January 31, 2015

Tenth Circuit: Federal Arbitration Act Provides Interlocutory Jurisdiction in Limited Circumstances

The Tenth Circuit Court of Appeals issued its opinion in International Brotherhood of Electrical Workers v. Public Service Company of Colorado on Tuesday, December 9, 2014.

In 2009, the International Brotherhood of Electrical Workers (Union) and Public Service Co. entered into a Collective Bargaining Agreement covering Union members who were Public Service employees. Public Service unilaterally amended the agreement approximately two years later, affecting prescription drug prices for retirees. The Union followed dispute procedures and eventually demanded that the issue be submitted to arbitration. Public Service refused, so the Union sued the company and asked the district court to stay the proceedings and compel arbitration. The district court denied the Union’s motion, and it appealed.

The Tenth Circuit first questioned its jurisdiction to hear the interlocutory appeal. The Tenth Circuit found that the instant appeal fell within one of the FAA’s exceptions providing for interlocutory appeals pursuant to Tenth Circuit case law and Supreme Court precedent in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001).

Addressing arbitrability of the issue at suit, the Tenth Circuit determined that the Collective Bargaining Agreement did not cover disputes related to retired workers, only to current employees. The Union argued the district court failed to apply the presumption in favor of arbitrability, but the Tenth Circuit disagreed, finding instead that the court evaluated the presumption and held it inapplicable. The Union also argued that the district court erred by addressing the underlying merits of the dispute, but the Tenth Circuit examined the record and found no evidence of merit review.

The Tenth Circuit affirmed the district court’s order denying arbitration. Judge Hartz concurred with the finding of jurisdiction but dissented with the panel’s finding that the dispute was not arbitrable.

Tenth Circuit: Company Entitled to Sell Trademark Rights Post-Termination Continued to Own Rights Until Completion of Sale

The Tenth Circuit Court of Appeals issued its opinion in Derma Pen LLC v. 4EverYoung Limited on Tuesday, December 9, 2014.

Derma Pen, LLC and 4EverYoung Ltd. entered into a sales distribution agreement for a micro-needling device: Derma Pen would sell the device in the United States and 4EverYoung would sell it in the rest of the world. Their contract provided that upon termination, Derma Pen would offer to sell its rights to 4EverYoung. Derma Pen eventually terminated the agreement and 4EverYoung attempted to purchase Derma Pen’s trademark rights, but the parties reached an impasse and no sale occurred. Despite its lack of trademark rights, 4EverYoung started using Derma Pen’s trademark to sell the device in the United States. Derma Pen sued 4EverYoung and associated entities on over 15 claims, including trademark infringement and unfair competition under the Lanham Act. Derma Pen also moved for a preliminary injunction to prevent 4EverYoung from using the trademark in the United States. The district court denied the motion, finding that Derma Pen was unlikely to succeed on the merits, and Derma Pen appealed.

The Tenth Circuit reversed. Upon review of the existing record, the Tenth Circuit found that Derma Pen likely still owned the U.S. trademark rights until they were sold, and no sale had taken place. 4EverYoung argued that the agreement’s termination dissolved Derma Pen’s ownership rights, but the Tenth Circuit disagreed. Because the contract contemplated Derma Pen’s ability to sell its ownership rights post-termination, the Tenth Circuit found that Derma Pen likely still owned the trademark rights, and would be likely to succeed on the merits on this issue.

The district court’s denial of Derma Pen’s injunction was reversed, and the case was remanded for further proceedings.

Tenth Circuit: Unpublished Opinions, 1/14/2015

On Thursday, January 14, 2015, the Tenth Circuit Court of Appeals issued no published opinion and one unpublished opinion.

United States v. Vasquez-Garcia

Case summaries are not provided for unpublished opinions. However, published opinions are summarized and provided by Legal Connection.

Tenth Circuit: § 1983 Challenges Unlikely to Succeed on Merits; Stay of Execution Denied

The Tenth Circuit Court of Appeals issued its opinion in Warner v. Gross on Monday, January 12, 2015.

