Sixth Circuit Appellate Blog

In an opinion rich with the history of bourbon, the Sixth Circuit held that Maker’s Mark’s signature trade dress element of its trademark, the red dripping-wax seal, was due protection.  Maker’s Mark has used the red dripping-wax seal since 1958, and in 1980 registered a trademark of its trade dress.  In 2001, Jose Cuervo’s began selling its premium tequila, “Reserva de la Familia” with a red dripping wax seal similar to the Maker’s Mark red dripping-wax seal.  Maker’s Mark sued Cuervo in 2003, claiming trademark infringement and dilution.  The district court found that Cuervo had infringed on Maker’s Mark’s valid trademark of the red dripping-wax seal and enjoined Cuervo from using red dripping-wax on the cap of its bottles. The district court denied Maker’s Mark’s claim for damages but awarded Maker’s Mark some of its costs.   

On appeal, the Sixth Circuit upheld the district court’s finding that the red dripping-wax seal was not aesthetically functional, and therefore a valid trademark.   Declining to adopt a test for the aesthetic functionality doctrine, the Sixth Circuit held that the red dripping-wax seal was not functional because other comparable alternatives existed for Cuervo.  

The Sixth Circuit then upheld the district court’s factual findings and its balancing of those findings pursuant to Frisch’s Rests., Inc. v. Elby’s Big Boy, Inc., 670 F.2d 642 (6th Cir. 1982).  Cuervo appealed only three of the factors: the strength of the trademark, similarity, and actual confusion.  The Sixth Circuit found no error:  Maker’s Mark red dripping-wax seal was an extremely strong mark due to its unique design and the company’s marketing efforts, and the lack of evidence of actual confusion with the “Reserva de la Familia” was non-determinative.  Reviewing the court’s balancing of the Frisch's factors de novo, the Court concluded that there was a likelihood of confusion between the products and that Cuervo had infringed upon the trademark.   The Sixth Circuit also upheld the district court’s award of costs to Maker’s Mark as the prevailing party.

Perhaps more important than the legal discussion, the opinion's interesting narrative about the history of bourbon will surely be of interest to all bourbon connoisseurs (or at least those of us who read F.3d).

In Lisa Bridge v. Ocwen Federal Bank, the Sixth Circuit reversed a dismissal in a FDCPA case brought by pro se plaintiffs regarding their mortgage. 

Lisa Bridge, the only person listed on her mortgage, owed monthly payments to Aames Capital Corporation.  Her bank, Firstar, refused to honor her April mortgage check.  Thereafter, Lisa ordered Firstar issue an “official check” to Aames, but Firstar refused to honor that check as well.  Aames then notified Lisa that she was in default and assessed a late fee.  Firstar ultimately honored a second “official” check and, additionally, Lisa’s personal check.  Therefore, Lisa satisfied April’s payment and paid May’s in advance.

In the meantime, Aames assigned the mortgage to Ocwen, which the Bridges alleged is a division of Deutsche Bank.  Ocwen began “dunning” both Lisa and her husband William (who is not listed on the mortgage).  Ocwen repeatedly called the Bridges, despite cease and desist requests made to the federal “Do Not Call” directory; threatened foreclosure; assessed monthly late fees; and reported negative information to credit reporting agencies.  Further, Ocwen apparently retained a law firm, which sent a foreclosure threat by mail.  Plaintiffs Lisa and her husband William Bridge sued Oscwen and Deutsche and related parties under the Fair Debt Collection Practices Act (“FDCPA”).  The district court dismissed the Complaint, holding that defendants did not fall within the Act’s definition of “debt collector.”

On appeal, the Sixth Circuit reversed, holding that the Bridges alleged facts sufficient to satisfy the statutory definition of debt collector under the FDCPA (15 U.S.C. § 1692(a)(6)), which requires—in addition to persistent collection efforts intended to harass, oppress, or abuse—that the defendant seek collection of debts “owed or due or asserted to be owed or due another” and utilize interstate commerce in collection efforts.  Furthermore, the Court rejected as “disingenuous” and “exemplary of an unsettling trend in FDCPA claims” Ocwen’s argument that plaintiffs’ position that the mortgage was not in default relieves Ocwen of liability under the Act.  Although the FDCPA does exclude from the definition of debt collector efforts related solely to a debt which is not in default at the time it is obtained, the Sixth Circuit held that defendants could not “have it both ways”—for years demanding payment on a defaulted mortgage then, for purposes of avoiding liability, denying the mortgage was in default to begin with. 

The Court held that “the definition of debt collector pursuant to §1692(a)(6)(F)(iii) includes any non-originating debtor holder that either acquired the debt in default or has treated the debt as if it were in default at the time of acquisition.”  This holding, the Court noted, is supported both by the language of the FDCPA itself, which uses the word “asserted to be owed or due another,” and the legislative history suggesting that Congress meant to enact a sweeping reform to a “widespread problem.”  These holdings were also applicable to William Bridge because Congress intended to protect family members “who do not owe money, but may be deliberately harassed.”  Judge Clay concurred in the judgment regarding one of the defendants, but effectively dissented as to the thrust of the majority’s opinion. 

In the aftermath of the 2009 bankruptcies of Chrysler LLC (“Old Chrysler”) and General Motors Corporation (“Old GM”), Congress enacted Section 747 of the Consolidated Appropriations Act of 2010, Pub. L. No. 111-117 (“Section 747”).  Section 747 grants certain arbitration rights to dealerships that had their sales and services agreements rejected or terminated in connection with the Chrysler and GM bankruptcies.  Several dealerships who had their contracts rejected by Old Chrysler and subsequently prevailed in Section 747 arbitrations with Chrysler Group LLC (“New Chrysler”) initiated litigation in the Eastern District of Michigan, in 2010, over disagreements about the effect of Section 747 arbitration determinations.  A second group of dealers also sued New Chrysler (becoming part of a consolidated action) and opposed New Chrysler establishing or relocating dealers who had prevailed in Section 747 arbitrations in their area of operation without complying with various state-law dealer acts.

The principal issues decided by the district court included the relief available for a prevailing dealer under Section 747 and whether Section 747 preempts state-law dealer acts.  Chrysler Group LLC v. South Holland Dodge , Case Nos. 10,12984, 10-13290, 10-13908 (E.D. Mich. Mar. 27, 2012)(Chrysler Group.pdf).  In resolving these questions, the district court looked to the plain language of Section 747.  In so doing, the court determined that the sole remedy for a dealership that had prevailed in Section 747 arbitrations with New Chrysler after having its contract rejected by Old Chrysler was a letter of intent to enter into a sales and service agreement with New Chrysler.  The court determined that monetary damages were not available under Section 747 because the statute expressly prohibits awards of “compensatory, punitive, or exemplary damages to any party.”  § 747(e).  The court also found that Section 747 did not permit the reinstatement of dealer contracts rejected by Old Chrysler, even for dealers prevailing in Section 747 arbitrations with New Chrysler.  This conclusion was based on the fact that New Chrysler is “a legally distinct entity from Old Chrysler.”  Because the dealers never had franchise agreements with New Chrysler, continuation and reinstatement were unavailable.

In other rulings, the court held that in Section 747, Congress did not provide any mechanism for a party to appeal, seek to vacate, confirm, enjoin or stay an arbitrator’s decision.  Further, the court held that the Federal Arbitration Act (“FAA”) and the Commercial Rules of the American Arbitration Association (“AAA”) did not apply to Section 747 proceedings and do not authorize confirmation of an arbitrator’s determination. 

Finally, the Court addressed the dealers’ argument that Section 747 preempts state-dealer acts.  The dealers relied exclusively on conflict preemption which “arises when compliance with both federal and state regulation is a physical impossibility.”  In rejecting the dealer’s preemption argument, the Court found that the purpose of Section 747 was “not to reinstate or unconditionally require New Chrysler” to enter into sales and service agreements with dealers prevailing in Section 747 arbitrations.  Rather, the Court agreed with New Chrysler that by enacting Section 747, Congress merely intended to provide dealers who had their agreements rejected by Old Chrysler the opportunity to be added to New Chrysler’s dealer network through letters of intent.  Thus compliance with Section 747 and state-dealer acts was not impossible.  The court further agreed with New Chrysler that Section 747’s “limited remedy was carefully crafted by Congress such that it would not conflict with the State Dealer Acts that have governed this area for decades.” 

The Sixth Circuit’s eventual decision will have significant ramifications on the rights and remedies available to GM and Chrysler dealers who had their sales and service agreements rejected prior to or in the aftermath of GM and Chrysler’s 2009 bankruptcies.  Of particular importance, the Court will have to determine whether Section 747 authorizes an award of monetary damages and whether it preempts state-law dealer acts.  We will continue to monitor this case as it makes its way up to the Sixth Circuit. 

On Tuesday, the Sixth Circuit resuscitated Plaintiff-Appellant Johnnie Brooks, Jr.’s (“Brooks”) claim under the Age Discrimination Employment Act, 29 U.S.C. § 621 et seq., (“ADEA”) finding Brooks established a prima facie case of age discrimination and provided sufficient evidence of pretext to survive summary judgment.

In this case, the Sixth Circuit focused on clarifying its rejection of the Seventh Circuit’s honest belief doctrine, which states: “‘so long as the employer honestly believed in the proffered reason,’ an employee cannot prove pretext even if the employer’s reason in the end is shown to be ‘mistaken, foolish, trivial, or baseless.’” Wright v. Murray Guard, Inc., 455 F.3d 702, 707-08 (6th Cir. 2006). Instead, the Sixth Circuit has adopted a “modified honest belief approach,” which focuses on whether the employer made a reasonably informed and considered decision before taking the adverse employment action. The Court notes that while it will not “’micro-manage the process used by the employers in making their employment decisions,’ we also will not blindly assume that an employer’s decision of its reasons is honest.’” (Id.) “Therefore, ‘[w]hen the employee is able to produce sufficient evidence to establish that the employer failed to make a reasonably informed and considered decision before taking its adverse employment action’…then any reliance placed by the employer is such a process cannot be said to be honestly held.’” (Id).

Under this standard, the burden fell to the employer to point to specific facts that it held at the time the decision was made, which would justify its belief in the proffered reason for termination. The Sixth Circuit ultimately held that the evidence was insufficient to establish that the employer’s reliance was “honestly held.”

On Friday, the Sixth Circuit found that a Fen-Phen attorney’s malpractice liability policy coverage was properly rescinded after he and others had been successfully sued for millions of dollars for allegedly breaching their fiduciary duties during the negotiations of the Fen-Phen class action settlement.  In February 2002, Mills learned that the Kentucky Bar Association was investigating complaints filed against him in connection with the Fen-Phen class action.  In August 2003, Mills applied to renew his professional liability insurance with Continental.  Question 3 asked “Are there any claims, or acts or omissions that may reasonably be expected to be a claim against the firm, that have not been reported to the Company or that were reported during the expiring policy period?”  Question 4 asked “Has any attorney been disbarred, suspended, formally reprimanded or subject to any disciplinary inquiry, complaint or proceeding for any reason other than non-payment of dues during the expiring policy period?”  Mills check “no” on both.  The policy also contained a dishonesty exclusion which stated that the policy would not apply to any claim based on or arising out of any dishonest, fraudulent, or criminal or malicious act or omission.  Continental Casualty brought suit against Melbourne Mills Jr., seeking a declaration that it was entitled to rescind Mills’s insurance policy.  The district court held that Continental was entitled to void the policy because Mills’s response to Question 4 constituted a material misrepresentation under K.R.S. Section 304.14-110. 

In Continental Casualty Co. v Law Offices of Melbourne Mills, Jr., PLLC, Case No. 10-5813, the Sixth Circuit affirmed the district court’s decision in favor of the insurance company on two alternative bases.  First, Mills’s negative response to Question 3 was a material misrepresentation in light of the ongoing Kentucky Bar Association inquiry.  The Court found that Mills’s misrepresentation to Question 3 was material because Continental would not have issued the policy or would not have issued the policy at that rate if it new about the ongoing investigation by the Kentucky Bar Association.  Further, the Court held that Mills was required to disclose information about his actions in the Fen-Phen fee-splitting arrangement because “Mills was aware that he had engaged in conduct that led to the disbarment of him and two of his co-counsel.”  Second, the Kentucky Supreme Court’s 2010 order permanently disbarring Mills for his actions in the Fen-Phen representation fell within the policy’s dishonesty exclusion.  The order determined that Mills had committed “dishonest” and “fraudulent . . act[s] or omission[s]” and was sufficient to bar coverage.  The Sixth Circuit therefore found it unnecessary to address whether Mills’s response to Question 4 warranted rescission of the policy.  In affirming the district court’s decision, Continental will receive a judgment of $233,674.49, which was the amount of the defense cost Continental paid on his behalf in the class action brought against him. 

The Third Circuit recently sided with the Fifth and Eighth Circuits in holding that the Family and Medical Leave Act ("FMLA"), 29 U.S.C.§ 2601 et seq., permits individual liability against supervisors at public agencies.  In reaching its conclusion, the Third Circuit in Haybarger v. Lawrence County Adult Probation and Parole declined to follow Sixth and Eleventh Circuit decisions that do not permit individual liability against supervisors at public agencies. 

The Third Circuit rejected the Sixth Circuit's reasoning in Mitchell v. Chapman, 343 F.3d 811 (2003) that the FMLA does not permit individual liability because the the statute's individual liability provision does not refer to the its public agency provision.  The Third Circuit also rejected the Eleventh Circuit's reasoning that an individual supervisor in a public agency always lacks sufficient control over an employee's employment to subject him or her to individual liability under the FMLA. 

Instead, the Third Circuit followed the Fifth and Eighth Circuit decisions in looking to the FLSA (29 U.S.C. § 203(d)) for guidance in interpreting the definition of "employer" to include supervisors and in refusing to distinguish between public agencies and private employers under the FMLA insofar as individual liability is concerned.

We will continue to follow this split to see how other Circuits weigh in and whether the United States Supreme Court will resolve this broad-sweeping liability issue.

In Carrier Corporation v. Outokumpu OYJ, Nos. 07-6052/6114 (Mar. 2, 2012)(Carrier.pdf), the Sixth Circuit reviewed the dismissal of antitrust claims which had been brought by purchasers of air-conditioning and refrigeration copper tubing.  Much of the lawsuit revolved around two decisions issued by the Commission of the European Communities (the “EC”) in 2003 and 2004, which determined that the defendants, along with other companies, participated in conspiracies to set price targets and other commercial terms “for industrial tubes, coordinated price increases, [and] allocated customers and market shares in violation of European law” and similar violations in the market for plumbing tubes.  Notably, neither of these decisions identified any conspiratorial agreements with respect to U.S. markets, focusing exclusively on the European market.

In its complaint, Carrier claimed that the conspiracy was also directed at the U.S. market for air-conditioning and refrigerator tubing, thereby violating the Sherman Act and state law.  Specifically, Carrier alleged that between 1998 and 2001, the defendants conspired to raise the price for copper tubing by developing "a customer and market allocation scheme” under which other conspirators agreed not to pursue Carrier’s U.S. business if the defendants did not aggressively pursue Carrier’s European business.  The conspiracy resulted in Carrier paying “artificially inflated and supra-competitive prices . . . .” 

In reversing the district court’s decision, the Sixth Circuit found the threshold jurisdictional requirement for the Sherman Act was met under the Supreme Court’s “effects test” because Carrier’s complaint alleged that the U.S. market was intertwined with the alleged conspiracy and the conspiracy had an effect on the U.S. market.  Similarly, the Court found that subject matter jurisdiction was met because Carrier alleged a non-conclusory effect on U.S. commerce by virtue of a world-wide conspiracy in which the U.S. market was assigned to one of the conspirators thereby causing prices in the U.S. to increase, which in turn caused a direct antitrust injury.  In making this determination, the Court appeared to look favorably on the specific factual allegations set forth in the complaint, including specific dates when the conspirators met and dates when the various agreements were entered into.

The Sixth Circuit also analyzed Carrier’s complaint under the Twombly pleading standard and emphasized that for  claims under the Sherman Act, “allegations must be specific enough to establish the relevant who, what, where, when, how or why”  and “how each defendant was involved in the alleged conspiracy.”  The court found that the allegations in the complaint, which were based in part on the two decisions issued by the Commission of the European Communities, were sufficiently specific that the complaint crossed the threshold from “conceivable to plausible.”

It is unclear what impact Carrier Corporation will have on practice in the Sixth Circuit.  The case appears to be fairly fact specific, particularly because the plaintiff had the benefit of two decisions from the EC which beefed up the specificity of the allegations in the complaint.  The implication of the Sixth Circuit’s decision, however, is that specific factual allegations are required, which should generally include specific who, what, where, when, how or why allegations – and should specify how each defendant was involved in the alleged conspiracy.  The Carrier decision follows in the wake of several notable pleadings decisions issued last year by the Sixth Circuit, and we’ll keep an eye out for how the Court (as well as the district courts) apply these various decisions.

In Andler v. Clear Channel Broadcasting, Inc., the Sixth Circuit held yesterday that lower earnings  in the two years prior to her injury were not determinative of the amount the plaintiff would earn in the future.  The plaintiff was injured after stepping into a hole in a campground, and claimed damages for a loss of future earning capacity against the campground’s owner.  A jury awarded her $200,000, but that award was reversed on appeal on other grounds.  At the second trial, the district court excluded the plaintiff’s expert testimony about loss of earning capacity as overly speculative, and the jury awarded just $10,000. 

The Sixth Circuit reversed again, holding that the expert testimony was not unreasonably speculative.  The expert based his future earnings calculations on average salary that was higher than the plaintiff’s actual pre-injury salary because she had not been working full-time prior to her injury.  The panel found this was reasonable because she was temporarily working at the lower-paid job to be close to her young children, and planned to change jobs when her children were older.  She also had training for full time jobs that paid much better.  The Court concluded that the “factual basis” for the expert’s pre-injury earning capacity calculation “may not be particularly strong, but ‘it is not proper for the Court to exclude expert testimony ‘merely because the factual bases for an expert’s opinion are weak.’” 

We have previously covered the recent trend in the Sixth Circuit to limit speculative expert testimony (for example, see  here, here, here, and here).  This fact-driven case does not reverse that trend, but serves as a reminder that the evaluation of expert opinion is often case-specific. 

When Plaintiff John Orton’s employer stopped paying his annual base salary, he brought suit under the Fair Labor Standards Act seeking unpaid wages and expenses. Dismissing Mr. Orton’s claims under the FLSA, the district court found that the employer’s failure to pay him did not convert his position from salary based to hourly, stressing that “administrative employees are exempt from coverage within the meaning of the FLSA based on the salary that they were owed under their employment agreements and not based on the compensation that they actually received.”

Under Section 213(a)(1) of the FLSA, an employee is exempt if they are employed in a “bona fide executive, administrative, or professional capacity,” as defined by the Secretary of Labor. For each of these three functions, the Secretary of Labor has promulgated rules regarding when an employee qualifies as exempt. For each rule, the defendant must satisfy three “tests” to qualify: (1) a duties test; (2) a salary-level test; and (3) a salary-based test. This appeal focuses exclusively on the salary-based test outlined at 29 C.F.R. § 541.602.

The Sixth Circuit reversed and remanded the matter, finding the lower court had applied an outdated rule of law. Instead, the Sixth Circuit clarified that the 2004 amendment to the regulations governing the salary-based test changed the test to “focus on pay received,” rather than the terms of the employment agreement. The Sixth Circuit clarified that the question was not what the employee was owed under the employment agreement; rather, it was what compensation the employee had actually received.

Likewise, the Sixth Circuit noted that an improper deduction alone will not necessarily render an employee non-exempt; rather, “[a]n employer who makes improper deductions from salary shall lose the exemption if the facts demonstrate that the employer did not intend to pay employees on a salary basis.” 29 C.F.R. § 541.603(a) (2004). Intention is demonstrated by an actual practice of making improper deductions; however, isolated or inadvertent deductions will not result in loss of the exemption, if the employer reimburses the employee for such improper deductions.

In addition, the Sixth Circuit found that the district court had neglected to place the burden of establishing the exemption on the defendants, who were required to show that the employee: (1) received a predetermined amount under 29 C.F.R. 541.602(a); or if not, (2) that the failure to pay the employee the predetermined amount was either proper under Section 541.602(a) or under one of the delineated exemption in subsection (b). Based on these errors, the court reversed the dismissal of Mr. Orton’s FLSA claim and remanded the case for further proceedings.

On Friday, the Sixth Circuit vacated an order from the District Court for the Middle District of Tennessee, precluding class certification, in large part, due to an intervening and nearly identical class action settlement affirmed by the Arkansas Supreme Court (Runyan Settlement). Gooch v. Life Investors Insurance Comp. of America, et al., Case Nos.: 10-5003/5723 (6th Cir. February 10, 2012).

The original action was filed by Anthony Gooch against Life Investors Insurance Company and its parent company. The suit alleged breach of contract when Life Investors began interpreting the “actual charges” provision of its cancer-insurance policy to mean the charges that medical providers accept as full payment from the primary insurer and the insured. Gooch claimed that the policy entitles him to be paid the higher “list prices” that appears on the hospital bills before the primary insurer negotiates a lower rate.

On the same day that the district court certified Gooch’s class, the Arkansas Supreme Court issued final approval of a nearly identical class action. The Sixth Circuit determined that the Runyan settlement carried a preclusive effect under state law and complied with the federal due process requirements for Full Faith and Credit. The Sixth Circuit clarified that when a state and federal case percolate “simultaneously…the first forum to dispose of the case” is the forum whose “judgment…is binding on the parties.”

