Fourth Circuit Finds District Court’s Decision Remand to State Court for Lack of SMJ Not Reviewable in Iraq Contractor Case

BNA’s United States Law Week reported in Vol. 75, No. 11 (Sept. 26, 2006) on the case In Re Blackwater Consulting LLC, --- F.3d ----, 2006 WL 2439755 (4th Cir. Aug. 24, 2006). Here is an excerpt from the case:

The district court's remand order in this case clearly falls within the ambit of § 1447(c)'s requirement of remand in the absence of subject matter jurisdiction. The court first concluded that the DBA [Defense Base Act] did not completely preempt overlapping state law and thus did not create a federal question. Nordan, 382 F.Supp.2d at 807-11. It then reasoned that Blackwater's assertion of a unique federal interest in the adjudication of Nordan's claims likewise did not confer federal removal jurisdiction. Id. at 811-13. The district court cited the untenability of these two suggested jurisdictional bases as the source of its decision to remand the case. "[T]his court lacks subject matter jurisdiction over this cause of action.... [W]here the court finds no basis for subject matter jurisdiction, § 1447(c) compels the court to remand this action to state court.... Accordingly ... remand, rather than dismissal for lack of subject matter jurisdiction, is proper." Id. at 813-14.

To conclude that the remand order was issued pursuant to § 1447(c), we need not delve into whether the district court was correct to hold that it lacked subject matter jurisdiction over the removed action. Rather, an order is issued pursuant to section § 1447(c) if the district court perceived that it was without jurisdiction over the cause. See, e.g., Mangold, 77 F.3d at 1450 (holding that courts must "look past contextually ambiguous allusions and even specific citations to § 1447(c) to determine by independent review of the record the actual grounds or basis upon which the district court considered it was empowered to remand"). Furthermore, as we have noted, § 1447(d)'s jurisdictional bar applies with equal force to unassailably correct and "manifestly, inarguably erroneous" orders of remand. Id. Because the reasoning behind the district court's remand order in this case indicates the court's belief that it lacked subject matter jurisdiction upon removal, we conclude that the remand order was issued pursuant to § 1447(c) and, consequently, that § 1447(d) prohibits our review of that order.

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SCOTUS Grants Cert. in Forum Non Conveniens Case

The Supreme Court has granted review in Sinochem International Co. v. Malaysia International Shipping Corp., No. 06-102, a case that will resolve whether a district court must first conclusively establish jurisdiction before dismissing a suit on the ground of forum non conveniens.

The ruling below was from the Third Circuit, Malaysia Intern. Shipping Corp. v. Sinochem Intern. Co. Ltd., 436 F.3d 349. There, the court recognized a circuit split on the matter:

Courts of Appeals have split on the issue. Compare In re Arbitration Between Monegasque de Reassurances S.A.M. v. Nak Naftogaz of Ukraine, 311 F.3d 488, 497-98 (2d Cir.2002) (holding that courts may pass over jurisdictional questions and decide a forum non conveniens issue), and In re Papandreou, 139 F.3d 247, 255-56 (D.C.Cir.1998) (same), superseded by statute on other grounds, with Dominguez-Cota v. Cooper Tire & Rubber Co., 396 F.3d 650, 654 (5th Cir.2005) (per curiam ) (holding that they may not). These are the three cases most often referred to, but the Seventh and the Ninth Circuits have also reached the same result as the Fifth Circuit's Dominguez-Cota opinion. See Patrickson v. Dole Food Co., 251 F.3d 795 (9th Cir.2001), aff'd in part, cert. dismissed in part, 538 U.S. 468, 123 S.Ct. 1655, 155 L.Ed.2d 643 (2003); Kamel v. Hill-Rom Co., 108 F.3d 799 (7th Cir.1997). The Third Circuit's position was that yes, jurisdictional questions had to be resolved before a court could get to the forum non conveniens issue.

The petition for certiorari was filed this past July by Gregory A. Castanias, Victoria Dorfman (a law school classmate of mine), and Jones Day, all of Washington, D.C., and Stephen M. Hudspeth, of Wilton, Conn., who handled the case before the Third Circuit.

Court of Federal Claims Holds it Lacks Jurisdiction to Hear Cases Against the United States Under the Digital Millennium Copyright Act

Per Blueport Co., LLP, v. U.S., 71 Fed.Cl. 768 (Fed. Cl. Jun. 29, 2006):

Per Blueport Co., LLP, v. U.S., 71 Fed.Cl. 768 (Fed. Cl. Jun. 29, 2006):

The sole issue arising out of this motion, one of first impression, is whether the U.S. Court of Federal Claims has jurisdiction to adjudicate Count II of the Complaint--a claim for monetary damages against the United States arising under the Digital Millennium Copyright Act of 1998, 17 U.S.C. § 1201 et seq. ("DMCA"). Defendant argues that its motion should be granted because the DMCA does not expressly waive sovereign immunity. The court agrees.

. . .

[T]he general rule is when jurisdiction is explicitly conferred on a designated court, such as here to the "district courts," such designation bars other courts from entertaining claims under that statute. See LeBlanc v. United States, 50 F.3d 1025, 1030 (Fed.Cir.1995) (language in 31 U.S.C. § 3730(h), which states: "An employee may bring an action in the appropriate district court of the United States for the relief provided in this subsection," does not provide for jurisdiction in the Court of Federal Claims).

