around 90% (but this includes pro se, prisoner, and criminal appeals). So that means that employment summary judgment appeals are reversed at a higher rate than average, and it indicates that the Court is carefully reviewing these appeals.  Employers therefore should not take affirmance for granted, and must carefully marshal the arguments needed to convince the Court to uphold summary judgment.

Sixth Circuit Grants Ponzi Swindler New Sentencing

Posted in Recent Cases

Despite characterizing the result as “unseemly,” a panel of the Sixth Circuit in United States v. Snelling nonetheless reduced the sentencing guideline range for a swindler who presided over a nearly $9 million Ponzi scheme.  Relying on commentary added to the Sentencing Guidelines in 2001, the panel concluded that Snelling should have received credit for money paid out to investors during the scheme, thereby reducing the loss amount caused by his crimes and, by extension, his possible sentence.

Snelling created fictitious companies that promised to invest money into overseas mutual funds and overnight depository accounts that supposedly provided annual returns of 10– 15%.  In reality, “returns” paid to early investors came from the deposits of new investors—the classic operation of a Ponzi scheme.  Snelling and his partner squandered the remainder of the deposits on their extravagant lifestyles.  Along the way, though, the scheme paid “returns” to some investors of nearly $3.5 million. Snelling wanted credit for those returns when it came time for sentencing.  If the amount deemed lost by the scheme was reduced by those returns, the applicable guidelines range would drop from 121–151 months to 97–121 months, well below Snelling’s 131-month sentence.

The panel agreed with Snelling that the clear text of the Guidelines applied to reduce his Guidelines range.  Promulgated as part of the Sentencing Commission’s overhaul of the fraud provisions, the note (titled “Ponzi and Other Fraudulent Investment Schemes”) creates a special loss calculation rule.  When operators of a Ponzi scheme transfer money to an individual investor as part of its scheme, the amount of loss is reduced up to the investor’s principal investment.  The panel acknowledged the “intuitive appeal” of the government’s argument that swindlers should not benefit from conduct designed to lure additional investors into the scheme.  But the panel held that a straightforward reading of the Guidelines compelled resentencing.  A seemingly conflicting decision from the Eighth Circuit, United States v. Nichols, 416 F.3d 811 (8th Cir. 2005), was distinguished based on the facts of the two schemes and the Eighth Circuit’s reliance on decisions interpreting earlier versions of the Guidelines.

On a related note, the Snelling decision underscores the importance of permitting appeals of contested sentencing issues.  Many federal prosecutors demand complete waivers of appellate rights as part of a guilty plea.  But DOJ’s policy permits a limited waiver of appeal whereby a specified issue, like the correct interpretation of an application note, remains available for appellate review.  The outcome in Snelling shows how important that review can be for uniform interpretation of the Guidelines.

Video Interview: Sixth Circuit in National Media Spotlight Following Last Thursday’s Same-Sex Marriage Ruling; Our Bloggers Offer Their Own Insights And Analysis

Posted in Recent Cases, Supreme Court

The Sixth Circuit has been in the national media spotlight following last Thursday’s high-profile decision upholding same-sex marriage bans in Ohio, Michigan, Kentucky, and Tennessee.  See Opinion (6th Cir. Case Nos. 14-1341; 3057; 3464; 5291; 5297; 5818).  We covered the Sixth Circuit’s decision here only hours after it was decided.  The Court’s decision is the first major ruling upholding states’ rights to define marriage as between a man and a woman, and there is one burning question everyone is asking:  Will the Sixth Circuit’s divided 2-1 decision be the catalyst that spurs the U.S. Supreme Court to take on the same-sex marriage issue once and for all? 

For insight into this question and the reasoning underlying the Sixth Circuit’s decision, the media turned to our own Pierre Bergeron for comment.  In Friday’s Cleveland Plain Dealer, Pierre noted that the Sixth Circuit’s gay marriage ruling creates the Circuit split that the Supreme Court has been waiting for.  As Pierre further highlighted in the Chattanooga Free Times on Friday, the Sixth Circuit’s decision is “tailor-made for the Supreme Court to intervene.”

Speaking more generally about last Thursday’s decision by the Sixth Circuit, Pierre told the Dayton Daily News on Friday that “I think the court is really saying the Supreme Court has not preordained this and the Supreme Court has not yet created a constitutional right for gay marriage.  And if the Supreme Court is going do it, the Supreme Court is going to do it — not the Sixth Circuit.” 

So what would the argument at the Supreme Court look like?  “I think it’s likely that the pitch at the Supreme Court is going to be for recognition of a constitutional right,” Pierre explained to the Chattanooga Times Free Press on Sunday.  

I have my own thoughts and insights on the Sixth Circuit’s decision and whether the U.S. Supreme Court will take up the same-sex marriage issue in the coming Term.  Check out my exclusive video interview on LXBN TV with host Colin O’Keefe where I break down the Sixth Circuit’s majority and dissenting opinions and discuss the factors that will influence Supreme Court review.  I also explore the irony of whether the Sixth Circuit’s decision just nationalized same-sex marriage in this country:

Also be sure to check out LXBN TV’s additional coverage of the Sixth Circuit’s same-sex marriage ruling which compares our blog post with other viewpoints.  

 As always, we welcome your thoughts in the comments below.