The Court further held that while many members of Gooch’s class had settled their claims pursuant to the Runyan settlement, Gooch may still be able to represent those class members who have certifiable claims, dismissing objections raised by Life Investors regarding Gooch’s proposed conflicts of interests and credibility issues undermined the adequacy of representation. The Sixth Circuit likewise rejected Life Investor’s argument that Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) prohibits certification when a monetary damage award is sought. Instead, the Court clarified that declaratory relief is appropriate when it constitutes a separable and distinct type of relief that will resolve an issue common to all class members: “what matters to a class certification… [is] the capacity of a class wide proceeding to generate common answers apt to drive the resolution of the litigation.” In this case, Rule 23(b)(2) certification was appropriate under Wal-Mart because a declaratory judgment, which was sought independently from monetary relief, could apply a uniform interpretation of the contract term “actual charges” that would govern each member of the class.

This decision represents one of the Sixth Circuit’s first interpretations of Wal-Mart, and it addresses a number of issues that can arise in class certification. 

In Bobo v. United Parcel Service, Inc., the Sixth Circuit ruled that the district court erred in its management of discovery related to Walleon Bobo's discrimination and retaliation claims brought against UPS.  Bobo, an African-American supervisor for UPS and a longstanding member of the Army Reserve and a combat veteran, was terminated in May 2007 for violating UPS' company integrity policy, including falsifying certain driver safety forms. 

Following his termination, Bobo brought claims against UPS for discrimination and retaliation under the Uniformed Services Employment and Reemployment Act, race discrimination and retaliation claims under 42 U.S.C. section 1981, Title VII, and the Tennessee Human Rights Act ("THRA").  The Sixth Circuit affirmed the grant of summary judgment on the retaliation claims under section 1981, Title VII and THRA, but reversed and remanded for trial on the remaining claims. 

In reviewing the district court’s management of discovery, the Sixth Circuit was “troubled by both the procedural and substantive treatment of this case.”  In particular, the Court found that Bobo was improperly required to demonstrate an exact correlation between himself and other similarly situated individuals, rather than merely showing they were similar in all relevant respects, including having engaged in similar misconduct.  In the Sixth Circuit's view, Bobo properly compared himself to several UPS supervisors who were Caucasian and not reserve members and “[h]ad Bobo received an opportunity for discovery on these comparators, a jury might have found them similarly situated.”  The Sixth Circuit also faulted the district court for improperly narrowing Federal Rule of Civil Procedure 26(b)(1), which permits discovery of all non-privileged matters relevant to a party's claim.  As a result, the Sixth Circuit found that the discovery order was contrary to law and should have been set aside by the district court.

It will remain to be seen whether Bobo will be utilized to attempt to broaden the realm of pre-trial discovery.  Needless to say, not many appellate cases reverse based on discovery rulings, and in that respect the case is significant.  At the same time, this is an employment case with a fairly fact-specific claim.  We can expect that future cases will probe the limits of Bobo, and it may not be long before the issue returns to the Sixth Circuit. 

A recent Sixth Circuit case pithily illustrates the potential fate facing plaintiffs who, after failing to obtain injunctive relief against ongoing land development, discover that subsequent events have outstripped the very purpose of the litigation.

In Weiss v. Sec'y of the U.S. Dep't of the Interior (6th Cir., 10-1313, Jan. 25, 2012) (PDF), Julie Weiss and other citizens of Benton Harbor, Michigan sued Benton Harbor, the National Park Service and the Army Corps of Engineers after the city leased a portion of a public park to a developer for conversion into a golf course.  Seeking to block the development, Weiss alleged, among other things, that the development would have adverse environmental consequences and would also violate the National Historic Preservation Act.  Weiss sought, but was denied, injunctive relief below, and she did not appeal that ruling.  Meanwhile, the development project and litigation moved forward in tandem.  After the district court rendered summary judgment to the defendants, Weiss sought appellate relief.  By the time the matter reached the Sixth Circuit for decision, the golf course had been completed.

Writing for a unanimous panel that included Judges Cook and Daughtrey, Judge Kethledge generally affirmed the district court ruling but also found certain of Weiss's claims to be moot.  Under federal law, before a federal agency can approve a major project, it must "predict the project's environmental consequences.  Weiss asks us to order the agencies to redo their predictions."  Because the golf course had been completed, the Court refused, observing that such predictions "are beside the point": they "have either come to pass or not."  Under such circumstances, the Court likened Weiss's argument to "ask[ing] a meteorologist on Friday to redo the Thursday forecast."  Equally moot, the Court found, were Weiss's historic preservation claims: "any effects on the Park's historical character have already occurred," preventing the Court from providing "meaningful relief" and rendering "any declaratory judgment ... an advisory opinion."  Based upon the practical effect of the defendants' actions, the Court vacated the district court's judgment as to those claims and remanded with instructions to dismiss as moot.

Weiss serves as an object lesson regarding the potentially crucial importance of preliminary injunctive relief.  Having lost below on the injunction and having declined to appeal such loss, Weiss continued litigating even as events overtook the very relief she sought.  In cases where one party's unimpeded action can moot the point of the the lawsuit, the first few weeks or months -- where injunctive relief will be decided -- can prove dispositive, and appellate review of an adverse decision should be sought immediately.

The Sixth Circuit ruled last Friday in favor of Carl Thom in his claim under the Family Medical Leave Act (FMLA) against American Standard, Inc.  Thom v. American Standard, Inc., Case No. 07-00294.pdf  Thom’s claim arose out of FMLA leave he took due to a shoulder injury that was not related to work.  Thom requested FMLA leave from April 27, 2005, until June 27, 2005.  American Standard granted this request in writing.  Thom’s shoulder healed more quickly than expected, leading his doctor to approve light duty work beginning May 31 and a full return to work on June 13.  After not being permitted to work light duty, Thom did not return to work on June 13.  On June 14, American Standard called Thom because he had not returned to work.  Thom told American Standard that he was experiencing increased pain and would return to work on June 27.  Thom's doctor wrote a note requesting an extension of Thom's FMLA leave until July 18, but when Thom took the note to work, he had already been terminated due to his failure to return on June 13. 

The district court granted Thom partial summary judgment and awarded a total of over $200,000 in back pay, attorney fees, and costs based on American Standard’s failure to “adequately notify [Thom] of its method for calculating FMLA leave . . ."  Depending on which calculation method American Standard used, “rolling” or “calendar,” Thom’s leave would have expired on either June 13 or July 14.  Thom was terminated based on a June 13 expiration date calculated using the rolling method.  However, the only written document Thom received from American Standard stated that his leave would expire on June 27.  The first time he was told by American Standard that his return-to-work date had been changed was the day after he first missed work on June 14.  The Sixth Circuit held that “employers should inform their employees in writing of which method they will use to calculate the FMLA leave year.”  Thom had not received actual notice of American Standard's use of the rolling method, and he was entitled to rely on the date he received in writing from the company. 

The district court found that American Standard had acted in good faith and with reasonable grounds when discharging Thom, so it denied Thom’s request for liquidated damages.  The Sixth Circuit reversed this finding.  The Sixth Circuit found that American Standard’s purported defense of its actions – that it was relying on the rolling method to calculate Thom’s FMLA leave date – was pretextual and was never articulated until after Thom was fired.  According to the court, American Standard could not have relied upon its rolling method after it departed from this policy in giving Thom his written leave date. Such a defense was not sufficient to overcome the “strong presumption in favor of awarding liquidated damages that are double the amount of any compensatory damages.”

In Nemier v. Nationwide Mutual Insurance Company,  the Sixth Circuit ruled that  Karen Nemier, a former Nationwide Insurance Company agent,  had not raised a genuine issue of material fact to prevent summary judgment on her fraud and breach-of contract claims, holding the general statements by Nationwide about potential returns were not promises to her, were not knowingly false when made, or were mere puffery.  Nemier had sued Nationwide for fraudulently inducing her to take out loans from Nationwide to open a new office.    Nationwide  agreed to  forgive the loan in full  if her new office met specific growth rates .  Nemier accepted a loan in the amount of $100,000 based on studies by a Nationwide consultant and Nationwide’s assurances that given Nemier’s past success she would likely meet the sales goals required to waive her loan payments.  But Nationwide’s loan program allegedly drove insurance premiums up, causing Nationwide to lose customers.  Nemier missed her loan forgiveness target by 7 percent. 

Nemier raised three separate theories of fraud.  First, she claimed that Nationwide fraudulently induced her to take out a loan by promising lower rates in  the   new office’s location.  The Sixth Circuit ,  in reviewing the district court's grant of summary judgment to Nationwide,  held, however, that Nemier’s evidence that Nationwide identified the location as a “target expansion market” and that the loan program would spawn “competitive” rates were not promises to Nemier.  Moreover, these alleged promises could only be fraudulent if Nationwide intended to break them, evidence which Nemier did not have.

Second, Nemier claimed that Nationwide’s business projections were so optimistic that they qualified as dishonest.  The Court rejected this claim, stating that Nationwide warned her that sales may be difficult and, in any event, these types of projections are mere “puffery, not fraud.” 

Finally, Nemier alleged “silent fraud” because Nationwide failed to disclose its plan to compete with its agents directly. The Court rejected Nemier’s competition theory on the basis that Nemier provided so little information about the competition from Nationwide and its affiliates that it is “impossible to gauge whether that competition constituted a change in Nationwide’s business plan upon which Nemier would have  ' naturally relied '  when deciding whether to open the Hartland store.”  Furthermore, Nemier, the Court held, signed a contract permitting Nationwide to “make business decisions adverse to her interests.”

End-of-year countdowns are all the rage, and we thought it would be fitting to close out 2011 with a countdown for our loyal blog readers.  Without further ado, I present to you the five most important areas of law addressed by the Sixth Circuit in 2011.

No. 5 – More Rigorous Pleading Requirements In The Post-Twombly and Post-Iqbal Era.  In 2011, the Sixth Circuit decided several cases that signal higher pleading requirements in the Circuit, and practitioners should take note when drafting their complaints.  As we previously reported here, the Sixth Circuit in mid-2011 decided New Albany Tractor, Inc. v. Louisville Tractor, Inc., No. 10-5100 (6th Cir. June 21, 2011) (PDF), in which the panel reluctantly dismissed a complaint that likely would have survived pre-Twombly (PDF) and pre-Iqbal (PDF).  The panel in New Albany recognized that no discovery was permitted even though the plaintiff had no way of finding out the facts solely in the hands of the defendants.  The Sixth Circuit’s August decision in Chesbrough v. VPA, PC (6th Cir. Case No. 10-1494), only further reinforced the Court’s recent trend in insisting on rigorous pleading post-Twombly.  Following New Albany and Chesbrough, numerous district courts within the Sixth Circuit have dismissed complaints where the plaintiffs were not precise in their pleading and where the information to demonstrate plausibility was solely in the hands of the defendants.  The trend of the district courts is likely to continue in 2012.  We’ll stay on top of it.

No. 4 - Free Speech Challenge To The New Federal Tobacco Law.  Another important area of law addressed by the Sixth Circuit involves the free speech challenge to the Family Smoking Prevention and Tobacco Control Act, Public Law 111-31, which gives the Food and Drug Administration the power to regulate tobacco advertising and marketing.  See Discount Tobacco City & Lottery v. United States (6th Cir., Case Nos. 10-5234 & 5235).   The plaintiffs are arguing that several provisions of the Tobacco Control Act violate their First Amendment rights to free speech—most prominently, the new color warnings which graphically depict the negative health consequences of smoking: 

The Sixth Circuit heard oral arguments in this case back in late July, and we are waiting for a decision by the panel.

No. 3 - Daubert Rulings and the Future of Expert Testimony in the Sixth Circuit.  In a series of cases decided during the past year, the Sixth Circuit has continued its trend of requiring strict compliance with the requirements of Rule 702 of the Federal of Evidence and Daubert for all aspects of expert testimony.  See Thomas v. Novartis Pharmaceuticals Corp, (6th Cir. Nos. 09-6147, 09-6272, 09-6274) (PDF); Pluck v. BP Oil Pipeline Co. (09-4572) (discussed here).  As we have warned practitioners, strict compliance with Rule 702 and Daubert is the new norm in the Sixth Circuit.  Having said that, the recent opinions handed down by the Sixth Circuit can be used to a party’s advantage because they provide a roadmap on how to cross-examine experts effectively to discredit their opinions. 

(Side note: Our litigation colleague, Robin Weaver, successfully argued the Pluck case on behalf of BP Oil Pipeline Co.  Look for Robin to discuss the case –and its ramifications—in a future video blog on our website.)

No. 2 – Affirmative Action in College Admissions.  Affirmative action became a hot area of law in the Sixth Circuit this past summer.  As we previously reported, the Sixth Circuit on July 1, 2011 struck down an amendment to the Michigan Constitution popularly known as “Proposal 2,” which was passed by voter referendum in 2006 to prohibit Michigan’s public colleges and universities from granting “preferential treatment to[] any individual or group on the basis of race, sex, color, ethnicity, or national origin.”  Coalition to Defend Affirmative Action, Integration and Immigrant Rights and Fight for Equality by Any Means Necessary v. Regents of the Univ. of Michigan (6th Cir. Nos. 08-1387, 08-1389, 08-1534, 09-1111).  Judge Cole, writing for himself and Judge Daughtrey, ruled that Proposal 2 ran afoul of U.S. Supreme Court precedent interpreting the Equal Protection Clause.  The panel’s July 1, 2011 decision sparked national commentary on affirmative action, and by September 9, 2011, the Sixth Circuit had voted to rehear en banc the panel decision.  We are closely following this case in the Sixth Circuit, especially since it could eventually reach the U.S. Supreme Court.

And finally…the envelope please…

No. 1 - The Obama Health Care Statute. Without a doubt, the single most important area of law addressed by the Sixth Circuit in 2011 involved the high profile constitutional challenge to the mandate requiring individuals to purchase health insurance under the recently enacted Patient Protection and Affordable Care Act, Public Law 111-148.  See Thomas More Law Center, et al. v. Obama, et al. (Sixth Circuit, Case No. 10-2388).  We were the first blog to provide an in-depth analysis of the Sixth Circuit oral argument on the health care challenge, and one of the first to report on the Sixth Circuit’s June 29, 2011 decision upholding the health care statute as a constitutional exercise of Congress’s commerce power.  See Opinion, Thomas More Law Center, et al. v. Obama, et al. (Sixth Circuit, Case No. 10-2388).  The Sixth Circuit was the first Circuit Court in the country to rule on the health care statute’s constitutionality when it issued its 64 page opinion just 28 days after oral argument.  The challenge to the health care statute is now before the U.S. Supreme Court, with a landmark decision expected in 2012 (perhaps coinciding with the Presidential election).  As the Supreme Court begins to address the constitutionality of the health care statute, you can be sure that the parties will draw upon the majority opinions and dissenting opinion in the Thomas More case when fashioning their arguments.

And so an exciting year at the Sixth Circuit has come to an end.  Continue to follow us in 2012 as we provide you the best coverage and most sophisticated analysis of the Sixth Circuit.  Happy 2012!

In Dassault Systemes, SA v. Childress (No. 10-1987), the Sixth Circuit analyzed the factors for setting aside a default judgment under Rule 55(c).  Though the pro se defendant made any number of filings, he never filed an answer.  Rather than move for a default under Rule 55(a), the plaintiff moved directly for default judgment.  The district court granted the default judgment, but did not decide the amount of damages until after the defendant moved to set the default aside.  Therefore, the first question addressed by the Sixth Circuit panel was what standard to apply:  the strict standard under Rule 60(b) for setting aside a judgment, or the more lenient Rule 55(c) standard for setting aside a default.  The panel decided the default judgment should be treated like a mere default under Rule 55(c) because it was not final (as it did not decide the amount of damages).  This opinion, following cases from the First and Second circuits, quietly overrules the Court’s previous decision on this subject in INVST Fin. Group, Inc. v. Chem-Nuclear Sys., Inc., 815 F.2d 391 (6th Cir. 1987).  A panel cannot overrule a previous panel’s decision, so the Court justifies this result by arguing that INVST is itself inconsistent with earlier decisions that discuss the need for damages hearings. 

The Sixth Circuit panel then made the most of the “less deferential” abuse of discretion standard of review that applies to a district court's refusal to set aside a default under Rule 55(c).  Judge Moore’s opinion takes pains to explain that while the defendant's actions may have looked intentional and calculated, it was likely that the plaintiff “as a pro se litigant, was merely attempting to navigate the none-too-intuitive labyrinth of procedural rules.”  The plaintiff claimed prejudice from the defendant’s delays, including the spoiling of data on hard drives, continued copyright and trademark violations, and increased legal fees.  But the court explained that such prejudice could not be considered -- “the relevant inquiry concerns the future prejudice that will result from reopening the judgment, not prejudice that has already resulted from the defendant’s conduct.”  Finally, the court emphasized that “even conclusory assertions may be sufficient to establish the ‘hint of a suggestion’ needed to present a meritorious defense” for the Rule 55(c) analysis.  The panel therefore reversed on the basis that the defendant had demonstrated “good cause” for refusing to file an answer even after he was ordered to do so.  

The panel acknowledged the district court’s justified exasperation with a pro se litigants that make lengthy filings and refuse to comply with orders.  But this opinion appears to lower the bar for the evidence that is required to show “good cause” to set aside a default under Rule 55(c), even where the default is the result of apparently deliberate dilatory conduct.  

On Monday, the Sixth Circuit affirmed the decision of the Northern District of Ohio in Bondex International, Inc. v. Hartford Accident and Indemnity Co.pdf, dismissing an insured’s claims for $125 million in additional coverage for asbestos claims.  Plaintiffs/Appellants in the case, RPM Inc., Bondex International, Inc., and Republic Powdered Metals, Inc. (“RPM”) sought insurance coverage from multiple insurance company Defendants/Appellees (“Insurers”) for RPM’s settlement and defense costs related to thousands of asbestos-exposure products-liability lawsuits.  Many of the lawsuits arose from consumers’ alleged exposure to asbestos manufactured by the Reardon Company (“Old Reardon”), which sold its assets and liabilities to RPM and then dissolved in 1966.  The Insurers had previously paid $100 million in insurance proceeds under the policies.  RPM sought an additional $125 million and several million dollars in ongoing defense costs, arguing that the policies’ “Products Hazard” caps did not apply to the Old Reardon claims. 

At trial, the Northern District ruled in favor of the Insurers, finding “that the de facto merger doctrine warranted extending the policies’ Products Hazard caps to Old Reardon, as RPM’s absorbed predecessor.”  The Sixth Circuit upheld the judgment, but based its ruling on the plain language of the policies and the parties’ course of dealing. 

All of the policies provided coverage to the “Named Insured” or “Insured.”  The policies also included “Products Hazard caps,” which limited potential product-liability claims during the policy periods.  “Named Insured” was defined to include “any subsidiary company [and] any other company under their control and active management at the inception date of this policy.”  In addition, RPM previously entered settlement agreements with certain insurers acknowledging that The Reardon Company’s claims would exhaust primary insurer’s aggregate limits.

Republic/RPM had adopted Old Reardon’s founding and date of incorporation on its own filings, and was making many of the same products, in the same facilities, with the same employees as Old Reardon.  The Sixth Circuit held, “Although Old Reardon lost its cloak of corporate independence after the 1966 purchase agreement and dissolution, the same ‘association of persons for carrying on a commercial enterprise’—and thus, the same company under the plain meaning of that term—continued as a division of Republic/RPM.”  Because the relevant policies began in 1973, after the purchase of Old Reardon’s assets, RPM were found to have controlled Old Reardon during the applicable period.  This conclusion was supported by the fact that insurers had treated Old Reardon claims as being subject to liability caps for twenty years prior to the filing of this lawsuit without RPM challenging that determination.  In addition, RPM had entered into the settlement agreements which treated Old Reardon claims as being subject to policy limits.

The Southern District of Ohio recently dismissed a case brought by five Ohio state investment funds against certain credit rating agencies, with the losses allegedly arising from the funds' purchase of residential and commercial-backed securities. [See Court's Opinion and Order here] Claiming losses of nearly half a billion dollars, the funds claim that they relied on the credit ratings in making their decisions to purchase the securities.  These claims were brought under Ohio's Blue Sky Law preventing the seller of securities from making material misrepresentations.  The court accepted the rating agencies' argument that Ohio's anti-fraud securities provision could not apply to them because they were not the actual sellers of the securities, nor did they profit from the sale. 

There are a number of cases swirling through the judiciary concerning the fallout of the residential mortgage crisis, and this case may provide the Sixth Circuit with an opportunity to provide some parameters on how those case issues should be adjudicated.  Although the issue appears to be purely one of Ohio law, the blue sky statutes bear some similarity across jurisdictions, and therefore the Court's ultimate decision may have broader implications.  We will continue to keep an eye on this case as it works its way through the Circuit.

On Friday, a panel for the Sixth Circuit required the City of Memphis to immediately promote twenty-eight African American police officers to the rank of lieutenant. The backdrop of the case began in 2000, when minority plaintiffs successfully challenged the validity of the Memphis Police Department’s promotional process. After a new promotional process was implemented in 2002, thirty-five African-American patrol officers filed suit alleging, in relevant part, that the sergeant’s examination had a disparate impact under Title VII of the Civil Rights Act of 1964, causing a failure to promote minority officers to the rank of sergeant.

The City was eventually ordered to promote all minority plaintiffs to the rank of sergeant with back pay and seniority, but the district court denied a request by the plaintiffs to compete for promotion to the rank of lieutenant because they lacked two years’ experience in the position of sergeant, an eligibility threshold.