. . .

The text of a statutory jurisdictional or remedy provision mentioning only the "district courts" is therefore all that is required to exclude this court's jurisdiction. . . . Accordingly, this court must conclude that the DMCA does not contain a clear statement waiving sovereign immunity which is necessary for plaintiff to have jurisdiction in this court.

UCLA Law Review Publishes Symposium Issue on Emerging Issues in Class Action Law

The UCLA Law Review has published its August 2006 Symposium issue on Emerging Issues in Class Action Law. This symposium issue features the following contributions from these leading scholars:

Theodore Eisenberg & Geoffrey P. Miller, INCENTIVE AWARDS TO CLASS ACTION PLAINTIFFS: AN EMPIRICAL STUDY, 53 UCLALR 1303

Samuel Issacharoff & Catherine M. Sharkey, BACKDOOR FEDERALIZATION, 53 UCLALR 1353

William B. Rubenstein, THE FAIRNESS HEARING: ADVERSARIAL AND REGULATORY APPROACHES, 53 UCLALR 1435

Richard A. Nagereda, RESTITUTION, RENT EXTRACTION, AND CLASS REPRESENTATIVES: IMPLICATIONS OF INCENTIVE AWARDS, 53 UCLALR 1483

Eleventh Circuit Sides with Majority of Circuits, Holding Non-Fraud Securities Claims Must be Pled with Particularity

Per Wagner v. First Horizon Pharmaceutical Corp., 2006 WL 2661652 (11th Cir. Sept. 18, 2006):

The question presented to us, however, regards whether there are circumstances when Federal Rule of Civil Procedure 9(b) would require nonfraud securities claims to be pled with particularity. Our sister circuits split on this matter. Compare Cal. Pub. Employees' Ret. Sys. v. Chubb Corp., 394 F.3d 126, 161 (3d Cir.2004); Rombach v. Chang, 355 F.3d 164, 171 (2d Cir.2004); Lone Star Ladies Inv. Club v. Schlotzsky's, Inc., 238 F.3d 363, 368 (5th Cir.2001); In re Stac Elecs. Sec. Litig., 89 F.3d 1399, 1404-05 (9th Cir.1996), with In re Nationsmart Corp. Sec. Litig., 130 F.3d 309, 314- 15 (8th Cir.1997). In line with the majority of circuits to address the matter, we hold that Rule 9(b) applies when the misrepresentation justifying relief under the Securities Act is also alleged to support a claim for fraud under the Exchange Act and Rule 10(b)-5.

We conclude that a § 11 or § 12(a)(2) claim must be pled with particularity when the facts underlying the misrepresentation at stake in the claim are said to be part of a fraud claim, as alleged elsewhere in the complaint. It is not enough to claim that alternative pleading saves the nonfraud claims from making an allegation of fraud because the risk to the defendant's reputation is not protected. It would strain credulity to claim that Rule 9(b) should not apply in this allegation: The defendant is a no good defrauder, but, even if he is not, the plaintiff can still recover based on the simple untruth of the otherwise fraudulent statement. Nor is it enough to present a general disclaimer in an attempt to immunize the nonfraud claims from the Rule 9 requirements, for the same common sense reasons. The purpose of the rule is to protect a defendant's good will and reputation when that defendant's conduct is alleged to be fraudulent.

D.N.J. Discusses Standard for Removal Under CAFA

Per Beegal v. Park West Gallery, Not Reported in F. Supp. 2d., Slip Copy, 2006 WL 2645123 (D.N.J. Sept. 14, 2006):

Under 28 U.S.C. § 1441(a), a defendant may remove an action filed in state court to a federal court that has original jurisdiction over the action. Once an action is removed, a plaintiff can challenge removal by moving to remand the case back to the state court. To defeat a plaintiff's motion to remand, the defendant bears the burden of showing that the federal court has jurisdiction to hear the case. Abels v. State Farm Fire & Casualty Co., 770 F.2d 26, 29 (3d Cir.1995). In this action, Defendant claims that this Court has original jurisdiction pursuant to the Class Action Fairness Act of 2005 ("CAFA"). While some courts have cited CAFA's legislative history as imposing a burden on the plaintiff to show that "removal was improvident," S.Rep. No. 109-14, at 42 (2005), several circuit courts have determined that since the statute does contain a burden-shifting provision, the burden remains with the defendant. See, e.g., Miedema v. Maytag Corp., 450 F.3d 1322, 1329-30 (11th Cir.2006); Abrego v. Dow Chemical Co., 443 F.3d 676, 685 (9th Cir.2006); Brill v. Countrywide Home Loans, Inc., 427 F.3d 446, 448 (7th Cir.2005). In a recent case, a judge in this district held likewise. See Morgan v. Gay, 2006 U.S. Dist. LEXIS 55211, at *9 (D.N.J. Aug. 7, 2006) ("[U]nder CAFA the burden of establishing removal jurisdiction remains on the proponent of federal jurisdiction.").

