Sixth Circuit Appellate Blog

Sixth Circuit Clarifies Recent FLSA Regulation Change

Kathleen Portman — Wed, 22 Feb 2012 12:09:07 -0500

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The Sixth Circuit reversed and remanded the matter, finding the lower court had applied an outdated rule of law.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.

Contentious Trademark Cases Heading to Sixth Circuit

Saber VanDetta — Tue, 14 Feb 2012 21:56:07 -0500

In the past few weeks, two contentious trademark disputes have been appealed to the Sixth Circuit. In the first, L.F.P.IP. Inc., et al. v. Hustler Cincinnati, Inc., et al., Hustler Cincinnati and Jimmy Flynt, the brother and former business associate of Larry Flynt, appealed the Southern District of Ohio’s entry of a permanent injunction prohibiting the unauthorized use of the mark “Hustler” in conjunction with the sale of sexually-oriented products.

In its lengthy opinion, the district court held that a license to use a trademark need not be oral or written, but can be implied by the objective conduct of the parties (in this case, the payment of purported license fees by Jimmy to Larry). The district court then reaffirmed the doctrine of license estoppel when it held that Jimmy was estopped from claiming any rights to the mark when he had previously entered into an implied license agreement for its use and thereby acknowledged that the mark was owned by Larry.

Finally, the court rejected Jimmy’s claim that the “Hustler” trademark was a “naked” trademark (no pun intended, honestly), due to his brother’s failure to control its use and the resultant diminution in the mark’s value. The court found that the defense of “nakedness” was unavailable to licensees like Jimmy because, to hold otherwise, the licensee would benefit from his own misuse of the trademark to the detriment of the mark and its licensor.

The other trademark-related case heading to the Sixth Circuit is American University of Antigua College of Medicine v. Woodward. In Woodward, the Eastern District of Michigan evaluated whether the defendant student’s use of the plaintiff’s name and almost identical website violated the plaintiff’s rights under the Lanham Act, the Anticybersquatting Consumer Protection Act of 1999 (“ACPA”), the Family Educational Rights and Privacy Act of 1974, and Michigan’s defamation laws.

The court summarily rejected the plaintiff’s claims under the Lanham Act and the ACPA because the speech at issue was not intended to sell goods or services or otherwise result in a profit, as required to state a claim under those statutes. Likewise, the court rejected the plaintiff’s Family Educational Rights and Privacy Act claim on the basis that the statute does not create a private right of action. The court ultimately granted relief to the plaintiff on several defamation claims which were partly established by the requests for admission issued to the defendant and deemed admitted by the court when they were not timely answered.

Arbitration dispute headed for Sixth Circuit

Pierre Bergeron — Tue, 14 Feb 2012 10:13:41 -0500

In Rodriguez v Tropical Smoothie Franchise Development Corp., the Southern District of Ohio recently enforced an arbitration agreement in the franchise context. The Plaintiff sought to avoid arbitration by arguing both procedural and substantive unconscionability, and the court found that Florida law governed. Although the court rejected a series of arguments regarding procedural unconscionability, including unequal bargaining power, the court was persuaded that substantive unconscionabilityexisted. To reach this result, the court noted that the plaintiff had argued, and the Defendant did not dispute, that the arbitration would cost between $20,000-40,000 and the Plaintiff lacked such funds to cover the costs. The arbitration agreement also required that the costs be paid up front, and the court held, based on the totality of circumstance that substantive unconscionabilty was present. Notwithstanding reaching that finding, the court found that the absence of procedural unconscionability was fatal to the overall unconscionability analysis. As a result, the court granted the motion to compel arbitration.

Although this case could present some interesting issues for the Sixth Circuit on unconscionability, particularly based on the Sixth Circuit's recent decisions on the cost of arbitration, it remains to be seen whether the court will ultimately have jurisdiction over this dispute. The Defendant evidently moved to dismiss the proceedings, and the district court granted that motion but at the same time indicated that it was staying the case. Under the Federal Arbitration Act, a decision staying a matter pending arbitration is generally not appealable, whereas an order dismissing a case pending arbitration is. It does not appear that the parties framed that issue precisely for the court, and therefore the Sixth Circuit will be left to sort through the jurisdictional issue. We will continue to keep an eye on this case and see if the court accepts jurisdiction and addresses the merits of the case.