In August 2007, the City announced that it would hold a make-up promotional exam for the rank of lieutenant. The plaintiffs moved for a preliminary injunction, requiring the City to allow the plaintiffs to take the exam, even though they had not actually held the position of sergeant for two years. The court granted the injunction based upon its finding of prior discrimination, which it deemed an “exceptional circumstance.” Twenty-eight plaintiffs received passing scores on the exam; however, the plaintiffs filed for the current injunction when the City failed to immediately promote them to the rank of lieutenant.

The Sixth Circuit affirmed the injunction finding the plaintiffs would suffer irreparable injury, namely, the loss of valuable work experience and opportunities to compete for other promotions. The Sixth Circuit also affirmed substantial harm to others would not result and that the public interest would be served by the injunction because the plaintiffs would all possess the requisite two year experience by the time the promotions took effect and the Police Department would still be adequately staffed.

Earlier this month, Arlington Video Productions, Inc. filed a notice of appeal from denial of class certification (and later summary judgment) in a case it brought against Fifth Third Bank in the Southern District of Ohio.  Challenging certain fees assessed by Fifth Third, Arlington Video sought to certify a class of:

All individuals and entities who have or have had checking accounts with Fifth Third Bank in the United States, who were charged and paid a fee for a service that was not listed on a then current Fifth Third Fee Schedule, or was in an amount that was different from that stated on a then current Fifth Third Fee Schedule, prior to the assessment of the charge, during the applicable limitations period.

The district court declined to certify the class, holding that there were “valid concerns as to whether the numerosity requirement has been satisfied,” and finding that Arlington Video met none of the other three class requirements of commonality, typicality, and adequacy of representation.  Practical problems plagued the certification request, as the court expressed concern over the necessary and onerous factual inquiry to identify the class and, thus, to determine numerosity.  Such an inquiry would require surveying all account holders for those who had not only been charged fees, but fees not listed on specific agreements and of which they were not given adequate notice.  These same individualized concerns, the court held, pervaded the commonality requirement and, thus, no common legal or factual thread ran through all potential class members. 

The court noted that typicality cannot exist “where litigation of the individual circumstances of each account holder’s negotiations of the terms of his or her account and a breach of duty to each account holder on the part of defendant is necessary to establish liability and to support an award of damages.”  The court echoed this reasoning in holding that Plaintiff failed to establish adequacy of representation.  For instance, there are 75 types of business accounts with “infinite potential for variations” in those account holder agreements.   This case may give the Sixth Circuit an opportunity to explore issues relating to class certification that practitioners regularly face; therefore, we'll keep an eye on this case.

The Sixth Circuit heard oral argument yesterday in General Tobacco’s appeal of a 2009 decision dismissing its lawsuit against various tobacco companies and states.  General Tobacco’s lawsuit challenged the effects of the Master Settlement Agreement (MSA) entered into by certain tobacco manufacturers and states to resolve claims that the manufacturers targeted children with advertising and understated the harmful effects of cigarettes.  As part of the MSA, the states agreed to not only release participating manufacturers, but also retailers, suppliers, and distributors of cigarettes with respect to sales of products made by settling manufacturers.  This provision encouraged companies to only do business with settling manufacturers.  The MSA also required non-settling manufacturers to put money into an escrow account to ensure that they did not receive a financial advantage from not participating in the settlement.  General Tobacco was not an original signatory of the MSA. 

General Tobacco filed suit October 28, 2008, claiming that the original settling manufacturers were receiving preferential treatment under the MSA.  General Tobacco made various claims, including anti-trust claims and constitutional claims against the states.  In a Memorandum Opinion and Order, Judge Coffman of the Western District of Kentucky dismissed General Tobacco’s claims.  Plaintiff’s anti-trust claims against the settling manufacturers were dismissed on Noerr-Pennington grounds.  The anti-trust claims against the states were dismissed based on state-action immunity.  Finally, the court found that plaintiff’s constitutional claims against the states had been waived when it signed on to the settlement.

 The appellate panel hearing the case consisted of Circuit Judges Clay, Gibbons, and White.

The Sixth Circuit in State ex rel. Boggs v. City of Cleveland provides some interesting guidance on the application of res judicata in the public takings context.

Plaintiffs, owners of property near the Cleveland airport, originally brought suit in 2002 to compel the City to initiate appropriation proceedings because the level and frequency of flights was effectively a public taking of their property without just compensation.  The case was dismissed with prejudice.  In 2008, plaintiffs again brought suit against the City seeking to compel appropriation proceedings based on three new occurrences that took place after the filing of the 2002 action: first, the runways had been further expanded; second, the expanded runways allegedly poisoned the plaintiff’s sole water supply; and third, the City had certified to the FAA that it would eventually acquire the property.

Analyzing plaintiffs’ case under Ohio’s test for claim preclusion, the Sixth Circuit held that the plaintiffs’ second action was not precluded for two reasons.  First, even though the City had planned the airport’s expansion and undertaken the first stage of the expansion well before the original 2002 action was filed, the 2004 and 2007 expansions had not yet occurred, nor had the environmental damages been incurred by plaintiffs.  Therefore, the claims in the second action could not have been litigated in the first.  Second, the court determined that the 2004 and 2007 runway expansions were distinct events from any earlier expansion, and resulted in new facts and changed circumstances.  Thus, the claims in the second action were premised on a new transaction or occurrence and were not barred by claim preclusion.  This case illustrates how new facts can revive a dismissed takings claim (but of course it doesn't speak to whether that revival will ultimately be successful).

In a case of first impression, last week the Sixth Circuit addressed the scope of the term “employee,” in the volunteer context under Title VII of the Civil Rights Act of 1964 (“Title VII”). Marcia Bryson v. Middlefield Volunteer Fire Dep't, (6th Cir. 2011). Expressly rejecting the Second Circuit’s two-step test, which requires a putative employee to make a threshold showing of remuneration before analyzing the putative employment relationship under the common-law agency test, the Sixth Circuit distinguished itself from the Second, Fourth and Eighth Circuits by holding that “significant remuneration” is not an independent antecedent; rather, it is only one factor which must be weighed along with all aspects of the employment relationship.

In an opinion written by Circuit Judge Moore, the Court clarified that when the term “employee” is vaguely defined, as it is under the Act (42 U.S.C. § 2000e(f)), a court must apply the common-law agency test, as outlined by the U.S. Supreme Court in Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318 (1992), and Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730 (1989). Under both cases, the Supreme Court instructs a court to weigh several factors that have historically been used to distinguish employees from independent contractors. The Sixth Circuit noted that the Supreme Court did not restrict the common law test of agency to individuals who receive significant remuneration; rather, in Darden, the United States Supreme Court required “all of the incidents of the relationship [to] be assessed and weighed with no one factor being decisive.”

This case is significant as it demonstrates the Sixth Circuit’s willingness to add volunteers into the employee tally, expanding the range of “employers” that may fall under the purview of Title VII.

In Hirsch v. CSX Transportation, Inc. (6th Cir., No.09-4548) (PDF), a case that could have significance in other medical monitoring cases throughout the circuit and perhaps even more broadly, the Sixth Circuit affirmed a district court ruling on summary judgment that rejected class claims for medical monitoring following a major 2007 train derailment in Ohio.

The case stems from train derailment in Painesville, Ohio on October 10, 2007, in which 31 cars were toppled, nine of which carried hazardous materials.  As a consequence of the derailment, a fire burned for three days, allegedly consuming over 2,800 tons of combustibles, which the plaintiffs claimed resulted in the release of toxic materials into the atmosphere.  As a result of these events, some 1,300 residents within a half-mile radius were forced to evacuate for three days.  The plaintiffs brought suit for negligence, nuisance, strict liability, trespass and medical monitoring under Ohio law, but CSX obtained dismissal of all claims save negligence, under which the district court permitted the plaintiffs to seek medical monitoring as a remedy.  CSX won the remaining negligence claim on summary judgment, and the plaintiffs appealed.

Affirming the district court, Judge Boggs wrote for a unanimous panel that included Judges Kennedy and Sutton.  Early on, the panel noted that "[w]hat makes the present claim conceptually unique is that the Plaintiffs -- though no doubt distraught from the stress of a train crash and evacuation -- have, even by their own admission, as of now not suffered any discernable compensable injury.  Rather, their alleged injuries consist solely of the increased risk of -- and corresponding cost of screening for -- certain diseases" that plaintiffs claim are likely to occur because of the train crash and fire.  Stating that "not every risk of disease warrants increased medical scrutiny," the panel emphasized that Ohio law required medical monitoring only if a "reasonable" physician would deem monitoring necessary (emphasis in original).  Examining the opinions of plaintiffs' experts, the Court found that those opinions were "plainly insufficient," offering only "an expert's bare opinion on the ultimate issue" as to whether monitoring should be ordered.  The Court also criticized other aspects of the experts' opinions, calling estimates of the total amount of burned materials to be "speculative" and observing that even the "one-in-a-million" chance of elevated disease represented by the experts was "proverbially small."  As the Court put it, "[i]f something has a one-in-a-million chance of causing cancer in an individual, then it will not cause cancer in 999,999" -- which the panel then compared to chances of dying by car crash (1 in 88), by air/space accident (1 in 7,000), by lightning (1 in 84,000) and by discharge at a fireworks display (1 in 386,000).  For all these reasons, the Court found that "Plaintiffs have alleged only a risk that borders on legal insignificance" and further "failed to produce evidence establishing even this hypothetical risk with any degree of certainty."

Thus, in Hirsch, to establish a case for medical monitoring under Ohio law, the Sixth Circuit has demanded both a greater raw risk of injury than the "one-in-a-million" chance that the plaintiffs offered, as well as a less speculative showing as to exposure levels to allegedly disease-causing toxins.  In ruling, the panel assumed without deciding that such a negligence/medical monitoring claim would be permissible under Ohio law, and it also expressly did not "foreclose any number of possibilities" that might survive summary judgment: for instance, where plaintiffs could show that medical monitoring would be standard practice for certain risks or where plaintiffs could "obtain[] conclusive evidence" that they, in fact, faced a "one-in-a-million increased risk of cancer."  Such "harder cases" the panel left for another day.

The Fourth Circuit Court of Appeals yesterday rejected two challenges to the constitutionality of the mandate requiring individuals to purchase health insurance under the recently enacted Patient Protection and Affordable Care Act, Public Law 111-148.  Like the Third Circuit, and unlike the Sixth and Eleventh Circuits, the Fourth Circuit held that the challengers lacked standing.  (As we previously reported, the Sixth Circuit was the first Circuit Court in the country to rule on the health care statute’s constitutionality when it upheld the individual mandate under the Commerce Clause back on June 29, 2011.  See Thomas More Law Center, et al. v. Obama, et al. (Sixth Circuit, Case No. 10-2388).)

First, in a unanimous opinion written by Judge Gribbon Motz, the Fourth Circuit held that the Commonwealth of Virginia lacked standing to challenge the individual mandate because it is a requirement imposed on individuals, not states.  See Opinion, Commonwealth of Virginia v. Sebelius (Fourth Circuit, Case No. 11-1057) (PDF).  In a second 2-1 opinion written by Judge Motz, the Fourth Circuit concluded that the individual mandate is a tax, and thus the conservative Liberty University could not challenge the mandate until it goes into effect in 2014: “Because this suit constitutes a pre-enforcement action seeking to restrain the assessment of a tax, the Anti-Injunction Act strips us of jurisdiction.”  See Opinion, Liberty University, Inc. v. Geithner (Fourth Circuit, Case No. 10-2347) (PDF). 

What’s interesting is that the government conceded before the Fourth Circuit that the individual mandate was not a tax for purposes of the Anti-Injunction Act.  And even President Obama has insisted that the individual mandate is not a tax in defending the requirement:

The Fourth Circuit nevertheless raised the Anti-Injunction Act bar on its own, observing that the government “fails to explain [its] change in position.”  In doing so, the Fourth Circuit specifically disagreed with the Sixth Circuit’s Thomas More ruling that the Anti-Injunction Act was inapplicable because the exaction for failure to comply with the individual mandate was labeled a “penalty,” not a “tax.”  The Fourth Circuit noted that the U.S. Supreme Court has specifically determined that an exaction’s label is immaterial to the applicability of the Anti-Injunction Act, and thus “it is not surprising that no federal appellate court, except the Sixth Circuit in Thomas More, has ever held that the label affixed to an exaction controls, or is even relevant to, the applicability of the [Anti-Injunction Act].”

The Fourth Circuit case is also interesting because it suggests the possibility that the individual mandate could ultimately be upheld as a constitutional exercise of Congress’s tax power even if it exceeds the commerce power.  In his concurring opinion in Case No. 10-2347, Circuit Judge James Wynn stated that “Congress had the authority to enact the individual and employer mandates under its plenary taxing power.”  Thus, for all the talk about whether the individual mandate exceeds the commerce power, the U.S. Supreme Court will have another rationale to uphold the health care statute if it ultimately agrees to hear the challenge (which Court observers agree is a near certainty).

We’ll, of course, continue to stay on top of all the developments and the nuances of the battle over the health care statute.

In PT Pukuafu Indah, et al. v. Newmont Mining Corp. (6th Cir. Nos. 09-02117/2570, 10-1477/1837) (PDF), the Sixth Circuit reversed a hefty Rule 11 sanction determination, including an award of over $107,000 in attorneys fees and an injunction permanently enjoining the plaintiffs from filing lawsuits against the defendants in any federal or state court.

In the matter below, the plaintiffs brought suit in the Eastern District of Michigan against the SEC, the Export-Import Bank and various other entities, alleging that they failed to take certain enforcement actions against Newmont Mining Corporation ("Newmont").  During the previous 10 years, the plaintiffs had filed several lawsuits against Newmont in federal and state courts based upon or related to their belief that they have ownership interest in several mines in Indonesia.  Each of their earlier lawsuits had been dismissed as lacking in merit, and other courts had imposed sanctions upon the plaintiffs.  In the matter below, in which the plaintiffs filed an initial complaint and then subsequently filed first and second amended complaints, the district court dismissed for lack of personal jurisdiction over Newmont.  Plaintiffs sought to file a Third Amended Complaint, and Newmont filed a motion for sanctions under Rule 11, arguing that the attempted Third Amended Complaint was sanctionable conduct and seeking attorneys fees for defending against the entire lawsuit brought by plaintiffs.  The district court denied leave for plaintiffs to file the Third Amended Complaint, dismissed all of the plaintiffs' claims, and granted Newmont's Rule 11 motion, requiring plaintiffs and their counsel to pay Newmont over $107,000 in attorneys fees and costs.  In addition, the court enjoined plaintiffs from "filing any lawsuits against Defendants in this or any federal or state court related to the subject matter of this lawsuit."

Writing for a unanimous panel that included Judges Cole and Rogers, Judge Moore affirmed the district court's denial of leave for the Third Amended Complaint as well as dismissal of all of the plaintiffs' claims, but the Court reversed the Rule 11 sanctions and injunction.  Under plain error review (which the Court applied because the plaintiffs had not raised the issue of identification below), the Court began by observing, first, that "identification of the specific conduct that is allegedly sanctionable is critical to a finding of a Rule 11 violation" and, second, that "a district court may not impose a sanction until the violator has had 'notice and a reasonable opportunity to respond'" (quoting Rule 11(c)(1)).  The district court clearly found the attempted filing of the Third Amended Complaint sanctionable, but the Court noted language showing that the district court also believed that the lawsuit in toto was sanctionable for failure of the plaintiffs and their counsel to make "an inquiry reasonable under the circumstances" as to whether the lawsuit should properly have been filed.  The fact that the district court's findings went beyond conduct identified in Newmont's motion was "especially problematic," the Court found, because it did not give plaintiffs adequate notice of the "specific conduct that is said to constitute a Rule 11 violation."  Moreover, the Court was troubled by the lack of proper notice particularly because of the "great severity of the sanctions awarded."  Finding that the district court committed plain error, the Court reversed the sanctions order and remanded for the lower court to "consider anew" Newmont's Rule 11 motion.

The Court's ruling demonstrates the strong nexus that must exist in a Rule 11 determination between the specific conduct alleged to be sanctionable and the actual basis upon which the sanctions award is premised.  The case is also remarkable for the use of "plain error" review, upon which basis the Court provided relief to a party that had failed below to raise the key issue upon which the propriety of the sanctions determination ultimately turned.

Adding to line of cases that started a year ago with Tamraz v. Lincoln Elec. Co., 620 F.3d 665 (6th Cir. 2010) (discussed here), the Sixth Circuit has again tightened the requirements for expert testimony under Rule 702 and Daubert in Thomas v. Novartis Pharmaceuticals Corp.pdf, Nos. 09-6147, 09-6272, 09-6274. 

As previously reported last September, a majority of the Court in Tamraz overturned a $20.5 million verdict after concluding that the trial court erroneously admitted a physician’s testimony regarding the cause of a disease where the testimony did not meet the same stringent test of reliability as the physician’s testimony about the diagnosis of the disease. 

Earlier this year, the Court built upon its decision in Tamraz when it held, in Pluck v. BP Oil Pipeline Co. (09-4572) (discussed here), that an expert’s conclusions ruling out other potential causes of a plaintiff’s injury must also satisfy Daubert and Rule 702. 

The Court’s latest decision, issued just last week, continues the Court’s trend of requiring strict compliance with the requirements of Rule 702 and Daubert for all aspects of expert testimony.  In Thomas, the Court affirmed the dismissal of three product liability cases on the grounds that the plaintiffs’ treating physicians, while arguably qualified to opine as to the nature of the condition afflicting the plaintiffs, could not meet the reliability requirements necessary to testify about the cause of plaintiffs’ affliction.  Because the plaintiffs could not satisfy the elements of their claims without expert testimony as to causation, the Sixth Circuit upheld the trial court’s grant of summary judgment in favor of the defendant drug manufacturer.  

While the Sixth Circuit’s expert jurisprudence may seem rigid of late, practitioners would be wise to consider strict compliance with Rule 702 and Daubert the new norm; as the Supreme Court recently denied cert over the Tamraz case, this line of cases appears to have staying power.

Additional commentary on the Sixth Circuit's recent Daubert and pharmaceuticals jurisprudence can be found here.

Yesterday, the Sixth Circuit reversed a decision compelling arbitration in an employment dispute, Hergenreder v. Bickford Senior Living Group, LLC. A foundational principle of the FAA is consent to arbitration, and in this case, the Sixth Circuit could not find evidence of that consent. The employee had received a copy of the employment handbook, which made reference to a dispute resolution policy, but did not mention arbitration. The dispute resolution policy included an arbitration clause, but the employee never signed an acknowledgment that she had received it and agreed to be bound to it.  The employer submitted an affidavit that the policy is distributed to all employees. But for the Sixth Circuit, that was too slender a reed on which to enforce an arbitration agreement.

This case provides some good pointers on the care that employers should exercise when seeking to bind employees to arbitration agreements. Many employers have an employee sign an acknowledgment form indicating that they have received an arbitration policy and agree to it. The Court commented on such forms, observing that "an acknowledgment form, signed after an employee has been given a copy of an arbitration agreement, can serve as ironclad proof that an employee was reasonably notified of an arbitration agreement."  In other words, if the employer here had actually procured the employee's signature, the result would likely have differed.

A footnote on this case concerns appellate jurisdiction. In granting the motion to compel arbitration, the district court dismissed, rather than stayed, the case. When a district court stays a case under Section 3 of the FAA, the appellate courts lack appellate jurisdiction to review such orders until after the arbitration takes place. But when a district court dismisses the case, it triggers an automatic right to appeal.  This is a little-known facet of appellate jurisdiction that carried big repercussions in this case -- if the district court had stayed the case, the parties would have proceeded in arbitration rather than in court. 

Only a few days after we noted that the Sixth Circuit seems to be deciding an usually large number of healthcare decisions, the Court was at it again yesterday. In Chesbrough v. VPA, PC, Case No. 10-1494, the Court considered a False Claims Act brought by a qui tam relator, alleging fraudulent Medicare and Medicaid billing practices. The case afforded the Sixth Circuit an opportunity to apply Rule 9(b)'s pleading standards in a post-Twombly world, all in the context of an FCA claim (which are ever popular in the healthcare field).

The relator was a radiologist who claimed that the defendant conducted deficient x-ray exams and improperly presented them to the government for payment. Because there was no Medicare standard that set an industry standard as a requirement for payment, the relator effectively had to claim that the tests were wholly fraudulent and of no value. The Sixth Circuit held that some of their allegations (barely) made out a fraudulent scheme, but the relators could not surmount the presentment barrier. The relators relied on an "implied certification" theory, and sought the application of a "relaxed" Rule 9(b) standard that the Court had previously held could apply when it is apparent that false claims were made but the relator could not produce such allegations through no fault of his own. 

Without overruling the "relaxed" Rule 9(b) standard, the Court declined to apply it in a post-Twombly setting. Even though the radiologist here had no access to the defendant's billing records, that gave the Circuit no pause in upholding dismissal. The Court both expressed skepticism as to the underlying "scheme" and pointed to its recent New Albany Tractor decision (which we reported on here), which held that a plaintiff could not survive a motion to dismiss on the basis that necessary information for the claim rested within the defendant's exclusive control. This case reinforces the Court's recent trend in insisting on rigorous pleading post-Twombly. It also showcases how the Twombly Rule 8 pleading standard can be incorporated in the Rule 9(b) context. Given the recent increases in FCA litigation, Chesbrough could carry great significance in future FCA cases within the Circuit. 