Furthermore, where the decision to remand is a close one, district courts are encouraged to err on the side of remanding the case back to state court. See Abels, 770 F.2d at 29 ("Because lack of jurisdiction would make any decree in the case void and the continuation of the litigation in federal court futile, the removal statute should be strictly construed and all doubts should be resolved in favor of remand."); Glenmede Trust Co. v. Dow Chemical Co., 384 F.Supp. 423, 433-34 (E.D.Pa.1974) ("It is well settled that district courts should remand close or doubtful cases for two reasons. First, remand will avoid the possibility of a later determination that the district court lacked jurisdiction and, secondly, remand is normally to a state court which clearly has jurisdiction to decide the case.").

Eighth Circuit Finds it Lacks Jurisdiction to Consider Officials’ Qualified Immunity Appeal re Class after Ruling in Favor of Officials Against Class

Per Smook v. Minnehaha County, 457 F.3d 806 (8th Cir. Aug. 9, 2006):

[Plaintiff Smook brought claims against a county juvenile detention center challenging reasonableness of strip-search policy, on behalf of herself and others similarly situated. The 8th Circuit decided that the policy did not violate the Fourth Amendment as to Smook.] In addition to granting partial summary judgment in favor of Smook, the district court's order also granted partial summary judgment for unnamed class members who, as the class was defined by the court, were strip searched at the JDC [Juvenile Detention Center] from June 1, 1999, through September 14, 1999. [Defendants] Banbury and Cheever contend that they are also entitled to qualified immunity from suits for damages by the unnamed class members. To review that contention, it appears that we would be required by the Supreme Court's current direction to resolve first whether the searches of the unnamed class members violated the Fourth Amendment, and then, if so, whether the defendants are nonetheless entitled to qualified immunity. See Brosseau v. Haugen, 543 U.S. 194, 197-98 & n. 3 (2004) (per curiam)...

The requirement to resolve the reasonableness of these searches of unnamed class members places us in a quandary. The specific facts underlying the claims are not yet developed, and the reasonableness of a particular search is often highly contextual. We do not know from this record which, if any, of the unnamed class members were searched after removing all of their clothing, what might have led staff members at the JDC to conduct such searches. . .Plaintiffs contend that "[t]he question of whether individual class members were required to be completely nude or nearly nude will be determined among the factual matters during the damages phase of the case," yet the entitlement to qualified immunity is an immunity from suit, not merely a defense to liability, Mitchell v. Forsyth, 472 U.S. 511 (1985), and the individual defendants are thus entitled to a decision before the litigation proceeds to that phase.

The posture of the appeal is complicated further by our decision that the named class representative, Smook, has no claim for damages against the defendants. That conclusion typically would disqualify her as a class representative, see, e.g., E. Tex. Motor Freight Sys. Inc. v. Rodriguez, 431 U.S. 395 (1977); Burris v. First Fin. Corp., 928 F.2d 797, 806 (8th Cir.1991), but given that a class already has been certified, "the class of unnamed persons described in the certification acquire a legal status separate from the interest asserted by [Smook]." Sosna v. Iowa, 419 U.S. 393, 398 (1975). This separate legal status means that the dismissal of Smook's claim does not inexorably require dismissal of the class action, id. at 399-401; Rodriguez, 431 U.S. at 406 n. 12; but cf. Great Rivers Coop. of Southeastern Iowa v. Farmland Indus., Inc., 120 F.3d 893, 899 (8th Cir.1997), but it also does not mandate that we decide constitutional issues in the abstract or in a context that may be hypothetical. See Kremens v. Bartley, 431 U.S. 119, 134 (1977) ("While there are 'live' disputes between unnamed members of the class certified by the District Court, on the one hand, and [defendants], on the other, these disputes are so unfocused as to make informed resolution of them almost impossible.").

Under these unusual circumstances, we decline to pass on the merits of the constitutional claims of the unnamed class members that must be resolved as a first step in determining whether Banbury and Cheever are entitled to qualified immunity from suit. Because we decline to resolve this aspect of the appeal by the individual defendants, we dismiss for lack of jurisdiction that portion of the county's appeal regarding liability for damages to the unnamed class members. On remand, the district court may consider, after pausing to "stop, look, and listen," id. at 135, whether the class should be redefined or decertified, cf. Gen. Tel. Co. v. Falcon, 457 U.S. 147, 160 (1982), and whether there is an adequate class representative to replace Smook, if appropriate. Cf. Howe v. Varity Corp., 896 F.2d 1107, 1111 (8th Cir.1990). If the court concludes that a class should continue to be certified and there is an adequate class representative to continue the action, then the defendants, of course, may renew motions for summary judgment if they wish. We expect that the district court would consider any such motions in light of our conclusions regarding the individual defendants' entitlement to qualified immunity from suit on Smook's claim.

Supreme Court to Consider What Defines an "Actual Controversy" for Purposes of a Declaratory Judgment Suit Challenging Patent Validity

Cornell's Legal Information Institute has published this preview of MedImmune v. Genentech (05-608), a case that will consider what defines an "actual controversy" for purposes of a declaratory judgment suit challenging the validity of patents. Here's the preview:

MedImmune v. Genentech (05-608)

A declaratory judgment suit is one in which the plaintiff’s requested relief from the court is a statement of the parties’ rights. In a declaratory judgment action, an “actual controversy” must exist between the parties in order for a court to declare the rights and legal relations of the interested parties. MedImmune v. Genentech asks the Supreme Court to consider what defines an “actual controversy” as applied to suits challenging the validity of patents. Specifically, the Court will decide whether it is necessary for a patent licensee to breach the terms of a patent in order to bring suit against the patent owner. The Court’s decision in this case has the potential to shift the balance of power between patent holders and licensees.

