Federal - Sixth Circuit Appellate Opinions

A Corporation May Not Pick and Choose Its Citizenship to Create Diversity under CAFAThe Sixth Circuit became the third court of appeals to reject the “alternative citizenship” theory of diversity under the Class Action Fairness Act (CAFA).  In Roberts v. Mars Petcare US, Inc., a putative class of Tennessee citizens sued Mars Petcare in Tennessee state court.  Mars Petcare removed the case to federal court, relying on diversity jurisdiction under CAFA, 28 U.S.C. § 1332(d), which provides for federal jurisdiction over class actions involving at least 100 class members, with $5 million or more at stake, and in which “any member of a class of plaintiffs is a citizen of a State different from any defendant.”  Unlike diversity jurisdiction in most other contexts, CAFA allows minimal diversity—as long as one plaintiff maintains citizenship in a state different from one defendant’s citizenship, diversity is satisfied, regardless of where all other parties reside.

As a corporation, Mars Petcare is a citizen of both its state of incorporation, Delaware, and the state where it maintains its principal place of business, Tennessee.  A class of Tennessee plaintiffs facing a Tennessee defendant cannot satisfy even minimum diversity.  Yet Mars Petcare argued that diversity nevertheless existed under CAFA based on the company’s Delaware citizenship.  Under Mars Petcare’s argument, the company could pick between its Delaware and Tennessee citizenship to either satisfy or defeat diversity.  The Sixth Circuit easily rejected the company’s argument, relying on § 1332’s plain meaning, historical context, and constitutional avoidance.  For purposes of CAFA’s diversity calculus, Mars Petcare is a citizen of Delaware and Tennessee, not Delaware or Tennessee.

The court apparently had no trouble arriving at this decision; it published an opinion just two days after oral argument.  In doing so, the Sixth Circuit joined the Fourth and Eleventh Circuits in rejecting various class-action defendants’ alternative-citizenship theory of diversity, leaving the theory with unanimous rejection in the courts of appeals to have addressed it so far.

Clawing Back Secrets after Shane GroupIt is clear by now that the federal courts in Tennessee are not a safe place for most sensitive business information. Legitimate trade secrets are safe. Well-established privileges (e.g., attorney-client privilege) still apply. And the courts still respect statutory requirements to protect things like personal health information. But unless your sensitive business information is a matter of national security, a recent series of Sixth Circuit opinions means you cannot expect to get or keep a broad seal covering documents in the courts’ records. Now that Tennessee’s federal courts cannot keep your secrets, how do you get them back?

Redact and Replace

The core principle of Shane Group is that the public generally is entitled to see whatever the courts rely on in deciding the merits of the cases before them. So if your secrets are irrelevant to the merits of the case—e.g., names of customers or suppliers unrelated to litigation with a third party—consider redacting the irrelevant secrets and filing a substitute document with the court.

This gets more complicated (and expensive) when relevant and irrelevant information are intertwined in a document or a document would require extensive line-by-line redactions. When redactions are not cost effective, consider substituting a stipulation to the relevant facts.

Redact and Justify

The courts are serious about maintaining themselves as open institutions, and the extra procedural requirements of the Shane Group cases make it much easier for a court to just deny a motion to seal. But if your secrets are necessary for deciding the merits of your case and they satisfy the substantive standards of Shane Group, the extra procedural steps are demanding but clear.   

Narrowly redact the protected information, and make a chart as you go documenting, line-by-line, the reason for the redaction backed up by legal citation. If you make it easy for the court to follow what you redacted and easy to adopt your explanations in its order, you stand a much better chance of keeping the original document under seal.

Work With (or Around) Opposing Counsel

Each of these approaches is more difficult when your secrets are in the other party’s filings. If both parties have secrets in the record, consider collaborating on an agreed order dealing with both parties’ sensitive information in a Shane Group-compliant way. If opposing counsel sees Shane Group as an opportunity to gain leverage, consider whether your current protective order gives you the right to claw back or redact documents already produced in discovery.

Keep Your Head Down, But Not In the Sand

While you are preparing Shane Group-compliant replacements or justifications, try not to draw the court’s attention to the sealed documents. This means avoiding new motions to seal documents that might trigger a general “show cause” order.

Do not, however, simply hope that no one will notice. The Sixth Circuit has vacated seals on its own motion, and district courts in Tennessee are following the Sixth Circuit’s lead by proactively addressing old seals. If your secrets are under seal in an active case in Tennessee’s federal courts, you should expect to encounter Shane Group sooner or later. Be prepared.

Sixth Circuit Clarifies Where to Appeal in a Transferred CaseLast month, the Sixth Circuit subtly deepened a circuit split over a significant question of appellate jurisdiction within the federal courts: When a lawsuit begins in one U.S. district court but is transferred to a second district court within another federal circuit before reaching a final judgment, which court of appeals has jurisdiction to review the first district court’s interlocutory decisions?