Healthcare decisions abound at the Sixth Circuit recently, as yesterday the Court turned to dissecting Medicare regulations.  In Henry Ford Health System v. Department of Health & Human Services (10-1209), a hospital challenged regulations excluding Medicare reimbursements for the time residents spent conducting pure research.  Analyzing the regs through the lens of Chevron, the Sixth Circuit found that Congress had expressly delegated authority on the question at issue to the agency, and that the agency's regulation fell within the wide bounds of reasonableness.  The Court acknowledged that its decision stood "in some tension" with a recent Seventh Circuit decision (University of Chicago Med. Center v. Sebelius, 618 F.3d 739 (7th Cir. 2010)), but did not dwell on the point because new regulations promulgated by the agency might have led to a different result at the Seventh Circuit.

Although the decision involves much parsing of the Medicare statute and its regulations, the result here carries real-world consequences for teaching hospitals.  The exclusion of time for research activities reduces the bottom line, particularly when the regulations applied retroactively.  The Court upheld the retroactive application based on congressional authorization. 

Judge Sutton, who was also a member of the panel that upheld the constitutionality of the health care reform statute, authored this opinion.  Given the recent healthcare-related decisions by the Circuit, as well as those looming on the horizon, those in the health-care sector should stay tuned to the court's actions.  

The Sixth Circuit upheld a trial court’s judgment for just under $3 million this week after finding that the defendant had waived the majority of its arguments by failing to raise them before the district court.  This unpublished decision, Fifth Third Bank v. Lincoln Financial Securities Co., No. 09-6456 (6th Cir. Aug. 10, 2011).pdf, serves as a useful reminder of the importance of preserving arguments for appeal and the standard used by the Sixth Circuit to determine whether arguments have been waived. 

In Fifth Third, the Sixth Circuit held that the defendant, Lincoln Financial, had waived four different arguments by failing to sufficiently raise them at the trial court level.  As a general rule, “an argument not raised before the district court is waived on appeal.”  However, as the Fifth Third decision makes clear, a party must do more than simply mention the argument at the trial court.  Although the court stated that it has never directly addressed the issue of what constitutes "raising an issue," it has “found issues to be waived when they are raised for the first time in motions requesting reconsideration or in replies to responses.”  Two of Lincoln Financial’s arguments were waived because they were raised for the first time in its Rule 59 motion to alter the judgment, and a third was waived because it was initially raised in the reply in support of summary judgment. 

The court also analyzed whether an exception applied that warranted consideration of matters raised for the first time on appeal by looking at the following factors: “1) whether the issue newly raised on appeal is a question of law, or whether it requires or necessitates a determination of facts; 2) whether the proper resolution of the new issue is clear beyond doubt; 3) whether failure to take up the issue for the first time on appeal will result in a miscarriage of justice or a denial of substantial justice; and 4) the parties’ right under our judicial system to have the issues in their suit considered by both a district judge and an appellate court.”  The court found that these factors did not weigh in favor of considering arguments that were not raised by Lincoln Financial in the trial court.

In  Pulte Homes, Inc. v. Laborers’ International Union of North America, Nos. 09-2245; 10-1673 (6th Cir. August 2, 2011).pdf, the Sixth Circuit reversed in part the district court’s dismissal of Pulte’s Federal Computer Fraud and Abuse Act (“CFAA”) claims and, in the process, further elucidated the “independent-federal-exception” to Garmon preemption over conduct “arguably subject” to section 7 or 8 of the National Labor Relations Act (“NLRA”).  The Court also clarified the standards for pleading intent and damages on a transmission claim under the CFAA

Pulte terminated Roberto Baltierra from its construction crew for misconduct and poor performance.  The Laborers’ International Union of North America (“LIUNA”), of which Baltierra was a member, claimed Pulte terminated Baltierra in retaliation for wearing a LIUNA shirt to work.  As the Court explained, LIUNA “bombarded” Pulte’s offices and three of its executives with phone calls, both from hired automatic dialers and its members, and emails intended to overload Pulte’s systems in an effort to damage Pulte’s goodwill and relationships with its employees, customers, and vendors.  Many of the thousands of emails included threats and obscene language.  Four days into the phone and email “barrage,” Pulte’s general counsel contacted LIUNA requesting that LIUNA cease its attack.  LIUNA, however, did not relent.  Pulte then filed suit claiming, inter alia, violations of the CFAA.  Pulte also sought a preliminary injunction to stop LIUNA’s communications.  The district court, in separate rulings, denied the preliminary injunction request and dismissed the CFAA claims.  Pulte appealed both rulings, and the appeals were consolidated before the Sixth Circuit.

This case is notable for three reasons:

     1)  The Sixth Circuit solidified the “independent-federal-remedy” exception to Garmon preemption, which permits a federal court to “decide labor law questions that emerge as collateral issues in suits brought under independent federal remedies.”  The Court held that Pulte could prove LIUNA violated the CFAA without proving—or even implicating—the NLRA.   

     2)  The Sixth Circuit, following the Third and Seventh Circuits as well as several district courts, endorsed the concept of “diminished ability” for damages under the CFAA.  The court held that “a transmission that weakens a sound computer system—or, similarly, one that diminishes a plaintiff’s ability to use data or a system—causes damage.”

     3)  Even though the Sixth Circuit reinstated Pulte’s CFAA claims, the Court affirmed the district court’s denial of Pulte’s request for a preliminary injunction—but for a different reason.  The Court held that dismissal was proper because Pulte failed to comply with section 8 of the Norris-LaGuardia Act ("NLGA").  Any party seeking a preliminary injunction in a case arising out of a labor dispute must strictly conform to the NLGA, and section 8 thereof requires a plaintiff to make “every reasonable effort to settle the dispute by negotiation.”  The Court held Pulte had failed to do so.

The case is also significant for its interpretation and application of the CFAA.  For more discussion of that subject, see this post.

In Ashland, Inc. v. Oppenheimer, No. 10-5305 (6th Cir. July 28, 2011).pdf, the Sixth Circuit eschewed the checklist of non-exhaustive factors set forth in Helwig v. Vencor Inc., 251 F.3d 540, 552 (6th Cir. 2001).pdf, for analyzing scienter in securities-fraud cases.  Instead, the Sixth Circuit, in an opinion by Judge Cook, followed the “holistic” approach used by the Supreme Court of the United States in Tellabs, Inc. v. Makor Issues & Rights, Ltd, 551 U.S. 308 (2007).pdf—a test the Supreme Court recently reaffirmed in Matrixx Initiatives, Inc. v. Siracusano, 131 S.Ct. 1309 (2011).pdf.

Plaintiff Ashland purchased from Oppenheimer auction rate securities (“ARS”), which are long-term bonds with interest rates that are periodically reset through recurring auctions.  Investors holding ARS may liquidate their investments at any auction, but only if there is a sufficient demand.  Ashland sought to invest capital it had set aside for acquisitions.  Oppenheimer suggested ARS, claiming that they not only had strong credit ratings, but they were “safe and liquid” and, thus, “comparable to money market instruments.”  Oppenheimer also advised Ashland that underwriters “had never allowed an auction to fail and would continue to act to prevent such an occurrence.”  In February 2008, however, following failed auctions by Goldman Sachs and Piper Jaffray, the ARS markets collapsed.  Ashland tried to sell its ARS at auction, but with no success.  It was left with $194 million in illiquid ARS, on which it lost millions through discounting them for sale.  Because Ashland was without liquid capital for acquisitions, it incurred millions in finance charges to execute its intended acquisitions.

Ashland claimed that Oppenheimer knew about the ARS meltdown before it happened and filed suit against Oppenheimer alleging that Oppenheimer violated Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.  Ashland also brought Kentucky state law claims against Oppenheimer.   The district court granted Oppenheimer’s motion to dismiss all claims, and the Sixth Circuit affirmed.

The Sixth Circuit found that many of Oppenheimer’s purported misstatements and omissions were not actionable, either because they lacked materiality or because Oppenheimer had no duty to disclose them.  Furthermore, relying on Tellab and Matrixx, the Sixth Circuit agreed with the district court that Ashland failed to plead scienter, but disagreed with the district court’s test for assessing scienter.  The Court refused to apply the checklist of factors that the Helwig Court deemed probabtive of scienter, and instead followed the “holistic” scienter examination espoused by the Supreme Court in Tellabs and Matrixx.  As the Supreme Court stated in Tellabs, “the court’s job is not to scrutinize each allegations in isolation but to assess all the allegations holistically.”  Tellabs, 551 U.S. at 326.  The Sixth Circuit concluded that “Ashland’s factual allegations, when considered together, do not give rise to a strong inference that Oppenheimer acted with scienter.”  Indeed, quoting Tellabs’ interpretation of the Private Securities Litigation Reform Act (“PSLRA”), the Sixth Circuit held that “to qualify as strong, and inference of scienter must be more than merely plausible or reasonable—it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent.”  After weighing the competing inferences, it was more likely, the Sixth Circuit held, that Oppenheimer was caught off-guard by the collapse, even if negligently so.

Since the Sixth Circuit decided Helwig in 2001, the Sixth Circuit and courts within it have, with few exceptions, consistently cited it when evaluating scienter in securities fraud cases, even after Tellabs.  The Ashland case expressly undermines Helwig’s continued validity and highlights the proper scienter examination to be applied in the Sixth Circuit. 

Later this afternoon, the Sixth Circuit will hear oral arguments on the constitutionality of the Family Smoking Prevention and Tobacco Control Act, which gives the Food and Drug Administration the power to regulate tobacco advertising and marketing.  See Discount Tobacco City & Lotter v. U.S.A., (Sixth Circuit, Case Nos. 10-5234/5235).  Among the issues that the three-judge panel will consider is whether the Act illegally restricts tobacco companies' free speech rights.

The panel includes Sixth Circuit Judges Eric L. Clay and Jane B. Stranch, and United States District Judge Michael R. Barrett (Southern District of Ohio), sitting by designation.  

In Stalley v. Mountain States Health Alliance, 2011 U.S. App. LEXIS 13895, No. 10-5211.5212 (6th Cir. Jul. 8, 2011), a unanimous panel of the Sixth Circuit affirmed a decision from the Eastern District of Tennessee, awarding $276,589.00 in sanctions against a plaintiff and his attorneys, who had sued various health care entities claiming violations of the Medicare Secondary Payer Act ("MSP"), 42 U.S.C. § 1395y(b).  Plaintiff had claimed that the MSP was a qui tam statute, allowing private attorneys general to sue on behalf of the United States to enforce the statute.

In affirming the district court's decision, the Sixth Circuit noted that Plaintiff had previously filed scores of identical lawsuits throughout the country despite the fact that no judicial decision, law review article, or "even a passing reference" in the MSP's legislative history supported the conclusion that the MSP was in fact a qui tam statute.  Based on the sheer number of cases filed by Plaintiff and the absence of a legal basis for pursuing the MSP claims, the Sixth Circuit agreed that Plaintiff's suits were “utterly frivolous” and pursued for an improper purpose.

Going forward, Stalley is likely to have a significant effect on the willingness of plaintiffs to file qui tam suits on behalf of the United States in the absence of some identifiable legal basis for doing so.  Plaintiffs who ignore Stalley now face the prospect of significant sanctions.

On July 19, 2011, the Sixth Circuit rejected the attempt of an in-house attorney to raise the issue of attorney-client privilege to reverse his conviction for conspiracy to defraud the United States.  For this and other reasons, in United States v. Fisher (6th Cir. 09-2460) (PDF), the Court affirmed the conviction of Edward Fisher, who served as in-house general counsel to Simplified Employment Services, Inc. ("SES"), a professional-employment organization that administered its clients' payrolls, issued employee checks and remitted employment taxes to the IRS.

The underlying facts date back over a decade, when SES failed to file quarterly payroll tax returns on IRS Form 941 for the years 1997 - 1999.  According to the Court, after the IRS discovered that the returns were missing, SES's CEO, Dennis Lambka, instructed his assistant to file false Form 941's for the missing years, which would show that SES had no outstanding payroll tax liability when, in fact, its liabilities were nearly $52 million.  Lambka also allegedly informed the highest-ranking executives of the scheme, including Fisher.  And although SES hired an outside attorney from Latham & Watkins LLP to aid in resolving SES's tax problems, Lambka, Fisher and other executives allegedly agreed to keep the counsel from Latham in the dark about the origin of the false tax returns.  In addition, according to the Court, SES adopted Fisher's recommendation that SES "back out" payroll taxes owned by SES on behalf of certain of SES's clients, a scheme that effectively shifted the tax burden from SES to these clients.  When these schemes were uncovered, Fisher was indicted for conspiracy to defraud the United States and conspiracy to commit bank fraud, convicted of the former charge and acquitted of the latter, and sentenced to 41 months in prison with an order to pay restitution in the amount of $10 million.  During jury deliberations, however, jurors had asked the district court two questions regarding whether attorney-client privileges applied to Fisher -- an issue that had not been brought up by either side during trial.  The court declined to answer the questions directly, informing the jury that the questions were not necessary to determine whether Fisher was guilty and stating that the answers to such questions were "not simple or easy to summarize."  On appeal, Fisher raised three assignments of error, including whether the district court's answer to the jurors' questions constituted reversible error.

Writing for a unanimous panel that included Judges Cole and Clay, Judge Gilman rejected each of Fisher's assignments of error, including the claim raised about attorney-client privilege.  The Court found that the jurors' questions regarding the privilege "were not relevant to the crimes charged and therefore did not require answers." Although Fisher claimed otherwise, the Court noted that the government's theory of liability was not based upon whether Fisher had an affirmative duty to inform the IRS or outside counsel from Latham that SES had filed false tax returns.  Rather, the government sought to prove that "Fisher was an active participant in the conspiracy," and the Court found that "the evidence of wrongdoing that was presented would support a guilty verdict regardless of whether Fisher did or did not have a duty to inform [outside counsel from Latham] and/or the IRS of SES's illegal activity."

In Stansberry v. Air Wisconsin Airlines Co., the Sixth Circuit explains the standard for association discrimination claims under Section 12112(b)(4) of the Americans with Disabilities Act.  Such claims are comparatively rare – this is the first published decision in the circuit since that section was passed in 1990.   The opinion, written by Judge Martin, explains that association discrimination occurs where an employer acts on an assumption that employee will perform poorly because of a relationship with a disabled person.  It adopts the Seventh Circuit’s formulation of three different types of association discrimination in Larimer v. IBM Corp., 370 F.3d 698 (7th Cir. 2004), though it accepts there may be other types as well.  These are where the employee suffers an adverse action based on (1) the expense of health insurance, (2) the employer’s fear that the employee will develop the disability (as with a communicable disease), or (3) the employer’s fear that the disability will impact the employee’s performance.  The plaintiff in Stansberry alleged that he was terminated for unfounded fears about his performance. 

Following the Tenth Circuit, the Court applied the familiar McDonnel-Douglas burden shifting test to the grant of summary judgment to the employer.  It rejected the plaintiff’s argument that the short time between his termination and the worsening of his wife’s condition, as well as his supervisor’s alleged lies about the meeting where he was fired, constituted direct evidence of discrimination.  Instead, the opinion notes that his performance at work actually did suffer, citing to plaintiff’s own admissions that he was “not performing his job adequately” and his employer’s legitimate frustrations with his performance.  In the face of this strong evidence, the Court held that he could not establish a prima facie case even if his supervisor had lied about his termination. 

The opinion recognizes that the coincidence of an employer’s dissatisfaction and the onset (or worsening) of a disability is not sufficient to create a prima facie case of discrimination.  It explains that while the plaintiff’s “poor performance at work was likely due to his wife’s illness, that is irrelevant” – he needed direct evidence of discrimination.  Section 12112(b)(4) only protects from actions based on unfounded fears about job performance, not actual failures in job performance.  Still, the crucial evidence for the employer was likely the plaintiff’s admissions of his own failures – that eliminated the common argument that the employer’s dissatisfaction with his performance was feigned.

A divided panel of the Sixth Circuit today struck down an amendment to the Michigan constitution added by voters in 2006 that prohibited Michigan’s public colleges and universities from granting “preferential treatment to[] any individual or group on the basis of race, sex, color, ethnicity, or national origin.”  In Coaltion to Defend Affirmative Action, Integration and Immigrant Rights and Fight for Equality by Any Means Necessary v. Regents of the Univ. of Michigan (6th Cir. Nos. 08-1387, 08-1389, 08-1534, 09-1111) (PDF), the panel majority ruled that the amendment, known more popularly as "Proposal 2", ran afoul of U.S. Supreme Court precedent interpreting the Equal Protection Clause.

Writing for himself and Judge Daughtrey, Judge Cole found that "Proposal 2 unconstitutionally alters Michigan’s political structure by impermissibly burdening racial minorities."  In dissent, Judge Gibbons argued that the Equal Protection Clause did not clash with Proposal 2, and that Supreme Court precedent had not "require[d]" the use of rece in college admissions but, instead, merely "tolerate[d]" it, leaving Michigan free to prohibit the practice.

Proposal 2 was passed by 58% of Michigan voters, and in 2008 the federal district court in Detroit had found the amendment constitutional.  In the immediate aftermath of today's ruling, reaction came swiftly, with opponents of Proposal 2 hailing the decision while supporters of the proposal denounced the ruling as "activist" and predicted reversal of the panel decision as being inconsistent with Supreme Court case law.

The Sixth Circuit Appellate Blog will keep its eye on this case for a possible petition for en banc review.

For the second time this week, the Sixth Circuit reviewed a district court's dismissal of an antitrust complaint for failure to state a claim upon which relief can be granted. As reported here, Judges Merritt, Clay and Griffin earlier this week upheld the dismissal of an antitrust complaint, even though the information necessary to establish Plaintiff's claims was solely in the purview of the Defendants. In contrast, in Watson Carpet & Floor Covering, Inc. v. Mohawk Industries, Inc., Nos. 09-6140/09-6173 (6th Cir. June 22, 2011) (PDF), Judges Siler, Moore and Griffin reversed the district court's dismissal for failure to state a claim under Twombly of a complaint alleging a conspiracy to restrain trade in violation of the Sherman Act. 

The Panel in Watson focused primarily on the fact that, even though Defendants offered alternative reasons for their refusal to sell to Plaintiff, the alleged agreement to drive Plaintiff out-of-business plausibly explained the complained-of-actions; it did not have to be the probable or exclusive explanation.  Remarkably - and notably absent from the Complaint discussed in our previous post - Plaintiff Watson alleged specific facts surrounding the agreement among Defendants to drive it out of business, including who made the agreement, when it was made, and the specifics as to how it was carried out.  Though the basis for how Plaintiff was able to learn the facts to support its Complaint (which would presumably be solely within the purview of Defendants) was not specifically addressed in the opinion, the factual history suggests that Plaintiff may have learned the specifics in discovery in a related litigation involving a conspiracy among the same parties.  That related litigation predated Twombly, and thus would not have been subject to the same strict pleading standards.  Fortunately for the Plaintiff, it may have provided the factual basis for Plaintiff to survive a motion to dismiss. 

It remains to be seen, however, how other plaintiffs, with similar claims based upon conduct within the exclusive purview of the defendants, and without the benefit of discovery, will be able to survive in a post-Twombly world. The Sixth Circuit is clearly grappling with that question, but it looks like it is being sorted out on a case-by-case basis.

In our continuing coverage of cases that are making their way up to the Sixth Circuit, we noticed this recent appeal from the Western District of Michigan, Martha Elizabeth, Inc. v. Scripps Networks Interactive, LLC.  The case pits an owner of a retail business specializing in products for the home chef that uses the trademark “Bitchen Kitchen” against a media outlet that controls the Food Network and produces a television cooking show entitled “Bitchin’ Kitchen”.  While in many respects this case has the attributes of a traditional Lanham Act dispute over likelihood of confusion over two competing marks, there is another element in play in the court’s decision.  After concluding that the plaintiff was likely to succeed in showing likelihood of confusion, the court nevertheless declined the predominant injunctive relief sought by the plaintiff based on the defendant’s First Amendment arguments.  In this respect, the upcoming appeal will feature a clash between the Lanham Act trademark infringement policies versus constitutional freedom of speech.  From a cursory review of the decision, it appears that this could present the Sixth Circuit with an issue of first impression.  Another noteworthy aspect of the court’s decision was that, in discussing the likelihood of the confusion, the district court referenced its own internet searches for both names using traditional search engines.  This poses the question with which both judges and lawyers alike must wrestle regarding the creeping influence of technology and the irresistible urge to simply run Google searches (which has resulted in high profile problems in jury trials).  It remains to be seen whether that aspect of the court’s ruling will receive attention at the Sixth Circuit.  In any event, this case certainly presents some interesting issues for the Sixth Circuit and we will continue monitoring it.

As we previously reported and analyzed, Acting Solicitor General Neal Katyal was in Cincinnati, Ohio last week before the Sixth Circuit to argue the government’s position in the appeal involving a constitutional challenge to the mandate requiring individuals to purchase health insurance under the recently enacted Patient Protection and Affordable Care Act, Public Law 111-148.  See Thomas More Law Center, et al. v. Obama, et al. (Sixth Circuit, Case No. 10-2388).  Circuit Judge Sutton and District Court Judge Graham, sitting by designation, both had pressing questions for General Katyal regarding the constitutionality of the individual mandate, and both judges requested General Katyal to articulate a constitutionally significant limiting principle that would cabin the power of Congress under the Commerce Clause.  The mp3 audio link to the oral argument is available here (65 minutes).