For the full preview visit http://www.law.cornell.edu/supct/cert/05-608.html.

Seventh Circuit Says Plaintiffs Challenging CAFA Removal Bear Burden of Proving CAFA's Home-State and Local Controversy Execptions

BNA reported in its August 25 Class Action Litigation Report (Vol. 7, No. 16) on the Seventh Circuit's recent decision in Hart v. FedEx Ground Package System Inc., --- F.3d ---, 2006 WL 2266303 (7th Cir. Aug. 9, 2006). Here is an excerpt from the opinion:

Recently, the Fifth and Eleventh Circuits decided, consistently with the district court's ruling and FedEx Ground's position, that once the removing defendants prove the amount in controversy and the existence of minimal diversity, the burden shifts to the plaintiffs to prove that the local controversy exception to federal jurisdiction should apply. See Frazier v. Pioneer Americas LLC, 455 F.3d 542 (5th Cir.2006); Evans, 449 F.3d at 1165. The Eleventh Circuit offered three reasons for this result: first, it thought that the Supreme Court's decision in Breuer v. Jim's Concrete of Brevard, Inc., 538 U.S. 691 (2003), recognizing that the opponent of removal under 28 U.S.C. § 1441(a) must prove that there is an express exception to removability, supported the same outcome here; second, at least for cases involving the citizenship of members of the plaintiff class, it predicted that the plaintiff was best positioned to collect the relevant evidence; and third, it drew an analogy to cases addressing the removal of actions involving the Federal Deposit Insurance Corporation (FDIC), in which the opponent of removal must prove the "state action" exception to federal jurisdiction. See Evans v. Walter Industries, Inc., 449 F.3d 1159, 1164-65 (11th Cir.2006). The Fifth Circuit agreed with these reasons. Frazier, 455 F.3d at 544.

Although we are not persuaded that second and third reasons that the Eleventh and Fifth Circuits gave provide much support for their conclusion, we nonetheless agree with the result they reached. The Eleventh Circuit began its discussion of the "local controversy" exception by quoting § 1332(d)(4)(A), but then it moved directly to a discussion of CAFA's legislative history, to the analogy to § 1441(a) and FDIC cases, and to its observation about relative ability of each party to gather the relevant evidence. In so doing, we think that it missed an important step, namely, the examination of the language of the statute before it. That language, coupled with the Supreme Court's Breuer decision, leads to the conclusion that the party seeking to take advantage of the home-state or local exception to CAFA jurisdiction has the burden of showing that it applies.

…As is typical with jurisdictional statutes, § 1332(d)(2) begins with the phrase "[t]he district courts shall have original jurisdiction" and goes on to define the governing criteria. Compare 28 U.S.C. §§ 1331 (federal question jurisdiction), 1332(a) (ordinary diversity and alienage jurisdiction), 1333 (admiralty, maritime and prize case jurisdiction), 1334 (bankruptcy jurisdiction), and 1335 (interpleader). The next subsection, § 1332(d)(3), describes situations in which the district court is permitted to "decline to exercise jurisdiction" "in the interests of justice and looking at the totality of the circumstances." Subsection (d)(4), which follows immediately, stands out for its contrasting wording. It commands the district courts to decline jurisdiction under paragraph 2 when either the "local" or the "home state" factors are present. Subsection (d)(5) also contains mandatory language making CAFA inapplicable to class actions in which the primary defendants are states, state officials, or other governmental entities against whom the district court may be foreclosed from granting relief and class actions involving less than 100 members. § 1332(d)(5).

Although the match is not perfect, the relation between subparts (d)(2) and (d)(4) of CAFA is analogous to the structure of 28 U.S.C. § 1441(a), which the Supreme Court examined in Breuer. The general removal statute begins with the phrase "[e]xcept as otherwise expressly provided by Act of Congress," and then goes on to delineate a defendant's right to remove from state court to federal court those cases over which the federal courts have original jurisdiction. The Court stated there that "[s]ince 1948 ... there has been no question that whenever the subject matter of an action qualifies it for removal, the burden is on a plaintiff to find an express exception." 538 U.S. at 698, 123 S.Ct. 1882.

CAFA expressly states that the district court "shall decline to exercise jurisdiction" in two particular situations. It is reasonable to understand these as two "express exceptions" to CAFA's normal jurisdictional rule, as the Supreme Court used that term in Breuer. The case might be different if Congress had put the home-state and local controversy rules directly into the jurisdictional section of the statute, § 1332(d)(2), but it did not. We acknowledge that the language of § 1332(d)(4) is mandatory, in contrast with the permissive language of § 1332(d)(3), but that alone proves little. Nothing indicates that the kinds of exceptions to which the Supreme Court referred in Breuer were permissive only.

