Notice of Appeal

11th Circuit -- Friday April 6

"The facts of Patrick Lett's life that gave rise to this case read somewhat like a morality play."

So begins this opinion by Judge Carnes in the case of U.S. v. Lett, 06-12537, decided Friday. Although sympathetic to the district court's attempt to impose a non-guidelines sentence of time served (11 days) in light of the compelling facts of Lett's life (including his distinguished military service), the Eleventh Circuit ruled that the district court did so without authority, and remanded with instructions to impose the 5 year mandatory minimum instead. 

Also, in Rowe et al. v. Jones et al., 06-12296, the Eleventh Circuit (per curiam) parsed the distinction between "consent decree" and "private settlement agreement" for the purposes of determining whether a settlement involving the Glynn County Detention Center could be terminated under 18 U.S.C. § 3626(b).

International buyers, beware!

Or rather, be aware that the course of dealing between the parties trumps customary usage in the interpretation of contracts under the United Nations Convention on Contracts for the International Sale of Goods, according to the 11th Circuit in Treibacher Industrie, A.G. v. Allegheny Technologies, Inc. et al, No. 05-13005 (Sept. 12, 2006).

Of course, this decision makes sense in the context of the facts of the case: the parties had been contracting with each other over the course of seven years for the purchase of a fixed amount of materials on a “consignment” basis, which the parties understood to mean that the buyer was obligated to buy the entire amount of materials, but would only pay for them as they were used. In fact, at one point in their course of dealing, the buyer asked it if could return some of the unused materials, and the seller informed the buyer it could not, as it was obligated to purchase the entire amount, and the buyer acquiesced and purchased the contracted-for amount.

Then, after seven years of contracting on this basis, the buyer had an epiphany. The “consignment” term in the contract did not mean it was obligated to buy the total amount contracted for; the customary usage of the term “consignment” was that the buyer would only be obligated to pay for as much as it needed, and this customary usage trumped any implicit usage established by the parties’ course of dealing, whatever that might have been. (Query why it would make sense to contract for a fixed amount of materials, if there were no obligation to buy that amount....)  No doubt this epiphany was inspired by the existence of a seller who was willing to sell – and in fact did sell – the materials to the buyer at a lower price. Considering the damages, after mitigation, were over $5 million, it was apparently worth a shot.

Although the course of dealing strongly suggests that the buyer was simply being opportunistic in its interpretation of the contract, the 11th Circuit first addressed the contract interpretation issue under the CISG, which is in essence an international UCC, rather than reviewing the course of dealing first. The details of the analysis are in the opinion; what is interesting about the case is that there apparently is no caselaw on this issue, or at least, none was cited by the Court. The opinion is a pure statutory interpretation, apparently in a case of first impression, based on the text of the Convention and the relationship between three different sections of it. Nor is the interpretation chosen by the Court facially obvious – it makes sense after walking through the analysis, but it seems odd that there are not other cases interpreting this portion of the CISG. Perhaps the 11th Circuit decided to correct a dearth of published caselaw on the issue with this case?

Antitrust Immunity for Equestrian Association Affirmed

In JES Properties, Inc. et al. v. USA Equestrian Inc. et al., a panel of the Eleventh Circuit (Edmondson, Birch, and Alarcon, a 9th Circuit judge, who wrote the opinion) affirmed summary judgment for the defendants in a Section 1 antitrust case against the National Governing Body (NGB) of amateur equestrian sports, USA Equestrian, Inc., (now US Equestrian Foundation (USEF)).

USEF promulgates a rule that prevents competitions of the same rating or level from being held on the same day within a 250 mile radius (with preference being given to the competition that was held in a previous year), but the restriction is decreased to a 125 mile radius in the northeast, and it can be waived if the affected competition managements agree.

This case concerns competitions in Florida, which are obviously most desirable in the winter months. The defendant competition promoters had already taken up all of the available weekend dates in the season for three years running, so the plaintiffs were unable to have a competition on any available weekend without running afoul of the USEF mileage rule. Moreover, two existing competitions granted each other waivers of the 250-mile rule every year for many years, but the newcomer plaintiffs could not convince the existing competitions to grant waivers to them. Accordingly, they sued USEF and the promoter defendants who had already secured dates in Florida, including the two who had granted each other waivers.

