The Sixth Circuit has announced that the 73rd Judicial Conference will be held May 13-15, 2015 in Detroit. Many of us may recall that the last open conference was a victim of Congressional budget cuts and sequestration, so it is nice to see that the Court is reconvening the open judicial conference. Expect details of the conference to come out after the new year, with registration likely to take place in early 2015. But for now, save the date!
Earlier this year, we posted a feature analyzing how the Sixth Circuit has not been hesitant in imposing sanctions under Federal Appellate Rule 38 for frivolous and unwarranted appeals. Our research of Sixth Circuit opinions from the last several years revealed that various types of improper behavior may lead to appellate sanctions, including, among other things: (1) ignoring clearly established facts barring a claim, (2) discounting prior warnings by the district court that sanctions are possible, (3) failing to include record citations in a brief, (4) failing to file a reply brief when necessary to respond to the other side, (5) relying on imaginary citations, (6) ignoring adverse authority, (7) failing to deal candidly with the Court, and (8) otherwise pursuing an appeal “ostrich-like” without regard to the relevant law or the facts.
This month, we’ve gone back and reviewed several years’ worth of opinions to get a sense of how the Sixth Circuit has handled sanction orders entered by district courts. We focused specifically on sanctions for spoliation of evidence because the Sixth Circuit in Ross v. American Red Cross, Case No. 12-4312 (6th Cir. Jan. 27, 2014), recently emphasized that strong evidence is required before a district court may sanction a party for spoliation of evidence.
Our review of Sixth Circuit case law from the past several years leads to an unremarkable conclusion: The Sixth Circuit is highly unlikely to disturb a district court’s decision to either impose sanctions or decline imposing sanctions for spoliation of evidence, given the deferential standard of review. As the Court in Ross observed, the failure to produce relevant evidence falls along “a continuum of fault” that ranges from purely innocent behavior to intentional destruction of relevant evidence. As such, district courts are afforded broad powers to craft proper sanctions for spoliation.
This is borne out by our review of recent Sixth Circuit case law compiled below:
- Flagg v. City of Detroit, 715 F.3d 165, 178 (6th Cir. 2013) (holding that the district court did not abuse its discretion in imposing a permissive adverse instruction for a party’s destruction of emails, as opposed to imposing a mandatory adverse instruction, because “a permissive adverse inference instruction does not guarantee anyone a windfall; it leaves the decision in the hands of the jury”).
- Arch Ins. Co. v. Broan-Nutone, LLC, 509 Fed. Appx. 453, 458 (6th Cir. 2012) (affirming the district court’s choice of a permissive adverse inference jury instruction in a product liability action brought by an insurer against a manufacturer after an allegedly defective fan/light assembly was destroyed negligently).
- Stocker v. United States, 705 F.3d 225, 235 (6th Cir. 2013) (holding that the district court did not abuse its discretion in declining to draw an adverse inference against the IRS as a spoliation sanction for failing to preserve a taxpayer’s envelope because the IRS was not shown to have acted “with a sufficiently culpable state of mind”).
- Johnson v. Metro. Gov’t of Nashville & Davidson County, 502 Fed. Appx. 523, 533-34 (6th Cir. 2012) (holding that the district court did not abuse its discretion by denying sanctions because the plaintiffs failed to prove that the destroyed evidence was relevant to their claims).
The broad discretion afforded to district courts in crafting spoliations sanctions, however, is not without its limits. As illustrated by the Sixth Circuit’s recent decision in Byrd v. Alpha Alliance Ins. Corp., 518 Fed. Appx. 380 (6th Cir. 2013), the Court will not hesitate to reverse a district court’s spoliation order where the remedy imposed is too harsh. In Byrd, the district had found that the plaintiff’s actions in inspecting a stove and shattering the glass top constituted spoliation of evidence when the plaintiff knew that an insurance inspector would be inspecting the stove to determine whether an unattended pot caused a fire in the plaintiff’s home. As a sanction for spoliation of evidence, the district court granted summary judgment to the insurer. On appeal, the Sixth Circuit held that the district court’s sanction was “excessively harsh in light of other available options, such as an adverse instruction.” Id. at 386. The Sixth Court stated that “[d]ismissal should rarely be imposed and only when significant prejudice results from the evidence’s destruction.” Id. So the bottom line is that while the Sixth Circuit generally affords deference to district court decisions on spoliation sanctions, overly harsh remedies are subject to reversal.
In a lengthy opinion last week, the Sixth Circuit resolved an intra-Girl Scouts retirement plan dispute that began in 2005. In so doing, the appellate panel demonstrated the broad preemption powers of ERISA and clarified the law’s application to multiple-employer plans.