In early 2014, Oklahoma changed its execution procedure for lethal injections due to the state’s inability to obtain two of the drugs previously used. In April 2014, Clayton Lockett was the first Oklahoma state prisoner to be executed using the new procedures, and his execution did not go smoothly. The IV used to deliver the lethal drug cocktail infiltrated, or leaked into his tissue instead of delivering the drugs to his veins. He experienced unusual effects from the lethal injection but eventually died anyway. After Lockett’s execution, the state developed new protocols for lethal injections, including establishing two viable IV sites and using various combinations of drugs, including midazolam, a sedative.

In November 2014, four inmates with scheduled execution dates as soon as January 15, 2015, among a group of twenty-one Oklahoma death row inmates, filed a § 1983 lawsuit challenging the constitutionality of Oklahoma’s new lethal injection procedure. Their complaint alleged eight counts, two of which are relevant to their appeal. Count 2 challenges the use of midazolam as violative of the Eighth Amendment’s prohibition against cruel and unusual punishment. Count 7 also raises an Eighth Amendment claim, asserting that the state is effectively experimenting on unwilling human subjects by using the untested procedure. After a three-day evidentiary hearing, the district court denied plaintiffs’ motion for preliminary injunction, concluding the inmates failed to show a likelihood of success on the merits. The plaintiffs appealed as to Count 2 and Count 7, and filed an emergency motion for stay of execution.

The Tenth Circuit conducted an abuse of discretion review and found none. The Tenth Circuit examined the long history of challenges to capital punishment, noting (1) the Supreme Court has never held that capital punishment violates the Eighth Amendment prohibition on cruel and unusual punishment, (2) the Supreme Court has never invalidated a state’s chosen procedure for carrying out the sentence, (3) there must be some means of carrying out the death sentence, and the Constitution does not demand avoidance of all pain, and (4) a stay of execution may not be granted unless the prisoner demonstrates a substantial risk of severe pain from the state’s chosen lethal injection procedure.

The plaintiffs contested the district court’s finding that the testimony of the defendants’ expert witness, Dr. Roswell Lee Evans, the Dean of the School of Pharmacy at Auburn University, was persuasive. The Tenth Circuit examined Dr. Evans’s credentials and found him to be well-qualified to render an expert opinion on the effects of midazolam. The plaintiffs also argued that the district court misapplied Supreme Court precedent in Baze v. Rees, 533 U.S. 35 (2008). The Tenth Circuit disagreed, instead concluding that the plaintiffs failed to show that midazolam created a risk of extreme pain.

The Tenth Circuit affirmed the district court’s denial of the motion for preliminary injunction. In a footnote, the Tenth Circuit added that, in “an abundance of caution,” the opinion was circulated to all the judges prior to publication, and no judge requested en banc review.

Tenth Circuit: Class Certification Appropriate Where Common Issues Predominate Over Individualized Claims

The Tenth Circuit Court of Appeals issued its opinion in CGC Holding Co. LLC v. Broad & Cassel on Monday, December 8, 2014.

In this RICO class action interlocutory appeal, defendants contest the district court’s class certification. Plaintiff class representatives CGC Holding Co., LLC, Harlem Algonquin, LLC, and James Medick, on behalf of the proposed class, assert that a group of lenders led by Sandy Hutchens conspired to create a scheme to defraud borrowers by requiring up-front fees for loan commitments the lenders never intended to fulfill. Plaintiffs also allege the lenders fraudulently concealed Hutchens’ criminal past through the use of pseudonyms, and had they known about his financial history they would not have taken part in the financial transactions that caused them to lose their up-front fees.

In 2004, Hutchens pleaded guilty in Canada to financial fraud charges similar to those at issue here. Following his conviction, he changed his name and assumed various aliases. Plaintiffs claim Hutchens operated a scheme in which a potential borrower, typically a distressed “do-or-die” borrower, would submit a loan application to one of several issuing entities through a loan broker. The lending entity would issue a loan commitment requiring non-refundable up-front fees, also requiring the borrower to meet certain eligibility requirements. If the borrower failed to meet an eligibility requirement, the lending entity would terminate the loan application. Plaintiffs contend this was a subterfuge intended to scam the borrowers out of the non-refundable up-front fees, without any intention or ability to fund the loan. Hutchens contends the loans were legitimately terminated for failure to meet the eligibility requirements. However, his accountant testified that by the end of 2009 Hutchens and his entities had received over $8 million in up-front fees and had lent less than $500,000.

