Sixth Circuit Labor Cases

Labor law and regulation has recently been a contentious topic of litigation and policymaking. That promises to continue through 2017, and we expect the Sixth Circuit to issue important decisions in this area. The Trump administration has pledged to loosen regulation on labor markets while, at the same time, making several public displays of reconciliation with national unions. At the Supreme Court, the vacancy left by the passing of late Justice Scalia assured a deadlocked tie in the Friedrichs case, just as the nomination of Judge Gorsuch to the Court may bring the opportunity to test longstanding precedent. And at the state level, legislatures continue to pass right-to-work laws over the opposition of organized labor.

Perhaps the most contentious issue in labor disputes today is the security or agency fee charged to non-members. These fees have proven controversial, and many on the right-to-work side of the divide see them as additional forced and unjustified contributions to labor unions.  The Sixth Circuit late last year issued a significant ruling regarding agency fees. In UAW Local 3047 v. Hardin County, the Court considered whether a municipality – here, Hardin County, Kentucky, along with several others – was permitted to ban, by ordinance and pursuant to home rule authority, union agency fees. The question was ultimately one of Section 14(b) of the NLRA. While the NLRA generally preempts state labor law, that section specifically authorizes states to pass right-to-work laws. The provision reads:

“Nothing in the subchapter shall be construed as authorizing the execution or application of agreements requiring membership in a labor organization as a condition of employment in any State or Territory in which such execution or application is prohibited by State or Territorial law.”

In other words, “States or Territories” are permitted to regulate agency fees – but what about the political subdivisions of states? The Sixth Circuit held, to the surprise of many, that the language included Hardin County and other municipalities like it. The court reasoned that “State” in the provision includes not only a state as a whole, but also its political subdivisions. This conflicted with the interpretation of other courts on the matter.

This decision could have a significant impact on policymaking, especially in Ohio – the last of the Sixth Circuit’s states without a right-to-work law. In Columbus, the state legislature is already considering passing one, but the legislation is, nonetheless, running into the same headwinds that doomed S.B. 5 in 2011. Should the provision fail in either the state house or senate, a natural next move for right-to-work advocates may be county-by-county legislation in the mold of Hardin County. Ohio, after all, provides a similar measure of home rule authority as in Kentucky. With the Sixth Circuit’s notable decision, that option just became much more plausible.

Sixth Circuit Provides Guidance in Trademark Cases

In NetJets, Inc. v. IntelliJet Group, LLC, the Sixth Circuit offered important interpretations, regarding trademark infringement, of both federal law and Ohio common law on trademarks. In a careful and deliberate analysis that in part affirmed, reversed, and remanded the district court’s holding, the Court offered a view into what trademark holders, and alleged trademark infringers, can expect in cases where allegations of infringement are met by counterclaims challenging mark validity.

The Plaintiff, NetJets, is a private aviation company specializing in a host of different aviation services, including partial ownership of private airplanes, aircraft-leasing services, private-plane-management services, and the sale of used airplanes. In the 1990’s, the company developed a software program called IntelliJet to assist it in its operations. It applied in 1995 to register the trademark for INTELLIJET with the USPTO. The application was approved, and the company continued to expand, develop, and use the product, until 2002 when it filed a “declaration of use and incontestability,” pursuant to 15 U.S.C. §1065, which was also accepted by the trade office. The Defendant, IntelliJet Group LLC, was founded in 2005, and offers referrals to customers looking for aircraft management and leasing services. It is, in other words, a broker for private jet services. NetJets asserted trademark infringement claims against IntelliJet under both the Lanham Act and under Ohio common law. IntelliJet counterclaimed against NetJets with an assertion that the trademark was void ab initio, as the INTELLIJET label had not been used commercially when the initial application was filed.

After the district court granted summary judgment to the defendant on all counts, the Sixth Circuit reversed in part, affirmed in part, and remanded on the rest. It reversed the district court’s grant of summary judgment for the defendant on the counterclaim for cancellation of the mark as void ab initio. It remanded for the district court to address the argument that NetJets abandoned its mark through non-use. And it affirmed the district court’s grant of summary judgment on all other claims.