The Eleventh Circuit held that, because the US Olympic Committee had, by authority granted by Congress in the Amateur Sports Act ("ASA"), appointed USEF as the NGB for equestrian sports, USEF had implied antitrust immunity.  Specifically, the Court held that the ASA, which specifically authorizes appointment of an NGB for the purpose of developing interest throughout the country and to minimizing conflicts in scheduling, was an implied repeal of the antitrust laws (at least, as to amateur sports), because allowing antitrust suits challenging NBG's regulations would undermine the NGB's authority to do its job, which requires some coordination. Moreover, the Eleventh Circuit held that it was not appropriate to evaluate whether the mileage rule itself was necessary to the purposes set out in the ASA, but whether the NGB's promulgating rules of this type was necessary to its purpose.

The above holding, although it is quite deferential to the organization's rules, does not seem terribly controversial in principle. In view of the purposes set out in the ASA, Congress viewed at least some coordination of competitions as necessary, and if the resulting implied immunity is accepted, then it would defeat the purpose to allow the Court to nevertheless evaluate whether the specific rule is "necessary." One might raise a question, however: At what point does a set of regulations on a particular subject become either so heavy-handed or so riddled with exceptions that it no longer appears intended to satisfy its authorized purpose under the ASA? Did Congress intend for the authority under the ASA to be complete blanket authorization for any kind of rules limiting competitions, no matter how anticompetitive they appear, or is there an implied "reasonable relationship" test?

Another interesting feature (at least to particularly geeky lawyers) is a procedural issue regarding antitrust standing that the panel addressed. The defendants had raised a question as to the plaintiffs' antitrust standing to bring this suit, and the Eleventh Circuit ruled that it was not necessary to address standing because of its holding that the defendants had antitrust immunity in any event. Typically, standing issues should be addressed before the merits (otherwise there is not a proper "case or controversy"), but antitrust standing -- the concept that the plaintiff must have been injured by reason of the alleged antitrust violation -- is an additional non-constitutional requirement, over and above the "case or controversy" requirement.

The Eleventh Circuit has observed that there is often a temptation to find there is no antitrust standing, when the court really means to say that no antitrust violation occurred -- a problem from a jurisprudential standpoint because framing the decision as a standing decision would allow later suits by the government (which has automatic standing), when in fact there should be no suits of this kind at all, no matter who brings them. The panel reasoned that, based on this principle, it was appropriate to avoid the standing decision altogether because the panel had found no antitrust injury existed in any event.

But the concern that courts should peg their decisions as decisions on the merits finding no violation when they mean it, rather than mistakenly calling it a standing decision, doesn't necessarily mean that the court should avoid reaching the standing decision as well -- before going on to also find that there is no antitrust violation. And because antitrust standing is not a constitutional doctrine, the principle that courts should avoid reaching constitutional questions does not apply.

In the Sec. 1983 context, courts often dismissed cases on qualified immunity grounds (relying on the question of whether the fact that the officer's act would be a constitutional violation was "clearly established"), without ever reaching the merits of the constitutional question (whether the act actually was a constitutional violation) -- thereby failing ever to "clearly establish" that anything was a constitutional violation. The Supreme Court advised courts to go ahead and reach the merits (even if it meant determining an unsettled constitutional question), determine whether the right existed, and then decide whether, up until this point, the right had been clearly established. Siegert v. Gilley, 500 U.S. 226 (1991).

Is this also a situation where it is more useful to develop the jurisprudence on the substantive violations than on antitrust standing? Or perhaps, since it was an implied immunity question, it stood on equal footing with the standing question as something that could or should be decided first (like ripeness and other threshold issues).

Courts often avoid reaching questions for one reason or another, saying that, because of another holding later in the opinion, it is "unnecessary" to reach the question -- but it often seems that what is "necessary" to be reached is in the eye of the beholder.

Cobb County Evolution Sticker Case remanded for further findings

            On May 25, 2006, the Eleventh Circuit issued its opinion in Selman et al v. Cobb County School District et al, 2006 WL 1428822, known informally as the “Cobb County evolution sticker case.”  In an opinion written by Judge Carnes (with Judges Hull and Pryor on the panel), the Court remanded the case to the district court for further factual findings, in light of the significant problems with the state of the evidentiary record that were brought to light on appeal. (Disclaimer: BME represented the plaintiffs on appeal, although not at trial.)

            This case was a test of whether the school district’s placement of stickers inside the front cover of biology textbooks stating that “[e]volution is a theory, not a fact, regarding the origin of living things” as an accommodation to parents who objected to teaching evolution on religious grounds was a violation of the 1^st Amendment’s Establishment Clause.  The district court, after a four-day bench trial, concluded that the sticker did violate the Establishment Clause and the Georgia Constitution, and issued a permanent injunction against the use of the stickers.

