SEVENTH CIRCUIT REVIEW
www.kentlaw.edu/7cr Volume 3, Issue 1 Fall 2007
CONTENTS
Masthead iv About the SEVENTH CIRCUIT REVIEW v
Bankruptcy
Who’s Left Suspended on the Line?: The Ominous Hanging Paragraph and the Seventh Circuit’s Interpretation in In re Wright Simone Jones 1
Civil Procedure
Outer Marker Beacon: The Seventh Circuit Confirms the Contours of Federal Question Jurisdiction in Bennett v. Southwest Airlines Co. William K. Hadler 22
Civil Rights
Determining Whether Plaintiff Prevailed is a “Close Question”—But Should It Be? Nikolai G. Guerra 58
Criminal Law
Missing the Forest for the Trees: The Seventh Circuit’s Refinement of Bloom’s Private Gain Test for Honest Services Fraud in United States v. Thompson Robert J. Lapointe 86
i
Due Process – Familial Rights
Familia Interruptus: The Seventh Circuit’s Application of the Substantive Due Process Right of Familial Relations Scott J. Richard 140
Employment Discrimination
The Politics of Reversal: The Seventh Circuit Reins in a District Court Judge’s Wayward Employment Discrimination Decisions Timothy Wright 168
FDA Regulations
No More Imports: Seventh Circuit Decision in United States v. Genendo is an Expensive Pill for American Consumers to Swallow Nicole L. Little 209
Federal False Claims Act
“Based Upon” and the False Claims Act’s Qui Tam Provision: Reevaluating the Seventh Circuit’s Method of Statutory Interpretation Antonio J. Senagore 244
Federal Thrift Regulation
Cracking the Door to State Recovery from Federal Thrifts Daniel M. Attaway 275
ii
Fourth Amendment
Probationers, Parolees and DNA Collection: Is This “Justice for All”? Jessica K. Fender 312
Krieg v. Seybold: The Seventh Circuit Adopts a Bright Line in Favor of Random Drug Testing Dana E. Lobelle 367
Immigration Law – Asylum
IJ Bias: The Contamination Theory Michael Yeong Joon Ko 410
Trademarks
The Seventh Circuit’s Approach to Deterring the Trademark Troll: Say Goodbye to Your Registration and Pay the Costs of Litigation Anna B. Folgers 452
iii SEVENTH CIRCUIT REVIEW www.kentlaw.edu/7cr Volume 3, Issue 1 Fall 2007
Chicago-Kent College of Law Illinois Institute of Technology 565 West Adams Street, Chicago, Illinois 60661
Hal R. Morris Professor
Justin Nemunaitis Executive Editor – Teaching Assistant
Editorial Staff Daniel M. Attaway Robert J. Lapointe Jessica K. Fender Nicole L. Little Anna B. Folgers Dana E. Lobelle Nikolai G. Guerra Scott J. Richard William K. Hadler Antonio J. Senagore Simone Jones Timothy Wright Michael Yeong Joon Ko Esther Wu
© 2007 Chicago-Kent College of Law, Illinois Institute of Technology.
iv SEVENTH CIRCUIT REVIEW
www.kentlaw.edu/7cr Volume 3, Issue 1 Fall 2007
ABOUT THE SEVENTH CIRCUIT REVIEW
Purpose
The SEVENTH CIRCUIT REVIEW is a semiannual, online journal dedicated to the analysis of recent opinions published by the United States Court of Appeals for the Seventh Circuit. The SEVENTH CIRCUIT REVIEW seeks to keep the legal community abreast of developments and trends within the Seventh Circuit and their impact on contemporary jurisprudence. The articles appearing within the SEVENTH CIRCUIT REVIEW are written and edited by Chicago-Kent College of Law students enrolled in the SEVENTH CIRCUIT REVIEW Honors Seminar.
The SEVENTH CIRCUIT REVIEW Honors Seminar
In this seminar, students author, edit, and publish the SEVENTH CIRCUIT REVIEW. The REVIEW is entirely student written and edited. During each semester, students identify cases recently decided by the Seventh Circuit to be included in the REVIEW, prepare initial drafts of case comments or case notes based on in-depth analysis of the identified cases and background research, edit these drafts, prepare final, publishable articles, integrate the individual articles into the online journal, and "defend" their case analysis at a semester-end roundtable. Each seminar student is an editor of the REVIEW and responsible for extensive editing of other articles. Substantial assistance is provided by the seminar teaching assistant, who acts as the executive editor.
v The areas of case law that will be covered in each journal issue will vary, depending on those areas of law represented in the court's recently published opinions, and may include:
• Americans with Disabilities Act • antitrust • bankruptcy • civil procedure • civil rights • constitutional law • copyright • corporations • criminal law and procedure • environmental • ERISA • employment law • evidence • immigration • insurance • products liability • public welfare • securities
This is an honors seminar. To enroll, students must meet one of the following criteria: (1) cumulative GPA in previous legal writing courses of 3.5 and class rank at the time of registration within top 50% of class, (2) recommendation of Legal Writing 1and 2 professor and/or Legal Writing 4 professor, (3) Law Review membership, (4) Moot Court Honor Society membership, or (5) approval of the course instructor.
vi SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007
WHO’S LEFT SUSPENDED ON THE LINE?: THE OMINOUS HANGING PARAGRAPH AND THE SEVENTH CIRCUIT’S INTERPRETATION IN IN RE WRIGHT
* SIMONE JONES
Cite as: Simone Jones, Who’s Left Suspended on the Line?: The Ominous Hanging Paragraph and the Seventh Circuit’s Interpretation in In re Wright, 3 SEVENTH CIRCUIT REV. 1 (2007), at http://www.kentlaw.edu/7cr/v3-1/jones.pdf.
INTRODUCTION
For decades, bankruptcy reform has been controversial. Believing that gaps in the then-existing bankruptcy laws provided the means by which the bankruptcy system was being exploited1 and thus, the impetus for at least some of the dissention, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).2 However, rather than improve matters, the legislation arguably resulted in even more controversy. And though the consequences of this legislation were not limited to any one form of bankruptcy filing,3 an intense debate ensued with respect to a
* J.D. candidate, May 2008, Chicago-Kent College of Law, Illinois Institute of Technology; Tulane University, M.P.H., May 2003; University of Arkansas, B.S., May 1999. 1 See H.R. REP. No. 109-31, pt. 1 (2005). 2 Pub. L. No. 109-8, 119 Stat. 23 (codified in part as 11 U.S.C. § 1325 (2005)). 3 Brett Weiss, “Not Dead Yet:” Bankruptcy After BAPCPA, MD. B.J., May- June 2007, at 17, 18-20. For example, enactment of the BAPCPA resulted in, inter alia, mandatory credit counseling for Chapter 7 and Chapter 13 filers, required means testing to determine eligibility for Chapter 7, and refiling restrictions for Chapter 7 debtors. Id.
1 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 provision of the BAPCPA affecting Chapter 13 proceedings exclusively.4 Specifically, the dispute centered around the “hanging paragraph”—the unnumbered paragraph following § 1325(a)(9).5 The Seventh Circuit, in In re Wright, became the first court of appeals to interpret the hanging paragraph.6 The decision in this case limits the conditions under which a bankruptcy court shall confirm the Chapter 13 repayment plan of a 910 debtor.7 It did so by holding the debtor accountable for its original contractual obligations, where the debtor proposed in its repayment plan, to surrender its 910 vehicle to the 910 creditor.8 In In re Wright, at the time that the 910 debtors proposed their Chapter 13 repayment plan, they owed more on the loan for their vehicle than the vehicle was worth.9 Despite the difference between the loan’s balance and the market value of the vehicle, the debtors proposed a Chapter 13 repayment plan whereby they would surrender their vehicle to the 910 creditor in full satisfaction of the debt.10 The issue on appeal was whether the BAPCPA allowed the debtors to surrender their vehicle in complete satisfaction of their debt obligations or, alternatively, if the creditor was entitled to an unsecured
4 See In re Graupner, 356 B.R. 907, 911 (Bankr. D. Ga. 2006). 5 11 U.S.C. § 1325(a)(9). The “hanging paragraph” is so named, as it “has no alphanumeric designation and merely dangles at the end of § 1325(a).” Dianne C. Kems, Cram-a-lot: The Quest Continues, AM. BANKR. INST. J., Nov. 2005, at 10. 6 492 F.3d 829 (7th Cir. 2007). 7 See id. at 833. 8 Id. A “910 creditor” is a creditor who possesses a purchase money security interest (PMSI) in a vehicle acquired by a Chapter 13 debtor for the debtor’s personal use during the 910 days prior to the debtor’s filing of a Chapter 13 bankruptcy petition. See 11 U.S.C. § 1325(a). Similarly, the vehicle is referred to as a “910 vehicle;” the debtor, a “910 debtor.” See id. Because the Bankruptcy Code does not provide a definition of the term “purchase money security interest,” courts interpreting it have looked to state law. In re Stevens, 368 B.R. 5, 8 (Bankr. D. Neb. 2007) (citing In re Price, 363 B.R. 734 (Bankr. E.D.N.C. 2007)). Generally, a “purchase money security interest” is defined as a security interest created when a buyer uses the lender’s money to make the purchase and immediately gives the lender security. BLACK’S LAW DICTIONARY 1127 (8th ed. 2005). 9 In re Wright, 492 F.3d at 831. 10 Id.
2 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 claim in the amount of the difference that remained on the loan after surrender.11 In affirming the decision of the bankruptcy court and thereby adopting the minority view among bankruptcy courts, the Seventh Circuit held that while the BAPCPA prohibits the application of § 50612 to the claim of a 910 creditor, in the absence of § 506 the debtor is left with its original, contractual responsibilities.13 The Seventh Circuit looked to Article 9 of the Uniform Commercial Code (“U.C.C.”) and to the parties’ contract and concluded that upon the debtors’ surrender of their vehicle, the creditor was “entitled to an (unsecured) deficiency judgment for the difference between the value of the collateral and the balance on the loan.”14 Section I of this note outlines the relevant bankruptcy law, including the BAPCPA. Section II discusses the differing views between the bankruptcy courts. Section III analyzes the Seventh Circuit’s recent opinion in In re Wright. Section IV discusses why the Seventh Circuit’s holding in In re Wright, that in the absence of § 506 the parties are left with their original contractual agreements, was correct. Section V concludes that in adopting the minority view among bankruptcy courts, the Seventh Circuit chose the proper interpretation of the hanging paragraph.
I. THE BANKRUPTCY CODE
In a time when consumers are bombarded with unsolicited offers for credit, it is not surprising that they may sometimes find themselves overextended and unable to meet their resulting payment obligations.15 Congress—by way of the Bankruptcy Code—attempted to provide
11 Id. at 830-31. 12 11 U.S.C. § 506 (2006). 13 In re Wright, 492 F.3d at 832-33. 14 Id. at 833. 15 See Julie L. Williams, Acting Comptroller of the Currency, Speech before the American Bankers Association on Credit Underwriting Standards (Sept. 27, 1998), in O.C.C. Q.J., Dec. 1998, at 108.
3 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 relief to strained debtors in the form of a Chapter 7, Chapter 11, or Chapter 13 bankruptcy filing.16 Chapter 13 is “a form of bankruptcy relief where the debtor commits to repay a portion or all of his debts in exchange for receiving a broad discharge of debt.”17 As such, a Chapter 13 filing is often used by debtors who are “on the way up” as a result of an improved financial situation.18 In a Chapter 13 bankruptcy filing, a debtor is required to prepare a plan of repayment that must be confirmed by the bankruptcy court.19 Pursuant to § 1325(a)(5),20 the court “shall confirm” the plan if the debtor addresses its secured debt in one of three ways.21 First, the creditor may agree to the debtor’s proposed treatment of the creditor’s claim.22 Second, the debtor may keep the collateral by allowing the creditor to retain the lien on the collateral until the debtor has made payments totaling the amount of the creditor’s claim.23 Finally, the debtor may surrender the collateral to the creditor.24 It is in the context of the last alternative that the
16 See FCC v. NextWave Pers. Comm’ns Inc., 537 U.S. 293, 305 (2003). While the elements of these proceedings differ, the scope of this article is limited to bankruptcy filings made pursuant to Chapter 13. 17 H.R. REP. No. 109-31, pt. 1 (2005). 18 Henry E. Hildebrand III, Unintended Consequences: BAPCPA and the New Disposable Income Test, AM. BANKR. INST. J., May 2006, at 14. 19 11 U.S.C. § 1325. 20 11 U.S.C. §1325(a)(5). 21 Id. The pertinent part of the statute states the options for plan confirmation: (A) the holder of [the secured] claim has accepted the plan; (B) (i) the plan provides that—(I) the holder of [the secured] claim retain the lien securing such claim until . . . (aa) the payment of the underlying debt . . . and (ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; or . . . (C) the debtor surrenders the property securing such claim to such holder. Id. 22 11 U.S.C. § 1325(a)(5)(A). 23 11 U.S.C. § 1325(a)(5)(B). Courts have termed this process “cramdown.” In re Wright, 492 F.3d 829, 830 (7th Cir. 2007). 24 11 U.S.C. § 1325 (a)(5)(C).
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BAPCPA has created great discord among the bankruptcy courts.25 Namely, courts have had to address the effect of the newly added hanging paragraph in this situation and answer the question of whether, upon the debtor’s surrender of the vehicle, the 910 creditor possesses an unsecured claim equal to the amount of any deficiency or whether the surrender fully satisfies the 910 creditor’s claim.26
A. Pre-BAPCPA
Prior to the enactment of the BAPCPA, a Chapter 13 debtor was given three options for the disposition of the collateral—convince the creditor to accept the plan, keep the collateral and make payments totaling the value of the collateral, or surrender the collateral to the creditor. Further, in the simple—or at least simpler—pre-BAPCPA times, the claims of all Chapter 13 secured creditors were treated equally.27 The claims of a 910 creditor and any other Chapter 13 secured creditor were subject to § 506, which provides that:
(1) [a]n allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553 of this title, is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the value of such creditor’s interest or the amount so subject to set off is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in
25 See In re Graupner, 356 B.R. 907, 911 (Bankr. D. Ga. 2006). 26 See In re Pinti, 363 B.R. 369 (Bankr. S.D.N.Y. 2007); In re Ezell, 338 B.R. 330 (Bankr. E.D. Tenn. 2006); In re Particka, 355 B.R. 616 (Bankr. E.D. Mich. 2006); In re Zehrung, 351 B.R. 675 (W.D. Wis. 2006). 27 See id. at 334-35.
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conjunction with any hearing on such disposition or use or on a plan affecting such creditor’s interest.28
Thus, the claims of all Chapter 13 secured creditors were subject to bifurcation.29 As such, a Chapter 13 secured creditor, including a 910 creditor, was entitled to a secured claim in the amount of the value of the collateral.30 Where the creditor’s claim exceeded this amount, the creditor was entitled to an unsecured claim for the deficiency.31 Accordingly, the unsecured claim was treated identically to that of the remaining general unsecured claims asserted by the debtor’s other creditors.32
B. Post-BAPCPA
Although bankruptcy law has seen its fair share of changes, no amendment since the Bankruptcy Reform Act of 197833 has been as comprehensive as the BAPCPA.34 Referred to as the “new bankruptcy law”35, the BAPCPA was enacted in response to several factors36 that Congress believed necessitated extensive reform of the Bankruptcy
28 11 U.S.C. § 506 (2006); see In re Ezell, 338 B.R. at 338. 29 See In re Ezell, 338 B.R. at 338-40. 30 Id. 31 Id. at 338-40. 32 See id. 33 Pub. L. No. 95-598, 92 Stat. 254 (1978). 34 151 CONG. REC. H1993-01, at H2047-48 (daily ed. Apr. 14, 2005) (statement of Rep. Sensenbrenner) (“This legislation represents the most comprehensive reforms of the bankruptcy system in more than 25 years.”). 35 E.g. The Law Offices of John T. Orcutt, Website Home Page, http://www.billsbills.com (last visited Nov. 28, 2007). 36 These factors include: the determination that the increase in bankruptcy filings was not temporary but rather part of a consistent upward trend, the substantial losses that resulted from bankruptcy filings, loopholes that allowed abuse of the bankruptcy system, and findings that some bankruptcy debtors were able to repay much of their debt. H.R. REP. No. 109-31, pt. 1 (2005).
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Code.37 The most notable change effectuated by the BAPCPA was to Chapter 13 bankruptcy filings—namely, the BAPCPA’s hanging paragraph and its resulting effect on the claims of a 910 creditor.38 While the BAPCPA changed certain provisions, others, such as §§ 1325(a)(5)(A)39 and (C),40 were left unchanged and § 1325(a)(5)(B)41 was modified largely to include more detailed terms and specific requirements relating to the section.42 Consequently, following the enactment of the BAPCPA, the debtor still had the same three options for the disposition of the collateral—acceptance by the creditor, retention of the collateral, or surrender of the collateral.43 However, the enactment of the BAPCPA added the hanging paragraph to § 1325.44 This provision provides that:
[f]or purposes of paragraph (5),45 section 506 shall not apply to a claim described in that paragraph if the creditor has a purchase money security interest securing the debt that is the subject of the claim, the debt was incurred within the 910-day preceding the date of the filing of the petition, and the collateral for that debt consists of a motor vehicle (as defined in section 30102 of title 49) acquired for the personal use of the debtor, or46 if collateral for that debt
37 See generally Joseph Satorius, Note, Strike or Dismiss: Interpretation of the BAPCPA 109(h) Credit Counseling Requirement, 75 FORDHAM L. REV. 2231, 2237 (2007). 38 In re Morales, 359 B.R. 211, 215 (Bankr. N.D. Ill. 2007). 39 11 U.S.C. § 1325(a)(5)(A) (2006). 40 11 U.S.C. § 1325(a)(5)(C). 41 11 U.S.C. § 1325(a)(5)(B). 42 In re Particka, 355 B.R. 616, 618 (Bankr. E.D. Mich. 2006). 43 Id. 44 Pub. L. No. 109-8, 119 Stat. 23 (codified in part as 11 U.S.C. § 1325). 45 This referenced paragraph is 11 U.S.C. § 1325(a)(5) which provides the debtor with three methods by which to have a Chapter 13 repayment plan confirmed. See supra Part IB. 46 As this second situation to which the BAPCPA applies is beyond the scope of this article, it will not be discussed further.
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consists of any other thing of value, if the debt was incurred during the 1-year period preceding that filing.47
As a result of the addition of the hanging paragraph, the claims of all Chapter 13 secured creditors are no longer treated the same.48 Rather, the hanging paragraph distinguishes between the claims of 910 creditors and those of other Chapter 13 secured creditors.49 In so doing, the BAPCPA prohibits the application of § 506 and, thus, bifurcation of the claims of 910 creditors.50 Although the statute prohibits bifurcation of the claim regardless of the debtor’s proposed disposition of the vehicle,51 this prohibition leads to two very different results depending on whether the debtor retains or surrenders the vehicle.52 In the instance where the debtor proposes to retain the 910 vehicle, it is true that bifurcation is forbidden—but this is irrelevant, as the debtor must agree to pay the 910 creditor the full value of the creditor’s claim.53 In this scenario, the law is well-settled.54 However, appropriate application of the law is less clear in the frequent scenario where the debtor intends to surrender the vehicle to the 910 creditor.55
47 11 U.S.C. § 1325(a) (2006). 48 See In re Ezell, 338 B.R. 330, 338 (Bankr. E.D. Tenn. 2006). 49 11 U.S.C. § 1325 (2006); In re Ezell, 338 B.R. at 340. 50 11 U.S.C. § 1325. 51 Id. 52 See In re Zehrung, 351 B.R. 675, 678 (W.D. Wis. 2006). 53 11 U.S.C. § 1325(a)(5)(B). 54 See generally In re Shaw, 341 B.R. 543 (Bankr. M.D. N.C. 2006); In re Turner, 349 B.R. 431 (Bankr. D. S.C. 2006); In re White, 352 B.R. 633 (Bankr. E.D. La. 2006); In re Solis, 356 B.R. 398 (Bankr. S.D. Tex. 2006). In this scenario, the debtor must pay the full amount of the claim even if the vehicle is worth less than the claim. 55 Compare In re Pinti, 363 B.R. 369, 369 (Bankr. S.D.N.Y. 2007) (holding that a 910 creditor is not entitled to an unsecured claim for the amount of the deficiency), and In re Ezell, 338 B.R. 330, 330 (Bankr. E.D. Tenn. 2006) (910 creditor’s claim is fully satisfied upon surrender despite deficiency), with In re Particka, 355 B.R. 616, 616 (Bankr. E.D. Mich. 2006) (910 creditor entitled to an unsecured claim in the amount of the deficiency), and In re Zehrung, 351 B.R. at 675 (creditor allowed to assert an unsecured claim for the amount of the deficiency).
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Suppose the debtor’s 910 vehicle was valued at $12,000 and the creditor filed a claim in the amount of $15,000, representing the amount owing on the loan. If the debtor keeps the vehicle—though the claim is not bifurcated into a secured and unsecured portion—the debtor must pay the creditor the full $15,000. This outcome is the same in all courts. However, the result is not as clear in the scenario where the debtor surrenders the vehicle. In courts adopting the majority view, the creditor would only receive $12,000, satisfied by the vehicle’s surrender. The debtor would not be responsible for the remaining $3,000 even if the parties’ contract so provided. Conversely, in courts subscribing to the minority view, the creditor would be entitled to the full $15,000. The surrender of the vehicle would satisfy $12,000 and the creditor would be allowed an unsecured claim for the remaining $3,000.56
II. DISSENT THROUGHOUT THE BANKRUPTCY COURTS
Because of the difficulties encountered when interpreting the hanging paragraph, two diverse series of opinions have emerged from the bankruptcy courts.57 “As of last count—by a margin of 3–1—the vast majority of reported cases favor the position . . . that the 910 creditor can, through the confirmation of a proposed plan, be compelled to accept the surrender of its collateral in full satisfaction of its claims.”58 Not only is there conflict among the various circuits but conflicting opinions within circuits have also begun to emerge.59
56 A distinction must be made at this point. Although it is not likely that the holders of general unsecured claims would be paid the full amount of their claim, the holder of an unsecured claim is at least theoretically entitled to the full value of the claim. How much the creditor receives, however, depends on, inter alia, the bankruptcy estate’s value, the number and nature of the creditors, the amount of the claims, and the number of claims. 57 In re Roth, No. 06-11330, 2007 Bankr. LEXIS 1647, at *2 (N.D. Ind. May 4, 2007), rev’d, No. 1:07-CV-135-TS, 2007 U.S. Dist. LEXIS 80162 (N.D. Ind. Oct. 25, 2007). 58 Id. 59 Compare In re Kenney, Nos. 06-71975-A, 07-70359-A, 2007 Bankr. LEXIS 1646 (Bankr. E.D. Va. May 11, 2007) (applying the majority position), with In re
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Consequently, this article does not endeavor to categorize circuits based upon whether the circuit subscribes to the majority or the minority view of the issue. Rather, the article sets forth each opposing view and provides representative cases from the bankruptcy courts that have adhered to the particular position. While the varying views will be presented, the focus of this article is the Seventh Circuit’s decision in In re Wright, whereby the Seventh Circuit adopted the minority view that where there exists a deficiency after surrender, the creditor is entitled to an unsecured claim for that amount.60 The importance of a consistent application of the hanging paragraph among all bankruptcy courts is apparent in light of the fact that this issue arises in a substantial number of consumer Chapter 13 bankruptcy proceedings.61 Considering the rising costs of litigation, potential Chapter 13 debtors and 910 creditors alike would be well- served by uniform treatment of the hanging paragraph.62
A. The Majority’s Interpretation of the Hanging Paragraph
A large number of courts adopting the majority interpretation maintain the view that the language of the hanging paragraph is unambiguous.63 These courts reason that the hanging paragraph
Long, No. 06-10601, 2007 Bankr. LEXIS 2423 (Bankr. W.D. N.C. Feb. 1, 2007) (applying the minority approach). 60 492 F.3d 829, 833 (7th Cir. 2007). 61 Id. at 831. 62 Id. 63 See In re Pinti, 363 B.R. 369, 376 (Bankr. S.D.N.Y. 2007); In re Wampler, 345 B.R. 730, 740 (Bankr. D. Kan. 2006); In re Curtis, 345 B.R. 756, 760 (Bankr. D. Utah 2006); In re Ezell, 338 B.R. 330, 341 (Bankr. E.D. Tenn. 2006); In re Osborn, 348 B.R. 500, 504 (Bankr. W.D. Mo. 2006); In re Quick, 360 B.R. 722, 728 (Bankr. N.D. Okla. 2007); In re Steakley, 769, 770 n.1 (Bankr. E.D. Tenn. 2007); In re Bivins, No. 06-51778 RFH, 2007 Bankr. LEXIS 519, at *8 (Bankr. D. Ga. Feb. 23, 2007); In re Feddersen, 355 B.R. 738, 741 (Bankr. S.D. Ill. 2006); In re Pool, 351 B.R. 747, 752 (Bankr. D. Or. 2006); In re Nicely, 349 B.R. 600, 604 (Bankr. W.D. Mo. 2006); In re Payne, 347 B.R. 278, 282 (Bankr. S.D. Ohio 2006); In re Long, No. 06-30651, 2006 Bankr. LEXIS 1605, at *30 (Bankr. E.D. Tenn. July 12, 2006). Similarly, a number of courts subscribing to the minority view have also found the statute to be unambiguous. See In re Morales, 359 B.R. 211, 215 (Bankr. N.D. Ill.
10 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 explicitly states its applicability to a 910 claim and expressly prohibits bifurcation of the claim.64 Arguing that the invocation of § 506 is the sole means of bifurcating a creditor’s claim, the courts assert that in the absence of § 506, a 910 creditor is not allowed to bifurcate its claim.65 The bankruptcy court in In re Pinti acknowledged that the hanging paragraph was “poorly drafted” but found the language of the statute to be unambiguous.66 Though the In re Pinti court recognized that state law controls the creation and perfection of a lien, the court held this to be the extent of state law’s authority with respect to the lien and any claim that may arise in relation to it once the debtor has entered into bankruptcy.67 After the filing of the debtor’s bankruptcy petition, the “Bankruptcy Code, and not state law, determines whether and to what extent such claim should be allowed in the bankruptcy estate.”68 The court asserted that § 506 was the “starting point” in making this determination.69 Because the court maintained that the hanging paragraph prohibits application of this provision to claims by 910 creditors, the court held that the creditor was not entitled to an unsecured claim for the deficiency.70 Additionally, the court noted that its holding would remain unchanged regardless of whether the debtor retained or surrendered the 910 vehicle.71
2007); In re Hoffman, 359 B.R. 163, 166 (Bankr. E.D. Mich. 2006); In re Particka, 355 B.R. 616, 625 (Bankr. E.D. Mich. 2006). 64 See In re Pinti, 363 B.R. at 376; In re Wampler, 345 B.R. at 736; In re Quick, 360 B.R. at 722; In re Payne, 347 B.R. at 278. 65 See supra note 64. 66 363 B.R. at 369. 67 Id. 68 Id. 69 Id. 70 Id. 71 Id.
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B. The Minority’s Position of the Applicability of the Hanging Paragraph
A minority of bankruptcy courts hold that a 910 creditor may assert an unsecured claim for any amount remaining after the debtor’s surrender of the 910 vehicle.72 Although these courts reach the same end result, they utilize different arguments to arrive at the conclusion. Some courts, such as the Seventh Circuit in In re Wright, maintain that with § 506 gone, both the debtor and creditor are left with their contractual rights and obligations, as defined by state law.73 According to the courts that adopt this reasoning, where the contract and/or the appropriate UCC provision of the state provides for a deficiency, the 910 creditor is entitled to assert an unsecured deficiency claim for that amount.74 Because of this entitlement, the 910 creditor may not be forced to accept the vehicle in full satisfaction of the creditor’s claim.75 Other courts maintain that where the debtor surrenders the 910 vehicle, it passes out of the bankruptcy estate and is no longer confined by the strictures of § 506.76 In these courts, because the bankruptcy law does not apply, the parties are left to their original contractual obligations. Still other courts assert that the language of the statute is ambiguous.77 Finding that the legislative history demonstrates Congress’s intent that the BAPCPA provide greater protection to 910 creditors, these courts hold that the creditor is entitled to assert an unsecured claim for any deficiency.
72 See, e.g., In re Morales, 359 B.R. 211, 217 (Bankr. N.D. Ill. 2007); In re Particka, 355 B.R. 616, 629 (Bankr. E.D. Mich. 2006); In re Zehrung, 351 B.R. 675, 678 (Bankr. W.D. Wis. 2006); In re Duke, 345 B.R. 806, 809 (Bankr. W.D. Ky. 2006). 73 492 F.3d 829 (7th Cir. 2007). 74 Id. 75 See sources cited supra note 72. 76 See, e.g., In re Zehrung, 351 B.R. at 678. 77 See, e.g., id. at 678.
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1. Upon Its Surrender, the 910 Vehicle is No Longer Part of the Estate78
The bankruptcy court in In re Zehrung recognized that the BAPCPA prohibits the use of § 506 for the claims of 910 creditors but found that this was not the relevant provision of the bankruptcy code.79 This provision applies only when the bankruptcy estate retains an interest in the 910 vehicle—an interest which “disappears with surrender.”80 The court found its interpretation of the hanging paragraph to be consistent not only with the statute’s language but also with Congress’s intent in enacting the legislation.81 The In re Zehrung court noted that the title of the section of the BAPCPA which added the hanging paragraph is “Section 306—Giving Secured Creditors Fair Treatment in Chapter 13 . . . Restoring the Foundation for Secured Credit.”82 Given Congress’s express objectives, the court found it improbable that the BAPCPA was intended to abrogate the rights of a 910 creditor to an unsecured deficiency claim—a right that the creditors were entitled to prior to the enactment of the statute.83 The court further noted the result obtained under the majority’s approach— the expansion of rights to the creditor where the debtor keeps the vehicle and the reduction of rights to the creditor where the collateral is surrendered.84 Consequently, the court held that the creditor was entitled to liquidate the vehicle and assert an unsecured claim for the remaining balance.85
78 See supra note 72. 79 351 B.R. at 677-78. 80 Id. 81 Id. 82 Id. 83 Id. 84 Id. 85 Id. at 678.
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2. The Hanging Paragraph is Ambiguous86
Because the court in In re Duke found the language of the hanging paragraph to be ambiguous, it looked to the legislative history.87 While the court acknowledged that the history is limited, it discerned indicators that Congress, in passing the BAPCPA, sought to discourage bankruptcy abuse.88 Like the court in In re Pinti, the In re Duke court noted that the title of the section of the BAPCPA which added the hanging paragraph is, “Section 306—Giving Secured Creditors Fair Treatment in Chapter 13 . . . Restoring the Foundation for Secured Credit.”89 Therefore, the court reasoned that it was clear that Congress intended to provide secured creditors with greater protection.90 Forcing a creditor to accept surrender of the collateral in full satisfaction of its claim would eliminate the creditor’s deficiency claim and was therefore contrary to Congress’s purpose behind enacting the statute. Absent a clear indication that Congress intended this “anti-deficiency” result, the court held that upon surrender of the vehicle, the creditor was entitled to pursue the remedies available to it under state law.91 Namely, the creditor was entitled to an unsecured claim in the amount of the deficiency.92
III. IN RE WRIGHT: THE SEVENTH CIRCUIT BECOMES THE FIRST COURT OF APPEALS TO ADDRESS THE ISSUE
In In re Wright, the Seventh Circuit was asked to decide whether the hanging paragraph precluded a 910 creditor from asserting an unsecured claim for the amount of the balance that remained after the debtors’ surrender of the automobile.93 The debtors in In re Wright
86 In re Duke, 345 B.R. 806, 809 (Bankr. W.D. Ky. 2006). 87 Id. 88 Id. 89 Id. 90 Id. 91 Id. 92 Id. 93 In re Wright, 492 F.3d 829, 829 (7th Cir. 2007).
14 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 purchased a vehicle and, in so doing, entered into a contract where they agreed to be responsible for any deficiency in the event that the vehicle was seized and liquidated due to non-payment.94 Within 910 days of the purchase, the debtors filed their bankruptcy petition.95 They subsequently proposed a Chapter 13 repayment plan whereby they would surrender the vehicle to the creditor in full satisfaction of the loan.96 The debtors did not propose to pay any of the deficiency and as a result, the bankruptcy judge declined to confirm their Chapter 13 plan.97 Pursuant to 28 U.S.C. § 158(d)(2)(A),98 the bankruptcy judge certified that the case satisfied subparagraphs (i) and (ii) of the statute.99 The Seventh Circuit accepted the bankruptcy court’s certification, noting that this issue arises in a large number of consumer cases but appears to be “stuck” in the bankruptcy courts.100 The court affirmed the decision of the bankruptcy court and in doing
94 Id. at 830. 95 Id. at 832. 96 Id. at 831. 97 Id. 98 Id. The statute provides: The appropriate court of appeals shall have jurisdiction of appeals described in the first sentence of subsection (a) if the bankruptcy court, the district court, or the bankruptcy appellate panel involved, acting on its own motion or on the request of a party to the judgment, order, or decree described in such fist sentence, or all the appellants and appellees (if any) acting jointly, certify that – (i) the judgment, order or decree involves a question of law as to which there is no controlling decision of the court of appeals for the circuit or of the Supreme Court of the United States, or involves a matter of public importance; (ii) the judgment, order, or decree involves a question of law requiring resolution of conflicting decisions; or (iii) an immediate appeal from the judgment, order, or decree may materially advance the progress of the case or proceeding in which the appeal is taken; and if the court of appeals authorizes the direct appeal of the judgment, order, or decree. 28 U.S.C. § 158(d)(2)(A) (2006). 99 In re Wright, 492 F.3d at 831. 100 Id. at 833.
15 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 so adopted the minority view among bankruptcy courts.101 The court agreed that the hanging paragraph eliminates the application of § 506 to the claims at issue and thus the requirement that claims be bifurcated into secured and unsecured claims.102 However, the Seventh Circuit argued that § 506 is not “the only source of authority for a deficiency judgment when the collateral is insufficient.”103 Judge Easterbrook considered the United State Supreme Court’s decision in Butner v. United States,104 and the court’s holding that when the Code does not provide a federal rule, state law determines rights and obligations.105 Because the hanging paragraph prohibits the application of § 506 to 910 claims post-BAPCPA, the debtors were left with their original contractual obligations and the 910 creditor was left with its rights specified in the contract.106 The contract that debtors entered into with the creditor provided that if the loan was not paid, the vehicle would be seized and sold.107 Further, the contract explicitly provided that upon seizure and liquidation of the automobile, the creditor would refund any surplus to the debtors.108 However, in the event that the vehicle was sold for less than the amount of the loan, the debtors “shall be liable for any deficiency.”109 This contract, Judge Easterbrook held, created a secured loan with recourse against the borrower.110 The contract further provided that the parties were entitled to all of their rights as specified in the U.C.C.111 The court 112 then consulted 810 ILL. COMP. STAT. 5/9-615(d), the applicable
101 Id. at 832. 102 Id. 103 Id. 104 440 U.S. 48 (1979). 105 In re Wright, 492 F.3d at 832. 106 Id. 107 Id. 108 Id. 109 Id. 110 Id. 111 Id. 112 The pertinent part of 810 ILL. COMP. STAT. 5/9-615(d)(2) (2007) states that, “If the security interest under which a disposition is made secures payment or performance of an obligation, after making the payments and applications required
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U.C.C. provision enacted by Illinois, and held that upon surrender of the automobile, the creditor was entitled to an unsecured claim for the difference between the car’s value and the balance of the loan.113 Judge Easterbrook went on to pose a hypothetical in which debtors surrendered the automobile just one day prior to the filing of their Chapter 13 petition.114 The court reasoned, based upon the parties’ contract and the appropriate Illinois statute,115 that under those circumstances, the creditor would have been entitled to assert an unsecured claim for any amount by which the loan exceeded the value of the vehicle.116 The Seventh Circuit noted this anomalous outcome117—the creditor would have been allowed a deficiency the day before filing a bankruptcy petition but denied a deficiency just one day after filing.118 Not finding an operative provision in the Code to the contrary, Judge Easterbrook then looked to the title of the statute that enacted the hanging paragraph.119 Discerning what he believed to be Congress’s intent to provide protection for secured creditors, Judge Easterbrook reasoned that the hanging paragraph replaced a “contract- defeating provision such as § 506” (which allows judges rather than the market to value the collateral and set an interest rate, and may prevent creditors from repossessing [the vehicle]) with the agreement freely negotiated between debtor and creditor.”120 Judge Easterbrook also refuted the assertions of the National Association of Consumer Bankruptcy Attorneys, appearing as amicus curiae, that the hanging paragraph completely eliminates the 910
by subsection (a) and permitted by subsection (c) . . . the obligor is liable for any deficiency. 810 ILL. COMP. STAT 5/9-615(d)(2). 113 In re Wright, 492 F.3d at 832. 114 Id. 115 810 ILL. COMP. STAT. 5/9-615(d)(2). 116 In re Wright, 492 F.3d at 832. 117 Id. While other events are triggered the day after filing bankruptcy where they would not have been the day before bankruptcy, the court seemingly found this result inconsistent with Congress’s purpose in enacting the BAPCPA. See id. at 832. 118 Id. 119 Id. 120 Id.
17 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 creditor’s secured status.121 The reasoning of the amici was flawed, the court asserted, because it assumed that § 506 was the only source in bankruptcy of a secured creditor’s rights.122 These considerations led Judge Easterbrook to hold that while the debtors were not required to pay the unsecured debt in full any more than they were obligated to pay the full amount of their other unsecured debts, the creditor’s unsecured claim could not “be written off in toto while other unsecured creditors are paid some fraction of their entitlements.”123 In other words, Judge Easterbrook decided that the creditor was allowed at least the right to receive a portion of its unsecured claim—the same percentage that other creditors with unsecured claims were entitled.
IV. The Seventh Circuit Made the Right Decision in In re Wright
In In re Wright, the Seventh Circuit made an important decision: in cases where the value of the 910 vehicle is insufficient, § 506 does not provide the sole source of authority for a deficiency judgment.124 This determination is not only consistent with the statute and state law but it is also in line with Congress’s purpose in enacting the BAPCPA.
A. The Hanging Paragraph and State Law
In Butner v. United States125 the Supreme Court, desiring uniform treatment of property interests in state and federal courts, held that,
Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding.126
121 Id. 122 Id. at 833. 123 Id. 124 Id. at 832. 125 440 U.S. 48 (1979). 126 Id. at 55 (emphasis added).
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The Court went on to note that the justifications for applying state law were not limited to ownership interests.127 Rather, the Court expanded the application to security interests as well.128 The Seventh Circuit interpreted this language to mean that unless there is a provision in the Bankruptcy Code that says otherwise, state law governs the parties’ rights under a contract.129 Prior to the enactment of the BAPCPA, there was a provision in the Code—§ 506— that provided otherwise.130 There is no dispute. There also is no disagreement that this provision still exists with respect to non-910 creditors. However, as the majority courts so steadfastly maintain, the BAPCPA expressly prohibits the application of § 506 to the claims of 910 creditors. Consequently, as the majority courts argue, there is no applicable bankruptcy provision that applies with respect to the bifurcation of a 910 creditor’s claim.131 Applying the Supreme Court’s holding in Butner, state law applies.132 As the Seventh Circuit held, in the case where parties have contracted for particular rights, they are entitled to those rights.133 The Seventh Circuit’s approach is also consistent with Article 9 of the U.C.C. The purpose of Article 9 of the U.C.C. is “to provide a simple and unified structure within which the immense variety of present-day secured financing transactions can go forward with less cost and with greater certainty.”134 It provides parties with recourse so that they will freely contract with others, which is crucial in our market-driven economy. The Seventh Circuit recognized the importance of the parties’ contract; namely, that the debtors explicitly agreed to be responsible for any deficiency.135 And the courts’ holding resulted in the parties’ actual contract having meaning—legal
127 Id. 128 Id. 129 In re Wright, 492 F.3d at 832. 130 In re Ezell, 338 B.R. 330, 338 (Bankr. E.D. Tenn. 2006). 131 In re Duke, 345 B.R. 806, 809 (Bankr. W.D. Ky. 2006). 132 440 U.S. 48 at 48 (1979). 133 In re Wright, 492 F.3d at 832. 134 UCC 9-101 cmt. 135 In re Wright, 492 F.3d at 832.
19 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 meaning—rather than simply being a means by which the debtors were able to get what they wanted, to the detriment of the creditor.136 To adopt the majority’s view would obviate the need to contract because parties would not be held to them. This would further have the adverse effect of striking a serious blow to the effectiveness of Article 9 and precluding parties from relying on the security interests.
B. The Reason for the BAPCPA
One of the factors that led to the enactment of the BAPCPA was abuse of the bankruptcy system.137 As discussed earlier, the enactment of the BAPCPA resulted in a provision applicable only to those debtors acquiring a vehicle shortly before filing bankruptcy. By singling out these debtors, Congress was seemingly concerned about their potential for abuse. It hardly seems rational that Congress would enact a provision targeting a potentially abusive debtor which afforded the debtor more opportunity to abuse the system after the enactment of the statute than the debtor had prior to. The Seventh Circuit’s interpretation is in harmony with this reasoning. Adoption of the majority courts’ reasoning would have an outcome that Congress surely could not have intended. Further, while the BAPCPA’s legislative history is dearth, the title of the section that enacted the BAPCPA clearly indicates that it was enacted to protect secured creditors.138 While one majority court was not convinced that its holding was “adverse to the position of a secured creditor,”139 under the reasoning of the majority courts, secured creditors will be denied that to which they are entitled—that to which they lawfully contracted for. If the amount of litigation brought by secured creditors with respect to this issue is not conclusive proof of the secured creditors’ belief that the majority courts’ holdings are “adverse” to their interests, surely it at least must be extremely
136 Id. 137 See source cited supra note 36 and accompanying text. 138 In re Zehrung, 351 B.R. 675, 678 (Bankr. W.D. Wis. 2006); In re Wright, 492 F.3d at 832. 139 In re Quick, 360 B.R. 722, 728 (Bankr. N.D. Okla. 2007).
20 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 persuasive. In In re Wright, the Seventh Circuit did protect the secured creditor, consistent with the purpose of the BAPCPA, by affording them an unsecured deficiency claim.140
CONCLUSION
While the language of the BAPCPA is clear, the interpretation given to it by the majority courts is not only contrary to its plain meaning but also to Congress’s motivations behind enacting the legislation. A major factor underlying the need for the statute was to protect secured creditors. However, under the majority court’s interpretation, secured creditors are in a worse position following the enactment of the statute than they were before the legislation. It is hardly affording the secured creditor greater protection when you take away its entitlement to an unsecured claim—a right that it had previously enjoyed. Further, these contracted rights represent the very foundation upon which Article 9 of the U.C.C. is built. Depriving secured creditors of them while entitling unsecured creditors to these rights renders Article 9 a nullity and fails to pass “logical muster.”141 In In re Wright, the Seventh Circuit adopted the correct interpretation. And by holding the 910 debtors to their original contractual obligations, the court’s holding is consistent with the plain meaning of the statute, Congress’s purpose for enacting the statute, and Article 9. Though the debate continues with little possibility of subsiding soon, it is clear that in courts adopting the majority view, 910 debtors will continue to have the opportunity to abuse the bankruptcy system to the detriment of 910 creditors—exactly what the BAPCPA was intended to prevent. As such, it is imperative that the majority courts adopt the view to which the Seventh Circuit subscribes. It is then that secured creditors will be given the protection that they expect, the protection that Congress desired them to have, and the protection that they have contracted for.
140 492 F.3d at 832. 141 In re Quick, 360 B.R. 722, 728 (Bankr. N.D. Okla. 2007).
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OUTER MARKER BEACON: THE SEVENTH CIRCUIT CONFIRMS THE CONTOURS OF FEDERAL QUESTION JURISDICTION IN BENNETT V. SOUTHWEST AIRLINES CO.
* WILLIAM K. HADLER
Cite as: William K. Hadler, Outer Marker Beacon: The Seventh Circuit Confirms the Contours of Federal Question Jurisdiction in Bennett v. Southwest Airlines Co., 3 SEVENTH CIRCUIT REV. 22 (2007), at http://www.kentlaw.edu/7cr/v3-1/hadler.pdf.
INTRODUCTION
“The federal courts do not exist for the purpose of clearing their dockets. They exist to unify the federal system, to interpret and enforce federal law, and to prevent interstate prejudices and allegiances from balkanizing the nation.”1 – Professor Martin H. Redish
First principles of our Republic teach that federal courts are courts of limited jurisdiction, the boundaries of which are designated by the Constitution of the United States. Article III provides that “[t]he judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties.”2
* J.D. candidate, May 2008, Chicago-Kent College of Law, Illinois Institute of Technology; Vanderbilt University, B.S. magna cum laude, May 2001. William K. Hadler would like to thank his family, namely his wife, Megan, and his parents, Richard and Jane Hadler, for their love and support. 1 Martin H. Redish, Reassessing the Allocation of Judicial Business Between State and Federal Courts: Federal Jurisdiction and “The Martian Chronicles”, 78 VA. L. REV. 1769, 1786 (1992). 2 U.S. CONST. art. III, § 2, cl.1.
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While this precise language was codified in 28 U.S.C. § 1331,3 “it is uncontroversial that the federal question statutory jurisdictional grant is narrower than its identically worded constitutional counterpart, [but] its precise scope is unclear with respect to state law claims that implicate questions of federal law.”4 These so-called “hybrid claims” usually occur when a plaintiff brings a cause of action in state court, but uses the violation of a federal statute to satisfy an element of the state law claim.5 These cases “force district courts to confront a confusing line of cases in which the Supreme Court’s attempts to articulate an all-purpose, bright line test for the § 1331 inquiry have consistently failed.”6 In the field of subject matter jurisdiction, the “question that has caused the most analytical difficulty for the allocation of jurisdiction over the past century is whether a federal court has original federal question jurisdiction when an issue of federal law is embedded in a claim created by state law.”7 The most recent Supreme Court case to address this issue was Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing.8 In this case, the Court established a new test to govern these hybrid cases and to assess the grant of federal question jurisdiction. The Court announced that the federal courthouse doors are open for a suit that “necessarily raise[d] a stated federal issue,
3 28 U.S.C. § 1331 (2000) (“The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.”). 4 Harvard Law Review Association, Mr. Smith Goes to Federal Court: Federal Question Jurisdiction Over State Law Claims Post-Merrell Dow, 115 HARV. L. REV. 2272, 2273 (2002) [hereinafter Mr. Smith Goes to Federal Court]. 5 Although at least one commentator has questioned the use of the terminology “hybrid” or “mixed” claims to describe these cases and argues that the term “embedded” is more appropriate, all of these terms are presented in this Note interchangeably to describe a case in which federal issues appear in state law claims. See Douglas D. McFarland, The True Compass: No Federal Question in a State Law Claim, 55 U. KAN. L. REV. 1, 2 (2006). 6 Adam P.M. Tarleton, In Search of the Welcome Mat: The Scope of Statutory Federal Question Jurisdiction After Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing, 84 N.C. L. REV. 1394, 1413 (2006). 7 McFarland, supra note 5, at 1. 8 545 U.S. 308, 314 (2005).
23 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities.”9 Following Grable, the Seventh Circuit Court of Appeals ruled on its own hybrid case, Bennett v. Southwest Airlines Co.10 In Bennett, the plaintiffs,11 who were injured as a result of a Southwest Airlines crash at Midway Airport in Chicago on December 8, 2005, filed tort suits in Illinois state court.12 The defendants (Southwest Airlines Co., The Boeing Company, and the City of Chicago) removed these consolidated suits to federal court.13 The United States District Court for the Northern District of Illinois “denied the motion to remand [to state court], but certified the decision for interlocutory appeal,” which the Seventh Circuit accepted.14 On appeal, the defendants’ argued that the state claims rested on federal aviation regulations that required uniform interpretation and application by a federal forum.15 On the other hand, the plaintiffs argued that the claims in this case represented “garden variety state-law tort claims.”16 The Seventh Circuit reversed the district court’s decision and remanded the case to state court.17 While the Seventh Circuit made the correct decision in Bennett, the test it used to reject federal question jurisdiction was flawed. This Note discusses and examines the evolution of the tests used to analyze jurisdiction in these hybrid cases. It divides these tests into two categories: the Traditional Test, based on a reconciliation of the issue in the case with the original purposes of the lower federal courts; and
9 Id. at 314. 10 484 F.3d 907 (7th Cir. 2007). 11 Brief of Defendant-Appellee the Boeing Company at 5, Bennett, 484 F.3d 907 (No. 06-3486), 2007 WL 414512 at *4-5 (7th Cir. Jan. 24, 2007) (“Plaintiffs in these consolidated cases are various passengers, bystanders, and the estate and family members of the child who was killed.”). 12 Bennett, 484 F.3d at 908. 13 Id. 14 Id. 15 Id. at 909. 16 Opening Brief of Plaintiff-Appellants at 5, Bennett, 484 F.3d 907 (No. 06- 3486), 2006 WL 3368827, at *5 (7th Cir. 2006). 17 Bennett, 484 F.3d at 912.
24 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the Modern Test, based on using the effect on the federal docket as a factor in decisions granting federal question jurisdiction. Part I of this Note identifies and explains the traditional Supreme Court test used to decide federal jurisdiction when federal issues presented themselves in state law claims. Part II illustrates the Supreme Court’s departure from this traditional method. It shows how the Court moved to a Modern Test that takes into account federal caseload issues in Merrell Dow Pharmaceuticals Inc. v. Thompson18 and Grable.19 Part III discusses the Bennett decision, and examines the application of the Modern Test in the Seventh Circuit. Part IV discusses the problems with considering caseload factors in the adjudication of federal question jurisdiction and proposes an alternative analysis the Seventh Circuit could have used that would have reached the same result.
I. THE TRADITIONAL TEST FOR FEDERAL QUESTION JURISDICTION IN STATE LAW CLAIMS
This section identifies the differences between the traditional and Modern Tests for federal question jurisdiction in hybrid claims. Then it examines the origins and development of the Traditional Test to provide context for the evaluation of the Modern Test, as applied by the Seventh Circuit Court of Appeals in Bennett.
A. The Traditional and the Modern Tests
In Bennett, the defendants removed the case to the United States District Court for the Northern District of Illinois after the plaintiffs originally filed a complaint in Illinois state court.20 The federal removal statute permits civil actions “arising under” federal law to be removed from state court to federal court.21 Traditionally, a court evaluates the removability of actions based on the well-pleaded
18 478 U.S. 804 (1986). 19 Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 314 (2005). 20 Bennett v. Sw. Airlines Co., 484 F.3d 907, 908 (7th Cir. 2007). 21 28 U.S.C. §1441(b) (2000).