The Sixth Circuit Vacates Class Certification and Clarifies Wal-Mart's Application to Declaratory Judgments Based on Contract Interpretation

Kathleen Portman — Mon, 13 Feb 2012 18:26:47 -0500

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.

Sixth Circuit Preserves Extortion and Conspiracy Claims for Would-Be Parents

Kathleen Portman — Thu, 09 Feb 2012 19:02:53 -0500

On Tuesday, the Sixth Circuit revived a group of plaintiffs' extortion and conspiracy claims under RICO related to alleged fraud in conjunction with their attempts to adopt children from Guatemala. Heinrich v. Waiting Angels Adoption Services, Inc., Case No.: 09-2470 (6th Cir. February 7, 2012)

The Sixth Circuit reversed the district court's dismissal of the complaint, concluding that the plaintiffs had sufficiently pled four predicate acts of mail and wire fraud, including a claim of fraudulent misrepresentation about the availability of twin children, and, on three separate occasions, fraudulent inducement to pay foster care expenses for children that never required the service. To determine if the four predicate acts could qualify as a pattern of racketeering activity, the Court looked to the “relationship plus continuity” test articulated in H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229 (1989).

The Court found the relationship prong easily met, noting that the acts were all committed by the same participants, for similar purposes, with similar victims, using similar methods of communication (i.e. email correspondence, telephone conversations and a website) to defraud hopeful adoptive parents. Likewise, the plaintiffs had satisfied the continuity prong because there was no indication that the pattern of behavior would not have continued indefinitely into the future. Based on the satisfaction of these two prongs, the Court found the predicate acts sufficiently alleged a pattern of racketeering activity to survive dismissal at the pleading stage.

The Court also reversed the dismissal of the plaintiffs' conspiracy claim after finding that they had adequately pled a claim under RICO and an agreement to participate in that violation.

Ethics and Professionalism In the Sixth Circuit

Steve Delchin — Sat, 04 Feb 2012 14:48:28 -0500

In addition to my active appellate practice, I have spent a substantial portion of my career focusing on the field of ethics and professionalism. Although these areas of law often intersect, I generally see little professional commentary on appellate ethics. Part of the reason, of course, is that appellate practice is very specialized, and there are only a handful of ethical rules specifically targeting appellate practitioners. But the applicable rules are critically important, and they need to be the focus of all appellate lawyers. Professionalism concerns are also important. While the rules of professional conduct set the floor that supports our status as lawyers in good standing, professionalism is the ceiling (the higher standard) to which all lawyers should aspire.

Highlighted below are some of the key ethical and professionalism concerns for lawyers practicing before the Sixth Circuit.

Duty to Avoid Frivolous and Unwarranted Appeals

Ethical considerations arise before a lawyer even decides to appeal a case to the Sixth Circuit. Rule 3.1 of the ABA Model Rules of Professional Conduct prohibits unwarranted appeals while Rule 38 of the Federal Rules of Appellate Procedure makes clear that frivolous appeals are sanctionable. These rules are generally straightforward, and yet we continue to see lawyers who pursue appeals that cannot possibly prevail. The classic example is where a party’s legal arguments are absolutely foreclosed by a prior panel decision. In the Sixth Circuit, a three-judge panel cannot overrule the decision of another panel. See Rule 206(c) of the Sixth Circuit Rules. Thus, there is no value in pursuing an appeal where the panel will be bound by a prior panel’s decision. The solution in such a situation is Rule 35 of the Federal Rules of Appellate Procedure. As Judge Merritt recently highlighted, there are times when an appeal should initially be heard en banc, rather than by a three-judge panel, so as to “avoid the inefficiency of appealing to the panel that could not grant [a party] the remedy that [it] seeks . . . .” See Lewis v. Humboldt Acquisition Corp, No. 09-6381 (6th Cir. Mar. 17, 2011) (PDF). While en banc hearings are “not favored” (indeed, they remain rare), the Sixth Circuit has signaled that judicial inefficiency is more disfavored. The lesson from the Sixth Circuit is clear: Do not pursue an appeal when your legal arguments are absolutely foreclosed by a prior panel decision.