The problems began when the Girl Scouts of the United States of America (GSUSA) consolidated councils, made almost 2,000 employees eligible for a lifetime pension “without having previously contributed to the [retirement] Plan,” and added a Voluntary Early Retirement Incentive to the plan. The plan then hemorrhaged money: it went from a $150 million surplus in 2007 to a $340 million deficit in 2011. The Girl Scouts of Middle Tennessee, Inc. (GSMT) sued GSUSA, the Sponsor and Administrator of the Girl Scout Councils Retirement Plan, on the grounds that GSUSA increased the liabilities of the Plan “unilaterally and without authorization,” and sought a judgment allowing GSMT to withdraw or spinoff from the Plan.
In affirming the district court’s complete dismissal of all of GSMT’s claims, the Sixth Circuit first pointed out that ERISA did not provide a direct cause of action for GSMT because GSUSA is not a “plan fiduciary” under ERISA, and went on to hold that ERISA preempted GSMT’s state law claims because those claims would “duplicate, supplement, or supplant” ERISA remedies. Next, in rejecting GSMT’s request to create federal common law to clarify or fill the gaps of ERISA, the court emphasized that ERISA’s powers are broad and clear. Because GSMT did not fit into ERISA’s specific list of parties authorized to bring a civil enforcement action, GSMT was without power to bring such an action, and the court refused to expand ERISA beyond its statutory limits by adding “employers in multiple-employer plans” to that list. Nor would the court expand ERISA to include an employer’s claims for breach of fiduciary duty against a plan administrator under a multiple-employer plan. Finally, because GSMT raised on appeal—but did not plead—the argument that its changes under the plan did not comply with a Tennessee notice statute, the Sixth Circuit rejected GSMT’s late argument.
This case reiterates the broad powers of ERISA, both to preempt state law and to limit federal common law. Even where the Supreme Court has expressly allowed the creation of federal common law, courts are reluctant to recognize it, especially in a statutory scheme as comprehensive as ERISA. It also demonstrates that, unless Congress amends ERISA to allow claims like GSMT’s in the multiple-employer plan context, member employers in such large plans must enter them alert to their limited remedies.
Yesterday, the Sixth Circuit granted en banc review of Bible Believers, et al., v. Wayne County, et al., a free speech case arising out of the plaintiffs’ evangelistic efforts at the Arab International Festival in Dearborn, Michigan. Over a vigorous dissent by Judge Clay, the panel upheld a grant of summary judgment in favor of actions taken by local officials to silence the speaker in the face of an angry crowd. The en banc decision in this case is of practical importance to law enforcement officials throughout the Sixth Circuit as they operationalize the balance between preserving the peace and protecting an individual’s freedom to speak. Supplemental briefing is set to conclude on February 6, 2015. A date for oral argument has not yet been set.
On Monday, the Supreme Court granted certiorari in Henderson v. United States, a case that the Eleventh Circuit decided earlier this year. Although the case comes from Florida, its outcome will impact the Sixth Circuit as well. The issue in the case centers around whether the rule that “seized property, other than contraband, should be returned to the rightful owner after . . . criminal proceedings have terminated” allows a convicted felon to transfer his nonpossessory interest in firearms to a third party, despite the blanket statutory prohibition on felons possessing firearms.
In a per curiam opinion, the Eleventh Circuit held that 18 USC § 922(g)—which forbids a convicted felon’s possession of firearms—and circuit precedent clearly prohibited even a sale of transfer of the felon’s nonpossessory interest in the firearms. In so holding, the Eleventh Circuit joined the Third, Sixth, and Eighth in their prohibition on transfers of a felon’s nonpossessory interest in firearms. The Sixth Circuit addressed this issue in the 2002 case of United States v. Headley, 50 Fed.App’x. 266 (2002), where a defendant convicted of tax evasion and student loan fraud sought the transfer of his fourteen firearms to his father. Citing persuasive but not binding precedent, the Sixth Circuit reasoned that “[b]ecause Headley lacks the power to lawfully possess the firearms himself, he also cannot delegate the authority to possess these firearms to another individual.”
However, the Seventh Circuit—per Judge Easterbrooke in 2009—held opposite the Sixth Circuit’s decision, reasoning that the felon’s constructive interest in the firearms (albeit not his possessory interest) continues after conviction despite § 922(g). The Second and Fifth Circuits agree.
Despite relatively short and simple opinions in these cases, the circuit split spanning several years has generated a controversy sizeable enough to concern the High Court. With the split almost evenly numbered, there is no clear indication as to which way SCOTUS will rule on the issue. But we will be sure to watch this petition as it works its way through the Court and ultimately to see whether the Sixth Circuit is indirectly affirmed or overturned.
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.
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.
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.
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.
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.