25 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 complaint rule established in Louisville & Nashville Railroad Co. v. Erasmus L. Mottley.22 Under this rule, “a suit arises under the Constitution and laws of the United States only when plaintiff’s statement of his own cause of action shows it is based upon those laws or that Constitution.”23 It is not sufficient for a plaintiff to base subject matter jurisdiction on some anticipated defense based on federal law.24 In Bennett, the defendants’ argument for removal was based upon an alternative theory:25 that the claims “arose under” federal law “because federal aviation standards play[ed] a major role in [the] claim[s] that Southwest (as operator of the flight), Boeing (as manufacturer of the airframe), or Chicago (as operator of the airport) acted negligently.”26 Bennett employed the Grable two-prong test for federal question jurisdiction over hybrid claims. The plaintiffs called this the “substantial federal issue doctrine.”27 Using this test in Bennett, the Seventh Circuit first assessed whether the plaintiff’s claim, “necessarily raise[d] a stated federal issue, actually disputed and substantial.”28 In other words, the Bennett court reasoned that there must be a certain quality about the particular issue to warrant adjudication within the federal system. In this first prong, the Seventh Circuit used the Traditional Test espoused by the Supreme Court since the enactment of § 1331. While the Supreme Court’s test for this quality expanded over the subsequent years, the focal point remained the same. Professor William Cohen eloquently articulated this standard. He argued that federal question jurisdiction is only necessary in a specific situation:
22 211 U.S. 149, 152 (1908). 23 Id. 24 Id. 25 See Bennett, 484 F.3d at 908. (The defendants abandoned one theory, which focused on complete preemption by federal aviation regulations, therefore preemption will not be discussed in this Note). 26 Id. 27 Opening Brief of Plaintiff-Appellants, supra note 16, at *5. 28 Bennett, 484 F.3d at 909 (quoting the standard established by Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 314 (2005)).
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A novel claim of mixed federal and state law ought to qualify as “arising under” federal law only if it exhibits those features which justify the need for federal trial court jurisdiction of federal question cases. A case that requires expertise in the construction of the federal law involved in the case, and a sympathetic forum for the trial of factual issues related to the existence of a claimed federal right, ought to fall within federal jurisdiction.29
Yet, based on the guidance from the Supreme Court in Merrell Dow and Grable, the Bennett court departed from this traditional inquiry. The second prong of the Seventh Circuit’s inquiry asked whether “a federal forum may entertain [the issue] without disturbing any congressionally approved balance of federal and state judicial responsibilities.”30 The Grable Court announced the “importance of having a federal forum for the issue, and the consistency of such a forum with Congress’s intended division of labor between state and federal courts.”31 By adding caseload factors to the decision to grant federal question jurisdiction in Merrell Dow and Grable, the Supreme Court ushered in the Modern Test for granting federal question jurisdiction in these cases.32 This factor proved dispositive in Bennett.33 The Seventh Circuit reasoned that a decision to uphold federal question jurisdiction would move an entire class of cases into federal court.34
29 William Cohen, The Broken Compass: The Requirement that a Case Arise “Directly” Under Federal Law, 115 U. PA. L. REV. 890, 906 (1967). 30 Bennett, 484 F.3d at 909. 31 Grable, 545 U.S. at 319. 32 See Tarleton, supra note 6, at 1408 (“Th[e] reconciliation of Grable and Merrell Dow is best viewed as a balancing test wherein the Court weighs the federal interest in providing a federal forum against the competing interest in avoiding excessive burdens on the federal docket.”). 33 Bennett, 484 F.3d at 911. 34 Id.
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B. The Development of the Traditional Test
Having established the difference between the traditional and the Modern Tests for federal question jurisdiction in hybrid cases, it is necessary to examine the development of these tests in order to assess their present day application. Article III of the Constitution of the United States, states that “[t]he judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the laws of the United States, and Treaties.”35 However, the grant of the Article III power was not self-executing and it took Congress until 1801, in the famous Midnight Judges’ Act36, to grant federal courts the powers asserted under Article III.37 But the Act did not survive the Federalists’ departure from power and it was repealed by the Jeffersonian Congress within one year.38 Congress waited until 1875 to again grant original federal question jurisdiction to the lower federal courts, but this time it added removal jurisdiction whereby, upon motion, a case could be transferred from state court to federal court if there was an issue of federal law.39 While very little legislative history exists surrounding the 1875 Act, there is some suggestion that a distrusting post-Civil War Congress adopted § 1331 to protect federal rights from the individual states.40 Although a federal question jurisdiction rule began emerging in the three decades following the 1875 Act, it was not until the Supreme Court decided American Well Works Co. v. Layne & Bowler Co.,41 in 1916 that the boundaries were truly clarified.42 The case centered on
35 U.S. CONST. art. III, § 2, cl.1. 36 Act of Feb. 13, 1801, ch. 4, § 11, 2 Stat. 89, 92, repealed by Act of Mar. 8, 1802, ch. 8, § 1, 2 Stat. 132, 132. 37 McFarland, supra note 5, at 3-4. 38 Donald L. Doernberg, There’s No Reason For It; It’s Just Our Policy: Why the Well-Pleaded Complaint Rule Sabotages the Purposes of Federal Question Jurisdiction, 38 HASTINGS L.J. 597, 601 (1987). 39 Id. 40 Patti Alleva, Prerogative Lost: The Trouble With Statutory Federal Question Doctrine After Merrell Dow, 52 OHIO ST. L.J. 1477, 1497 (1991). 41 241 U.S. 257 (1916). 42 McFarland, supra note 5, at 6.
28 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the patent rights between two companies, both of whom manufactured similar pumps.43 The plaintiff sued for slander—a state court tort claim—because of the defendant’s threats to sue under the patent laws.44 In denying federal jurisdiction, Justice Oliver Wendell Holmes stated that “[a] suit for damages caused by a threat to sue under the patent law is not itself a suit under the patent law.”45 Famously, Justice Holmes stated that “[a] suit arises under the law that creates the cause of action.”46 Five years later, in Smith v. Kansas City Title & Trust Co., the Court expanded federal question jurisdiction beyond American Well Works.47 In Smith, a shareholder of Kansas City Title and Trust Company sued to prevent the company from investing its funds in farm loan bonds issued by entities formed under the authority of the Federal Farm Loan Act of 1916.48 Seeking to enjoin the defendant, the shareholder claimed that the bonds were invalid because they were issued under an unconstitutional law.49 The Court took notice of jurisdiction sua sponte and provided the general rule that “where it appears from the bill or statement of the plaintiff that the right to relief depends upon the construction or application of the Constitution or laws of the United States . . . the [d]istrict [c]ourt has jurisdiction under this provision.”50 Although the case involved a Missouri shareholder, a Missouri corporation, and Missouri corporation law; the Supreme Court still allowed the plaintiff to bring the action in federal district court under federal question jurisdiction because of the presence of a federal act. In a vigorous dissent, Justice Holmes repeated his rule from American Well Works, stating, “[t]he mere adoption by a State law of a United States law as a criterion or test, when the law of the United States has
43 American Well Works, 241 U.S. at 258. 44 Id. 45 Id. at 259. 46 Id. at 260. 47 Mr. Smith Goes to Federal Court, supra note 4, at 2273-74. 48 255 U.S. 180, 195 (1921); see generally 12 U.S.C. § 641 repealed by Pub. L. No. 92-181, 85 Stat. 624 (1971). 49 Id. at 201. 50 Id. at 199.
29 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 no force proprio vigore,51 does not cause a case under State law to be also a case under the law of the United States.”52 Smith appears to lower the standard from American Well Works, making it possible for a case ostensibly under state law to receive federal question jurisdiction where the interpretation of federal law is at issue.53 This holding represented an important shift in the standard of analysis used to evaluate these hybrid claims, yet the “Supreme Court’s own subsequent elaboration of the statutory grant has left many unanswered questions.”54 The evolution of this particular subcategory of federal question jurisdiction continued in Gully v. First National Bank in Meridian,55 where the Supreme Court appeared to tailor the expansion of the inquiry by the Smith Court.56 Gully centered on a dispute over outstanding taxes owed to Mississippi under an acquisition contract where all of the debts and liabilities of the old bank were to be paid by the new bank.57 The plaintiff sued in state court and the defendant removed the case to federal court on the “ground that the suit was one arising under the Constitution or laws of the United States.”58 The plaintiff lost the case on the merits and appealed.59 The Fifth Circuit affirmed the grant of federal jurisdiction because “the power to lay a tax upon the shares of national banks has its origin and measure in the provisions of a federal statute.”60 The Supreme Court, however, reversed.61 The Court rejected the reasoning that the claim asserted by the state tax collector arose under
51 Proprio vigore, means “by its own strength.” BLACK’S LAW DICTIONARY 1256 (8th ed. 2004). 52 Smith, 255 U.S. at 215. 53 See generally id. at 199-202; see also Mr. Smith Goes to Federal Court, supra note 4, at 2272. 54 Id. at 2274. 55 299 U.S. 109 (1936). 56 McFarland, supra note 5, at 11. 57 Gully, 299 U.S. at 111. 58 Id. at 112. 59 Id. 60 Id. 61 Id. at 114.
30 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 federal law because the fundamental authority to collect taxes derives from the sovereign powers of the United States.62 The Court stated that the “federal nature of the right to be established is decisive—not the source of authority to establish [the right].”63 Because countless claims could be found to have their origins in federal statutes, the Supreme Court reasoned that the federal question jurisdiction analysis required more than the mere presence of federal law; it required a “substantial” federal issue.64 In Gully, the Court, announced a distinction that would bedevil the federal courts over the next 75 years and appear at issue in Bennett: the distinction between federal controversies “that are basic and those that are collateral, between disputes that are necessary and those that are merely possible.”65 The Supreme Court next addressed hybrid claims fifty years after Gully in Franchise Tax Board of the State of California v. Construction Laborers Vacation Trust for Southern California.66 Similar to Gully, the parties in Franchise Tax Board were at odds over the collection of state taxes.67 The defendant was the administrator of an employee vacation fund for union construction workers in the southern California region.68 According to California law, the Franchise Tax Board was authorized to seek money directly from the vacation fund for unpaid state personal income taxes by contributor-members because the fund was an ERISA69 program.70 The Franchise Tax Board filed suit in state court and the defendant-administrator removed to the federal court.71 The Franchise Tax Board ultimately lost on appeal.72
62 Id. 63 Id. 64 Id. 65 Id. at 118; see also Mr. Smith Goes to Federal Court, supra note 4, at 2272. 66 463 U.S. 1 (1983). 67 Id. at 3-4. 68 Id. at 4. 69 29 U.S.C. §§ 1001 et seq. (2000). 70 Franchise Tax Board 463 U.S. at 5-6. 71 Id. at 7. 72 Id.
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The Supreme Court granted certiorari to determine whether jurisdiction was appropriate within the federal court system.73 In contrast to the rule from American Well Works and more in line with the opinion in Gully, the Franchise Tax Board Court declined to grant federal question jurisdiction.74 The Court held that “the plaintiff’s right to relief necessarily depends on resolution of a substantial question of federal law.”75 The Court reasoned that the “State’s right to enforce its tax levies is not of central concern to the federal statute” and that ERISA did not provide any direct cause of action for the plaintiff’s relief. As opposed to American Well Works’ clear rule that the “suit arises under the law that creates the cause of action,”76 Gully and Franchise Tax Board lowered the threshold and complicated the analysis by allowing for a jurisdictional determination to be made based on the presence of a “substantial” federal issue in a claim that originated under state law.77 The Franchise Tax Board Court reiterated the rule from Smith78 and rejected American Well Works, which it described as a useful description for the “vast majority of cases that come within the district courts’ original jurisdiction,” but not “an exclusionary principle.”79 Thus, in the approximately 100 years since Congress first granted federal question jurisdiction to the lower federal courts, the Supreme Court has extended the reach of the federal courts and increased the
73 Id. 74 Id. 75 Id. at 28. 76 American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260 (1916). 77 McFarland, supra note 5, at 13-4. 78 Franchise Tax Board, 463 U.S. at 9 (citing Smith v. Kansas City Title & Trust Co., 255 U.S. 180 (1921)) (“We have often held that a case ‘arose under’ federal law where the vindication of a right under state law necessarily turned on some construction of federal law.”). 79 Franchise Tax Board, 463 U.S. at 9.
32 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 power of the national judiciary.80 Immediately following the enactment § 1331,81 a court granted federal question jurisdiction only when a federal “cause of action” created the claim.82 However, the combination of Smith, Gullly, and Franchise Tax Board established the Traditional Test.83 A court could grant federal question jurisdiction if a “substantial” federal issue was at stake even if the claim originated under state law.84 The prudence of the expansion notwithstanding, 85 the Traditional Test was firmly rooted in this one tier inquiry, but this would not last for long.
II. MERRELL DOW AND GRABLE ESTABLISH THE MODERN TEST FOR FEDERAL QUESTION JURISDICTION
This section discusses the transition from the Traditional Test for federal question jurisdiction to the Modern Test. Specifically, it focuses on the emerging importance of the judicial economy and caseload factors in the federal courts’ analysis of state claims that invoke federal issues.
80 See generally Jason Pozner, The More Things Change, The More They Stay the Same: Grable & Sons v. Darue Engineering Does Not Resolve The Split Over Merrell Dow v. Thompson, 2 SETON HALL CIRCUIT REV. 533, 543-48 (2006). 81 28 U.S.C. § 1331 (2000). 82 American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260 (1916). 83 See Gully v. First National Bank, 299 U.S. 109, 113-4 (1936) (“A suit to enforce a right which takes its origin in the laws of the United States is not necessarily, or for that reason alone, one arising under those laws, for a suit does not so arise unless it really and substantially involves a dispute or controversy respecting the validity, construction, or effect of such a law, upon the determination of which the result depends.”). 84 Id. 85 See generally McFarland, supra note 5, for a detailed argument in favor of returning to the standard that a claim arises under the law that creates it.
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A. Merrell Dow Introduces the Modern Test
Following closely on the heels of Franchise Tax Board, the Supreme Court granted certiorari to Merrell Dow Pharmaceuticals Inc. v. Thompson and issued a decision in 1986.86 In Merrell Dow, the plaintiffs sued the manufacturer of the drug Bendectin, alleging that their children were born with deformities as a result of the mothers’ ingestion of the drug during pregnancy.87 The plaintiffs sought damages in Ohio state court on various negligence theories, among them that the drug was misbranded in violation of the Federal Food, Drug, and Cosmetic Act (“FDCA”).88 The defendants removed the action to federal district court.89 As in Bennett, the plaintiffs attempted to use a violation of a federal statute to satisfy one element of a state cause of action and the defendants argued for removal because the claim was one arising under laws of the United States.90 In contrast to the traditional federal question jurisdiction decisions, in a 5-4 decision, the Merrell Dow Court held that the lack of a federal private right of action under the FDCA regime was dispositive.91 Here, the Court did not expressly overrule the “substantial interest test” from Franchise Tax Board and Gully,92 but instead returned to the logic in American Well Works, thereby denying the development of federal question jurisprudence over the previous 100 years.93 According to the Merrell Dow Court, when “Congress has decided not to provide a particular federal remedy, we are not free to ‘supplement’ that decision in a way that makes it ‘meaningless’.”94
86 478 U.S. 804 (1986). 87 Id. at 805. 88 Id; see also 21 U.S.C. §§321 et seq. (2000). 89 Id. at 806. 90 Id. 91 Id. at 817. 92 Id. at 813. 93 Alleva, supra note 40, at 1525. 94 Merrell Dow, 478 U.S. at 812 n.10.
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The result in Merrell Dow sparked criticism from legal scholars, and more troubling, confusion among the lower courts.95 The decision left several different approaches to the analysis of federal question jurisdiction in state law claims in its wake.96 Despite the Court’s tough rhetoric in the decision regarding the need for “prudence and restraint in the judicial inquiry,” the Court actually expanded the lower federal courts’ discretion evidenced by “circuit opinions ranging across the spectrum of possibilities.”97 Some circuits required a private right of action to grant federal question jurisdiction; while other circuits merely required the presence of a “substantial” federal interest.98 While the circuit split was an important result of the holding, the Court’s focus on the practical consequences of increased federal litigation99 distinguishes this case from the past and is the most relevant part of the decision to this Note. The introduction of an examination of the practical circumstances surrounding the litigation signaled a new era in federal question cases. Merrell Dow introduced the possibility that judicial economy could factor into the federal question jurisdiction analysis of state court claims,100 and marked the beginning of the Modern Test of federal question jurisdiction analysis of state court claims.101 The Court tried to explain its reasoning: “the phrase ‘arising under’ masks a welter of issues regarding the interrelation of federal and state authority and the proper management
95 Compare Seinfeld v. Austen, 39 F.3d 761, 764 (7th Cir. 1994) (No right to bring case in federal court where plaintiff seeks use of federal law as element in state cause of action absent a congressionally approved private right of action) with Ormet Corp. v. Ohio Power Co., 98 F.3d 799, 801-801(4th Cir. 1996) (Court concludes that action “arises under federal law within the meaning of 28 U.S.C. § 1331 because resolution of Ormet’s claim requires the determination of substantial federal issues.”); see also Pozner, supra note 80, at 555-71. 96 McFarland, supra note 5, at 17. 97 Pozner, supra note 80, at 555-556. 98 Id. 99 See Merrell Dow, 478 U.S. at 811-12. 100 Id. at 814 n.12. 101 See generally Alleva, supra note 40, at 1557; Tarleton, supra note 6, at 1410.
35 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 of the federal judicial system.”102 As opposed to the traditional inquiry into the nature of the issue in dispute, the word “management” suggests that a decision to grant federal question jurisdiction has an administrative quality—based on the amount of work among the state and federal courts.103 Next the Court suggested that the rationale for the development of the “implied remedy doctrine” was because of “increased complexity of federal legislation and the increased volume of federal litigation.”104 Later in the opinion, hidden in a footnote, the Court recognized that not all cases to enforce rights originally based on laws of the United States could be heard in federal court.105 The footnote states, in part:
A suit to enforce a right which takes its origin in the laws of the United States is not necessarily, or for that reason alone, one arising under those laws, for a suit does not so arise unless it really and substantially involves a dispute or controversy respecting the validity, construction or effect of such a law, upon the determination of which the result depends. This is especially so of a suit involving rights to land acquired under a law of the United States. If it were not, every suit to establish title to land in the central and western States would so arise, as all titles in those States are traceable back to those laws.106
In other words, a grant of federal question jurisdiction to any state law claim with federal origins would be impractical because so many state
102 Merrell Dow, 478 U.S. at 808 (quoting Franchise Tax Bd. of the State of California v. Construction Laborers Vacation Trust for S. California, 463 U.S. 1, 8 (1983)). 103 See generally Alleva, supra note 40, at 1557; Tarleton, supra note 6, at 1410. 104 Merrell Dow, 478 U.S. at 811 (quoting Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 377 (1982)). 105 Id. at 814 n.12. 106 Id. (quoting Shulthis v. McDougal, 225 U.S. 561, 569-70 (1912)).
36 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 rights are traceable to federal origins.107 However, the dissent in Merrell Dow rejected these appeals to practicality stating:
These reasons simply do not justify the Court’s holding. Given the relative expertise of the federal courts in interpreting federal law, the increased complexity of federal legislation argues rather strongly in favor of recognizing federal jurisdiction. And, while the increased volume of litigation may appropriately be considered in connection with reasoned arguments that justify limiting the reach of § 1331, I do not believe that the day has yet arrived when this Court may trim a statute solely because it thinks that Congress made it too broad.108
There is a possibility that these practical considerations were pretext for federalism concerns.109 The focus of the Court appears to be on the federal judiciary, but perhaps this 1986 Supreme Court decision is an early example of the Court’s eventual push to limit the power of the national government in favor of increasing the rights of the states.110 The Court noted that the “increased volume of litigation”111 in the federal courts was a reason for the Merrell Dow holding, however, increased litigation in federal courts as a result of granting federal question jurisdiction to hybrid cases meant fewer cases were litigated in state court. It is possible that Merrell Dow was decided to prevent the states from being undermined and to protect their courts’ power.112 The Merrell Dow decision resulted in two lingering issues: first, does the lack of a federal private right of action preclude a case from
107 Id. 108 Id. at 829 (Brennan, J., dissenting). 109 See Richard D. Freer, Of Rules and Standards: Reconciling Statutory Limitations on ‘Arising Under’ Jurisdiction, 82 IND. L.J. 309, 331-32 (2007). 110 Id. 111 Merrell Dow, 478 U.S. at 811 (quoting Merrill Lynch, 456 U.S. at 377). 112 See Freer, supra note 109, at 331-32.
37 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 reception in the federal courts; and second, how much weight does the impact of judicial economy have on a decision to grant federal question jurisdiction?113
B. Grable Establishes the Modern Test
The Supreme Court’s answers to these questions came by means of the unanimous decision in Grable & Sons Metal Products, Inc., v. Darue Engineering & Manufacturing.114 In Grable, the plaintiff’s property was sold to the defendant by the government to satisfy an outstanding tax liability.115 The plaintiff brought a quiet title action in state court.116 The plaintiff-corporation claimed that the sale of their property was invalid because it had not been properly notified of the sale by the IRS.117 The defendant removed the case to federal district court on the ground that resolution of the notification rules in the federal statute required federal question jurisdiction.118 First, Grable resolved the question of whether a private right of action was necessary to qualify for federal question jurisdiction.119 The Court held that a federal private right of action is only evidence of substantiality.120 After 100 years, the “substantial interest test” survived: the court granted federal jurisdiction where “state-law claims . . . implicate[d] significant federal issues.”121 The Court did not want to give up all of the federal courts’ discretion to hear cases with federal issues embedded in state law claims.122 In reaching this conclusion, the Court reasoned that federal courts offer distinct characteristics that make them uniquely suited to
113 See generally Merrell Dow, 478 U.S. at 808, 814-815. 114 545 U.S. 308 (2005). 115 Id. at 310. 116 Id. at 311. 117 Id. at 310. 118 Id. at 311. 119 Id. at 318. 120 Id. 121 Id. at 312. 122 Id.
38 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 hear certain hybrid cases.123 The Court reasoned that the doctrine approving federal question jurisdiction in state law claims “captures the commonsense notion that a federal court ought to be able to hear claims recognized under state law that nonetheless turn on substantial questions of federal law, and thus justify resort to the experience, solicitude, and hope of uniformity that a federal forum offers on federal issues.”124 The Supreme Court then added another factor to the federal question jurisdiction analysis.125 Grable held that even with a substantial federal issue in dispute, federal question jurisdiction ultimately rests on “congressional judgment about the sound division of labor between state and federal courts.”126 The Court described this new second prong of the analysis as a possible “veto” where federal question jurisdiction would otherwise be valid.127 Compared to Merrell Dow, the power of judicial economy moved “from footnote to text, and from hint to holding” in Grable.128 The Court continued, “the presence of a disputed federal issue and the ostensible importance of a federal forum are never necessarily dispositive.”129 In other words, the efficiency of the judicial economy may supersede the traditional basis for federal question jurisdiction.130 The Grable Court officially announced the new two-prong test: (1) “does a state-law claim necessarily raise a stated federal issue, actually disputed and substantial, [(2)] which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities.”131 Applying the rule to the facts in dispute, the Grable Court pointed out that the meaning of the notice requirement within the federal tax code was the only matter
123 Id. 124 Id. 125 Id. at 313-14. 126 Id. 127 Id. 128 McFarland, supra note 5, at 31. 129 Grable, 545 U.S. at 314. 130 See McFarland, supra note 5, at 20; Tarleton, supra note 6, at 1408. 131 Grable, 545 U.S. at 314.
39 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 contested in the case.132 First, the Court discussed the importance of the federal issue at stake, stating, “[t]he Government thus has a direct interest in the availability of a federal forum to vindicate its own administrative action.”133 Second, the Court concluded that the case deserved federal question jurisdiction because of the diminutive effect the result would have on the overall federal caseload.134 Thus, the Court held that federal question jurisdiction was appropriate.135 The Court resolved the problematic circuit split136 from Merrell Dow and held that a federal cause of action is not a necessary condition for federal question jurisdiction.137 However, in doing so, the Supreme Court gave the lower federal courts discretion to deny federal question jurisdiction because of caseload factors.138 Writing for a unanimous court, Justice Souter focused on the risk posed by the multitude of cases that would surely emerge if every violation of federal law embedded in a state law tort claim was allowed to reach the federal judiciary.139 In other words, the Court desired a federal forum for substantial federal issues embedded in state law claims, but only to the extent that those issues would not overwhelm the federal courts’ dockets.140
III. THE APPLICATION OF THE MODERN TEST BY THE SEVENTH CIRCUIT IN BENNETT
This section analyzes the Seventh Circuit’s application of the Modern Test for federal question jurisdiction in Bennett v. Southwest
132 Id. at 315. 133 Id. 134 Id. 135 Id. at 316. 136 See generally Pozner, supra note 80, for an explanation of the circuit split. 137 Grable, 545 U.S. at 316-17. 138 Id. at 313-14. 139 Id. at 319. 140 Tarleton, supra note 6, at 1400 (“The difficulty with the two-part test stated in Grable arises from the fact that it separates the analysis of the significance of the federal issue in dispute from the analysis of congressional intent with respect to the scope of federal question jurisdiction.”).
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Airlines Co. Specifically, it examines the reasoning the court used in its application of the second prong. Amid fierce winter weather conditions, driving snow, and strong tailwinds; Southwest Airlines Flight 1248 attempted to land at Midway Airport in Chicago on the evening of December 8, 2005.141 According to the NTSB, the plane—which held over 100 passengers—touched down about 800 feet past where it needed to in order to execute a safe landing.142 After touching down with only 4,500 feet of slippery concrete landing strip in front of it, the Boeing 737-700 ran out of runway and plowed through a jet-engine blast barrier and a perimeter fence, skidding to a halt in the busy intersection of 55th and Central Avenue during the evening rush hour.143 Joshua Woods—a six-year old Indiana boy who was with his family in one of the cars on the street— was killed on impact, and ten other people were injured.144 The consolidated complaints from the injured parties alleged various acts of negligence, including: the negligent operation of Flight 1248 in violation of Federal Aviation regulations, the negligent operation of Midway Airport, including certain air traffic control functions, and the defective design and manufacture of the aircraft.145 The ensuing tort suits filed in Illinois state court were removed to federal district court by the defendants (Southwest, Boeing, and the City of Chicago).146 The district court denied the plaintiffs’ request to remand the case to state court and granted an interlocutory appeal on the federal question jurisdiction issue.147 The plaintiffs attempted to establish violations of federal aviation laws as the standard of care for the duty element in their tort suits.148 The defendants argued that the “aviation safety issues implicated by
141 Fighting the Wind, CHI. TRIB., Dec. 12, 2005, at 3. 142 Mark J. Konkol, Jet Needed 800 More Feet to Land: Thrust Reversers Were Deployed 18 Seconds Late, CHI. SUN-TIMES, Dec. 16, 2005, at 6. 143 Id. 144 Fighting the Wind, supra note 141, at 3. 145 Brief of Defendant-Appellee the Boeing Company, supra note 11, at *5-8. 146 Bennett, v. Sw. Airlines Co., 484 F.3d 907, 908 (7th Cir. 2007). 147 Id. 148 See Brief of Defendant-Appellee the Boeing Company, supra note 11, at *32.
41 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 plaintiffs’ allegations are inherently federal.”149 In support of this argument, the defendants cited both Supreme Court case law and the legislative history of the Federal Aviation Administration (“FAA”).150 For example, as early as 1944, in a concurring opinion in Northwest Airlines, Inc. v. Minnesota,151 Justice Jackson succinctly described the then-developing aviation regulatory scheme in the following way:
Federal control is intensive and exclusive. Planes do not wander about in the sky like vagrant clouds. They move only by federal permission, subject to federal inspection, in the hands of federally certified personnel and under an intricate system of federal commands. The moment a ship taxis onto a runway it is caught up in an elaborate and detailed system of controls.152
In creating the FAA in 1958, Congress explained the inherent federal nature of aviation rules in this manner:
[A]viation is unique among transportation industries in its relation to the Federal Government – it is the only one whose operations are conducted almost wholly within the Federal jurisdiction, and are subject to little or no regulation by the States or local authorities. Thus, the Federal Government bears virtually complete responsibility for the promotion and supervision of this industry in the public interest.153
The defendants also identified numerous federal rules that would require interpretation, which were implicated by the plaintiffs’ claims
149 Id. at *9. 150 Id. at *9-10. 151 322 U.S. 292 (1944). 152 Id. at 303. 153 See Brief of Defendant-Appellee the Boeing Company, supra note 11, at *26 (quoting S. REP. NO. 1811, 85TH CONG. (1958), at 5).
42 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 including: “acceptable landing procedures, airport operation, and runway design,”154 as well as snow removal and runway safety areas.155 Despite the myriad of federal regulations undoubtedly at work that blustery evening, the Seventh Circuit held that the case did not “arise under” federal law for the purpose of establishing federal question jurisdiction.156 Chief Judge Easterbrook, in a short opinion, first emphasized that the Grable test controlled federal question jurisdiction in these hybrid claims.157 The test the court applied was whether the claim (1) “necessarily raise[ed] a stated federal issue, actually disputed and substantial [(2)] which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities.” 158 Even though the Seventh Circuit initially expressed some disapproval of the Grable holding,159 the court still applied its Modern Test. In applying the Modern Test, the Seventh Circuit first examined whether there was a “stated federal issue, actually disputed and substantial.”160 Here, the defendants argued that the suits belonged in federal court because of the presence of federal aviation regulations in the state court claims.161 They argued that the case required a federal forum because commercial air travel demanded uniform regulations.162 The Seventh Circuit disagreed.163 The court pointed out that no federal issue was “actually disputed” in the case.164 Specifically, the court
154 Id. at *32. 155 Id. at *33. 156 Bennett v. Sw. Airlines Co., 484 F.3d 907, 912 (7th Cir. 2007). 157 Id. at 909. 158 Id. (quoting Grable, 545 U.S. at 314). 159 Id. at 909 (The Seventh Circuit states, “[B]y holding out the possibility (realized in Grable) that a contested federal issue in a state-law suit may allow jurisdiction under § 1331 the Court has greatly complicated the analysis.”). 160 Id. at 909. 161 Id. 162 Id. 163 Id. at 909-10. 164Id. at 909.
43 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 stated that “[t]he meaning of federal statutes and regulations may play little or no role”165 Next, the court reviewed the evolution of the interpretation of § 1331.166 The court explored the holdings of cases beginning with American Well Works up to and including Grable with particular emphasis on the Supreme Court’s ruling in Empire Healthchoice Assurance, Inc. v. McVeigh.167 In Empire,168 the Court granted certiorari to settle a dispute between an insurance carrier and the estate of a beneficiary.169 The beneficiary received comprehensive health insurance as a result of federal employment.170 The beneficiary of the insurance died from injuries sustained in a car accident.171 Although the government insurance carrier paid for medical treatment, the estate also sued the negligent-driver and driver settled out of court; thus, the estate received two payments for the same accident.172 Upon conclusion of this civil action in state court against the driver who caused the accident, the insurance company sued the beneficiary’s estate in federal court because the company’s contracts with the government required it to try to collect reimbursement from the estate.173 When the estate filed a motion to dismiss for lack of subject matter jurisdiction, the plaintiff-insurance company argued that the federal court had jurisdiction based on the presence of federal law in the reimbursement claim.174 The Court denied subject matter jurisdiction on these grounds.175 The Seventh Circuit distinguished Grable from Bennett in the same way that the Supreme Court distinguished Grable from Empire; the Seventh Circuit concluded that Bennett was a fact-bound inquiry
165 Id. 166 Id. at 909-11. 167 Id. at 909-11. 168 Empire Healthchoice Assurance, Inc. v. McVeigh, 126 S. Ct. 2121 (2006). 169 Id. at 2127. 170 Id. 171 Id. 172 Id. 173 Id. 174 Id. at 2130. 175 Id. at 2137.
44 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 and not an inquiry into the meaning of federal law.176 It stated that this is “the sort of situation that is governed by context-sensitive doctrines such as the law of negligence.”177 In other words, the federal aviation regulations at work on December 8, 2005 were merely incidental to the state law claims within the framework of the action brought before the court.178 The Seventh Circuit then applied the second prong of Grable’s Modern Test: whether “a federal forum may entertain [the suit] without disturbing any congressionally approved balance of federal and state judicial responsibilities.”179 This prong assessed the potential impact a grant of federal question jurisdiction would have on the federal caseload.180 The Seventh Circuit reasoned:
The Supreme Court thought it significant in Grable that only a few quiet-title actions would present federal issues. That enabled the Court to conclude that its decision would not move a whole category of litigation to federal court or upset a balance struck by Congress. Things are otherwise with air-crash litigation: defendants' position, if accepted, would move a whole category of suits to federal court.181
Whereas the Grable Court determined that only a few quiet-title cases would create federal issues, the Seventh Circuit believed air- crash litigation could overwhelm the federal courts.182 Here the court’s reasoning is unclear; it does not specify whether the “category of suits” refers to air-crash litigation or some broader category of tort suit.183 Since the court completes the paragraph with a discussion of
176 Bennett v. Sw. Airlines Co., 484 F.3d 907, 910 (7th Cir. 2007). 177 Id. at 912. 178 Id. at 912. 179 Id. at 909. 180 Id. at 911. 181 Id. 182 Id. 183 Id.
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Congress’s intent in enacting a federal statute dealing with large numbers of fatalities in air crashes, there is some implication that the court was solely focused on large numbers of air-crash cases seeping into federal court. 184 Finally, the court concluded its opinion with a response to the defendants’ argument that federal question jurisdiction is suitable because commercial aviation requires a uniform application and interpretation of rules.185 Relative to the rest of the opinion, the court responded with a lengthy narrative on the particular hazards associated with the layout of the scene of the accident, Chicago’s Midway Airport.186 Again, because of the court’s specific focus on the airport- airline aspect of the case, it fails to fully articulate its reasoning and provide future litigants with an understanding of its approach to the Modern Test.187 This is due in part to the problematic nature of the second prong.
IV. THE DIFFICULTIES ASSOCIATED WITH THE MODERN TEST
This section discusses the problems with considering caseload factors in the adjudication of federal question jurisdiction. It also proposes an alternative analysis the Seventh Circuit could have used that would have reached the same result. Finally, the section gives an opinion on the meaning of Bennett to practitioners involved in litigation in the Seventh Circuit.
184 Id. (“And it would upset a conscious legislative choice—not one made in § 1331, perhaps, but surely the one made when 28 U.S.C. § 1369 was enacted in 2002. That statute permits suit in federal court when a single air crash (or other disaster) leads to at least 75 fatalities and minimal diversity is present”). 185 Id. at 911-12. 186 Id. 187 See generally id.
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A. The Caseload Factor
The Bennett court applied the Modern Test established by the Supreme Court in Grable.188 The Seventh Circuit made a two-prong inquiry.189 In the first prong, the court analyzed whether there was a disputed and substantial stated federal issue.190 This prong is the natural extension of the traditional inquiry as developed by the Supreme Court in Gully and Franchise Tax Board, where the Supreme Court held that a substantial federal issue must be in dispute to grant federal question jurisdiction.191 In contrast, the addition of the second prong departed from past Supreme Court precedent and used caseload factors to assess the suit.192 The Supreme Court described this “possible veto” as follows: “the federal issue will ultimately qualify for a federal forum only if federal jurisdiction is consistent with congressional judgment about the sound division of labor between state and federal courts”193 No doubt the increased federal caseload over the last 100 years is compelling. In 1904, the total number of filings in federal district court was 33,376 as compared to 89,112 in 1960.194 This increase represents a compound annual growth rate of 1.8 percent.195 However, in the period between 1960 and 1983, cases filed in district court tripled as “compared with a less than 30 percent increase in the preceding quarter-century.”196 This increase represents a compound annual
188 484 F.3d at 909. 189 Id. 190 Id. 191 Gully v. First Nat’l Bank in Meridian, 299 U.S. 109, 114 (1936); Franchise Tax Bd. of the State of California v. Construction Laborers Vacation Trust for S. California, 463 U.S. 1, 12 (1983). 192 See generally Bennett, 484 F.3d at 911. 193 Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 313 (2005). 194 Hon. Richard A. Posner, THE FEDERAL COURTS: CHALLENGE AND REFORM 54 (Harvard University Press 1996) (1985). 195 Id. 196 Id. at 59.
47 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 growth rate of 5.6 percent.197 During this same period, 1960 to 1983, pure civil case filings jumped from 48,886 to 210,503 in district court, a more than 330 percent increase, while court of appeals filings increased 789 percent.198 More recently, federal appeals have increased substantially from 29,580 in 1983 to 49,625 in 1995—a 4.3 percent compound annual growth rate, while district courts’ caseloads remained relatively unchanged in the same time frame.199 At the same time, from 1962 to 1995 the “ratio of cases terminated without court action to those terminated with some court action has fallen steadily.”200 As Judge Posner writes, “[t]he implication is that the district courts’ workload is growing faster than the raw caseload.”201 Despite evidence of the bloated federal docket, the second prong of the Grable test is not the correct remedy. The Bennett decision illustrates this contention. The second prong’s consideration of caseload factors in the federal question decision creates a paradox in the federal judiciary.202 Courts traditionally granted federal question jurisdiction to the most important or “substantive” cases or issues,203 but now issues that impact the largest number of people—arguably the most important cases—will be denied jurisdiction because of the courts’ reluctance to move large classes of cases onto the federal docket.204 Thus, cases or issues that occur relatively infrequently
197 Id. 198 Id. 199 Id. at 64. 200 Id. at 66. 201 Id. 202 See generally Redish, supra note 1, at 1785-88; Alleva, supra note 40, at 1557; Tarleton, supra note 6, at 1410. 203 While ‘important’ is a subjective term, it is well-documented that Congress created the inferior federal courts because certain cases required a heightened level of scrutiny. A specialized judiciary capable of a uniform application of the federal laws was necessary because a system that specializes in federal law is more likely to “divine Congress’ intent in enacting legislation.” Merrell Dow Pharms. Inc. v. Thompson, 478 U.S. 804, 826-27 (1986). 204 See generally Redish, supra note 1, at 1785-88; Alleva, supra note 40, at 1557; Tarleton, supra note 6, at 1410.
48 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 receive jurisdictional preference over cases that occur more often.205 Instead the courts should grant federal question jurisdiction based on substance alone, without subjecting cases to scrutiny based on their impact on the federal docket. Administrative burdens should not be a factor in access to the federal courts.206 This premise is not new. In 1932, appeals court Judge John J. Parker of the Fourth Circuit argued that:
One of the first duties of government, however, is to provide tribunals for administering justice to its citizens; and, if I am correct in thinking that a citizen is entitled to have his disputes adjudicated in a tribunal of the sovereignty to which he owes allegiance, it is unthinkable that that sovereignty should shirk its responsibility and abdicate its proper functions because of a comparatively insignificant matter of expense.207
In his influential work on federal question jurisdiction, Professor Paul J. Mishkin maintained that “[t]he general approach favoring restricted access to the federal courts should not operate to justify the imposition of an unwieldy limitation unrelated to the purposes of federal question jurisdiction.”208 More recently, Professor Martin H. Redish declared that:
The federal courts do not exist for the purpose of clearing their dockets. They exist to unify the federal system, to interpret and enforce federal law, and to prevent interstate prejudices and allegiances from balkanizing the nation. If the commitment of significant resources is required to accomplish this goal, then so be
205 Id. 206 See Redish, supra note 1, at 1786. 207 Hon. John J. Parker, The Federal Jurisdiction and Recent Attacks Upon It, 18 A.B.A. J. 433, 438 (1932). 208 Paul J. Mishkin, The Federal “Question” in the District Courts, 53 COLUM. L. REV. 157, 182 (1953).
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it. Although considerations of docket control and financial limitations cannot be completely ignored, they should not receive primary emphasis. The federal government cannot shirk its responsibility to assure that the federal courts perform their designated role any more than it can ignore its other essential obligations. 209
Further evidence of the flaw of the second prong of the Modern Test is in the arbitrary result reached by the Seventh Circuit when it considered caseload factors.210 The court claims to be concerned with the risks of moving a whole class of cases into federal court, yet it has no guidance on the precise quantity of cases that would overwhelm the system.211 Clearly, a numerical test is out of the question and some level of discretion is necessary, but the lack of guidance is troubling; at what point does the administrative burden become too much? This dilemma seems particularly difficult for the Seventh Circuit because it cannot even decide whether the facts in Bennett are isolated or are likely to occur so often that the resulting litigation would be an administrative burden for the federal courts.212 For example, in Bennett the court expressed concern over the deluge of cases that would result from an affirmative grant of federal question jurisdiction in “air-crash” litigation.213 Four paragraphs later, however, the court admitted that the “particulars of flight 1248’s landing may never recur.”214 Here, the Seventh Circuit could just as easily have argued that the infrequency of airline crashes would not upset the balance of work between the state and federal courts. Then, the court would have only needed to prove that the construction, interpretation, or resolution of federal aviation statutes was the single point at issue in the case, thus satisfying the “substantial” prong of the Modern Test.
209 Redish, supra note 1, at 1786. 210 Bennett v. Sw. Airlines Co., 484 F.3d 907, 911, 912 (7th Cir. 2007). 211 Id. 212 Id. 213 Id. at 911. 214 Id. at 912.
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Because of the arbitrary and potentially unjust consequences of the consideration of caseload factors in the adjudication of federal question jurisdiction, Grable’s second prong should be jettisoned in favor of a return to the reasoning applied in Gully and Franchise Tax Board. Still, a wholesale rejection of the 2005 Supreme Court decision by the Seventh Circuit was unlikely despite evidence that Seventh Circuit may have wanted ignore it.215 The Seventh Circuit admitted that it was burdened by a thorny Supreme Court decision.216 Referring to Grable, it stated that “by holding out the possibility . . . that a contested federal issue in a state-law suit may allow jurisdiction under § 1331 the Court has greatly complicated the analysis.”217 While the Seventh Circuit may not have been able to ignore Grable, a slightly different application of the second prong could have still achieved the same result of remanding the case to state court.
B. An Alternative Application of the Second Prong
According to the Seventh Circuit in Bennett, the second prong of the Grable test is satisfied by not disturbing “any congressionally approved balance of federal and state judicial responsibilities.”218 However, in the Grable decision the Supreme Court does not clarify where to find this “approval” from Congress.219 Given the vagueness of the second prong, it is unclear if the test calls for an inquiry into the balance between the state and federal courts announced in § 1331 or the balance imagined by Congress when it enacted the particular federal legislation at issue.220
215 Id. at 909. 216 Id. 217 Id. 218 Id. 219 Id; see generally Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 313-20 (2005). 220 See Tarleton, supra note 6, at 1404-1405 The second prong, requiring that an exercise of jurisdiction comports with Congress's intended ‘division of labor between state and federal courts,’ is styled as an examination of what Congress intended to be the general parameters of federal question
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The Bennett court chose the latter reasoning.221 In analyzing the division of labor between the federal and state courts established by Congress, the Seventh Circuit chose to focus on the particular congressional intent surrounding aviation regulations, specifically a 2002 federal statute, 28 U.S.C. § 1369, which “permits suit in federal court when a single air crash (or other disaster) leads to at least 75 fatalities and minimal diversity is present.”222 The court determined that this statue would be “meaningless” if aviation accidents with under 75 fatalities were removed to federal court.223 As opposed to the court’s fears of being swamped with litigation surrounding plane crashes, which arguably do not occur with the frequency the court asserts, a more likely explanation is that the court was afraid of the broader implications of granting federal question jurisdiction in Bennett.224 It may have been more concerned with an onslaught of tort cases in federal court because of a federal issue embedded in the claim. In their opening brief to the Seventh Circuit, the plaintiffs described the risk in the following manner:
The result will be that every negligence per se case, where negligence is based upon a violation of a federal statute and/or regulation, will become removable; every case connected in any way to the airline industry will ‘arise under’ federal law simply because federal
jurisdiction, which should be found in § 1331. Yet the Court accepts that this second half of the inquiry can proceed from an analysis of the substantive statute embedded in the plaintiff's claim. A more honest articulation of the federal question test would admit that Congress has, by no means, created a bright line demarcating the ‘sound division of labor between state and federal courts governing the application of § 1331’ and that jurisdictional decisions in particular cases must follow from the nature of the particular federal interest at stake. 221Bennett, 484 F.3d at 911. 222 Id. 223 Id. 224 See generally Elmira Teachers’ Ass’n v. Elmira City Sch. Dist., 2006 WL 240552, at *6 (W.D.N.Y. 2006).
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regulations may be relevant to establishing some element of a state-law cause of action.225
In contrast to the Seventh Circuit, courts in other circuits have more precisely characterized the risks implicated by the second part of the Grable test. For example, in Elmira Teachers’ Association v. Elmira City School District,226 the defendants argued that an interpretation of the Internal Revenue Code was necessary to reach a determination of a plaintiff’s state law claims.227 In remanding the case to state court, the Elmira court held that “[t]his lawsuit, simply put, is a state breach of contract and negligence case in which [the Internal Revenue Code], like the federal labeling statue at issue in Merrell Dow, merely provides the standard of care.”228 Furthermore, the court held that “allowing this state negligence and breach of contract case to remain before the Court would be tantamount to opening the floodgates for removal of similar litigation.”229 Indeed other circuits also made the proper distinction between the risk of opening up the floodgates for litigation of the same type of claim230 (i.e. tort or breach of contract) unlike the Seventh Circuit that discussed the risk of overwhelming litigation from Bennett’s particular facts.231 In two separate cases in district courts in Missouri with similar facts surrounding train accidents, the judges refused to grant federal question jurisdiction despite the relevance of federal law in creating a duty under the state negligence law.232 Both cases rely on the same reasoning as it relates to the second part of the Grable test, stating that
225 Opening Brief of Plaintiff-Appellants, supra note 16, at *41. 226 2006 WL 240552 (W.D.N.Y.). 227 Id. at *3. 228 Id. at *6. 229 Id. 230 See Peters v. Union Pac. R.R. Co., 455 F. Supp. 2d 998, 1004-5 (W.D.Mo., 2006) and Gillenwater v. Burlington N. and Santa Fe Ry. Co., 481 F. Supp. 2d 998, 1004 (E.D.Mo., 2007). 231 Bennett, 484 F.3d at 911. 232 See Peters, 455 F. Supp. 2d at 1004-5 and Gillenwater, 481 F. Supp. 2d at 1004.
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While bringing railroad crossing cases into the federal court system would have a small impact on the division of labor between the state and federal court system, the same argument that Defendants rely on to justify federal question jurisdiction here is applicable to virtually every case where violation of a federal regulation is raised as evidence to determine the appropriate standard of care in a state tort action. . . . To find federal question jurisdiction under these circumstances would open the floodgates to the garden variety torts that the United States Supreme Court, in Merrell Dow, specifically said should not be in federal court.233
In other words, it is not necessarily the type of cases that the courts above have an issue with, but rather the route they took into federal court. This delineation makes the second prong somewhat more palatable. The Seventh Circuit would have been wise to note this distinction as the court did in Wisconsin v. Abbott Laboratories.234 Here again, the defendants argued that the state court suit required some interpretation of federal law; in this case the court needed to interpret the meaning of the federal Medicare statute235 to determine if Wisconsin citizens had overpaid for prescription drugs.236 In applying the second prong of the Grable test, the court distinguished its case from Grable,
By contrast, the present case is one of many that have been filed by states across the country concerning pharmaceutical companies' alleged fraud in price- setting. Shifting all of these cases (not to mention other
233Gillenwater, 481 F. Supp. 2d 998 at 1005 (quoting Peters, 455 F. Supp.2d 998 at 1005.). 234 390 F. Supp. 2d 815, 823 (W.D.Wis., 2005). 235 42 U.S.C. §§ 1395-1395qq (2000). 236 Abbott, F. Supp. 2d at 820.
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state-law claims grounded in alleged violations of federal law) into federal court would work a significant disruption in the division of labor between federal and state courts.237
Here the court at least mentions the broader risk beyond the facts of the particular case.238 The Seventh Circuit could have utilized this reasoning and still remanded the case to state court. But rather than discuss the problems associated with bringing every tort case with an embedded federal issue into federal court, the Seventh Circuit went one step further to focus on the particular problems associated air- crash litigation.
C. The Meaning of Bennett to Practitioners
The reference to another statute, 28 U.S.C. § 1369,239 in the Seventh Circuit’s attempt to discern the congressional intent in enacting airline regulations is an important indicator of the court’s narrow interpretation of the second prong of the Modern Test. 240 The Seventh Circuit reasoned that since Congress created legislation specifically authorizing certain air crash suits in federal court, it necessarily means that any other suits resulting from crashes, which do not qualify under the statute, cannot be filed in federal court.241 The Seventh Circuit’s analysis in Bennett seems more akin to the test established by Merrell Dow.242 In Merrell Dow, the Supreme Court used the lack of a private right of action in the FDCA to support its denial of federal question jurisdiction.243 However, the requirement of
237 Id. at 823. 238 Id. 239 28 U.S.C. § 1369 (2000). 240 See Bennett v. Sw. Airlines Co., 484 F.3d 907, 911 (7th Cir. 2007). 241 Id. 242 Merrell Dow Pharms. Inc. v. Thompson, 478 U.S. 804, 812 (1986). 243 Id.
55 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 express statutory authorization for federal question jurisdiction was specifically rejected by the Supreme Court in Grable.244 Given the other circuits’ application of the Modern Test, the Seventh Circuit may have been correct to deny federal question jurisdiction and remand the case to state court. However, the emphasis on the 2002 statute above shows litigants in the Seventh Circuit the great lengths the court will go to ensure a narrow reading of the Modern Test as set forth by the Supreme Court in Grable.245 Even though a relatively broad plain meaning interpretation of the “arising under” constitutional and statutory directive is possible, federal question jurisdiction in the Seventh Circuit will be very narrowly construed. Practitioners need to recognize that the clear presence of federal laws in the duty element of the plaintiff’s tort claim is not enough to clear the outer marker of federal question jurisdiction.246
CONCLUSION
In Bennett, the Seventh Circuit was asked to rule on the contours of federal question jurisdiction. In its analysis, it offered a recitation of the evolution of the boundaries of federal question jurisdiction where federal issues are embedded in state law claims.247 This history, especially in the Supreme Court, has been characterized by change. Much of the first 100 years of federal question jurisdiction governed by the statutory grant of § 1331 was more broadly defined than the recent interpretation represented by the Modern Test announced in Grable. The trend on the national level appears to be moving towards more restrictions on the types of cases that gain access to the federal courts. In particular, the recent introduction of caseload factors into the
244 See Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 312-313 (2005). 245 See Bennett, 484 F.3d at 911. 246 From the Bennett case, the factors included: acceptable landing procedures, airport operation, runway design, snow removal, and runway safety areas. Brief of Defendant-Appellee the Boeing Company, supra note 11, at *32. 247 Bennett, 484 F.3d at 909-11.
56 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 jurisdictional calculus raises some question as to whether these restrictions may have gone too far. In its application of the Modern Test in Bennett, the Seventh Circuit followed this national trend. Despite the presence of multiple federal laws in the duty element of the tort claims, the court decided that since no single law resolved the dispute, the case was more suited to Illinois state court. The court’s analysis illustrates the great lengths the Seventh Circuit will go to eliminate cases from its docket. The result in this case will force practitioners to thoroughly assess their pleadings prior to petitioning the court for federal jurisdiction. But the larger impact of this narrow brand of federal jurisdiction remains to be seen.
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DETERMINING WHETHER PLAINTIFF PREVAILED IS A “CLOSE QUESTION”—BUT SHOULD IT BE?
∗ NIKOLAI G. GUERRA
Cite as: Nikolai G. Guerra, Determining Whether Plaintiff Prevailed is a “Close Question”—But Should It Be?, 3 SEVENTH CIRCUIT REV. 58 (2007), at http://www.kentlaw.edu/7cr/v3-1/guerra.pdf.