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Court of Federal Claims Analyzes Intervention as a Matter of Right and Permissive Intervention

Per Honeywell International Inc. v. United States,71 Fed. Cl. 759 (Fed. Cl. June 23, 2006):

[This] court has determined that L-3 Communications Corporation ("L-3 Communications") may intervene as a matter of right, pursuant to RCFC 24(a)(2). . . [and] has established the requirements for permissive intervention, pursuant to RCFC 24(b)(2). Rule 24 of the United States Court of Federal Claims authorizes the court to grant intervention to an entity that is not a party to the initial suit as a matter of right or by permission. See RCFC 24(a), (b).

“[T]the requirements for intervention [as a matter of right] are to be construed in favor of intervention ... " Am. Maritime Transport, Inc. v. United States, 870 F.2d 1559, 1561 (Fed.Cir.1989) [internal citations omitted]. In light of the fact that Defendants have not presented their defense, damages proceedings have not been held, the court has not entered a final judgment, and the other relevant factors weighing in favor of allowing intervention, the court has determined that L-3 Communications' Motion to Intervene is timely, albeit barely so. See United States v. Am. Tel. & Tel., 642 F.2d 1285, 1295 (D.C. Cir. 1980). [I]ntervention is "proper only to protect those [legally protectible] interests which are of such a direct and immediate character that the intervenor will either gain or lose by the direct legal operation and effect of the judgment." Am. Mar. Transp., 870 F.2d at 1561 [internal citations and quotations omitted]. L-3 Communications' indemnification obligation and position as a potential defendant in a separate proceeding where the issue of the potential infringement of the '914 patent will be an issue more than satisfies a direct and immediate interest relating to the '914 patent and weighs in favor of L-3 Communications' intervention.

The third requirement of RCFC 24(a) is that the movant must be in a position where the disposition of this litigation "may, as a practical matter, impair or impede [the] ability to protect that interest." RCFC 24(a). Since a determination of infringement of the '914 patent would have a persuasive, if not collateral effect, on future litigation in which infringement of the '914 patent is at issue . . . this requirement of RCFC 24(a) is also satisfied. See Klamath Irrigation Dist. v. United States, 64 Fed.Cl. 328, 335 [internal citations and quotations omitted]. Finally, the court must decide whether L-3 Communications' interests are being "adequately represented by existing parties." RCFC 24(a). [T]he court has determined that L-3 Communications has established that the Government and Lockheed Martin do not necessarily have an interest in representing L-3 Communications' interests and that L-3 Communications should be allowed to intervene in this case as a matter of right. See RCFC 24(a)(2).

L-3 Communications also has satisfied the requirements of RCFC 24(b)(2) for permissive intervention. RCFC 24(b)(2) requires that a motion for intervention be timely. The court has determined that L-3 Communications' Motion to Intervene was timely, particularly in light of other relevant factors, i.e., prejudice, that weigh in favor of allowing intervention. RCFC 24(b)(2) also requires the proposed intervenor have a claim or defense that raises a question of law or fact in common with the present action. L-3 Communications has asserted several defenses to Plaintiffs' claim that the CMDU infringes the '914 patent. The final consideration under RCFC 24(b)(2) is whether the intervention would unduly delay or prejudice the adjudication of the rights of the original parties. As discussed earlier, the court does not accept Plaintiffs' assertion that the addition of a third defendant to this action will significantly prejudice Plaintiffs.

Prof. Gensler Provides an Update on the Recent Meeting of the Advisory Committee on Civil Rules

Professor Steven Gensler of the University of Oklahoma College of Law has written the following update regarding what transpired at last week's meeting of the Advisory Committee on Civil Rules. Here is the update he prepared:

First, some old news. The e-discovery package is still set to go into effect on December 1, and there are no signs that Congress will act to derail those changes. The committee’s other major project recently has been the Style Project, which has already been approved by the Standing Committee and will go before the Judicial Conference later this month. If the Style Project stays on track, the re-styled rules will take effect on December 1, 2007.

Now, the new projects. Along with the other advisory committees, the Civil Rules Committee is participating in a project to develop uniform time-computation rules. One significant change under consideration is to eliminate the so-called “11-day” rule by which intermediate weekends and holidays are excluded from periods of less than 11 days. In other words, all days would count regardless of the length of the period. In that vein, the committee has been examining all of the deadlines in the civil rules to determine whether they would need to be adjusted in light of the fact that intermediate weekends and holidays would count. Rule 6 would retain the “last day” rule, which extends the deadline to the next day that is not a weekend, holiday, or day when the clerk’s office is otherwise inaccessible.

The committee also considered various proposals to amend Rule 12(e) as a vehicle for the court to obtain more detailed pleadings. The proposals were designed to preserve the concept of notice pleading but still make more detailed pleadings available to facilitate case management. The proposals were tabled, pending further study, largely out of concern that an expanded Rule 12(e) practice would be abused by defendants.

The committee is also considering changes to testifying expert practice under Rule 26(a)(2). One set of issues relates to clarifying who is required to submit an expert report. Another set of issues relates to work-product and the expert’s report. The majority view holds that an attorney forfeits work-product protection as to documents shown to a testifying expert. The committee is studying proposals that would, among other things, allow lawyers to show work-product protected materials to their experts without forfeiting the privilege, and also would exempt draft expert reports from discovery. The ABA Federal Practice Task Force has submitted a resolution and report in support of these changes, although other groups have at different times sided with the current full-disclosure rule.