On Wednesday, General Katyal appeared before the Eleventh Circuit in Atlanta, Georgia to once again defend the constitutionality of the individual mandate.  And once again, General Katyal was sharply challenged by the judges regarding the scope of the commerce power.  As we reported previously, the Eleventh Circuit case involves the high profile appeal from Florida District Judge Roger Vinson’s January 31, 2011 ruling that the individual mandate under the health care statute is unconstitutional.  See State of Florida, et al. v. United States Department of Health and Human Services, et al. (Eleventh Circuit, Case No. 11-11021).  The lawsuit was brought by governors and attorneys general from 26 states, and it is generating the most publicity of any of the cases currently before the Circuit Courts. The states were represented at oral argument by Paul Clement, who was solicitor general under President George W. Bush.

The Eleventh Circuit panel included Chief Judge Joel Dubina, who was appointed by President George H.W. Bush, and Circuit Judges Frank M. Hull and Stanley Marcus, who both were appointed by President Bill Clinton.  All three judges questioned whether upholding the individual mandate would open the door to other sweeping economic mandates by Congress. 

And so ends a very busy one-month period for oral arguments in the Circuit Courts addresing challenges to the health care statute.  Which Circuit will issue the first opinion?  The Fourth Circuit (which heard oral arguments on May 10, 2011)?  The Eleventh Circuit?  Or the Sixth Circuit?  Whichever Circuit it is, it likely will happen before Labor Day.  And we'll give you the full report.

On Wednesday, the Sixth Circuit sent a securities fraud case back to the district court for the third time, after reversing the district court’s second dismissal of the complaint under Fed. R. Civ. P. 8, 9(b) and 12(b)(6).  At issue in Frank v. Dana Corp., No. 09-4233 (6th Cir. May 25, 2011).pdf was the sufficiency of the putative class’s allegations that Dana Corp.’s former CEO and CFO deliberately or recklessly misled shareholders, through, among other things, filings with the SEC, press releases and conference calls, and section 302 certificates under Sarbanes-Oxley Act, about the prosperity of the company in 2004 and 2005, in violation of sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

The Sixth Circuit held that the district court improperly evaluated the plaintiffs’ claims individually, instead of “holistically” as required by the Supreme Court’s recent decision in Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309 (2011) as well as Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007).  When viewed holistically, the Court concluded that the inference that the defendants recklessly disregarded the falsity of their statements was at least as compelling as the inference proffered by the defendants, that a faulty accounting system was to blame for the misstatements.  According to the Court, “[i]t is difficult to grasp the thought that [Dana Corp.’s former CEO and CFO] really had no idea that Dana was on the road to bankruptcy. From the first public statement that Dana’s earnings statements might be false, the company fell to its demise in a matter of nine months.”  Consequently, the Court held that the district court erred when it dismissed the plaintiffs’ section 10(b) claims for failure to adequately plead scienter. 

Moreover, because the district court’s dismissal of the plaintiffs’ section 20(a) “controlling person” claims stemmed from its dismissal of their section 10(b) claims, the Sixth Circuit also reversed the district court's dismissal of the section 20(a) claims.

Finally, the Court joined the First, Fourth, Fifth, Seventh and Eleventh Circuits in concluding that good faith is an affirmative defense to a section 20(a) claim.  Because the defendants bear the burden to demonstrate the applicability of an affirmative defense, the plaintiffs had no obligation to plead its inapplicability.

The Court’s decision in Dana Corp. is one of the few Sixth Circuit decisions in recent years to reverse the dismissal of a securities fraud claim brought under sections 10(b) and 20(a).

In Michigan First Credit Union v. CUMIS Insurance Society, Inc.pdf, Nos. 09-1925/1970 (6th Cir. May 24, 2011), the Sixth Circuit affirmed a $5 million + jury verdict arising from an insurer’s refusal to pay under a fidelity bond where the insured’s employees approved scores of bad loans in alleged “conscious disregard” of the insured’s policy.  Following the jury’s verdict and the district court’s award of $2,730,415 in interest, the insurer moved for judgment as a matter of law (“JMOL”) and for a new trial.  An appeal followed the district court’s denial of these motions. 

On appeal, the Sixth Circuit affirmed the denial of the insurer’s motion for JMOL and rejected its challenge to the jury’s findings that the insured established and enforced its lending policy, the insured’s employees consciously disregarded that policy, and the insured did not acquiesce in the malfeasance. 

The Court also rejected the insurer’s argument that the cumulative effect of several arguably minor errors deprived it of a fair trial.  In doing so, the Court discounted its claims that the insured’s use of a “golden rule” argument in closing and the district court’s admission of evidence about the insured’s approval of the subject lending policy warranted a new trial.

Finally, the Court rejected the insured’s claim that the district court’s award of penalty interest should not have been offset by the award of prejudgment interest. 

The Michigan First decision comes on the heels of the Court's decision in Ventas, Inc. v. HCP, Inc. (6th Cir., Nos. 09-6385/6413, May 17, 2011) and is the second decision in a week affirming a very substantial judgment.

In September 2009, a jury in the Western District of Kentucky found Defendant-Appellant HCP, Inc. ("HCP") liable under Kentucky law for tortious interference with a prospective advantage, which claim was advanced by Plaintiff-Appellee Ventas, Inc. ("Ventas").  Finding that HCP's tortious interference caused Ventas to purchase certain assets of the Sunrise Senior Living Real Estate Trust ("Sunrise") at $1.50/unit over the original purchase agreement price that Ventas had earlier offered, the jury concluded that HCP was liable for total compensatory damages in excess of $101.6 million.  The district court, however, had ruled against Ventas as a matter of law as to Ventas's punitive damages claim.  In Ventas, Inc. v. HCP, Inc. (6th Cir., Nos. 09-6385/6413, May 17, 2011) (PDF), the Sixth Circuit affirmed the jury's award of compensatory damages, yet reversed the district court and remanded the matter back for trial on the single issue of punitive damages.  This is believed to be one of the largest jury verdicts ever affirmed by the Sixth Circuit.

The matter below concerned a somewhat involved transaction in which Sunrise, a Canadian real estate investment trust, conducted a two-round, confidential auction of its assets in which HCP and Ventas participated.  As part of the auction, invitees, including Ventas and HCP, had to sign "standstill agreements" with Sunrise, in which the invitees agreed not to make or announce any bid outside of the auction process for 18 months.  In their preliminary bids, HCP offered $16.25/unit, and Ventas offered $13.25/unit.  Sunrise invited HCP and Ventas to proceed to the second round, where they were the only invitees participating.  Each bidder was required first to enter into an independent agreement with Sunrise Senior Living, Inc. ("SSL"), which managed Sunrise's properties under long-term management contracts.  Ventas was able to negotiate an agreement with SSL, but HCP could not.  On the day the bids were due, Ventas submitted a bid of $15.00/unit, which Sunrise's Board of Trustees approved that same day, and Sunrise and Ventas entered into a binding purchase agreement, subject only to the approval of two-thirds of Sunrise's voting unitholders, which "seemed to be a foregone conclusion."  However, in subsequent weeks, officials from Sunrise and HCP discussed whether the parties could still reach terms.  More than a month after Ventas's bid had been accepted and the binding purchase agreement executed, HCP made a conditional bid of $18.00/unit and issued a press release stating the same.  The first market day after HCP's announcement, the selling price of Sunrise shares increased from approximately $15.00/unit to approximately $18.00/unit.  The parties quickly came to loggerheads over HCP's maneuvering, which culminated in each asking a Canadian court for a declaration regarding the validity of the earlier standstill agreements.  That court concluded that the standstill agreements were, in fact, valid and that HCP was not authorized to submit a late bid.  HCP then withdrew its offer to purchase Sunrise, and when Sunrise's unitholders began to vote against the sale to Ventas, Ventas was forced to increase its original bid from $15.00/unit to $16.50/unit.  Having done so, Sunrise's unitholders approved the deal -- and Ventas filed suit in U.S. district court against HCP, asserting Kentucky state law claims of tortious interference with contract and tortious interference with a prospective advantage.  The district court ruled against Ventas as a matter of law on punitive damages, but the case went to trial and the jury found HCP liable for tortious interference with a prospective advantage and awarded Ventas $101 million in compensatory damages: effectively, the difference between Ventas's $15.00/unit original bid and the $16.50/unit bid that Ventas had been forced to make to keep the deal from imploding.

Writing for a unanimous panel that included Judges Merritt and Griffin, Judge Clay affirmed the jury verdict but reversed on the district court's punitive damages ruling.  In doing so, the Court found no fault with the district court's jury instructions on tortious interference under Kentucky law.  The Court also expressly found that the jury's verdict was supported by sufficient evidence.  As to punitive damages, applying Kentucky law, the Court found that there was also sufficient evidence for a jury to conclude that: 1) HCP "acted toward Ventas" with fraud, 2) HCP had the "intention of causing injury" to Ventas, and 3) HCP's fraud proximately caused Ventas's injury.  In so concluding, the Court observed that "[t]he record is replete with evidence of intentional misrepresentations, deceit, and/or concealment of material facts by HCP."  For those reasons, the Court remanded for a trial solely on the issue of punitives.

Judge Merritt filed a very brief concurrence in which he did not concur with the admonitions given by the Court to the parties' attorneys in footnote 17 of the opinion.  In that footnote, the Court complained that the attorneys had filed excessive conditional briefing and supplementary authority letters on a "completely collateral and immaterial issue," observing that such activities must have required "scores if not hundreds of attorney hours."  In his concurrence, Judge Merritt stated that, "[a]s a matter of fairness," he would not draw the inference that the attorneys in the case had "improperly run up the number of hours spent on the case" without giving counsel an opportunity to explain their actions.

Yesterday, the Supreme Court called for the Solicitor General’s views on a cert petition involving a Foreign Sovereign Immunities Act question from the Sixth Circuit.  We previously reported on the decision DRFP, LLC v. The Republica Bolivariana de Venezuela in which the Sixth Circuit wrestled with questions concerning the federal court’s jurisdiction over foreign nations and the doctrine of forum non conveniens.  The cert petition, building on Judge Martin’s dissent, presents the following question: “Whether a foreign state’s refusal to honor a demand for payment on the state’s alleged securities at a U.S. location causes a “direct effect” in the United States based merely on the failure of the securities to exclude the United States as a place of payment.”  Relevant briefing from DRFP is available on Scotusblog.  We will continue to monitor developments related to this case as it works its way through the Supreme Court.

In Pluck v. BP Oil Pipeline Co. (09-4572), the Sixth Circuit built on its decision in Tamraz v. Lincoln Elec. Co., 620 F.3d 665 (6th Cir. 2010) (discussed here), and reiterated that a high standard governs expert causation testimony in toxic tort litigation.  Pluck affirmed the district court's exclusion of a plaintiff’s specific causation expert under Daubert.  It emphasizes that causation must be supported by quantifiable and reliable data, both when pointing to the cause of the illness and when ruling out other causes.

The Plaintiff argued that gasoline spills from an underground pipeline owned by BP from 1946-1962 resulted in benzene contamination that caused her Non-Hodgkins lymphoma in 2002.  The Plaintiff moved into the area in 1996 and drank from a well with small levels of benzene contamination for a few months before BP installed a new well that remained free of benzene until 2003.  When benzene was again detected, a carbon filtration system was installed to capture it.  The levels of the chemical were at all times well below the EPA’s maximum level of benzene for drinking water. 

The Plaintiff’s expert claimed that Plaintiff had been “heavily” exposed to benzene, and that the exposure had caused the disease.  The Sixth Circuit affirmed the district court’s rejection of those claims under Daubert, expanding on its decision in Tamraz that the expert must both “reliably rule in benzene as the cause” and “rule out alternative causes of her illness.” 

The Court first noted that the expert did not have any reliable data to support his conclusion of heavy benzene exposure, and that benzene exposure in the record had always been within the EPA limitations.  Without quantifiable exposure data, the expert’s causation claim was nothing more than “speculation and conjecture.”  Second, the Court found that the expert had not adequately accounted for benzene exposure from the Plaintiff’s extensive smoking habit.  The expert’s failure to quantify the Plaintiff’s exposure to benzene from smoking (and the effect it might have on her disease) rendered his opinion unreliable. 

The Sixth Circuit also took a hard line with the expert’s attempt to change his methodology after the Daubert challenge through a supplemental declaration.  The Court held that the district court correctly excluded the declaration as “a transparent attempt to reopen the Daubert inquiry after the weaknesses in the expert’s prior testimony have been revealed.”

Robin Weaver of our Cleveland office handled the case for BP. 

As you know, for months now we have been following the case making its way through the Sixth Circuit involving a constitutional challenge to the mandate requiring individuals to purchase health insurance under the recently enacted Patient Protection and Affordable Care Act, Public Law 111-148.  See Thomas More Law Center, et al. v. Obama, et al. (Sixth Circuit, Case No. 10-2388). 

Earlier today, the Sixth Circuit announced the three-judge panel that will hear oral arguments currently scheduled for Wednesday, June 1, 2011 at 1:30 p.m.  The panel includes Sixth Circuit Judges Boyce F. Martin, Jr. and Jeffrey S. Sutton, and United States District Judge James L. Graham (Southern District of Ohio), sitting by designation.

Judge Martin is the most senior active judge on the Sixth Circuit. He was nominated by President Carter in 1979 and has served as the Chief Judge of the Circuit. 

Judge Sutton was nominated by President George W. Bush in 2001 and was confirmed in 2003.  He clerked on the United States Supreme Court for Justices Antonin Scalia and Lewis Powell. 

District Judge Graham was nominated by President Reagan in 1986 to a seat on the district court.  He served as chief judge from 2003 to 2004, and assumed senior status on August 31, 2004.  We previously blogged about the role of visiting judges and the fact that about one in three panels in the Sixth Circuit currently has a visiting judge.

The Thomas More case is one of the highest profile appeals in the Sixth Circuit at the moment, and we will continue to monitor the case closely, along with similar appeals making their way through other Circuits.  As we reported yesterday, the Fourth Circuit just heard oral arguments in the appeal from Virginia District Court Judge Henry Hudson’s December 13, 2010 decision declaring unconstitutional the individual mandate under the health care statute.

It will be interesting to see which Circuit Court renders an opinion first.

On May, 5, 2011, the Sixth Circuit reversed a decision from the District Court for the Eastern District of Kentucky that had held unconstitutional a Kentucky statute shortening the period after which state law imposes a presumption on abandonment on traveler's checks. American Express Travel Related Services Company, Inc. v. Commonwealth of Kentucky, et al., No. 09-5898 (6th Cir. May 5, 2001).

Until recently, all 50 states followed the presumption that a traveler's check was abandoned if still outstanding more than 15 years after issuance, as recommended in the Uniform Unclaimed Property Act.  In an apparent attempt to increase revenue since abandoned funds must be remitted to the state, Kentucky became the first state to reduce the 15-year period - to 7 years.

The District Court had determined that the Amendment violated the Fourteenth Amendment's Due Process Clause because it lacked a rational basis.  On appeal, the Sixth Circuit held that the Amendment did not violate the Due Process Clause and vacated the District Court's decision.  The Court entertained the Treasurer's "rational speculation that the [Amendment] was intended to facilitate Kentucky's interest in assuming possession of abandoned property, even though, as the district court found, the legislative history does not reflect whether this goal was actually considered by the General Assembly."  Because American Express could not demonstrate that a 7-year presumptive period is irrational, the Sixth Circuit held that the District Court erred in finding a due process violation.

The Court withheld, however, consideration of whether the Amendment violates the Takings Clause or the Contract Clause, remanding to the District Court for consideration of American Express's remaining constitutional challenges.

In a split opinion, the Sixth Circuit recently affirmed the constitutionality of Warren, Michigan’s restrictions on the geographic location of sexually oriented businesses. 

The plaintiff in Big Dipper Entertainment, LLC v. City of Warren, No. 09-2339 (6th Cir. Apr. 13, 2011), applied for a license to open a topless bar in the downtown area of Warren.  The City denied the application pursuant to its ordinance prohibiting sexually oriented businesses in its Downtown Development District.  Big Dipper sued, claiming that the ordinance violated its First Amendment rights and the City’s rejection of its license application acted as a prior restraint on its speech.

Judge Kethledge, speaking for the majority of the Court, found that the ordinance was content-neutral and subject to less scrutiny because it targeted the “secondary effects” of adult businesses, not speech.  Next, the Court held that the City satisfied its obligation to provide a reasonable opportunity to operate an adult business within the City, as demonstrated by empirical evidence considered by the lower court, and because Big Dipper waived any contrary argument when it failed to develop the argument in its briefing and only cited to its expert’s conclusions.

The Court rejected Big Dipper’s argument that the City imposed a prior restraint on its speech when it took 24 days, rather than 20 as prescribed by its rules, to reject Big Dipper’s license application, finding the 24-day period “reasonable” and dismissing the four-day delay as “immaterial.” 

Finally, the Court rejected Judge Cole’s argument, in his dissent, that the City’s licensing system was an impermissible prior restraint because it did not promptly provide for both court and administrative review.  Although the Court deemed the argument also waived by Big Dipper, it ultimately concluded that Big Dipper, not the City, had the obligation to seek judicial review of the application denial.

In a ruling interpreting Delaware law on shareholder derivative suits, the Sixth Circuit held that a partial recusal by a member appointed to a special litigation committee ("SLC") created by a corporation compromises the independence of such committee.  In Booth Family Trust v. Jeffries (6th Cir. 09-3443) [PDF], a divided panel found that where an SLC member "recused himself from considering the claims against [one of the named defendants in the derivative suit] he effectively admitted that he was not independent."  On that basis, the Court reversed the district court's dismissal of the derivative suit.

In Booth Family Trust, shareholders filed a derivative suit on behalf of clothier Abercrombie & Fitch Co. against the company’s board of directors  The plaintiffs claimed that Abercrombie's executives developed a business model of selling low-cost products at high retail prices through advertising that "trained" customers not to expect sales or markdowns by the retailer but, rather, to pay its higher prices.  With this in mind, the plaintiffs claimed that Abercrombie issued reports showing strong denim sales when, in fact, there was an inventory in surplus of such volume that it would require markdowns to liquidate, clashing with the company's business model.  When the reality became known, plaintiffs alleged, the stock price of the company fell.  After the derivative suit was filed, Abercrombie invoked a procedural mechanism available under Delaware law by appointing an SLC to investigate the plaintiffs' claims.  If the claims are found lacking, the SLC directs the corporation to move to dismiss the action.  Under Delaware law, "[i]f a court finds that a corporation's special litigation committee was independent, conducted its investigation in good faith, had reasonable bases for its conclusion and the decision to dismiss the lawsuit is not inconsistent with business judgment, the court will dismiss the derivative action" (citing Zapata Corp. v. Maldonado, 430 A.2d 779, 788-89 (Del. 1981)).  Abercrombie created a two-person SLC, initially appointing two board members, Daniel Brestle and Allan Tuttle.  Brestle later resigned and was replaced by board member Lauren Brisky.  After a 16-month investigation, the SLC produced a 144-page report concluding that there was no evidence to support the plaintiffs' claims and recommending that Abercrombie seek dismissal of the case.  Abercrombie moved to dismiss, which, after applying the Zapata test, the district court granted.

Writing for himself and Judge Patrick J. Duggan, U.S. District Judge for the Eastern District of Michigan, sitting by designation, Judge Martin reversed upon de novo review, ruling that the district court wrongly determined that the SLC had been independent.  Observing that, under Delaware law, an SLC had to be "'like Caesar's wife' -- 'above reproach,'" the majority found that Tuttle's decision to recuse himself from consideration regarding allegations against named defendant Robert Singer, Abercrombie's Chief Operating Officer, had fatally compromised the SLC's independence.  Tuttle partially recused himself because he and Singer were friends and had a longstanding personal relationship, predating their time together at Abercrombie.  The majority acknowledged that Delaware corporate law was "relatively flexible and will not find that directors are incapable of exercising independent judgment even if they are friends," but, owing to the relatively undeveloped state of Delaware law as to SLC independence, it found that it was "unclear" whether the law governing an SLC's independence "would be quite as accepting."  Because of the general flexibility of Delaware law as to officers' friendships, the majority stated that "[h]ad Tuttle not recused himself from considering the claims against Singer, we might agree with the district court that he was independent.  However, because Tuttle, for whatever reason or no reason at all, recused himself from considering the claims against Singer he effectively admitted that he was not independent."  The majority also rejected the argument that, even with Tuttle’s partial recusal, a one-person SLC was acceptable under Delaware law.  While that may be true, the majority pointed out that the board resolution creating the SLC called for it to have two members.  The majority took pains to state that it was not accusing Tuttle of being a "bad person" or committing any offense, but rather that Tuttle's recusal "le[ft] us with serious doubts as to his independence."  Because the majority found that the SLC was not independent, it did not need to reach the other elements of Delaware's Zapata test and reversed the district court, remanding for further proceedings.

Finding that the majority conclusion was "inconsistent with Delaware law," Judge Griffin dissented. Rather than compromising the independence of the SLC, Judge Griffin found that, "through his partial recusal, Tuttle attempted to expel any doubt regarding the independence of the SLC."  The dissent noted that it had found no caselaw supporting the proposition that recusal could serve as an admission of bias, and it observed that "had Tuttle not recused himself and fully addressed all issues presented to the SLC, there would be little doubt regarding the committee's independence.  In my view, Tuttle's partial recusal does not alter this result."  Judge Griffin would have found that the SLC was independent, that the other elements of the Zapata test were also met, and that the district court therefore ruled properly.  (Given the important of this decision, it may well attract en banc attention.)

