Chalk It Up to Lessons Learned: Sixth Circuit’s New Fourth Amendment Decision Provides Insight for Appellate LitigantsGiven the progress of modern society, including the use of motor vehicles, cell phones, and infrared technology, few constitutional amendments have evolved as fully and as rapidly as the Fourth Amendment. Recently, the United States Court of Appeals for the Sixth Circuit further defined the parameters of the prohibition against unreasonable searches and seizures, ruling that the common municipal practice of chalking tires violates the Fourth Amendment.

In Taylor v. City of Saginaw, the court considered the plaintiff’s challenge under 42 U.S.C. § 1983 against the city and its employee, who chalked the plaintiff’s tires and issued her citations on 15 separate occasions. The plaintiff argued that the defendants violated her Fourth Amendment right by chalking her tires without her consent or a valid search warrant. The trial court dismissed the complaint, holding that the defendants’ search of the plaintiff’s car was reasonable because vehicles enjoy a lesser expectation of privacy and the search was justified under the community-caretaker exception to the Fourth Amendment’s warrant requirement.

The Court of Appeals disagreed. To analyze this Fourth Amendment challenge, the court applied the familiar two-step analysis, asking (1) whether the challenged government conduct amounted to a search under the Fourth Amendment; and (2) whether the search was reasonable. The Court of Appeals agreed with the trial court that the defendants’ conduct amounted to a search. Applying United States v. Jones, 565 U.S. 400 (2012), the court determined that the defendants had conducted a search by trespassing upon a constitutionally protected area to obtain information. Under well-settled tort principles, chalking amounts to common-law trespass, and the defendants chalk cars to obtain information about vehicles that have been parked in the same location for a certain period of time. Through this lens, chalking tires constitutes a Fourth Amendment search.

But the meat of the court’s decision—and its disagreement with the trial court—focused on whether the search was reasonable. The court distinguished the trial court’s dual rationale on this point. That vehicles enjoy a lesser expectation of privacy is no defense because the automobile exception to the warrant requirement is predicated on the existence of probable cause. The defendants had no probable cause to believe that plaintiff had committed a crime at the time her tires were chalked, as her car was legally parked at the time. This fact (that no crime had been committed at the time of the search) is the linchpin of this analysis and the most determinative fact. And the defendants’ fared no better with the community-caretaker exception, which applies where government actors are performing caretaking functions rather than traditional law enforcement functions. This exception generally applies to prevent injury or ongoing harm to the community in narrow circumstances where the public safety is at risk. The defendants introduced no evidence that chalking tires bears a relationship with public safety—for example, by showing that the plaintiff’s vehicle was parked in such a way as to impede the flow of traffic. The city’s interest in “maintaining efficient, orderly parking” is not without constitutional limitation.

The court was careful to limit its holding to the facts of this case, noting that other exceptions to the warrant requirement might have provided a better defense. Notably, the defendants waived an argument regarding the administrative-search exception that had been raised in the trial court. The court also noted that the community-caretaker exception might apply to the warrantless search of a lawfully parked vehicle under different circumstances.

Aside from its fascinating analysis, Taylor provides appellate litigants sound advice. As noted above, arguments not briefed on appeal are waived, so it is prudent to think carefully about which defenses raised in the trial court might provide the best arguments on appeal. The Taylor court did not suggest whether an argument on the administrative-search exception would have been successful, but summary briefing on the issue might have preserved the defendants’ trial court victory. And, most importantly, Taylor is a lesson in creativity: Don’t be afraid to bring novel challenges (provided, of course, that the challenges are legally colorable). For some, the thought of challenging the practice of chalking as an unconstitutional search would have drawn nothing more than skepticism. For Ms. Taylor and her attorneys, though, it brought a victory in the Court of Appeals and a place in constitutional law dialogue.

The Sixth Circuit Strikes Down Tennessee’s Cap on Punitive DamagesThe Sixth Circuit recently issued a divided opinion holding that Tennessee’s statutory cap on punitive damages, Tenn. Code Ann. § 29-39-104, is unconstitutional.  What makes the case interesting is that the court decided the issue solely under the Tennessee Constitution.  The majority opinion, authored by Judge Clay and joined by Judge Stranch, held that the cap violates the right to a trial by jury as provided in Article I, Section 6 of the Tennessee Constitution.  The dissenting opinion by Judge Larsen argued that, for purposes of the appeal, the issue should have been certified to the Tennessee Supreme Court.  Judge Larsen also disagreed with the majority’s conclusion on the merits.

The case, Lindenberg v. Jackson National Life Insurance Company, arose out of a dispute over life insurance proceeds and presented only state-law causes of action.  Because the parties were not citizens of the same state, the case was heard by the federal court sitting in diversity jurisdiction in the Western District of Tennessee.  At trial, the jury returned verdicts in favor of the plaintiff for $350,000 in compensatory damages and $3 million in punitive damages.  As provided under Tennessee’s punitive damages statute, the jury is not informed of the statutory cap on punitive damages, and it is the role of the trial court to apply the cap and reduce the punitive damages verdict to either twice the total amount of compensatory damages awarded or $500,000, whichever is greater.  Tenn. Code Ann. § 29-39-104(5).  Accordingly, the district court reduced the jury’s punitive damages award to $700,000 and entered judgment for that amount.  On appeal, the plaintiff argued that the cap was unconstitutional, and the majority agreed.  It held that the cap unconstitutionally violates the Tennessee Constitution’s guarantee that “the right of trial by jury shall remain inviolate.”  Articulating an originalist approach to constitutional interpretation, the majority reasoned that at the time the Tennessee Constitution was adopted, the proper amount of punitive damages was a determination delegated to the jury.  For the Tennessee Legislature to impose a statutory cap on the amount of punitive damages that may be awarded would thus unconstitutionally infringe on the jury’s “inviolate” fact-finding ability.