INTRODUCTION
A court may, in its discretion, award a prevailing party its attorney’s fees in an action brought under certain civil rights statutes, including, for example, the Americans with Disabilities Act.1 Although this statutory language gives courts the discretion to award fees, courts have held that a plaintiff should recover attorney’s fees if she has prevailed, unless circumstances exist that would make the award unjust.2 Private litigants enforce civil rights statutes in a vastly greater
∗ J.D. candidate, May 2008, Chicago-Kent College of Law, Illinois Institute of Technology; B.A., English and Political Science, University of Illinois, Urbana- Champaign. I would like to acknowledge Professor Hal Morris, Justin Nemunaitis, and Michael Ko for their assistance and guidance in writing this note. 1 42 U.S.C. § 12205 (2000) reads: In any action or administrative proceeding commenced pursuant to this chapter, the court or agency, in its discretion, may allow the prevailing party, other than the United States, a reasonable attorney’s fee, including litigation expenses, and costs, and the United States shall be liable for the foregoing the same as a private individual. 2 Hensley v. Eckerhart, 461 U.S. 424, 429 (1983) (citing S. REP. NO. 94-1011, at 4 (1976)) (discussing fee shifting in the context of the Civil Rights Attorney’s Fees Awards Act of 1976); see also Newman v. Piggie Park Enterprises, Inc., 390
58 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 proportion than the government, and fee-shifting has enabled individuals seeking judicial relief to overcome prohibitively expensive attorney’s fees in order to vindicate their civil rights, even if a case may not otherwise appear lucrative to an attorney.3 Thus, fee shifting statutes are an integral component of enforcing and vindicating certain rights. Courts have grappled over the issue of whether one has “prevailed” according to these statutes. What seems like a straightforward issue has instead developed into a voluminous and somewhat murky body of case law addressing who should be considered a prevailing party and what legal standard should apply4; therefore, litigants need and deserve guidance on this otherwise elusive standard. In general, a district court’s award of attorneys’ fees is reviewed to determine first whether the party prevailed and second whether the fees awarded were reasonable. In order for a plaintiff to demonstrate she has “prevailed,” the Supreme Court requires the plaintiff to have obtained: (1) an enforceable judgment against the defendant on the merits of her claim (2) that directly benefits the plaintiff at the time of judgment.5 In Farrar v. Hobby, the Court noted that the degree of
U.S. 400, 402-403 (1968) (per curiam) (stating that a party that obtains an injunction under Title II of the Civil Rights Act of 1965, a court should ordinarily award the plaintiff attorney’s fees absent special circumstances). The Court has often interpreted fee-shifting provisions in the various civil rights statutes consistently with each other. See Henley, 461 U.S. at 433 n.7; Buckhannon Bd. v. West Virginia Dept. of Health & Human Resources, 532 U.S. 598, 603 n.4 (2001). Therefore, this Note will not draw any distinction between case law interpreting different fee shifting statutes. 3 Catherine R. Albiston and Laura Beth Nielsen, The Procedural Attack on Civil Rights: The Empircal Reality of Buckhannon for the Private Attorney General, 54 UCLA L. REV. 1087, 1089-90 (2007) (while state and federal governments enforce certain individual’s rights, more than 90 percent of enforcement actions under civil rights statutes are initiated by private parties). 4 Matthew B. Tenney, When Does a Party Prevail?: A Proposed “Third- Circuit-Plus” Test for Judicial Imprimatur, 2005 B.Y.U. L. REV. 429, 449 (2005) (noting that Supreme Court has not formulated clear policy guidelines for the prevailing party inquiry, particularly regarding the sufficient judicial imprimatur needed to satisfy the Court’s prevailing party standard). 5 Farrar v. Hobby, 506 U.S. 103, 111-112 (1992).
59 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 success a plaintiff was awarded weighs into the court’s determination of what constitutes a reasonable attorney fee, not whether he would be considered a prevailing party.6 The Supreme Court noted that even if a plaintiff “formally prevails” at trial, she should not be awarded attorney’s fees in certain circumstances, such as where a plaintiff fails to establish an element to his claim for compensatory damages and receives nominal damages instead.7 Recently, the Seventh Circuit applied the prevailing party standard in Karraker v. Rent-A-Center to determine whether a plaintiff class that had obtained injunctive relief against an employer was a prevailing party despite no indication in the record suggesting that any member of the class was still employed with the defendant at the time the injunction was ordered.8 Recognizing that it was a “close question,” the court concluded that the plaintiffs had received a “valuable benefit” from the injunction, but did not address how the potentially non-existent employer-employee relationship should factor into the inquiry, if at all.9 This Note will argue that the Seventh Circuit ultimately concluded correctly in Karraker II by holding that the plaintiffs prevailed; however, it further argues that the Supreme Court should adopt a per se rule stating that a plaintiff’s enforceable final judgment is sufficient to confer upon a plaintiff “prevailing party” so as to avoid the Seventh Circuit’s analysis altogether. Part I will discuss the traditional bar to awarding prevailing litigants their attorney fees, the formulation of the “private attorney general” exception, and the Supreme Court’s formulation of the “prevailing party” standard. Part II will introduce Karraker v. Rent-A-Center, including the relevant facts, the majority’s holding, and its reasoning. Part III will analyze the Seventh Circuit’s
6 Id. at 114 (noting that the “most critical factor” in determining the reasonableness of a fee award “is the degree of success obtained”) (citing Hensley, 461 U.S. at 436). 7 Id. at 115 (internal quotations omitted). 8 Karraker v. Rent-A-Center, Inc. (Karraker II), 492 F.3d 896 (7th Cir. 2007). Judge Terrence Evans authored the majority opinion in which Judge Ann Claire Williams joined. Judge Joel Flaum voiced his dissent in a separate opinion. 9 Karraker II, 492 F.3d at 898-899.
60 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 holding in light of the Supreme Court’s formulation of the prevailing party standard. Part III then argues that the Supreme Court should adopt a per se rule stating that civil rights plaintiffs who obtain a permanent injunction are automatically prevailing parties within the meaning of the various fee shifting provision statutes.
I. LEGAL BACKGROUND
A. The “American Rule” and the “Private Attorney General” Theory
In the United States, private litigants are generally responsible to bear their respective costs associated with litigation, including attorneys’ fees, absent statutory authorization stating otherwise.10 Courts dubbed this principle the “American rule”—distinguishing it primarily from the “English rule” in which the losing party ordinarily must pay the winning party the costs it incurred in the litigation.11 While the precise legal origin of the “American rule” is debatable, 12 the Supreme Court declared its general disinclination to award attorneys’ fees to a winning party as a matter of course early on in American jurisprudence.13 Despite the “American rule,” courts carved out several exceptions to the general prohibition on recovering attorneys’ fees from a losing party.14
10 See Daniel Steuer, Another Brick in the Wall: Attorney’s Fees for the Civil Rights Litigant After Buckhannon, 11 GEO. J. ON POVERTY L. & POL’Y 53, 53 (2004) (“prevailing litigants typically do not receive an award of attorney’s fees from the losing party . . .”). 11 Id.; David A. Root, Student Author, Attorney Fee-Shifting in America: Comparing, Contrasting, and Combining the “American Rule” and the “English Rule,” 15 IND. INT’L & COMP. L. REV. 583, 584-85 (2004). 12 EIU Group v. Citibank Delaware, Inc., 429 F.Supp.2d 367, 370 (D. Mass 2006), rev’d on other grounds. 13 See Arcambel v. Wiseman, 3 U.S. (Dall.) 306, *1 (1796) (deciding that counsel’s fees awarded to a winning litigant should not be allowed in accordance with the general practice in the United States; intimating that this principle could be modified by statute). 14 F.D. Rich Co., Inc. v. U.S. For the Use of Industrial Lumber Co., Inc., 417 U.S. 116, 129 (1974). One exception applies when a losing party has acted “in bad
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One such exception was the “private attorney general” theory, which was developed from language found in a Supreme Court case addressing the fee-shifting statute in the Civil Rights Act of 1964.15 In Newman v. Piggie Park Enterprises, Inc., the Supreme Court addressed whether the trial court should limit an award of attorney’s fees to the extent that the losing defendants had advanced certain defenses merely to prolong the litigation in bad faith.16 The Court held that the trial court was not required to limit its award of attorneys’ fees as such because the purpose behind the fee-shifting provision was to encourage individuals to seek judicial relief for racial discrimination.17 A plaintiff that obtains an injunction under Title II of the Civil Rights Act18 to correct prohibited discriminatory conduct does so not only as a private litigant, but also as a private attorney general vindicating a Congressional policy of importance.19 The Court further explained that the purpose of the fee-shifting provision in the Civil Rights Act was to encourage private suits so as to ensure broad compliance with a law that Congress considers a high priority.20 In response to the Supreme Court’s “private attorney general” rationale, lower courts soon extended the concept to justify an award of fees absent statutory authorization; a distinct issue from the one the faith, vexatiously, wantonly, or for oppressive reasons.” Id. (citing Vaughan v. Atkinson, 369 U.S. 527 (1962)). Another exception applies where a successful party has obtained a substantial benefit for a class, and the award of attorney’s fees acts to “spread the cost proportionately among the members of the benefited class. F.D. Rich, 417 U.S. at 129-30 (citing Hall v. Cole, 412 U.S. 1 (1973)); Mills v. Electric Auto-Lite Co., 396 U.S. 375 (1970)). The Supreme Court has also held that courts may award attorney’s fees for “willful disobedience of a court order . . . as part of the fine to be levied on the defendant.” Aleyska Pipeline Serv. Co. v. The Wilderness Society, 421 U.S. 240, 258 (1975). 15 See Comment, Court Awarded Attorneys Fees and Equal Access to the Courts, 122 U. PA. L. REV. 636, 666-667 (1974) (discussing development of the “private attorney general” theory based on language in Newman, 390 U.S. at 400). 16 Newman, 390 U.S. at 401. 17 Id. at 401-402. 18 42 U.S.C. § 2000a-3 (2000). 19 Newman, 390 U.S. at 402. 20 Id. at 401-402.
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Court addressed in Newman.21 By extending the theory absent a statute, the courts, in effect, carved out an exception to the “American rule.”22 Courts based this exception on the Newman Court’s rationale that an individual that obtains relief “vindicating a policy that Congress considered of the highest priority” acts as a “private attorney general”23 and should typically recover attorney’s fees unless circumstances exist making such recovery unjust.24 Based on the newly carved out exception, courts began awarding attorney’s fees absent statutory authorization to private parties that obtained success under legislation that depended, at least in part, on private enforcement—most notably in the field of civil rights.25 The Supreme Court abrogated the application of the private attorney general exception to the American rule.26 In Aleyska Pipeline Serv. Co. v. The Wilderness Society, Justice White, writing for the majority, stated it is solely within Congress’ powers to statutorily authorize an award of attorney’s fees to a prevailing party.27 Justice White recognized that, although exceptions exist that allow courts to award fees without statutory authorization, the private attorney general theory was not among them.28 While the Court recognized that Congress had added fee-shifting provisions in civil rights statutes
21 Comment, supra note 15, at 666-67. 22 Albiston and Nielsen, supra note 3, at 1093. 23 Newman, 390 U.S. at 402. 24 See e.g. Cooper v. Allen, 467 F.2d 836, 841 (5th Cir. 1972) (applying private attorney general theory absent a fee shifting statute to a § 1982 action); Lee v. Southern Homes Sites Corp., 429 F.2d 290, 295-96 (5th Cir. 1970) (§ 1982 action). 25 See e.g. Knight v. Auciello, 453 F.2d 852, 853 (1st Cir. 1972); Lee, 429 F.2d at 146-47; La Raza Unida v. Volpe, 57 F.R.D. 94, 102 (N.D. Cal. 1972), abrogated by Aleyska Pipeline Service Co. v. The Wilderness Society, 421 U.S. 240 (1975). 26 Aleyska Pipeline Service Co. v. The Wilderness Society, 421 U.S. 240 (1975). 27 Id. at 271. The plaintiffs in Aleyska were suing under the Mineral Leasing Act of 1920, 30 U.S.C. § 185, and the National Environmental Policy Act of 1969, 42 U.S.C. § 4321 et seq. Id. at 242-43. Neither statute authorized courts to award attorney’s fees to a prevailing party. Id. at 245. 28 Id. at 271 (stating “it is not for us to invade the legislature’s province by redistributing litigation costs in the manner suggested”).
63 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 based on the private attorney general theory, it noted that Congress’ use of theory could not be “construed as a grant of authority to the Judiciary to jettison the traditional rule against nonstatutory allowances to the prevailing party and to award attorneys fees whenever the courts deem the public policy furthered by a particular statute important enough to warrant the award.”29
B. The Prevailing Party Standard: The Americans with Disabilities Act and Other Civil Rights Statutes
1. Supreme Court Precedent
In the wake of Aleyska’s pronouncement that courts should not fashion a private attorney general exception to the “American rule,” Congress increasingly included fee-shifting provisions in selected legislation.30 For example, when Congress enacted the Americans with Disabilities Act (ADA) in 1990, it included a fee-shifting provision.31 Although Supreme Court case law interpreting the fee-shifting provision in the ADA is sparse due to its relatively recent enactment, the Supreme Court has guided lower courts to interpret the ADA fee- shifting provision consistently with the nearly identical provisions found in the Civil Right Act of 1964,32 the Voting Rights Act Amendments of 1975,33 and the Civil Rights Attorney’s Fees Awards
29 Id. at 263. 30 Jeffery S. Brand, The Second Front in the Fight for Civil Rights: The Supreme Court, Congress, and Statutory Fees, 69 TEX. L. REV. 291, 301 (1990). 31 42 U.S.C. § 12205; see supra note 1. 32 42 U.S.C. § 2000e-5(k) (2000) (“[T]he court, in its discretion, may allow the prevailing party . . . a reasonable attorney’s fee (including expert fees) as part of the costs, and the Commission and the United States shall be liable for costs the same as a private person.”). 33 42 U.S.C § 1973l(e) (2000) (“In any action or proceeding to enforce the voting guarantees of the fourteenth or fifteenth amendment, the court, in its discretion, may allow the prevailing party… a reasonable attorney’s fee, reasonable expert fees, and other reasonable litigation expenses as part of the costs.”).
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Act of 1976.34 As a result, the case law interpreting fee-shifting provisions in civil rights statutes has been read consistently with one another; therefore, there is no need to distinguish the language in the fee-shifting provisions. A party seeking attorney’s fees must cross a threshold to be considered a prevailing party, as defined by fee-shifting statutes.35 For a plaintiff to meet the threshold, he must show that he “succeeded on any significant issue in the litigation which achieve[d] some of the benefit the parties sought in bringing suit.”36 The “touchstone of the prevailing party inquiry” is that the relationship between the parties must have been materially altered “in a manner which Congress sought to promote in the fee statute.”37 In Farrar v. Hobby, the Supreme Court clarified the standard by stating that a plaintiff prevailed if he obtains “actual relief on the merits of his claim [that] materially alters the legal relationship between the parties by modifying the defendant’s behavior in a way that directly benefits the plaintiff.”38 The Supreme Court previously addressed whether a plaintiff that obtains a favorable judgment from the litigation will be considered a prevailing party despite not enjoying a direct benefit from the judgment. In Rhodes v. Stewart, the Supreme Court addressed whether two plaintiffs that had obtained a final, favorable judgment on the merits were prevailing parties, even though neither plaintiff benefited
34 42 U.S.C. § 1988(b) (2000) (“[T]he court, in its discretion, may allow the prevailing party… reasonable attorney’s fee as part of the costs”); see also Buckhannon v. West Virginia Dept. of Health and Human Services, 532 U.S. 598, 602-603, n.4 (2001); cf. Hensley v. Eckerhart, 461 U.S. 424, 433, n.7 (1983) (per curiam) (citing Hanrahan v. Hampton, 446 U.S. 754, 758, n.4 (1980) (per curiam)) (noting that the legislative history of § 1988 demonstrated Congress’s desire for courts to apply the standard for awarding attorneys’ fees that had been used in conjunction with the Civil Rights Act of 1964). 35 Texas State Teachers Association v. Garland Indp. School Dist., 489 U.S. 782, 791-792 (1989). 36 Id. (internal quotations omitted) (citing Nadeau v. Helgemoe, 581 F.2d 275, 278-279 (1st Cir. 1978)). 37 Garland, 489 U.S. at 792-93. 38506 U.S. 103, 111-12 (1992) (emphasis added).
65 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 from the judgment at the time it was entered.39 The plaintiffs were two inmates that challenged a prison’s denial of their First and Fourteenth Amendment rights when it refused to allow them to subscribe to magazines.40 The district court entered declaratory judgment in the inmates’ favor declaring that the prison had violated the plaintiffs’ civil rights; however, by the time the court entered the judgment, one inmate had already passed away while the other inmate had been released from prison.41 After the declaratory judgment and the plaintiffs’ release, the prison modified its policies to abide by the parameters set forth in the district court’s judgment.42 The Court held that the plaintiffs had not prevailed because neither of the inmates could have benefited from the judgment due to the release of one inmate and the death of the other.43
2. The Eleventh and Sixth Circuit: Application of the Prevailing Party Standard
Although various courts of appeal have applied the prevailing party standard, this section will focus on two cases where the plaintiff received a favorable judgment on the merits yet was denied prevailing party status. In Barnes v. Broward County Sheriff’s Office, the Eleventh Circuit addressed whether a plaintiff that obtained an injunction against a potential employer had prevailed.44 The plaintiff, a job applicant, sued a potential employer claiming it discriminated against him based on a perceived disability and his age.45 The applicant also alleged that the employer administered a prohibited medical examination under the ADA to all job applicants, himself
39 Rhodes v. Stewart, 488 U.S. 1, 3-4 (1988) (per curiam). 40 Id. at 2. 41 Id. at 3. 42 Id. at 4. 43 Id. 44 Barnes v. Broward County Sheriff’s Office, 190 F.3d 1274, 1275-76 (11th Cir. 1999). 45 Id. at 1276.
66 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 included.46 Although the plaintiff lost on the disability and age discrimination claims, the court found that the ADA prohibited the employer’s medical examination and enjoined the employer from administering it in the future.47 Despite the receipt of an injunction, the district court ultimately denied plaintiff an award of attorney’s fees.48 The Eleventh Circuit upheld the court’s denial of attorney’s fees because there was no material alteration in the relationship between the potential employer and the job applicant.49 Furthermore, it held that there was nothing in the record to suggest that Barnes received a benefit from the injunction as there was no indication that Barnes was reapplying, or likely to reapply, to the position he was denied.50 The court stated that the fact that the plaintiff may conceivably benefit from the injunction was insufficient to render him a prevailing party.51 Although the Eleventh Circuit recognized that fee-shifting statutes enable plaintiffs to vindicate important constitutional and civil rights under the private attorney general theory, the court declared it was bound by the Supreme Court’s precedent requiring that the plaintiff receive some benefit from the judgment.52 The Sixth Circuit upheld the denial of attorney’s fees to a wheelchair user who obtained an injunction ordering the City of Sandusky to comply with the certain provisions within the ADA.53 Initially, the district court granted summary judgment to the city on all counts.54 Upon reconsideration, the district court vacated the summary judgment with regards to the ADA claim based on a subsequent decision from another judge in the same district, awarding injunctive
46 Id. 47 Id. 48 Id. 49 Id. at 1278. 50 Id. 51 Id. 52 Id. at 1279 (stating that the court’s decision is “not intended to ignore or eviscerate the continuing viability of the ‘private attorney general’ cause of action”). 53 Dillery v. City of Sandusky, 398 F.3d 562, 569-70 (6th Cir. 2005). 54 Id. at 566.
67 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 relief on the same ADA claim in a contemporaneous class action suit not involving Dillery.55 The Sixth Circuit held that the Dillery’s injunction did not benefit her at the time it was entered because the class action injunction essentially mooted her relief; therefore, the court found that Dillery was not a prevailing party.56 In dissent, Judge Merritt noted the bizarre nature of denying Dillery her attorney’s fees despite having filed suit before the class action on a nearly identical ADA claim based on the wholly fortuitous circumstance of one set of litigation progressing through the legal system at a faster pace than the other.57
C. “The Only Reasonable Fee is Usually No Fee At All”58
Even if a plaintiff receives a benefit from the judgment, the Supreme Court suggested that the benefit may be so technical or de minimis that a party can not be considered a prevailing party.59 However, in a subsequent decision, the Court definitively stated that plaintiff’s degree of success did not bear on the inquiry of whether the plaintiff prevailed, but rather factored into what amount constituted a reasonable attorney’s fee.60 In Farrar v. Hobby, the Court addressed whether a plaintiff that sought seventeen million dollars in compensatory damages, while only receiving a dollar in nominal
55 Id. The complaint in the class action suit was filed after Dillery’s complaint; however, the class action progressed quicker through the legal system resulting in an injunctive order against the city before the Dillery’s injunctive order was entered. Id. at 571 (Merritt, J., dissenting). 56 Id. at 569-70 (majority opinion). 57 Id. at 571 (Merritt, J., dissenting). 58 U.S. v. Farrar, 506 U.S. 103, 115 (1992). 59 Texas State Teachers Association v. Garland Indp. School Dist., 489 U.S. 782, 792 (1989) (“Beyond this absolute limitation, a technical victory may be so insignificant, and may be so near the situations addressed in Hewitt and Rhodes, as to be insufficient to support prevailing party status”). 60 Farrar, 506 U.S. at 114 (stating “[a]lthough the ‘technical’ nature of a . . . judgment does not affect the prevailing party inquiry, it does bear on the propriety of fees awarded”).
68 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 damages, had prevailed.61 Although the Court characterized the nominal damages as merely a technical victory, the judgment materially altered the relationship between the plaintiff and defendant because the plaintiff benefited from the judgment; thus the plaintiff prevailed.62 After a court determines that a plaintiff prevailed in the litigation, a court must then assess an award for reasonable attorney’s fees.63 The degree of success that the plaintiff obtained is the most critical factor in measuring the reasonableness of attorney’s fees awarded.64 The Farrar plaintiff had prevailed because he was awarded one dollar in nominal damages even though he sued for millions of dollars; however, the Court held that where a plaintiff recovers nominal damages, the “only reasonable fee is usually no fee at all.”65 The Farrar holding indicated that a plaintiff that received nominal damages could be a prevailing party but would usually be denied any attorney’s fee under the reasonableness inquiry.66 In her concurrence to Farrar, Justice O’Connor noted that “[n]ominal relief does not necessarily a nominal victory make,” and outlined other considerations that should be weighed to determine whether a nominal judgment could justify an award of attorney’s fees.67 Nominal damages may be considered a victory in the sense that the judgment served to vindicate the plaintiff’s rights.68 Justice O’Connor outlined three factors that may bolster the amount of fees that a plaintiff could receive, after receiving a nominal judgment: (1) the significance of the legal issue, (2) the public purpose served, and (3) the extent of relief granted to plaintiff.69 Under the second factor,
61 Id. at 103. 62 Id. at 112. 63 Id. at 114. 64 Id. (citing Hensley v. Eckerhart, 461 U.S. 424, 436 (1983)). 65 Farrar, 506 U.S. at 115. 66 Id. 67 Id. at 121 (O’Connor, J., concurring). 68 Id. 69 Id. at 122.
69 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 she noted that the fee-shifting provision ensures that individuals can vindicate important rights while recovering their attorney’s fees under a private attorney general theory.70 Justice O’Connor intimated that a judgment may serve a public purpose by deterring future unlawful conduct; however, she noted that Farrar’s one dollar judgment was insufficient to deter any misconduct.71
II. KARRAKER V. RENT-A-CENTER, INC.
A. Factual Background
Steven Karraker, Michael Karraker, and Christopher Karraker worked at Rent-a-Center (RAC), and as a prerequisite to promotion, RAC required its employees to pass a management test administered by Associated Personnel Technicians (APT) called the APT Management Trainee-Executive Profile (management test).72 The management test consisted of a battery of nine separate written tests, one of which was the Minnesota Multiphasic Personality Inventory (MMPI).73 The MMPI contained questions that measured certain personality traits; however, it also determined to what degree, if any, a person may possess traits such as depression, hypochondriasis, hysteria, paranoia, and mania.74 Any applicant whose score revealed
70 Id. (fee shifting provision in § 1988 is a “tool that ensures the vindication of important rights, even when large sums of money are not at stake, by making attorney’s fees available under a private attorney general theory”). 71 Id. 72 Karraker v. Rent-a-Center, Inc. (Karraker I), 411 F.3d 831, 833 (7th Cir. 2005) 73 Id. 74 Id. The following true/false questions were examples of questions asked: I see things or animals or people around me that others do not see. My soul sometimes leaves my body. At one or more time in my life I felt that someone was making me do things by hypnotizing me. I have a habit of counting things that are not important such as bulbs on electric signs, and so forth. Id. at 833 n.1.
70 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 more than 12 “weighted deviations” throughout the entire management test would not be eligible for promotion.75 The Karrakers received more than 12 deviations on the management test and were denied promotion on that basis.76 Steven Karraker filed a class action lawsuit challenging his employer’s administration of a personality test and its consideration of the test results in promotion decisions.77
B. District Court Opinions
The district court initially granted summary judgment on most of Karrakers’ claims against RAC; however, upon remand from the Seventh Circuit, the district court entered a declaratory judgment in favor of Karraker, declaring the MMPI violated the ADA.78 The court also entered an injunction ordering RAC to search various offices for the MMPI results of Illinois employees and destroy them, as well as not consider them in promotion decisions.79 After the injunction was
75 Id. at 834. 76 Karraker I, 411 F.3d at 834. 77 Karraker II, 492 F.3d at 897. 78 See Karraker v. Rent-A-Center, 2005 WL 2001511, at *2 (C.D. Ill. Aug. 12, 2005). 79 Id. at *4. The injunction ordered by the district court read, in relevant part, as follows: (2) Defendant RAC is ordered to make a diligent search of its Illinois stores, offices of district and regional managers with authority over stores in Illinois, corporate headquarters and storage facilities to find the results of the Management Test scores of Illinois RAC employees and narratives and any copies thereof and remove the Management Test scores and narratives for its Illinois employees from its Illinois stores, from its district and regional managers’ offices, from corporate headquarters and from storage. (3) RAC is ordered to destroy the Management Test results and not consider the scores or narratives in making any employment decision for its Illinois employees. However, Plaintffs have ten days from the entry of this order to object to the destruction of documents if Plaintiffs feel they need access to these documents for the present litigation. RAC should not destroy any test results prior to ten days from entry of this order.
71 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 issued, Karraker petitioned the court for attorney’s fees, and in a later petition requested that the court award compensation for the named plaintiff, Steven Karraker.80 In the same opinion, the district court denied plaintiffs their attorney’s fees but granted the unopposed motion to set compensation for Steven Karraker as the named plaintiff in the class action.81 Relying primarily on Barnes v. Broward County Sheriff’s Office,82 the district court determined that the plaintiffs had not prevailed.83 Based on the fact that RAC stopped administering the management test before the plaintiffs had filed the original complaint, the court held that plaintiff did not receive a benefit from the injunction but rather only obtained a judicial pronouncement that the RAC’s management test violated the ADA.84 Furthermore, the court held that the injunction’s mandate to destroy the management test results did not benefit the plaintiffs because the results were in a locked room, and the court found no indication that the results were either vulnerable to disclosure to third parties or that RAC continued considering them for promotions.85 Accordingly, the court held that the plaintiffs’ success was de minimis and not enough to label them a prevailing party.86 The court also noted that the defendants had failed to respond to the plaintiffs’ motion to set compensation at $5,000 for Steven Karraker.87 Since RAC did not object to the motion to set compensation for Steven Karraker, Judge McCuskey deemed the compensation amount of $5,000 to be reasonable and granted the motion.88 The plaintiffs then appealed the denial of attorney’s fees.89
80 Karraker v. Rent-A-Center, 431 F. Supp. 2d 883, 886-87 (C.D. Ill. 2006). 81 Id. at 887. 82 190 F.3d 1274 (11th Cir. 1999). 83 Karraker, 431 F.Supp.2d at 887. 84 Id. 85 Id. 86 Id. 87 Id. 88 Id. 89 Karraker v. Rent-A-Center (Karraker II), 492 F.3d 898, 900 (7th Cir. 2007).
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C. The Seventh Circuit Opinion
On appeal for denial of attorney’s fees, the Seventh Circuit reversed the district court’s denial of attorney’s fees and remanded the case for a determination of a reasonable amount of fees.90 The court started its analysis by only briefly mentioning the district court’s reliance on Barnes and then quickly turned its attention to Farrar v. Hobby.91 RAC argued that although the plaintiffs received an enforceable injunction against it, the judgment did not provide plaintiffs with a tangible benefit because RAC stopped administering the management test in 2000 before the entire litigation began.92 RAC also argued that it did not employ any of the named plaintiffs at the time the injunction was entered, and it was unclear from the record whether any plaintiff in the certified class was working at RAC at that time.93 The destruction of the tests could not have benefited the plaintiffs because there was no evidence that RAC intended to disclose the records.94 Despite RAC’s arguments that plaintiffs had not received a judgment that benefited them in any manner, the court resolved the “close question” in favor of the plaintiffs.95 The majority reasoned that the injunction that the plaintiffs received was worth at least as much as the one dollar in nominal damages awarded to the plaintiff in Farrar.96 The court analyzed the three factors that Justice O’Connor laid out in her concurrence in Farrar, and it determined that the district court’s judgment had conferred on plaintiffs a valuable benefit by ordering the destruction of
90 Id. at 896. 91 Id. at 898. 92 Id. 93 Id. 94 Id. 95 Id. at 898, 900. 96 Id. at 898.
73 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 all the management tests and the narratives that were produced.97 Before the injunction, there was nothing to prevent RAC from disclosing or carelessly allowing the dissemination of the exam results or the narratives to anyone else.98 Contrary to RAC’s assertion, the Seventh Circuit stated that the test results were not safely locked away because the record demonstrated that numerous test results were scattered throughout various stores and offices.99 It concluded by stating that the underlying judgment granting summary judgment to the plaintiffs had a significant impact on the law as well as on human resource departments across the nation, which refer to Karraker I for the proposition that an employer’s use of an MMPI violates that ADA.100 In dictum, the court addressed what role compensation for the named plaintiff played in the prevailing party inquiry.101 RAC argued that the compensation awarded Steven Karraker was similar in nature to a litigation expense rather than a recovery of damages.102 The court distinguished every case that RAC cited for that proposition because none dealt with whether a compensation payment, or incentive fee award, conferred prevailing party status to the plaintiff.103 Ultimately, the court declined to address the issue because it found that the injunction alone was sufficient to prevail under the circumstances.104 In his dissent, Judge Flaum disagreed from the majority as to whether the plaintiffs benefited from the injunction.105 He recognized that the issue in the case is whether the plaintiffs prevailed, that is to say whether any member of the plaintiff class obtained relief on the merits of a claim that directly benefited them at the time of the
97 Id. at 899. 98 Id. 99 Id. 100 Id. 101 Id. at 899-900. 102 Id. at 899. 103 Id. at 899-900. 104 Id. at 900. 105 Id. at 900 (Flaum, J., dissenting).
74 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 judgment.106 Judge Flaum believed that the lower court erred in entering an injunction ordering RAC to search for and destroy the results of the management test because the plaintiffs failed to establish that they sustained or were in danger of experiencing a direct injury from their existence.107 With respect to the whether enjoining RAC from considering the test results in employment decisions benefited the plaintiffs, Judge Flaum noted that the record did not indicate whether any member of the plaintiff class had standing to challenge RAC’s continued use of the management test and its results.108 Judge Flaum recommended remanding the action to determine if any plaintiff had standing to challenge RAC’s consideration of the management test results when the district court issued the injunction.109
III. ANALYSIS
A. The Seventh Circuit’s Holding in light of the “Prevailing Party” Standard
The prevailing party inquiry has endured a long and tortured—and more importantly unnecessary—history of judicial interpretation and application. In Karraker, the Seventh Circuit noted that whether the plaintiffs had prevailed was a “close question.”110 Given the breadth and vagueness of Supreme Court cases on the prevailing party standard, it is no wonder courts have trouble applying the elusive apparent standard. The Seventh Circuit noted that the destruction of the results of an improperly administered test was a valuable benefit to the
106 Id. 107 Id. 108 Id. at 900-901. 109 Id. at 901. A class member may have had standing if she failed the APT test, failed an alternate test used for promotion decisions, and worked at RAC on the date the lower court issued the injunction. Id. 110 Id. at 898 (majority opinion).
75 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 plaintiffs, and without the injunction, nothing would prevent RAC from distributing the test results to others or negligently allowing their dissemination.111 The plaintiff class obtained a declaratory judgment and an injunction, each discussed in turn. The district court entered summary judgment on behalf of the plaintiffs declaring that the MMPI was a prohibited medical examination under the ADA.112 It is unclear whether the declaratory judgment alone would confer prevailing party status on the class members.113 The Supreme Court clearly stated that a plaintiff’s moral satisfaction derived from a court’s declaration that his rights were violated was not the “stuff of which legal victories are made.”114 In the present case, although the class received a final declaratory judgment, the only real benefit that the class received from the declaratory judgment was the moral satisfaction attributed to a court declaring that the plaintiffs’ rights had been violated.115 Given that the declaratory judgment alone would not mean the class prevailed, the class needed, and actually obtained, something more: injunctive relief. The district court entered a two-fold injunction ordering RAC to search for the test results and narratives of Illinois employees and to destroy them as well as to stop considering them for any employment decisions.116 The majority correctly analyzes the injunction as the only relief plaintiffs received that could potentially
111 Id. at 899. 112 Id. at 897-98. 113 See Pedigo v. P.A.M. Transport, Inc., 98 F.3d 396, 398 (8th Cir. 1996) (holding that, although plaintiff obtained a declaratory judgment declaring that the plaintiff’s constitutional rights had been violated, plaintiff had not prevailed because he did not have an enforceable judgment against the defendant). 114 Hewitt v. Helms, 482 U.S. 755, 760, 762 (1987). 115 See Petersen v. Gibson, 372 F.3d 862, 866 (7th Cir. 2004) (noting that, after the district court vacated an award of nominal damages, the plaintiff’s relief only consisted of a judicial statement that the plaintiff’s rights had been violated, which was insufficient to support prevailing party status). 116 See supra note 79. As the majority notes, destroying the tests and the results would render the latter part of the injunction superfluous; therefore, the majority did not consider whether the order to RAC to stop considering the test scores meant the plaintiffs prevailed. Karraker II, 492 F.3d at 899, n.1.
76 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 satisfy the prevailing party standard.117 The majority noted that the class members received a valuable benefit from the destruction of the management test results.118 The court compared the value of the destruction of test results as great as the value of the dollar in nominal damages awarded to the prevailing plaintiff in Farrar.119 However, as Judge Flaum noted in his dissent, the court does not explain how any member of the class actually received a benefit from the destruction of the test results.120 The court seems to rest its conclusion on the fact that, without the injunction, nothing would prevent RAC from disclosing or negligently disseminating the results of the tests to others.121 This justification seems to be at odds with Farrar, which held that there must be a direct benefit to the plaintiff at the time the judgment is entered.122 Plaintiffs did not establish that they obtained a victory that provided them a direct benefit at the time of judgment. Arguably, the class did not receive any benefit that it was not already enjoying before the court entered the injunction. The record demonstrated that the named plaintiffs were not even employed at RAC at the time of the judgment;123 therefore, enjoining RAC from considering the test results in promotion decisions and destroying the results would not directly benefit them. Therefore, the benefit for the named plaintiffs seems akin to the hypothetical benefit that the plaintiff in Barnes received, in that the Karrakers could only
117 Although the majority states in dictum that the compensation payment to the named plaintiff may have been enough to materially alter the relationship between the parties, Karraker II, 492 F.3d at 900, this Note does not consider whether the compensation payment would have conferred prevailing party status on Steven Karraker, the named plaintiff. 118 Id. at 899. 119 Id. at 898. 120 Id. at 900-901 (Flaum, J., dissenting). 121 Id. at 899 (majority opinion). 122 Farrar v. Hobby, 506 U.S. 103, 111 (1992). 123 Karraker II, 492 F.3d at 898.
77 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 conceivably benefit from the injunction if they were to regain employment with RAC and apply for a promotion.124 Turning to the class members, it is not clear whether any class member benefited from the injunction because the record does not reveal whether any member was still employed with RAC at the time of judgment.125 Judge Flaum noted that RAC appeared to continue considering the results from the management test in promotion decisions;126 therefore, it is possible that a class member received a direct benefit from the injunction. A class member that took and failed the management test and was still employed at the time of the judgment may have benefited from the destruction of the test results when applying for promotions.127 The majority does not address whether the plaintiffs’ benefit was merely a conjectural benefit, or whether the class members were employed during the relevant time period. Instead, it analyzes the benefit derived from the injunction under Justice O’Connor’s framework in Farrar.128
124 See Barnes v. Broward County Sheriff’s Office, 190 F.3d 1274, 1278 (11th Cir. 1999) (holding that although the job applicant could “conceivably benefit” from enjoining the potential employer from using a prohibited medical examination in its application process, that type of benefit was not adequate to render him a prevailing party). 125 Karraker II, 492 F.3d at 898. Although RAC had ceased administering the management test before the plaintiff class received its injunction, it is not clear from the record whether RAC continued considering the test results when making promotion decisions. Id. at 900-01 (Flaum, J., dissenting). 126 Id. at 901. 127 Id. (“there may have been a plaintiff who had standing to challenge RAC’s continued use of the APT test scores if he or she 1) failed the APT test, 2) did not pass the Future Choice Selection Process and did not complete any required Developmental Competencies, and 3) was still employed at RAC on the date that the district court issued the injunction”). 128 Id. at 898-99 (majority opinion). Numerous courts of appeal have adopted the factors that Justice O’Connor lays out in her concurrence in Farrar to analyze whether an attorney fees should be awarded despite only a nominal victory. See, e.g., Mercer v. Duke Univ., 401 F.3d 199, 204 (4th Cir. 2005); Murray v. City of Onawa, 323 F.3d 616, 619 (8th Cir. 2003); Brandau v. State of Kansas, 168 F.3d 1179, 1181 (10th Cir. 1999); Briggs v. Marshall, 93 F.3d 355, 361 (7th Cir. 1996).
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The Farrar Court held that a plaintiff that receives nominal damages is a prevailing party; however, a reasonable attorney’s fee award to such a plaintiff is usually nothing at all.129 Justice O’Connor’s concurrence set forth three factors that courts should consider to determine whether a victory of nominal damages could justify an award of attorney’s fees.130 The factors included the extent of plaintiff’s relief, the public purpose served, and the significance of the legal issue.131 Justice O’Connor clearly noted that these factors were relevant only to the amount of reasonable attorney’s fees.132 In Karraker II, the Seventh Circuit states that Justice O’Connor’s three factors weigh into the prevailing party inquiry, contrary to the language in her concurrence. 133 Thus, the Court applies the factors to the incorrect inquiry, and it concludes that plaintiffs received a valuable benefit, noting in particular that the Karraker I decision has had a significant public impact on human resources departments throughout the country.134 The majority’s misapplication of the O’Connor’s framework highlights the confusion surrounding the prevailing party inquiry in general, due in great part from Supreme Court precedent. Although the analysis did not conform formalistically to the Supreme Court precedent, the Seventh Circuit’s brief analysis into whether the class prevailed is justified. Given that the plaintiff class received an injunction as a result of succeeding on one of its claims, it seems almost a waste of the court’s time to analyze whether the class has prevailed. According to its definition, a “prevailing party” is “[a] party in whose favor a judgment is rendered, regardless of the amount
129 Farrar v. Hobby, 506 U.S. 103, 115 (1992). 130 Id. at 122 (O’Connor, J., concurring) 131 Id. 132 Id. at 117 (“[w]hile Garland may be read as indicating that this de minimis or technical victory exclusion is a second barrier to prevailing party status, the Court makes clear today that, in fact, it is part of the determination of what constitutes a reasonable fee”). 133 Karraker II, 492 F.3d at 898-99. 134 Id. at 899.
79 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 of damages awarded[.]”135 The plaintiffs received a favorable judgment, and according to the definition, that was sufficient to label them a prevailing party.136 Whether the injunction actually benefited the plaintiffs is an inquiry more directly linked to calculating a reasonable attorney’s fee, where the extent of a plaintiff’s success factors into the court’s calculation of a reasonable attorney’s fee.137 The Supreme Court’s formalistic analysis as to whether a permanent injunction directly benefits a plaintiff at the time of judgment has required courts, such as the Seventh Circuit in Karraker II, to engage in a needless analysis. The Supreme Court should end the confusion surrounding the prevailing party standard and apply a per se rule as discussed below.
B. Proposed Per Se Rule for Prevailing Party Standard
While Judge Flaum correctly noted that the majority did not identify a specific benefit that the plaintiffs received from the judgment,138 the Supreme Court should adopt a per se rule to avoid that inquiry altogether where a plaintiff has received a permanent injunction, as plaintiffs did in Karraker II. Adopting a per se rule would render the Seventh Circuit’s analysis, albeit brief, of whether the plaintiffs prevailed unnecessary. Where a plaintiff obtains a final, enforceable judgment against the defendant on the merits, such as a permanent injunction, the plaintiff should automatically be considered a “prevailing party” for purposes of the ADA fee-shifting statute, as well as all other consistently interpreted fee-shifting statutes.139 There are three reasons why the per se rule is a better option than the existing analysis: 1) the rule will be more efficient in resolving fee-shifting
135 BLACK’S LAW DICTIONARY 1154 (8th ed. 2004). 136 See Buckhannon Bd. v. West Virginia Dept. of Health & Human Resources, 532 U.S. 598, 603 (2001) (interpreting definition of “prevailing party” found BLACK’S LAW DICTIONARY (7th ed 1999) as consistent with the Supreme Court’s precedent). 137 See Farrar, 506 U.S. at 114. 138 Karraker II, 492 F.3d at 900 (Flaum, J., dissenting). 139 See supra notes 32-34.
80 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 litigation, 2) the rule is consistent with Congress’ private attorney general rationale underlying fee-shifting provisions in civil rights statutes, and 3) the per se rule is a logical and incremental extension of the current Supreme Court precedent deciding whether a plaintiff has prevailed. First, the per se rule will provide an incremental step in creating a more efficient judicial determination of whether attorney’s fees are warranted. In Hensley v. Eckerhart, Justice Brennan accurately characterized litigation disputing an award or denial of attorneys’ fees as “one of the least socially productive types of litigation imaginable,” in light of the fact that the merits of the case have already been decided.140 By automatically classifying a plaintiff as a prevailing party, the trial court will bypass one step in determining whether an award of attorney’s fees to the plaintiff is appropriate, and it may then proceed to calculating a reasonable attorney fee. Under the proposed approach, a court would not have to undertake the task of determining whether a party received a direct benefit at the time of the judgment because it would be irrefutably presumed as such. After the Seventh Circuit concluded that plaintiffs had prevailed, it had to remand the case for a determination of reasonable attorney’s fees.141 Under the per se rule, the district court would have automatically classified the plaintiff class as a prevailing party, and proceed to determine a reasonable amount of attorney’s fees, which may have still included no fee at all.142 Second, although the Seventh Circuit does not emphasize this point, the ADA, and other civil rights statutes, included fee-shifting provisions to encourage private enforcement by means of private actions.143 A per se rule would encourage private litigants to vindicate
140 461 U.S. 424, 442 (1980) (Brennan, J., dissenting). 141 Karraker II, 492 F.3d at 900. 142 See Farrar, 506 U.S. at 115 (stating that a court may find that the only reasonable attorney fee that should be awarded to a prevailing party is no fee at all). 143 See Aleyeska Pipeline Serv. Co. v. The Wilderness Society, 421 U.S. 240, 263 (1975) (stating that “Congress has opted to rely heavily on private enforcement to implement public policy and to allow counsel fees so as to encourage private litigation”).
81 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 important rights as private attorney generals because it would remove at least one obstacle to obtaining attorney’s fees. The Supreme Court only abrogated the private attorney general theory in circumstances where there was no fee-shifting statute.144 The theory still underpins the Congressional policy of fee-shifting provisions in civil rights statutes and could have contextualized and explained the true benefit the class obtained. The class challenged RAC’s policy requiring employees to pass the MMPI in order to be considered for promotions and sought declaratory and injunctive relief that would stop the practice.145 The class received that judgment, but as mentioned before, the record was unclear whether any of class members benefited from their judgment.146 The plaintiff class in Karraker II brought suit, not only to challenge its employer’s conduct, but also to privately enforce the civil rights of others similarly situated, which it did as is evidenced by the numerous human resources publications in which Karraker I is cited.147 The class members provided a benefit to a class of people that extended beyond the members of the plaintiff class. The injunction’s effect did not only potentially benefit the plaintiff class, but also vindicated a right that Congress has assigned a high priority; eliminating discrimination in hiring and promoting decisions pursuant to the ADA.148 Given that plaintiffs’ judgment helped privately enforce a law that benefits the public as a whole, the plaintiff class, in effect, fulfilled the purpose of the statute and achieved a significant victory. Under the per se rule, the plaintiffs in Dillery v. City of Sandusky149 and Barnes v. Broward County Sheriff’s Office150 would
144 See id. 145 Karraker v. Rent-A-Center, 2005 WL 2001511, at *2 (C.D. Ill. Aug. 12, 2005). 146 Karraker II, 492 F.3d at 901 (Flaum, J., dissenting). 147 Karraker II, 492 F.3d at 899 (majority opinion). 148 See Bruce v. City of Gainesville, 177 F.3d 949, 952 (11th Cir. 1999) (noting that enforcement of the ADA by private plaintiffs acting as private attorney generals is a significant component underlying the law’s policy). 149 398 F.3d 562 (6th Cir. 2005). 150 190 F.3d 1274 (11th Cir. 1999).
82 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 not have necessarily been denied an award of attorney’s fees. The plaintiffs in both cases obtained injunctive relief; however, in both cases, the court determined that their injunction had not bestowed upon them a direct benefit sufficient to convey prevailing party status.151 However, if they had been classified as prevailing parties, the courts would likely have engaged in determining whether their otherwise technical victory justified an award of attorney’s fees under Justice O’Connor’s three factor framework.152 Allowing civil rights plaintiffs reach Justice O’Connor’s framework serves the private attorney general theory because her framework considers the impact the injunction had on the public, an underlying premise of the private attorney general theory. The per se rule is consistent with the Congressional policy of encouraging private enforcement, and it is a significant reason why the Court should be willing to give more leeway to a plaintiff acting as a private attorney general when determining prevailing party status. Third, the per se rule is consistent with Supreme Court precedent analyzing the prevailing party standard. For instance, the Court has implicitly held that the benefit to the plaintiff is a factor that should be considered in determining what constitutes a reasonable attorney’s fees.153 The Supreme Court has already held that the degree of success is critical in the reasonableness inquiry,154 and whether a judgment benefits a plaintiff is an inquiry subsumed by considering the degree of success factor. Furthermore, the Supreme Court’s has already
151 The Sixth Circuit held that the plaintiff in Dillery did not receive any relief from her injunction because an identical injunction had recently been issued by another court in the same district to a distinct class of plaintiffs. 398 F.3d at 569. In Barnes, the Eleventh Circuit held that the plaintiff, a job applicant, had not received a benefit from an injunction ordering the employer to cease using a certain medical examination because there was no indication that the plaintiff was going to, or likely to, reapply to the position he was denied. 190 F.3d at 1278. 152 The courts would have had to analyze the extent of relief the plaintiffs received, the significance of the legal issue they prevailed on, and the public purpose served by the injunction. Farrar v. Hobby, 506 U.S. 103, 122 (1992) (O’Connor, J., concurring) 153 See id. at 114 (majority opinion). 154 Id.
83 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 applied a per se rule in the prevailing party inquiry with regards to nominal damages.155 Extending the per se rule to plaintiffs that have obtained a permanent injunction is a logical and incremental step in the Supreme Court’s jurisprudence. The Seventh Circuit stated in Karraker II, the value of the Karrakers’ injunction was worth as much as the one dollar of nominal damages awarded to the plaintiff in Farrar.156 The majority’s perspective on the value of the plaintiffs’ injunction seems to flow logically in light of the holding in Farrar. For all the reasons above, the plaintiffs in Karraker should have been automatically considered prevailing parties. One major drawback to the per se rule is that attorneys may file meritless claims on behalf of civil rights plaintiffs for the sole purpose of recovering attorney’s fees. That danger is effectively curtailed by the doctrine of standing and the Supreme Court’s decision in Farrar. Standing will prevent plaintiffs that cannot show actual injury to themselves, rather than society as a whole, from filing suit in the first place. And even though a civil rights plaintiff may obtain prevailing party status more readily, the plaintiff must still show that his judgment was not of the type which warrants a reasonable attorney fee award of zero.
V. CONCLUSION
The Seventh Circuit ultimately held correctly that the plaintiff class should be considered a prevailing party for purposes of awarded attorney’s fees. The majority’s analysis of whether the class had prevailed was required by the Supreme Court’s formulation of the prevailing party standard. However, given the fact that the class had obtained a permanent injunction, it is an unnecessary waste of time for courts to engage in such analysis. The Supreme Court should adopt a per se rule that would automatically convey prevailing party status to plaintiffs, such as the class in Karraker, because it is more efficient
155 Id. at 112 (“We therefore hold that a plaintiff who wins nominal damages is a prevailing party under § 1988”). 156 Karraker II, 492 F.3d at 898.
84 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 and fits into the Congress’ private attorney general rationale underpinning its fee-shifting provisions in civil rights legislation. The rule also is an incremental and logical extension of the Supreme Court’s per se rule that a plaintiff that receives nominal damages is a prevailing party. Therefore, the Supreme Court should adopt a per se rule that confers prevailing party status to a civil rights plaintiff that obtains a permanent injunction.
85 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007
MISSING THE FOREST FOR THE TREES: THE SEVENTH CIRCUIT’S REFINEMENT OF BLOOM’S PRIVATE GAIN TEST FOR HONEST SERVICES FRAUD IN UNITED STATES V. THOMPSON
∗ ROBERT J. LAPOINTE
Cite as: Robert J. Lapointe, Missing the Forest for the Trees: The Seventh Circuit’s Refinement of Bloom’s Private Gain Test for Honest Services Fraud in United States v. Thompson, 3 SEVENTH CIRCUIT REV. 86 (2007), at http://www.kentlaw.edu/7cr/v3-1/lapointe.pdf.
INTRODUCTION
The mail fraud statue, once described as the federal prosecutor’s “Colt 45 [or] Louisville Slugger”1 is one of the federal government’s major weapons in the fight against political corruption.2 The statute proscribes using the mails to carry out “any scheme or artifice to defraud.”3 When first enacted, the mail fraud statute was limited to traditional frauds involving money or property.4 At the turn of the twentieth century, however, the United States Supreme Court
∗ J.D. candidate, May 2008, Chicago-Kent College of Law, Illinois Institute of Technology. 1 Jed S. Rakoff, The Federal Mail Fraud Statute (Part I), 18 DUQ. L. REV. 771, 771 (1980). 2 See Geraldine Szott Moohr, Mail Fraud Meets Criminal Theory, 67 U. CIN. L. REV. 1, 2 (1998); Joshua A. Kobrin, Note, Betraying Honest Services: Theories of Trust and Betrayal Applied to the Mail Fraud Statute and §§ 1346, 61 N.Y.U. ANN. SURV. AM. L. 779, 792 (2006); Carrie A. Tendler, Note, An Indictment of Bright Line Tests for Honest Services Mail Fraud, 72 FORDHAM L. REV. 2729, 2729 (2004). 3 18 U.S.C. § 1341 (2000). 4 McNally v. United States, 483 U.S. 350, 356 (1987).
