The Sixth Circuit Clarifies Pleading Standards

United States ex rel. Andrew Hirt v. Walgreen Company offers an important cautionary tale for plaintiffs considering claims, or defendants facing claims, brought under the False Claims Act. But it also offers some insights regarding allegations of fraud more generally. The Sixth Circuit faced, head-on, the question of the heightened pleadings standard, and made clear that it would vigorously police the boundary between specific and general allegations.

The plaintiff was the owner of two small, local pharmacies in Tennessee. For some time, he had noticed a loss of his customers to local Walgreens branches, with whom his independent shops have been locked in constant competition. The plaintiff filed suit, alleging in his complaint that Walgreens had been offering customers $25 gift cards to prompt them to switch from the local pharmacies to Walgreens. His lawsuit was styled as a qui tam action, and he claimed violations of the False Claims Act and the Anti-Kickback Statute. The government, with the option under the False Claims Act, declined to intervene, and Walgreens moved to dismiss.

The district court dismissed the plaintiffs claim, and the Sixth Circuit affirmed. It ruled that the plaintiff had failed to meet the heightened pleading standard that applies to allegations of fraud – including alleged violations of the False Claims Act. That heightened pleading standard, the court reiterated from the federal rules, requires that the plaintiff state with “particularity the circumstances constituting fraud or mistake.” And yet the plaintiff in this case had failed to identify, specifically, a single false claim submitted to the government. He failed to identify any customers, the dates on which they filed prescriptions, and how those were handled after submission to Walgreens. “We are left,” the court lamented, “to infer these essential elements from the fact that [the plaintiff’s] customers moved their business from his pharmacies.” That would not do in cases involving allegations of fraud. The heightened pleadings standard “demands specifics,” ruled the court. Finally, the court made clear that earlier suggestions of a “relaxed” pleading standard where the plaintiff cannot allege specific facts, through no fault of his own, applied in far different circumstances than presented in this case. And it also made clear that HIPAA does not stand as a bar to pleading specifics – a plaintiff is free to use initials, dates, and other “non-identifying descriptions” where an allegation threatens to otherwise reveal confidential information.

Judge Boggs Takes Senior Status

Judge Danny J. Boggs recently took senior status, creating a second vacancy on the Sixth Circuit. Judge Boggs has served the Court for over 30 years, including as Chief Judge, and he was appointed by President Reagan. Recent press reports highlight Judge Boggs’ career and accomplishments. But perhaps Judge Boggs is most famous for the notoriously difficult quizzes that he gives to aspiring law clerks. Try your hand at one and see how you would fare!

Both vacancies on the Sixth Circuit are from Kentucky (in addition to Judge Boggs, former Judge Martin’s seat remains vacant), which will give the new administration the chance to appoint two new judges.  As we previously reported, Eastern District of Kentucky Judge Amul Thapar is likely on the short list for a Sixth Circuit appointment (given that he was on Trump’s Supreme Court short list).


SCOTUS To Decide If Clean Water Rule Can Be Challenged Directly In U.S. Circuit Courts

In February of last year, we reported on the Sixth Circuit’s split-panel holding that it had jurisdiction to review challenges to the validity of the “Clean Water Rule” (which clarifies the term “waters of the United States” in the Clean Water Act). Last week, the Supreme Court granted certiorari in National Association of Manufacturers v. Department of Defense. While interlocutory cert petitions are typically disfavored by the Supreme Court, jurisdictional issues have long been an exception to that rule of thumb. The Court’s ultimate analysis in this case could potentially inform the interpretation of other jurisdictional statutory provisions, beyond the Clean Water Act. We will continue to follow the case as it develops before the Supreme Court.

Sixth Circuit: City Waived Exhaustion Requirement By Removing Takings Claim to Federal Court

Normally, a regulatory-takings plaintiff must seek compensation through “procedures the State has provided,” before suing in federal court.  Last week, in a unanimous unpublished opinion, Lilly Investments v. City of Rochester, the Sixth Circuit joined the Second and Fourth Circuits by holding that, by removing the case, a defendant-city waives this exhaustion requirement.  The Court reasoned that, “[w]hen a state or locality removes to federal court, it ‘implicitly agrees’ with the competence of federal courts to decide the plaintiff’s claim.”