In Kalama v. Matson Navigation Co., Inc., a panel of the Sixth Circuit answered: Appellate jurisdiction exists in the court of appeals encompassing the transferee district court, where the case reaches a final judgment.  The Kalama appeal arose out of convoluted multidistrict litigation.  The plaintiffs initially brought the underlying lawsuit in the Northern District of Ohio.  The action was eventually transferred to the Eastern District of Pennsylvania, which dismissed some, but not all, defendants from the lawsuit.  The Eastern District of Pennsylvania then re-transferred the case back to the Northern District of Ohio.  The case reached a final judgment when the Northern District of Ohio dismissed the remaining defendants.  Several plaintiffs then appealed only the Eastern District of Pennsylvania’s dismissal to the Sixth Circuit, which encompasses Ohio, but not Pennsylvania.

The Kalama appeal put the Sixth Circuit in the strange position of reviewing an order that arose in a district court outside of its territorial jurisdiction.  Such a situation arises infrequently for good reason.  Federal courts may only exercise jurisdiction to the extent authorized by Congress.  One such jurisdictional authorization, codified at 28 U.S.C. § 1294, provides that “appeals from reviewable decisions of the district . . . courts shall be taken . . . to the court of appeals for the circuit embracing the district.”  Under a straightforward reading of § 1294, the Eastern District of Pennsylvania’s decision should have been appealed to the Third Circuit, not the Sixth.

Yet the Sixth Circuit did not take that position in Kalama.  Instead, it held that it may review a non-final order issued by a district court outside of the Sixth Circuit if the case eventually reaches a final judgment within the Sixth Circuit.  Under the court’s reasoning, all previous non-final orders “merge” with the final judgment and become appealable in the court of appeals embracing the district court that issues the final judgment.  The Seventh, D.C., Fourth, and Second Circuits also follow this theory.

While this “merger” theory appears to contradict § 1294, in the Sixth Circuit’s opinion that is not so.  In Kalama, the court followed the D.C. Circuit by expressly adopting an interpretation of § 1294 that comports with the merger theory.  According to the Sixth Circuit, a “reviewable” decision is synonymous with an “appealable” decision.  A non-final order, such as the partial dismissal in Kalama, is not “reviewable”—that is, appealable—until the case reaches a final judgment.  Thus, under the Sixth Circuit’s interpretation, § 1294 authorizes appeal of a non-final order to the court of appeals embracing the district court that ends up reaching a final judgment.  In Kalama, that court was the Sixth Circuit.

The Tenth and Eleventh Circuits disagree.  Both have rejected the merger theory, and both hold that, under the plain language of § 1294, any decision arising in a district court within a sister court of appeals must be appealed to that court of appeals.  According to the Tenth and Eleventh Circuits, “reviewable” is not synonymous with “immediately appealable.”

Furthermore, neither court minds that this interpretation can practically leave a party without the opportunity to appeal a decision.  For example, imagine that you are representing a defendant in an action initially filed in Colorado (a Tenth Circuit state), but recently consolidated into multidistrict litigation in Alabama (an Eleventh Circuit state).  The Alabama district court denies your motion for summary judgment and refuses your request for the court to certify its decision for immediate review under 28 U.S.C. § 1292(b).  You have no right to appeal the district court’s interlocutory decision at this stage.  Next, the district court in Alabama re-transfers your case to the district court in Colorado for trial, where you lose.  Now, you would want to appeal the Alabama court’s initial denial of your motion for summary judgment, but the Tenth Circuit’s interpretation of § 1294 prevents it.  You are left without an avenue to appeal the decision.

Luckily for practitioners within the Sixth Circuit, including Tennessee, this conundrum should not arise under the rule announced in Kalama.  As long as a case reaches final judgment within the Sixth Circuit, any interlocutory decisions may safely be appealed to the Sixth Circuit.  However, practitioners should keep their guard up when a case is transferred out of the Sixth Circuit to the Tenth or Eleventh.  In that circumstance, it is prudent to make every effort available to get an unfavorable, interlocutory decision reviewed before transfer—through either Rule 54(b) or § 1292(b), or by seeking an extraordinary writ—because the opportunity may be lost post-transfer.

Bad News/Good News: The Courts Don’t Care About Your SecretsIt used to be fairly simply to share a secret with a federal court in Tennessee by filing a sensitive document “under seal.” It isn’t anymore. The courts don’t care about keeping your secrets, at least not as much as they care about preserving public access to the courts.