86 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 concluded that certain fraud statutes were not limited to the loss of money or property. In Hammerschmidt v. United States, the Court concluded that the government was defrauded when someone interferes with its “lawful governmental functions by deceit, craft or trickery, or at least by means that are dishonest.”5 Hammerschmidt and its progeny led to the creation of the “intangible rights theory” through which the mail fraud statute was used to reach non-pecuniary frauds.6 In the mid twentieth century prosecutors developed the “honest services” theory.7 Under this theory, public officials owe fiduciary duties to the citizenry.8 One of their fiduciary duties is to provide the public their “honest services.”9 In the battle against public corruption, prosecutors charged public officials with mail fraud when they utilized the mails in connection with breaching their fiduciary duties.10 Typical breaches of fiduciary duty involved the acceptance of bribes or the participation in kickback schemes.11 Until the 1970s, the honest services theory was used in connection with pecuniary frauds.12 But after Watergate, when federal prosecutors were specifically charged with fighting public corruption at the state and local levels, innovative prosecutors combined the intangible rights theory with the honest services theory and created the honest services fraud doctrine.13 Under this doctrine public officials could be indicted for mail fraud when
5 265 U.S. 182, 188 (1924). 6 Kobrin, supra note 2, at 790 n.50 (2006). 7 See Shushan v. United States, 117 F.2d 110 (5th Cir. 1941); Kobrin, supra note 2, at 791. 8 McNally, 483 U.S. at 355. 9 See, e.g., United States v. Isaacs, 493 F.2d 1124 (7th Cir. 1974); Shushan, 117 F.2d at 115 (“[n]o trustee has more sacred duties than a public official”). 10 See, e.g., United States v. Mandel, 591 F.2d 1347 (4th Cir. 1979); Isaacs, 493 F.2d 1124. 11 See United States v. Antico, 275 F.3d 245, 262-63 (3d Cir. 2001); United States v. Woodward, 149 F.3d 46, 54-55 (1st Cir. 1998). 12 Kobrin, supra note 2, at 791. 13 Moohr, supra note 2, at 2-8; Kobrin, supra note 2, at 790-94; Tendler, supra note 2, at 2730-34.
87 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 they breached their fiduciary duties regardless of whether or not the public suffered a tangible loss.14 Although the honest services fraud doctrine began in the public sector it was later extended to the private sector.15 Over the next two decades each Circuit accepted the honest services fraud doctrine.16 But in 1987, the Supreme Court struck the doctrine down in McNally v. United States, holding that the mail fraud statute was limited to frauds involving money or property.17 One year later, Congress resurrected the honest services fraud doctrine through the enactment of 18 U.S.C. § 1346.18 Section 1346 states that “[f]or the purposes of this chapter, the term ‘scheme or artifice to defraud’ includes a scheme or artifice to deprive another of the intangible right of honest services.”19 Congress, however, failed to define the terms “intangible rights” and “honest services.” As a result the statute is frequently challenged on vagueness and federalism grounds.20 To counter these concerns, the lower courts have adopted various limiting principles to help limit prosecutorial overreach and to prevent minor
14 See, e.g., Mandel, 591 F.2d 1347; Isaacs, 493 F.2d 1124. 15 See, e.g., United States v. Welch, 327 F.3d 1081 (10th Cir. 2003); United States v. Frost, 125 F.3d 346 (6th Cir. 1997); United States v. Jain, 93 F.3d 436 (8th Cir. 1996); United States v. Bronston, 658 F.2d 920 (2d Cir. 1981). Two articles discussing honest services fraud in the private sector include John C. Coffee, Jr., Modern Mail Fraud: The Restoration of the Public/Private Distinction, 35 AM. CRIM. L. REV. 427 (1998) and Tendler, supra note 2. Honest services fraud in the private sector is beyond the scope of this Note. 16 United States v. Sawyer, 85 F.3d 713, 723 (1st Cir. 1996); see also Sara Sun Beale, Comparing the Scope of the Federal Government’s Authority to Prosecute Federal Corruption and State and Local Corruption: Some Surprising Conclusions and a Proposal, 51 HASTINGS L. J. 699, 711 (2000); Kobrin, supra note 2, at 794. 17 483 U.S. 350, 358-59 (1987). 18 Anti-Drug Abuse Act of 1988, Pub. L. No. 100-690, 102 Stat. 4508 (1988) (codified at 18 U.S.C. § 1346). 19 18 U.S.C. § 1346 (2000). 20 See, e.g., United States v. Warner, 498 F.3d 666 (7th Cir. 2007); United States v. Rybicki, 354 F.3d 124 (2d Cir. 2003) (en banc); United States v. Bryan, 58 F.3d 933 (4th Cir. 1995); United States v. Waymer 55 F.3d 564 (11th Cir. 1995).
88 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 breaches of fiduciary duties from becoming federal crimes. 21 In United States v. Bloom the United States Court of Appeals for the Seventh Circuit established its limiting principle as the “misuse of office . . . for private gain.”22 The Seventh Circuit is the only Circuit that has adopted this standard.23 Recently, the Seventh Circuit refined its Bloom standard in United States v. Thompson.24 In Thompson, Georgia Thompson, a state civil servant steered a contract to a business whose owner gave political donations to the Wisconsin Governor’s reelection campaign, both prior to and after the award of the contract.25 The political contributions, however, were fully disclosed and there was no evidence that Thompson or anyone else accepted a bribe or was involved in a kickback scheme.26 Although the Seventh Circuit has long held that “[n]ot every breach of every fiduciary duty works a criminal fraud,”27 in Thompson the government’s theory was that “any politically motivated departure from state administrative rules is a federal crime,
21 See, e.g., United States v. Welch, 327 F.3d 1081, 1104-07 (10th Cir. 2003) (requiring that the government prove an intent to defraud); United States v. Panarella, 277 F.3d 678, 692-93 (3d Cir. 2002) (adopting a state law limiting principle); United States v. Bloom, 149 F.3d 649, 655 (7th Cir. 1998) (adopting the misuse of office for private gain limiting principle); United States v. Brumley, 116 F.3d 728, 733-34 (5th Cir. 1997) (en banc) (requiring that the government prove that services owed under state law were not delivered); United States v. Sawyer, 85 F.3d 713, 732 (1st Cir. 1996) (requiring that the government prove “a demonstrated intent to deceive”). 22 Bloom, 149 F.3d at 655. 23 United States v. Malone, No. 02:03-CR-00500-LRH-LRL, 2006 WL 2583293, at *3 (D. Nev. Sept. 6, 2006); Albert W. Alschuler, The Mail Fraud & RICO Racket: Thoughts on the Trial of George Ryan, 9 GREEN BAG 2d 113, 115 (2006). 24 484 F.3d 877 (7th Cir. 2007). 25 Id. at 878-79. 26 Id. at 879, 881. Thompson was also charged with violating 18 U.S.C. § 666 entitled “Theft or bribery concerning programs receiving Federal funds,” but she was not charged with bribery. Id. at 880-81. Rather the government’s theory was that she “misapplied” federal funds. Id. 27 Bloom, 149 F.3d at 645 (citing United States v. George, 477 F.2d 508, 512 (7th Cir. 1973).
89 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 when the mails . . . are involved.”28 The government further argued that Thompson “deprived Wisconsin of her ‘honest services’ [when she failed] to implement state law the way the administrative code laid it down.”29 In deciding Thompson the Seventh Circuit rejected the government’s theory that all politically motivated violations of administrative rules are federal crimes.30 The court stated “[t]he idea that it is a federal crime for any official in state or local government to take account of political considerations when deciding how to spend public money is preposterous.”31 The Seventh Circuit concluded that Ms. Thompson was innocent, reversed her conviction, and ordered her immediate release from prison—even prior to issuing its formal opinion.32 Although the Thompson facts were exceptional,33 from a legal perspective the case appears to be rather ordinary. In deciding the case, the Seventh Circuit applied and followed the limiting principle it announced in Bloom.34 The court found that Thompson neither
28 Thompson, 484 F.3d at 878. 29 Id. at 882. 30 Id. 31 Id. at 883. 32 Id. at 878. 33 Wisconsin Governor, and former state attorney general, Jim Doyle was quoted as saying “the three judges did an ‘extraordinary thing’ by entering an order finding Thompson innocent and ordering her immediate release.” Steven Walters & John Diedrich, Federal Appeals Court Tosses Thompson Case: Ex-state official freed: Judge calls evidence she steered travel contract ‘beyond thin’, MILWAUKEE J. SENTINEL, Apr. 6, 2007, at A1. Some commentators have argued that the case was prosecuted, in a heated election year, solely for political reasons in an effort to help defeat Governor Doyle’s re-election bid. Adam Cohen, Editorial, A Woman Wrongly Convicted and a U.S. Attorney Who Kept His Job, N.Y. TIMES, Apr. 16, 2007, at A18; Steven Walters & Patrick Marley, Conviction may cost Thompson $300,000: Former state employee in seclusion after release, MILWAUKEE J. SENTINEL, Apr. 7, 2007, at A1; Stephanie Francis Ward, When Honesty Is Not Best Politics: Courts struggle with honest-services charges in bribery cases, ABA J., Aug. 2007, at 18, 20. 34 Thompson, 484 F.3d at 883-84.
90 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 misused her office, nor had a private gain.35 In doing so, the Seventh Circuit further clarified the Bloom standard holding “that neither an increase in salary for doing what one’s superiors deem a good job, nor an addition to one’s peace of mind, is a ‘private benefit’ for the purpose of § 1346.”36 But a more nuanced reading of the opinion suggests that, in refining the Bloom standard, the court may have inadvertently opened the door to future abuses of the public trust by civil servants. Prior to the Seventh Circuit’s decision in Thompson, the Northern District of Illinois held, on three prior occasions, that one’s job or the prospect of future employment may serve as a private gain under the Bloom standard.37 The first case in which this reasoning appeared was United States v. Bauer,38 later followed by United v States Munson,39 and United States v. Sorich.40 The government cited to Sorich and Munson in support of its position in Thompson.41 The Seventh Circuit found these cases “unpersuasive.”42 But the court did not explain its reasoning.43 Munson is not readily distinguishable from Thompson, leading to the conclusion that Thompson simply overrules Sorich, Munson, and Bauer. Cutting against this conclusion is the court’s language finding the cases “unpersuasive” rather than simply stating that the cases are overruled.44 Therefore, it is arguable, and more likely, that the court was distinguishing Thompson from Sorich, Munson, and Bauer. Sorich
35 Id. at 884. 36 Id. at 884. 37 United States v. Sorich, 427 F. Supp. 2d 820 (N.D. Ill. 2006); United States v. Munson, No. 03 CR 1153-4, 2004 U.S. Dist. LEXIS 14274 (N.D. Ill. July 27, 2004); United States v. Bauer, No. 00 CR 81, 2000 U.S. Dist. LEXIS 16784 (N.D. Ill. Nov. 14, 2000). 38 2000 U.S. Dist. LEXIS 16784, at *10-12. 39 2004 U.S. Dist. LEXIS 14274, at *3. 40 Sorich, 427 F. Supp. 2d at 828-30. 41 Thompson, 484 F.3d at 884. 42 Id. 43 Id. 44 Id.
91 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 and Bauer can be readily distinguished from Thompson on the grounds that Sorich and Bauer held politically appointed policy-making jobs whose job security depended on the continued election of their political patrons.45 In contrast, Thompson held a civil servant position with independent job security,46 and was hired by the previous administration of the opposing political party.47 Thus, one reading of Thompson is that a political appointee’s job may serve as a private gain, but a state civil servant’s job may not. This outcome has the potential to create an environment where civil servants can make—in perhaps subtle or Machiavellian ways—political decisions to help further the careers or reward the friends of their current political supervisors. In turn, the civil servants can be rewarded as a part of their normal compensation without the threat of punishment.48 This outcome potentially continues the graft, or minimally the perception of corruption, that increases the public’s mistrust of government and decreases its faith in the political process. Furthermore, this outcome will undercut the main purpose behind the enactment of § 1346—to help fight public corruption at the state and local levels. This Note argues that the Seventh Circuit could have avoided the problems raised by Thompson if it had first decided as a threshold matter whether or not a “scheme” existed. Although not defined in the mail fraud statute, one of the dictionary definitions of scheme is “[a]n artful plot or plan, [usually] to deceive others.”49 When used in a fraud
45 Sorich, 427 F. Supp. 2d at 829-30; United States v. Bauer, No. 00 CR 81, 2000 U.S. Dist. LEXIS 16784, at *11-12 (N.D. Ill. Nov. 16, 2000). 46 Thompson, 484 F.3d at 882. 47 Walters & Diedrich, supra note 33. 48 See Thompson, 484 F.3d at 884 (“[i]t would stretch the ordinary understanding of language . . . to call a public employee’s regular compensation, approved through above-board channels, a kind of ‘private gain’” (emphasis added)). 49 BLACK’S LAW DICTIONARY 1372 (8th ed. 2004); see also WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 2029 (1964) (defining scheme as “a crafty or unethical project”). Artifice has a similar definition. See BLACK’S LAW DICTIONARY 120 (8th ed. 2004) defining artifice as “[a] clever plan or idea, esp. one intended to deceive.”
92 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 statute it becomes clear that this is the intended meaning of scheme, as opposed to it meaning “a plan or program of something to be done.”50 Simply put, a “scheme” as defined in the mail fraud statute requires some nefarious ends.51 An analysis of Thompson will show that there was no “scheme.” In contrast, an analysis of Sorich, Munson, and Bauer will show that a “scheme” did exist. In the grand scheme52 of honest services mail fraud analyses, making the determination of whether or not a “scheme” exists may be of limited use because most cases result from bribery or kickback schemes.53 But, Thompson was prosecuted for honest services fraud in a case where there were no allegations that she or anyone else had taken a bribe or participated in a kickback scheme.54 Therefore, it is worth reminding the court to take a step back and view the whole picture before delving into detailed legal tests. Section I of this Note will briefly chronicle the history of the mail fraud statute, detail the rise of the honest services fraud doctrine, and review the reasons behind the Supreme Court’s rejection of the doctrine in McNally and Congress’s restoration of the doctrine through the enactment of 18 U.S.C. § 1346. Section II will discuss the Seventh Circuit’s treatment of honest services fraud post-McNally, and lay out the Seventh Circuit’s reasons for adopting the misuse of office for private gain limiting principle in Bloom. The Third Circuit has criticized and rejected the Seventh Circuit’s Bloom standard, and instead has adopted a state law limiting principle. Section II will also examine the reasoning behind the Third Circuit’s position. Section III will compare the Seventh and Third Circuits’ standards to determine if either standard is practically or theoretically superior, and if the concerns raised by Thompson can be solved by adopting the
50 WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 2029 (1964). 51 See, e.g., United States v. Sawyer, 85 F.3d 713, 729 (1st Cir. 1996) (the intent of the scheme must be the deprivation of honest services). 52 Using scheme under its definition of “a combination of elements . . . that are connected, adjusted, and integrated by design.” WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 2029 (1964). 53 See supra note 11. 54 See supra note 26.
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Third Circuit’s standard. Section III will conclude that the concerns raised in Thompson could have been adverted by adopting the Third Circuit’s standard. But adopting the Third Circuit’s standard would raise a different set of problems. Therefore, that is not a long-term solution to the overall questions raised by § 1346. Furthermore it is likely that both standards lead to the same outcomes under the same set of facts. Therefore, Section III cannot conclude that either test is practically or theoretically superior. Because the Seventh Circuit would gain little benefit from adopting the Third Circuit’s standard, Section IV examines the private gain aspect of the Bloom standard. Section IV first details the conclusions reached by courts in the Northern District of Illinois in the Sorich, Munson, and Bauer cases—that one’s job or the prospect of future employment can serve as a private gain under Bloom. Next, Section IV analyzes how Thompson’s opposite conclusion can lead to the “subtle schemes” problem based on the political appointee/civil servant dichotomy that distinguishes Thompson from Sorich and Bauer. Section V describes how the Seventh Circuit could have prevented the “subtle scheme” problem if it had determined as a threshold matter whether or not a “scheme” existed. Had the court made this threshold determination it could have reached the same result in Thompson without having to discuss the private gain issue because Section V will show that there was no “scheme” in Thompson, while a “scheme” did exist in Sorich, Munson, and Bauer. Making the threshold determination, however, may be difficult in cases, such as Thompson and Bauer, where only one civil servant is acting. Section V deals with the problem by proposing the adoption of a business judgment rule to assist in determining whether or not a scheme exists.
94 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007
I. BACKGROUND
A. Early History
The current mail fraud statute traces its origins to the 1872 reorganization and recodification of the then existing postal laws.55 In the years after the Civil War, along with the growth of the national economy, the country experienced an increase in the number of large- scale financial frauds.56 Prior to the Civil War, despite Congress’s power to establish the post office,57 the prevailing view was that it lacked the power to regulate any material, including objectionable material, placed in the mails.58 After the Civil War, the northern view of federal power—that Congress had the power to prevent the mails from being used for illegal purposes—prevailed, although certain tactics were prohibited.59 Despite this new view of federal power, the language of the original mail fraud statute suggests that Congress was still concerned that the law might be stuck down as unconstitutional.60 In an effort to prevent this outcome, Congress relied heavily on its power to prevent the misuse of the mails, perhaps explaining much of the superfluous “mail-emphasizing” language.61 Ultimately, the Supreme Court’s
55 McNally v. United States, 483 U.S. 350, 356 (1987). For a detailed history of the mail fraud statute see Rakoff, supra note 1. 56 See Ex parte Jackson, 96 U.S. 727 (1878); Rakoff, supra note 1, at 780. 57 U.S. CONST. art. I, § 8, cl. 7. 58 Rakoff, supra note 1, at 781. 59 Rakoff, supra note 1, at 781. Tactics that were prohibited included the opening of sealed letters. Id. 60 Id. at 785-86. 61 See id. The original mail fraud statute stated:
That if any person having devised or intending to devise any scheme or artifice to defraud, [to] be effected by either opening or intending to open correspondence or communication with any other person (whether resident within or outside the United States),
95 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 ruling in Ex parte Jackson62 put to rest the idea that the mail- emphasizing language was needed.63 But because the language existed, it led to divergent statutory interpretations in the lower courts.64 Under the strict view, the mail emphasizing language allowed for the prosecution of only those frauds that were “dependent” on the
by means of the post-office establishment of the United States, or by inciting such other person to open communication with the person so devising or intending, shall, in and for executing such scheme or artifice (or attempting so to do), place any letter or packet in any post-office of the United States, or take or receive any therefrom, such person, so misusing the post-office establishment, shall be guilty of a misdemeanor, and shall be punished with a fine of not more than five hundred dollars, with or without such imprisonment, as the court shall direct, not exceeding eighteen calendar months. The indictment, information, or complaint may severally charge offenses to the number of three when committed within the same six calendar months; but the court thereupon shall give a single sentence, and shall proportion the punishment especially to the degree in which the abuse of the post-office establishment enters as an instrument into such fraudulent scheme and device.
Act of June 8, 1872, ch. 335, § 301, 17 Stat. 323 (1872) (codified at U.S. Rev. Stat. § 5480 (1875) (emphasis added). See Rakoff, supra note 1, at 785-86 (explaining why the emphasized language is unnecessary, and speculating that Congress included it to ground the statute in its powers to prevent the misuse of the mails because of its fear that the statute would be struck down as unconstitutional). 62 96 U.S. 727 (1877). 63 See id. (upholding the illegal lottery statute). The illegal lottery statute was incorporated in the same Act as the mail fraud statute, but was contained in a separate section. Act of June 8, 1872, ch. 335, § 149, 17 Stat. 302 (1872) (codified at U.S. Rev. Stat. § 3894 (1875)). In upholding the power of Congress to prevent illegal lottery material from being sent through the mails, the Court stated “[t]he power possessed by Congress embraces the regulation of the entire postal system of the country. The right to designate what shall be carried necessarily involves the right to determine what shall be excluded.” Ex parte Jackson, 96 U.S at 732. For a discussion of the effect of the Court’s decision in Ex parte Jackson on the interpretation of the mail fraud statute see Rakoff, supra note 1, at 787-90. 64 Rakoff, supra note 1, at 789-90.
96 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 mails.65 But under the broad view the mail fraud statute could be used to punish any fraud so long as it was furthered by the “abuse” of the mails.66 For nearly two decades, the lower courts were split between the strict and broad interpretations, and the Supreme Court did not take any cases to resolve the dispute.67 In 1889, Congress amended the mail fraud statue to include a list of specific schemes.68 If this was an attempt to resolve the issue of strict versus broad interpretation, it probably would have failed.69 We will never know because the lower courts did not get the opportunity to interpret the new language.70 Instead, in 1896, the Supreme Court’s decision in Durland v. United States71 undercut the support for the strict view and set the stage for the broad interpretation of the mail fraud statute.72
65 Id. at 790. For a discussion of the strict view of the original mail fraud statute see id. at 790-95. 66 Id. For a discussion of the broad view of the original mail fraud statute see id. at 795-801. 67 Id. at 809. During this time two cases, In re Henry, 123 U.S. 372 (1887) and United States v. Hess, 124 U.S. 483 (1888), did come before the Supreme Court, but they were decided on technical matters, and not on the scope of the mail fraud statute. Id. at 808. 68 Id. at 809 (citing Act of March 2, 1889, ch. 393 § 1, 25 Stat. 873). 69 Id. The courts that had broadly interpreted the statue likely would have continued to do so under the belief that this was what Congress intended when it continued to add to the list of frauds. Id. But, the new list of items could also confirm the strict constructionist view that only the listed frauds were intended to be covered. Id. 70 Id. at 810. 71 161 U.S. 306 (1896). 72 See Rakoff, supra note 1, at 811 (“the broad and conclusory language used by Justice Brewer exemplifies reasoning typical of the broad constructionist decisions and gives not the slightest hint of support for the strict constructionists’ approach”); Moohr, supra note 2, at 7-8 (discussion expansive interpretations of the mail fraud statute). See also McNally v. United States, 483 U.S. 350, 356 (1987) (“the phrase [scheme or artifice to defraud] is to be interpreted broadly insofar as property rights are concerned”).
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In Durland, the first case to interpret the language73 “any scheme or artifice to defraud,” the defendant argued that the mail fraud statute was limited to the common law definition of “false pretenses”—that only past conduct, but not future conduct could be punished.74 The Court rejected this argument and held that the mail fraud statute reached to both past and present conduct, as well as to future promises.75 The Durland holding was later codified in the 1909 amendment to the mail fraud statute.76 After Durland, the mail fraud statute remained virtually unchanged, except for a revision in 1948 to modernize the language, remove surplusage, and to recodify the statute at its present location—18 U.S.C. § 1341.77 In the nearly hundred years since the 1909 amendment, the mailing element has been reduced to nothing more than a means of providing federal jurisdiction.78 Despite this development, some courts continue to misplace emphasis on the mailing element instead of focusing on the core issue: the definition of the term “scheme to defraud.”79 Perhaps courts have not defined “scheme to defraud” because they want to adhere to Congress’s intent—arguably its intent from the very beginning—to apply the mail fraud statute broadly.80 By defining a “scheme to defraud” the courts might leave something outside of the definition that Congress intended to include. Chief Justice Burger characterized the mail fraud statute as the “first line of
73 McNally, 483 U.S. at 356. 74 Durland, 161 U.S. at 312. 75 Id. at 313. 76 McNally, 483 U.S. at 357. The 1909 amendment also eliminated the list of schemes added in 1889 and removed the second element, which required proof that the defendant intended to both defraud and misuse the mails. Rakoff, supra note 1, at 816. 77 Brian C. Behrens, Note, 18 U.S.C. section 1341 and section 1346: Deciphering the Confusing Letters of the Mail Fraud Statute, 13 ST. LOUIS U. PUB. L. REV. 489, 497 (1993). 78 Moohr, supra note 2, at 6-7. 79 Rakoff, supra note 1, at 822 (concluding that the focus on the mailing element is “misplaced and serves no useful function”). 80 Id.
98 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 defense” against new types of fraud.81 He described the mail fraud statute as a “stopgap device to deal on a temporary basis with the new [frauds], until particularized legislation can be developed and passed to deal directly with the evil.”82 Although not new, public corruption is a type of fraud that came under the ambit of the mail fraud statute beginning in the 1970s, under the honest services fraud doctrine.83
B. Development of the Honest Services Fraud Doctrine
The honest services fraud doctrine resulted from federal prosecutors’ novel combination of the “intangible rights” and “honest services” theories.84 The intangible rights theory was predicated upon the court’s removal of the pecuniary loss requirement for obtaining a fraud conviction.85 Traditionally, the words “to defraud” referred to the harming of one’s property rights.86 But in the early twentieth century, the Supreme Court removed the requirement of a pecuniary loss in a series of decisions interpreting various fraud statutes, but not in the mail fraud statute.87 For example, in Hammerschmidt v. United States,
81 United States v. Maze, 414 U.S. 395, 405 (1974) (Burger, C.J., dissenting). 82 Id. at 405. 83 Moohr, supra note 2, at 2; Kobrin, supra note 2, at 792-93; Tendler, supra note 2, at 2730. 84 Moorh, supra note 2, at 8; Kobrin, supra note 2, at 790-94; Tendler, supra note 2, at 2733-34. 85 Kobrin, supra note 2, at 790. 86 McNally v. United States, 483 U.S. 350, 358 (1987) (citing Hammerschmidt v. United States, 265 U.S. 182, 188 (1924)); see also Geraldine Szott Moohr, Mail Fraud and the Intangible Rights Doctrine: Someone to Watch Over Us, 31 HARV. J. ON LEGIS. 153, 163 (1994) [hereinafter Moohr, Someone to Watch Over Us]. 87 Haas v. Henkel, 216 U.S. 462, 479 (1910) (construing the conspiracy to defraud statute as broad enough to reach “any conspiracy for the purpose of impairing, obstructing, or defeating the lawful function of any department of government”). See also Kobrin supra note 2, at 790 n.50 citing to United States v. Barnow, 239 U.S. 74, 79-80 (1915) (government does not have to prove that a defrauded victim of a defendant impersonating a federal employee or officer lost anything of value) and United States v. Plyler, 222 U.S. 15, 16 (1911) (government does not have to prove a financial loss to bring a case against a defendant who
99 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the Supreme Court, interpreting the conspiracy to defraud statute, concluded that the government was not only defrauded when it was cheated out of money or property, but also when someone interferes with its “lawful governmental functions.”88 The Court further stated that “[i]t is not necessary that the Government shall be subjected to property or pecuniary loss by the fraud, but only that its legitimate official action and purpose shall be defeated by the misrepresentation, chicane or the overreaching of those charged with carrying out the governmental intention.”89 The honest services theory traces its origins to the Fifth Circuit’s decision in Shushan v. United States.90 In Sushan, members of the Orleans Parish Levee Board, two bond dealers, and a public accountant engaged in a scheme to charge excessive fees in a bond refinancing deal.91 They were convicted of violating the mail fraud statute under the theory that their representations were false because of the excessive fees, and because the Levee Board was “deprived of [the] fair judgment of one of its members,” as a result of the bribes that were paid as part of the scheme.92 The court stated that a scheme
forged and presented papers certifying his character to the Civil Service Commission) that based their holdings on Haas. 88 265 U.S. 182, 188 (1924). 89 Id. 90 117 F.2d 110 (5th Cir. 1941). See, e.g., United States v. Isaacs, 493 F.2d 1124, 1150 (7th Cir. 1974); United States v. States, 488 F.2d 761 (8th Cir. 1973). “In Shushan there is the implication that a scheme to gain personal favors from public officials is a scheme to defraud the public, although the interest lost by the public can be described no more concretely than as an intangible right to the proper and honest administration of government.” States, 488 F.2d at 766. Shushan is often cited to as the basis for the intangible rights doctrine as well. Kobrin, supra note 2, at 792-93. For the argument that courts misinterpreted Shushan as the basis for the intangible rights doctrine, and a prescient view of the Supreme Court’s holding in McNally that the mail fraud is limited to frauds that result in the gain of money or property, see W. Robert Gray, The Intangible-Rights Doctrine and Political- Corruption Prosecutions Under the Federal Mail Fraud Statute, 47 U. CHI. L. REV. 562, 584-88 (1980). 91 117 F.2d at 114. 92 Id. at 113-15.
100 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 to defraud exists even in the absence of any misrepresentations if one betrays another or corrupts another’s advisor to gain money unfairly.93 It further stated that a person who bribes a public official to obtain more favorable terms in a public contract not only commits the crime of bribery, but also engages in a “scheme to defraud the public.”94 Finally, in what ultimately became the basis for the honest services theory, the court stated, “[n]o trustee has more sacred duties than a public official and any scheme to obtain an advantage by corrupting [a public official] must in the federal law be considered a scheme to defraud.”95 While Shushan may have planted the seeds for the honest services fraud doctrine, it was not until the 1970s, when federal prosecutors were specifically charged with fighting public corruption, that the doctrine took root and started to bear fruit.96 To battle public corruption, innovative prosecutors combined the “intangible rights” theory that fraud is not limited to the loss of money or property with the “honest services” theory that governmental officials owe fiduciary duties to the public.97 The combination of the two theories resulted in the birth of the honest services fraud doctrine under which the mere breach of a fiduciary duty could be punished under the mail fraud statute, regardless of whether or not the public has suffered a tangible harm.98 One of the first cases prosecuted under the honest services fraud doctrine, and perhaps a paradigm case of the doctrine, was United States v. Isaacs.99
93 Id. 94 Id. 95 Id. 96 Moohr, supra note 2, at 8-11; Kobrin, supra note 2, at 792-93. 97 Moohr, supra note 2, at 8-11; Kobrin, supra note 2, at 792-93. 98 Moohr, supra note 2, at 8-11; Kobrin, supra note 2, at 792-93. Although Shushan is sometimes cited as the origin of the intangible rights theory, the intangible rights language in the case is likely dictum given that the court found that the Orleans Parish Levee Board suffered a tangible loss. Shushan, 117 F.2d at 119; see also Kobrin, supra note 2, at 790. 99 493 F.2d 1124 (7th Cir. 1974). See Kobrin, supra note 2, at 793.
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In 1973, Otto Kerner,100 former Illinois Governor, and Theodore Isaacs, Illinois Director of Revenue under Kerner, were convicted on a variety of charges, including honest services mail fraud, for accepting bribes in return for promoting certain horse racing interests.101 Kerner and Isaacs challenged their mail fraud convictions arguing that neither the State of Illinois nor its citizens were defrauded of money or property.102 In fact, as result of their actions, state revenue from horse racing doubled.103 Despite the increase in state revenue, the Seventh Circuit upheld their convictions. The court first quoted the language in Hammerschmidt that for fraud it is not necessary that the government suffer a pecuniary loss, but only that its legitimate actions are defeated.104 The court next quoted the “sacred duties” language in Shushan, and the language stating that a scheme to bribe a public official is also a scheme to defraud the public.105 Finally, the court concluded that Kerner deprived the State of Illinois and it citizens of his honest services.106 After Isaacs and a few additional groundbreaking cases,107 the honest service fraud doctrine was frequently used in the fight against public corruption, and was later extended to private breaches of fiduciary duty, most notably in the corporate context.108 During this time, each of the Circuits adopted some form of the honest services
100 At the time of his conviction, Otto Kerner was a sitting United States Circuit Judge in the Seventh Circuit. Id. at 1140. 101 Id. at 1131. 102 Id. at 1149. 103 Id. at 1139. 104 Id. at 1150. 105 Id. 106 Id. 107 See, e.g., United States v. Mandel, 591 F.2d 1347 (4th Cir. 1979); United States v. States, 488 F.2d 761 (8th Cir. 1973). 108 Kobrin, supra note 2, at 794; Tendler, supra note 2, at 2733-35.
102 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 fraud doctrine. 109 But, the doctrine suffered a major blow in 1987 when the Supreme Court decided McNally v. United States.110
C. Rejection and Restoration of the Honest Services Fraud Doctrine
McNally arose out of an insurance kickback scheme between a Kentucky state official and Charles McNally, the nominal owner of the insurance agency through which the payments were funneled.111 The Sixth Circuit affirmed both of their convictions for mail fraud under the honest services fraud doctrine, and the Supreme Court granted certiorari to determine the doctrine’s validity.112 The Court rejected the honest services fraud doctrine, holding that the mail fraud statute was limited to frauds involving money or property.113 In reaching this conclusion, the Court first noted that the text of the statute clearly protects property rights, but does not mention the citizenry’s right to good government.114 Reviewing the history of the statute, the Court concluded that under Durland, the term “scheme or artifice to defraud” was to be given a broad reading only in the context of property rights; nothing “indicate[d] that the statute had a more extensive reach.”115 Next, the Court recognized that, in 1909, Congress codified Durland’s holding by “add[ing] the words ‘or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises’ after the original phrase ‘any scheme or artifice to defraud.’’’116 The question the Court faced was whether Congress intended to reach nontraditional frauds under the mail fraud statute when it used the word “or” between the original language and
109 See supra note 16. 110 483 U.S. 350 (1987). 111 Id. at 352-53. 112 Id. at 355-56. 113 Id. at 359-60. 114 Id. at 356. 115 Id. 116 Id. at 357.
103 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the 1909 Amendment.117 The Court concluded it did not, and that Congress was instead following the common understanding that the mail fraud statute was limited to the protection of property rights.118 The Court began its legal analysis by stating “[b]ecause the two phrases identifying the proscribed schemes appear in the disjunctive, it is arguable that they are to be construed independently and that the money-or-property requirement of the latter phrase does not limit schemes to defraud to those aimed at causing deprivation of money or property.”119 The Court explained that this was the reading given to the statute by the Courts of Appeals in approving the honest services fraud doctrine.120 The Court then concluded that when Congress amended the mail fraud statute in 1909 it was not departing from the common understanding that fraud was limited to harming one’s property rights.121 In reaching this conclusion the Court analyzed the language from Hammerschmidt stating that it was fraudulent to interfere with lawful government functions.122 The Court, however, concluded that the Hammerschmidt language was “based on a consideration not
117 Id. at 358. The mail fraud statute in effect at the time of McNally read in pertinent part:
Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, . . . for the purpose of executing such scheme or artifice or attempting so to do, [uses the mails or causes them to be used], shall be fined not more than $ 1,000 or imprisoned not more than five years, or both.
Id. at 352 (emphasis added) (citing 18 U.S.C. § 1341). 118 McNally, 483 U.S. at 358-59. 119 Id. at 358. 120 Id.; see, e.g., United States v. States, 488 F.2d 761, 764 (8th Cir. 1973) (rejecting the appellant’s conjunctive reading of the statute and stating, “[t]he more natural construction of the wording in the statute is to view the two phrases independently.”) 121 McNally, 483 U.S. at 358. 122 Id. at 359 n.8.
104 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 applicable to the mail fraud statute.”123 Finally, the Court, noting federalism as well as vagueness concerns, invoked the rule of lenity to limit the mail fraud statute to “the protection of property rights.”124 Before applying its holding to the to McNally facts, the Court stated that “[i]f Congress desires to go further, it must speak more clearly than it has.”125 The following year Congress expressed its disapproval of the Supreme Court’s decision in McNally by resurrecting the honest services fraud doctrine through an amendment to the mail fraud statute that it buried in one of the provisions of the Anti-Drug Abuse Act of 1988 (“ADAA”).126 Although Congress had previously considered bills with more comprehensive language recognizing the citizenry’s right to good government,127 the amendment in the ADAA, codified at 18 U.S.C. § 1346, simply states “[f]or the purposes of this chapter, the term ‘scheme or artifice to defraud’ includes a scheme or artifice to deprive another of the intangible right of honest services.”128 Noticeably lacking, however, is a definition of the terms “intangible rights” and “honest services.” Thus, while courts agree that § 1346 was intended to legislatively override McNally, 129 its imprecise
123 Id. 124 Id. at 360. 125 Id. 126 Anti-Drug Abuse Act of 1988, Pub. L. No. 100-690, 102 Stat. 4508 (1988) (codified at 18 U.S.C. § 1346). See also Adam H. Kurland, The Guarantee Clause as a Basis for Federal Prosecutions of State and Local Officials, 62 S. CAL. L. REV. 367, 488-91 (1989); Moohr, Someone To Watch Over Us, supra note 86, at 169. For the argument that the court did not “speak more clearly” see Judge Jolly’s dissenting opinion in United States v. Brumley, 116 F.3d 728, 736-49 (5th Cir. 1997) (en banc) (Jolly, J., dissenting). 127 Brumley, 116 F.3d at 742-45 (Jolly, J., dissenting). 128 Anti-Drug Abuse Act of 1988, Pub. L. No. 100-690, 102 Stat. 4508 (1988) (codified at 18 U.S.C. § 1346). 129 See, e.g., United States v. Rybicki, 354 F.3d 124, 134-36 (2d Cir. 2003) (en banc); United States v. Panarella, 277 F.3d 678, 689-90 (3d Cir. 2002); United States v. Bloom, 149 F.3d 649, 655 (7th Cir. 1998); United States v. Frost, 125 F.3d 346, 363-64 (6th Cir. 1997); United States v. Sawyer, 85 F.3d 713, 723-24 (1st Cir. 1996).
105 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 language has led to new problems, while simultaneously leaving prior problems unresolved. 130 Section 1346 has been frequently challenged on vagueness grounds, 131 and that it violates the principles of federalism because it involves the federal government in matters that are primarily a state concern.132 Because courts are concerned that the boundaries of § 1346 remain unclear, they have adopted limiting principles to uphold the constitutionality of the statute and to counter the vagueness and federalism concerns.133
II. POST-MCNALLY HONEST SERVICES FRAUD
A. Seventh Circuit’s Decision in Bloom
The Seventh Circuit adopted the limiting principle of “misuse of office . . . for private gain” in United States v. Bloom.134 In Bloom, Lawrence Bloom, a Chicago alderman and part-time private attorney, was accused of giving legal advice to a private client about how to retain its real property without paying a large portion of its past-due
130 Behrens, supra note 77, at 515; Kurland, supra note 126, at 490; Moohr, Someone To Watch Over Us, supra note 86, at 170. 131 See United States v. Warner, 498 F.3d 666, 698-699 (7th Cir. 2007) (§ 1346 is not unconstitutional as applied); Rybicki, 354 F.3d at137 n.10; Frost, 125 F.3d at 371 (§ 1346 is not facially unconstitutional); United States v. Waymer, 55 F.3d 564, 568-569 (11th Cir. 1995) (§ 1346 is not unconstitutional as applied). A panel of the Second Circuit is the only court to have found § 1346 unconstitutionally vague as applied. United States v. Handakas, 286 F.3d 92, 112 (2d Cir. 2002). The Handakas court would have also found § 1346 facially unconstitutional if it had been the first panel in the Second Circuit to address the issue. Id. at 104. Handakas, however, was overruled by the Second Circuit sitting en banc in Rybicki. 354 F.3d at 144 (although not deciding the vagueness issue on its merits, the en banc court held the Handakas panel should not have reached the constitutional question; therefore, its vagueness holding was overruled). 132 See, e.g., United States v. Brumley, 116 F.3d 728, (5th Cir. 1997) (en banc); Beale, supra note 16; Moohr, Someone to Watch Over Us, supra note 86. 133 See supra note 21. 134 149 F.3d at 655 (1998).
106 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 property taxes.135 Bloom allegedly informed his client that, although illegal, it could avoid paying back taxes by sending a straw bidder to the tax scavenger sale to purchase the property, and then having the straw bidder re-convey the property back to the client after the expiration of the redemption period.136 As a result of giving this advice, Bloom was charged under § 1346 of depriving the City of Chicago of his honest services.137 The honest services fraud charge was dismissed by the district court, and came before the Seventh Circuit on the government’s interlocutory appeal.138 In affirming the district court, the Seventh Circuit rejected the government’s position that “public employees may not do anything in their private lives that acts against the City’s interests.”139 The court believed that the government’s position would result in the creation of an “impermissible federal common-law crime,” and noted that it has long been held that “[n]ot every breach of every fiduciary duty works a criminal fraud.”140 Because not every breach of a fiduciary duty is a criminal fraud, the Seventh Circuit next faced the difficult task of determining where to draw the line between fiduciary duty breaches that work a criminal fraud and those that do not.141
135 Id. at 650-51. In Chicago, aldermanic positions are part-time. Id. at 650. 136 Id. at 651. Under Illinois law a bidder at a tax scavenger sale takes the property free and clear of the tax lien at the expiration of the redemption period. Id. The original owner can redeem the property during the redemption period by paying all back taxes and interest. Id. Illinois law also allows the winning bidder to sell the property back to the original owner, despite its effect of wiping out the back taxes. Id. But it is illegal for the original owner or her agent to bid on the property during the scavenger sale, and bidders must certify that they are not associated with the original owner. Id. 137 Id. Although the property taxes were owed to the county, the prosecutor’s theory was that the City of Chicago was deprived of Bloom’s honest services because the property tax money collected by the county flows through to the City. Id. at 650. 138 Id. 139 Id. at 654. 140 Id. (citing United States v. George, 477 F.2d 508, 512 (7th Cir. 1973)). 141 Id.
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The court first looked to the language of the §§ 1341 and 1346, but found no help in the text of either statute. Next, the court considered the breach of a fiduciary duty and the violation of “some other rule of law” as a limiting principle.142 The court rejected this approach based on two shortcomings when applied to Bloom’s situation.143 First, Bloom did not violate the tax scavenger sale law, his client and the straw purchaser did; and second, the client’s violation of the law had nothing to do with Bloom’s status as an alderman.144 The court went on to express its concern that the government’s theory would turn lawful actions under state law into federal crimes.145 According to the court, that is the situation where the fiduciary status would matter because under the honest services fraud doctrine the government does not have to lose money or property, but only its employee’s loyalty.146 The court gave as an example the hypothetical situation where Bloom only explained the scavenger sale law to his client, and told the client not to send a straw purchaser, but instead purchase the property back from the independent winning bidder.147 Another situation hypothesized by the court was where Bloom advised his client to move to the suburbs where taxes are cheaper. Under these situations, although acting lawfully, according to the prosecution’s theory he still deprived City of Chicago of his “complete loyalty.”148 The court found that this outcome would stretch the honest services fraud doctrine “beyond sensible bounds.”149 The weakness of this analysis is that the court does not articulate why the limiting principle of the violation of another law along with the fiduciary duty breach would not address this concern.150 If that
142 Id. 143 Id. 144 Id. 145 Id. at 655. 146 Id. 147 Id. 148 Id. 149 Id. 150 See, e.g., United States v. Panarella, 277 F.3d 678, 691-93 (3d Cir. 2002).
108 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 standard had been adopted then there can be no concern that the public official was acting lawfully. In fact, the dissenting opinion highlights that Bloom likely violated an independent law concerning an official’s interest in the purchase of property sold for tax assessments.151 If Bloom did indeed violate this law, then he was acting unlawfully while simultaneously breaching his fiduciary duty and the majority’s hypothetical concern that Bloom was acting lawfully and breaching a fiduciary duty is negated. But the dissenting opinion is based on the assumption that a lawyer has an interest in the results of his advice.152 If one takes this assumption and applies it to the majority’s hypo where Bloom acts lawfully by just describing the scavenger sale law and explaining how the client can purchase the property from the winning bidder, then Bloom may have still committed honest services fraud. If he has an interest in his advice, even if that advice was to act lawfully, and that
151 Bloom, 149 F.3d at 657-59 (Bauer, J., dissenting). Judge Bauer believes that Bloom violated 65 ILCS 5/3.1-55-10. The pertinent part of the statute cited by Judge Bauer is: Interests in contracts
(a) A municipal officer shall not be interested, directly or indirectly, in the officer's own name or in the name of any other person, association, trust, or corporation, in any contract, work or business of the municipality or in the sale of any article whenever the expense, price, or consideration of the contract, work business, or sale is paid either from the treasury or by an assessment levied by statute or ordinance. A municipal officer shall not be interested, directly or indirectly, in the purchase of any property that (i) belongs to the municipality, (ii) is sold for taxes or assessments, or (iii) is sold by virtue of legal process at the suit of the municipality. . . . (e) An officer who violates this Section is guilty of a Class 4 felony. In addition, any office held by an officer so convicted shall become vacant and shall be so declared as part of the judgment of the court.
Id. at 658 (emphasis in original). 152 Id. at 657-58.
109 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 advice was used for the purchase of property sold for taxes, then he has violated another law and breached his fiduciary duty. Thus, he could be charged with honest services fraud despite giving proper legal advice. This appears to be the absurd result with which the majority was concerned in rejecting the limiting principle of the violation of another law and the breach of a fiduciary duty.153 To determine fiduciary duty breaches that are frauds from those that are not, the Seventh Circuit held that the “[m]isuse of office (more broadly, misuse of position) for private gain is the line that separates run of the mill violations of state-law fiduciary duty . . . from federal crime.”154 The court reached this conclusion based on the Supreme Court’s description of the honest services fraud doctrine in McNally, where the Court stated “a public official owes a fiduciary duty to the public, and misuse of his office for private gain is a fraud.”155 In reaching this conclusion the Seventh Circuit found that § 1346 did not make lawful pre-McNally conduct unlawful post-McNally.156 Thus, because Bloom was not charged with misusing his public office for private gain, the honest services fraud charge was properly dismissed by the district court.157 Although many appellate courts agree that limiting principles need to be applied to § 1346 in order to cabin its reach and to reduce federalism and vagueness concerns,158 the Seventh Circuit is the only circuit to adopt the “misuse of office for private gain” standard.159 The
153 See id. at 654-55 (majority opinion). 154 Id. at 655. 155 Id. (citing McNally v. United States, 483 U.S. 350, 355 (1987)). 156 Id. 157 Id. 158 See, e.g., United States v. Welch, 327 F.3d 1081, 1107 (10th Cir. 2003); United States v. Panarella, 277 F.3d 678, 692-93 (3d Cir. 2002); Bloom, 149 F.3d at 654-55; United States v. Brumley, 116 F.3d 728, 732-34 (5th Cir. 1997) (en banc); United States v. Sawyer, 85 F.3d 713, 725 (1st Cir. 1996). 159 United States v. Malone, No. 02:03-CR-00500-LRH-LRL, 2006 WL 2583293, at *3 (D. Nev. Sept. 6, 2006); Albert W. Alschuler, The Mail Fraud & RICO Racket: Thoughts on the Trial of George Ryan, 9 GREEN BAG 2d 113, 115 (2006).
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Third Circuit has expressly criticized the Seventh Circuit’s Bloom standard.160
B. THIRD CIRCUIT CRITICISM OF BLOOM
In United States v. Panarella, the Third Circuit rejected the Seventh Circuit’s Bloom standard, and adopted the violation of a state law as its limiting principle.161 In Panarella, Nicholas Panarella ran a tax collection business that had expertise in collecting Pennsylvania’s business privilege tax from non-Pennsylvania businesses.162 Panarella hired Pennsylvania Senate Majority Leader F. Joseph Loeper as a consultant for his business.163 Loeper supported the business by attending meetings between Panarella and local governments and state agencies.164 Loeper also spoke and voted against legislation that would have been detrimental to Panarella’s business.165 Loeper and Panarella ran into trouble when Loeper failed to disclose, as required under Pennsylvania law, the income that he received from Panarella.166 They dug themselves a deeper hole when together they tried to cover-up the arrangement from a reporter investigating the payments.167 Panarella was indicted by the grand jury on honest services fraud charges for depriving the public of Loeper’s honest services.168 He pled guilty, but appealed arguing that Loeper did not deprive the public of his honest services.169
160 Panarella, 277 F.3d at 691-93. 161 Id. 162 Id. at 681. 163 Id. 164 Id. 165 Id. 166 Id. 167 Id. 168 Id. In addition to the mail fraud charges, Panarella was also indicted on wire fraud charges. Id. The wire fraud statute and the mail fraud statute are read together. United States v. Brumley, 59 F.3d 517, 520 (5th Cir. 1995). 169 Panarella, 277 F.3d at 679.
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The Third Circuit began its analysis by noting that honest services fraud typically results from either bribery or the failure to disclose a conflict of interest that results in private gain.170 Panarella involved the latter issue and the court held that “where a public official takes discretionary action that the official knows will directly benefit a financial interest that the official has concealed in violation of a state criminal law, that official has deprived the public of his honest services under 18 U.S.C. § 1346.”171 On appeal, Panarella argued that the Third Circuit should adopt the Seventh Circuit’s Bloom standard.172 The Third Circuit refused because it believed that the violation of state law served as a better limiting principle.173 In rejecting the Bloom standard, the Third Circuit first noted that Bloom was factually distinguishable from Panarella because Bloom’s actions were not taken as part of his official duties, while Loeper’s actions were taken in his official capacity.174 But more importantly, the Third Circuit found that the Bloom standard offered “little clarity” in determining the scope of § 1346.175 The court went on to state that the dispute over the “misuse of office” and the “private gain” added “an extra layer of unnecessary complexity to the inquiry.”176 Furthermore, the Third Circuit reasoned that the Bloom standard was both over- inclusive and under-inclusive.177 The court reasoned that the standard was over-inclusive because it could hypothetically cover an official who seduces an intern or takes home office supplies for personal use.178 It was under-inclusive because if the court adopted Panarella’s position—that a public official does not misuse his office when he
170 Id. at 690. (citing United States v. Antico, 275 F.3d 245, 262-63 (3d Cir. 2001) and United States v. Woodward, 149 F.3d 46, 54-55 (1st Cir. 1998)). 171 Id. at 691. 172 Id. 173 Id. at 692-93. 174 Id. at 691. 175 Id. at 692. 176 Id. 177 Id. 178 Id.
112 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 fails to disclose a conflict of interest—then the Bloom standard would not cover a classic fraudulent situation.179 In adopting state law as its limiting principle, the Third Circuit’s answer to the Seventh Circuit’s concerns about the principle’s shortcomings was that under a state law limiting principle Bloom simply did not commit honest services mail fraud. The Third Circuit further concluded that state law better handles vaguenes and federalism concerns.180 Because Pennsylvania criminal law required Loeper to disclose the income he received from Panarella, both parties had “unambiguous notice that Loeper’s nondisclosure was criminal.”181 Thus, according to the Third Circuit, vagueness concerns were not present in Panarella.182 Additionally, federalism concerns were mitigated because the additional violation of a state law is “conduct that the state itself has chosen to criminalize.”183 Moreover, federal prosecutions in the area of political corruption can play a “beneficial role” because state officials are often either unwilling or unable to prosecute these cases.184 Two issues were left unresolved by the Third Circuit’s decision in Panarella. First, whether nondisclosure always requires the violation of a state law in order to amount to honest services fraud,185 and second, whether the violated state law must be a criminal law. The second question was answered in the negative in United States v.
179 Id. A traditional fraudulent situation occurs when a fiduciary fails to disclose a conflict of interest. Id. 180 Id. 181 Id. at 698. 182 Id. 183 Id. at 694. 184 Id. For a detailed analysis of this problem see Michael W. Carey et al., Federal Prosecution of State and Local Public Officials: Obstacles to Punishing Breaches of the Public Trust and a Proposal for Reform, Part One, 94 W. VA. L. REV. 301 (1992). 185 Panarella, 277 F.3d at 699 n.9. The Third Circuit further declined to answer the question in United States v. Murphy, 323 F.3d 102, 117 (3d Cir. 2003).