Because many companies are incorporated in Delaware, and given the expected rise in the number of derivative lawsuits, this decision is important.  The composition of the SLC, the board resolution authorizing the appointment of the SLC, and the decision-making process of the SLC will likely all be under a microscope if, in the end, the SLC decides not to pursue a derivative suit.  Tread carefully, and think twice before making any recusal decision.

Earlier this week, the U.S. Supreme Court sided with the Sixth Circuit and resolved one of two Circuit splits involving interpretation of the Fair Labor Standards Act (“FLSA”), 52 Stat. 1060, 29 U.S.C. § 201 et seq., which sets forth rules governing minimum wages, maximum hours, and overtime pay.

 The FLSA contains an anti-retaliation provision which provides that an employer may not “discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to [the Act], or has testified or is about to testify in such proceeding, or has served or is about to serve on an industry committee.”  Id. at 215(a)(3) (emphasis added).  The Sixth Circuit previously assumed without discussion that the statutory phrase “filed any complaint” includes oral as well as written complaints within its scope.  See Moore v. Freeman (PDF), 355 F.3d 558, 562-63 (6th Cir. 2004).  The Sixth Circuit’s interpretation has been followed by the Fifth, Eighth, Ninth, and Eleventh Circuits.  By contrast, the Second, Fourth, and Seventh Circuits have held that unwritten complaints are not protected. 

In Kasten v Saint-Gobain Performance Plastics Corp. (PDF), No. 09–834 (U.S. Sup. Ct. Mar. 22, 2011), the Supreme Court in an appeal from the Seventh Circuit resolved the Circuit split by siding with the Sixth Circuit’s view and holding that an oral complaint of a violation of the FLSA is protected conduct under the Act’s anti-retaliation provision.  In a majority opinion written by Justice Breyer (who was joined by Justices Roberts, Kennedy, Ginsburg, Alito, and Sotomayor), the Court recognized that a narrow interpretation of the phrase “filed any complaint” would undermine the FLSA’s basic objectives, which includes prohibiting “labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers.”  29 U. S. C. § 202(a). 

At the same time, the Court in Kasten declined to resolve another Circuit split under the FLSA involving the question of whether the phrase “filed any complaint” encompasses internal complaints made to private employers or instead only protects complaints made with the government.  The Sixth Circuit, along with the First, Third, Seventh, Eighth, Ninth, Tenth, and Eleventh Circuits, has held that internal complaints made to an employer are protected.  The Second and Fourth Circuits, by contrast, have rejected that view.  The Supreme Court did not address this issue on the grounds that it was not raised in the certiorari briefs and its resolution was not necessary to address the oral/written question at issue.

The Sixth Circuit recently rebuffed a request by adult business operators in Memphis, Tennessee to apply an unconstitutional city statute in order to escape a newly enacted, more onerous county ordinance.  In 1996, adult business operators had brought suit against the City of Memphis facially challenging the constitutionality of an ordinance requiring registration of adult businesses.  See East Brooks Books, Inc. v. City of Memphis, 48 F.3d 220 (6th Cir. 1995).  They claimed that the Memphis ordinance was an impermissible prior restraint on speech under the First Amendment.  The parties ultimately entered into a consent judgment, agreeing to adopt the Sixth Circuit’s holding of unconstitutionality as the final ruling and judgment as to the Memphis ordinance.  As a result, the Memphis ordinance was never repealed and never enforced.

Ten years later, Shelby County, which is home to Memphis, adopted its own regulations requiring registration of adult businesses.  The County ordinance applied to Memphis adult business operators unless Memphis chose to "enact and enforce" its own similar ordinance.

In an effort to escape application of the more onerous County ordinance, the plaintiff adult business operators moved for relief from judgment pursuant to Rules 60(b)(5) and (6) of the Federal Rules of Civil Procedure, arguing that intervening changes in the law meant that the Memphis ordinance was no longer constitutionally defective.  While the district court recognized that the unconstitutionality of the provision in the Memphis ordinance regarding judicial review had been rectified by intervening changes in the law, it found that the ordinance still suffered from other nonseverable defects that rendered it unconstitutional.  Accordingly, the district court denied the motion for relief from judgment.

In an opinion written by Judge Clay, the Sixth Circuit affirmed the district court’s decision, applying the abuse of discretion standard applicable to Rule 60(b) motions.  See East Brooks Books, Inc., et al. v. City of Memphis, et al., No. 09-6254 (6th Cir. Feb. 24, 2011) (PDF).  In its opinion, the Court cheekily addressed the plaintiffs’ "newfound concern" regarding the ability of Memphis to "enjoy the democratic benefit of seeing a law it had enacted . . . revived again," noting that plaintiffs "need not worry" because the County ordinance addresses substantially all of the areas addressed by the Memphis ordinance (and more) and regulates all of the adult businesses that the Memphis ordinance was intended to cover.

The parties in Turi v. Main Street Adoption Servs. (pdf), Case No. 09-2229, will be battling it out in arbitration and federal court, due to a very narrow arbitration clause.  The Court's detailed analysis of whether (and which) of the numerous claims were subject to arbitration means that many of the more high-profile claims will be litigated in open court.   

In Turi, numerous couples sued their adoption agency and asserted claims ranging from federal RICO, conspiracy, fraud, and infliction of emotional distress to unjust enrichment and conversion.   The adoption agency argued that all of the claims should be sent to arbitration and the arbitrator should get to decide what, if anything, was outside the scope of the contractual arbitration clause. 

Not so, said the Court.  The Court contrasted the narrow clause in this case that only required arbitration of "claims regarding fees charged by [the agency]" to broad clauses that mandate arbitration of any dispute between the parties or or any dispute arising out of the contract.  This distinction was critical.  The Court held that because the arbitration clause was narrow, "the [Federal Arbitration Act's] presumption of arbitrability regarding the merits of a dispute does not apply with equal force" as it does with broad arbitration clauses.  The narrowness of the clause also meant that the court, rather than an arbitrator, gets to decide which claims must be arbitrated.  The Court characterized its opinion as following its recent decisions in Simon v. Pfizer, Inc., 398 F.3d 765 (6th Cir. 2005) (pdf), and Bratt Enter. v. Noble Int'l Ltd.,338 F.3d 609 (6th Cir. 2003) (pdf), applying a strict approach to narrow arbitration clauses.

The Court also rejected the argument that all of the claims had to go to arbitration because there was factual overlap between the fee-related and the non-fee-related claims.  Instead, the Court ruled that claims must be "substantially identical" to piggy-back into arbitration.  Here, because only the unjust enrichment and conversion claims were related to the agency's fees, everything else stays in federal court.  The Court has thus reinforced the message that if parties want to maximize the chance that their dispute goes to arbitration, they should use broad arbitration clauses.

Comparing the court to a sports team, the Cincinnati Enquirer announced the “U.S. 6th Circuit Court of Appeals on 0-15 losing streak,” reporting that the Supreme Court has now reversed fifteen cases in a row from the Sixth Circuit.  The article calls this a “poor showing,” but cannot find any pattern in the cases.  In death penalty cases, the Sixth Circuit affirmed execution in two, but in three it held execution improper.  The Supreme Court reversed each time.  Though the circuit’s  "liberal"  judges were more likely to be reversed, the article reports that “almost all of the appeals court’s 15 active judges were on the wrong side of at least one overturned decision.”  This blog has covered many of these cases, see here, here, and here.  Unable to figure out if the losing streak is meaningful, the article quotes Judge Martin's comment that “I don’t think you can read anything into it.” 

It is hard to see how the 0-15 record is a meaningful indicator of the Sixth Circuit's jurisprudence:  the Supreme Court reviews only about one in a thousand of the 4,400 appeals before in the Sixth Circuit each year.  Other statistics, collected by the judiciary, are more significant.  For example, reversal rates (reflecting the quality of the guidance given to district courts) place the Sixth Circuit at the average among the circuits with a 16% overall reversal rate.  Unfortunately, the Sixth Circuit is well below average on the time it takes to decide appeals.  Nationally, appeals are decided in 11.7 months, but the Sixth Circuit currently takes around 15.5 months – only better than the Ninth Circuit’s 16.3 months.  The other circuits average around 10 months.  Some scholars also look at productivity to measure the circuits, including the number of signed opinions per judge.  By that standard, the Sixth Circuit’s 51 signed opinions per judge is very close to the national average of 55. 

Like other legal commentators, the article speculates that the reversal rate is attributable to  certain disagreements between judges that have been well-publicized.  But it is hard to see any link between that and the circuit's apparent inability to predict how the Supreme Court will decide on a close question.  At this point, it seems unlikely that the “losing” streak is anything but a statistical anomaly.  

Under the Worker Adjustment and Retraining Notification Act of 1988 (“WARN Act”), 29 U.S.C. §§ 2101-2109, an employer of 100 or more full-time employees is forbidden from “order[ing] a plant closing or mass layoff until the end of a 60-day period after the employer serves written notice of such an order,” where the failure for so doing may result in civil penalties and specified damages to the affected employees.  In a case interpreting the WARN Act, the Sixth Circuit concludes that plaintiffs bringing a WARN claim have no right to a jury trial and have no right to notice under the Act if they have no “reasonable expectation of recall” by their employer.

The facts underlying Bledsoe v. Emery Worldwide Airlines, Inc. (6th Cir., No. 09-4346) [PDF], date back to 2001, when the Federal Aviation Administration (FAA) ordered the grounding of EWA planes due to safety concerns.  As a result of the grounding, EWA laid off 575 employees in August 2001, and the company sent letters to these employees stating that, if EWA could resolve its issues with the FAA, the layoffs would last less than 6 months.  But in September 2001, the FAA placed additional requirements on EWA such that effectively required the company to complete certification as if it were a new carrier entering the market.  In October 2001, EWA sent letters to its employees stating its uncertainty as to the timing of resolving the FAA issues and indicating that it had no plans at that point to recall laid-off employees.  The following month, EWA sent another letter to employees stating that the layoffs would last more than 6 months and that employees’ layoffs would “continue until at least April 1, 2002.”  Early in December 2001, as a result of the FAA requirements, EWA’s parent company decided to permanently cease operations, and the next day notified the remaining active EWA employees of a 60-day layoff with pay, pending their termination in February 2002; the company also notified the previously laid-off employees that their layoffs were permanent, offering no further notice or pay.  These previously laid-off employees brought a class action against EWA, asserting violations of the WARN Act, and the district court certified the class.  The district court rejected a jury demand by the plaintiffs, conducted a bench trial and ruled against the plaintiffs, finding that they no longer had a “reasonable expectation of recall” under the WARN Act.

With Judge Guy writing for a unanimous panel that included Judges Boggs and Gibbons, the Sixth Circuit affirmed.  First, because the WARN Act was silent as to whether it included or forbade jury trials, the panel examined whether the rights involved would be considered legal or equitable under the Seventh Amendment.  The Court found that the WARN Act expressly provided that its remedies were exclusive, and placed the entire potential damage award to employees – the liability for back pay and benefits – within the discretion of the district court.  The Court found that, under such circumstances, such ‘damages’ were actually a form of equitable, restitutionary relief and that, therefore, neither the Seventh Amendment nor the Act provided a right to jury trial.

Second, applying the underlying facts to the WARN Act, the Court concluded that the plaintiffs had no “reasonable expectation of recall” by EWA based upon the company’s letters, which depicted the negative dynamics between the FAA and EWA and informed the plaintiffs that timely resolution of the problem was unlikely.  The Court observed that while EWA and its employees initially expected that the FAA problems could be resolved and that the layoffs would be temporary, the situation rapidly deteriorated and EWA accurately communicated such deterioration to the plaintiffs.  Applying an objective standard, the Court found that, under such circumstances, the plaintiffs could not have reasonably expected to have been recalled by the company.

Clarifying its own inconsistent precedent, the Sixth Circuit recently held that the 1-year time limitation for removal to federal court under 28 U.S.C. § 1446 is procedural. 

In Music v. Arrowood Indemnity Co., No. 10-5056 (6th Cir. Feb. 11, 2011).pdf, the Court looked to decisions from the Supreme Court and the Third, Fifth and Eleventh Circuits in analyzing the character of § 1446’s 1-year time limitation.  The Court also considered its own precedent and ultimately expanded upon its previous holdings characterizing the requirements of § 1446(b) as generally procedural.  In so doing, the Court rejected its unpublished decision in Brock v. Syntex Labs, Inc., 7 F.3d 232, 1993 WL 389946 (6th Cir. Oct. 1, 1993), wherein it held that the limitation was a jurisdictional mandate.

The take-away from Music?  A litigant objecting to removal on the basis of the 1-year limitation must assert her objection within the 30-day window set by 28 U.S.C. § 1447(c) or risk forfeiture.

In a decision that may, at first blush, appear unforgiving, the Sixth Circuit upheld the summary disposition of a plaintiff’s personal injury claims on the grounds that she sued the wrong common carrier. 

In Freese v. Continental Airlines, Inc., No. 09-4249 (6th Cir. Feb. 3, 2011).pdf, the plaintiff purchased a flight ticket from Continental Airlines, Inc. (“Continental”) and boarded a “Continental Express” flight at Continental’s gate.  After allegedly suffering an injury on the flight, the plaintiff sued Continental on the basis of common carrier liability.  Continental engaged in discovery for almost a year and, in the process, produced documents and witnesses for deposition.  Following the passage of the statute of limitations, Continental moved for summary judgment on the basis that a separate entity, ExpressJet Airlines, Inc., d.b.a. Continental Express, was the true owner and operator of the flight at issue.

The Sixth Circuit affirmed the district court’s grant of summary judgment in favor of Continental and, in doing so, rejected the plaintiff’s arguments that Continental is liable as a principal of ExpressJet or is estopped from denying liability due to, inter alia, its production of ExpressJet materials and witnesses in discovery.

The Court then remanded the case to the district court for consideration of the plaintiff’s motion to amend her complaint to name ExpressJet as a new party defendant under FRCP 15(c) in light of the Supreme Court’s recent decision in Krupski v. Costa Crociere S. p. A., – U.S. —, 130 S.Ct. 2485 (2010).

"The penny is easily the most neglected piece of U.S. currency."  So begins the legal discussion in Freeland v. Liberty Mutual Fire Insurance Co., decided by the Sixth Circuit on February 4.  Answering a jurisdictional question that was unraised by the parties and unaddressed by the district court, the Sixth Circuit concluded that the amount in controversy was one penny short of the minimum required for federal diversity jurisdiction.

The plaintiffs in Freeland sought a declaratory judgment that a particular insurance policy provided $100,000 in coverage.  But that did not mean the amount in controversy, for purposes of diversity jurisdiction, was $100,000.  The defendant's position was that the policy provided $25,000 in coverage, meaning that the amount actually in dispute was exactly $75,000.  Because the amount in controversy for diversity jurisdiction must exceed $75,000, exclusive of interest and costs, jurisdiction was lacking.

The court took care to distinguish the absence of any controversy as to the first $25,000 of coverage from a situation in which a defendant offers a portion of a disputed amount in settlement of a claim: "A party's offer to settle a case for a specified amount does not reduce the amount in controversy by that amount.  If plaintiff sues defendant for $100,000, defendant cannot defeat federal jurisdiction simply by offering to settle the case for $40,000."  There may be situations, however, in which it is difficult to distinguish between an offer to compromise and an acknowledgment that the plaintiff is entitled to some portion of the amount demanded.

District Judge Amul Thapar authored the court's opinion, which was joined by Judges Martin and Stranch.

In a decision that is being called the “most significant” application of Bush v. Gore in the past decade, the Sixth Circuit held that the Hamilton County Board of Elections violated the Equal Protection Clause of the Fourteen Amendment.  Judge Moore’s opinion held that the Board could not sufficiently justify its decision to count 27 early ballots cast at its downtown office but filed in the wrong precinct due to official error, but not 269 provisional ballots cast at the correct polling location but in the wrong precinct (i.e., at the wrong table) possibly due to poll-worker error.  The majority found that the Board’s failure to articulate a persuasive reason to excuse poll-worker error in one context but not the other violated the Equal Protection standard established by Bush v. Gore for local election administration.  The majority avoided scrutinizing Ohio’s election laws under Equal Protection, noting that its decision should not have large statewide effects. 

Far more worrisome for Ohio election officials, however, was the Court’s preliminary disapproval of Ohio’s law that ballots cast in the wrong precinct cannot be counted even when the result of poll-worker error.  The Court explained that it would violate due process to “disenfranchise citizens whose only error was relying on poll-worker instructions.”  In a footnote, the opinion also notes the potential for disparate treatment if multiple-precinct polling locations were mostly in African-American areas of Hamilton County.  (After the opinion, a MIT professor analyzed county-level data for Ohio and found no evidence that multi-precinct locations increased the number of potentially-invalid provisional ballots.)  In any case, the Court ultimately declined to decide the due process challenge because the district court had not ruled on the issue.

Judge Rogers concurred only the judgment (which vacated the decision below), disagreeing with the majority’s equal protection analysis.  He found that the two sets of ballots were “sufficiently different” to justify the differing treatment by the Board of Elections.  He also praised the Ohio Supreme Court’s earlier reticence to interfere with a prior district court decision, and urged the district court to adhere, as far as possible, to the instructions given by the Ohio Supreme Court in its previous opinion.  Judge Rogers did not comment on the due process question.

It was fortunate for Ohio Secretary of State Jennifer Brunner that the two voters who brought a mandamus action to compel her and the Board of Elections to comply with their "clear legal duty under Ohio statutes" regarding the counting of provisional votes cast in the 2008 Franklin County elections filed their case when they did.  Had the action been filed in December 2008, a mere one month later, the Secretary likely would have been forced to pay attorneys' fees for improperly trying to remove the case to federal court.   

In State of Ohio ex rel. Skaggs v. Brunner, 09-4282 (PDF), the relators expressly disclaimed that their action was based on federal law, stating in their Complaint that "[n]o federal claims are asserted."  Despite this disclaimer, the Secretary removed, arguing that the claims raised issues of federal law.  Although the district court denied remand and granted summary judgment in favor of the Secretary, the Sixth Circuit vacated the District Court's decision after concluding it lacked subject matter jurisdiction.  Relators moved for attorneys fees for the improper removal, which the District Court denied.

Under 28 U.S.C. § 1447(c), "An order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of removal." This provision gives district courts discretion to grant fees to the opposing party—they "may" grant fees—if "the removing party lacked an objectively reasonable basis for seeking removal." Id. at 3.

The Sixth Circuit noted that while "it is difficult to identify an objectively reasonable basis for the Secretary’s removal," the abuse of discretion standard that must be applied "makes all the difference."  The Court reviewed several points favoring the Secretary's argument that the decision to remove was "objectively reasonable," including that the District Court judge not only thought the removal was objectively reasonable, but he also denied the motion to remand the case to state court; that it was not alleged that the Secretary removed for purposes of delay or to increase the relators' costs; and that the delay resulting from the removal was only two weeks.  Id. at 6-7.  Bound by the abuse of discretion standard, the Sixth Circuit affirmed the District Court's denial of attorneys' fees.

One point bears special mention:  The Court noted that had the action been filed one month later, the Sixth Circuit's decision in Warthman v. Genoa Township Board of Trustees, 549 F.3d 1055, 1063 (6h Cir. 2008) (PDF) would have required an award of attorneys' fees to the relator.  In that case, the Court held that a complaint containing a federal-law disclaimer (like this one) deprives the defendant of an objectively reasonable basis for removal.

In Fabian v. Fulmer Helmets, Inc. (6th Cir. 10-5009, Dec. 23, 2010) (PDF), the Sixth Circuit reversed dismissal by the trial court of a pre-certification, class-action lawsuit predicated on a motorcycle helmet manufacturer’s alleged misrepresentation of safety standards.

In Fabian, the helmet model in question – AF-50 – had been tested by National Highway Traffic Safety Administration (NHTSA) in 2000 and 2002; in 2000, the model in large size was tested and found to be in compliance with NHTSA standards, but in 2002, NHTSA tested the AF-50 in small size and found it to be out of compliance.  Because the helmets purchased by the plaintiff had been large size – which had passed the NHTSA test – the district court reasoned that dismissal under Rule 12(b)(6) was warranted.

Writing for a unanimous panel that included Judge Moore and Senior Circuit Judge Friedman of the U.S. Court of Appeals for the Federal Circuit sitting by designation, Judge Sutton found dismissal inappropriate.  The panel found that the divergent NHTSA tests supported two reasonable inferences, one of which aligned with the district court’s ruling: namely, that the divergence between the tests rested on differences in the size of the helmet at issue.  But the panel also found that another reasonable inference existed: that the alleged misrepresentation was specific to the helmet model – the AF-50 generally – not to the size of the helmet.  Employing the standards for dismissal under Ashcroft v. Iqbal, __ U.S. __, 129 S. Ct. 1937 (2009), the panel found that “a mass-manufactured consumer product, whether it is shoes, pants or helmets, may utilize the same design (and carry the same flaw) regardless of its size.”  For that reason, the panel found dismissal inappropriate and permitted discovery to go forward.