Finally, but by no means least, the committee is studying possible changes to Rule 56. Principally, the committee is considering amendments that would standardize the processes of moving for and responding to summary judgment, such that summary judgment practice would be largely uniform across the federal districts. Under the current scheme, Rule 56 says little about this subject, leading to a proliferation of local rules and local practices. The committee is also considering an amendment that would specifically authorize and regulate the practice of so-called “partial summary judgments.” While litigants routinely seek – and courts routinely grant – summary judgment on fewer than all of the claims in a case, Rule 56 does not address the subject head on. The sense is that, while courts are generally getting it right, the rule should speak to the practice more clearly.

I should note that all of the “new projects” are still in the study and development phase. To the extent they proceed, there still will be a notice-and-comment period for any and all to weigh in with support or criticism.

Seventh Circuit States that Willfulness, Bad Faith, or Fault Constitute Grounds for Dismissal Under Rule 37

Per In re Thomas Consolidated Industries, Inc., 456 F.3d 719 (7th Cir. Jul 31, 2006):

The bankruptcy court dismissed the case as a sanction for failing to comply with the court's orders regarding discovery and for lying to the court about compliance with discovery orders. The district court affirmed the bankruptcy court's ruling and Thomas Consolidated Industries, Inc. ("Consolidated") appeals. Because the lower courts acted within their discretion in dismissing the case, we affirm.

. . .

Rule 37(a) allows courts to enter orders compelling parties to comply with discovery requests. . .
Consolidated argues that, when viewed as a whole, the cases analyzing Rule 37 make clear that dismissal is warranted only when a party's conduct demonstrates an intent not to pursue the case but to avoid prosecution through dilatory tactics. According to Consolidated, the sanction of dismissal should not be granted for anything less than a total failure to respond to discovery requests. The cases upon which Consolidated relies are either inapplicable or favor the defendants' position here. . . .

The sanction of dismissal under Rule 37(b) may be upheld if the trial court finds that the party against whom these sanctions are imposed displayed willfulness, bad faith or fault. The district court correctly used the standards set forth in Golant and Maynard and we therefore reject Consolidated's [] argument.

Michigan Law Review to Publish Article Challenging Conventional Wisdom on Confidential Settlements

The Michigan Law Review will publish an article by Professor Scott Moss entitled Illuminating Secrecy: A New Economic Analysis of Confidential Settlements, 105 Mich. L. Rev. ___ (forthcoming 2007), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=921463. Here is the Abstract:

Even the most hotly contested lawsuits typically end in a confidential settlement forbidding the parties from disclosing their allegations, evidence, or settlement amount. Confidentiality draws fierce criticism for harming third parties by concealing serious misdeeds like discrimination, pollution, defective manufacturing, and sexual abuse. Others defend confidentiality as a mutually beneficial pay-for-silence bargain that facilitates settlement, serves judicial economy, and prevents frivolous copycat lawsuits. This debate is based in economic logic, yet most analyses have been surprisingly shallow as to how confidentiality affects incentives to settle. Depicting a more nuanced, complex reality of litigation and settlement, this Article reaches several conclusions quite different from the economic conventional wisdom - and absent from the existing literature.

First, contrary to the conventional wisdom that banning confidentiality would inhibit settlement, a ban may promote early settlements. No ban could effectively cover settlements reached before litigation, so any ban would incentivize parties to settle confidentially pre-filing - and such early settlements save more litigation costs. Second, a ban would affect high- and low-value cases differently, depending on whether publicity-conscious defendants worry more about one big settlement or several small ones. Third, more settlement data could help parties settle and also, by decreasing litigation uncertainty, deter frivolous litigation. Fourth, more settlement data could reveal which companies engage in unlawful practices, yielding more efficient decisions by consumers, workers, and investors who otherwise engage in over-avoidance when unable to distinguish hazardous from safe goods.

In sum, a confidentiality ban would decrease settlements of cases already in litigation but it would have many countervailing positive effects: increasing pre-filing settlements; deterring frivolous lawsuits, and improving product and job market decisions. We cannot predict the net effect of all these competing effects, however, contrary to the traditional economic story. Economics thus does not counsel against a confidentiality ban; jurisdictions adopting a ban would be undertaking a worthy experiment with a promising but uncertain policy.

This analysis typifies the schism between traditional economic analyses, which reach definite conclusions by simplifying complex realities, and many contemporary economic analyses, which are realistically nuanced but do not yield categorical conclusions. Ultimately, the latter brand of economics is sounder and still can clarify important matters such as parties' incentives, rules' costs and benefits, and the tradeoffs and competing effects of a policy like a confidentiality ban.