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Gordon, when the Third Circuit held that honest services fraud only requires the violation of a state-created fiduciary duty.186 After Gordon, the Third Circuit’s standard for determining the outer reaches of the honest services fraud doctrine seems to be somewhat settled, although certain questions remain.187 Likewise, after Thompson, the same can be said of the Seventh Circuit.188 The extraordinary facts of Thompson, however, suggest that the case lies at the outer edges of the honest services fraud doctrine. Therefore, the
186 183 Fed. Appx. 202, 211, No. 05-3927, 2006 WL 1558952, at *8 (3d Cir. 2006). Gordon was not selected to be published and is therefore not precedent in the Third Circuit. 3d Cir. Internal Operating P. 5.7 (citation of non-precedential 3d Cir. opinions). 187 For example, it is at least arguable that the Third Circuit has left open the question of whether a violation of a state-law-created fiduciary duty is required in non-disclosure cases. In Gordon, the Third Circuit states that in Murphy, 323 F. 3d 102, the court approved of the Fifth Circuit’s reasoning in United States v. Brumley, 116 F.3d 728 (5th Cir. 1997) (en banc), that “§ 1346 ‘contemplates that there must first be a breach of a state-owned duty.’” Gordon, 183 Fed. Appx. at 211 n.6, 2006 WL 1558952, at *7 n.6. But in Murphy, the court says that it will not address the issue of whether a violation of a state-law-created fiduciary is required. Murphy, 323 F.3d at 117. Thus, the holding in Gordon is potentially weakened because the Murphy court specifically stated that it would not address the issue. Furthermore, the Third Circuit potentially misreads Brumley, 116 F.3d 728. In Brumley the Fifth Circuit held that for honest services fraud the “services must be owed under state law and the government must prove . . . that they were not delivered. 116 F.3d at 734. Therefore, the language quoted by the Third Circuit in Gordon that the Fifth Circuit requires a breach of a fiduciary duty is likely dictum in the Fifth Circuit because the Fifth Circuit did not reach the question of whether a breach of a state created fiduciary duty is required; it simple held that state-owed “services” must not have been delivered. Id. at 734. The Third Circuit is not the only court to make this mistake. See, e.g., United States v. Kott, No. 3:07-cr-00056 JWS, 2007 U.S. Dist. LEXIS 66125, at *12-13 (D. Alaska Sept. 4, 2007). Another open question is which state laws create fiduciary duties and under what circumstances. See, e.g., Murphy, 323 F.3d at 117 (rejecting the government’s argument that the New Jersey Bribery Act creates a fiduciary duty between a political party official and the public). 188 Although the Seventh Circuit held that neither salary increases (for doing a good job) nor psychic benefits are a private gain, the ultimate contours of the private gain test remain unclear. See United States v. Thompson, 484 F.3d 877, 884 (7th Cir. 2007).
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Thompson case provides an opportunity to compare and contrast the Seventh Circuit’s Bloom standard with the Third Circuit’s Panarella standard to determine if one of the tests is theoretically or practically better than the other.
III. COMPARISON OF THE SEVENTH CIRCUIT’S BLOOM STANDARD WITH THE THIRD CIRCUIT’S PANARELLA STANDARD
A. Applying the Third Circuit’s Test to the Facts of Thompson
In Thompson, a Wisconsin civil servant supervised the process of awarding a state travel contract.189 Administrative rules dictated that the contract was to be awarded to the company with the greatest number of points out of three weighted categories.190 Two companies emerged as the leading bidders for the contract.191 The first, Aldelman Travel, was a local Wisconsin company that had made political donations to the governor; the other company, Omega World Travel, was based on the East Coast.192 After the evaluation process, although the Adelman had the lowest price and a better service score, Omega received the highest overall score because they delivered a better oral presentation.193 But, for unstated “political reasons,” Thompson did not want to award the contract to Omega.194 To prevent this outcome, she first negotiated with the other members of the evaluation committee in an attempt to get them to change their scores.195 Her negotiations failed, but another member of the committee suggested that the contract be
189 Thompson, 484 F.3d at 878. 190 Id. The points scale provided for 1200 maximum points: 300 points for price, 700 points for service, and 200 points for the oral presentation. Id. 191 Id. at 878-79. 192 Id. 193 Id. 194 Id. 195 Id. at 879.
115 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 re-bid on a best-and-final basis, as permitted by state law.196 Adelman lowered its price, and a virtual tie with Omega ensued.197 Thompson then used Wisconsin’s administrative tie-breaking procedure to award the contract to Adelman with the consent of her political appointee supervisor.198 As a result of steering the contract to Adelman, Thompson was convicted of honest services mail fraud.199 The Seventh Circuit reversed Thompson’s conviction, finding that under the Bloom standard she neither misused her office, nor had a private gain.200 But how would this case have come out if it had arisen in the Third Circuit? First, the government would have had to find a state-law-created fiduciary duty that Thompson might have violated.201 Assuming that government found one, it would next have to prove that she breached that duty. As the Third Circuit and others have noted, most cases of honest services fraud result from either bribery or the failure to disclose a conflict of interest.202 Although Thompson was also convicted under a bribery and theft statute, she was convicted under the theory that she “misapplied” federal funds and not on a bribery theory.203 The Seventh Circuit found that there was no indication that
196 Id. 197 Id. “The tie depended on rounding to the nearest whole number. [Adelman’s] score was 1026.6, while [Omega’s] score was 1027.3”. Id. 198 Id. The tie-breaking procedure “gave weight to items not previously figured into the price comparison.” Id. 199 Id. at 878. 200 Id. at 883-84. 201 See United States v. Gordon, 183 Fed. Appx. 202, 211, No. 05-3927, 2006 WL 1558952, at *8 (3d Cir. June 8, 2006). One possible option is the section of the Wisconsin Ethics Code that states in pertinent part that “[n]o state public official may use or attempt to use the public position held by the public official to influence or gain unlawful benefits, advantages or privileges personally or for others.” WIS. STAT. ANN. § 19.45(5) (2003). 202 See, e.g., United States v. Panarella, 277 F.3d 678, 690 (3d Cir. 2002); United States v. Antico, 275 F.3d 245, 262-63 (3d Cir. 2001); United States v. Woodward, 149 F.3d 46, 54-55 (1st Cir. 1998). 203 See supra note 26.
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Thompson or anyone else had accepted a bribe.204 Thus, the government would likely have had to rely on the “failure to disclose a conflict of interest” theory. Building a case on the failure to disclose theory would be problematic for the government for several reasons. First, as a civil servant, it is questionable whether Thompson would be subject to the same disclosure requirements as an elected official under Wisconsin law.205 Second, it is debatable whether her “political” motivations created a conflict in the first place because she was not bribed and did not have any connection to Adelman.206 But perhaps most fatal to the government’s case is the fact that Thompson did disclose her “political concerns” to the evaluation committee.207 A problem that arises in analyzing Thompson under Third Circuit precedent in non-disclosure cases is that Wisconsin’s disclosure laws appear more lenient that Pennsylvania’s disclosure laws.208 For example, Pennsylvania defines the term “public employee” in a way that would clearly cover Thompson, and require her to comply with its disclosure laws.209 Wisconsin’s disclosure laws do not define the term “pubic employee,” and it is not as clear if she would have to comply with them.210 But the Third Circuit’s language in United States v. Antico—that “[d]uties to disclose material information affecting an official's impartial decision-making . . . exist . . . regardless of a state
204 Id. 205 The Wisconsin Code of Ethics does not define the term “public employee” so it is unclear whether or not a Thompson would have to file a disclosure statement. WIS. STAT. ANN. § 19.42 (West Supp. 2007). See WIS. STAT. ANN. § 19.43 (West Supp. 2007) for Wisconsin’s disclosure requirements. On the other hand, Pennsylvania, the location of Panarella, does define the term “public employee” in its ethical code. 65 PA. CONS. STAT. ANN. § 1102 (West Supp. 2007). Public employees are required to file disclosure statements. 65 PA. CONS. STAT. ANN. § 1104(a) (2000). 206 See Thompson, 484 F.3d at 879. 207 Id. at 878-79. 208 See supra note 205. 209 Id. 210 Id.
117 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 or local law codifying a conflict of interest”—makes clear that some type of disclosure is needed.211 Thus, if Thompson did not have to comply with Wisconsin’s disclosure laws, to who was she supposed to disclose the potential conflict. In this circumstance, Antico suggests that disclosing to a supervisor may be sufficient.212 In that case Frank Antico worked in various positions in Philadelphia’s Department of Licenses and Inspections.213 In several of the positions he held “discretionary authority to approve zoning and use permits and licenses.”214 Antico failed to pay child support to his children living with his ex- girlfriend.215 She sued and was awarded child support.216 After making several payments, Antico, with her consent, set her up in a business expediting permits and licenses for other businesses so that he did not have to continue paying child support.217 To support her business Antico referred clients to her, and then he would complete all of the paperwork in her name.218 Antico’s co-workers knew about the arrangement, but his supervisors did not.219 The court stated that the fact that Antico’s co-workers knew about the arrangement “does not vindicate his failure to disclose” the relationship to his supervisors.220 Two complications arise in comparing Thompson and Antico. First, Antico was required to comply with disclosure laws.221 It is not as clear, as stated above, that Thompson was under a similar requirement. Second, assuming there was a conflict, disclosing it to
211 United States v. Antico, 275 F.3d 245, 264 (3d Cir. 2001) (citing to United States v. Holzer, 816 F.2d 304, 309 (7th Cir. 1987)). 212 See id. at 264-65. 213 Id. at 249. 214 Id. 215 Id. at 253. 216 Id. 217 Id. 218 Id. at 253-54. 219 Id. at 265. 220 Id. 221 Id. at 263.
118 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 her supervisor may not have solved the problem because he may have wanted to reward one of the governor’s political supporters.222 But Thompson did disclose her “political” concerns to the other members of the evaluation committee.223 Although the committee members may be more like the co-workers in Antico, the disclosure in Thompson seems address the Third Circuit’s concern in Antico that non- disclosure evinces an “intent to deceive.”224 In Thompson, each of the committee members scored the proposals on the same criteria, and there is no evidence to suggest that any one member could overrule another.225 Otherwise, there would have been no reason for Thompson to attempt to negotiate with the other members of the evaluation committee to get them to change their scores.226 The only reason that Adelman was awarded the contract was because when the contract was put out for re-bid, as permitted by state law, they lowered their score and a tie with Omega ensued.227 If Aldeman did not lower their score, thus allowing Thompson to award them the contract based on the state law tie-breaking procedure that allowed other factors to be considered, it is almost certain that Omega would have been awarded the contract regardless of Thompson’s actions.228 In contrast, Antico had the discretionary power to approve permits and licenses without requiring someone else’s approval or knowledge.229 And he used the power to benefit himself so that he would not have to pay child support.230 The policy behind disclosure is that the public should be assured that elected officials and public employees are making decisions in the
222 See Thompson, 484 F.3d 877, 879 (7th Cir. 2007). 223 Id. at 878-79. 224 Antico, 275 F.3d at 265. 225 Thompson, 484 F.3d at 878-79. 226 See id. at 879. 227 Id. 228 See id. 229 Antico, 275 F.3d at 249. 230 Id. at 263.
119 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 best interest of the public, and not in their own self-interest.231 Because Thompson’s disclosed her “political” concerns to the evaluation committee, her actions seem to comply with this policy concern. Therefore, based upon the above considerations, it appears likely that if Thompson had been convicted of honest services fraud in the Third Circuit, that court too would have reversed her conviction because her disclosure to the evaluation committee seems to negate their concern that she had an intent to deceive. Because it appears that the Third Circuit and the Seventh Circuit would come to the same conclusion under the Thompson facts, the next question is whether the facts of Panarella would lead to the same results if they had arisen in the Seventh Circuit.
B. Applying the Seventh Circuit’s Test to the Facts of Panarella
In Panarella, a business owner (Panarella) hired a State Senator (Loeper) as a consultant.232 Loeper failed to disclose his $330,000 in income from this arrangement, as required under Pennsylvania law, and both Panarella and the Loeper took actions to conceal the relationship from the press.233 Panarella pled guilty to the charge that he engaged in a scheme to deprive the public of the Loeper’s honest services.234 But, on appeal, he argued that Loeper’s actions did not amount to honest services fraud because there was no evidence that he either bought, or that their arrangement influenced, Loeper’s vote on a bill that if enacted would have been detrimental to Panarella’s business.235 If Panarella had arisen in the Seventh Circuit, it is very likely that the court would have found that Loeper misused his office for private
231 United States v. Panarella, 277 F.3d 678, 697 (3d Cir. 2002) (citing to the purpose behind Pennsylvania’s Public Official and Employee Ethics Act). 232 Panarella, 277 F.3d at 681. 233 Id. 234 Id. 235 Id. at 690-91.
120 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 gain and upheld Panarella’s conviction, as the Third Circuit did.236 The facts of Panararella are very similar to the facts of Isaacs, where the Seventh Circuit upheld former Illinois governor Otto Kerner’s conviction for honest services fraud.237 In Isaacs, Kerner engaged in a complicated scheme involving stock transactions that netted him a profit of over $150,000 in exchange for helping various racing interests.238 Kerner claimed he did not commit honest services fraud because the state did not lose any money.239 The Seventh Circuit disagreed, and upheld the conviction, finding that “[t]here was evidence [that both] the State of Illinois and its citizens were deprived of the loyal and honest services of their governor, [and] that the defendants actually did exert special influence in favor of and bestowed preferential treatment on [certain racing interests].”240 Like Kerner, Panarella engaged in a scheme to use the power of government to benefit his private interests.241 The only difference between the two defendants is that they were on different sides of the transaction. Kerner was a public official who purchased and sold stock in a corporation, and used his position and the power of government to benefit that corporation.242 Panarella was a business owner, who hired Loeper, the State Senate Majority Leader, to promote his business interests.243 Loeper promoted Panarella’s business interests by attending meetings between Panarella and state and local officials. 244 Additionally, Loeper furthered Panarella’s business interests by voting against and helping to defeat legislation that would have had a
236 Id. at 680-81. 237 United States v. Isaacs, 493 F.2d 1124, 1152 (7th Cir. 1974). 238 Id. at 1139. 239 Id. at 1149. Not only did the state not lose any money, but in fact its racing revenues doubled as a result of Kerner’s actions. Id. at 1139. 240 Id. at 1150. 241 Id. at 1131-40; Panarella, 277 F.3d at 680-82. 242 Isaacs, 493 F.2d at 1135-39. 243 Panarella, 277 F.3d at 681. 244 Id.
121 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 substantial negative impact on the business.245 Finally, like Kerner, Panarella and Loeper took clandestine steps— that included making the payments through a third party—to hide the arrangement from the public.246 Isaacs, however, was decided before McNally; therefore, one must examine post-McNally law to ensure an accurate comparison. As previously stated, the Seventh Circuit determined in Bloom that the misuse of office for private gain is its standard for delineating criminal from non-criminal behavior.247 In discussing the “misuse of office” in Bloom, the Seventh Circuit stated, “[i]n almost all of the intangible rights cases this circuit has decided (before McNally or since § 1346), the defendant used his office for private gain, as by accepting a bribe in exchange for official action.”248 The court cited to Isaacs in support of this proposition.249 In Thompson, the Seventh Circuit noted that “the history of honest-services prosecutions is one in which the ‘private gain’ comes from third parties who suborn the employee with side payments, often derived via kickbacks skimmed from a public contract.”250 The facts of Panarella do not suggest that the $330,000 in “consulting fees” that Panarella paid to Loeper were part of a kickback scheme.251 Nevertheless, the Seventh Circuit would likely have found that Panarella’s payments to Loeper were bribes. First the payments were made to Loeper through a third party,252 and this seems very similar to the stock payment scheme that the court found to be a bribe in
245 Id. 246 Isaacs, 493 F.2d at 1152 (noting that the scheme depended upon “continued concealment” and “devious and complicated [financial] devices”); Panarella, 277 F.3d at 681. 247 United States v. Bloom, 149 F.3d 649, 655 (7th Cir. 1998). 248 Id. 249 Id. 250 United States v. Thompson, 484 F.3d 877, 884 (7th Cir. 2007) 251 277 F.3d 678, 681 (3d Cir. 2002). 252 Id.
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Isaacs.253 Second, as a result of the payments, Loeper took actions as a public official to benefit his private interests.254 Thus, Panarella involves a situation where a public official received a private gain from a third party and in exchange for taking action in his official capacity, and thereby satisfying the Bloom standard. Therefore, the Seventh Circuit, like the Third Circuit, would likely uphold Panarella’s conviction for engaging in a scheme to deprive the public of Loeper’s honest services.
C. Analysis of the Seventh Circuit’s and the Third Circuit’s Differing Standards for Honest Services Fraud
The above analyses have shown that, at least under the limited facts of Thompson and Panarella, both the Seventh Circuit’s “misuse of office for private gain” standard and the Third Circuit’s “state law” standard likely lead to the same outcomes. Because Thompson lies at the other edges of the honest services doctrine, this suggests that in most cases neither of the tests is better in practice than the other. This, of course, assumes that the courts reached the right outcomes in both cases. One possible conclusion is that the courts have generally gotten the right answer despite applying different standards.255 But, if neither of the tests is better in practice, the next question is whether one of the tests is better in theory. The answer to that question appears to be no. Both courts agree with the theory that public officials owe fiduciary duties to the citizenry.256 What they appear to disagree on, however, is the semantics of how to define the fiduciary duties that are owed to the public, and what other elements are necessary, if any, to limit the reach of § 1346 and to prevent minor infractions from becoming major federal crimes.257 The Third Circuit believes that limiting fiduciary
253 See United States v. Isaacs, 493 F.2d 1124, 1144-46 (7th Cir. 1974). 254 Panarella, 277 F.3d at 681. 255 Tendler, supra note 2, at 2765. 256 Panarella, 277 F.3d at 692; Bloom, 149 F.3d 654-55. 257 Panarella, 277 F.3d at 692-93; Bloom, 149 F.3d at 654-55.
123 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 duties to those that arise under state law is the best way to resolve vagueness and federalism concerns.258 The vagueness concern is abated because the defendants have knowledge that their actions are illegal.259 The federalism concerns are lessened because the state has spoken on what actions it considers illegal.260 On the other hand, the Seventh Circuit does not limit fiduciary duties only to those that arise under state law, but leaves open the possibility of reaching that conclusion in the future.261 But because the Seventh Circuit does not limit the fiduciary duties to those created by state law, and therefore allows for the breach of more fiduciary duties, it needs a way to prevent the breach of every fiduciary duty from becoming a federal crime. The Seventh Circuit does this by adding the private gain requirement.262 Furthermore, Thompson indicates that the private gain must come from a third party.263 Although different, both courts’ standards are grounded in sound principles of statutory interpretation. The Seventh Circuit concluded by passing § 1346 Congress intended only to criminalize conduct that would have been criminal prior to McNally.264 To determine what was criminal prior to McNally, the Seventh Circuit relied on the Supreme Court’s description of the honest services fraud doctrine that in McNally.265 The Seventh Circuit then reasoned that this description of the honest services fraud doctrine is what Congress resurrected in passing § 1346.266 Conversely, the Third Circuit has relied more on
258 Panarella, 277 F.3d at 692-93. 259 Id. at 698. 260 Id. at 694. 261 See United States v. Martin, 195 F.3d 961, 967 (7th Cir. 1999). 262 Bloom, 149 F.3d at 655. Under this reading of the Bloom standard the “misuse of office” element is the breach of the fiduciary duty. 263 United States v. Thompson, 484 F.3d 877, 884 (7th Cir. 2007). 264 Bloom, 149 F.3d at 655. 265 Id. (“[i]n McNally the Supreme Court described the intangible rights theory this way: ‘a public official owes a fiduciary duty to the public, and misuse of his office for private gain is a fraud’”) (citing to McNally v. United States, 483 U.S. 350, 355 (1987). 266 Id.
124 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 criminal and political theory to determine that state law is the better line for determining what conduct amounts to honest services fraud.267 Because both standards have sound theoretical bases, and appear to lead to same outcomes under the same set of facts, it is difficult to conclude that either standard is better in theory. One simple solution to the problem raised by Thompson,268 is for the Seventh Circuit to simply adopt the Third Circuit’s state law limiting principal. This solution has the benefit of preventing the problem raised by Thompson because a different standard not involving private gain is used. But this recommendation is inadequate as a long-term solution to general problems raised by the honest services doctrine because the state law limiting principle raises its own set of problems, although separate and distinct from the problems raised by the misuse of office for private gain limiting principle. For example, the Third Circuit struggles with determining which state laws create fiduciary duties and which laws do not, and under what circumstances those duties arise and under what circumstances they do not arise.269 On the other hand, the Seventh Circuit wrestles with defining what constitutes a “misuse of office” and a “private gain.”270 Ultimately, these are issues that the Supreme Court will face if it grants certiorari to an honest services fraud case. In the meantime, because neither circuit is likely to adopt another standard, it is beneficial to determine the potential effect of Thompson on honest services fraud law in the Seventh Circuit. In Thompson, the court held “that neither an increase in salary for doing what one’s superiors deem a good job, nor an addition to one’s peace of mind, is a
267 United States v. Panarella, 277 F.3d 678, 692-98 (3d Cir. 2002). 268 See infra Section IV. 269 See supra note 187. 270 United States v. Rezko, No. 05 CR 691, 2007 U.S. Dist. LEXIS 73517, at *13-15 (Oct. 2, 2007) (the defendant does not have to personally gain, instead the only requirement is that any participant in the scheme realizes a private gain); United States v. Segal, 495 F.3d 826, 835 (7th Cir. 2007) (affirming Thompson’s refinement of Bloom, but finding the instant case to vary in both degree and kind from Thompson; here a $30 million fraud that the defendant intentionally participated in versus $1,000 pay raise where the defendant “did not act out of private gain”).
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‘private benefit’ for the purpose of § 1346.” In the abstract this seems like a logical holding. But this holding has the potential to open a loophole that will perpetuate the graft and corruption that Congress intended to prevent when it reinstated the honest services fraud doctrine through the enactment of § 1346.
IV. PRIVATE GAIN IN THE SEVENTH CIRCUIT
A. Northern District of Illinois Decides that Current or Future Jobs can be a Private Gain
Prior to the Seventh Circuit’s decision in Thompson, on three occasions, courts in the Northern District of Illinois held that one’s job or the potential of future employment can be a private gain under the Bloom standard.271 The first case, United States v. Bauer,272 was one of the first cases to arise out of the Illinois licenses-for-bribes scandal273 that would ultimately lead to the conviction of former governor George Ryan for honest services fraud.274 Dean Bauer served as the Inspector General in the Illinois Secretary of State’s Office.275 As Inspector General, one of his duties was to investigate instances of employee misconduct.276 Bauer was indicted for honest services fraud for failing to investigate, and for his conduct in burying, allegations that various licensing facilities were accepting bribes in exchange for driver’s licenses.277 The court accepted the government’s argument
271 United States v. Sorich, 427 F. Supp. 2d 820, 829-30 (N.D. Ill. 2006); United States v. Munson, No. 03 CR 1153-4, 2004 U.S. Dist. LEXIS 14274, at *3 (N.D. Ill. July 27, 2004); United States v. Bauer, No. 00 CR 81, 2000 U.S. Dist. LEXIS 16784, at *9-12 (N.D. Ill. Nov. 16, 2000). 272 2000 U.S. Dist. LEXIS 16784 (N.D. Ill. Nov. 16, 2000). 273 For a partial list of the key dates in the licenses for bribes scandal see License Scandal Chronology, ST. J.-REG., Apr. 26, 2002, at 3. 274 United States v. Warner, 498 F.3d 666, 697-99 (7th Cir. 2007) (upholding Governor Ryan’s convictions). 275 Bauer, 2000 U.S. Dist. LEXIS at *1. 276 Id. at *3. 277 Id. at *9-13.
126 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 that Bauer stood to gain because his actions provided a “political advantage” to his political patron.278 Thus, he stood to, and did gain, when George Ryan was elected Governor.279 The second case, United States v. Munson, occurred in the private sector. Michael Munson, an attorney, was indicted for honest services fraud because of a scheme he allegedly engaged in with executives of Nicor Energy in order to manipulate certain financial information.280 Munson claimed that he could not be charged with honest services fraud because he did not personally gain, or receive any direct monetary compensation, such as a bribe or kickback.281 The government argued that Munson’s personal gains were the legal fees he received, and his hope that by currying favor with the executives he would receive future independent legal work from Nicor or become its general counsel.282 The court summarized Bauer’s holding as “acts intended to curry political favor in hopes of increasing the defendant’s current job security or of leading to future promotions [are] sufficient personal gain to satisfy § 1346,” and accepted the government’s argument.283 The third case, United States v. Sorich, arose out of the City of Chicago’s patronage scandal.284 Robert Sorich, Assistant to the Director of the City’s Office of Intergovernmental Affairs, was indicted for honest services fraud for ensuring that city jobs went to certain political supporters.285 Sorich argued that charges could not be sustained because the prosecution did not allege that the City of
278 Id. at *11-12. 279 Id. After George Ryan was elected Governor, Bauer was promoted to a position in the Illinois Department of Transportation. Id. at *4. A few months later he resigned after having qualified for a state pension. Id. 280 2004 U.S. Dist. LEXIS 14274, at *1 (N.D. Ill. July 27, 2004). 281 Id. at *2. 282 Id. 283 Id. at *3. 284 United States v. Sorich, 427 F. Supp. 2d 820, 823-24 (N.D. Ill. 2006). See also Rudolph Bush & Dan Mihalopoulos, Daley Jobs Chief Guilty, CHI. TRIB., July 7, 2006, at 1. 285 Sorich, 427 F. Supp. 2d 823.
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Chicago or its residents suffered a loss, or that he personally gained.286 The court found that Sorich “[was] well aware of the gains to be had from [his] machinations” and, citing to both Bauer and Munson, allowed the prosecution to go forward.287 Additionally, the court found that although “subsequent career security or advancement” is not as easy to quantify as a bribery or kickback scheme, it nevertheless could serve as a private gain for honest services fraud.288 In Thompson, the government cited to Sorich and Munson for the proposition that Thompson’s increased salary was a private gain for honest services fraud.289 The Seventh Circuit disagreed, finding neither case persuasive.290 But the court did not explain its reason for this finding.291 The simple explanation could be that the Northern District of Illinois’ holdings in Sorich, Munson and, by extension, Bauer are overruled.292 But if those holdings are not overruled—and the court’s statement that Sorich and Munson are “unpersuasive”293 suggest that they are not—then the Seventh Circuit may have inadvertently opened a loophole that will allow subtle corruption schemes to go unpunished.
B. Distinguishing Thompson
One way to distinguish Thompson from Sorich and Bauer, but not from Munson, is based on the jobs that each defendant held. Thompson held a civil servant job, while both Sorich and Bauer held
286 Id. at 828. 287 Id. at 829. 288 Id. at 830. 289 United States v. Thompson, 484 F.3d 877, 884 (7th Cir. 2007). 290 Id. 291 Id. 292 Some experts believe that this ruling may lead to the reversal of Sorich’s conviction. See Ward, supra note 33, at 20. 293 Thompson, 484 F.3d at 884.
128 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 politically-appointed positions.294 As a civil servant, Thompson had independent job security.295 On the other hand, Sorich’s and Bauer’s job security rested on their political patrons remaining in power.296 If Thompson is distinguishable from Sorich and Bauer for this reason, then the Seventh Circuit may have created an opening for “subtle schemes” that now cannot be punished as honest services fraud. One such scheme is where civil servants engage on their own, and without any pressure from their political supervisors, in conduct such as awarding contracts to or perhaps hiring the friends and supporters of their current political patrons. The political appointees then notice that their friends and supporters are benefiting, and as a result reward the civil servants with extra or higher bonuses through “normal personnel practices.”297 Under Thompson, this would not be a private gain because the court stated that “getting a raise through normal personnel practices does not sound like an aspect of a ‘scheme or artifice.’”298 Yet, these “sublte schemes”—where the civil servants are receiving a private gain in the form of salary increase that they would otherwise not have received—would propagate the corruption and graft that § 1346 was enacted to counter.299 One limitation to this scenario is that the civil servants could not be substantially compensated because their raises or bonuses would have to be given through normal personnel practices. But what is considered normal may vary widely, and this added condition would certainly create another obstacle for the government to consider in determining whether to prosecute, and ultimately for it to prove at trial. In addition to civil servants acting on their own, another possibility is that the political appointees may create a “wink and nod”
294 Id. at 882; Sorich, 427 F. Supp. 2d at 829-30; United States v. Bauer, No. 00 CR 81, 2000 U.S. Dist. LEXIS 16784, at *11-12 (N.D. Ill. Nov. 16, 2000). 295 Thompson, 484 F.3d at 882. 296 Sorich, 427 F. Supp. 2d at 829-30; Bauer, 2000 U.S. Dist. LEXIS 16784, at *11-12. 297 Thompson, 484 F.3d at 884. 298 Id. 299 Id.
129 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 work environment, or apply subtle pressure so that the civil servants know what to do and are compensated for the effort. Regardless of whether subtle pressure is applied or whether the civil servants create the system on their own, the end result is the same—the continuation of public corruption that can no longer be punished as honest services fraud. The above scenario rests on the assumption that Thompson did not overrule Sorich and Bauer. But again, the simplest explanation may be that Thompson did overrule those cases. Because Munson cannot be readily distinguished from Thompson, this argument may have more weight. The only apparent distinction between Thompson and Munson is that Munson occurred in the private sector where Thompson occurred in the public sector. Other than a public/private distinction, there does not appear to be much difference between the cases. Both defendants received a small financial benefit, but it was not the result of a bribe or a kickback.300 Thompson received a $1,000 increase to her salary.301 While Munson received the legal fees for working on various documents, and had hope of becoming Nicor’s General Counsel.302 In other circuits, the public/private distinction may matter because it is more difficult prove private honest services fraud than it is to prove public honest services fraud because the fiduciary duties are different.303 But the Seventh Circuit appears to treat public and private honest services fraud in the same manner by subjecting both to the Bloom standard.304 If, however, in the Seventh Circuit, the public/private distinction does matter, then Thompson almost certainly
300 Id. at 879; United States v. Munson, No. 03 CR 1153-4, 2004 U.S. Dist. LEXIS 14274, at *2 (N.D. Ill. July 27, 2004). 301 Thompson, 484 F.3d at 879. 302 Munson, 2004 U.S. Dist. LEXIS 14274 at *2. 303 United States v. Jain, 93 F.3d 436, 442 (8th Cir. 1996). 304 See, e.g., United States v. Warner, 498 F.3d 666, 697-98 (7th Cir. 2007) (public); United States v. Segal, 495 F.3d 826, 834-35 (7th Cir. 2007) (private); United States v. Hausmann, 345 F.3d 952, 958 (7th Cir. 2003) (private); United States v. Rezko, No. 05 CR 691, 2007 U.S. Dist. LEXIS 73517, at *10-16 (N.D. Ill. Oct. 2, 2007) (private).
130 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 overrules the Northern District cases because otherwise it would turn honest services fraud law on its head. It is simply illogical to say that Thompson’s raise was not a private gain, but that Bauer’s law fees and hope for new employment was a gain. But because the Seventh Circuit in Thompson only found Sorich and Munson unpersuasive, and did not explain its reasoning or state that prior law was overruled, the public/private distinction remains an open issue, as does the public servant/political appointee distinction.305 One solution that may have avoided the “subtle scheme” problem, reached the same outcome as the Seventh Circuit did in Thompson, and distinguished Sorich, Muson, and Bauer, would have been to decide as a threshold matter whether Thompson engaged in a “scheme.”
V. DETERMINING IF THERE IS A “SCHEME” AS A THRESHOLD MATTER
A. Scheme Defined as an Artful Plot or Plan to Deceive Others
The mail fraud statute states in pertinent part that:
Whoever, having devised or intending to devise any scheme or artifice to defraud, . . . for the purpose of executing such scheme or artifice or attempting so to do, places in any post office . . . any matter . . . to be sent or delivered by the Postal Service . . . shall be fined under this title or imprisoned.306
The United States Code, however, does not define the terms “scheme” or “artifice.” But, the terms may generally be understood to mean “[a]n artful plot or plan, [usually] to deceive others.”307 Taking the terms under their common meanings, the Seventh Circuit may have avoided the questions raised after Thompson if the
305 Thompson, 484 F.3d at 884. 306 18 U.S.C. § 1341 (2000) (emphasis added). 307 See supra note 49.
131 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 court had decided as a threshold matter whether Thompson had engaged in a “scheme.” If Thompson did not engage in a scheme than the other issues are moot—there would be no need to determine whether she had misused her office or had a private gain because there would be no fraud. Under this analysis, “scheme” becomes a necessary, but not a sufficient condition. If a scheme is not found, then the analysis can stop. Conversly, if a scheme is found the court must continue the analysis to determine if the purpose of the scheme was to defraud another. The analysis could also be applied in the Third Circuit because if there is no scheme, then there is no need to determine whether any fiduciary duties have been breached. In Thompson, the prosecution did not argue that there was any malfeasance regarding the political contributions made by the owner of Adelman, or that there was any form of a kickback scheme.308 Neither did the prosecution allege that Thompson had knowledge of, or allowed the contributions to enter into her decision making process.309 To explain the “political” considerations that Thompson referred to, the court assumed that Thompson knew that her boss, a political appointee, preferred Adelman Travel.310 The court next speculated that Thompon’s boss might have had three political reasons for wanting to award the contract to Adelman.311 The first reason was that he might have wanted to reward one of the governor’s supporters.312 The court stated that if this was the reason it would be problematic.313 The second reason was that he may have wanted to gain politically by driving down the cost of government, and thus helping his boss—the incumbent governor.314 This could be accomplished by selecting Adelman because it bid the
308 See supra note 26. 309 Id. 310 Id. 311 Id. at 879-80. 312 Id. at 879. 313 Id. 314 Id. at 879-80.
132 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 lowest price.315 The court stated that this may be good politics and was not a crime.316 The final political reason might have been to select a local firm over an out-of-state firm.317 The court stated that this too may have been good politics and did not violate federal law.318 Finally, the court stated that under the evidence presented no jury could find beyond a reasonable doubt which of the three political reasons was relied on in awarding the contract to Adelman.319 Moreover, the court concluded that Thompson and her boss may not have shared the same political reason.320 Furthermore, the court stated that Thompson may have selected Aldelman solely to please her boss, regardless of his reasons for wanting to select Adelman.321 The Seventh Circuit based its opinion upon on the assumption that Thompson was just trying to please her boss. This is evinced by the court’s holding “that neither an increase in salary for doing what one’s superiors deem a good job, nor an addition to one’s peace of mind, is a ‘private benefit’ for the purpose of § 1346.”322 Based on this holding, it seems clear that the Seventh Circuit would have found that Thompson did not engage in a “scheme” because her actions do not evince any conduct that demonstrates that she devised or participated in a plan to deceive another. On the other hand, the facts of Bauer, Munson, and Sorich show that each of those defendants did engage in a “scheme.” Bauer took steps to bury investigations into the Secretary of State’s office in order to spare the office from embarrassment.323 Hiding information from investigators certainly fits the definition of a plan to deceive others.
315 Id. at 878. 316 Id. at 880. 317 Id. 318 Id. 319 Id. 320 Id. 321 Id. 322 Id. at 884 (emphasis added). 323 United States v. Bauer, No. 00 CR 81, 2000 U.S. Dist. LEXIS 16784, at *8 (N.D. Ill. Nov. 14, 2000).
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Munson allegedly assisted three Nicor executives in inflating the company’s earnings in violation of generally-accepted accounting principles.324 Munson assisted the endeavor through the manipulation of legal documents.325 These actions also fit the definition of engaging in a plan to deceive others. Finally, Sorich allegedly participated in the rigging of non-policy-making city jobs.326 His actions included ordering others to conceal the names of job candidates submitted to his office and the meetings regarding this process, creating a “sham” process for hiring and promotion, and creating a “color-coded” tracking system “to [ensure] that each group jostling for favors remained both relatively satisfied and indebted.”327 Sorich’s actions also demonstrate a plan to deceive others. The above analysis suggests Thompson can be distinguished from Bauer, Munson, and Sorich on the ground that Thompson did not, but that Bauer, Munson and Sorich did, participate in a scheme. Thus, if the Seventh Circuit had made this threshold determination it could have avoided the potential problem that arises after Thompson. As previously stated, this problem is the Machiavellian or “subtle scheme” engaged in by civil servants to award the friends and supporters of their current political supervisors, and to be rewarded for their efforts through normal compensation procedures.328 If the civil servant/political appointee dichotomy is the distinction between the Thompson case and the lower court cases, then after Thompson the government will be unable to prosecute these schemes as honest services fraud. A potential weakness of the proposed solution is that in Thompson the government’s position was very similar to the above noted “subtle scheme.” In Thompson, however, the government took the argument one step further by reasoning that Thompson’s objectives were
324 United States v. Munson, No. 03 CR 1153-4, 2004 U.S. Dist. LEXIS 14274, at *1 (N.D. Ill. July 27, 2004). 325 Id. at *1-2. 326 United States v. Sorich, 427 F. Supp. 2d 820, 829 (7th Cir. 2006). 327 Id. at 824, 825, 829. 328 See supra Section IV(B).
134 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 irrelevant. 329 The government claimed that the only issue that mattered was that she did not follow the administrative rules exactly as they were laid down.330 Therefore, if the courts are going to make a threshold determination that a defendant engaged in a “scheme,” they will need a method to determine whether the plan is “artful” or “deceptive.” Adopting a business judgment rule for public employees may be one solution to this problem.
B. A Business Judgment Rule for Civil Servants
The business judgment rule is frequently used as a defense in corporate law.331 Under a typical formulation of the rule, “[corporate] directors will not be held liable for honest mistakes of judgment if they acted with due care, in good faith, without a disabling conflict, and in furtherance of a rational business purpose.”332 If the courts applied the business judgment rule, or a modified version of it, to decisions of public employees it would help them to delineate between actions that are good for the government and “schemes.” One benefit of this solution is that there currently exists a substantial body of law in this area in the corporate context. A second, and perhaps more important, benefit is that it may prove extremely helpful in cases such as Thompson and Bauer where only one person acted, especially since the Supreme Court has long held that one person schemes exist.333 Applying the business judgment rule to the facts of Thompson probably leads to the conclusion that she acted within its scope. First, she did not have any disabling conflicts.334 Second, the fact that she disclosed her “political” considerations to the evaluation committee
329 United States v. Thompson, 484 F.3d 877, 880 (7th Cir. 2007). 330 Id. 331 E. Norman Veasey, Seeking a Safe Harbor from Judicial Scrutiny of Directors' Business Decisions—An Analytical Framework for Litigation Strategy and Counselling Directors, 37 BUS. LAW. 1247, 1249 (1982). 332 Id. 333 Pereira v. United States, 347 U.S. 1, 11 (1954). 334 Thompson, 484 F.3d at 879.
135 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 suggests that she acted with due care and in good faith.335 Third, if we accept the court’s hypothesized political motivation of trying to save the state money, then that motivation would meet the rational business purpose element.336 Finally, in discussing the bribery count, the court seems to adopt a quasi business judgment rule with the following statement:
Public employees often implement rules with which they disagree, and they are tempted to bend these rules to achieve what they deem better outcomes. As long as the state gets what it contracts for, at the market price, no funds have been misapplied, even if the state's rules should have led it to buy something more expensive (and perhaps of higher quality too). 337
Of course, it is always possible that Thompson did not act in good faith and was trying to steer the contract to Adelman in the hopes of receiving a bonus for pleasing her boss. But because there currently is no business judgment rule as a defense to honest services mail fraud, the court did not have access to any evidence on the issue. Ultimately, based on the court’s finding that Thompsons was innocent, it is very likely that Thompson would have come within the scope of a business judgment rule, but this determination cannot be made with certainty. Applying the business judgment rule to facts of Bauer leads to the conclusion that Bauer’s actions fall outside of its scope. First, he did have a disabling conflict in that he was trying to protect his political patron from embarrassing information.338 Second, by burying investigations into the embarrassing information, Bauer acted with bad faith and without regard for the public’s interest in knowing what is
335 See id. 336 Id. at 879-80. 337 Id. at 881-82. 338 See United States v. Bauer, No. 00 CR 81, 2000 U.S. Dist. LEXIS 16784, at *8 (N.D. Ill. Nov. 14, 2000).
136 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 occurring in state agencies.339 Thus, his actions would not be protected under the business judgment rule. In cases where multiple parties are involved, such as Sorich and Munson, it is probably less necessary to resort to the business judgment rule because it is more likely that there will be extrinsic evidence of a scheme. Because others are involved there is more likely to be other evidence such as communication records, and there is always the possibility of flipping one of the defendants to testify against the others. But, if the business judgment rule were applied to those cases, Sorich’s and Munson’s actions would be unprotected by the rule. Munson engaged in conduct with three Nicor executives to manipulate the corporation’s financial information.340 Likewise, Sorich took great pains to develop and conceal an elaborate scheme, with at least two other individuals, to create a “sham” hiring and promotion process.341 Neither action is consistent with concepts of good faith or acting in the best interests of one’s employer or the public. The above analysis has shown that by adopting a business judgment rule for public employees the courts could more readily determine whether a public employee’s actions were taken in furtherance of the government’s interest, or whether they instead amounted to an artful plot or plan meant to deceive—in other words, a scheme. Furthermore, this type of analysis has been shown to be helpful in the case of a single civil servant’s actions where extrinsic evidence may be lacking.
CONCLUSION
The mail fraud statute has long been used in the government’s fight against public corruption, and is one of its most powerful weapons.342 Through the enactment of § 1346, Congress approved of
339 Id. 340 United States v. Munson, No. 03 CR 1153-4, 2004 U.S. Dist. LEXIS 14274, at *1 (N.D. Ill. July 27, 2004). 341 United States v. Sorich, 427 F. Supp. 2d 820, 823-25 (N.D. Ill. 2006). 342 See supra note 2.
137 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the honest services fraud theory whereby public officials owe fiduciary duties to the public.343 But because of the broad language in § 1346, courts have adopted limiting principles to cabin the reach of the statute and to counter concerns about vagueness, federalism and prosecutorial overreaching.344 The Seventh Circuit and the Third Circuit have adopted separate limiting principles. The Seventh Circuit uses the “misuse of office for private gain” standard,345 while the Third Circuit uses the “state law fiduciary duty” standard.346 Despite the differences, this Note has shown that both standards are likely to lead to the same outcomes under the same set of facts. Because of this result, neither standard can be found to be better in theory or in practice. At most it appears that each circuit will grapple with separate issues. The Third Circuit will struggle with determining which state laws create fiduciary duties, and the Seventh Circuit will wrangle with determining what constitutes a “misuse of office” and a “private gain.” In Thompson, the Seventh Circuit determined that raises given in the normal course of business and psychic benefits are not private gains.347 Previously, however, the Northern District of Illinois had, on three separate occasions, held that one’s job or the possibility of a future job can serve as a private gain.348 It is possible that the Seventh Circuit’s decision in Thompson simply overrules the Northern District cases. But because the Seventh Circuit only found these cases unpersuasive and did not explicitly overrule them, it is arguable that
343 United States v. Panarella, 277 F.3d 678, 692 (3d Cir. 2002); United States v. Bloom, 149 F.3d 649, 654-55 (7th Cir 1998). 344 See supra note 21. 345 Bloom, 149 F.3d at 55. 346 Panarella, 277 F.3d at 692-93. 347 United States v. Thompson, 484 F.3d 877, 884 (7th Cir. 2007). 348 United States v. Sorich, 427 F. Supp. 2d 820, 828-30 (N.D. Ill. 2006); United States v. Munson, No. 03 CR 1153-4, 2004 U.S. Dist. LEXIS 14274, at *3 (N.D. Ill. 2004); United States v. Bauer, No. 00 CR 81, 2000 U.S. Dist. LEXIS 16784, at *10-12 (N.D. Ill. 2000).
138 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 they are distinguishable and remain good law.349 Thus, the Seventh Circuit’s decision in Thompson has the potential to create an unintended “subtle scheme” problem whereby civil servants can take actions that benefit the friends and supporters of their current political- appointee supervisors without the threat of punishment. This result has the potential of hampering the very purpose behind the enactment of § 1346. This Note has argued that this outcome could have been avoided had the Seventh Circuit made a threshold determination of whether a “scheme,” defined by its ordinary usage, existed. This Note further concluded that this determination may not entirely rectify the “subtle scheme” problem, especially in the case of a single civil servant. But, this Note has shown that this problem can be addressed through the adoption of a business judgment rule for public employees.
349 See Thompson, 484 F.3d at 884.
139 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007
FAMILIA INTERRUPTUS: THE SEVENTH CIRCUIT’S APPLICATION OF THE SUBSTANTIVE DUE PROCESS RIGHT OF FAMILIAL RELATIONS
∗ SCOTT J. RICHARD
Cite as: Scott J. Richard, Familia Interruptus: The Seventh Circuit’s Application of the Substantive Due Process Right of Familial Relations, 3 SEVENTH CIRCUIT REV. 140 (2007), at http://www.kentlaw.edu/7cr/v3-1/richard.pdf.
INTRODUCTION
One of the oldest substantive due process rights derived from the Fourteenth Amendment and recognized by the Supreme Court is the right of individuals to be free from government intrusion into the control and management of their families.1 Despite its rhetoric that familial rights are a fundamental liberty interest protected by the Fourteenth Amendment, the Supreme Court’s recognition of this right has been far from clear. Until recently,2 the articulation of this right has been enmeshed in the analysis of other constitutional rights, and even the recent Supreme Court jurisprudence is ambivalent towards this liberty interest, making it difficult to decipher the scope of this right and the appropriate standard to determine when it should be protected.
∗ J.D. candidate, May 2008, Chicago-Kent College of Law, Illinois Institute of Technology; A.M., 2001, University of Chicago; B.A., 1999, Hamilton College. I would like to acknowledge Nikolai G. Guerra and Nicole L. Little for their careful edits of this Note. 1 Meyer v. Nebraska, 262 U.S. 390, 399 (1923). 2 Troxel v. Granville, 530 U.S. 57 (2000).
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The Seventh Circuit’s most recent case involving a claim of familial rights, United States v. Hollingsworth, is instructive because the court applied a balancing test developed by its previous decisions3 to determine when this substantive due process right should be protected.4 This decision serves as a predictive case study that illustrates how the Seventh Circuit will analyze familial rights claims in the future. In this Note, I will argue that from its initial recognition of familial rights, the Supreme Court’s jurisprudence on this liberty interest has been riddled with ambivalence. While the Court has rhetorically endorsed this right, its application in its decisions demonstrates that the Court has been and continues to be reluctant to fully embrace and define this liberty interest. Following the Supreme Court’s lead, the Seventh Circuit’s balancing test provides courts with the flexibility to both acknowledge this due process right but also allow the state to intervene when the safety and well-being of children is threatened. Section I of this Note will analyze the evolution of the substantive due process right of familial relations. Subsection A of this first section will explore the Supreme Court’s early decisions that recognized familial rights and the Court’s inability to isolate and explicate this liberty interest in its holdings. Subsection B will analyze Troxel v. Granville,5 the Court’s most recent and fractured treatment of familial rights. This subsection will underscore the Court’s continued ambivalence and lack of clarity towards this liberty interest. Subsection C will introduce the Seventh Circuit’s adoption of a balancing test in the wake of Troxel. Section II will present the procedural and factual background of Hollingsworth. This section will also analyze the court’s application of its balancing test to the facts of the case. Section III will argue that the Seventh Circuit’s application of the balancing test corresponds with the Supreme Court’s ambivalent
3 Brokaw v. Mercer County, 235 F.3d 1000, 1018–19 (7th Cir. 2000); Doe v. Heck, 327 F.3d 492, 518–19 (7th Cir. 2003). 4 United States v. Hollingsworth, 495 F.3d 795 (7th Cir. 2007). 5 530 U.S. 57.
141 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 position on familial rights, and provides a predictive measure of how future courts will recognize and protect familial rights.
I. THE EVOLUTION OF FAMILIAL RIGHTS
A. The Substantive Due Process Right to Familial Relations
The Fourteenth Amendment of United States Constitution states that “nor shall any State deprive any person of life, liberty, or property, without due process of law.”6 While this clause clearly provides a guarantee of fair procedure in connection with any deprivation of life, liberty, or property by a state, the Supreme Court has also recognized that this clause, as well as its Fifth Amendment counterpart, guarantees more than just fair process:7 it protects “individual liberty against ‘certain government actions regardless of the fairness of procedures used to implement them.’”8 Generally, the Court grants broad deference to the legislature and requires that laws merely be rational in relation to a legitimate governmental purpose.9 But when a law infringes on a substantive aspect of liberty or fundamental rights, the Court demands that the state narrowly tailor that law “to serve a compelling state interest.”10 In order to be protected by this heightened scrutiny standard, a right must be fundamental, which means that it is “implicit in the concept of ordered liberty” such that “neither liberty
6 U.S. CONST. amend. XIV, § 1. 7 Washington v. Glucksberg, 521 U.S. 702, 719–20 (1997) (holding that the due process clause of the Fourteenth Amendment contains a substantive component that “provides heightened protection against government interference with certain fundamental rights and liberty interests”). 8 Collins v. City of Harker Heights, 503 U.S. 115, 125 (1992) (quoting Daniels v. Williams, 474 U.S. 327, 331 (1986)). 9 Shaughnessy v. United States ex rel. Mezei, 345 U.S. 206, 222 (1953) (stating that due process provides broad deference to government in choosing the ways and means by which it carries out its policies). 10 Reno v. Flores, 507 U.S. 292, 301–02 (1993).
142 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 nor justice would exist if they were sacrificed.”11 The Supreme Court has held that the liberty protected by the due process clause includes the rights to marry;12 to have children;13 to marital privacy;14 to the use of contraception;15 to bodily integrity;16 and to have an abortion.17 One of the oldest liberty interests recognized by the Supreme Court under the theory of substantive due process is the interest that parents have in the care, custody, control, and management of their children.18 In the first half of the twentieth century, the Court decided three cases that held that the fundamental liberty protections of the due process clause include the right of parents to direct the upbringing of their children and to control their education: Meyer v. Nebraska,19 Pierce v. Society of Sisters,20 and Prince v. Massachusetts.21 The Court has invoked Meyer and Pierce as a starting point in much of its modern substantive due process analysis and in its recent parental rights cases.22 To best understand the Court’s most recent articulation
11 Palko v. Connecticut, 302 U.S. 319, 325, 326 (1937); see also Glucksberg, 521 U.S. at 721. 12 Loving v. Virginia, 388 U.S. 1, 12 (1967). 13 Skinner v. Oklahoma ex rel. Williamson, 316 U.S. 535, 541 (1942). 14 Griswold v. Connecticut, 381 U.S. 479, 485 (1965). 15 Eisenstadt v. Baird, 405 U.S. 438, 453 (1972). 16 Rochin v. California, 342 U.S. 165, 171–72 (1952); see also Wudtke v. Davel, 128 F.3d 1057, 1062 (7th Cir. 1997) (holding that a public teacher successfully stated a substantive due process claim against a school district superintendent, who she claimed sexually assaulted her, based on her liberty interest in bodily integrity). 17 Planned Parenthood of Southeastern Pennsylvania v. Casey, 505 U.S. 833 (1992). 18 See, e.g., Troxel v. Granville, 530 U.S. 57, 65 (2000); Santosky v. Kramer, 455 U.S. 745, 753 (1982); Prince v. Massachusetts, 321 U.S. 158, 164 (1944); Pierce v. Soc’y of Sisters, 268 U.S. 510, 534–35 (1925); Meyer v. Nebraska, 262 U.S. 390, 399 (1923). 19 Id. 20 268 U.S. at 534–535. 21 321 U.S. at 164. 22 Susan E. Lawrence, Substantive Due Process and Parental Rights: From Meyer v. Nebraska to Troxel v. Granville, 8 J. L. & FAM. STUD. 71, 72 (2006)
143 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 of substantive due process rights in the parental rights context and the Seventh Circuits’ application of this concept, it is necessary to examine the genesis and development of this jurisprudence. Although the Supreme Court would later credit these early twentieth century decisions with unambiguously establishing the substantive due process right of family relations,23 a careful examination of these cases demonstrates that the Court’s rhetoric supporting this liberty interest outstripped the actual application and definition of this right. Rather than providing a clear endorsement of this liberty interest by basing its holdings solely on family rights, the Court’s decisions in the context of educational rights primarily relied on the right to acquire knowledge24 and focused on First Amendment liberty interests in the context of child labor laws25 to reach these respective holdings. This inability to fully articulate the scope and definition of familial rights demonstrates the Court’s ambivalence towards this substantive due process right from its inception and foreshadows the current ambiguity as to its application.