            The stickers grew out of the official policies of Cobb County to plan its curriculum “with respect for” the “family teachings” of Cobb County citizens.  In particular, the school system’s regulations in 1995 stated that evolution would not be taught until high school, at which point it would not be mandatory. At the same time, elective courses on alternative theories such as creation theory would be available.  The evolution sections of science textbooks were torn out before the texts were provided to the students.

            By 2001, the State of Georgia mandated teaching of evolution, but Cobb County’s 1995 policy remained in place. In 2002, it was time for the school district to adopt new science textbooks. In spite of the school district's policy, the school district’s textbook review committee recommended a text that contained an entire unit on evolution.  The school board, based on comments from parents about the text, believed its constituents wanted a text that presented alternative theories of the origin of life, including intelligent design, creation science, and creationism.  The board’s counsel advised that intelligent design could not constitutionally be included in a science textbook, but, to address the parents’ concerns, drafted language to place on stickers in the textbooks indicating that evolution was a “theory, not a fact,” and that it should be “approached with an open mind, studied carefully, and critically considered.”  The issues surrounding adoption of the science texts apparently prompted a review of the 1995 policy, and in 2002 and 2003, Cobb County revised its policy, providing that evolution would be taught in Cobb County science classrooms, and religion would not be.

            The district court viewed the essence of the dispute as whether seeking to accommodate the parents’ religious beliefs and reduce offense was a “secular purpose” or was in fact an intent to promote religion.  The court concluded on summary judgment that the board’s purpose was secular, but the case went to trial on the effect and entanglement prongs of the Lemon test because, the district court observed, the sticker arguably disavows evolution and encourages discussion of religious theories in the science classroom.

            After the bench trial, the court credited the testimony of board members who, the district court believed, were not trying to disclaim evolution.  Rather, the district court found the board had two secular purposes: (1) encouraging students to analyze evolution and make their own decision regarding its merit, and (2) attempting to placate constituents by showing them that students’ personal beliefs would be respected in the classroom. The district court again found the board’s purpose was secular, satisfying the first prong of the Lemon test.  However, the district court found that the sticker communicated an endorsement of religion by isolating evolution for special consideration (and a misleading description of its standing in the scientific community), which a reasonable observer would interpret, in light of the history of the issue in Cobb County, to be motivated by the fact that evolution does not acknowledge a creator. Likewise, because the district court believed the board had sent a message that it agreed with the religious beliefs of the Christian fundamentalists and creationists, it found the board had impermissibly entangled itself with religion.

            The Eleventh Circuit found that there were “serious problems” the factual basis for the court’s findings. The district court found the stickers constituted both endorsement and entanglement “in light of the sequence of events that led to the Sticker’s adoption,” but the Eleventh Circuit was concerned about whether the evidence supported the district court’s view of the “sequence of events.”

            Specifically, the district court believed that the idea of the disclaimer sticker had originated with a parent who both wrote a letter to the Board and submitted a petition requesting such a disclaimer. However, the only petition in the record came well after the board’s decision.  Indeed, this particular problem with the record caused the Court, and Judge Carnes in particular, to question the truthfulness of plaintiffs’ appellate counsel at oral argument. (After counsel submitted supplemental briefing explaining the problems with the record, the Court issued an order finding that plaintiffs’ counsel had not misled the Court, and in light of the heavy press coverage of the oral argument, the Court instructed the clerk’s office to distribute this order to the press in order to remove any such impression.)

            Judge Carnes’s discussion of the problems with the record in the panel opinion reflects the Court’s ongoing concern and frustration with the state of the record on appeal as transmitted from the district court, and the district court’s factual findings based on that record. Exhibits were missing from the record that could not be accurately or confidently recreated, and it could not be determined whether certain documents supplied by the parties in their supplementation of the record had been before the district court. (Importantly, unlike many other circuits, the Eleventh Circuit generally reviews cases on the full, original district court record, which is transmitted directly from the district court, rather than on a joint appendix created by the parties, so the Eleventh Circuit’s inability to locate information in the “record on appeal” means it was missing from the district court’s original record.) Witnesses had testified about documents (including the missing petition) but those documents had not been entered into evidence, or referenced by exhibit number or other foundational information at the time of the testimony.  The Court acknowledged that “[t]he parties have tried diligently but unsuccessfully to correct the record,” but determined that there was nothing the parties or the district court could do to correct the problems pursuant to FRAP 10(e)(2).