The constitutionality of Tennessee’s punitive damages cap has not yet been decided by the Tennessee Supreme Court.  In her dissent, Judge Larsen argued that the panel should have certified the question to the court.  Notably, the district court attempted to certify the issue to the Supreme Court, but it declined to issue an opinion.  The court indicated that its reason for doing so was because the district court had failed to certify the separate question of whether the plaintiff could actually recover punitive damages in the first place, since the plaintiff had already recovered bad-faith statutory damages.  The Supreme Court stated that it remained open to certification of both the statutory and constitutional questions by the Sixth Circuit.  In her dissent, Judge Larsen argued that the panel should have taken the Supreme Court up on its invitation.  Judge Larsen also disagreed with the majority’s conclusion that the cap is unconstitutional.  Although the majority recognized that Tennessee statutes are afforded a strong presumption of constitutionality, Judge Larsen argued that it did not actually apply that presumption to the statutory cap and failed to prove beyond a reasonable doubt that the cap is unconstitutional.

The Sixth Circuit can agree to rehear cases en banc, meaning that the original decision will be vacated and the case will be reheard before all active judges on the court.  The State of Tennessee, which intervened in the lawsuit to defend the cap’s constitutionality, has filed a petition for rehearing en banc.  The petition echoes Judge Larsen’s dissent and also highlights the policy rationale behind the Tennessee Legislature’s decision to impose the statutory cap on punitive damages—before the cap’s enactment, surrounding states that already possessed a damages cap had an advantage in attracting business.  Concern for the Legislature’s authority to make policy judgments and set the parameters of damage awards was also raised in the amicus brief filed in support of the statute’s constitutionality by the Beacon Center, the National Federation of Independent Business Small Business Legal Center, and “concerned Tennessee legislators” Randy McNally, Beth Harwell, Gerald McCormick, Bill Ketron, Glen Casada, Jack Johnson, and Pat Marsh.

Unless Lindenberg is reheard and reversed, it remains binding authority on federal courts within the Sixth Circuit.  It is not binding precedent on Tennessee state courts, however, since they are not required to adopt a federal court’s decision on a purely state-law issue.  Nevertheless, the decision is important persuasive authority.  Under the panel’s decision in Lindenberg, federal courts within the Sixth Circuit may not impose Tennessee’s statutory cap on punitive damages, but Tennessee state courts may still lawfully apply the cap.  This distinction could be an important consideration in deciding whether to file or remove a case involving punitive damages under Tennessee law to federal court.  Of course, when the Tennessee Supreme Court takes up the issue, its decision will be binding on both state and federal courts.

Tennessee Diversifies Its Valuation-Method Portfolio for Closely Held CorporationsThe Tennessee Supreme Court overruled three decades of precedent in Athlon Sports Communications, Inc. v. Duggan, giving trial courts broad discretion in the method used to determine the “fair value” of shares in “dissenters’ rights” actions.

When a closely held Tennessee corporation seeks to undergo a structural change such as a merger, dissenting minority shareholders are afforded a statutory “appraisal remedy” pursuant to Tennessee Code Annotated § 48-23-101, et seq.  This “dissenters’ rights” statute allows dissenting shareholders to escape the involuntarily altered investment with the “fair value” of their shares, plus accrued interest.  But “fair value” means “the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects” under Tennessee Code Annotated § 48-23-101(4).  This is not the “fair market value” of a bargained-for exchange between motivated buyers and sellers.  If the corporation and dissenting shareholders cannot agree on the shares’ “fair value,” the corporation can commence a proceeding under Section 48-23-301, petitioning the court to determine the “fair value.”  As expected, the abstract notion of “fair value” has proven elusive to courts, corporations, and shareholders alike.

Though the statute is silent as to which methods courts should use to determine “fair value,” the Tennessee Supreme Court implicitly mandated the “Delaware Block Method” in 1983. Through Blasingame v. American Materials, Inc., Tennessee “adopt[ed] the Delaware rule requiring the use of [asset value, market value, and earnings value] in determining the fair value of a dissenting minority stockholder’s shares.”  However, that same year, the Delaware Supreme Court in Weinberger v. UOP, Inc. abandoned exclusive application of the Delaware Block Method in favor of a liberal approach aligned with generally acceptable methods in the financial community.  Although Tennessee courts generally look to Delaware law in unsettled matters of corporate law, Tennessee did not divest itself of exclusive use of the Delaware Block Method for over three decades.

The court in Athlon Sports elected to overrule Blasingame and allow trial courts to consider alternative valuation methods, although the courts may still apply the Delaware Block Method when appropriate.  Specifically, the court adopted the Weinberger approach, allowing “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court.”

Moving forward, corporations, dissenting shareholders, and courts may now consider other valuation methods for “fair value” that include projections of future value, provided that they are provable and not speculative.  Likewise, Tennessee trial and appellate courts may find themselves determining the “strike price” of speculation when it comes to weighing elements of future value now that Athlon Sports has “rung the opening bell” for a new dissenters’ rights regime.