1. The Establishment of the Right of Parents to Control Their Children’s Education
a. Meyer v. Nebraska
In 1919, spurred by anti-immigrant nativism and the experience of World War I, the Nebraska legislature enacted a statute, the “Siman language law,” that restricted the teaching of foreign languages before the eighth grade in public and private schools.26 In 1920, Robert
(arguing that use of Meyer and its progeny by the Court in support of a substantive due process liberty right of parents is “sporadic and often is joined with other constitutional claims” and that only the recent Troxel v. Granville unambiguously articulates a foundation for this substantive due process right). 23 Troxel, 530 U.S. at 65. 24 Meyer, 262 U.S. at 399; Pierce, 268 U.S. at 534–535. 25 Prince v. Massachusetts, 321 U.S. 158, 164 (1944). 26 Id. at 73–74 (2006); Barbara Bennett Woodhouse, Who Owns the Child?: Meyer and Pierce and the Child as Property, 33 WM. & MARY L. REV. 995, 1003–
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Meyer, a teacher at a Lutheran parochial school, was convicted of violating the law by teaching a ten-year-old student German and was fined $25.27 The Nebraska Supreme Court upheld his conviction,28 and Meyer appealed to the U.S. Supreme Court, which concluded that the Nebraska statute was unconstitutional.29 The Supreme Court struck down the Nebraska statute because it conflicted with the due process clause of the Fourteenth Amendment, which it held guarantees an individual the liberty “to acquire useful knowledge” and “to establish a home and bring up children.”30 In reaching its decision, the Court considered these two liberty interests in tandem and did not isolate or identify the scope of the right to establish a home and raise children. Rather, the Court reasoned that because education and the acquisition of knowledge are unquestionable values to citizens and it is the “natural duty of the parent to give his children education suitable to their station in life,” it follows that a teacher’s ability to teach diverse subjects and a parent’s ability to engage such a teacher for their children’s benefit are protected liberties under the Fourteenth Amendment.31 The Nebraska statute infringed on this liberty interest because it blocked parents from being able to hire or send their children to a school that teaches a language that they considered useful to the upbringing of their children.32
04 (1992); William G. Ross, A Judicial Janus: Meyer v. Nebraska in Historical Perspective, 57 U. CIN. L. REV. 130, 135 (1988). 27 Meyer v. Nebraska, 262 U.S. 390, 396–97 (1923). 28 Id. Scholars have argued that the Nebraska Siman language law was part of a nationwide attack on parochial schools that sought to Americanize foreigners through legislation mandating compulsory public school attendance. William G. Ross, The Contemporary Significance of Meyer and Pierce for Parental Rights Issues Involving Education, 34 AKRON L. REV. 177, 177 (2000); David B. Tyack, The Perils of Pluralism: The Background of the Pierce Case, 74 AM. HIST. REV. 74, 75 (Oct. 1968). 29 Meyer, 262 U.S. at 402–03. 30 Id. at 399–400. 31 Id. at 400. 32 Id. Lawrence argues that Meyer’s focus on the danger of the state limiting the acquisition of knowledge and homogenizing its populace weakens claims that
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The Court’s recognition of the individual liberty interest in acquiring useful knowledge and bringing up children was a novel development.33 During this period, the so-called Lochner Era,34 the Court’s recognition of liberty interests primarily focused on cases involving individual’s ability to form and be bound by contracts free from state intervention without a valid police power rationale.35 Nevertheless, in expanding its recognition of liberty interests beyond the contractual context, Meyer applied the standard Lochner Era test for laws infringing on substantive due process rights. The Court maintained that:
[T]his liberty may not be interfered with, under the guise of protecting the public interest, by legislative action which is arbitrary or without reasonable relation to some purpose within the competency of the State to effect. Determination by the legislature of what constitutes proper exercise of police power is not final or conclusive but is subject to supervision by the courts.36
Thus, while the Court “appreciate[d]” that the Nebraska law sought to create a homogeneous population with American ideals and communicate an aversion to recent “truculent adversaries,” it held that the law was not aimed at eliminating an emergency, which “renders knowledge by a child of some language other than English so clearly harmful as to justify its inhibition with the consequent infringement of rights long freely enjoyed.”37 In striking down this state statute, the this case unambiguously established parental rights. She claims that in spite of the Court’s “[l]ofty opening definitions of liberty” Meyer is primarily decided on educational grounds rather than on “state interference in the intimacies of home and family.” Lawrence, note 22, at 77. 33 Lawrence, supra note 22, at 76 n.31. 34 David E. Bernstein, Lochner Era Revisionism, Revised: Lochner and the Origins of Fundamental Rights Constitutionalism, 92 GEO. L.J. 1, 1 (2003). 35 Id. at 24. 36 Meyer, 262 U.S. at 399–400. 37 Id. at 402–03.
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Court maintained that states may not interfere with the “long freely enjoyed” liberty interest of parents to control the upbringing of their children and to acquire useful knowledge unless the regulation sought to eliminate a harm to children or the populace at large.38
b. Pierce v. Society of Sisters
Two years after Meyer, in Pierce v. Society of Sisters, the Court returned to the issue of parental rights to control their children’s education grounded in the due process clause.39 In 1922, in an attempt to shut down private schools, Oregon adopted a statute that required that all children between the ages of eight and sixteen attend public schools.40 Although the Court partially grounded its reasoning in a desire to limit states’ power to “homogenize its citizenry,”41 it directly applied Meyer and held that the Oregon statute “unreasonably interfere[d] with the liberty of parents and guardians to direct the upbringing and education of children under their control.”42 Like Meyer, Pierce’s recognition of parental rights was interwoven with the liberty interest to acquire useful knowledge.43 Thus, while the Court again rhetorically recognized familial rights, its holding focused primarily on the need to protect the educational choices provided by private
38 Id. at 403. 39 Pierce v. Soc’y of Sisters, 268 U.S. 510 (1925). 40 Ross, note 26, at 178. This statute was part of a national campaign for compulsory public education that was at least partially motivated by anti- Catholicism. Id. 41 Lawrence, supra note 22, at 78. 42 Pierce, 268 U.S. at 534– 35. “The child is not the mere creature of the State; those who nurture him and direct his destiny have the right, coupled with the high duty, to recognize and prepare him for additional obligations.” Id. at 535. 43 Both Meyer and Pierce have been interpreted as being decided on property rights: “the liberty of the schools to conduct a business, the right of private school teachers to follow their occupation, and the freedom of schools and the parents to enter into contracts.” Ross, supra note 26, at 178.
147 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 schools that best prepare children for their later social obligations.44 Familial rights in this instance were extended insofar as they aided educational rights. Regardless of which liberty interest the court emphasized, their presence triggered the Lochner Era test for protected liberty interests, which stated that “the Constitution may not be abridged by legislation which has no reasonable relation to some purpose within the competency of the State.”45 Concluding that there was nothing “inherently harmful”46 in private schools and that they were in fact “long regarded as useful and meritorious,”47 the Court held the state had no adequate rationale to justify the statute’s adoption.48 The statute was therefore struck down under the Court’s supervisory power to protect the liberty interest of parents controlling their children’s upbringing and education.49
2. The Assertion of the State’s Parens Patriae Power and the Limits of Parental Rights
Although the Court in Meyer and Pierce recognized broad parental rights in the realm of their children’s education and upbringing, subsequent Courts did not shy away from asserting the state’s power to protect the welfare of children. These cases demonstrate the deference that the Court granted to states, which enacted legislation intended to protect children, and the limitations of parental rights.
44 Pierce, 268 U.S. at 534– 35. 45 Id. at 535. This test and the Meyer precedent were applied again in 1927 in another parental rights case in the context of foreign language instruction. Farrington v. Tokushige, 273 U.S. 284 (1927). The Court struck down Hawaii’s territorial legislation aimed at limiting the instruction of Japanese in private schools. The Court held that the statute infringed on the rights of the school’s owners as well as the parents who chose to send their children to these schools. Id. at 299. 46 Pierce, 268 U.S. at 534. 47 Id. 48 Id. at 534–35. 49 Id.
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In Prince v. Massachusetts, the Court upheld the enforcement of Massachusetts’ child labor laws, which restricted children from working on public streets.50 The case involved the conviction of a nine-year-old girl and her guardian aunt for “selling” Jehovah Witnesses' publications on the public streets.51 Primarily challenging their conviction on First Amendment freedom of religion grounds “to preach the gospel . . . by public distribution” in conformity of their religious beliefs as Jehovah’s Witnesses, the aunt also buttressed this claim by arguing that the statute infringed on her parental right to control the upbringing of her niece in accordance with their religious beliefs, as secured by the due process clause under Meyer.52 Citing Meyer and Pierce as precedent, the Prince Court accepted the aunt’s claim to a parental right, stating that “the custody, care and nurture of the child reside first in the parents, whose primary function and freedom include preparation for obligations the state can neither supply nor hinder.”53 Further supporting the installment of parental rights as fundamental liberty interests, the Court considered parental rights to be “basic in a democracy.”54 Despite this clear rhetorical endorsement, the rationale of Prince’s holding was less precise. Like Meyer and Pierce, which recognized parental rights in tandem with the right to acquire useful knowledge, Prince’s discussion of parental rights was interwoven with the child’s
50 321 U.S. 158 (1944). The law prohibited girls under eighteen to “sell, expose or offer for sale any newspapers, magazines, periodicals or any other articles of merchandise of any description, or exercise the trade of bootblack or scavenger, or any other trade, in any street or public place.” Id. at 160–61 (quoting § 69 of Mass. Gen. Laws, Ter. Ed., c. 149, as amended by Acts and Resolves of 1939, c. 461). The law’s enforcement provisions provided punishment of imprisonment or fines to “[a]ny parent, guardian or custodian having a minor under his control who compels or permits such minor to work in violation” of § 69. Prince, 321 U.S. at 161 (quoting § 81, Mass. Gen. Laws, Ter. Ed.). 51 Prince, 321 U.S. at 162. 52 Id. at 164. The Court articulated the aunt’s liberty interest as her right as a guardian to “bring up the child in the way he should go, which for the appellant means to teach him the tenets and the practices of their faith.” Id. 53 Id. at 166. 54 Id. at 165.
149 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 liberty interest in exercising her religion.55 Thus, despite Prince’s recognition of parental rights, this substantive due process right was again inextricably bound to another liberty interest. Irrespective of this intertwined recognition of parental rights, Prince held that the guardian’s right to rear her child was outweighed by the state’s broad parens patriae56 power to protect the child’s welfare.57 A parent's authority over their child thus may be trumped by state regulations aimed to foster the child’s interest. The fact that the parental right in this case involved matters of religion only strengthens the broad power of the state to trump this parental liberty interest.58 Noting that the statute was adopted to protect young children from the “crippling effects of child employment,”59 Prince concluded that “[p]arents may be free to become martyrs themselves . . . [b]ut it does not follow they are free, in identical circumstances, to make martyrs of their children before they have reached the age of full and legal discretion when they can make that choice for themselves.”60 The state thus possessed a “wide range of power for limiting parental freedom and authority in things affecting the child's welfare,”61 because the continuance of a “democratic society rests . . . upon the healthy, well- rounded growth of young people into full maturity as citizens.”62 And, while the Court continued to recognize the important parental right to control and manage their children’s upbringing, it was unwilling to
55 Prince, 321 U.S. at 165. “The parent’s conflict with the state over control of the child and his training is serious enough when only secular matters are concerned. It becomes the more so when an element of religious conviction enters.” Id. 56 “[Latin for ‘parent of his country’] 1. The state regarded as a sovereign; the state in its capacity as provider of protection to those unable to care for themselves.” BLACK’S LAW DICTIONARY (8th ed. 2004). 57 Prince, 321 U.S. at 167. 58 Id. at 166. 59 Id. at 168. 60 Id. at 170. 61 Id. at 167. 62 Id. at 168.
150 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 strike down a statute that “regulated within reasonable limits” the “legitimate objective[]” of protecting the well-being of children.63 Because the Court’s early cases involving parental rights did not specifically isolate this liberty interest,64 it is difficult to determine whether its holdings would have been maintained based on familial rights alone.65 What can be said, however, is that the Court’s rhetoric regarding familial rights outweighs the application of this right in these holdings. While the Court asserted the importance of protecting the parental right to control their child’s upbringing, its holding primarily relied on the importance of education in Meyer66 and Pierce67 and on religious expression in Prince.68 The scope of familial rights was thus left undefined outside of the context of these other liberty interests. Nevertheless, these early decisions did broadly define the parental realm as a constitutionally protected liberty interest based on substantive due process. From these cases, this protection extended to parents’ control of their children’s education and upbringing69 and could only be trumped by the state if the regulation was reasonably limited and aimed at protecting the welfare of children.70
63 Id. at 169–70. 64 Later cases involving parental rights continued to analyze this liberty interest in tandem with other claims. See Wisconsin v. Yoder, 406 U.S. 205, 214 (1972) (striking down Wisconsin’s compulsory school attendance law and basing its holding more on the protection of the Free Exercise Clause of the First Amendment); Runyon v. McCrary, 427 U.S. 160, 176–79 (1976) (in upholding a federal statute that prohibited private schools from excluding students based on their race, the Court declined to extend the parental right to control their children’s education beyond the ability to challenge limitations to subject matter). 65 Ross argues that the Meyer and Pierce decisions relied on substantive due process rights because freedom of religion and speech bases were not available to the Court because the Bill of Rights had not yet been incorporated into state law. Ross, supra note 26, at 178–79. 66 Meyer v. Nebraska, 262 U.S. 390, 400 (1923). 67 Pierce v. Soc’y of Sisters, 268 U.S. 510, 534-35 (1925). 68 321 U.S. at 165. 69 Meyer, 262 U.S. at 400; Pierce, 268 U.S. at 535. 70 Prince, 321 U.S. at 170.
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B. Modern Familial Rights and the Introduction of New Ambiguity: Troxel v. Granville
In Troxel v. Granville, the Supreme Court issued its most recent articulation of the substantive due process right of familial relations.71 What makes Troxel important beyond its recentness is that it was the first Supreme Court case to recognize familial rights independent of any other constitutional claim.72 Thus, the Court had an opportunity to define the scope of this liberty interest and to provide a clear test for its application. While the Court definitively recognized the right to familial relations and removed any residue of uncertainty from its previous cases as to its status amongst the other established substantive due process rights, the plurality opinion in Troxel significantly diluted familial rights by limiting their protection to a rebuttable presumption that parents act in the best interest of their children.73 In addition to lowering the protections afforded to familial rights, the Court also failed to provide lower courts with an applicable standard or review for this liberty interest.74 Thus, in clarifying its past decisions regarding familial rights, the Court effectively introduced a new ambivalence towards this liberty interest.
1. The Plurality Decision
Writing for the plurality, Justice O’Connor, in one sentence, erased any doubt that parental rights were not a fundamental liberty interest protected by the due process clause of the Fourteenth Amendment. After reiterating the Court’s recognition of substantive due process rights and the numerous parental rights precedents,75
71 Troxel v. Granville, 530 U.S. 57 (2000). 72 Lawrence, supra note 22, at 100. 73 Troxel, 530 U.S. at 67. 74 Id. at 78 (Souter, J., concurring). 75 See also Washington v. Glucksberg, 521 U.S. 702, 720 (1997) (“In a long line of cases, we have held that, in addition to the specific freedoms protected by the
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Justice O’Connor stated that, “[i]n light of this extensive precedent, it cannot now be doubted that the Due Process Clause of the Fourteenth Amendment protects the fundamental right of parents to make decisions concerning the care, custody, and control of their children.”76 Discounting any ambiguity in the Court’s previous treatment of familial rights, the plurality further affirmed that “the interest of parents in the care, custody, and control of their children . . . is perhaps the oldest of the fundamental liberty interests recognized by this Court.”77 Troxel involved a Washington statute that permitted any person to petition the court for visitation rights whenever the visits served the best interest of the child.78 Following this statute, a Washington trial court granted visitation rights to the paternal grandparents of children against the wishes of their mother, reasoning that these visits would be
Bill of Rights, the ‘liberty’ specially protected by the Due Process Clause includes the righ[t] . . . to direct the education and upbringing of one's children”) (citing Meyer v. Nebraska, 262 U.S. 390 (1923)); Santosky v. Kramer, 455 U.S. 745, 753 (1982) (discussing “[t]he fundamental liberty interest of natural parents in the care, custody, and management of their child”); Parham v. J. R., 442 U.S. 584, 602 (1979) (“Our jurisprudence historically has reflected Western civilization concepts of the family as a unit with broad parental authority over minor children. Our cases have consistently followed that course”); Quilloin v. Walcott, 434 U.S. 246, 255 (1978) (“We have recognized on numerous occasions that the relationship between parent and child is constitutionally protected”); Wisconsin v. Yoder, 406 U.S. 205, 232 (1972) (“The history and culture of Western civilization reflect a strong tradition of parental concern for the nurture and upbringing of their children. This primary role of the parents in the upbringing of their children is now established beyond debate as an enduring American tradition”); Stanley v. Illinois, 405 U.S. 645, 651 (1972) (“It is plain that the interest of a parent in the companionship, care, custody, and management of his or her children ‘come[s] to this Court with a momentum for respect lacking when appeal is made to liberties which derive merely from shifting economic arrangements’”) (quoting Kovacs v. Cooper, 336 U.S. 77, 95 (1949) (Frankfurter, J., concurring)). 76 Troxel, 530 U.S. at 66. 77 Id. at 65 (Citing Meyer v. Nebraska, 262 U.S. 390, 399 (1923); Pierce v. Soc’y of Sisters, 268 U.S. 510, 534–35 (1925); and Prince v. Massachusetts, 321 U.S. 158, 166 (1944)). 78 Troxel, 530 U.S. at 60.
153 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 in the interest of the children.79 On appeal, the Washington Supreme Court held that this statute unconstitutionally interfered with the “fundamental right of parents to rear their children” because the statute required “no threshold showing of harm,” which it concluded contradicts the constitutional standard that allows state interference only to prevent harm to the child.80 While Justice O’Connor’s plurality opinion affirmed the Washington Supreme Court’s judgment, it articulated a more limited definition of parental rights based on a burden-shifting mechanism to determine the child’s best interest.81 Whereas the Washington Supreme Court’s reasoning required a showing of harm to contravene parents’ liberty interest in controlling the upbringing of their children, the Troxel plurality maintained that parental rights required regulations only to show adequate deference to parents’ inherent ability to “act in the best interests of their children.”82 The plurality thus limited the scope of parental rights to a rebuttable presumption that fit parents “make the best decisions concerning the rearing of”83 their children; in the parental visitation context this meant that the burden of proof was on third-parties seeking visitation to show that the child’s parent(s) were unfit and were not acting in the child’s best interest.84 Accordingly, the Court declared the Washington statute unconstitutional because it was “breathtakingly broad”85 and failed to recognize proper deference to parents. The statute allowed any person at any time to petition the court for visitation when it would serve the best interest of the child, and it gave no deference to the parent’s decision that visitation would not be in the child’s best interest.86 By placing the best-interest determination in the hands of a judge and
79 Id. at 61. 80 Id. at 60–63. 81 Id. at 67. 82 Id. at 68 (quoting Parham v. J.R., 442 U.S. 584, 602 (1979)). 83 Troxel, 530 U.S. at 68–69. 84 Id. at 68–69. 85 Id. at 67. 86 Id.
154 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 giving no special weight to the parent’s choice, Troxel concluded that this statute effectively took away the parents’ control of the upbringing of their children and exceeded the bounds of the due process clause.87
2. Concurring and Dissenting Opinions
As demonstrated by Troxel’s concurring and dissenting opinions, this case, while firmly establishing familial rights as a protected liberty interest, introduced new ambiguities into the application and scope of this right. In his concurring opinion, Justice Souter criticized the plurality opinion because it failed to “set out exact metes and bounds to the protected interest of a parent in their relationship with his child.”88 By not articulating a standard of review for legislation that infringes on parental rights,89 Justice Thomas further noted that the plurality left lower courts with the task of determining the scope of this liberty interest.90 Justice Souter, however, concentrated his criticism on the plurality’s dilution of familial rights to a liberty interest protected only by a rebuttable presumption.91 He agreed with the Washington Supreme Court that the statute was unconstitutional on its face, and he disagreed with the plurality’s recognition of only a presumption of parental deference. 92 Stating that parental choice regarding their children is not “merely a default rule in the absence” of a more enlightened determination by a judge, Justice Souter criticized the
87 Id. 88 Id. at 78 (Souter, J., concurring). 89 Id. at 80 (Thomas, J., concurring). 90 Lenese Herbert, Plantation Lullabies: How Fourth Amendment Policing Violates the Fourteenth Amendment Right of African Americans to Parent, 19 ST. JOHN’S J. LEGAL COMMENT 197, 207–08 (2005). In pointing out this curious omission, Justice Thomas took the opportunity to state his preference that the appropriate standard of review for infringement on familial rights is strict scrutiny. Troxel, 530 U.S. at 80 (Thomas, J., concurring). 91 Id. at 68 (Souter, J., concurring). 92 Id. at 75.
155 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 plurality’s limitation of parental rights to only a presumption that their decisions were in the child’s interest.93 Citing the “repeatedly recognized right of upbringing”94 from Meyer onward, he warned that the plurality’s rule threatened to make this right a sham if a judge’s decision was able to trump that of parents. In his dissent, Justice Stevens articulated a clearer approach to familial relations rights.95 Agreeing with the plurality’s limited definition of parental rights, he disputed Justice Souter’s assertion that there is any precedent for the requirement that a threshold showing of harm be met before the state may challenge a parent’s decision regarding their children.96 In his view, such a standard would “establish a rigid constitutional shield” for any parental choice or action.97 Justice Stevens came closest to articulating a standard for the analysis of familial relations cases by stating that there is a rebuttable “presumption that parental decisions generally serve the best interests of their children” and that “in the normal case [this] interest is paramount.”98 In his view, parental rights are not absolute, and the Court’s precedent supports a balancing test of the parent’s interests in a child “against the state’s long-recognized interests as parens patriae.”99
C. The Seventh Circuit’s Adoption of a Balancing Test
Despite its clear endorsement of familial rights as a fundamental right derived from the due process clause, the Supreme Court’s
93 Id. at 79. 94 Id. at 78. 95 Id. at 80–91 (Stevens, J., dissenting). 96 Id. at 86. 97 Id. 98 Id. 99 Id. at 88 (citing Reno v. Flores, 507 U.S. 292, 303–04 (1993); Santosky v. Kramer, 455 U.S. 745, 766 (1982); Parham v. J.R., 442 U.S. 584, 605 (1979); Prince v. Massachusetts, 321 U.S. 158, 166 (1944)).
156 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 reluctance to articulate a test in which to analyze this right100 has meant that circuit courts have had to develop this standard on their own. Two Seventh Circuit decisions decided after Troxel illustrate this Circuit’s application of familial rights and its adoption of and development upon Justice Stevens’ balancing test. In Brokaw v. Mercer County, two children, six and three years old, were removed from their home and became wards of the state for four months after relatives of the parents filed claims of child neglect.101 In analyzing whether this separation violated the parents’ due process right to familial relations, the court emphasized that the right of parents to “bear and raise their children is the most fundamental of all rights—the foundation of not just this country, but of all civilization.”102 Nevertheless, the court acknowledged that this constitutional right is not absolute and is “limited by the compelling governmental interest in the protection of children particularly where [they] need to be protected from their own parents.”103 To determine whether familial rights should be protected, the Seventh Circuit adopted its own test used in the Fourth Amendment context104 and balanced the fundamental right to familial relations against the government’s interest in protecting children from harm or abuse.105 In analyzing the government’s interest, the court held that “a
100 Troxel, 530 U.S. at 80 (Thomas, J., concurring). 101 Brokaw v. Mercer County, 235 F.3d 1000, 1007–08 (7th Cir. 2000). 102 Id. at 1018–19 (citing Wisconsin v. Yoder, 406 U.S. 205, 232 (1972) (“The history and culture of Western civilization reflect a strong tradition of parental concern for the nurture and upbringing of their children . . . This primary role of the parents in the upbringing of their children is now established beyond debate as an enduring American tradition.”); Doe v. Heck, 327 F.3d 492, 517–18 (7th Cir. 2003). 103 Brokaw, 235 F.3d at 1019 (Citing Croft v. Westmoreland County Children and Youth Services, 103 F.3d 1123, 1125 (3d Cir. 1997)); see also Weller v. Dep’t of Soc. Serv., 901 F.2d 387, 392 (4th Cir. 1990) (substantive due process does not categorically bar the government from altering parental custody rights). 104 Darryl H. v. Coler, 801 F.2d 893, 901 n.7 (7th Cir. 1986). See also Wallis ex rel Wallis v. Spencer, 202 F.3d 1126, 1137 n.8 (9th Cir. 2000) (the same legal standard applies in evaluating Fourth and Fourteenth Amendment claims for the removal of children). 105 Brokaw, 235 F.3d at 1019; Heck, 327 F.3d at 520.
157 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 state has no interest in protecting children from their parents unless it has some definite and articulable evidence giving rise to a reasonable suspicion that a child has been abused or is in imminent danger of abuse.”106 Applying this test, Brokaw held that at the summary judgment stage there was insufficient evidence that the government possessed reasonable suspicion of abuse, and accordingly, the state’s interference in the parents’ right to bear and raise their children was not justified.107 Although the lack of evidence for reasonable suspicion was a key to the court’s determination, the considerable period of time—four months—that the parents’ rights were violated was also determinative.108 In a 2003 decision, Doe v. Heck, the Seventh Circuit expanded and refined this balancing test for analyzing familial relations cases.109 The case involved the Wisconsin Department of Health and Family Services’ (the “Department”) investigation of alleged corporeal punishment at a private school.110 After the Department conducted prolonged interviews at the school with students thought to be involved in the alleged abuse, eight sets of parents brought suit against the Department and the workers who conducted the investigation for violating their constitutional right to familial relations under the Fourteenth Amendment.111 The Doe court noted that Troxel failed to provide lower courts with the level of scrutiny to be applied in cases alleging violations of this constitutional right; however, it concluded that “courts are to use some form of heightened scrutiny.”112 Echoing Brokaw, the court
106 Brokaw, 235 F.3d at 1019; see also Miller v. City of Philadelphia, 174 F.3d 368, 373 (1999) (fundamental interest in the familial relationship must be balanced against the state’s interest in protecting children suspected of being abused). 107 Brokaw, 235 F.3d at 1019. 108 Id. 109 327 F.3d 492 (7th Cir. 2003). 110 Id. at 500. 111 Id. at 517. This was one of numerous issues decided by the court. 112 Id. at 519.
158 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 maintained that the right to familial relations is not absolute and is limited by the government’s compelling interest in protecting children.113 In Doe, the Seventh Circuit also refined its balancing test by adopting reasonableness factors that it had previously used to evaluate Fourth Amendment claims.114 When considering the competing interests involved in familial relations claims, Doe held that courts must consider: the nature of the privacy interest upon which the action taken by the State intrudes; the character of the intrusion that is complained of; the nature and immediacy of the governmental concern at issue; and the efficacy of the means employed by the government for meeting this concern.115 These factors provide courts with an analytic framework in which to evaluate whether the governmental interference with an individual right is justified and whether this interference is “reasonably related in scope to the circumstances” to that original justification.116 Nevertheless, Doe emphasized that the last two factors constituted a threshold that must be met before inquiring further.117 If the challenged governmental actions were not based on “some definite and articulable evidence giving rise to a reasonable suspicion that a child ha[d] been abused of [was] in imminent danger of abuse,” the government can have no interest in protecting children from their parents.118 In applying this test, Doe concluded that the custodial interviews without parental consent were a considerable intrusion upon the parents’ privacy, as the parents exhibited a subjective expectation of
113 Id. at 520. 114 327 F.3d at 520. 115 Id. at 520 (citing Vernonia Sch. Dist. 47J v. Acton, 515 U.S. 654, 654–60 (1995); Joy v. Penn-Harris-Madison Sch. Corp., 212 F.3d 1052, 1058–59 (7th Cir. 2000)). 116 Doe, 327 F.3d at 520. 117 Id. at 520–21. 118 Id. at 521 (citing Brokaw v. Mercer County, 235 F.3d 1000, 1019 (7th Cir. 2000); Croft v. Westmoreland County Children and Youth Services, 103 F.3d 1123, 1126 (3d Cir. 1997)).
159 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 privacy by enrolling their child in a private school.119 Moreover, the court considered the subject of the interview, potential abuse by the parents, to exacerbate the character of the intrusion.120 Nevertheless, Doe ultimately held that the Department violated the parents’ familial rights because there was no evidence that gave rise to a reasonable suspicion that the parents had abused their children.121 Emphasizing the constitutional presumption that fit parents act in the best interest of their children, Doe concluded that the Department failed to presume the fitness of the parents and treated corporeal punishment as per se abuse, which the Department’s own standards considered insufficient without further evidence of physical injuries.122 Doe demonstrates the Seventh Circuit’s struggle to adopt a test that both protects parents’ liberty interest in controlling their children but also recognizes the limits of this right. Acknowledging that the Supreme Court has provided little guidance to carry out this task,123 Doe’s balancing test embodies the ambiguous status of this liberty interest and provides courts in its circuit ample freedom to protect this right based on the facts before them. The application of this balancing test and the exercise of this discretion is demonstrated in U.S. v. Hollingsworth.124 This decision provides a predictive case study as to how future courts can and will treat familial rights claims.
II. U.S. V. HOLLINGSWORTH
A. Factual Background
For the first five months of the 2005 school year, Tamica Hollingsworth’s nine-year old daughter, T.H., exhibited troubling
119 Doe, 327 F.3d at 512. 120 Id. 121 Id. at 524. 122 Id. at 521–22. 123 Id. at 519. 124 495 F.3d 795, 798 (7th Cir. 2007).
160 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 conduct at school that concerned school officials.125 During this period, T.H. was late for school twenty times and was sent to the principal’s office for disciplinary reasons on six occasions.126 The school’s truancy police officer, Steve Denny, and the school’s principal, Darlene Westerfield, unsuccessfully attempted to contact Ms. Hollingsworth by phone and through notes sent home to discuss her daughter’s behavior and tardiness.127 The principal was eventually able to contact Ms. Hollingsworth and set up a meeting with her at the school.128 When Ms. Hollingsworth failed to appear at a December 7, 2005 meeting, the principal questioned T.H. about the difficultly contacting her mother, and T.H. said that her mother would not answer phone calls that their caller ID identified as coming from the school.129 When told that Officer Denny would then need to go to her home to contact her mother directly, T.H. responded that he could not come to the home until her mother and her boyfriend, James McCotry, were able to remove their “stuff” and other items that they did not want outsiders to see.130 Breaking into tears, T.H. also informed the principal that her mother occasionally left her home alone and that this frightened her.131 Notified of T.H.’s remarks, Officer Denny began a criminal investigation of Ms. Hollingsworth and arranged for the school social worker, Julie Hoyt, to meet with T.H. for the sole purpose of furthering his investigation.132 Officer Denny was eventually able to contact Ms. Hollingsworth and discuss her daughter’s behavior, but he did not seek permission for or inform Ms. Hollingsworth of Ms. Hoyt’s scheduled meeting with T.H..133 In the subsequent twenty-minute meeting at the
125 Id. at 798. 126 Id. 127 Id. 128 Id. 129 Id. 130 Id. 131 Id. 132 Id. at 799 n.1. 133 Id. at 798.
161 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 school conducted by Ms. Hoyt, T.H. identified the previously mentioned “stuff” as marijuana, which T.H. confirmed was smoked and found around her home on a daily basis.134 She also told Ms. Hoyt that her mother and Mr. McCotry occasionally brought her along on drug runs.135 Ms. Hoyt and Officer Denny subsequently transmitted this information to the prosecutor’s office, which used it to obtain a search warrant for Ms. Hollingsworth’s home.136 The search of the home yielded a firearm and significant amounts of cash and crack cocaine in the master bedroom as well as on Mr. McCotry’s person.137 After her indictment on numerous drug charges, Ms. Hollingsworth sought to suppress the evidence garnered from the search.138 The district court granted Ms. Hollingsworth’s motion because it found that the police violated her substantive due process rights by questioning her daughter during school hours without her knowledge for the sole purpose of incriminating the mother, which amounted to an abuse of governmental power that “shocks the conscience.”139
134 Id. at 799. 135 Id. 136 Id. 137 Id. 138 Id. 139 Id. McCotry was charged with similar drug charges and also sought to suppress the evidence yield in the search. Id. Conceding that the police did not have probable cause to obtain the warrant, the district court, however, denied McCotry’s motion to suppress under the good faith exception to the exclusionary rule. Id. McCotry was convicted at trial of simple possession of crack cocaine and intent to distribute marijuana, and at sentencing the district court imposed 188-month sentence for the cocaine possession and a concurrent 120-month sentence for the marijuana conviction. Id. at 800. The court imposed these harsh sentences even though the jury did not determine the drug quantity, which is required by Apprendi v. New Jersey, 530 U.S. 466, 490 (2000). Id. The district court considered this Apprendi error harmless because the parties did not dispute the amount of drugs involved. Id. Along with the district court’s ruling on his motion to suppress and the admission of his suppression testimony at trial, McCotry appealed his sentence. Id. The Seventh Circuit panel considered his appeal along with Ms. Hollingsworth’s appeal and confirmed his conviction and sentence. Id. at 799–800, 803–806.
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The government appealed the district court’s ruling that granted Ms. Hollingsworth’s motion to suppress, and the Seventh Circuit reviewed the issue de novo.140 In reversing the district court’s ruling, the Seventh Circuit applied the Brokaw/Doe test141 that balances an individual’s right to familial relations against the government’s competing interests and held that Ms. Hollingsworth’s interest in “maintaining a relationship with her child free from state interference,” while significant, was outweighed by the government’s compelling interest in solving a drug crime as well as maintaining the safety of T.H..142 The court concluded that the government’s conduct in interviewing Ms. Hollingsworth’s daughter for a brief period of time without any coercive interrogation techniques was minimal and that this “de minimis intrusion” neither shocked the conscience143 nor lacked “reasonable justification in the service of a legitimate governmental objective.”144
B. Hollingsworth’s Application of the Balancing Test
In applying the Brokaw/Doe balancing test, Hollingsworth expanded its interpretation of governmental interests to include not only the protection of children from harm or abuse, but also the “solving drug crimes” involving the child’s parent.145 In addressing the nature and immediacy of the governmental concern at issue, the court maintained that the government had a compelling interest to speak with T.H. because Officer Denny had “some reason to believe that Hollingsworth was engaged in illegal activity.”146 Combined with T.H.’s behavioral issues at school and comments about being left home
140 Id. at 800. 141 See supra Section I.B.2.c. 142 Hollingsworth, 495 F.3d at 802. 143 Id. 144 Id. at 803 (citing County of Sacramento v. Lewis, 523 U.S. 833, 846 (1998). 145 Hollingsworth, 495 F.3d at 802–03. 146 Id. at 802.
163 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 alone, the court held that Ms. Hollingsworth’s reluctance to speak with school officials provided Officer Denny with reasonable suspicion that Hollingsworth was exposing her child to drugs.147 Despite the concern in T.H.’s safety in being left alone and exposed to illegal drugs, the court conceded that ultimately the government’s interest was in solving the underlying crime of narcotics distribution.148 Thus, in contrast to Brokaw,149 and Doe,150 which permitted governmental interference in familial relations in the context of potential child abuse,151 Hollingsworth expands the governmental justification to violate this constitutional right in circumstances where a child is present in a potentially criminal environment.152 The court’s expansion of governmental interest, however, must be seen in the context of the balancing test that it applies to Officer Denny’s intrusive activities. The officer ordered the social worker to conduct the short and non-coercive interview while T.H. was in public school.153 While this school interview of T.H. without her mother’s permission raises privacy issues similar to those expressed Doe, the court distinguishes this interview with Doe because the private school principal in Doe objected to the interview with the Department154
147 Id. 148 Id. at 802–03. 149 Brokaw v. Mercer County, 235 F.3d 1000 (7th Cir. 2000). 150 Doe v. Heck, 327 F.3d 492 (7th Cir. 2003). 151 See also Tenenbaum v. Williams, 193 F.3d 581, 601 (2d Cir. 1999) (holding that removing a child from school for several hours without permission of parents to examine her for possible sexual abuse did not violate the parents’ substantive due process rights because there was substantial evidence of abuse). 152 See United States. v. Penn, 647 F.2d 876, 885–87 (9th Cir. 1980) (In an investigation of drug distribution, and officer offered child money at the family home to tell him where his mother’s heroin was hidden. This evidence was held to be admissible, and the court rejected the defendant’s substantive due process argument because police may pay informants for information and young children may aid investigation. In contrast, Penn’s dissent argued that family relationship were highly valued and the law should not make parents and children apprehensive about exchanging information or encourage children to turn against their parents). 153 Hollingsworth, 495 F.3d at 798. 154 Id. at 802.
164 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 whereas T.H.’s principal was complicit in the interview of T.H..155 Parents delegate some parental responsibilities to school officials when they send their children to school; however, parents also should reasonably expect these same officials to speak to their children and report problems to law enforcement if there are serious concerns with the child’s home life.156 Thus, the inquiries made by Officer Denny and conducted by the social worker did not infringe upon any reasonable privacy interest of Ms. Hollingsworth.157 The court also questioned whether the twenty-minute interview conducted by the social worker constituted a substantial intrusion into the familial relationship.158 Reasoning that the interview was brief and lacked any coercive interrogation techniques, the court concluded that the government’s intrusion into Ms. Hollingsworth’s familial relationship with her daughter was minimal—so much so that it commented that it was doubtful that such a minimal intrusion could ever constitute a substantial intrusion.159
III. CONCLUSION
Applying the Brokaw/Doe balancing to the facts before it, Hollingsworth held that the government’s interest in solving the underlying drug crime and in T.H.’s safety outweighed Ms. Hollingsworth’s interest in preventing governmental intrusion into her familial relations with her daughter.160 This holding effectively expanded the court’s understanding of governmental interest from protecting children from actual or potential harm to solving drug crimes. Given that the courts’ original justification for permitting the intrusion into familial relations stemmed from the state’s interest in preventing child neglect and actual or imminent abuse, this expansive
155 Id. 156 Id. 157 Id. 158 Id. 159 Id. 160 Id.
165 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 definition into the realm of law enforcement outside of the direct effect on the child creates a potential for governmental overreach and abuse. The idea of public schools being used as quasi-interrogation rooms to further criminal investigations is chilling. The balancing test endorsed by the Seventh Circuit, however, mitigates such fears because it protects individuals’ right to be free from unwarranted governmental intrusion into the familial sphere by balancing this governmental interest with their expectation of privacy from unreasonable intrusions. Thus, while in Hollingsworth the nature of the privacy interest and the character of the intrusion was minimal,161 more intrusive governmental investigations will be prevented by the proper application of this balancing test. The adopted test is a practical tool that provides courts the ability to protect children from potential harm within the familial sphere while simultaneously protecting the familial sphere from unconstitutional intrusion into the preferences and proclivities of families. The Seventh Circuit’s test is also consistent with the Supreme Court’s historical reluctance to fully protect and recognize familial rights. From its initial recognition of this liberty interest, the Court has voiced its support of familial rights rhetorically, but its early holdings involving this right consistently focused on other constitutional claims.162 Even when familial rights were unambiguously endorsed in Troxel v. Granville, the Court was deeply divided over the scope of this liberty interest and the standard of review with which it would be afforded protection.163 The Supreme Court’s struggle to clarify its position cannot be considered merely accidental. Rather, the ambivalence that surrounds the jurisprudence regarding familial rights is indicative of the Court’s reluctance to permit the familial sphere to become sufficiently fortified such that it would prevent regular state intervention. While it considers
161 Id. at 802. 162 Meyer v. Nebraska, 262 U.S. 390, 399 (1923); Pierce v. Soc’y of Sisters, 268 U.S. 510, 534–535 (1925); Prince v. Massachusetts, 321 U.S. 158, 164 (1944). 163 530 U.S. 57, 66–68 (2000).
166 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 familial rights to be a fundamental right,164 this right is significantly limited because the corollary of it exercise is the potential risk to the health, safety, and broadly defined well-being of children. Thus, at the same time that the Court has recognized familial rights to be a fundamental liberty interest it has obfuscated the application of its protection for fear of proscribing state intervention into the lives of children. The Court’s ambivalence towards this due process right is thus intentional. Hollingsworth provides an ideal example of the Supreme Court’s ambiguous familial rights jurisprudence put into practice. The Seventh Circuit balancing test provides courts with the flexibility to protect familial rights in instances where the potential harm to the child is minimal and where the state oversteps its power to intrude into this sphere. In instances where this state intrusion is minimal, however, the threshold of harm to the child can be significantly lower. In Hollingsworth, the court was able to acknowledge that Mrs. Hollingsworth had a right to control the upbringing of her child, but it was also able to justify the state infringing on this right when there was a reasonable suspicion that the child was subject to the potential harm of being in the presence of illegal activity.165 Because the interrogation was short and the mother had a diminished expectation of non-intervention in her relationship with her daughter while she attended school, the court did not consider this expansive idea of harm excessive.166 In fact, this expansive conception of potential harm corresponds to the Supreme Court’s ambivalence towards familial rights and serves as a predictive measure of future familial rights claims where the general well-being of a child is a stake.
164 Prince, 321 U.S. at 165. 165 Hollingsworth, 495 F.3d at 802. 166 Id.
167 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007
THE POLITICS OF REVERSAL: THE SEVENTH CIRCUIT REINS IN A DISTRICT COURT JUDGE’S WAYWARD EMPLOYMENT DISCRIMINATION DECISIONS
* TIMOTHY WRIGHT
Cite as: Timothy Wright, The Politics of Reversal: The Seventh Circuit Reins in a District Court Judge’s Wayward Employment Discrimination Decisions, 3 SEVENTH CIRCUIT REV. 168 (2007), at http://www.kentlaw.edu/7cr/v3-1/wright.pdf.
INTRODUCTION
Many court observers perceive the Seventh Circuit to be hostile to civil rights claims, including employment discrimination claims.1 Some attribute this perceived bias to the law and economics bent of some of the Circuit’s more prominent jurists.2 However, in 2006, within a four month span, the Seventh Circuit published three opinions
* J.D. candidate, May 2008, Chicago-Kent College of Law, Illinois Institute of Technology; B.A., 2002, Wesleyan University 1 See Paul W. Mollica, Employment Discrimination Cases in the Seventh Circuit, 1 EMPL. RTS. & EMPL. POL’Y J. 63, 92, 96-99 (1997) (noting the perception of Seventh Circuit’s employer bias and highlighting the numerous instances of fiercely anti-plaintiff and anti-EEOC rhetoric in Seventh Circuit employment discrimination opinions compared to the paucity of similar attacks against employers and their attorneys); see also Chicago Council of Lawyers, Evaluation of the United States Court of Appeals for the Seventh Circuit, 43 DEPAUL L. REV. 673, 764-64, 771, 778, 780-81, 782, 785-86, 791-92, 822 (1994) (discussing several Seventh Circuit jurists’ pro-government and pro-employer records in civil rights and employment discrimination cases). 2 Jeffrey W. Stempel, Two Cheers for Specialization, 61 BROOKLYN L. REV. 67, 128 (1995); see also Chicago Council of Lawyers, Evaluation of the United States Court of Appeals for the Seventh Circuit, supra note 1, at 812.
168 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 that reversed the same district court judge, Judge Samuel Der- Yeghiayan, in favor of employment discrimination plaintiffs.3 The Seventh Circuit eventually published five opinions in 2006 that treated Judge Der-Yeghiayan’s summary judgment rulings in employment discrimination cases. In all five cases, the district court granted the employers’ motions for summary judgment.4 However, the Seventh Circuit affirmed the district court’s decisions in their entirety only twice.5 In light of the Seventh Circuit’s historic 22% reversal rate for plaintiffs in employment discrimination summary judgment appeals,6 the Court’s 60% reversal rate of Judge Der-Yeghiayan’s decisions is surprising. Without a doubt, five cases is a small sample set. Nonetheless, three employment discrimination opinions that reverse the same judge within a four month period are sufficient to provoke curiosity. Notably, in 2006, the Seventh Circuit never reversed any other district court judge’s summary judgment employment discrimination decisions more than once.7
3 Paz v. Wauconda Healthcare and Rehab. Ctr., LLC, 464 F.3d 659 (7th Cir. 2006); Thanongsinh v. Bd. of Educ., 462 F.3d 762 (7th Cir. 2006); and Valentine v. City of Chicago, 452 F.3d 670 (7th Cir. 2006). 4 Thanongsinh v. Sch. Dist. U-46, No. 05-3002, 2005 U.S. Dist. LEXIS 16457, at *1 (N.D. Ill. Jun. 13, 2005); Pruitt v. City of Chicago, No. 03 C 2877, 2005 U.S. Dist. LEXIS 44274, at *1 (N.D. Ill. Jun. 8, 2005); Paz v. Wauconda Healthcare and Rehab. Ctr., LLC, No. 04 C 3341, 2005 U.S. Dist. LEXIS 10554, at *1 (N.D. Ill. May 23, 2005); Crawford v. Ind. Harbor Belt R.R. Co., No. 04 C 2977, 2005 U.S. Dist. LEXIS 10553, at *1 (N.D. Ill. May 23, 2005); Valentine v. City of Chicago, No. 03 C 2918, 2005 U.S. Dist. LEXIS 430, at *1 (N.D. Ill. Jan. 11, 2005). 5 Pruitt v. City of Chicago, 472 F.3d 925 (7th Cir. 2006); Crawford v. Ind. Harbor Belt R.R. Co., 461 F.3d 844 (7th Cir. 2006). 6 Mollica, supra note 1, at 77. In an empirical study of the court’s employment discrimination decisions from 1992 to 1996, the author found that the Seventh Circuit’s reversal rate for plaintiffs in summary judgment cases was 21.77%. Id. Since the study’s completion, the court’s composition has changed very little, losing Judge Walter Cummings, and adding Judge Diane Sykes and Judge Ann Williams. 7 In 2006, the Seventh Circuit published 49 opinions dealing with appeals from summary judgment rulings in employment discrimination cases. During this period, the court reversed summary judgment decisions in favor of plaintiffs in 12 opinions. Thus, 25% of those 12 opinions reversed Judge Der-Yeghiayan’s rulings. The remaining 9 opinions each reversed decisions by different district court judges:
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Moreover, the Seventh Circuit’s reversals of summary judgment decisions are always intriguing to a degree, for as Judge Posner noted in the employment discrimination decision Shager v. Upjohn Co.,8 growing docket pressures on trial courts make the courts of appeals extremely reluctant to overrule grants of summary judgments by lower courts “merely because a rational factfinder could return a verdict for the nonmoving party, if such a verdict is highly unlikely as a practical matter.”9 So what explains the Seventh Circuit’s lack of reluctance in reversing Judge Der-Yeghiayan’s rulings during this brief period? Perhaps the Court is sending the recently-appointed district court judge a message? To this end, some will undoubtedly speculate that political forces motivate these three decisions. Indeed, at first blush, the cynical specter of political partisanship certainly appears to hover over these reversed decisions. This is because Judge Der-Yeghiayan was recently appointed to the Northern District Court of Illinois by
Goodwin v. Bd of Trs. Of the Univ. of Ill., 442 F.3d 611 (2006) (reversing Chief Judge McKinney); Maalik v. Int’l Union of Elevator Constructors, Local 2, 437 F.3d 650 (2006) (reversing Judge Kennelly); Phelan v. Cook County, 463 F.3d 773 (2006) (reversing Judge Marovich); EEOC v. Target Corp., 460 F.3d 946 (2006) (reversing Chief Judge Randa); Patton v. Keystone RV Co., 455 F.3d 812 (2006) (reversing Chief Judge Miller); Roe v. Oberweis Dairy, 456 F.3d 704 (2006) (reversing Judge Darrah); Smith v. Castaways Family Diner, 453 F.3d 971 (2006) (reversing Judge Sharp); Sylvester v. SOS Children’s Vills. Ill., Inc., 453 F.3d 900 (reversing Judge Guzman); Burnett v. LFW Inc., 472 F.3d 471 (2006) (reversing Judge Kocoras). This dataset was developed by culling all of the Seventh Circuit’s published opinions in Lexis’s Seventh Circuit database that decided cases under the chief federal anti-discrimination statutes creating private rights of action: Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000e-2000e-17 (2000); the Age Discrimination in Employment Act (ADEA), 29 U.S.C. §§ 621-634 (2000); the Equal Pay Act, 29 U.S.C. § 206(d) (2000); the Rehabilitation Act, 29 U.S.C. § 791, 794 (2000); the Americans with Disabilities Act (ADA), 42 U.S.C. §§ 12101-12213 (2000); sections 1981 and 1983 of Title 42, 42 U.S.C. §§ 1981, 1983 (2000) (including only those 1983 cases involving employment discrimination); and the Family and Medical Leave Act (FMLA), 29 U.S.C. §§ 2601-2654. 8 913 F.2d 398, 403 (7th Cir. 1990) (emphasis in original). 9 Id. at 403.