The irony in the Sixth Circuit’s lesson, of course, is that too many petitions for panel rehearing and rehearing en banc are being filed in the Sixth Circuit. Indeed, motions for rehearing are perhaps the most abused appellate procedure. Keep in mind the limited nature of a petition for panel rehearing and rehearing en banc. See 6 Cir. R. 35; 6 Cir. I.O.P. 40(a). As Sixth Circuit Judge Moore emphasized in her oft-cited dissent in Bell v. Bell, 512 F.3d 223, 250 (6th Cir. 2008), a panel “getting it wrong” does not qualify as a matter for rehearing, and lawyers need to keep this in mind.

The Duty of Candor

As officers of the court with an obligation to protect the integrity of the judicial process, lawyers owe a duty of candor to the Sixth Circuit. This explains why, for example, appellate practitioners are required to include jurisdictional statements in their briefs alerting the court to potential problems with subject matter and appellate jurisdiction. See Rule 28(a)(4) of the Federal Rules of Appellate Procedure. The duty of candor extends beyond simply the duty to avoid making false statements of fact or law to the court. It also includes portraying the factual record accurately and fairly. Sixth Circuit Rule 28, which addresses “references to the record,” provides that “[a] brief must direct the court to those parts of the record to which the brief refers.” Fair and accurate citations to the record matter just as much as avoiding making false statements to the court. Factual statements without record citations are an immediate red flag to the judges and their law clerks.

Duty to Disclose Adverse Authority.

Related to the duty of candor is the lawyer’s ethical duty to disclose adverse authorities to the court. ABA Model Rule 3.3(a)(2) provides that a lawyer shall not knowingly “fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel.” This rule does not strip lawyers of their ability to be vigorous and partisan advocates on behalf of their clients. But it does mean that lawyers must refrain from affirmatively misleading the court as to the state of the law. Usually this requirement is straightforward, but consider the situation where certain language from an opinion that appears to render it directly adverse to the position of a lawyer’s client is viewed by that lawyer as dicta. Should the lawyer avoid citing the case? From a professionalism (if not an ethical) standpoint, the correct approach is to disclose the troubling language to the court. Ultimately, it is up to the Sixth Circuit to determine whether the language is truly dicta. And in any event, the effective appellate lawyer will use such disclosure as an opportunity to effectively distinguish the case and in the process bolster his or her client’s case. The lawyer’s candor will also enhance the lawyer’s credibility in the eyes of the judges and law clerks (who, you can be sure, will discover the case anyway).

Duty of Competence

ABA Model Rule 1.1 provides that “[a] lawyer shall provide competent representation to a client.” For appellate lawyers, the duty of competence includes such basic notions as being aware of the applicable rules and fully understanding the substantive law at issue in an appeal (even if this means associating with another lawyer who is an expert in a particular field of law). But there is so much more to the duty of competence. The competent lawyer also must know his or her record. When I clerked for the Sixth Circuit, one of the judges asked an attorney a simple factual question regarding the procedural history of the case. The lawyer shot back, “Your Honor, I’m sure; I was not trial counsel.” Obviously it is not a proper response for an appellate attorney to respond to a judge’s inquiry by stating that he or she was not involved in a prior aspect of the case. It is the appellate lawyer’s duty to know all phases of the case, and to be prepared to discuss them at oral argument.

The competent attorney also will give proper focus to the standard of review in a case. Rule 28(a)(9)(B) of the Federal Rules of Appellate Procedure provides that briefs must contain “a concise statement of the applicable standard of review.” Despite the rule, too many appellate attorneys fail to think long and hard about the applicable standard of review only to run into problems at oral argument. Finally, the duty of competence includes the lawyer’s responsibility to know the court’s rules backwards and forward. This includes the Sixth Circuit’s local rules and internal operating procedures, which are available on the court’s website. If the rules do not provide a definitive answer, it makes sense to call the case manager for guidance.