            On the other hand, the Court declined to apply the usual rule that absence of evidence to support the appeal requires affirmance of the district court’s opinion.  The Court reasoned that the problem was not a question of the appellants failing to supply evidence to support their position. (And, as noted above, neither party is responsible for supplying the record on appeal.) Rather, the problem was with evidence that may have gone missing from the record, in spite of the good-faith and diligent efforts of the parties on appeal to recover it, and that this evidence was necessary for the Court to review in order to determine whether there was error.  In particular, the Court observed that both parties challenged the district court’s findings (though the defendants did not cross-appeal). Finally, the Court stated that “the issues presented by this case are ones of substantial public importance and need to be resolved on their merits based on the facts instead of based upon mutual mishaps, mistakes, and misunderstandings about the evidence.” 

            To assist the district court in issuing new factual findings and conclusions of law, the Court made a (nonexclusive) list of eighteen suggested issues that the district court “probably will want to address.”  The Court also cautioned that it was not making any implicit rulings on any of the legal issues, nor was it expressing an opinion on how or whether the Georgia constitutional issue should be decided (citing 28 U.S.C. 1367(c) – a reference which, in spite of the disclaimer, actually suggests that the Court is of the opinion it should not have been decided).

            The Eleventh Circuit's opinion – particularly the last half of it – reads something like a “what not to do” critique of the trial court record left by the trial lawyers and the district court.  (In fact, those of us who are former appellate clerks probably recognize and are deeply in touch with the sort of frustration expressed in the opinion regarding the record on appeal.)  But, ironically, the Court’s remand for additional factual findings -- on the ground that the issues raised by the case were of “substantial public importance” and therefore should be decided on the merits -- has the potential to result in the parties declining to pursue the matter further due to the passage of time and the expense of having what will amount to a second trial.  Thus, it remains to be seen whether the issues of “substantial public importance” presented by this case will be finally decided on the merits.

Eleventh Circuit Exercises Strong Presumption In Favor Of Federal Class Action Jurisdiction Under CAFA

            Eleventh Circuit analyzes CAFA’s expanded federal jurisdiction and reverses an order remanding a class action to Alabama state court because the putative class representatives failed to satisfy the “local controversy” exception to federal jurisdiction. Evans v. Walter Industries, Inc., No. 06-11974, 2006 WL 1374688 (11^th Cir. May 22, 2006)

This case involves a putative class action brought in the Circuit Court of Calhoun County, Alabama by persons who were allegedly exposed to toxic chemicals released by eighteen named defendants. Plaintiffs claim damages for personal injury and property damage under numerous state law causes of action, including nuisance, trespass, negligence, and breach of duty to warn. Four of the defendants removed the case to federal court under provisions of the Class Action Fairness Act (“CAFA”), Pub. L. 109-2, 119 Stat. 4 (2005), which expands federal jurisdiction for class actions and allows removal of class actions if the amounts in controversy exceed $5,000,000 and there is minimal diversity (at least one plaintiff and one defendant are from different states). In response, the plaintiffs moved to remand on the basis that the action qualified for remand under CAFA’s “local controvery” exception to federal jurisdiction. The federal district court granted the plaintiffs’ motion, and the defendants appealed to the Eleventh Circuit Court of Appeals pursuant to CAFA’s provision for interlocutory discretionary appeal from grants or denials of motions to remand class actions.

The Eleventh Circuit first addressed whether its decision satisfied CAFA’s 60-day time limitation on appellate review of remand orders. Under this limitation, if an appellate court accepts a party’s request for discretionary review of a remand order, the court must render judgment within 60 days “after the date on which such appeal was filed.” 28 U.S.C. § 1453(c)(2). The Court of Appeals court held that this 60-day period begins to run on the date that the appellate court accepts the discretionary application for an appeal, rather than the date that the application is filed. According to the court, this interpretation coincides with the Fifth, Ninth, and Tenth Circuit’s analysis of the same provision.