Plaintiffs also contend that Hutchens and his cohorts concealed Hutchens’ criminal past through the use of aliases and false addresses, and but for these omissions and misrepresentations, no borrower would have participated in the loan scheme. Plaintiffs named several persons and entities as co-conspirators with Hutchens, including his wife and daughter, five issuing entities, Hutchens’ attorney Alvin Meisels, and Broad and Cassel, a Florida law firm that represented several of the defendants during the relevant time period.

Plaintiffs conceded they lacked standing to pursue their claims against Broad and Cassel, and the Tenth Circuit reversed and remanded on this issue. However, the Tenth Circuit affirmed the district court’s grant of F.R.C.P. 23 class certification. Defendants contend the district court erred in finding that common issues predominated over individual ones in the class certification. The Tenth Circuit reviewed for abuse of discretion and found none. The Tenth Circuit found no reasonable dispute that plaintiffs met the threshold requirements of Rule 23(a), and evaluated solely for whether common issues predominated under the class type listed in Rule 23(b)(3).

After evaluating the prerequisites of a civil RICO claim, the Tenth Circuit discussed plaintiffs’ requirement to prove that a link existed between defendants’ actions and the class injury. Plaintiffs must prove a causal connection between defendants’ misrepresentation and and plaintiffs’ reliance on that misrepresentation. In the context of a class action, the plaintiffs must show that the reliance is susceptible to generalized proof. In the instant case, the evidence of class members’ payments for loan commitments is sufficient to show reliance on defendants’ promise to provide loan funds. The fact of payment of the up-front fee is common to the entire class. The Tenth Circuit also found that superiority was proven as to the class action’s preference over individualized actions.

Defendant Meisel also raised the question of whether the district court had subject matter jurisdiction over the Canadian defendant entities. The Tenth Circuit declined to consider the question, finding it exceeded the scope of Rule 23(f) review and instead was a merits issue. The Tenth Circuit similarly declined to consider several other issues raised by defendants, finding their review limited to the scope of Rule 23(f) and disfavoring interlocutory review of other issues.

The district court’s class certification was reversed and remanded as to Broad and Cassel, and was affirmed as to all other defendants.

Tenth Circuit: Unpublished Opinions, 1/13/2015

On Tuesday, January 13, 2015, the Tenth Circuit Court of Appeals issued no published opinion and six unpublished opinions.

Dickman v. LaHood

Redmon v. Dowling

United States v. Burciaga

United States v. Nash

Brown v. University of Kansas

Brainerd v. City of Topeka

Case summaries are not provided for unpublished opinions. However, published opinions are summarized and provided by Legal Connection.

Tenth Circuit: Four Year Age Difference Mandate for SORNA Registration Equals 48 Months

The Tenth Circuit Court of Appeals issued its opinion in United States v. Black on Tuesday, December 9, 2014.

Jay Black pleaded guilty for one count of sexual abuse of a minor for a consensual act between him, an 18-year-old, and a 14-year-old victim. A comparison of their birthdays revealed that Black was 55 months older than the victim. Black contests that he is not required to register as a sex offender because the Sex Offender Registration and Notification Act (SORNA) provides that a person does not qualify as a sex offender if the victim is at least 13 years of age and the offender was not more than four years older than the victim. Black contended that, because he was 18 and the victim was 14, he need not register. The district court disagreed, concluding that § 16911(5)(C) requires a comparison of the offender’s and victim’s birth dates. Black appealed.

The Tenth Circuit affirmed, adopting the reasoning of the Third Circuit in a similar case, United States v. Brown, 740 F.3d 145 (3d Cir. 2014), which found that considering “years” to mean whole years only would lead to strange results in application of SORNA. The Tenth Circuit advanced an additional reason, in that Black’s interpretation could reach offenders who were barely more than three years older than their victim, and would exclude offenders who were nearly five years older. The Tenth Circuit found no grievous ambiguity necessary to implicate the rule of lenity, and affirmed.


Tenth Circuit: Unpublished Opinions, 1/12/2015

On Monday, January 12, 2015, the Tenth Circuit Court of Appeals issued one published opinion and no unpublished opinion.

Case summaries are not provided for unpublished opinions. However, published opinions are summarized and provided by Legal Connection.