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President George W. Bush,10 a president whose disregard for employment discrimination rights is often noted by his critics.11 Therefore, perhaps these three decisions constitute a check on the current administration’s attempt to curtail employment discrimination rights’ statutes through judicial appointment. On a purely surface level, the possibility of a political subtext is reinforced by the fact that Judge Richard Posner and Judge Frank Easterbrook authored the only two 2006 opinions12 that affirmed the entirety of Judge Der-Yeghiayan’s summary judgment decisions in favor of employers. This fact supports such a possibility because many view Judges Posner and Easterbrook as sympathetic to the Executive Branch’s conservative policies and hostile to employment discrimination plaintiffs.13 On the one hand, a close reading of the Seventh Circuit’s three opinions14 that reverse the district court does indeed elicit a slight aroma of employer bias wafting from Judge Der-Yeghiayan’s decisions. One may suspect such a bias because these decisions uniformly adopt a disapproving and critical view of the district court’s reasoning and attention to detail,15 and because the district court’s
10 Bill Meyers, He has a reputation for being open, giving, CHICAGO DAILY LAW BULLETIN, Aug. 20, 2003 (discussing August 2003 appointment of Judge Der- Yeghiayan). 11 See, e.g., Alia Malek, Bush civil rights nominee under fire, SALON, Jul. 28, 2007, http://www.salon.com/news/feature/2007/07/28/eeoc/index.html?source=sear ch&aim=/news/feature (describing reaction of president’s critics to president’s efforts to install a new commissioner at the Equal Employment Opportunity Commission); See infra Part II. 12 Pruitt v. City of Chicago, 472 F.3d 925 (7th Cir. 2006); Crawford v. Ind. Harbor Belt R.R. Co., 461 F.3d 844 (7th Cir. 2006). 13 See, e.g., Stempel, supra note 2. See also RICHARD A. POSNER, NOT A SUICIDE PACT: THE CONSTITUTION IN A TIME OF NATIONAL EMERGENCY (2006) (defending executive branch measures such as warrantless surveillance against critics’ contentions that such measures are unconstitutional). 14 Paz v. Wauconda Healthcare and Rehab. Ctr., LLC, 464 F.3d 659 (7th Cir. 2006); Thanongsinh v. Bd. of Educ., 462 F.3d 762 (7th Cir. 2006); and Valentine v. City of Chicago, 452 F.3d 670 (7th Cir. 2006). 15 See infra Part I.D.
171 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 flaws always managed to benefit employers. In addition, the tenor of the Seventh Circuit’s three opinions generally reflects disbelief that the plaintiffs had been unable to withstand summary judgment.16 Thus, when viewed in the context of the President George W. Bush’s policy concerning employment discrimination rights and his strategy to appoint federal judges that will carry out his policy preferences on the bench,17 it is tempting to conclude that the Seventh Circuit’s reversals of the President’s recent appointee contain a political subtext. However, these three opinions cannot be read as a political rebuke of a partisan district judge. The conservative reputations of the opinion’s authors18 and the panelists19 that joined the opinions undermine such speculation. Nor can these opinions be read as an admonishment of the district judge for harboring an employer bias. The Court’s criticisms of the district court are simply not severe enough to suggest such judicial impropriety.20 Nonetheless, the Seventh Circuit’s three opinions do provide a fascinating prism through which one can recognize the imprint of the President’s policy preferences on a sampling of his appointee’s rulings. In addition, although these opinions do not likely represent a political check on the President’s attempt to shape policy through judicial appointment, these opinions do reflect the Seventh Circuit’s efforts to bring a new, slightly overzealous district judge more in line with some of the Seventh Circuit’s more salient institutional traits. Specifically, these three opinions reflect the Court’s warnings to district court judges to avoid using summary judgment motion as a means of docket control. In addition, these opinions comport with the Court’s general unwillingness to allow hyper-technical barriers to proof of an employer’s motive or intent to discriminate. This comment explores three Seventh Circuit opinions that reversed the decisions of the same district court to determine what, if
16 See infra Part I.D. 17 See infra Part II. 18 Judges Bauer, Ripple, and Flaum. See infra Part III. 19 Including Judges Posner and Kanne. See infra Part III. 20 See infra Part III.
172 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 anything, the Court is communicating to the district judge, and what the Court’s message says about the Seventh Circuit and certain tendencies in the Seventh Circuit’s employment discrimination jurisprudence. Part I introduces the three opinions that reverse the summary judgment rulings of District Court Judge Samuel Der- Yeghiayan. Part II explores the hypothesis that the Seventh Circuit’s criticisms of the district judge contain a political subtext. Part III rejects the argument that the Seventh Circuit intended its opinions to communicate a political message. Part IV argues that the criticisms in these opinions can be explained as an effort to “socialize” a newly- appointed district judge.
I. THE REVERSED DECISIONS
The three Seventh Circuit opinions21 that reversed the district court’s summary judgment rulings point towards a consistent pattern in Judge Der-Yeghiayan’s employment discrimination decisions. This pattern suggests that the district court judge tends to dispose of his employment discrimination cases too quickly, often through a misplaced, myopic reliance on technicalities and an inattention to critical facts contained in the record.
A. Thanongsinh v. Board of Education
In Thanongsinh v. Board of Education, 22 Thanongsinh, a school custodian, filed a Title VII23 claim against his employer, alleging, inter alia, that the school demoted him based on his race—Asian-American of Chinese and Laotian descent. Thanongsinh had been a custodian at the school for ten years, receiving uniformly effusive praise from his
21 Paz v. Wauconda Healthcare and Rehab. Ctr., LLC, 464 F.3d 659 (7th Cir. 2006); Thanongsinh v. Bd. of Educ., 462 F.3d 762 (7th Cir. 2006); and Valentine v. City of Chicago, 452 F.3d 670 (7th Cir. 2006). 22 462 F.3d. at 766, 769. 23 See Civil Rights Act of 1964, 42 U.S.C. §§ 2000e-2000e-17 (2000).
173 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 supervisors.24 In 2002, due to budgetary constraints, the school administered a two-part written and oral exam to phase out the highest-paid custodians.25 Thanongsinh failed the exam and was subsequently demoted.26 He alleged, inter alia, that his supervisor administered the oral portion of his exam in a racially discriminatory manner.27 Specifically, he contended that whereas his supervisor gave him an automatic zero on one portion of the oral exam for forgetting to bring relevant forms, the same supervisor allowed a Caucasian employee, who similarly forgot to bring the same forms, to take and pass that portion of the exam.28 In addition, Thanongsinh alleged that the school’s supervisor denigrated Thanongsinh’s English language abilities at a grievance hearing convened to review his demotion.29 Under Title VII a plaintiff can establish a prima facie case of employment discrimination in response to a motion for summary judgment in one of two ways: by producing direct or circumstantial evidence under the “direct method” of proof; or by utilizing the indirect, burden-shifting method set forth in McDonnell Douglas Corp. v. Green.30 Thanongsinh relied on the indirect method,31 which required him to demonstrate that he: (1) is a member of a protected class; (2) is qualified for the position sought; (3) was rejected for the position; and (4) was treated less favorably than similarly situated individuals outside of his protected class.32 In response, the school had to assert a legitimate, non-discriminatory reason for the demotion.33 Finally, Thanongsinh had to produce sufficient evidence from which a reasonable factfinder could conclude that the school’s asserted reason
24 Thanongsinh, 462 F.3d at 767. 25 Id. at 767. 26 Id. at 767-68. 27 Id. at 769. 28 Id. 29 Id. at 768. 30 411 U.S. 792 (1973). 31 Thanongsinh, 462 F.3d at 772. 32 See McDonnell Douglas, 411 U.S. at 802. 33 See id. at 802-03.
174 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 was pretextual.34 The parties only contested whether: Thanongsinh was qualified; he was treated less favorably than similarly situated individuals outside of his protected class; and the employer’s proffered non-discriminatory reason for the demotion was pretextual.35 The district court granted the school’s motion for summary judgment on all counts,36 disregarding a wealth of credible evidence that: Thanongsinh had been uniformly praised as an outstanding employee prior to the test; a Caucasian custodian who took the oral exam was treated preferentially; and the school’s asserted non- discriminatory reason for demotion—Thanongsinh’s poor performance on the exam—was pretext. First, the district court held that Thanongsinh was not a qualified employee because he failed the certification exam.37 Second, the district court held that Thanongsinh failed to identify similarly situated individuals who were treated more favorably because the evidence relied on by Thanongsinh to establish this fact would have been inadmissible at trial.38 Third, the district court held that even if Thanongsinh could establish a prima facie case, he could not discredit the school’s asserted non-discriminatory reason for his demotion—that Thanongsinh failed the certification exam.39 The Seventh Circuit disagreed with Judge Der-Yeghiayan’s reasoning and conclusions on every one of these issues. First, the Seventh Circuit held that Thanongsinh’s strong annual employment evaluations created a genuine issue of material fact as to whether he was a qualified employee, notwithstanding the results of his certification exam that was itself the focus of the discrimination lawsuit.40 His performance evaluations were indeed consistently
34 See id. at 804. 35 Thanongsinh, 462 F.3d at 772. 36 Id. at 769-71. 37 Id. at 770. 38 Id. 39 Id. 40 Id. at 773.
175 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 glowing in the years leading up to 2002. Among other things,41 they commended Thanongsinh for “the pride and ownership he shows” for the school, his job knowledge and quality of work, his “wide variety of skills,” and his attention to detail.42 The court explained that Judge Der-Yeghiayan erred in finding that Thanongsinh’s performance on the 2002 certification exam had objectively shown that Thanongsinh was not a qualified employee, for if “the integrity of the administered examination is at issue,” the school could not rely on it to attack Thanongsinh’s qualification.43 Second, the court rejected Judge Der-Yeghiayan’s conclusion that the evidence on which Thanongsinh relied to identify similarly situated custodians lacked proper foundation and was thus inadmissible.44 The evidence at issue was a Caucasian custodian’s score sheet that the school used to judge his oral certification exam.45 Like Thanongsinh, the Caucasian custodian had forgotten to bring the required materials to the exam, a fact indicated by handwriting in the margins of the score sheet.46 However, unlike Thanongsinh, who received a zero on that portion of the test, the Caucasian employee’s score sheet indicated that the examiner asked that employee questions concerning those materials and awarded him points on that portion of
41 Id. at 767 (noting Thanongsinh’s generally outstanding work evaluations and specific praise, such as: “[he is] fussy about things being done right;” “he can do many things in the way of repairs, and he does so;” and “[he] has a wide variety of skills related to maintenance and upkeep of the physical plant, equipment and supplies. These skills are evidenced by the work he has done in the areas of plumbing, electricity, and HVAC, without assistance of those in the trade.”” 42 Id. 43 Id. (citing Vakharia v. Swedish Covenant Hosp., 190 F.3d 799, 807 (7th Cir. 1999) (observing that, when the standards for assessing qualifications are themselves allegedly discriminatory, whether the plaintiff was meeting her employer’s “legitimate performance expectations . . . dovetails with the issue of pretext” and requires a court to assume, for the purpose of reaching the pretext inquiry, that the plaintiff had made out a prima facie case) (parenthetical in original)). 44 Id. at 774. 45 Id. at 775. 46 Id. (noting interviewer’s handwritten remarks “don’t have” next to relevant question and “No M.S.D.S.book” in narrative section).
176 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the exam.47 The district court found that the exam score sheet and supervisor’s marginalia were inadmissible hearsay because Thanongsinh failed to lay the proper foundation for their authenticity.48 However, the Seventh Circuit appeared to be somewhat perplexed that Judge Der-Yeghiayan barred this powerful circumstantial evidence of a similarly situated employee, and needed to expend little effort to find the document admissible under two common exceptions to hearsay doctrine.49 As to whether the proper foundation for the score sheet’s admission existed, the court noted that “a careful examination of the record reveals that defendants have conceded the admissibility of [the] score sheet.”50 Third, the court rejected the district court’s conclusion that Thanongsinh had failed to show that the school’s proffered reason for his demotion—that he failed the certification exam—was pretextual. To show pretext, Thanongsinh pointed to evidence that the school conducted the certification exam in a discriminatory manner and the supervisor who conducted the oral exam made untoward remarks that disparaged Thanongsinh’s English abilities.51 After noting that the “district court disregarded each piece of evidence cited by Mr. Thanongsinh on this matter as being based on ‘pure speculation’ or requiring unreasonable inference,”52 the court proceeded to articulate the reasonable inferences that could be drawn from such evidence. First, the court held that if Thanongsinh’s contention that the oral exam had been administered in a discriminatory fashion was correct,
47 Id. 48 Id. at 770, 775, 776 n.11. 49 Id. at 775-79. The Seventh Circuit ruled that Judge Der-Yeghiayan’s evidentiary ruling was an abuse of discretion because the document was “precisely the type” of document that is admissible under the business record exception to the hearsay rule. Id. at 776-77 (citing Fed. R. Evid. 803(6)) (emphasis added). The court buttressed this conclusion by noting that the document would have also been admissible against the school as an admission by one of its representatives. Id. at 779 (citing Fed. R. Evid. 801(d)(2)). 50 Id. at 778-79 (emphasis added). 51 Id. at 780-81. 52 Id. at 780.
177 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 then the school could not rely on the exam’s results as a legitimate reason for demoting him.53 The court concluded that the evidence suggesting that the school scored the Caucasian custodian in a preferential manner supported this contention,54 as did the supervisor’s alleged comments, telling Thanongsinh he “should learn better English.”55 These comments occurred at a grievance meeting convened to review Thanongsinh’s demotion, where the supervisor who administered the oral exam allegedly responded to Thanongsinh’s complaints about the test by saying that he could not understand Thanongsinh, and that Thanongsinh “should learn better English.”56 Whereas Judge Der-Yeghiayan believed it “unreasonable” to label such a comment “in the abstract as an insult,”57 the context of the statement led the Seventh Circuit to conclude that it “could be reasonably interpreted by a juror as probative evidence that [the supervisor] harbored animus against persons for whom English is a second language.”58 The court further remarked that interpreting an ambiguous statement and “determining the significance of these events is a task more appropriate for trial, not for summary judgment.”59
B. Paz v. Wauconda Healthcare
In Paz v. Wauconda Healthcare,60 a decision decided less than a week after Thanongsinh, Paz, a chef, sued her former employer, Wauconda, under Title VII. Paz alleged that her supervisor discriminated against her persistently on the basis of her national
53 Id. 54 Id. at 780-81. 55 Id. at 781-82. 56 Id. at 781. 57 Thanongsinh v. Sch. Dist. U-46, No. 03 C 8842, 2005 WL 1866092, at *8 (N.D. Ill. Jun. 13, 2005). 58 Thanongsinh, 462 F.3d at 782. 59 Id. (internal quotation marks omitted). 60 464 F.3d 659, 661 (7th Cir. 2006).
178 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 origin—Hispanic of Mexican descent—and pregnancy.61 Additionally, Paz claimed that her supervisor retaliated against her for complaining about discrimination.62 The Seventh Circuit’s recitation of the facts catalogued a wealth of alleged incidents that reflected poorly on her employer.63 For instance, on one occasion, the supervisor allegedly told Paz, “God, you people just come to [the] United States to cause so many problems and steal American people’s job[s].”64 A coworker reported this comment to an assistant administrator, who, in turn, discussed it with Paz, and told Paz to not tell anyone about the comment and keep it confidential.65 Paz also alleged that after she first told her supervisor that she was pregnant, the supervisor responded, “[y]ou’re not going to be allowed to work, to just start getting . . . . Do you know what, I think you should move to dietary aide instead of be a cook.”66 Afterwards, according to Paz, her supervisor frequently told her that she should have an abortion.67 Finally, after Paz complained about her supervisor’s conduct to an administrator, her supervisor issued a suspicious string of employee warnings against Paz68 and, ultimately, told her she was fired.69 The district court granted Wauconda’s motion for summary judgment on all counts and denied Paz’s motion for reconsideration.70 The Seventh Circuit reversed and remanded for trial, noting in disbelief, “we fail to see how the district court granted summary judgment for the defendant.”71 The court’s criticism of Judge Der-
61 Id. 62 Id. 63 Id. at 661-63. 64 Id. at 662 (alterations in original). 65 Id. 66 Id. at 662 (alteration in original). 67 Id. 68 Id. at 665-66 (noting that the warnings even referenced Paz’s complaint of discrimination). 69 Id. at 663-64. 70 Id. at 661. 71 Id. at 664, 667 (emphasis added).
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Yeghiayan’s analysis observed that the district court improperly relied on a piecemeal view of the alleged events to sidestep “significant factual disputes in the record.”72 In addition, the court found that the district court’s alternative basis for summary judgment misconstrued agency law and lacked common sense.73 Engaging in a lengthy review of the above-mentioned incidents, among others that likewise reflected unfavorably on Wauconda, the Seventh Circuit found the record “replete with credibility questions and competing versions of facts” that “should be sorted out by the trier of fact.”74 In light of the record’s glaring credibility questions and competing versions of fact, the court found it “worth mentioning that the district court and Wauconda were under the mistaken belief that Paz cannot proceed under the direct method [of proof] because some of [the supervisor’s] comments were made two months prior to [Paz’s] firing.”75 Under the direct method of proof, plaintiffs can rely on direct and circumstantial pieces of evidence to show an inference of intentional discrimination.76 These pieces of evidence do not have to be conclusive separately, but they must compose a convincing “mosaic” of discrimination when viewed together.77 The court explained that the lapse of time between an allegedly discriminatory remark and the termination was not a technical, dispositive bar to proceeding under the direct method of proof, but merely went to whether the evidence was convincing enough to suggest a “mosaic of discrimination.”78 In conclusion, the court admonished the district court’s myopic analysis, stating, “a district court cannot view the record in small pieces that are mutually exclusive of each other.”79
72 Id. at 666. 73 Id. 74 Id. at 665 (emphasis added). 75 Id. at 666. 76 Id. at 665. 77 Id. at 666 (citing Walker v. Bd. Of Regents of University of Wis., 410 F.3d 387, 394 (7th Cir. 2005)). 78 Id. 79 Id.
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The district court reasoned in the alternative that Paz effectively abandoned her job and could not claim discriminatory termination because Paz did not know her employer’s chain of command, and thus could not have known whether her supervisor’s statement, “You’re fired,” constituted an actual termination.80 The court quickly disposed of this argument, reasoning that under agency law, Paz’s supervisor likely had the requisite apparent or actual authority to fire her, insofar as the supervisor “had hired [Paz], evaluated her, assigned her work schedule, and oversaw her work duties.”81 The court also indirectly called the district court’s common sense into question, quipping that “we fail to see why, if an employee’s supervisor tells her, ‘You’re fired,’ the employee should run this statement up the ladder just to double-check her status.”82
C. Valentine v. City of Chicago
Donna Valentine was one of only a handful of female truck drivers working for the City of Chicago’s Department of Transportation (CDOT).83 Valentine alleged that her coworker, Tominello, began sexually harassing her immediately after she started working as a driver.84 For a period of six months, she allegedly dealt with remarks from Tominello, like “nice ass. It would look good on my face.”85 In addition, Valentine alleged that Tominello asked her to leave her fiancé on more than twenty occasions, telling her that he could show her a better time.86 Further, Valentine alleged that she had to reject approximately forty of Tominello’s requests to go out to dinner with him.87
80 Id. 81 Id. 82 Id. 83 Valentine v. City of Chicago, 452 F.3d 670, 680 (2006). 84 Id. at 675. 85 Id. 86 Id. 87 Id.
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Valentine contended that she complained to the Lot Supervisor, Mike DiTusa, about Tominello’s harassment approximately ten times during this time span.88 Valentine understood DiTusa to be her supervisor.89 This understanding was common sense: DiTusa held the title of Lot Supervisor, and he was responsible for making sure trucks were serviced, assigning trucks to drivers, keeping records when drivers signed in and out for work, addressing workplace disputes, and reporting problems to his superiors.90 However, DiTusa never reported Valentine’s complaints to his superiors, even after he witnessed the following incident.91 According to Valentine, Tominello’s harassment culminated in an episode in September, where Tominello took a powdered crescent- shaped cookie into the break room, feigned masturbation with it in front of Valentine, and shook the powdered sugar onto her lap.92 Valentine stated that in response, she yelled at Tominello.93 Later that afternoon, Valentine alleged that she “‘saw wet chewed cookie spit on the driver’s side window of her car.’”94 Her car was parked in a fenced-in area secured by security watchmen at all times.95 Valentine complained to DiTusa about the incident, explaining that she believed Tominello responsible.96 DiTusa allegedly told her there was nothing he could do about it, unless she could prove it.97 Upon returning to her car, Valentine said she “‘found a plastic penis under the windshield wiper.’”98
88 Id. at 674-75 89 Id. at 678, 679. 90 Id. at 674, 678. 91 Id. at 675-76. 92 Id. at 675. 93 Id. at 675-76. 94 Id. at 675. 95 Id. at 676-76. 96 Id. at 676. 97 Id. 98 Id.
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Later that same day, Valentine bypassed DiTusa and reported the incident higher up the chain of command.99 According to Valentine, as a result of this, she endured the wrath of her male co-workers; they would not speak to her and left her intimidating voice mails.100 She alleged that she had to speak with city counselors because of the fear and anxiety caused by the incident.101 Subsequently, Valentine was transferred and filed suit against the City of Chicago, Ditusa, and others, alleging, inter alia, sexual harassment and hostile work environment claims under Title VII.102 To establish a prima facie case of hostile environment sexual harassment under Title VII, Valentine had to show that: (1) she was subjected to unwelcome sexual harassment in the form of sexual advances, requests for sexual favors or other verbal or physical conduct of a sexual nature; (2) the harassment was based on sex; (3) the sexual harassment had the effect of unreasonably interfering with the plaintiff’s work performance in creating an intimidating, hostile or offensive working environment that affected seriously the psychological well-being of the plaintiff; and (4) there is a basis for employer liability.103 The district court granted the defendants’ motion for summary judgment in full, finding that Valentine could not prove the fourth element of her claim—that there was a basis for employer liability.104 The Seventh Circuit rejected the district court’s conclusion105 and exposed a serious deficiency in the district court’s attention to the details of the record. According to the district court, Valentine did not put the City on notice of Tominello’s alleged harassment by complaining to DiTusa
99 Id. 100 Id. 101 Id. 102 Id. 103 Parkins v. Civil Constructors of Ill., Inc., 163 F.3d 1027, 1032 (7th Cir. 1998). 104 Valentine, 452 F.3d at 677-79, 681 105 Id. at 678-80.
183 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 because DiTusa lacked the authority to transfer employees and thus, could not have been Valentine’s supervisor for purposes of Title VII liability.106 The essence of supervisory status for purposes of Title VII liability depends on the power to hire, fire, demote, promote, transfer, or discipline an employee.107 Valentine argued that DiTusa had the authority to transfer employees,108 but the district court rejected this contention as hearsay, explaining that Valentine “‘admitted during her deposition that she has no basis other than her own personal belief that DiTusa in fact transferred other employees to other yards.’”109 However, the Seventh Circuit rebuffed this conclusion as “erroneous,” stating that Valentine’s argument was “[c]learly” not hearsay, for the defendants had admitted in their statement of uncontested facts that DiTusa had the power to transfer individuals between various yards within CDOT.110 In addition, the district court concluded that no reasonable trier of fact could find that Valentine thought DiTusa was the proper person to complain to about sexual harassment.111 To reach this conclusion, the district court relied on the fact that three years prior to the alleged harassment, Valentine attended a workplace training session, at which she received “‘the telephone number and the address of the City’s Sexual Harassment Office.’”112 The district court thus reasoned that this training session was sufficient to put Valentine on notice that she should bring sexual harassment complaints through the City’s Sexual Harassment Office only, and not her supervisor.113 However, the Seventh Circuit disagreed, noting that the City’s sexual harassment policy instructed employees to bring complaints to either the Sexual
106 Id. at 677-79. 107 Id. at 678 (emphasis in original). 108 Id. 109 Id. 110 Id. (emphasis added). 111 Id. at 679. 112 Id. 113 Id.
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Harassment Office or a supervisor.114 In light of the fact that DiTusa supervised Valentine and her colleagues on a daily basis, the Seventh Circuit held that this was sufficient to create material question of fact as to whether Valentine believed DiTusa to be an appropriate person with whom she could lodge a sexual harassment complaint.115 Finally, the Seventh Circuit noted that because the district court rested its decision on DiTusa’s supervisory status, the district court failed to consider the remaining dispositive issues: whether Valentine’s complaints were sufficient to notify DiTusa that she was being sexually harassed, and whether Tominello’s actions were sufficiently severe to constitute a hostile work environment.116 Nonetheless, the Seventh Circuit analyzed these issues to determine whether there was an alternate ground for affirmance, and easily concluded that material issues of fact existed on both questions.117
D. Common Themes
The Seventh Circuit’s criticism of the district court in these three opinions reveals a recurring pattern in Judge Der-Yeghiayan’s employment discrimination rulings, namely that the district court judge is too quick to substitute summary judgment for trial. In each case, the Court commented on Judge Der-Yeghiayan’s misplaced reliance on discrete technical issues that allowed him to sidestep blatant factual and credibility disputes at issue. In addition, these opinions underscore Judge Der-Yeghiayan’s hastiness, as reflected by his tendency to overlook critical factual details in the record. In all the opinions discussed above, the Seventh Circuit commented on the district court’s misplaced reliance on technical barriers to proof of an employee’s intentional discrimination. For instance, in Thanongsinh, the court found that the district court abused its discretion by improperly excluding evidence of similarly situated
114 Id. at 679-80. 115 Id. 116 Id. at 681. 117 Id. at 680-82.
185 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 non-minority employees as inadmissible hearsay.118 Likewise, in Valentine, the court rejected the district court’s conclusion that the plaintiff’s only evidence establishing employer liability was inadmissible hearsay.119 Finally, in Paz, the court criticized the district court’s assumption that a two month time lapse between allegedly discriminatory remarks and the plaintiff’s termination constituted a technical barrier to the plaintiff’s ability to proceed under the direct method of proof.120 Additionally, the court rejected the district court’s effort in Paz to sidestep glaring credibility and factual disputes through a faulty application of agency law.121 Additionally, these three opinions highlight the district judge’s hastiness, which caused him to overlook critical facts in the record in favor of the employer-defendants. For instance, in Valentine, the Seventh Circuit found that two of the district court’s major conclusions were contradicted by the record.122 In Thanongsinh, the Seventh Circuit likewise found that the district court’s evidentiary ruling was contradicted by facts in the record.123 The Seventh Circuit thus rebutted several of the district court’s dispositive conclusions by merely pointing to facts in the record that the district court had overlooked. Additionally, in Valentine, the court noted that the district judge had cut its analysis short after ruling for the employer on the basis of one issue, and thus had failed to discuss the remaining dispositive issues even briefly.124
118 Thanongsinh v. Bd. of Educ., 462 F.3d 762, 775-79 (7th Cir. 2006). See supra Part I.A. and note 48. 119 Valentine, 452 F.3d at 678-79. See supra Part I.C. 120 Paz v. Wauconda Healthcare and Rehab. Ctr., LLC, 464 F.3d 659, 666 (7th Cir. 2006). See supra Part I.B. 121 464 F.3d at 666; see supra Part I.B. 122 452 F.3d at 678-79; see supra Part I.C. 123 462 F.3d at 779; see supra Part I.A. 124 452 F.3d at 681; see supra Part I.C.
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It is not likely that the Seventh Circuit would have reviewed the record in such great detail125 to rebut the district court’s conclusions on these issues if the Seventh Circuit had determined that the plaintiffs in these cases lacked a fighting chance on other dispositive issues. Accordingly, the tone of the court’s recitation of the facts in these decisions makes it clear that the court believed that each case presented blatant questions of credibility and disputed facts that should have been sorted out at trial—not summary judgment. To achieve this tone, the Seventh Circuit underscored details that were exceptionally jarring. For instance, in Thanongsinh, the court took great care to establish the plaintiff’s exceptional qualities as a custodian,126 which effectively made the school’s allegedly preferential treatment of a Caucasian custodian127 and the plaintiff’s subsequent demotion appear all the more unjust. In Paz, the court focused on the supervisor’s shocking comments to the plaintiff, such as the supervisor’s daily admonishment to the plaintiff to get an abortion, and the supervisor’s derogatory remarks concerning Mexicans.128 In Valentine, the court called attention to the plight of women working in a traditionally male workplace,129 and the court’s recitation of the facts lingered on plaintiff’s account of her male coworker’s obscene and revolting behavior towards her.130 This account made her supervisor’s subsequent failure to respond to the plaintiff’s sexual harassment complaints appear all the more unfair.131 The aggregate rhetorical effect of the court’s presentation of the facts begs the question, how could the district court have overlooked some of these issues and ruled in favor of the employer on technicalities like hearsay? The court’s
125 See, e.g., Thanongsinh, 462 F.3d at 778 (noting “a careful examination of the record reveals that the defendants have conceded the admissibility of [the piece of evidence at issue].”) 126 Id. at 767; see supra Part I.A. and note 41. 127 Thanongsinh, 462 F.3d at 774-75; see supra Part I.A. 128 464 F.3d at 662. See supra Part I.B. 129 452 F.3d at 680. 130 Id. at 675. See supra Part I.C. 131 Valentine, 452 F.3d at 676. See supra Part I.C.
187 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 tone thus colors its view of the district court’s efforts to dispose of the cases. Whereas a misplaced reliance on technical rulings and overlooked facts in cases with borderline frivolous allegations would hardly be worth examining, the tone that the Seventh Circuit adopts in narrating the facts of the case makes the district court’s mistakes appear more egregious.
II. IS THIS A SEVENTH CIRCUIT POLITICAL CHECK ON AN ULTRA- CONSERVATIVE APPOINTEE?
Given the unusually high reversal rate of Judge Der-Yeghiayan’s employment discrimination decisions over such a short period of time, court observers might speculate as to whether the Seventh Circuit’s recurring criticisms of the district court in these cases actually convey a broader, political message. Specifically, given that Judge Der- Yeghiayan was recently appointed to the bench by President George W. Bush, 132 and that the President has never been reticent to appoint judges who are compatible with his highly conservative ideology,133 it is possible to hypothesize that these three decisions speak more broadly to the president’s policy preferences as reflected through his judicial appointees. However, given the politically conservative nature of the panels that decided these cases, and the judges who authored the decisions, it is highly unlikely that these decisions constitute any sort of political reproach.134 Nonetheless, these decisions do provide a forum to ponder the possibility of a connection between the President’s policy values and the decision-making patterns of one of his district court appointees. Promoting the enforcement of a particular political agenda through ideologically driven appointments to the federal judiciary is certainly nothing new. Franklin Delano Roosevelt famously appointed liberal judges that would grant the federal government more power to
132 Meyers, supra note 10. 133 See David E. Sanger, In Reading Bush On Court, Words Don’t Always Help, N.Y. TIMES, Jul. 5, 2005, at A15. 134 See infra Part III.
188 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 regulate the economy and not frustrate the president’s New Deal projects.135 Decades later, Reagan screened judicial candidates using an ideological “litmus tests” to choose jurists who were strict constructionists, tough on crime, anti-abortion, and pro-family.136 Reagan did not hide his methods. As his White House communications director, Patrick J. Buchanan, put it, “[Our conservative appointment strategy] . . . could do more to advance the social agenda—school prayer, anti-pornography, anti-busing, right-to-life and quotas in employment—than anything Congress can accomplish in 20 years.”137 As for President George W. Bush’s appointments, one study found that they are the most conservative of any group of judicial appointees since before Franklin D. Roosevelt’s presidency.138 The study concludes that when making appointments to federal court, “Bush puts ideology first.”139 As for President Bush’s policy concerning employment discrimination, he has been assailed by critics for undermining the enforcement of traditional civil rights laws through the appointment of partisan political managers, line attorneys and other professional staff to the Civil Rights Division and the United States Equal Employment Opportunity Commission.140 Recently, prominent Democrats in the Senate attacked the Bush administration for nominating David Palmer to take over the EEOC.141 Supervisors, colleagues and subordinates that worked alongside Palmer when he was the head of the Department of Justice’s Civil Rights Division—the agency that enforces employment discrimination claims in state and local government workplaces—claimed that he significantly underenforced
135 Deborah Sontag, The Power of the Fourth, N.Y. TIMES, Mar. 9, 2003, § 6 (Magazine), at 40. 136 Id. 137 ROBERT A. CARP & RONALD STIDHAM, JUDICIAL PROCESS IN AMERICA 230-31 (2007). 138 Sanger, supra note 133. 139 Id. 140 See, e.g., Malek, supra note 11; Neil A. Lewis, Justice Department Reshapes its Civil Rights Mission, N.Y. TIMES, Jun. 14, 2007, at A1. 141 Malek, supra note 11.
189 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 discrimination laws during his tenure and did not “understand the basic principles of Title VII and constitutional law.”142 Disturbingly, there is at least one internal complaint of employment discrimination that has been filed against Palmer during his tenure as section chief.143 President Bush, like his conservative forebears, Ronald Reagan and George H.W. Bush,144 appears to have appointed Supreme Court Justices who are philosophically adverse to employment discrimination rights. In the 1988 term, Reagan’s and Bush I’s conservative appointees to the Supreme Court played a large role in deciding six major employment discrimination cases,145 and commentators subsequently argued that these decisions undercut the enforcement of employees’ civil rights.146 Indeed, in the wake of these decisions, the Democrat-controlled Congress passed the Civil Rights Act of 1991147 to supersede these cases and expand the scope of employees’ civil rights. More recently, Supreme Court observers have noted148 how President George W. Bush’s recent appointments to the Supreme Court impacted the outcome in Ledbetter v. Goodyear Tire & Rubber Co.,149 a decision that commentators contend reflects a highly
142 Id. 143 Id. 144 See, e.g., Christopher E. Smith and Thomas R. Hensley, Unfulfilled Aspirations: The Court-Packing Efforts of President Reagan and Bush, 57 ALB. L. REV. 1111, 1122-24 ( 1994). 145 Public Employees Retirement Sys. of Oh. v. Betts, 492 U.S. 158 (1989); Independent Fed. of Flight Attendants v. Zipes, 491 U.S. 754 (1989); Patterson v. McLean Credit Union, 491 U.S. 164 (1989); Lorance v. AT & T Technologies, Inc., 490 U.S. 900 (1989); Wards Cove Packing Co. v. Atonio, 490 U.S. 642 (1989); Price Waterhouse v. Hopkins, 490 U.S. 228 (1989). 146 See, e.g., Smith, supra note 144. 147 Pub. L. No. 102-166, § 112, 105 Stat. 1071, 1078-79 (codified at 42 U.S.C. § 2000e-5(e)(2000)). See Mollica, supra note 1, at 64. 148 See, e.g., Linda Greenhouse, Justices’ Ruling Limits Lawsuits on Pay Disparity, N.Y. TIMES, May 30, 2007, at A1 (noting, “this decision showed the impact of Justice Alito's presence on the court. Justice Sandra Day O'Connor, whom he succeeded, would almost certainly have voted the other way, bringing the opposite outcome.”). 149 127 S. Ct. 2162 (2007).
190 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 formalist judicial philosophy that “focuse[s] solely on the consequences of the case for employers, rather than for the victims of discrimination.”150 The ideological nature of President Bush’s appointments to the United States Court of Appeals has occasionally been brought to the foreground by Democrat filibusters in the Senate.151 For instance, Democrats in the Senate protested vociferously against the appointment of Judge Charles Pickering to the Fifth Circuit and stalled his confirmation for some time, largely due to his civil rights record.152 Appointments to the lower judiciary are less newsworthy and rarely the source of controversy.153 However, that is not to say that a district court’s decisions cannot reflect policy preferences. A district courts’ discretion is hardly corralled by the courts of appeals and the United States Supreme Court—even in summary judgment rulings. For, as Judge Posner noted, courts of appeals are reluctant to overrule grants of summary judgments by lower courts “merely because a rational factfinder could return a verdict for the nonmoving party, if such a verdict is highly unlikely as a practical matter.”154 This admission that district court judges decide cases without trial even where a rational factfinder could find for the plaintiff underscores the influential role that a district court’s policy preferences can play at the summary judgment stage. Thus, examining the three Seventh Circuit opinions at issue in this comment provides an opportunity to explore a subject matter that is oft overlooked by law reviews and journals,
150 See, e.g., Martha C. Nussbaum, The Supreme Court, 2006 Term— Foreword: Constitutions and Capabilities: “Perception” Against Lofty Formalism 121 HARV. L. REV. 4, 79-82 (2007). 151 See Sheryl Gay Stolberg, Democrats Issue Threat to Block Court Nominees, N.Y. TIMES, Mar. 27, 2004, at A1. 152 Adam Liptak, A Judge Appointed by Bush After Impasse in Senate Retires, N.Y. TIMES, Dec. 10, 2004, at A22. The judge’s critics cited an article he wrote on anti-miscegenation laws as a young man and a 1994 trial he presided over in which he took steps to reduce the sentence of a man convicted in a cross-burning. Id. 153 See CARP, supra note 137, at 216. 154 Shager v. Upjohn Co., 913 F.2d 398, 403 (7th Cir. 1990) (emphasis in original).
191 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 namely the link between a president’s policy preferences and a sampling of one of his appointee’s summary judgment rulings. Due to the relatively low profile of district court nominations, they are less likely to command the personal involvement of the president, and are typically left to the judgment of the White House Staff or the Justice Department.155 Those who do send forth the names of candidates typically consider potential nominees’ political affiliations and record of political activity.156 Before his nomination on March 5, 2003, Judge Der-Yeghiayan was active in the public sector for over 20 years, working as an attorney and then District Counsel for the Immigration and Naturalization Service (INS).157 In 2000, he was appointed to be an immigration review judge under the Clinton administration.158 He received numerous distinctions during his time with the INS.159 In addition, his nomination was not likely hindered by the fact that he was a close college friend of Wes Ashcroft, who is the brother of former Attorney General John Ashcroft.160 In the case of district court appointments, hearings in front of the Senate Judiciary Committee are largely perfunctory because the norm of senatorial courtesy has essentially already determined whether the particular candidate will survive the hearing and be confirmed by the Senate.161 Senatorial Courtesy is the unwritten rule that home-state senators of the president’s political party have veto power over the president’s district judge nominations.162 Notably, during Judge Der- Yeghiayan’s hearing in front of the Senate Judiciary Committee, Senators Fitzgerald and Durbin of Illinois both spoke in bipartisan
155 CARP , supra note 137, at 216, 218 (“regardless of who comes up with a basic list of names, the Justice Department’s primary duty is to evaluate the candidates’ personal, professional, and political qualifications.”). 156 Id. at 211-12 (noting that at least 90 percent of all federal judicial nominees are of the same political party as the appointing president). 157 Meyers, supra note 10. 158 Id. 159 Id. 160 Id. 161 CARP, supra note 137, at 224. 162 Id.
192 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 support of the judge’s nomination.163 Senator Fitzgerald commented on his public service and the fact that he would be the first immigrant of Armenian descent ever nominated and confirmed for the Federal Judiciary.164 Senator Durbin likewise commented on the judge’s immigrant background, as well as the trust that he had earned from both Federal law enforcement and immigrant communities.165 These comments concerning the judge’s background dovetail with general observations about President Bush’s appointees as a group, which note that the President places a high priority on the diverse background of his appointments, second in importance only to the nominees’ conservative ideology.166 The politics surrounding judicial appointments can make judges hyperconscious of their political sponsors. Fourth Circuit Court of Appeals Judge Michael Luttig, who was recently on the short list of President Bush’s picks of nominees for the Supreme Court, recognized this pressure, explaining, “Judges are told, ‘You’re appointed by us to do these things.’ So then judges start thinking, Well, how do I interpret the law to get the result that the people who pushed for me to be here want me to get? I believe there’s a natural temptation to line up as political partisans that is reinforced by the political process.”167 According to one empirical study, this kind of political pressure also applies to district court judges who seek elevation to the U.S. Courts of Appeals.168 This study concluded that the likelihood of a U.S. District Court Judge being elevated to the Court of Appeals is
163 Confirmation Hearings on Federal Appointments Before the S. Comm. on the Judiciary, 108th Cong. 108-135 (2003) (statements of Senators Peter Fitzgerald and Dick Durbin of Illinois). 164 Id. 165 Id. 166 Sanger, supra note 133. 167 Sontag, supra note 135. 168 See Elisha Carol Savchak, Thomas G. Hansford, Donald R. Songer, Kenneth L. Manning, & Robert A. Carp, Taking It to the Next Level: The Elevation of District Court Judges to the U.S. Courts of Appeals, 50 AM. J. OF POL. SCI. 478, 485 (2006).
193 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 more likely if the judge’s published opinions evince an ideological compatibility with the nominating president.169 Yet another empirical study found a direct correlation between district court jurists’ decisions and the policies and values of the president who appointed them.170 In this study, presidents who chose jurists based on a partisan, ideological basis were more likely to obtain district court jurists whose supported their policy views.171 For instance, judges appointed by a liberal president on a partisan, ideological basis were more likely to take a broadening position on civil rights than conservative jurists.172 Similarly such liberal judges were more likely to rule for labor interests, whereas as conservative judge would tend to side with business interests.173 The percentage of “liberal” decisions rendered by Jimmy Carter’s appointees was 54 percent, whereas the percentage of “liberal” decisions published by Gerald Ford’s and Ronald Reagan’s appointees were 45 percent and 36 percent respectively.174 President George W. Bush has often expressed his intention to appoint Supreme Court justices in the same ideological mold as those appointed by Nixon and Reagan.175 Thus, it is reasonable to suppose that this intention applies equally to his appointees to the federal district courts, especially seeing as how the President used partisan, ideological criteria even when hiring traditionally non-political U.S.
169 Id. (noting that “[t]he extent to which the judge’s published decisions are congruent with the president’s preferences . . . also exerts a positive and significant effect on the judge’s chances for being elevated to an appeals court vacancy. Judges deciding cases in a conservative manner, for example, are more likely to be elevated when a Republican president is in office. The decisions published by a district court judge act as a signal to the president regarding the relevant preferences of the judge and thus their likely future behavior on an appeals court.”). 170 See CARP, supra note 137, at 238-39. 171 Id. at 229-30. 172 Id. at 234 173 Id. 174 Id. at 236. 175 See Jeffrey Rosen, Can Bush Deliver a Conservative Supreme Court?, N.Y. TIMES, Nov. 14, 2004, § 4 (Week In Review Desk), at 1.
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Attorneys176 and career staff in the Department of Justice.177 Notably, beginning in 2003 under Attorney General John Ashcroft, the DOJ took strong conservative credentials into account when hiring traditionally non-political career professionals for the Department of Justice’s civil rights division.178 Successful applicants’ resumes reflect that these strong conservative credentials included membership in the Republican National Lawyers Association and the Federalist Society, and limited civil rights experience.179 If these were the credentials that Attorney General Ashcroft’s Justice Department looked for in hiring traditionally non-political career attorneys, then it is reasonable to suspect that Ashcroft looked for similar ideological qualifications when screening judicial nominees. It is likewise a reasonable assumption that Ashcroft was familiar with Judge Der-Yeghiayan’s policy and political preferences prior to the nomination process because the Judge was a close, personal friend of the Attorney General’s brother.180 This leads us to the question: do the Seventh Circuit’s three opinions that reversed Judge Der-Yeghiayan’s summary judgment rulings reflect any correlation between President Bush’s policy preferences and the district judge’s decision-making tendencies in employment discrimination cases? Looking at the patterns indicated by the Seventh Circuit’s criticism of Judge Der-Yeghiayan’s analysis, it is not difficult to
176 See David Johnston & Eric Lipton, E-Mail Identified G.O.P. Candidates for Justice Jobs, N.Y. TIMES , Apr. 14, 2007, at A1. 177 Alia Malek, Bush’s long history of politicizing justice, SALON, Mar. 30, 2007, http://www.salon.com/news/feature/2007/03/30/civil_rights/index.html. 178 Charlie Savage, Justice Dept. probes its hirings: Investigating for bias toward conservatives, THE BOSTON GLOBE, May 31, 2007, at A1; David Johnston & Eric Lipton, Ex-Justice Aide Admits Politics Affected Hiring, N.Y. TIMES, May 24, 2007, at A1 (quoting top Justice Department aide, Monica Goodling, testifying to Congress that she had “gone too far in asking political questions of applicants for career positions and I may have taken inappropriate political considerations into account.”). 179 Savage, supra note 178. 180 See Meyers, supra note 10.
195 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 discern traces of President Bush’s policy imprint on the district court’s rulings. To begin with, although the Seventh Circuit repeatedly noted how Judge Der-Yeghiayan misconstrued the Federal Rules of Evidence,181 misapplied agency law,182 and misunderstood the law concerning the direct method of proving intentional discrimination,183 all of the judge’s mistakes favored the defendant-employer and precluded the plaintiff-employee’s discrimination claims. Likewise, although the Seventh Circuit consistently found that Judge Der- Yeghiayan had overlooked critical facts in the record,184 the judge’s inattention to detail always favored the employers. A judge’s mistakes should, in theory, benefit both sides if they result from random misapplications of law or careless inattention to the factual record. However, these three decisions are an extremely small sample size. As a result, it is far too easy to read conclusions into these opinions based on what is already known about the Judge’s backgrounds. Looking beyond the three decisions discussed by this comment, Judge Der-Yeghiayan has ruled on summary judgment motions in 49 employment discrimination cases, and plaintiffs in those cases have withstood summary judgment only 6 times.185 And in those 6 cases where the plaintiffs survived summary judgment, only 2 escaped entirely unscathed;186 the district court granted partial summary judgment for the employer in the remaining 4 cases.187
181 See supra Part I.D. 182 Id. at 19. 183 Id.. 184 See supra Part I.D. 185 This dataset was developed by culling all Judge Der-Yeghiayan’s employment discrimination summary judgment decisions through November 2007 from Lexis’s database, using the same criteria discussed supra note 7. 186 Farina v. Ciccone Food Prods., No. 04 C 2383, 2005 U.S. Dist. LEXIS 9962 (N.D. Ill. May 12, 2005); Loera v. AMTRAK, No. 02 C 736, 2004 U.S. Dist. LEXIS 16979 (N.D. Ill. Aug. 24, 2004). 187 Carlson v. Ill. Cmty. College Dist. 525, No. 05 C 5975, 2006 U.S. Dist. LEXIS 73653 (N.D. Ill. Sept. 27, 2006); Grew v. Kmart Corp. of Ill., Inc., No. 05 C 2022, 2006 U.S. Dist. LEXIS 6994 (N.D. Ill. Feb. 26, 2006); Santos v. Boeing Co.,
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While these numbers might discourage employment discrimination plaintiffs who find themselves before Judge Der-Yeghiayan, conclusions about the district court’s policy preferences based on these statistics alone would be premature without a statistical comparison to other district judges. A conclusion that Judge Der-Yeghiayan harbors an employer bias is also contradicted by lawyers’ evaluations of the judge, which mostly report that the judge is not biased in any way. 188 Thus, there is no firm statistical or anecdotal basis suggesting that the Seventh Circuit’s three opinions discussed in this comment are indicative of a broader correlation between President Bush’s employment discrimination policy preferences and his recent appointee’s summary judgment rulings. Nonetheless, there is certainly nothing in these opinions that provides reassurance for those who suspect otherwise.
III. NO (THE ABSENCE OF A POLITICIZED EXPLANATION).
Whatever one might be able to read into the Seventh Circuit’s criticism of Judge Der-Yeghiayan’s employment discrimination decisions, it is highly unlikely that the Court intended its three opinions to contain any political subtext. The politically conservative reputations of the panelists who voted on the opinion and the opinions’ authors undercuts assertions to the contrary. Additionally, the tone of the Seventh Circuit’s criticisms of the district court is uniformly
No. 02 C 9310, 2004 U.S. Dist. LEXIS 17666 (N.D. Ill. Sept. 1, 2004); Chears v. Potter, No. 03 C 115, 2004 U.S. Dist. LEXIS 17238 (N.D. Ill. Aug. 25, 2004). 188 See The Chicago Council of Lawyers, An Evaluation of the United States District Court Judges in Chicago (2006), http://www.chicagocouncil.org (“Lawyers do not report that Judge Der-Yeghiayan is biased in any way or susceptible to any outside influences.”). But see Aspen Law & Bus., 1 Almanac of the Federal Judiciary, 7th Cir. Section at 9-10 (2007-2 Supp.) (concluding that “[Judge Der- Yeghiayan] is fair-to-defense oriented in civil matters, according to lawyers who represent both plaintiffs and defendants,” and including the following evaluations by lawyers: “He is a total pawn for the government, big business, and any large entity” . . . “He leans totally to big business and the government. The little guy and the underdog do not stand a chance” . . . “It is sickening how pro-government he is. It is easier to give it all to the prosecution”).
197 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 tempered and moderate, which undermines speculation that the Court sought to accuse Judge Der-Yeghiayan of harboring any unseemly political bias in favor of employers. However, the shared themes of the criticism in the Seventh Circuit’s opinions do correlate with some of the more salient traits of the Seventh Circuit’s employment discrimination jurisprudence. Namely, the Court has previously made it clear that district courts must not use summary judgment as a means for docket clearing. Also, the Court has repeatedly expressed an aversion to bright line rules and technical barriers that preclude courts from going further to reach the merits of the case. Therefore, the Court’s common, frequent criticisms of the district court in these three opinions can be explained as a kind of socialization process, which seeks to implant the Circuit’s own values and tendencies in a recently appointed district judge. An examination of the political makeup of the Seventh Circuit jurists who reversed Judge Der-Yeghiayan makes it highly unlikely that these opinions implicitly signal any sort of broad check on a politically partisan appointee. First, all of the Seventh Circuit jurists who authored Thanongsinh, Paz, and Valentine were appointed by Republican presidents: President Reagan appointed Judges Ripple and Flaum, the authors of Thanongsinh and Valentine; and President Ford appointed Judge Bauer, the author of Paz.189 Working under the assumption that Republican Presidents Reagan and Ford appointed judges who were politically sympathetic with their own conservative policies and values,190 it would be incongruous for these judges to express any broad criticism of the current Republican President’s policies through attacks on one of his recent district judge appointments. Second, judicial evaluations have consistently described these judges’ reputations as moderate to conservative. Both Judges Ripple and Bauer are described as being open-minded and impartial, but
189 Aspen Law & Bus., 2 Almanac of the Federal Judiciary, 7th Cir. Section at 10, 24, 34 (2008-1 Supp.). 190 See supra Part II.
198 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 moderately conservative.191 Whereas one evaluation describes Judge Flaum as having no leaning in civil or criminal matters,192 another suggests that his conservative policy preferences have, at times, colored his opinions, including labor disputes.193 Notably, a major employment discrimination case authored by Judge Flaum’s disappointed employment discrimination plaintiffs; this decision was affirmed by Supreme Court of the Reagan-Bush Era, and then superseded by the Democrat-controlled Congress in the Civil Rights Act of 1991.194 However, Judge Flaum has asserted his political independence. On three occasions,195 the judge sharply criticized the Reagan Justice Department for failing to fulfill a Carter administration pledge to make adequate resources available to Chicago schools for the implementation of school desegregation plans.196 Yet, he has never levied such criticism at judges. Judge Flaum is noted for treating district courts with great deference.197 Additionally, Judge Flaum, joined by Judge Bauer, wrote a special concurrence criticizing plaintiffs’ lawyers in an anti-trust case for accusing Judge Posner of
191 See 2 Almanac of the Federal Judiciary, supra note 190, at 25, 36. 192 See id at 12-13. 193 Chicago Lawyer’s Council, Evaluation of the United States Court of Appeals for the Seventh Circuit, supra note 1, at 771 (comparing Montgomery Ward & Co. v. NLRB, 904 F.2d 1156 (7th Cir. 1990) (noting that the judge showed “virtually no deference to the NLRB, refusing to enforce an NLRB bargaining order and leaving unremedied some extreme labor law violations”) with Cowherd v. HUD, 827 F.2d 40 (7th Cir. 1987) (noting that the judge “showed great deference to a HUD decision to sell and essentially abandon a floundering public housing unit without requiring future rent subsidies”)). 194 Id. at 771-72 (citing Lorance v. AT&T Technologies, Inc., 827 F.2d 163 (7th Cir. 1987), aff'd, 490 U.S. 900 (1989)). 195 United States v. Board of Educ., 799 F.2d 281 (7th Cir. 1986); United States v. Board of Educ., 744 F.2d 1300 (7th Cir. 1984); United States v. Board of Educ., 717 F.2d 378 (7th Cir. 1983). 196 Board of Educ., 744 F.2d at 1308. See Chicago Lawyer’s Council, Evaluation of the United States Court of Appeals for the Seventh Circuit, supra note 1, at 775-77. 197 Chicago Lawyer’s Council, Evaluation of the United States Court of Appeals for the Seventh Circuit, supra note 1, at 769.