Preempted Claims Do Not Automatically Transform Into Federal Claims Under the Carmack Amendment, S.D. Iowa Holds

Per Midamerican Energy Co. v. Start Enterprises, Inc., 437 F. Supp. 2d 969 (S.D. Iowa July 11, 2006):

Plaintiff argues that, in the event the Court finds its state law claims preempted by the Carmack Amendment [to the Interstate Commerce Clause, in which Congress superseded state laws to create a nationally uniform policy governing interstate carriers' liability for property loss], the Court should find that the state law claims are automatically transformed into a Carmack Amendment claim. The Defendant, on the other hand, argues that if preemption applies, Plaintiff's entire Complaint should be dismissed with prejudice, effectively precluding Plaintiff from stating a claim under the Carmack Amendment. While the Court agrees with Defendant that the state law claims must be dismissed, it finds Defendant's position that the entire Complaint should be dismissed with prejudice untenable, in light of the purpose of Rule 12(b)(6), that is, to permit a defendant to test whether, as a matter of law, a plaintiff is entitled to sustain a recovery under some viable legal theory. To establish a prima facie case of damaged goods under the Carmack Amendment, a Plaintiff must establish: 1) the goods were undamaged prior to shipment; 2) the goods arrived at the destination in damaged condition; and 3) the amount of damages. See Missouri Pac. R. Co. v. Elmore & Stahl, 377 U.S. 134, 138 (1964). The facts as alleged in Plaintiff's Complaint are more than sufficient to demonstrate a viable cause of action under the Carmack Amendment. See U.S. Aviation Underwriters, Inc. v. Yellow Freight Sys., Inc., 296 F.Supp.2d 1322, 1336-37 (S.D.Ala.2003) (discussing how the Supreme Court's analysis of the complete preemption doctrine in usury cases applies with equal force to preemption under the Carmack Amendment: "[T]hrough the magic of 'jurisdictional alchemy' (to quote Justice Scalia's dissent in Beneficial), [plaintiff's] state law claims morph into a federal Carmack Amendment claim, there being 'no such thing' as a state law claim against a common carrier for damage to goods in interstate transportation") (citing Beneficial Nat'l Bank v. Anderson, 539 U.S. 1 (2003)). Regardless of whether the state law claims "automatically transform," however, it is well within the Court's discretion to permit Plaintiff to file an Amended Complaint, stating a proper cause of action under federal law.

IRS Ruling Discusses Reporting Requirements for Attorneys' Fees in Opt-Out Class Action Settlement

BNA recently reported in the Class Action Litigation Report on IRS Private Letter Ruling 200625031, which ruled that court-ordered attorneys’ fees paid to class counsel are not income and not subject to the reporting requirements of § 6041 of the Internal Revenue Code. Here is an excerpt from the ruling.

This . . . private letter ruling regard[s] the information reporting requirements for attorneys' fees paid in connection with the settlement of an "opt-out" class action lawsuit under § 6041 of the Internal Revenue Code. [A] class action complaint was filed against Taxpayer (the National Class Action). The state court certified the class (Class) and appointed class counsel (Class Counsel). The National Class Action was later removed to Federal Court. Taxpayer has settled and is continuing to attempt to settle these suits on a state-by-state basis. Under the terms of the Settlement Agreement, the Taxpayer is also required to pay attorneys' fees to class counsel in an amount approved by the court . . . . This letter ruling request concerns whether the Taxpayer, under § 6041, must report on the Forms 1099 sent to Class Members a pro-rata share of the attorneys' fees paid to Class Counsel under the Settlement Agreement.

Section 6041(a) provides in part that all persons engaged in a trade or business and making payment in the course of such trade or business to another person of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income of $ 600 or more in any taxable year, shall render a true and accurate return to the Secretary. [I]n the present case, § 6041 requires the Taxpayer to report only those payments in excess of $600 includible in the Class Members' gross income under § 61. Section 61 provides generally that, except as otherwise provided by law, gross income includes all income from whatever source derived. The concept of gross income encompasses accessions to wealth, clearly realized, over which taxpayers have complete dominion. Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955).

In such cases where there is no contractual agreement and someone other than the class members is liable for payment of attorneys' fees incurred in connection with such litigation, the attorneys' fees are not includible in a class member's gross income. In the instant case, attorneys' fees will not be awarded or paid to Class Counsel pursuant to any specific fee or retainer arrangement between such counsel and the Class Members, including the Class Representatives. Rather, the attorneys' fees will be paid by Taxpayer to Class Counsel in an amount approved by the court under the Settlement Agreement. As discussed above, the term "income" under § 6041 is interpreted to mean income includible in gross income under § 61. Therefore, because, in the present case, the amounts paid by Taxpayer to Class Counsel for attorneys' fees are not income to the Class Members or the Class Representatives, the payments of attorney fees are not subject to information reporting to any Class Member, including any Class Representative, under § 6041.

BNA subscribers can read the article on the ruling by clicking here.

First Circuit Holds Single Defendant Liable for All Fees and Costs After Other Fifteen Defendants Settle

Per EnergyNorth Natural Gas, Inc. v. Century Indem. Co., 452 F.3d 44 (1st Cir. Jun. 28, 2006):

Century's argument begins with a valid point about the duty to "segregate" costs and fees. . . .

But Century ignores the exception to this rule: the duty to segregate fees does not apply to costs and fees spent in connection with efforts so interrelated to all of the settling and non-settling parties that segregation would be impossible. . . .

In other words, under this exception, if the outcome of a sixteen-defendant case depends on the resolution of certain common issues, and those common issues require certain common costs (which will have to be incurred whether there is one defendant or sixteen), the successful plaintiff may, if the district court deems it reasonable, recover all of those common costs, even if fifteen of the sixteen defendants settle before trial. See Diamond v. John Martin Co., 753 F.2d 1465, 1467 (9th Cir.1985) (applying California law) ("[J]oinder should not dilute the right to attorneys' fees.").