Tenth Circuit: Unpublished Opinions, 1/9/2015

On Friday, January 9, 2015, the Tenth Circuit Court of Appeals issued no published opinion and one unpublished opinion.

Carter v. Colvin

Case summaries are not provided for unpublished opinions. However, published opinions are summarized and provided by Legal Connection.

Tenth Circuit: Unpublished Opinions, 1/8/2015

On Thursday, January 8, 2015, the Tenth Circuit Court of Appeals issued no published opinion and two unpublished opinions.

Saveraid v. State Farm Insurance Co.

United States v. Hopson

Case summaries are not provided for unpublished opinions. However, published opinions are summarized and provided by Legal Connection.

Tenth Circuit: Liquidated Damages Provisions Allowable in Order to Protect Parties from Uncertainty, Difficulty, and Expense of Litigation

The Tenth Circuit Court of Appeals issued its opinion in Wahlcometroflex, Inc. v. Westar Energy, Inc. on Tuesday, December 2, 2014.

Westar is an electric company that owns several sources of electricity, including the Jeffrey Energy Center (JEC). Westar contracted with Wahlcometroflex (Wahlco) to manufacture and deliver equipment to JEC’s three units for a total purchase price of $6,229,185.50. In the contract, dates for the absolute latest delivery of the equipment were set forth, and a liquidated damages provision was included in the event Wahlco did not timely deliver the equipment assessing damages of 1.5 percent of the total contract price per week the equipment was late, not to exceed 10 percent of the total contract price. Wahlco was late delivering the equipment for all three units – for Unit 1, the equipment was 2 1/2 months late; for Unit 2, the equipment was 2 months late; and for Unit 3, the equipment was over 4 months late. Westar withheld $367,511.28 of the contract price from its payment to Wahlco pursuant to the liquidated damages provision.

Wahlco filed suit in Kansas federal district court to recover the withheld amount. Westar counterclaimed, seeking a declaratory judgment that it was entitled to retain or recover $622,918.55 pursuant to the liquidated damages provision and bringing a breach of contract claim for the same amount. After discovery, the parties filed cross-motions for summary judgment addressing whether Westar was required to prove actual delay in order to recover under the contract’s liquidated damages provision. The district court granted Westar’s motion for partial summary judgment, holding Westar did not need to show actual delay to recover liquidated damages under to the unambiguous language of the contract. The court entered final judgment in favor of Westar, and Wahlco appealed.

Wahlco contended on appeal that its contract with Westar required a showing of actual delay in order to trigger the liquidated damages provision. However, the plain language of the contract referenced only Wahlco’s delay in providing the material, not Westar’s delay in completion of the upgrades to the JEC. The Tenth Circuit noted that, despite Wahlco’s best efforts to create ambiguity in the contract, there was none, and the courts will not rewrite the terms of an unambiguous contract.

Wahlco next argued that, under Kansas law, a plaintiff must establish causation as an element of any breach of contract claim. Wahlco concedes that liquidated damages are allowable under Kansas law regardless of actual damages, but contends there still must be a causal connection between the breach of contract and the anticipated event for which the liquidated damages were intended to compensate. The Tenth Circuit construed Wahlco’s argument as another attempt to rewrite its contract with Westar, and found that the contract language amounted to a concession that Wahlco’s breach would cause damages to Westar in the form of delay to the project. The Tenth Circuit also noted that adopting Wahlco’s position would undermine the effectiveness of liquidated damages provisions, which are designed to allow parties to protect themselves against the difficulty, uncertainty, and expense involved with litigating damages in court.

Finally, Wahlco argued that allowing Westar to collect liquidated damages without proving actual damage would amount to an impermissible penalty. The Tenth Circuit disagreed. Under Kansas law, liquidated damages provisions are acceptable to compensate for actual or anticipated harm. Because the contract’s provisions expressly stated the anticipated harm that would come from Wahlco’s late delivery, and the contract specifically stated the liquidated damages were not a penalty, the Tenth Circuit found Wahlco was bound by the terms of the contract. Wahlco argued that the terms of the contract were unreasonable in light of the actual damages suffered by Westar, but made no showing that the contract’s terms were unreasonable at the time the parties entered into it.

The district court’s summary judgment was affirmed.