The Sixth Circuit noted that Eighth Circuit has taken a different position and “affirmatively declined to waive the exhaustion requirement in removal cases,” but pointed  out that this may be because the Eighth Circuit “is the only circuit that considers [the requirement] jurisdictional,” and called the latter “a conclusion inconsistent with Supreme Court precedent.”

Given its deepening of an existing circuit split, the case has Supreme Court potential.  In the meantime, states and municipalities should carefully consider all the implications when deciding whether to remove similar claims.

Tire Company Can’t Compel Arbitration in China Under Expired Contract

Yesterday, in Linglong Americas, Inc. v. Horizon Tire, Inc., a unanimous panel of the Sixth Circuit rejected a tire manufacturer’s attempt to compel arbitration of claims in China under a contract that had already expired.  The manufacturer and its distributor had a “Collaboration Agreement” with an arbitration clause. The agreement expired in 2011 and was not renewed, but the parties continued to collaborate until, in 2014, a series of events led to the parties suing each other in federal court.  The manufacturer sought to compel arbitration of the distributor’s claims pursuant to the arbitration clause in the agreement—which specified China as the forum for any disputes.

In affirming the district court’s denial of the manufacturer’s motion to dismiss, the Sixth Circuit explained that “[a]n arbitration clause survives the expiration of a contract only when the dispute at issue ‘arises under the contract.’”  Because the “vast majority” of events underlying the distributor’s claims had occurred after the expiration of the contract and the distributor had “unequivocally and irrevocably” waived any reliance on the agreement as a basis for its claims, the court held that the arbitration clause did not apply to the distributor’s claims.

This case underscores the importance of keeping written agreements current in a business relationship.  One should not assume that the conditions in a contract will survive simply because the relationship between the parties continues beyond the contract’s expiration.

Sixth Circuit Issues Split FCA Decision in Fracking Case

In United States ex rel. Harper v. Muskingum Watershed Conservancy District, a divided panel of the Sixth Circuit interpreted the 2010 amendments to the False Claims Act (FCA) and affirmed the district court’s dismissal of relators’ qui tam action filed under the FCA’s reverse-false-claim and conversion provisions.  Relators alleged that Muskingum Watershed Conservatory District (MWCD), by selling fracking rights to certain land and retaining the land, violated a 1949 deed, providing that the land would revert to the United States if MWCD stopped using the land for recreation, conservation, or reservoir-development purposes or if MWCD alienated or attempted to alienate any part of the land.

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Sixth Circuit, Enforcing Notice of Appeal Rule, Denies Challenge to $225M Auto Part Price Fixing Settlement

On Friday, the Sixth Circuit refused to overturn a $225 million settlement deal reached between end-payor plaintiffs and auto parts makers accused of price fixing. Two objectors to the deal had asked the court to review a June order by U.S. District Judge Marianne O. Battani granting final approval to settlement in 19 cases that were part of a sprawling multidistrict litigation. But they had filed an appeal in only one of those cases, pertaining to wire harnesses, which totaled $119 million. The panel held that the challenge could not proceed in the other 18 cases where no appeal had actually been filed, and thus dismissed the appeal to the extent that it raised issues related to the unappealed orders.

The objectors asserted it would amount to a denial of due process to require appeals in all 19 cases, which would have included fees totaling near $10,000. But the court noted that the appellants had offered no proof that paying those fees would impose an undue burden. There was no violation of due process, held the panel, where a party is required to pay a fee, or move for pauper status.

Similarly, the panel declared ineffective, and thus dismissed for lack for jurisdiction, an appeal filed in the master docket for the multidistrict litigation. Each case in the MDL, held the court, retains its individual identity, even if for efficiency purposes they are handled in a consolidated manner. In short, pay attention to the requirements for notices of appeal.

The cases arose out of an expansive MDL, which itself followed the U.S. Department of Justice’s launch of an ongoing investigation into the auto parts industry. The DOJ investigation has produced more than $2 billion in fines already. The government, and, in turn, private plaintiffs, have alleged that auto part makers and marketers conspired to raise prices charged to automakers, which in turn has increased the price of vehicles downstream to consumers.