Century urges that it is "grossly unfair" for it to bear the entire cost of EnergyNorth's efforts. We disagree. Century does not suggest that EnergyNorth's claims against Century could have been litigated for a penny less than the district court's award, even if Century had been the only defendant in the case all along. Indeed, Century stipulated that the submitted fees represented a reasonable expenditure for the litigated issues, an admission both that the costs and fees for which EnergyNorth sought reimbursement fell into the exception to the duty to segregate described in Stewart and Reynolds Metals, and that the costs were far from "grossly unfair." Century's fairness argument is further undermined by the district court's clear warning that Century risked a high liability in fees and costs if it chose to go to trial despite the agreement by the other defendants to settle. Indeed, the court warned that such liability might far exceed the amount EnergyNorth had demanded to settle the case. Of course, Century was entitled to demand a trial; but it had to accept the consequences of its choice.

Tenth Circuit Denies Jurisdiction for Lawsuit among Oklahoma Supreme Court Justices Pursuant to Ex Parte Young

Per Opala v. Watt, 454 F.3d 1154 (10th Cir. July 21, 2006):

Before Justice Opala filed this suit, Chief Justice Watt was re-elected to his post, and Justice Opala was succeeded as Vice-Chief Justice by Justice Winchester. Because we are only permitted to grant prospective equitable relief under Ex Parte Young, we cannot undo this election. Moreover, a declaration that New Rule 4 [of the Supreme Court of Oklahoma] is unconstitutional will not remedy Justice Opala's claimed injury that he was not able to stand for election under Old Rule 4 while serving as Vice-Chief Justice. Accordingly, we reverse the district court's denial of defendants' motions to dismiss, and remand with instructions that the district court dismiss the complaint for want of jurisdiction.

Because this suit is against the members of the Oklahoma Supreme Court in their official capacities, federal jurisdiction is limited by sovereign immunity. . . A state's immunity from suit by private individuals in federal court is not absolute. It may be overcome in three instances: (1) the state consents to suit; (2) Congress expressly abrogates the states' immunity; or (3) the citizen sues a state official pursuant to Ex Parte Young, 209 U.S. 123 (1908) . . . This third exception to Eleventh Amendment immunity is now before us.

. . .

In determining whether a suit falls within the Ex Parte Young exception, this court applies a four-part test . . . The district court found that Justice Opala's suit satisfied all four criteria for the Ex Parte Young exception . . . Not only must the requested relief be prospective in nature (to satisfy Ex Parte Young), a ruling from this court must be capable of redressing the alleged injury for Justice Opala to have standing to file his suit.

. . .

However, we lack the power to "reinstate the pre-determined sequential order to that which existed prior to the Rule 4 amendment." We simply cannot make Justice Opala Vice-Chief Justice again. This is precisely the type of retroactive equitable relief prohibited under the Ex Parte Young doctrine. The relief sought in the complaint--a declaration that New Rule 4 is unconstitutional--would not place Justice Opala in the position he was in on November 3, 2004. There is no prospective remedy that can unring that bell. Justice Opala's claimed injury is simply not redressable with prospective relief. Thus, the federal courts lack the power to resolve this dispute.

Third Circuit Vacates FDCPA Class Certification and Orders Reconsideration Due to Defense Possibly Unique to Class Representative

Per Beck v. Maximus, Inc., --- F. 3d ----, 2006 WL 2193603 (3d Cir. Aug. 4, 2006):

. . . The District Court did not consider whether Maximus's training materials were reasonably designed to avoid violations of the Fair Debt Collection Practices Act, sufficient to establish a bona fide error defense.

We are unable to conclude whether the District Court exercised its sound discretion in certifying the class with Beck as the class representative. The court should have (1) distinguished between a violation based on the content of the Employment Verification Request and a violation based on its transmission, and (2) addressed the three requirements of the bona fide error defense. We will vacate the certification order and remand for further consideration by the District Court, consistent with this opinion.

. . .

. . . A proposed class representative is neither typical nor adequate if the representative is subject to a unique defense that is likely to become a major focus of the litigation.

N.D. Al. Decertifies Fair Labor Standards Collective Action

BNA reported last week in its Class Action Litigation Report on Brown v. Dolgencorp Inc., N.D. Ala., No. 7:02-cv-673, order 8/7/06:

[A] federal judge in Alabama Aug. 7 decertified a Fair Labor Standards Act collective action brought by approximately 2,470 store managers working for Dollar General stores in 38 states.

Judge U.W. Clemon of the U.S. District Court for the Northern District of Alabama granted Dollar General's motion to decertify the collective action, finding that the named plaintiffs "cannot establish that they and the opt-in Plaintiffs are similarly situated with respect to damages."

In January 2004, Clemon certified an opt-in class consisting of those who worked as store managers anytime after March 14, 1999, who regularly worked more than 50 hours a week and who either customarily supervised fewer than two employees at a time or lacked the authority to hire or fire employees or sometimes performed nonmanagerial duties at a store other than the one they were assigned to manage.

BNA subscribers can access the report by clicking here.