Tenth Circuit: Express or Implicit Dispute of Title Necessary to Trigger Quiet Title Act’s “Disputed Title” Requirement

The Tenth Circuit Court of Appeals issued its opinion in Kane County, Utah v. United States on Tuesday, December 2, 2014.

In April 2008, Kane County, Utah brought an action under the Quiet Title Act (QTA), 28 U.S.C. § 2409a, to quiet title to five roads in southern Utah. It later amended its complaint to cover 15 roads or road segments. The county asserted the rights-of-way pursuant to R.S. 2477, which reserved a right-of-way for construction of highways over public lands not reserved for public uses. R.S. 2477 was repealed by the Federal Land Policy and Management Act of 1977 (FLPMA)  but existing rights-of-way were preserved. The State of Utah intervened in the county’s action as co-plaintiff. After a 9-day bench trial, the district court issued two orders. In the first order, the district court held that it had subject matter jurisdiction under the QTA as to all 15 roads at issue. The second order made findings of fact and addressed the merits, finding that Kane County and Utah had proven R.S. 2477 rights-of-way on 12 of the 15 roads and setting proper widths for the rights-of-way. Both orders were challenged on appeal.

Kane County and Utah argued that the district court erred by finding that Public Water Reserve (PWR) 107 reserved two parcels of land from the operation of R.S. 2477. They also challenged the district court’s requirement of proof by clear and convincing evidence of the R.S. 2477 rights-of-way. The United States also appealed, claiming that the district court lacked jurisdiction over the county’s claims regarding several roads because of the absence of a disputed title to real property. The United States also contended the district court erred in setting widths for the rights-of-way on three of the roads.

The Tenth Circuit first examined the subject matter jurisdiction claims of the United States and amici. For a court to have jurisdiction over a QTA claim, the plaintiff must show that (1) the United States “claims an interest” in the property at issue, and (2) title to the property is “disputed.” The Tenth Circuit, as a matter of first impression, evaluated what requirements satisfy the QTA’s “disputed title” requirement. The Tenth Circuit rejected the Ninth Circuit’s “cloud on title” standard and instead held that, to satisfy the QTA’s “disputed title” element, the plaintiff must show that the United States has either expressly disputed title or taken action that implicitly disputes it. Actions that produce ambiguity are not enough to satisfy the disputed title element.

Turning its attention to the roads at issue, the Tenth Circuit found that the district court did not have jurisdiction over the Sand Dunes Road and the Hancock Road. These roads were omitted from a BLM map, but later the map was amended to show the roads. The district court ruled this created an ambiguity as to the legal status of the roads, but the Tenth Circuit found the ambiguity was insufficient to satisfy the QTA’s disputed title element and therefore the district court lacked jurisdiction. The Tenth Circuit also found the district court lacked jurisdiction as to the four cave roads. The district court’s treatment of the United States’ denial of allegations as sufficient to establish jurisdiction was in error.

Amici had argued the plaintiffs lacked R.S. 2477 jurisdiction over another road, the North Swag Road, because the QTA’s limitations period had expired. The Tenth Circuit found that the limitations period was not triggered because no adverse action had occurred.

The Tenth Circuit then turned its attention to the district court’s conclusion that PWR 107 had served to “reserve” two parcels of land across which Swallow Park Road runs from operation of R.S. 2477. The Tenth Circuit analyzed PWR 107, finding that it was intended to provide public access to certain water springs, and noted that it would be “nonsensical” to hold that the provision of public access to the springs expressly excluded the construction of roadways under R.S. 2477 on which the public could access the water springs. The Tenth Circuit reversed the district court’s determination that plaintiffs could not establish a right-of-way on the part of Swallow Park Road running through the two reserved parcels of land.

Finally, the United States argued that the district court erred by not designating right-of-way widths on three roadways on the uses established in 1977, and by improperly allowing room for improvements on the roadways. The Tenth Circuit agreed on both points. The district court was required to inquire as to the reasonable and necessary uses of the road, and expansions are only allowable when reasonable and necessary in light of pre-1977 uses of the roadways. Similarly, the district court exceeded its authority by allowing room for improvements. The Tenth Circuit likened this to putting the cart before the horse, finding instead that if the roadways needed improvements the land management agency must be consulted and allowed an opportunity to determine if the improvements are reasonable and necessary.

The judgment of the district court was affirmed in part, reversed in part, and remanded for further proceedings.