Before a recent trio of Sixth Circuit opinions, a motion to file sensitive business information “under seal” might only involve a single page or even a single sentence citing an agreement between the parties. When used in moderation (and even when not used in moderation), those perfunctory motions were routinely granted by the courts. As a result, many cases went forward with significant documents that were available to the parties and the court, but not the public. From the perspective of litigants and trial courts, it was easy and efficient. But according to the Sixth Circuit, it was wrong.

Last summer, starting with Shane Group, Inc. v. Blue Cross Blue Shield of Michigan, the Sixth Circuit reminded the lower courts that only a few narrow categories of information—true trade secrets, information covered by a recognized privilege, and information protected by statute (e.g., taxpayer IDs and protected health information)—are entitled to a judicial seal. Otherwise, the public courts are just that: public. The substantive standards in Shane Group are nothing new—they come directly from a 1983 decision, Brown & Williamson Tobacco Corp. v. FTC —but the renewed emphasis still represents a fundamental change to the practice of Tennessee’s federal courts.

The Sixth Circuit added new procedural requirements to reinforce the old substantive standard, and they’re working. Any order sealing records must explain how the document in question satisfies Shane Group. So, moving forward, any litigant seeking a seal must do that legal and factual work for the district court. And, looking backward, every generic, one-page order is vulnerable. The Sixth Circuit has vacated those orders on its own when it encounters them on appeal, and district courts have been issuing “show cause” orders requiring parties to justify pre-Shane Group seals as a part of routine case management.

The bad news for litigants is this: The courts don’t care about protecting your run-of-the-mill secrets. So, if you have documents under seal in federal courts in Tennessee (or elsewhere in the Sixth Circuit), don’t expect them to stay that way.

The good news is the same: The courts don’t care about revealing your secrets either. Accordingly, now that they cannot promise to keep your secrets, district judges and magistrate judges seem open to working with litigants to keep unnecessary secrets out of the courts’ records to begin with. Generally, the courts are happy to help the parties find ways to document the relevant facts while leaving voluminous, largely irrelevant, and commercially sensitive documents to the side.

Everyone has secrets. If yours are under seal in the federal courts, you should be preparing a Shane Group strategy now. Your show cause order is coming. If your secrets aren’t under seal yet, you need to have a Shane Group strategy for discovery and motion practice. We’ll address both of those topics in future posts.

Sixth Circuit Puts Brakes on Pleading RequirementsUnless you have been under a rock for the past couple of years—or just actively avoid federal court—you are well aware of the impact of Iqbal and Twombly on pleading a cause of action in federal court. Depending on which side of a case you find yourself, you may believe that those decisions ask too much from plaintiffs at the beginning of the case, just the right amount, or even possibly too little. Regardless of where you find yourself in that debate, there is no doubt that those decisions raised the bar for pleading. Thus, we all stop and take notice when an appellate court warns that a district court has demanded too much from a plaintiff. That is exactly what happened in a recent decision by the Sixth Circuit.

In Jackson v. Ford Motor Co., the plaintiff and her husband were traveling down U.S. Highway 70 when the couple lost control of their 2012 Ford Focus. The wife survived the crash, but the husband did not. The plaintiff brought suit against Ford, alleging a defect in the vehicle’s “Electronic Power Assisted Steering” (“EPAS”) system. Ford ultimately moved to dismiss, and the district court granted Ford’s motion.

The issue before the Sixth Circuit was simple: Did the plaintiff allege sufficient facts to establish proximate cause? In short, a unanimous panel found that the plaintiff did. The crux of the decision fell on two of the three factors required for establishing proximate cause in a products liability case—namely, was the alleged defect a substantial factor in causing the accident and was the accident reasonably foreseeable. What is particularly interesting is that plaintiff satisfied the substantial-factor element based on the “apparent litany of other accidents identified by [the plaintiff] where the EPAS system allegedly failed” and the alleged “dart[ing] [of the vehicle] left across the center line into oncoming traffic.” The court, likewise, found very few allegations necessary to satisfy the second foreseeability prong, relying mostly on allegations concerning potentially defective components of the EPAS system.

This decision could be dismissed as a niche matter involving causation for products liability cases in Tennessee, or part of the line of cases specific to EPAS system litigation. However, I submit that such a narrow view would be a mistake.  Indeed, the court noted early on that it had “followed the standard set forth in Iqbal and Twombly in other products liability cases.” Rather, I think that the court made its intention quite clear that “causal weaknesses will more often be fodder for a summary-judgment motion” than a motion to dismiss.

The takeaway from Jackson probably will not be clear for a while. However, I think it is a fair assumption that Jackson might start appearing in responses to motions to dismiss, especially in products liability cases. The real question is whether this decision will have broader implications in terms of pleading causation. Needless to say, Jackson is a case to watch.