The district court had focused on sections 1065 and 1115(b) under the Latham Act. Under §1065, a trademark becomes incontestable once it has been used continuously in commerce for five consecutive years subsequent to the date of registration. The idea behind the provision is to provide some certainty regarding the enforceability of trademarks. Once incontestability has been established, §1115(b) limits the counterclaims that companies such as IntelliJet can raise when accused of patent infringement. IntelliJet’s counterclaims was that the INTELLIJET label was void ab initio, or not in use at the time of registration, because it was not used in commerce at the time of filing, but merely as internal software of NetJet. That defense is not included in the enumerated defenses of §1115(b). The District Court ruled that INTELLIJET never achieved incontestability under §1065, and thus IntelliJet was not limited to those defenses named in §1115(b). As such, it could press its claim that the INTELLIJET trademark was void ab initio.

The Sixth Circuit expressly declined to reach a decision on this issue of incontestability under §1065. Rather, it turned to the jurisdictional requirement of §1064, which the district court had not explored. That provision limits the ability to challenge a mark that has already been registered for five years. Where five years since registration has passed, infringement defendants like IntelliJet may only assert an enumerated list of counterclaims, in which void ab initio is not included. The Court reasoned that Congress was unlikely to specifically enumerate a list of permitted counterclaims to allegations of trademark infringement after five years, only to allow trademark defendants to move beyond that list. Taking a plain reading meaning of the statutory language, it ruled that because more than 5 years had passed, IntelliJet could no longer assert its void ab initio claim.

Next, the Sixth Circuit agreed with the district court that NetJets was not entitled to rights in INTELLIJET as a service mark under Ohio common law. The record, held the court, simply did not support the conclusion that INTELLIJET software was a service in and of itself. Rather, the software appeared to be a mere conduit, a “tool used to assist in the provision of NetJet’s aviation services.”

Finally, the Sixth Circuit addressed NetJet’s claims for common law trademark infringement and false designation of origin under 15 U.S.C. §1125. The district court had held that there was no likelihood of confusion, and thus granted summary to IntelliJet. The Sixth Circuit reviewed each of the eight traditional “Frisch factors” from the case Frisch’s Rest., Inc. v. Shoney’s Inc., 759 F.2d 1261, 1264 (6th Cir. 1985). The Court made clear that each of these factors needn’t be weighed equally, and that the circumstances of each case would necessarily assign varying degrees of importance to each. It proceeded to walk through each factor, reviewing the record and the district court’s reasoning. In the end, it found that “the realities of the marketplace suggest that the markets between NetJets and IntelliJet’s products are so distinct, and the consumers so sophisticated, that there is no likelihood of confusion.”

Sixth Circuit: Foster Parents Can Enforce Right to Foster Care Payments Under Federal Law

A unanimous panel of the Sixth Circuit held today in D.O., et al. v. Glisson that the Child Welfare Act creates a private right to foster-care maintenance payments enforceable by a foster parent under 42 U.S.C. § 1983.  The CWA provides for federal foster care and adoption assistance to eligible states.  To be eligible, a state must submit a plan that meets the CWA’s criteria, and also “provide[] for foster care maintenance payments” for each child “removed from the home of a relative.”  The Court held this provision was not merely “a roadmap that states may choose to follow to receive matching funds,” but that it conferred an individually enforceable right on foster parents.

The Court was guided by the statutory text, explaining that “[w]hen Congress names the state as the subject, writes in the active voice, and uses mandatory language, it leaves no doubt about the actor’s identity or what the law requires.” The Court also rejected the state of Kentucky’s argument that the plaintiff was not entitled to payments because she was the childrens’ mother’s aunt, holding that “[t]o the extent . . . failure to make maintenance payments turns on the distinction between relative and non-relative foster care providers, it plainly violates federal law.”

The Sixth Circuit split with the Eighth Circuit on this issue, making this case a potential contender for the Supreme Court. It will be interesting to see whether the State of Kentucky pursues certiorari.

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.