Regarding the merits of the case, the plaintiffs’ sole basis for remand of the case was their argument that the dispute satisfied CAFA’s local controversy exception. Notably, this exception is only satisfied if: (1) greater than two-thirds of the putative class members are citizens of the state in which the action was originally filed, (2) at least one of the defendants from whom significant relief is sought and whose conduct forms the basis of the claims is a citizen of the state at issue, (3) principal injuries resulting from the alleged conduct of each defendant were incurred in the same state, and (4) no other similar class action has been filed asserting similar factual allegations against any of the defendants on behalf of similar persons in the three-year period prior to the filing of the complaint. See 28 U.S.C. § 1332(d)(4)(A).

            The Eleventh Circuit first reviewed CAFA’s legislative history and determined that the statute’s “local controversy” exception was meant to be “a narrow exception that was carefully drafted to ensure that it does not become a jurisdictional loophole.”  2006 WL 1374688, at  * 3-4 (quoting S. Rep. 109-14, at 39).  As such, the court held that Congress contemplated that CAFA would provide broad federal court jurisdiction with narrow exceptions.

            Turning its attention to which party holds the burden of showing that CAFA’s “local controversy” exception was satisfied, the court held that this burden rests with the plaintiffs. While the court recognized that that defendants bear the initial burden of showing that the action meets CAFA's basic requirements for removal (i.e., at least $5,000,000 in controversy and minimal diversity) and that “[n]o other Circuit appears to have addressed the specific question of which party should bear the burden of proof on CAFA's local controversy exception,” it held that CAFA’s statutory framework is materially similar to 12 U.S.C. § 1819, under which the FDIC may remove actions brought against it to federal court and plaintiffs bear the burden of proving that there is a basis to remand under that statute’s limited “state action” exception to removal. Id. at * 4.  Moreover, the Eleventh Circuit held that their approach “places the burden on the party most capable of bearing it” because CAFA’s “local controversy” exception to federal jurisdiction requires evidence regarding the plaintiff’s class to which the putative class representatives have superior access.  Id. at * 8, n.3.

            Next, the Court of Appeals determined that the plaintiffs had not satisfied at least two of the requirements for the “local controversy” exception: (1) that two-thirds of the plaintiff class are  Alabama citizens and (2) that “significant relief” is sought from U.S. Pipe, the only Alabama defendant. The court noted that the only evidence that the plaintiffs produced on the first prong --- the residency of plaintiff class members --- was a perfunctory affidavit of the plaintiffs’ counsel indicating that, of the class members that he had interviewed, roughly 94% were Alabama residents. The court held that the affidavit provided no information regarding the method by which these prospective class members were selected or whether they were property owners or those suffering alleged personal injuries from defendants’ conduct. While the court acknowledged that satisfying the two-thirds requirement would be difficult, it stated that this was merely a “function of the composition of the class designed by plaintiffs.”  Id. at * 6.  Regarding the second prong of the “local controversy” exception --- whether U.S. Pipe was a “significant defendant” --- the Eleventh Circuit held that U.S. Pipe was not a significant defendant as defined by CAFA. The court determined that CAFA’s “significant relief” language contemplates that “the relief sought against that defendant is a significant portion of the entire relief sought by the class” and this determination requires “a comparison of the relief sought between all defendants and each defendant's ability to pay a potential judgment.” Id. at * 6-7. While the plaintiffs claimed that U.S. Pipe operated two foundries in the area purportedly affected by the toxic pollutants, the Court of Appeals noted that no evidence was provided regarding “the significance of the relief that is sought against U.S. Pipe, or its comparative significance relative to the relief sought from the other 17 named co-defendants.” Id. at * 7. Thus, the court held that “there [was] simply no evidence that U.S. Pipe was ‘significant’ with respect to liability.” Id. Indeed, the Eleventh Circuit held that the evidence suggested that U.S. Pipe was not a “significant defendant” because it sold one of the relevant foundry locations in 1951 and the other location appeared to be substantially south of the allegedly affected area. Id.  In addition, the court noted that “numerous other defendants have operations much nearer the largest concentration of identified class members, suggesting that U.S. Pipe's liability might not be significant compared to other defendants, and that the conduct of U.S. Pipe might not form a significant basis for the claims of the class.”  Id.

Consequently, the Eleventh Circuit reversed the district court’s remand order and remanded the case for further proceedings in federal court.

 

In response to the decision, Stephen Devereaux, counsel for Defendant-Appellant United Defense, L.P., stated that his client is “very pleased with the ruling and believe[s] the Court interpreted the Local Controversy Exception exactly as Congress intended by placing the burden of establishing each element of the exception squarely on the plaintiffs and by finding that the Plaintiffs here fell far short of their burden with respect to two of those elements."