Final Thoughts

There are a number of ethical and professional pitfalls confronting the unwary appellate practitioner in the Sixth Circuit. Ask any of the judges at the Sixth Circuit, and they likely will agree that appellate practitioners are held to a higher standard of professionalism than other lawyers. Also consider the fact that when appellate lawyers fail to meet the standards of ethics and professionalism, their shortcomings or misdeeds are more likely to be reported in a published court opinion, which not only can be professionally embarrassing but also can lead to potential disciplinary proceedings. Ethics and professionalism matter in the Sixth Circuit.

6th Circuit Reverses District Court for Mismanaging Discovery in Discrimination Case

Max Czernin — Wed, 01 Feb 2012 09:50:00 -0500

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.

Sixth Circuit confirms conviction of Palin e-mail hacker

Pierre Bergeron — Tue, 31 Jan 2012 10:52:43 -0500

Perhaps proving the adage that the cover-up is worse than the crime, the Sixth Circuit yesterday affirmed the conviction for obstruction of justice of an individual who hacked Sarah Palin's e-mail account when she was running for Vice-President. United States v. Kernell In 2008, a college student hacked Governor Palin's e-mail account and posted details on how he accomplished the feat on the internet. In response to postings on a message board about the occurrence, he took steps to delete materials from his computer that would have evidenced his actions. Although he was tried for a number of different counts, the only one for which he was convicted was obstruction of justice based on his efforts to delete materials from his computer.

In a very interesting opinion, the Sixth Circuit considered the constitutionality of the obstruction of justice against a First Amendment challenge for vagueness. Although the Court acknowledged some imprecision in the statute, it did not find the lack of clarity to translate into an unconstitutionally vague statute. The Sixth Circuit followed the Eighth Circuit's recent decision in United States v. Yielding, 657 F.3rd 688 (8th Cir. 2011). The Court found that the statute sufficiently encompassed destroying documents in contemplation of a governmental investigation (At the same time, the Sixth Circuit rejected the nexus requirement imposed by two district court decisions). On balance the Court found that the statute was not vague as it related to the Defendant because of his own admissions that he drafted detailing his destruction of the documents.

It remains to be seen whether the Kernell will yield broader repercussions in other document destruction cases. This is a recurring issue with which courts are confronted, both in the civil and criminal context.

Sixth Circuit Denies Kentucky Commission's Attempts to Regulate AT&T

John Fisher — Fri, 27 Jan 2012 14:50:47 -0500

On Tuesday, the Sixth Circuit upheld a district court decision which found that the Kentucky Public Service Commission (“Commission”) had wrongly interpreted two federal regulations and was preempted from bringing state law claims against AT&T Kentucky. BellSouth Telecommunications v. Kentucky Public Service Commission.pdf The dispute arose out of the Telecommunications Act of 1996 which imposed certain duties on existing telephone service providers to allow for greater competition, including that they must provide certain network elements to competitors at a regulated rate. In 2003, the FCC determined that existing providers no longer needed to provide some of these network elements under § 251 of the Act. Despite that, some of AT&T’s competitors asked the Commission to force AT&T to continue following the repealed regulation. The Commission attempted to do so, but was enjoined by the district court. The Commission then attempted to achieve the same objective by purporting to act under § 271 of the Act. The district court also enjoined this effort. After being enjoined twice while attempting to act under the federal statutes and regulations, the Commission attempted to use its authority under state law to force AT&T to provide the network elements at the regulated rate. AT&T sought an injunction of this order as well, which the district court largely granted.

The Sixth Circuit held that the Commission had no power to enforce § 271 of the Act. Only the FCC has power to enforce § 271 of the Act, “subject only to the requirement that it ‘consult’ with state commissions ‘to verify the compliance of the Bell operating company’ with the statute’s substantive mandates.” The Commission’s only recourse under § 271 was to file a complaint with the FCC.

The Sixth Circuit also held that the Commission had no power to enforce § 271 under state law. The Commission attempted to act based on its authority to set “fair, just and reasonable” rates. However, the Sixth Circuit found that the Commission’s actions would have conflicted with federal law because it would have imposed a rate other than the market rate as required by federal statute. In such a case, unless the state’s action is subject to the savings clause, state law must yield.

Sixth Circuit Finds Environmental Suit Moot: Plaintiffs "might as well ask a meteorologist on Friday to redo the Thursday forecast"

Bruce Khula — Fri, 27 Jan 2012 12:35:32 -0500

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.