The panel also rejected the defendant’s argument that dismissal should be affirmed on the alternative ground that the plaintiff’s causes of action, brought under Tennessee common law, were preempted by the National Traffic and Motor Vehicle Safety Act of 1966 (49 U.S.C. § 30101 et seq.).  The panel found that “[t]he premise of Fabian’s common law claims is not the creation of a new standard, whether one below, at or above [NHTSA] Standard 218 [governing helmet performance standards].  It is that Fulmer misrepresented its helmets as ‘DOT approved’ through its marketing materials, website and catalogues, as well as by the placement of the ‘DOT’ symbol on the helmets, even after knowing that it failed the 2002 safety test.  Liability, if it exists at all, would turn on what Fulmer Helmets said about its products, not on whether its products meet a standard that conflicts with Standard 218.”  Thus, the panel determined that plaintiff’s claims “do not ‘actually conflict’ with the requirements of, or the purposes of, the Safety Act or Standard 218.  They do not change Standard 218’s technical requirements. They do not disturb Standard 218’s labeling requirements. And they do not add a new requirement that interferes with what Standard 218 already requires. All that the claims do is potentially impose liability based on representations about whether the Department of Transportation has approved the helmets, even after a failed government-sponsored test” (internal citation omitted).  On this basis, the Court ruled that federal preemption had not occurred.

On December 17, 2010, in In re Settlement Facility Dow Corning Trust (6th Cir., Case Nos. 09-1827/1830, Dec. 17, 2010) (PDF), a Sixth Circuit panel split over divergent arguments on two provisions present in a bankruptcy reorganization plan involving Dow Corning: 1) whether "tissue expanders" should be considered "breast implants" within the meaning of the plan, and 2) whether the term "total disability" should be construed to require claimants to be disabled in either "vocation" or "self-care", or both categories.  All three panelists agreed that the term "total disability" requires claimants to show disability in both categories, but the panel split on the other matter, with the majority vacating the district court's determination on "tissue expanders" and remanding for further examination of the factual record.

The ruling involves an issue stretching back to the mid-1990s: thousands of lawsuits brought against Dow Corning relating to the company's breast implants.  The sheer weight of these lawsuits forced Dow Corning into Chapter 11 bankruptcy, and in 2004 a reorganization plan was confirmed.  Following a previous appeal (PDF) decided in 2006 by the Sixth Circuit, the district court ruled on the meaning of two provisions.  First, the district court determined that the term "breast implant" included within its definition "tissue expanders" -- devices implanted in a body and gradually filled with saline in subsequent weeks.  Second, the district court determined that, in order to meet the definition of the term "total disability," a claimant need only show disability as to "vocation" or "self-care," but not to both.

Writing for himself and Judge Sutton, Judge Kethledge first addressed the standard of review, in doing so parting ways with Judge Batchelder, in dissent.  Recognizing that the district court judge had presided over the bankruptcy for 15 years, the majority attempted to "characterize" the "measure of deference" owed to her.  Ultimately, the majority ruled that, when determining which of the reasonable readings of an ambiguous provision in a bankruptcy plan was best, the district court must examine the extrinsic evidence.  Where the lower court "assessed extrinsic evidence in choosing among reasonable interpretations of the Plan, we will not disturb its choice."

Applying this standard, the majority examined the definition of "breast implants" and found that, because the district court wrongly concluded the key provision was unambiguous, the district court failed to examine the extrinsic evidence offered by both parties.  Moreover, because the district court was not the same court that entered the plan's confirmation order, the majority concluded that it had even greater need to examine the extrinsic evidence.  On these bases, the majority vacated the district court order, remanding for such examination to occur.  As to the definition of "total disability," the majority found that the district court wrongly concluded that claimants need only show disability as to "vocation" or "self-care," but not both.  Here, the majority reversed the district court outright, finding that claimants must show disability as to both categories in order to qualify under "total disability."

Writing in dissent, Judge Batchelder took particular aim at the standard of review crafted by the majority.  Expressing concern that the majority's effort only "mudd[ied] the waters" and would "inevitabl[y]" create a "flood of new litigation, with litigants attempting to define the boundaries of the majority opinion's new standard," Judge Batchelder wrote that the Court should instead have "simply restate[d] what was once plain -- a district court's legal conclusions are reviewed de novo, and its factual findings are reviewed for an abuse of discretion."  In her judgment, the language of the majority opinion threatened to "further confuse an area of law already beset with significant confusion."  Because she agreed with the majority on the definition of "total disability," Judge Batchelder applied what she argued was the proper standard of review to the provision regarding "breast implants."  She concluded that "[c]ommon sense and New York law compel the conclusion that the term 'breast implant' unambiguously excludes tissue expanders, as a matter of law."  And she further concluded that, even had the provision been ambiguous, the extrinsic evidence "clearly favored" the conclusion that tissue expanders did not fall within the definition of "breast implant."

Following issuance of the Court's opinion, the claimants' advisory committee decried the ruling and lamented the "gross injustice for Dow Corning claimants who have waited patiently for years to be compensated."  At the time of this posting, Dow Corning had released no statement on the ruling.

In Zions First National Bank v. Moto Diesel Mexicana, S.A. de C.V., the Sixth Circuit vacated a district court's dismissal of an action on the grounds of forum non conveniens and remanded the case for further proceedings.

The court identified three failings in the district court's analysis.  First, the district court failed to consider the deference due to a U.S. plaintiff's choice of a U.S. forum, which applies even when the plaintiff is not a resident of the forum state.  Second, the district court gave "inordinate weight to the cost of travel and obtaining witnesses" without considering whether the defendant would be unduly burdened by trial in the plaintiff's chosen forum.  Third, the district court did not analyze each of the plaintiff's three claims separately to determine whether each one should be tried in the alternative forum.

By vacating the district court's decision on abuse-of-discretion review, Sixth Circuit's opinion sends a clear message that the court requires rigorous application of its forum non conveniens test.

As we reported on Monday, a Virginia federal judge made national headlines when he declared that the mandate requiring individuals to purchase health insurance under the recently enacted Patient Protection and Affordable Care Act, Public Law 111-148, is unconstitutional.  See Commonwealth of Virginia, et al. v. Sebelius (E.D. Va., Case No. 3:10-cv-188) (PDF).  On Tuesday, it was reported that the U.S. Justice Department plans to appeal the Virginia decision to the Fourth Circuit Court of Appeals rather than seeking expedited review at the U.S. Supreme Court.  That means that the first case to reach the Supreme Court involving a constitutional challenge to the new health care statute may come out of the Sixth Circuit, which is currently addressing the issue.  See Thomas More Law Center, et al. v. Obama, et al. (Sixth Circuit, Case No. 10-2388).  Briefing in the Sixth Circuit case is scheduled to be completed by the end of January 2011.

On Wednesday, the plaintiffs in the Sixth Circuit case filed their opening brief.  See Appellants' Brief (PDF).  As expected, the plaintiffs’ lead argument is that the individual mandate under the new health care law violates the Commerce Clause because it regulates mere existence based on “inactivity,” and not commercial or economic “activity.”  As the plaintiffs argue, “[t]he federal government has never in the history of the United States attempted to stretch the Commerce Clause to include the regulation of inactivity, or in effect, mere ‘existence’ or residence within our Nation’s boundaries.”  Id. at 11.  For the first time in American history, “Congress has cited the Commerce Clause as authority to regulate a man or woman sitting in the privacy of his or her home doing absolutely nothing but ‘living’ and ‘breathing.’”  Id.  The plaintiffs rely on the Supreme Court’s decisions in United States v. Lopez, 514 U.S. 549 (1995), and United States v. Morrison, 529 U.S. 598 (2000), which both invalidated federal statutes that sought impermissibly to regulate purely local, non-commercial activity. 

In their appellants' brief, the plaintiffs also address the fallback argument that the health care statute can be supported by the Constitution’s grant of power to Congress under its taxing and spending authority, arguing that the statute’s penalty imposed for failure to abide by the individual mandate is not a constitutional tax.

The American Center for Law & Justice ("ACLJ") supported the plaintiffs-appellants by filing an amicus brief, in which it similarly argues that the new health care statute exceeds Congress’s authority under the Commerce Clause.  See Amicus Curiae Brief of the ACLJ (PDF).  The ACLJ also argues that because the individual mandate is unconstitutional and not severable from the remainder of the statute, the entire statute must be held invalid. 

We will continue to follow the Sixth Circuit case closely, including analyzing the arguments that will be made to defend the health care statute.

The Sixth Circuit held today that two non-profit corporations lack standing to challenge certain decisions of the United States Forest Service relating to its management of the Daniel Boone National Forest.  In Heartwood, Inc. v. Agpaoa, the court held that the plaintiffs "fail[ed] to allege with adequate specificity the central [constitutional standing] element of injury in fact."

The standing affidavits submitted by two of the plaintiffs' members stated in broad terms that they use and enjoy the Forest, including an area affected by the Forest Service's action.  But that area alone comprises over 25,000 acres, and the affiants failed to identify particular forest sections or subsections that they use and that the agency action will detrimentally affect.  Although the Forest Service had not raised the issue, the court concluded that the affidavits were too general to establish standing.

The Sixth Circuit's split decision in Harris v. J.B. Robinson Jewelers raises thought-provoking questions about application of the Rule 56 summary judgment standard.  The pro se plaintiff claimed that the defendant replaced a 2.35-carat pink diamond in her wedding ring with a smaller, colorless stone when she left the ring for resizing.  The district court granted the defendant's motion for summary judgment, which relied principally on expert opinion explaining why the stone in the ring was likely the original.  In doing so, the court disregarded the plaintiff's testimony, and her supporting affidavits regarding the color of the original stone, as inadmissible lay opinion.

The Sixth Circuit reversed.  The majority held that the plaintiff's evidence was not inadmissible and that it was sufficient to withstand the motion for summary judgment.  In fact, the majority held that three sentences from the plaintiff's deposition -- "It was not the same color.  It was not the same size.  It was nothing like the one I took into the store that I had for 29 years." -- were sufficient in themselves to create a genuine issue of material fact.  Judge Guy dissented on the grounds that no rational jury, viewing the record as a whole, could find in the plaintiff's favor.

Although this case was decided on a motion for summary judgment rather than a motion to dismiss, Judge Guy invoked the concept of "plausibility" that informed the Supreme Court's recent Rule 12(b)(6) decisions in Twombly and Iqbal.  His dissent raises the question whether summary judgment can be appropriate notwithstanding the existence of admissible evidence on both sides of a material factual dispute.  Does the quality, or plausibility, of the evidence matter?  Judge Guy's answer is yes: "If a plaintiff's complaint and a supporting witness's affidavit state that the moon is made of green cheese and an affidavit by Neil Armstrong says that it is not, there has not been a fact question created that would make it error to grant a summary judgment."  It will be interesting to see if his view is vindicated in future cases.

In John B v Goetz (pdf), the Sixth Circuit refused to vacate a consent decree that required Tennessee to provide various medical screening, diagnostic and treatment services to over a half million children under the Medicaid statute.  Tennessee argued that Gonzaga University v. Doe, 536 U.S. 273 (2002), compelled the conclusion that the statute does not confer individually enforceable rights (and that the consent decree should therefore be vacated).  Rejecting this argument, John B. held that some Medicaid provisions may be privately enforced – and that determination should be made by “examining individual provisions of the statute to determine whether a private right of action exists under each portion.”  The Court noted one provision that could be privately enforced, 42 U.S.C. § 1396a(a)(43)(A), one that could not, 42 U.S.C. § 1396a(a)(30), and remanded so the district court could examine the enforceability of other provisions.

John B. went even further, holding that consent decrees should receive the benefit of a doubt, placing the burden on Tennessee to show that the decree was wholly dependent on provisions that could not be privately enforced.  Because there was no such showing, only portions of the decree clearly reliant on unenforceable provisions of the Medicaid statute could be vacated.

The Court also removed the district court judge from the case, citing his “increasingly accusative language,” inaccuracies, and failure to move the case forward.  While such removal is rare enough, it was especially surprising since that was the second judge to preside over the case.  The first voluntarily recused himself after similar accusations were made. 

Note that while the opinion was per curiam, the court sought to avoid the (unjustified) perception that such opinions have less precedential force by stating it was only styled that way because “it was prepared in the chambers of more than one judge.”

As reported previously, the Sixth Circuit in Wimbush v. Wyeth become the first circuit to weigh in on the scope of the Supreme Court’s recent decision on federal preemption (Wyeth v. Levine ), by holding that FDA approval does not preempt state law negligence claims.  Wyeth petitioned for rehearing en banc, but on October 14th the Court denied its petition, with no judge voting for rehearing en banc (PDF).  It remains to be seen whether other Circuits will follow the Sixth Circuit's lead in extending Wyeth v. Levine beyond the context of failure to warn claims.

Today, the Court heard oral argument in one of a recent spate of Medicare cases that have been shaping Medicare's right to reimbursement for its expenses from tort settlements.  On appeal this time is the decision out of the Western District of Kentucky, Hadden v. United States (Case No. 1:08-CV-10, August 6, 2009) (pdf), in which the court ruled that Medicare is entitled to recover from a tort settlement all of the money it paid on behalf of a Medicare recipient when those expenses are caused by the tortfeasor.

The trial court's decision discusses two points to watch for in the appellate decision.  First, there is the question of whether courts should defer to the Medicare Secondary Payer ("MSP") Manual.  The Eleventh Circuit recently decided this issue against Medicare in Bradley v. Sebelius (Case No. 09-13765), as reported in SSD's healthcare blog.  Although the District Court in Hadden did not discuss the MSP Manual in its decision, it upheld the the Administrative Law Judge's ruling that relied heavily on the MSP Manual. 

The plaintiff argued (unsuccessfully) that Medicare's recovery should be limited to a pro-rata share of the settlement.  Because the plaintiff recovered only 10% of his total injuries in the settlement, Medicare should only recovery 10% of its total payments from the settlement.  The MSP Manual, though, requires that Medicare should pursue subrogation to the full extent of payments made by Medicare, except when a lesser amount is allocated by a court order or is adjudged on the merits of the case.  The MSP Manual does not recognize allocations made by the parties in settlement agreements. 

The second issue that will hopefully be touched upon by the Sixth Circuit is whether dicta in a recent U.S. Supreme Court case Arkansas v. Ahlborn, 547 U.S. 268 (2006) (pdf), limits Medicare to a pro-rata share in the context of settlements.  The Sixth Circuit has yet to discuss the scope of the Ahlborndecision, which is being relied on heavily by plaintiffs' attorneys seeking to limit Medicare subrogation.  

In Ahlborn, the Supreme Court stated that Medicaid (a joint state-and-federal program) can only reach portions of a settlement designated as compensation for medical expenses, rather than pain and suffering or other damages, because there was no provision in the federal Medicaid statutes for a broader recovery.  The plaintiff in Hadden argued that the same rationale should apply to Medicare, but the district court disagreed, noting that the subrogation discussion in Ahlborn was dicta and involved Medicaid rather than Medicare. 

Resolution of these questions by the Sixth Circuit will provide much-needed direction to all parties involved in personal injury settlements involving Medicare recipients.

In a matter of first impression, the Sixth Circuit recently held in US ex rel Summers v. LHC Group, Inc., No. 09-5883 (6th Cir. Oct. 4, 2010).pdf that a plaintiff’s failure to adhere to the False Claims Act’s (“FCA”) procedural requirements, without more, warrants dismissal of the complaint.  The well-reasoned decision, authored by Judge Boggs, (with Judge McKeague joining and Judge Keith concurring), relied extensively on the FCA’s legislative history and policy.  These sources indicated that the procedural requirement overlooked by the relator appellant – that qui tam complaints be filed under seal and in camera for sixty days before publication or notice to the defendant – is essential to the statute’s goals as it affords the federal government an opportunity to investigate a relator’s claims and evaluate whether to intervene in the action, all without the defendant’s knowledge.  In deference to Congress and the statutory scheme it enacted, the Court concluded that a relator is stripped of her statutory right to bring suit in the name of the government when she fails to comply with the FCA’s procedural mandates, to the “t."

In adopting a per se rule and eschewing the consideration of factors such as the degree of harm caused by the procedural error or the relator’s good faith, the Sixth Circuit rejected the balancing tests utilized by the Second and Ninth Circuits.  See, United States ex rel. Lujan v. Hughes Aircraft Co., 67 F.3d 242 (9th Cir. 1995); United States ex. rel. Pilon v. Martin Marietta Corp., 60 F.3d 995 (2d Cir. 1995). 

Will this decision usher in a new era of FCA restraint, or will the Supreme Court ultimately intervene?  One can only guess.  But one thing is certain, a qui tam plaintiff in the Sixth Circuit must strictly comply with the FCA, or face the consequences.

In Int’l Dairy Foods Ass’n v. Boggs, Nos. 09-3515, 09-3526 (6th Cir. Sept. 30, 2010).pdf the Sixth Circuit entered the fray surrounding the use of the artificial hormone recombinant bovine somatotropin (rbST) in connection with the production of dairy products.  While the safe use of rbST has been a subject of much debate of late, the Sixth Circuit’s foray into the issue concerned not whether products from rbST-treated cows pose health risks, but whether recently adopted Ohio Department of Agriculture (“ODA”) regulations run afoul of the Free Speech and Dormant Commerce Clause aspects of the First Amendment (only the former will be discussed here). 

Due to a growing interest in dairy products made from non-rbST-supplemented cows, several dairy processors began advertising their nonuse of rbST in conjunction with the sale of their products within and outside of Ohio.  To ensure that these claims did not leave consumers with the allegedly erroneous impression that products made from rbST-treated products are less safe than their rbST-free counterparts, the ODA enacted prophylactic bans on dairy processors’ “composition claims” relative to their nonuse of rbST (“rbST Free”) and requirements that, where “production claims” are made (“this milk is from cows not supplemented with rbST”), contiguous disclosures be included to inform consumers that the FDA has determined that “no significant difference has been shown between milk derived from rbST-supplemented and non-rbST-supplemented cows.”  Groups of dairy processors filed suit to challenge the regulations alleging, among other claims, that the regulations violated their First Amendment right to Free Speech.  After the district court ruled largely in favor of the State and against the processors, the Sixth Circuit weighed in.

In analyzing the dairy processors’ Free Speech claims, the Sixth Circuit distinguished the frameworks applicable to the two types of speech regulations at issue:  the all-out prohibition on the dairy processors’ composition claims and the requirement that the processors’ production claims include a contiguous disclosure about the FDA’s findings.  In regards to the former, the Court emphasized that, where commercial speech is not unlawful or misleading but is subject to prohibition, a three-part inquiry must be undertaken pursuant to Central Hudson Gas & Elec. Corp. v. Public Serv. Comm’n, 447 U.S. 557, 566 (1980).rtf.  The Central Hudson inquiry asks 1) whether the asserted government interest is substantial; 2) whether the regulation directly advances that interest; and 3) whether the regulation is narrowly tailored.  Each of the Central Hudson factors must be satisfied for a regulation to pass Constitutional muster.  After applying the Central Hudson factors to the ODA prophylactic ban on composition claims, the Boggs Court reversed the district court’s grant of summary judgment in favor of the State on the basis that the prohibition was not narrowly tailored to further the State’s goals since the addition of a disclosure to the processors’ advertisements would dispel any confusion about the effects of rbST while causing minimal intrusion into the processors’ speech rights.

The Sixth Circuit next analyzed the constitutionality of the ODA disclosure regulations under the “reasonableness” standard set out in Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio, 471 U.S. 626, 637 (1985).rtf.  In doing so, the Court followed the lead of the Second and Tenth Circuits, see, e.g., Nat’l Elec. Mfrs. Ass’n v. Sorrell, 272 F.3d 104, 113 (2d Cir. 2001); United States v. Wenger, 427 F.3d 840, 849 (10th Cir. 2005), and rejected the approach taken by the Eleventh Circuit, which had evaluated disclosure requirements under the tougher standard set forth in Central Hudson.  See, e.g., Borgner v. Brooks, 284 F.3d 1204, 1210-13 (11th Cir. 2002).  In applying Zauderer, the Court explained that disclosure requirements pose less risk to free speech than outright bans on speech and thus should be subjected to a more lenient review than called for by Central Hudson.  Indeed, under Zauderer, disclosure regulations targeting inherently or potentially misleading speech should be upheld if they are reasonable, not unjustified, and not unduly burdensome.  Under this framework, the Sixth Circuit affirmed the district court’s finding that the ODA disclosure regulations are reasonably related to the State of Ohio’s interest in preventing consumers from being deceived, but also held that the ODA’s requirement that the disclosures be contiguous to the production claims lacks a rational basis since the processors’ use of an asterisk would suffice to alert consumers to the disclosure without overburdening the processors.

The Sixth Circuit continues to liberally define the "actual knowledge" required to trigger the 3-year ERISA statute of limitations and, in doing so, affirmed summary judgment in favor of the defendants in Brown v. Owens Corning Investment Review (Case No. 09-3692). 

The Court confirmed its earlier rejection in Wright v. Heyne, 349 F.3d 321 (6th Cir. 2003) of the Third Circuit's more stringent definition of "actual knowledge."  The Court also declined to follow what it considered dicta from the Eight Circuit's ruling in Brown v. American Life Holdings, Inc., 190 F.3d 856 (8th Cir. 1999), that in the context of a breach of fiduciary duty through "imprudent investment," actual knowledge requires knoweldge of how the fiduciary selected its investments.

Instead, the majority held that the Plaintiffs had actual knowledge of the facts supporting their claim when they knew (1) that the value of their ERISA investments plummeted when the company declared bankruptcy and (2) that someone had the power to close the fund that had invested in Owens Corning stock and permit transfers of monies already invested in the fund.  This knowledge of "the facts or transaction that constituted the alleged violation" was enough to start the three-year limitations clock running.  Because Plaintiffs filed their suit six years after the bankruptcy, they were too late.

Judge White did not join the majority's discussion of whether the Plaintiffs had acutal knowledge of the breach but concurred in the outcome and the other portions of the opinion, stating that SPD's that were not transmitted in accordance with the ERISA rules should not be used to impute actual knowledge to the Plaintiffs.  Even Judge White, though, found from the other evidence that the Plaintiffs had acutal knowledge of the key facts of their claim at the time of the bankruptcy.