Flint Water Controversy Provides Civil Procedure Lesson Under CAFA Exception

In Mason v. Lockwood, Andrews & Neuman, a split panel of the Sixth Circuit affirmed a district court’s decision to remand a class action to state court under the “local controversy” exception to the Class Action Fairness Act.  CAFA requires a court to “decline” jurisdiction over a class action that otherwise qualifies for federal court if the class action meets three requirements. One of these is that more than two thirds of the class members must be “citizens of the State in which the action was originally filed.”

In Mason, the plaintiff class consisted of “residents and property owners in the City of Flint,” Michigan, who used water from the Flint River from April 25, 2014 and onward. The district court relied largely on the principle that an allegation of residency creates a rebuttable presumption of domicile, and therefore citizenship.  The Sixth Circuit acknowledged that—rebuttable presumption notwithstanding—alleging residence is insufficient to establish citizenship for the purpose of creating federal subject matter jurisdiction, but distinguished the “local controversy” exception as “not jurisdictional.”  Thus, the court explained, a party seeking to establish citizenship for purposes of the local controversy exception did not face “the unrelenting headwinds of limited federal jurisdiction,” and could rely on the rebuttable residency-domicile presumption to establish citizenship.  The court declined to follow contrary decisions from other circuits because they “extended the ‘mere averment of residency’ principle without accounting for its underlying rationale.”

Judge Kethledge dissented, pointing out, among other things, that “every circuit to have considered the issue—five so far—has held that ‘there must ordinarily be at least some facts in evidence from which the district court may make findings regarding the class members’ citizenship for purposes of CAFA’s local-controversy exception.’”  He also characterized the case as presenting a question of “abstention,” which is only permitted with the “clearest of justifications.”

It is important to note that the majority in this case did not rely exclusively on “the presumptive force of residency,” but also noted “other attributes . . . that bolster the inference.”  The court noted that the class definition required members to “have continuously resided in Flint . . . for several years,” that there were no circumstances that suggested a large number of the class members would be transient (students, vacationers, etc.), that property ownership is a strong indicator of domicile, and that Flint is “nowhere near a state line.”  It will be interesting to see how future panels applying Mason will use these additional “attributes” in their analyses.  And, of course, given that Mason appears to create a circuit split, we will be looking out for a cert petition.


While many people are evaluating the election’s impact on the Supreme Court, closer to home, President-Elect Trump will have a seat to fill at the Sixth Circuit. As we reported, President Obama nominated Kentucky Supreme Court Justice Lisabeth T. Hughes for the Sixth Circuit vacancy created by Judge Martin’s retirement. The Sixth Circuit seats are typically distributed geographically, and that means that the open slot belongs to Kentucky by tradition.  So the question becomes, who might President-Elect Trump tap for the open seat, assuming (as is almost certain) that Justice Hughes will not get confirmed before the changeover in administration?  We suspect that the odds favor current Eastern District of Kentucky Judge Amul Thapar.

In the list of potential Supreme Court nominees that Mr. Trump circulated prior to the election, Judge Thapar was identified as one of the only district judges to make the cut. That means he has attracted the attention of someone in the Trump inner circle.  If he does not get the nod for the Supreme Court, it seems quite possible that he would be the front runner to be nominated to the Sixth Circuit.  It remains to be seen whether this will happen, or if so how quickly.  The new administration will have a lot of work on its hands come January, and it is not clear how quickly they will move on open judicial vacancies.  But we will be focused on this and keep readers apprised of any developments.

Upcoming Amendments to the Federal Rules of Appellate Procedure

As a friendly reminder, the new amendments to the Federal Rules of Appellate Procedure will go into effect on December 1, 2016.  The most important changes are that principle briefs are limited to 13,000 words and the three-day service period for electronic filing has been eliminated.  There are also new word limits for motions and petitions for extraordinary writs, and other assorted changes.  The Fourth Circuit has posted a nice summary of these amendments, including a useful blackline showing the changes to the rules.   Many circuits, including the Second, Fifth, Seventh, Ninth, and Federal Circuits, have decided that they will not be following all of the new rule changes.  Other circuits have announced they will be following the new rules.   These differences reflect the well-known disagreements about these changes—which were resolved by explicitly allowing each circuit to decide what to do about word limits.

The Sixth Circuit has not yet posted anything regarding the new rules, and we fully expect that the court will not opt out of the rules.  Therefore, sharpen your pencils and get ready for 13,000 word briefs!