In a case arising against the backdrop of the emergence of the Chavez regime in Venezuela, the Sixth Circuit panel reviewing an appeal by the Republic of Venezuela split 2 to 1 in favor of finding that Venezuela was not immune from the district court's jurisdiction to consider a lawsuit by a private U.S. party demanding payment on promissory notes.  In DRFP LLC v. Republica Bolivariana de Venezuela (Case Nos. 09-3424 & 09-3725) (PDF), writing for himself and Judge Kethledge, Judge Ryan found that, because of the "commercial activity exception" of the Foreign Sovereign Immunities Act ("FSIA"), Venezuela was unable to claim sovereign immunity.  In dissent, Judge Martin argued that the "commercial activity exception" was inapplicable to the facts.  All three judges were unanimous, however, in the decision to remand for reevaluation of whether the doctrine of forum non conveniens would apply.  This case is certainly a significant explication of the law on forum non conveniens and sovereign immunity in the Sixth Circuit.

The underlying dispute involved the alleged issuance in 1981 of no-coupon bearer promissory notes by a state-owned bank in Venezuela, where payment on the notes was guaranteed by the government of Venezuela.  After the notes matured in 1999, a Panamanian company acquired two of the notes, each in the amount of $50 million, and demanded payment from Venezuela in 2001.  In 2003, the Venezuelan Attorney General issued an opinion declaring that the notes were valid, but then a few weeks later retracted this opinion.  Based on the earlier opinion, the plaintiff, an Ohio company doing business as Skye Ventures, obtained the two promissory notes from the Panamanian company and demanded payment from Venezuela.  When Venezuela refused to honor the notes, claiming that they were forgeries, Skye filed suit to collect in the district court for the Southern District of Ohio.  In 2005, Venezuela moved to dismiss on two grounds: 1) lack of jurisdiction due to sovereign immunity, and 2) forum non conveniens.  In early 2009, the district court denied Venezuela's motion to dismiss, holding that Venezuela did not enjoy sovereign immunity because of the "commercial activity exception" of the FSIA and also that the doctrine of forum non conveniens did not apply.

On appeal, the majority affirmed the district court's application of the "commercial activity exception," which provides an exemption from sovereign immunity where the lawsuit is based "upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States." 28 U.S.C. § 1605(a)(2).  Since both parties agreed that the promissory notes involved "commercial activity," the dispute was over whether such activity "cause[d] a direct effect in the United States."  Because the notes stated that their terms were governed by the law of Switzerland and the regulations of the International Chamber of Commerce ("ICC"), the majority relied on affidavits by experts on Swiss law and the ICC, which suggested that the bearer of the notes was empowered to sue for collection in the jurisdiction of his choice, including the United States. Based on that, because the plaintiff had a right to collect in Ohio, failure of Venezuela to remit payment had a direct effect in the United States.  Judge Martin disagreed.  He found "incredible" the proposition that the absence of language in the promissory notes stating where they could be paid should be taken as a waiver of sovereign immunity by Venezuela "in every country in the world in which a noteholder could take the notes and find a bank to act as its proxy."  Thus, Judge Martin found no direct effect on the United States as a result of a foreign act; rather, he found any effect on the United States was caused by the plaintiff's choice to choose an American bank from which to seek payment.

The entire panel agreed, however, that the district court erred in its forum non conveniens analysis. The district court rejected application of forum non conveniens because it found that the plaintiff lacked an "available and adequate alternative forum," as required by the doctrine.  Its rationale was that a 2007 decision by the Venezuelan Supreme Court -- in which that court interpreted the Venezuelan Attorney General's earlier opinions and found them non-binding -- had eviscerated the plaintiff's estoppel argument and had "'effectively decided the issue of the Notes' validity against the Plaintiff in the present case.'"  The panel disagreed, finding that the district court had "read too much into the Venezuelan Supreme Court decision."  The panel was not convinced that the Venezuelan court had gutted the plaintiff's estoppel theory, but it stated that, even if the plaintiff's argument had been gutted, "such a ruling would weaken Skye's case in Venezuela, but that is not the same as denying Skye the right to litigate the subject matter of the dispute."  Finding this decision erroneous, the Sixth Circuit remanded to the district court to complete the second half of forum non conveniens analysis, which involves the balancing of private and public interests.

"In the end, plaintiffs' allegations do not raise a strong inference that Ernst & Young acted with scienter in affirming Accredo's allegedly fraudulent accounting.  Conclusory allegations about what Ernst & Young must or should have known while auditing Accredo do not amount to specific allegations that show material misstatements or omissions committed with recklessness.  Plaintiffs thus fails to adequately allege all of the elements of their Section 10(b) and Rule 10b-5 claim."  So the Sixth Circuit concluded in its recent decision, Louisiana School Employees' Retirement Sys. v. Ernst & Young, LLP (Case No.08-6194, Sept. 22, 2010) (PDF).

In an important ruling applying the U.S. Supreme Court's recent decision in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (PDF), the Sixth Circuit explores the threshold showings necessary to demonstrate scienter in the context of a securities fraud class action.   In Ernst & Young, the plaintiffs filed against Ernst & Young a class action on behalf of all persons and entities who purchased the publicly traded securities of the pharmaceutical distribution company Accredo Health, Inc.  For the time period relevant to the class action, Ernst & Young had served as Accredo's outside accountant, and the plaintiffs alleged that Ernst & Young conspired with Accredo to hide Accredo's accounts receivable problems from investors -- problems, which when later revealed, caused Accredo's stock price to plummet 44% in a single day.  The district court dismissed the action under Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure, finding, among other things, that the complaint did not, as required by the Private Securities Litigation Reform Act of 1995 ("PSLRA"), plead with sufficient particularity facts giving rise to a strong inference of scienter. 

Writing for a unanimous panel that included Judges Boggs and Moore, Judge Gibson of the Eighth Circuit (sitting by designation) emphasized that the Tellabs standard governed the inquiry, though he also confirmed the continuing vitality of the Sixth Circuit's longstanding holding that liability can be premised on reckless behavior.  Applying these standards, the Court found that the complaint fell well short and that dismissal was warranted.  Specifically, the Court rejected the argument that scienter was established even where the plaintiffs could show that Ernst & Young was in possession of certain data: "even if Ernst & Young should have included the appropriate data in its audit, its failure to do so does not create an inference that it acted with the requisite scienter."  Likewise, the Court rejected the assertion that the so-called "red flags" alleged by the plaintiffs -- including the refusal of an investment banking firm to consummate a purchase -- were sufficient to create an inference of scienter "because plaintiffs' red flags rest on conclusory allegations and are devoid of facts."  Refusing to consider the magnitude of the $58.8 million error in its determination of scienter, the Sixth Circuit confirmed the vitality of its earlier ruling in Fidel v. Farley, 392 F.3d 220 (6th Cir. 2004), where the Court "decline[d] to follow the cases that hold that the magnitude of the financial fraud contributes to an inference of scienter on the part of the defendant."  Finally, the Sixth Circuit also rejected the contention that communications internal to Ernst & Young showing awareness of "'a problem'" with Accredo's accounting created an inference of scienter because "[a] statement such as 'there was a problem' does not tell us whether Ernst & Young fraudulently refused to see the obvious."

The Sixth Circuit thus continues its trend of insisting on specific, material factual allegations for a securities fraud complaint to survive dismissal.

In Delia v. City of Rialto, Case No. 09-55514 (Sept. 9, 2010) the Ninth Circuit examined whether a private attorney retained by the City to participate in internal affairs investigations, but who was not an employee of the City, was entitled to qualified immunity against Plaintiff's § 1983 claims.  The attorney urged the Ninth Circuit to follow the Sixth Circuit's decision in Cullinan v. Abramson, 128 F.3d 301, 310 (6th Cir. 1997), in which the Sixth Circuit held that a law firm that had been hired by the City of Louisville to serve as outside counsel was entitled to qualified immunity against plaintiffs' § 1983 claims.  The court succinctly concluded: “We see no good reason to hold the city’s in-house counsel eligible for qualified immunity and not the city’s outside counsel.”  In arriving at this conclusion, the Sixth Circuit relied on language in Richardson v. McKnight, 521 U.S. 399, 407 (1997), that “the common law ‘did provide a kind of immunity for certain private defendants, such as doctors or lawyers who performed services at the behest of the sovereign.’ ” Id. at 310.

The Delia Court concluded, however, that it was not free to follow the Sixth Circuit's Cullinan decision because it was bound by Gonzalez v. Spencer, 336 F.3d 832 (9th Cir. 2003), in which another panel of the Ninth Circuit had held that a private attorney representing a county was not entitled to qualified immunity.  Gonzalez at 834-35.  In rejecting the attorney’s claim of qualified immunity, the Gonzalez court reasoned, “[the attorney] is not entitled to qualified immunity. She is a private party, not a government employee, and she has pointed to ‘no special reasons significantly favoring an extension of governmental immunity’ to private parties in her position.” Id. at 835 (quoting Richardson, 521 U.S. at 412).

As aptly noted by Attorney Harvey Randall on the New York Public Personnel Law blog, "the issue of whether an attorney in private practice performing services on behalf of a government entity may claim a 'qualified immunity' if named as a defendant as the result of some act or omission in the performance of his or her duties may be ripe for consideration by the Supreme Court."

In an end-of-the-summer blockbuster, the Sixth Circuit addressed the "often-elusive line between admissible opinion and inadmissible speculation under Rule 702."  The case could have significant ramifications for products liability cases, particularly in the MDL setting.  Not only does this decision overturn a jury verdict of $20.5 million, but it also signals an uphill battle for plaintiffs seeking to rely upon expert testimony to establish causation where the science is unsettled.

In Tamraz v. Lincoln Electric Company (6th Cir., Case No. 08-4015/4016, Sept. 9, 2010) (PDF), the Court held that a physician's testimony regarding the cause of a disease must be tested under Daubert principles as stringently as the physician's testimony regarding the diagnosis of the disease.  The parties in Tamraz generally agreed that the plaintiff suffered from Parkinson's Disease, but they did not agree on whether the disease was caused by exposure to manganese during the plaintiff's career as a welder.

The majority reversed the district court's admission of the physician's testimony because some steps in the analysis were supported only by purely theoretical studies and others by unsupported analogies or suppositions. While the Court acknowledged that the "working hypothesis" offered by the expert was "plausible" and "may even be right," it did not survive Daubert scrutiny because of the "speculative jumps" inherent in the expert's opinion.  What science may view as a "useful but untested hypothesis," the Sixth Circuit held the law should "generally treat as inadmissible speculation."  The Court expressed concern about "allowing the law to get ahead of science," a result that "would destroy jobs and stifle innovation unnecessarily."

Judge Martin's dissent, which may be the first opinion in the Federal Reporter to cite the TV show "House" (see fn. 1), criticized the "majority's newly-minted requirement that scientific testimony must be without flaws or gaps and have no unprovable inferences or assumptions" as inconsistent with the scientific process.  Judge Martin also hinted at a circuit split, arguing that the Second Circuit would treat such matters as questions of weight, rather than admissibility.

Judge Sutton and District Court Judge Reeves (sitting by designation) were in the majority.  Judge Martin dissented.

The federal courts of appeals and other courts have been split on whether the presumption favoring arbitrability applies to questions about who may enforce (or is bound by) an agreement to arbitrate.  Some courts treat all such questions as contract formation issues to which the presumption does not apply.  Others treat such questions as matters of scope, where there is a valid and enforceable arbitration agreement, and apply the presumption.  Last week, the Sixth Circuit joined the latter group of courts in applying the presumption to decide whether former employees could arbitrate grievances against their former employer under a collective bargaining agreement.

In Teamsters Local Union No. 89 v. Kroger Co., the Sixth Circuit affirmed a district court's judgment compelling arbitration of grievances filed on behalf of union members who had been, but were no longer, employed by Kroger.  As permitted by its collective bargaining agreement (CBA) with the union, Kroger had subcontracted certain operations to other firms, which then hired all of the Kroger employees who had been performing those operations and entered their own CBAs with the union.  Later, however, Kroger subcontracted work previously done by these employees to firms that did not have CBAs.  The union filed class-action grievances alleging that this violated Kroger's CBA.  Kroger responded that the grievance and arbitration procedure in the CBA did not apply because the affected union members were not employed by Kroger.

The court, observing that the arbitration clause in the Kroger CBA was a broad one, applied the presumption in favor of arbitrability in deciding that the former Kroger employees could enforce the obligation to arbitrate.  Notably, Kroger relied in part on a letter of understanding that was executed after the CBA and provided for arbitration of outstanding grievances, but not subsequent grievances, after subcontracting.  The court declined to infer that subsequent grievances were not to be arbitrated, holding that such an inference would "reverse the presumption."  With this decision, the Sixth Circuit came down on the side of other courts that apply the arbitrability presumption to questions of who may arbitrate.  The circuit split on this issue is currently before the Supreme Court on a petition for certiorari.  (Disclosure: Squire Sanders represents the petitioner in that proceeding.)

The Sixth Circuit has become the first circuit to weigh in on the scope of the Supreme Court’s recent decision on federal preemption in Wyeth v. Levine, 129 S. Ct. 1187 (2009).  Here’s the background:  Mary Buchanan began taking Wyeth’s prescription diet drug Redux in 1996.  She was diagnosed with primary pulmonary hypertension (“PPH”) in 2001 and passed way in 2003, after bringing suit in 2003 alleging that her PPH was a side effect of Redux, which was removed from the market in 1997.  The suit claimed (1) strict liability for defective design; (2) negligence; and (3) wrongful death. 

At the times Buchanan took Redux, it was marketed with several warnings about the possible health effects of the drug.  Additionally, in 1996 Wyeth sent letters to physicians warning of the risk “of a serious, potentially life-threatening cardiovascular condition [PPH] . . . associated with the use of all types of prescription weight loss drugs.”  This warning was also printed in bold-faced letters on the Redux label. 

On February 28, 2008, the district court granted summary judgment in favor of Wyeth on all claims.  The district court concluded that FDA’s approval of Redux preempted plaintiff’s claims based on pre-approval actions and that plaintiff’s remaining post-approval claims failed on their merits under Ohio law.  Plaintiff moved to alter or amend the judgment. 

While plaintiff’s motion to alter or amend the judgment was pending and being actively litigated, the Supreme Court decided Wyeth v. Levine.  In one of the first rulings to address that decision by the Supreme Court, the district court held that Wyeth v. Levine was limited to failure to warn claims, which were not at issue in Buchanan’s suit over Redux.  The district court reasoned that the Supreme Court’s decision recognized that drug manufacturers have a duty to update warning labels after the FDA approves a product and it enters the market.  In contrast, the district court acknowledged that a manufacturers’ duties before approval by FDA are different and were not addressed by the Supreme Court in Wyeth v. Levine.  Therefore, the district court drew the line at FDA approval of a drug and held that, while Wyeth v. Levine may not preempt post-approval failure-to-warn claims, the Supreme Court’s decision did not hold that pre-FDA approval claims are not preempted. 

In Wimbush v. Wyeth (pdf) the Sixth Circuit reversed this part of the district court’s ruling and held that FDA approval did not preempt the plaintiff’s state-law negligence claims.  In doing so, the Sixth Circuit has become the first circuit to extend Wyeth v. Levine beyond the context of failure to warn claims.  The significance of the Sixth Circuit’s ruling is highlighted by a passage from the Court’s opinion, authored by Judge Martin (joined by Judge Boggs; Judge White concurred with the majority's pre-emption finding, but found the panel should have allowed plaintiff’s other claims to proceed as well):

We are aware of no federal appeals court decision since Levine concluding that FDA regulation preempts any aspect of state tort law, though we admit that, until today, there is also no post-Levine court of appeals authority for the proposition that the Levine rationale extends beyond the realm of failure-to-warn claims to apply to all pre-approval state law claims.

The Court specifically rejected the distinction between preemption of failure-to-warn and other types of state-law tort claims the district court found in Wyeth v. Levine. 

Wimbush v. Wyeth squarely places the burden on drug companies to show that it is “impossible to comply with both state law duties and FDA regulations in the process leading up to FDA approval.”  Citing Levine, the Court noted that the FDA traditionally regards state law as a “complementary form of drug regulation” and that state negligence law did not demand that Wyeth do something forbidden by the FDA (or vice versa).  The Court noted that the FDA requirements and state negligence duties were complimentary since “whether the FDA approves a drug for market depends, in very large part, upon the results of the manufacturer’s investigation an testing prior to approval. . . . If the manufacturer is negligent in this investigation, then the entire FDA approval process is tainted from the outset.” 

One significant aspect of the Court’s decision that will likely be overlooked in the attention paid to the issue of federal preemption also bears mention.  Even as it affirmed summary judgment under Ohio law on plaintiff’s claims other than negligence, the Sixth Circuit passed on the opportunity to provide some guidance and clarity on the question of which party bears the burden of proving the adequacy of warnings in a design defect claim under Ohio law.  Although it acknowledged a dispute over that issue, the Court declined to address it.  

On another issue of Ohio law, however, the Court reversed its prior holdings on the question of whether negligence claims arising before 2005 amendments to the Ohio Products Liability Act (“OPLA”) are abrogated.  Previously, the Sixth Circuit had held in Tomkin v. American Brands, 219 F.3d 616, 619 (6th Cir. 2009), that enactment of OPLA abrogated common-law negligence claims.  Based on Doty v. Fellhauer Elec., Inc., 888 N.E.2d 1138, 1142 (Ohio Ct. App. 2008), the Court reversed its ruling in Tomkin and held that the Ohio Supreme Court would likely conclude that common-law negligence claims arising prior to the 2005 amendments to OPLA are not abrogated.  

On July 28, 2010, the Sixth Circuit imposed a tougher standard for prosecutors who want to pursue convictions for money laundering in white collar crime cases under 18 U.S.C. 1956(a)(1)(B)(1) (pdf).  In United States v. Faulkenberry, Case Nos. 08-4233/4404 (6th Cir. 2010) (pdf), the Court vacated money-laundering and conspiracy to commit money-laundering convictions against former executives of National Century Financial Enterprises ("NCFE"). 

In doing so, the Court held that prosecutors must prove that the purpose of the transaction at issue was to conceal the source or nature of the funds.  It is no longer enough to prove that the transaction was structured in such a way that it resulted in concealment of the source or nature of the money or that concealment of the source of the money facilitated some other purpose of the transaction.  This holding was the product of clarification provided by the United States Supreme Court in Cuellar v. United States, 128 S.Ct. 1994 (2008) (pdf), which imposed this standard on the transportation portion of the money laundering statute. 

Because the standard in Cuellar was announced between the trial and appeal in the Faulkenberry case, the government had not tried its case with the tougher standard in mind and, in the Court's opinion, was not able to make the evidence at trial fit the new standard. 

It will be interesting to see whether this decision really makes a difference in money-laundering indictments and convictions.  As noted in Daniel Fisher's blog posting for Forbes, money-laundering counts are included in nearly 90% of all federal fraud indictments and carry heftier sentences than fraud charges. 

At the same time the Court was announcing this tougher standard, though, it also went out of its way to note several ways the government can meet this standard in the future by using the structure and documentation for a transaction (evidence that would have satisfied the old standard) to support an inference of a purpose to conceal to satisfy the new standard. 

The unanimous decision was authored by Judge Kethledge and joined by Judge Sutton and Judge White. 

The Sixth Circuit has affirmed dismissal of a public nuisance case brought by the City of Cleveland against various companies that financed subprime mortgages in pdf-City of Cleveland v. Ameriquest Mortgage Securities, Case No. 09-3608 (July 27, 2010). 

Given the recent increase of lawsuits against entities who are farther removed from the plaintiff’s ultimate injury but are alleged to be the underlying cause of injury, the Court’s decision provides further guidance on how far plaintiffs can reach for potential defendants or causes of action.

In the case, the City of Cleveland sued a number of high-profile companies that provided financing to subprime mortgage lenders and created mortgage-backed securities for public nuisance.  The City’s theory was that by exerting economic influence, the financing companies caused mortgage lenders in Cleveland to lend to unqualified homebuyers, which led to high foreclosure rates and numerous vacant properties in the City.  The vacant properties, in turn, became eyesores, were vandalized, or were used to conduct illegal activity, which caused the City to lose real estate tax income and to expend municipal resources in the form of police and fire service and demolition costs.

The Sixth Circuit held that the defendants’ conduct was too far removed from the City’s damages to support the City’s lawsuit.  In doing so, the court relied heavily on Anza v. Ideal Steel Supply Corp., 547 U.S. 451 (2006) and Cincinnati v. Beretta U.S.A. Corp., 768 N.E.2d 1136 (Ohio 2002).  Specifically, the Court found that that there were too many potential intervening causes to proceed.  Among other potential causes for the City’s alleged injuries, the Court cited lending decisions by the brokers that issue the mortgages, homeowners’ actions of getting mortgages and defaulting, the unlawful use or destruction of the properties by criminals, the poor job market, the national recession, and increased crime rates in general. 

As reported by Jonathan Stempel of Reuters in Cleveland loses appeal of Wall St. mortgage case, attorneys for the City have already announced that they will seek en banc review by all the Circuit Judges.  In addition, the Reuters article notes that similar suits are being prosecuted by the cities of Baltimore, Maryland and Memphis, Tennessee. 

The unanimous opinion was written by Judge Suhrheinrich and joined by Judge McKeague and Judge Griffin.