199 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 acting with bias.198 Therefore, it would be out of character for any of these judges to author decisions that attacked a district judge for harboring a conservative bias in employment discrimination cases. For many of the same reasons, it is unlikely that Judge Posner, who joined the opinions in Paz and Thanongsinh, or Judge Kanne, who joined the opinion in Thanongsinh, would have been interested in attaching their names to opinions that attacked a district judge’s politically conservative policy preferences. Both are Reagan appointees with conservative reputations.199 One judicial evaluation even contains criticism of Judge Kanne for leaning towards employers’ interests.200 Thus, it would be highly out of character for these judges to join in any criticism of a district judge for ruling in a politically partisan direction on employment discrimination issues. Finally, the tone of the Seventh Circuit’s criticisms in these three opinions is too moderate and tempered to rise to the level of a politicized rebuke of the district judge. Although the Seventh Circuit has shown that is unafraid to employ severe language to criticize judges, no such language is evident in these opinions. For instance, the Court provided a sampling of its own scathing criticisms of Immigration Judges and the Board of Immigration Appeals in Benslimane v. Gonzales,201 including comments such as:
“the [immigration judge’s] opinion is riddled with inappropriate and extraneous comments” . . . “this very significant mistake suggests that the Board was not aware of the most basic facts of [the petitioner’s] case” . . . “the procedure that the [immigration judge] employed in this case is an affront to [petitioner’s] right to be heard” . . . the immigration judge’s factual
198 Id. at 774-75 (citing Olympia Equipment Leasing Co. v. Western Union Telephone Co., 797 F.2d 370 (7th Cir.), reh'g denied, 802 F.2d 217 (7th Cir. 1986)). 199 See 2 Almanac of the Federal Judiciary, supra note 190, at 14, 22. 200 Chicago Lawyer’s Council, Evaluation of the United States Court of Appeals for the Seventh Circuit, supra note 1, at 778. 201 430 F.3d 828 (7th Cir. 2005).
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conclusion is “totally unsupported by the record” . . . “the immigration judge’s unexplained conclusion is “hard to take seriously” . . . “the elementary principles of administrative law, the rules of logic, and common sense seem to have eluded the Board in this as in other cases.”202
No criticism in these three opinions rises to the level of severity of those scalding attacks. For instance, the district court’s erroneous evidentiary rulings are underscored indirectly. In Valentine, to refute the district court’s contention that a critical piece of evidence relied on by the plaintiff was solely based on the plaintiff’s “own speculation,” the Seventh Circuit merely stated, “Clearly, this is not a hearsay statement by [the plaintiff]—it is an admission by [the defendants],” and then pointed to the defendants’ statement of uncontested facts, which corroborated the plaintiff’s “speculation.”203 Additionally, Judge Bauer’s criticisms are almost overly deferential to the district judge, remarking, “It is worth mentioning that the district court and Wauconda were under the mistaken belief that Paz cannot proceed under the direct method because some of [the supervisor’s] comments were made two months prior to her firing.”204 Judge Bauer’s remarks are curious because it seems unremarkable to note that the defendants were arguing against the plaintiff’s position; courts of appeals reverse district court’s rulings, not the positions argued by the advocates. However, this tone dovetails with court observers’ remarks that Judge Bauer is overly deferential towards district judges.205 In sum, none of
202 Id. at 829 (citations omitted). See generally, John R. Floss, Seeking Asylum in a Hostile System: The Seventh Circuit Reverses to Confront a Broken Process, 1 SEVENTH CIRCUIT REV. 216 (2006), at http://www.kentlaw.edu/7cr/v1-1/floss.pdf. 203 Valentine v. City of Chicago, 452 F.3d 670, 678 (2006). See also Thanongsinh v. Bd. Of Educ., 462 F.3d 762, 776 (2006) (noting evidence excluded by district court as hearsay was “precisely the type of ‘memorandum’ or ‘record’ that falls within the ambit of the business record exception”). 204 Paz v. Wauconda Healthcare and Rehab. Ctr., 464 F.3d 659, 666 (2006). 205 Chicago Lawyer’s Council, Evaluation of the United States Court of Appeals for the Seventh Circuit, supra note 1, at 730 (citing Higgins v. White Sox
201 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the criticisms in these opinions reach the level of severity that the Court has clearly shown itself capable of reaching. Thus, it is unreasonable to conclude that these opinions contain an intentional, politicized subtext, attacking the district judge for granting employers’ motions for summary judgment in an untoward, partisan manner.
IV. THE SOCIALIZATION OF A RECENT JUDICIAL APPOINTEE
Another explanation for the consistent pattern of criticisms reflected by these opinions is that Judge Der-Yeghiayan is a new judge and relatively inexperienced in matters unrelated to immigration law. This possibility is corroborated by lawyers’ evaluations of the district judge, which frequently comment on his inexperience and its negative impact on his rulings.206 Although lawyers’ evaluations must always be taken with a grain of salt because it is to be expected that losing parties will complain about the judge’s abilities, lawyers’ criticisms concerning Judge Der-Yeghiayan are surprisingly consistent.207
Baseball Club, Inc., 787 F.2d 1125, 1131 (7th Cir. 1986) (Bauer, J., dissenting) (objecting to a remand for a new trial because of garbled and error-filled jury instructions, based largely on the ground that the trial judge was "a veteran of ten years on the district court and twelve years as a trial and appellate court judge of the state of Illinois")). 206 See e.g., 1 Almanac of the Federal Judiciary, supra note 189, at 9-10 (“He is legally incompetent in both criminal and civil matters. He doesn’t have much real experience. It is frightening” . . . “His background makes him ill-suited to be a federal judge. He is equally incompetent when dealing with either civil or criminal matters” . . . “He has no idea what he is doing.”); Chicago Council of Lawyers, An Evaluation of the United States District Court Judges in Chicago, supra note 188, at 10 (“many of the lawyers interviewed about Judge Der-Yeghiayan reported that he lacks an adequate understanding of the Federal Rules of Civil Procedure and suggested that the judge’s background has not prepared him to assume such an important post”). 207 Chicago Council of Lawyers, An Evaluation of the United States District Court Judges in Chicago, supra note 188, at 10 (noting that “the vast majority of lawyers interviewed gave [Judge Der-Yeghiayan] poor marks on virtually all areas relevant to the Council’s evaluation, and these poor marks are consistent with the ratings given to Judge Der-Yeghiayan by respondents to the Council’s written
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Moreover, these opinions were not the first time in 2006 that the Seventh Circuit had to educate the district judge in a particular area of law. Earlier that year, in Murray v. GMAC Mortgage Co.,208 the Seventh Circuit reversed Judge Der-Yeghiayan’s denial of class certification, and explained how each of the four reasons given for the denial was improper. There is a qualitative difference between these opinions and other Seventh Circuit opinions in 2006 that reversed different district judge’s summary judgment rulings on employment discrimination matters. For instance, none of these other opinions call attention to critical facts in the record that were overlooked by the district judges.209 Instead, these opinions tend to deal with garden variety disagreements with the district court over resolving unsettled areas of law,210 interpreting Seventh Circuit precedent,211 and weighing the evidence in view of what a reasonable jury could possibly conclude.212 In one such decision, the Seventh Circuit even acknowledged that the proper interpretation of the controlling precedent was not obvious.213 Accordingly, the qualitative difference between the opinions that reversed Judge Der-Yeghiayan’s decisions and the opinions reversing different district judges makes it more likely that the criticisms in Thanongsinh, Paz, and Valentine are not merely random. The exceptional nature of these opinions may be explained as instructive,
survey. . . [I]n comparison to his fellow judges in the Northern District of Illinois, Judge Der-Yeghiayan was rated below average in every survey category.”). 208 434 F.3d 948 (2006). 209 Goodwin v. Bd of Trs. Of the Univ. of Ill., 442 F.3d 611 (2006); Maalik v. Int’l Union of Elevator Constructors, Local 2, 437 F.3d 650 (2006); Phelan v. Cook County, 463 F.3d 773 (2006); EEOC v. Target Corp., 460 F.3d 946 (2006); Patton v. Keystone RV Co., 455 F.3d 812 (2006); Roe v. Oberweis Dairy, 456 F.3d 704 (2006); Smith v. Castaways Family Diner, 453 F.3d 971 (2006); Sylvester v. SOS Children’s Vills. Ill., Inc., 453 F.3d 900; Burnett v. LFW Inc., 472 F.3d 471 (2006). 210 See, e.g., Phelan, 463 F.3d at 780-81. 211 See, e.g., Patton, 455 F.3d at 816-17. 212 See, e.g., Target Corp., 460 F.3d at 955-56, 961-62; Patton, 455 F.3d at 817-18 213 Smith, 453 F.3d at 984.
203 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 an effort to educate a new district judge about the finer points of evidentiary rulings and methods for proving intentional discrimination in employment law. The Seventh Circuit’s criticism of Judge Der-Yeghiayan’s inattention to critical details in the record also reflects another trend in the district judge’s decisions that finds corroboration in evaluations of the judge’s performance. Namely, both the district judge’s detractors and defenders all agree that the judge makes short work of his docket.214 In fact, at Judge Der-Yeghiayan’s confirmation before the Senate Judiciary Committee, Senator Fitzgerald praised the district judge for his ability to handle “one of the heaviest case loads in the entire immigration court system.”215 Thus, it is possible that the Seventh Circuit opinions are telling the district judge to slow down a bit and proceed with more caution. When these criticisms are read in conjunction, they can be explained as a sort of socialization of a newly appointed judge to the norms and tendencies of the Seventh Circuit’s jurisprudence. First, the opinions reflect some of the Seventh Circuit’s more general statements that warn district courts against using summary judgment as a means of docket control. Second, the criticisms reflect the Seventh Circuit’s aversion to hyper-technical barriers that preclude proof of an employer’s intent to discriminate. First, the Seventh Circuit’s criticism of the district court’s inattention to critical factual details in the record reflects the Seventh Circuit’s broader concerns about district court’s over-reliance on summary judgment as a means of quickly disposing of rapidly expanding case loads. In Wallace v. SMC Pneumatics, Inc.,216 Judge
214 See, e.g., 1 Almanac of the Federal Judiciary, supra note 189, at 9-10 (comparing one attorney’s observation, “Be prepared. I think he has one of the shortest calendars from filing to trial. He does not like to give continuances. I think he is a terrific person and judge. His rulings are quick” . . . with others’, “File your brief late and he will throw the case out” . . . “He is more interested in his schedule than in his cases.”). 215 Confirmation Hearings on Federal Appointments Before the S. Comm. on the Judiciary, supra note 164. 216 103 F.3d 1394 (7th Cir. 1997).
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Posner warned district courts against using Rule 56217 as a means of docket control, stating:
The expanding federal caseload has contributed to a drift in many areas of federal litigation toward substituting summary judgment for trial. The drift is understandable, given caseload pressures that in combination with the Speedy Trial Act sometimes make it difficult to find time for civil trials in the busier federal districts. But it must be resisted unless and until Rule 56 is modified.218
In Thanongsinh and Valentine, the Seventh Circuit criticized the district court for disposing of the case on summary judgment based on conclusions that were contradicted by overlooked facts in the record.219 Additionally, in Valentine, the court noted the district judge’s incomplete analysis of all the dispositive issues.220 Thus, these opinions reflect one of the Court’s larger concerns that district judges are being cavalier in granting summary judgment, in violation of the demands of Rule 56. Additionally, these three decisions reflect the Seventh Circuit’s relative skepticism about technical barriers that preclude an employer’s liability. Judge Easterbrook noted the simplicity with which courts should view employment discrimination cases by suggesting the following formulation for an ADEA jury instruction: “You must decide whether the employer would have fired [demoted, laid off] the employee if the employee had been younger than 40 and everything else had remained the same.”221 Although this is clearly not
217 Fed. R. Civ. P. 56. 218 Wallace, 103 F.3d at 1397 (citations omitted). 219 See supra Part I.D. 220 Id. 221 Gehring v. Case Corp., 43 F.3d 340 (7th Cir. 1994). The Court has continued to urge this standard for employment discrimination in subsequent opinions. See, e.g., Fuka v. Thomson Consumer Elec., 82 F.3d 1397 (7th Cir. 1996);
205 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the standard that the Seventh Circuit uses for ruling on employment discrimination summary judgment motions, it nonetheless expresses the Court’s allergy to overly technical methods of disposing employment discrimination cases that prevent courts from reaching the merits of the case. Accordingly, the Seventh Circuit has, in the past, rejected half a dozen technical arguments and defenses advanced by employers.222 For instance, prior to the Supreme Court’s resolution of the issue in McKennon v. Nashville Banner Publishing Co.,223 several Circuits allowed an employer to uncover evidence of an employee’s misconduct on the job through the discovery process and then use such evidence as an affirmative defense to discrimination claims, even if such evidence was not known to the employer at the time of the allegedly discriminatory action.224 However, the Seventh Circuit allowed employers to use such “after-acquired” evidence only to limit back pay from the date the alleged misconduct was discovered.225 Along those same lines, in the three opinions discussed by this comment, the Seventh Circuit was highly skeptical of the district court’s efforts to dispose of cases that were “replete”226 with credibility issues and contested matters of facts227 solely on the basis of technicalities. For instance, the Court rejected the district judge’s reasoning in Thanongsinh and Valentine, which heavily relied on
Kuhn v. Ball State Univ., 78 F.3d 330 (7th Cir. 1996); Umpleby v. Potter & Brumfield, Inc., 69 F.3d 209 (7th Cir. 1995). 222 Including: “pretext-plus;” “the after-acquired evidence rule;” “tender back,” and “estoppel of ADA Claims.” See generally Mollica, supra note 1 , at 100-11 (describing Seventh Circuit’s rejection of all these various technical defenses to discrimination). 223 513 U.S. 352 (1995). 224 See e.g., Welch v. Liberty Machine Works, Inc., 23 F.3d 1403 (8th Cir. 1994); Dotson v. United States Postal Service, 977 F.2d 976 (6th Cir. 1992); and Summers v. State Farm Mutual Auto. Ins., 864 F.2d 700 (10th Cir. 1988). 225 See Kristufek v. Hussman Food Service Co., 985 F.2d 364 (7th Cir. 1993). 226 Paz v. Wauconda Healthcare and Rehab. Ctr., LLC, 464 F.3d 659, 666 (7th Cir. 2006). 227 See supra Part I.D.
206 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 findings that key evidence was “inadmissible” hearsay.228 Additionally, the Seventh Circuit admonished the district court for adhering to a non-existent formal barrier to a plaintiff’s use of the “direct” method of proof.229 This is not to say that the Seventh Circuit would be entirely adverse to correctly reasoned summary judgment decisions that reflected a formalist philosophy, but the Court’s skepticism of Judge Der-Yeghiayan’s efforts to sidestep the merits by basing his conclusions on technicalities does reflect the Seventh Circuit’s tendency to look past formal, technical barriers to an employer’s liability to reach the merits of the case.
CONCLUSION
Although all participants and actors in the legal system must act as if the law is a neutral arbiter—and judges “umpire”230— this hardly dampens the speculation among court observers and attorneys that a judge’s personal values and policy preferences can impact cases substantially. The discretion afforded to district judges—even at the summary judgment phase231—provides them with an immediate and practical means to shape the outcome of their decisions in accordance with their personal policy preferences.232 Thus, the specter of political partisanship is often unavoidable when attempting to explain a series of opinions. However, speculation about the politicization of the judicial sphere can also cloud an understanding of what courts’ opinions are really attempting to communicate. This comment examined trends in a series of summary judgment employment discrimination opinions that reversed the same district judge, Judge Samuel Der-Yeghiayan. The Seventh Circuit’s criticisms
228 See Part I.D. 229 Id. 230 As Chief Justice Roberts put it during his confirmation hearing. Robin Toner & David D. Kirkpatrick, Liberals and Conservatives Remain Worlds Apart on Roberts’s Suitability, N.Y. TIMES, Sept. 16, 2005, at A22. 231 See Shager v. Upjohn Co., 913 F.2d 398, 403 (7th Cir. 1990); supra Introduction. 232 See CARP, supra note 137, at 229-30.
207 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 of the district judge shared common themes and expressed a pattern. It thus appeared that the Seventh Circuit was communicating something broader than the holdings themselves. Due to the fact that this district judge had recently been appointed by President George W. Bush, whose record for politicizing traditional civil rights enforcement and the judicial sphere is often noted,233 it was reasonable to suspect that the Seventh Circuit’s criticisms spoke to this subject matter. However, this hypothesis defeated itself. Proceeding under the assumption that judges tend to reflect the values and policy preferences of the presidents who appointed them,234 it was impossible to square the politically conservative makeup of the Seventh Circuit judges who decided these three opinions with an argument that these opinions were intended to emphasize Judge Der-Yeghiayan’s partisan bias or communicate a broader political critique of the Executive Branch’s civil rights policy. Moreover, the Seventh Circuit’s criticisms of the district judge in these opinions may be consistent and express a pattern, but they are not nearly severe enough to suggest that the district judge harbors a partisan bias in favor of employers. Nonetheless, this comment concluded that these three opinions do not express a merely random pattern of criticism. Instead, the Seventh Circuit’s criticisms can be read as an attempt to socialize a newly appointed judge. This explanation coincides with judicial evaluations, which emphasize the district judge’s relative unfamiliarity with his new duties and the judge’s tendency to work quickly. Additionally, this explanation makes sense because the Seventh Circuit’s criticisms reflect some of the Court’s broader norms, such as the Court’s concerns over district courts’ abuse of summary judgment. Also, the criticisms correlate with the Seventh Circuit’s general distaste for technical defenses and barriers to employment discrimination claims. Thus, these opinions represent an effort to bring a district judge’s wayward decision-making tendencies more in line with certain salient features of the Seventh Circuit’s employment discrimination jurisprudence.
233 See supra Part II. 234 See CARP, supra note 137, at 238-39; supra Part II.
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NO MORE IMPORTS: SEVENTH CIRCUIT DECISION IN UNITED STATES V. GENENDO IS AN EXPENSIVE PILL FOR AMERICAN CONSUMERS TO SWALLOW
* BY NICOLE L. LITTLE
Cite as: Nicole L. Little, No More Imports: Seventh Circuit Decision in United States v. Genendo is an Expensive Pill for American Consumers to Swallow, 3 SEVENTH CIRCUIT REV. 209 (2007), at http://www.kentlaw.edu/7cr/v3-1/little.pdf.
INTRODUCTION
Every day in the United States approximately fifty percent of adult consumers take at least one prescription drug.1 In 2005, American consumers spent over 200 billion dollars on prescription drugs,2 a number that is projected to rise to almost 500 billion by 2016.3 As the amount of money American consumers spend on drugs rises, more American consumers struggle to pay for those drugs they need on a daily basis. Meanwhile, across the border in Canada, consumers pay up to forty percent less for the same drugs.4 The same
* J.D. candidate, May 2008, Chicago-Kent College of Law, Illinois Institute of Technology, Certificate in Intellectual Property; B.S.E. Chemical Engineering, May 2005, University of Michigan, Ann Arbor. 1 KAISER FAMILY FOUND., KAISER HEALTH POLL REPORT: PRESCRIPTION DRUG USE 1 (Feb. 2005), available at http://www.kff.org/healthpollreport/feb_2005/1.cfm. 2 KAISER FAMILY FOUND., PRESCRIPTION DRUG TRENDS FACT SHEET: MAY 2007 UPDATE 1 (2007), available at http://www.kff.org/rxdrugs/upload/3057_06.pdf. 3 KAISER FAMILY FOUND., PRESCRIPTION DRUG TRENDS FACT SHEET: MAY 2007 UPDATE 4 (2007), available at http://www.kff.org/rxdrugs/upload/3057_06.pdf. 4 Donald L. Barlett and James B. Steele, Why We Pay So Much For Drugs, TIME, Feb. 2, 2004, at 1, available at http://www.time.com/time/magazine/article/ 0,9171,1101040202-581399,00.html.
209 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 is true for the cost of drugs in many other countries throughout the world.5 Amid American consumers’ battle to pay for their drugs, profits are soaring for pharmaceutical companies. For instance, in 2006, Pfizer reported $19.3 billion in profits,6 Merck reported $4.4 billion in profits,7 and Abbott Laboratories reported $1.7 billion in profits.8 Many critics argue that the pharmaceutical companies are indifferent to American consumers’ financial struggle to pay for their drugs, putting their own profits before the public’s needs.9 Yet, the research and development of pharmaceutical companies has yielded countless drugs upon which the public has come to depend. The public has pressured Congress to follow the lead of other countries to help make drug prices more affordable for American consumers.10 Many countries outside of the United States regulate
5 Mike Adams, 28 Senators Vote to Maintain Big Pharma Monopoly Over U.S. Consumers; Republicans Oppose Free-Trade for Medicine, NEWSTARGET.COM, May 7, 2007, http://www.newstarget.com/z021831.html (last visited Dec. 9, 2007) (claiming Canadians, Europeans and Mexicans pay from one-half to one-tenth the price that American consumers pay for their prescription drugs). See also Gardiner Harris, The Nation: Prescriptions Filled; If Americans Want to Pay Less for Drugs, They Will, THE NEW YORK TIMES, Nov. 16, 2003. 6 PFIZER, PFIZER FINANCIAL REPORT 1 (2006), http://www.pfizer.com/investors/ financial_reports/financial_report_2006.jsp (select “Financial Summary” from drop down menu). 7 MERCK, UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM 10- K 117 (2007), http://www.merck.com/finance/proxy/2006_form_10-k.pdf. 8 ABBOTT, ABBOTT 2006 ANNUAL REPORT 44 (2006), http://www.abbott.com/ static/content/microsite/annual_report/2006/support_files/abbott_ar06_financial.pdf. 9 Mike Hall, What Drug Companies Aren’t Telling YOU, America@work, May 2003, http://www.aflcio.org/aboutus/thisistheaflcio/publications/magazine/0503_ bigfix.cfm; Cf. MASSPIRG, Prescription Action Litigation Project, http://masspirg.org/health-care/safe-amp-affordable-drugs/prescription-action- litigation-project (discussing class action lawsuit against major pharmaceutical companies for price gouging). 10 See, e.g., H.R. 194, 110th Cong. (2007) (proposing tax credits for persons of “retirement” age for their prescription drugs); Prescription Drug Affordability Act of 2006, H.R. 4706, 109th Cong. (2006) (proposing depriving prescription drug manufacturers of certain tax deductions in an effort to lower drug prices); Prescription Drug Affordability Act of 2005, H.R. 563, 108th Cong. (2005) (proposing that the Secretary of Health and Human Services negotiate the lowest
210 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 their drug prices in one of three ways: (1) directly by price controls; (2) indirectly by reimbursement limits for social insurance used by their citizens; or (3) indirectly by profit controls.11 Pharmaceutical companies are forced to comply with these drug regulations, resulting in their brand name drugs being sold abroad at outwardly reduced prices.12 Although Congress has shown an effort to consider some of these foreign cost-cutting methods, a large-scale change has not yet happened.13 In the meantime, some American consumers have taken it upon themselves to engage in potentially dangerous and illegal cost- cutting measures. Some consumers report that they skip doses to make a prescription last longer or simply do not fill a prescription that they may need because of its cost.14 Other consumers have turned to seemingly legitimate online pharmacies that tout brand name drugs at a highly reduced cost,15 while still other consumers cross the border and buy prescription drugs in Canada or Mexico.16 Recognizing the drug industry’s huge earnings and the public’s increasing demand for low-cost prescription drugs, creative entrepreneurs have explored ways to enter the lucrative prescription drug market. One way these entrepreneurs become involved is by
possible pricing for Medicare beneficiaries and provide waivers to allow importation of prescription drugs from Canada). 11 Patricia M. Danzon, Making Sense of Drug Prices, REGULATION, Spring 2000, 56, available at http://www.cato.org/pubs/regulation/regv23n1/danzon.pdf. 12 Id. 13 See supra note 8 and accompanying text. 14 Patricia Barry, Chasing Drugs: Many Readers Take Drastic Steps to Get Prescription Medicine, AARP BULLETIN, October, 2003, http://www.aarp.org/ bulletin/prescription/Articles/a2003-09-29-chasing_drugs.html. 15 Id.; see also Michelle Meadows, Saving Money on Prescription Drugs, FDA Consumer, Sept.–Oct., 2005, available at http://www.fda.gov/fdac/features/2005/ 505_save.html. 16 Barlett, supra note 4, at 1. See also HHS TASK FORCE, REPORT ON PRESCRIPTION DRUG IMPORTATION IX (2004), available at http://www.hhs.gov/ importtaskforce/Report1220.pdf.
211 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 importing substandard or counterfeit drugs.17 A second way is by purchasing brand name drugs manufactured abroad and importing them into the United States, a practice known as parallel imports.18 This practice is theoretically legal under U.S. law because it is only unlawful to re-import drugs originally manufactured in the United States but shipped for sale abroad.19 Genendo Pharmaceutical, N.V. (“Genendo”), a corporation based in the Netherlands, used this latter method in its course of business.20 However, in 2003, when Genendo attempted to import a shipment of Lipitor manufactured and packaged abroad by Pfizer (“the imported Lipitor”), the government seized the drugs at the border, and sought their condemnation as unapproved new drugs.21 The district court ruled in favor of the government on all counts.22 On appeal to the Seventh Circuit, the court was presented with a question of statutory interpretation of 21 U.S.C. §§ 353 and 355, and
17 Calvert et al., Factory for Fake Prescription Drugs, THE SUNDAY TIMES (U.K.), Sept. 23, 2007, at Insight, available at http://www.timesonline.co.uk/ tol/news/uk/health/article2511583.ece. 18 United States v. 1500 90-Tablet Bottles, 384 F. Supp. 2d 1205, 1207 (N.D. Ill. 2005), aff’d sub nom. United States v. Genendo Pharm., N.V., 485 F.3d 958 (7th Cir. 2007). See also Press Release, Genendo Pharmaceutical, NV, Trial Challenging the FDA’s Pharmaceutical Importation Ban to Begin May 2nd, (Apr. 28, 2005), available at http://www.prnewswire.co.uk/cgi/news/release?id=145004. Parallel imports are genuine products (as opposed to counterfeit) that come from an area where the products are sold at discounted prices, in comparison to where the products will be imported (here, the U.S.). 19 21 U.S.C. § 353 (2006). 20 1500 90-Tablet Bottles, 384 F. Supp. 2d at 1209. 21 Id. at 1211. The process of seizure is based upon 21 U.S.C. § 334 (2006). Under the FDA’s Regulatory Procedures, the United States files a Complaint for Forfeiture, directs the United States Marshal to seize the article in contention, and requests the court to condemn the article and declare forfeiture for violation of the law. FDA, REGULATORY PROCEDURES MANUAL, at 6-1 (2007), available at http://www.fda.gov/ora/compliance_ref/rpm/. Seizing an article may be accomplished by either taking physical possession or placing in constructive custody of the court. Id. A condemned article is one in violation of the law. Id. Condemned articles may be disposed of in a variety of ways, including constructive destruction, sale, conversion or destruction. Id. at 6-1-11. 22 Id. at 1219.
212 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the corresponding Food and Drug Administration (“the FDA”) regulation.23 In deciding this issue, the Seventh Circuit followed the FDA’s proposed statutory interpretation.24 While the Seventh Circuit’s decision resulted in the correct outcome on the set of facts before it, the court’s interpretation limits the scope of the provision. The practical effect of the decision reduces the potential opportunity for the importation of otherwise safe drugs and thus reduces the potential benefits the statute represented to the drug-consuming population in the United States. However, at the same time, the Seventh Circuit’s decision may generate more attention and cause the import restrictions on prescriptions drugs to be investigated in a new light. This article will examine and explore what the repercussions of the Genendo decision are for the future of drug importation. Part I provides the background of the case. Part II introduces the Federal Food, Drug and Cosmetic Act (“the FDCA”) and the sections relevant to Genendo. Part III examines the district court decision and Part IV explains the Seventh Circuit’s decision. Part V analyzes the Seventh Circuit’s approach, and Part VI discusses the broader policy and practical implications of the Seventh Circuit’s decision.
I. UNITED STATES V. GENENDO
A. Factual Background
Genendo is a corporation headquartered in the Netherlands, which purchases, trades and sells pharmaceuticals.25 As part of its business, Genendo imports drugs into the United States that were both manufactured abroad and intended for distribution abroad.26 At the heart of the issue in this case is Lipitor manufactured by Pfizer in
23 United States v. Genendo Pharm., N.V., 485 F.3d 958 (7th Cir. 2007). 24 Id. at 962–63. 25 United States v. 1500 90-Tablet Bottles, 384 F. Supp. 2d 1205, 1209 (N.D. Ill. 2005), aff’d sub nom. United States v. Genendo Pharm., N.V., 485 F.3d 958 (7th Cir. 2007). 26 Id.
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Ireland,27 and bought by Genendo in Argentina.28 Genendo planned to import the Lipitor into the United States to Phil & Kathy’s, an FDA- approved repackaging and labeling facility29 located in Illinois.30 Pursuant to a written agreement between Phil & Kathy’s and Genendo, Phil & Kathy’s would then repack and relabel the Lipitor.31 In September and October of 2003, Genendo sent letters to the U.S. Attorney’s Office alerting the government of its plan to import the Lipitor to Phil & Kathy’s.32 Prior to these letters, Genendo unsuccessfully filed a declaratory judgment action to clarify its rights to import the Lipitor.33 Genendo subsequently went forward with the importation of the Lipitor, but, on December 16, 2003, the government seized the Lipitor on its way to Phil & Kathy’s.34 Pfizer received an FDA-approved new drug application (“NDA”) for Lipitor.35 Under that NDA, Lipitor to be sold in the U.S. must be manufactured in Loughbeg, Ireland or Vega Baja, Puerto Rico and must be packaged in Freiburg, Germany, or Vega Baja, Puerto Rico.36 Additionally, the NDA specifies that the labeling for Lipitor must be in English, and its expiration period is two years from the manufacture date.37 The imported Lipitor was manufactured in the NDA-approved facility in Loughbeg, Ireland but was packaged in Guarulhos SP,
27 Id. at 1212. 28 Id. at 1210. 29 Id. at 1213. 30 Id. at 1212. 31 Id. The Agreement also covered Zocor imported by Genendo that was also in dispute. Id. at 1207. However, the Zocor ruling was not appealed and will not be addressed in this article. 32 Id. at 1210. 33 Id. at 1209–10. Genendo sought a declaration that importing the Lipitor was authorized under the FDCA; however, the district court granted a motion brought by the United States to dismiss the action because there was not an agency action ripe for review. Id. at 1210. 34 Id. 35 Id. at 1210. 36 Id. at 1212. 37 Id.
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Brazil.38 Additionally, the imported Lipitor bore labels in Portuguese that displayed expiration dates three years from the manufacture date.39
B. The Procedural Posture
After seizing the imported Lipitor, the government brought suit against Genendo40 seeking condemnation of the imported Lipitor as both an unapproved new drug and as a misbranded drug.41 The government also sought a permanent injunction to prohibit Genendo from violating the FDCA with similar imports in the future.42 Genendo responded that the imported Lipitor was not an unapproved new drug or a mislabeled drug because it fell within the exemption of 21 U.S.C. § 353(a) and 21 C.F.R. § 201.150.43 The district court found for the government on all counts, resulting in the condemnation of the imported Lipitor and the entry of a permanent injunction against Genendo.44 Genendo appealed the district court’s decision to the Seventh Circuit.45 The issue presented to the Seventh Circuit was whether the imported Lipitor was an unapproved new drug or whether the imported Lipitor was exempt from the NDA provisions under § 353.46 Before analyzing the district court and Seventh Circuit decisions, more explanation of the FDCA and its relevant provisions is necessary.
38 Id. The Brazil facility is not listed as an approved facility on the NDA and has not been inspected by the FDA. Id. 39 Id. at 1210–11. 40 The United States also sued Phil & Kathy’s, but the parties entered into a consent decree settling their claims. Id. at 1212. 41 Id. at 1207. 42 Id. 43 Id. As explained in more detail, infra at II.B., § 353(a) and § 201.150 together state an exemption that drugs in transit to and held at a repackaging facility do not have to comply with certain labeling and packaging requirements of the FDCA. 44 Id. at 1219. The analysis of the district court’s decision is discussed infra at III. 45 United States v. Genendo Pharm., N.V., 485 F.3d 958 (7th Cir. 2007). 46 Id. at 962.
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II. THE FEDERAL FOOD, DRUG AND COSMETIC ACT
A. Brief Overview of the FDCA
The first Food and Drugs Act, passed in 1906, prohibited the introduction of misbranded and adulterated foods, drinks and drugs into interstate commerce.47 The 1906 Act was repealed in 1938 and replaced with the enactment of the current FDCA.48 Over the years, the FDCA has been amended over twenty times, and it currently regulates a wide range of products, including foods, dietary supplements, drugs, medical devices, and cosmetics.49 The FDA is the government agency charged with enforcing the FDCA.50 The FDCA has two main goals underlying its enactment: safety and disclosure. The Supreme Court recently restated this first goal, stating that a “fundamental precept of the FDCA is that any product regulated by the FDA – but not banned – must be safe for its intended use.”51 The second goal, disclosure, is evident through the provisions demanding truthful information used in labels. This goal traces back to the 1906 Act, which was partially enacted to prevent the use of “cure-
47 FDA: MILESTONES IN U.S. FOOD AND DRUG LAW HISTORY (1999), http://www.fda.gov/opacom/backgrounders/miles.html. 48 Federal Food Drug And Cosmetic Act, Pub. L. No. 75-717, 52 Stat. 1040 (codified as amended at 21 U.S.C. §§ 301–397 (2004)). 49 See 21 U.S.C. §§ 301–397. 50 FDA, Laws Enforced by the FDA and Related Statutes, http://www.fda.gov/opacom/laws/#amendments (last visited Oct. 17, 2007). The FDA is a part of the Department of Health and Human Services (HHS). Food and Drug Administration, FDA Organization, http://www.fda.gov/opacom/7org.html (last visited Oct. 17, 2007). At the direction of Congress, the Secretary of HHS promulgates regulations. See e.g., 21 C.F.R. § 201.150 (regulation promulgated in response to Congress’ instruction in 21 U.S.C. § 353). The FDA then uses these regulations in its enforcement of the FDCA. 51 Food and Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 142 (2000); See also United States v. Dotterweich, 320 U.S. 277, 280 (1943) (“The purposes of [the FDCA] thus touch phases of the lives and health of people, which, in the circumstances of modern industrialism, are largely beyond self protection.”).
216 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 all” claims for ineffective and often dangerous medicines.52 These provisions are still found in the current FDCA through misbranding prohibitions and labeling requirements.53
B. The Relevant Sections of the FDCA
The FDCA has a broad coverage; however, only two of its provisions are pertinent to the discussion here—section 355 involving new drug applications (“NDAs”) and § 353 involving exemptions for certain drugs under the FDCA. Also relevant is the regulation promulgated by the FDA in response to the mandate in § 353 from Congress, 21 C.F.R. § 201.150.54 Each of these provisions will be discussed in turn. In Genendo, the government asserted that the imported Lipitor was an unapproved new drug in violation of § 355(a).55 This section is complex and details the various requirements a pharmaceutical company must meet to gain FDA approval to market a “new” drug. A new drug is one not yet “generally recognized among experts . . . as safe and effective for use under the conditions prescribed, recommended, or suggested in the labeling thereof . . . .”56 Under § 355, an application for a new drug must be filed detailing, inter alia, the methods and facilities used for manufacturing, processing and packaging the drug.57 When the FDA grants approval of an NDA, the
52 FDA, MILESTONES IN U.S. FOOD AND DRUG LAW HISTORY (1999), http://www.fda.gov/opacom/backgrounders/miles.html. 53 See, e.g., 21 U.S.C. §§ 331(a), 352(a) (prohibiting introduction of misbranded drugs or drugs with false or misleading labels into interstate commerce, respectively); see also FDA, WHAT FDA REGULATES, http://www.fda.gov/ comments/regs.html (last visited Oct. 17, 2007) (stating that the FDA “ensures that [the regulated products] are honestly, accurately and informatively represented to the public”). 54 21 C.F.R. § 201.150 (1999) is often referred to as “the § 353 exemption.” This designation will be used in the remainder of this article. 55 United States v. Genendo Pharm., N.V., 485 F.3d 958, 960 (7th Cir. 2007). 56 21 U.S.C. § 321(p) (2006). 57 Id. § 355(b)(1)(D).
217 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 drug may then be legally introduced into U.S. interstate commerce.58 Pfizer submitted an NDA and obtained FDA approval for Lipitor; however, the imported Lipitor did not fully comply with that NDA.59 Despite the non-compliance of the imported Lipitor with the NDA, Genendo argued that the drugs could lawfully be put into interstate commerce because they fell within the exemption stated in § 353.60 That statute states in pertinent part:
(a) Regulations for goods to be processed, labeled, or repacked elsewhere. The Secretary is hereby directed to promulgate regulations exempting from any labeling or packaging requirement of this Act [21 USCS §§ 301 et seq.] drugs and devices which are, in accordance with the practice of the trade, to be processed, labeled, or repacked in substantial quantities at establishments other than those where originally processed or packed, on condition that such drugs and devices are not adulterated or misbranded under the provisions of this Act [21 USCS §§ 301 et seq.] upon removal from such processing, labeling, or repacking establishment.61
The government, however, argued that the imported Lipitor did not fall within the language of § 353; rather, the § 353 exemption promulgated by the FDA exempted Genendo from compliance with only the six packaging and labeling requirements listed in the § 353 exemption.62 The § 353 exemption states in pertinent part:
(a) Except as provided by paragraphs (b) and (c) of this section, a shipment or other delivery of a drug which is, in accordance with the practice of the trade, to be processed,
58 Id. § 355(a). 59 Genendo, 485 F.3d at 960–61. The non-compliance of the imported Lipitor with the NDA was admitted by Genendo. Id. at 961. 60 Id. 61 21 U.S.C. § 353(a) (2006) (emphasis added). 62 Genendo, 485 F.3d at 962.
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labeled, or repacked in substantial quantity at an establishment other than that where originally processed or packed, shall be exempt, during the time of introduction into and movement in interstate commerce and the time of holding in such establishment, from compliance with the labeling and packaging requirements of sections 501(b) [21 U.S.C. § 351(b)] and 502 [21 U.S.C. § 352] (b), (d), (e), (f), and (g) of the act . . . . 63
The six subsections listed in the § 353 exemption generally set forth conditions under which a drug shall be considered adulterated or misbranded.64 The statutory interpretation of § 353, and its corresponding regulation, are at the center of the dispute in Genendo.
III. THE DISTRICT COURT PROCEEDINGS
The United States government sought condemnation of the imported Lipitor on various grounds: first, as an adulterated drug under 21 U.S.C. § 351(a)(2)(B) that did not comply with the FDA’s continuing Good Manufacturing Practices (“cGMP”);65 second, as a
63 21 C.F.R. § 201.150(a) (1999). Since this regulation was written, § 502(d) has been repealed. Food and Drug Modernization Act of 1997, Pub. L. No. 105–115, § 126, 111 Stat. 2296, 2327 (1997). 64 Specifically, § 351(b) states that a drug shall be considered adulterated “[i]f it purports to be or is represented as a drug . . . and its strength differs from, or its quality or purity falls below, the standard set forth in [an official] compendium. . . .” 21 U.S.C. § 351(b). Sections 352(b), (e), (f) and (g) refer to package form and contents of the label, designation of drugs by established names, directions for use and warnings on the label, and representations as recognized drugs. 65 Amended Verified Complaint for Forfeiture and Permanent Injunction ¶¶ 31–40, United States v. 1500 90-Tablet Bottles, 384 F. Supp. 2d 1205 (N.D. Ill. 2005) (No. 03 C 6495), 2003 WL 23799518. 21 U.S.C. § 351(a)(2)(B) states that a drug shall be considered adulterated “if it is a drug and the methods used in, or the facilities or controls used for, its manufacture, processing, packing or holding do not conform to or are not operated or administered in conformity with current good manufacturing practice to assure that such drug meets the requirements of this Act [21 USCS §§ 301 et seq.] as to safety and has the identity and strength, and meets the quality and purity characteristics, which it purports or is represented to possess.”
219 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 misbranded drug under 21 U.S.C. § 352(c) that did not bear labels in the English language;66 third, as a misbranded drug under 21 U.S.C. § 352(f) that did not bear adequate directions for use;67 and finally as an unapproved new drug that was manufactured abroad and not manufactured, processed and packaged (including its labeling) and held in full compliance with the NDA for Lipitor.68 Specifically, the government argued that any drug that does not display the exact label approved in the NDA is an unapproved new drug.69 The government also alleged that no exemptions promulgated by the FDA applied to the drugs to excuse Genendo from compliance with the English- language and directions for use labeling requirements.70 Genendo asserted several affirmative defenses in response: (1) the drugs were not misbranded;71 (2) the drugs were not new;72 (3) Genendo’s activities did not fall within § 331(k) or § 351(a)(2)(B);73 (4) the English label and adequate directions for use label requirements did not apply to Genendo because Genendo does not label the drugs—those requirements only apply to Phil & Kathy’s for
The actual violation alleged is of 21 U.S.C. §331(k), which prohibits any person from causing the “alteration, mutilation, destruction, obliteration, or removal of the whole or any part of the labeling of, or the doing of any other act with respect to, a food, drug, device, or cosmetic, if such act is done while such article is held for sale (whether or not the first sale) after shipment in interstate commerce and results in such article being adulterated or misbranded.” 66 Amended Verified Complaint for Forfeiture and Permanent Injunction, supra note 65, ¶¶ 41–45. 21 U.S.C. § 352 and its implementing regulations, such as 21 C.F.R. § 201.15, set forth detailed requirements for drug labels, including that the information appear “prominently and conspicuously” in English so that an ordinary person buying and using the drug can read and understand the label. 67 Amended Verified Complaint for Forfeiture and Permanent Injunction, supra note 65 ¶¶ 46–48. 68 Id. ¶¶ 49–52. 69 Id. ¶ 50. 70 Id. ¶¶ 44, 47. 71 Genendo's Verified Answer and Affirmative Defenses to the Amended Verified Complaint for Forfeiture and Permanent Injunction, United States v. 1500 90-Tablet Bottles, 384 F. Supp. 2d 1205 (N.D. Ill. 2005) (No. 03 C 6495), 2004 WL 2174705 (first and sixth affirmative defenses). 72 Id. (first and fifth affirmative defenses). 73 Id. (third affirmative defense).
220 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the relabeled product, which the government cannot allege has been violated since the drugs were seized prior to relabeling;74 (5) the FDA has effectively prohibited parallel drug importation and thus exceeded its statutory and regulatory authority.75 The district court proceedings focused on whether the § 353 exemption excused Genendo from fully complying with the NDA for Lipitor. Siding with the government, the district court held that “a new drug’s failure to be manufactured and/or packaged according to the exact requirements of an FDA- approved NDA are not exempted by § 353(a) of the Act.”76 The district court based its holding upon its reading of the FDCA provisions and Seventh Circuit precedent.77 The district court quoted United States v. Baxter Healthcare Corp. for the proposition that “the detailed requirements of the new drug approval process of § 355 reflect ‘a Congressional view that the way in which drugs are mixed and packaged is no less important than the chemical makeup of the drugs.’”78 The district court also relied upon Baxter for the rule that a drug must comply with all requirements of the NDA in order to be properly introduced into interstate commerce.79 The district court also found that Genendo’s proposed reading of the § 353 exemption would eviscerate the protections of the new drug approval process.80 The court “harmonized” the § 353 exemption with the new drug approval process by giving “packaging” and “labeling” their general meaning throughout most of the act, but giving these terms special meanings within the NDA provisions.81 Packaging and labeling generally refer to “a type of packaging with descriptive terms” where
74 Id. (fourth affirmative defense). 75 Id. (seventh affirmative defense). Genendo also alleged that it did not own, import or control the vast majority of the drugs seized by the FDA. Id. (second affirmative defense). This defense will not be addressed in this article. 76 1500 90-Tablet Bottles, 384 F. Supp. 2d at 1214. 77 United States v. Baxter Healthcare Corp., 901 F.2d 1401 (7th Cir. 1990). 78 1500 90-Tablet Bottles, 384 F. Supp. 2d at 1215 (citing Baxter, 901 F.2d at 1411). 79 Id. The Seventh Circuit in Baxter did not state such a proposition. See Baxter, 901 F.2d at 1411. 80 1500 90-Tablet Bottles, 384 F. Supp. 2d at 1216. 81 Id. at 1217.
221 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 within the NDA provisions, it takes on the special and more specific meaning, which includes the “‘methods used in, and the facilities and controls used for, the . . . processing and packing of such drug.’”82 According to the district court, this interpretation harmonized the two seemingly conflicting provisions while still honoring the sense and purpose of each.83 Finally, the district court rejected Genendo’s argument that Kaybel84 should affect the court’s decision. The court distinguished this case because the repackaged drugs in Kaybel were compliant with the NDA, unlike the imported Lipitor in the present case.85 In the end, the district court ruled that the imported Lipitor was subject to condemnation as an unapproved new drug and permanently enjoined Genendo from introducing any other unapproved new drugs into interstate commerce.86
IV. THE SEVENTH CIRCUIT DECISION
Genendo appealed the district court’s decision to the Seventh Circuit.87 The only issue on appeal was whether the imported Lipitor was a new drug.88 The Seventh Circuit framed the question as whether § 353(a) exempted Genendo from compliance with the NDA requirements, which as a question of statutory interpretation was subject to de novo review.89 The court thus first had to confront the question of the level of deference to give the FDA’s interpretation of § 353.90
82 Id. (quoting 21 U.S.C. § 355(b)(1)(D)). 83 Id. 84 United States v. Kaybel, 430 F.2d 1346 (3d Cir. 1970). 85 1500 90-Tablet Bottles, 384 F. Supp. 2d at 1217–18. 86 Id. at 1218–19. 87 The case proceeded on appeal under the name United States v. Genendo Pharm., N.V., 485 F.3d 958 (7th Cir. May 10, 2007). 88 Id. at 962. 89 Id. 90 Id.
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Genendo argued that the statutory language and Congressional intent were clear and that under Chevron91 the court must give effect to that intent and not defer to the FDA’s interpretation of the statute.92 Genendo argued that the language of § 353 clearly states that “as long as the imported, properly manufactured drug is en route to or at the repacker, it is exempt from any packaging and labeling requirements.”93 As proof of congressional intent, Genendo relied upon a statement by Senator Copeland in which he stated that substances “need not be labeled, and so forth, until after they are ready actually to be sent on to the ultimate consumer.”94 Thus, since the imported Lipitor was on its way to Phil & Kathy’s, it could not be an unapproved new drug or misbranded due to its non-English labels, allegedly inadequate directions for use, or longer expiration date periods, since no labels were necessary at all.95 According to Genendo, these deficiencies in the labels were all to be corrected at Phil & Kathy’s, pursuant to the written 201.150 Agreement between them, and the labeling and packaging requirements only applied once the drugs were outbound from Phil & Kathy’s.96
91 Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984). Under Chevron’s analysis, a court must first look to see if Congress has spoken to the precise issue. Id. at 842. If they have, that is the end of the inquiry, as both the agency and the court must adhere to that unambiguous intent. Id. at 842–43. If, however, Congress has not spoken on the issue or the intent is ambiguous, the court must ask whether the agency’s construction of the statute is a permissible one. Id. at 843. The legislative regulation that Congress has left to the agency must be given deference unless its construction is arbitrary, capricious or manifestly contrary to the statute. Id. at 843–44. The deference that the court gives to a federal agency in this situation is now known as “Chevron deference.” See, e.g., Nat’l Cable & Telecomm. Ass’n v. Brand X Internet Serv., 545 U.S. 967, 982 (2005) (using the term “Chevron deference”); United States v. Haggar Apparel Co., 526 U.S. 380, 389 (1999) (referring to the “usual rule of Chevron deference”); Sullivan v. Stroop, 496 U.S. 478, 495 (1990) (using the term “Chevron deference”). 92 Brief of Appellant, Genendo Pharm. N.V., Genendo, 485 F.3d 958 (No. 03 C 6495), 2006 WL 498561, at *16–17. 93 Id. at *17 (emphasis in original). 94 Id. at *13–14 (quoting Federal Food, Drug and Cosmetic Act, A Statement of its Legislative Record, 74th Cong. 363 (1938 reprinted 1987)). 95 Id. at *24. 96 Id. at *28.
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The government argued that the district court decision was correct. First, the government stated that the FDA’s interpretation of § 353 through its regulation was entitled to great deference under Chevron.97 Without much explanation, the government stated that the statutory language is ambiguous, and since the FDA was charged with making a regulation that carries the force of the law, its interpretation should be respected.98 The government echoed much of the district court’s decision but went on to state that if Congress had intended to exempt all of the NDA requirements under § 353, they could have written that exemption into the statute themselves.99 The government also disparaged Genendo’s reliance upon Senator Copeland’s statements because his statement was only useful to show that the statute’s language was now requiring the FDA to promulgate a regulation rather than authorizing the FDA to do so.100 The Seventh Circuit held that the FDA’s interpretation deserved Chevron deference.101 In doing so, the court first asked whether Congress had spoken to the precise issue.102 The court stated that “[Section] 353 simply directs ‘the Secretary’ to promulgate regulations exempting drugs en route to a repackager from labeling packaging requirements; it does not itself provide for a complete exemption.”103 The court relied on Arner Co. v. United States104 to support the proposition that Congress would have stated the exemption on its own rather than provide for a regulation to formulate one.105 The court rejected Genendo’s argument that Congress had spoken to the issue by turning to the regulation promulgated by the FDA:
97 Brief for the Appellee United States, Genendo Pharm. N.V., Genendo, 485 F.3d 958 (7th Cir. 2007) (No. 03 C 6495), 2006 WL 4820664, at *21. 98 Id. (citing United States v. Mead Corp., 533 U.S. 218, 229 (2001)). 99 Id. at *24. 100 Id. at *25. The government contends that there is nothing in the legislative history to suggest that Congress intended to exempt drugs from the new drug approval requirements. Id. at *24–25. 101 Genendo, 485 F.3d at 962. 102 Id. at 962. 103 Id. at 962–63. 104 142 F.2d 730 (1st Cir. 1944). 105 Genendo, 485 F.3d at 963.
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The problem with Genendo's argument is that it largely ignores the fact that the promulgated regulation, § 201.150, sets forth specific labeling and packaging requirements from which drugs being repackaged are exempt. The particular sections of the FDCA referenced in § 201.150 relate to [specific] requirement[s about the packaging] . . . . Section 201.150 thus does not exempt drugs in transit to or at a repackager from all labeling and packaging requirements in the Act, as Genendo suggests-- simply those listed. Thus the statute is not so crystal clear as Genendo insists.106
The court then turned to an investigation of the meaning of the word “any” within § 353. The statutory language reads in pertinent part:
The Secretary is hereby directed to promulgate regulations exempting from any labeling or packaging requirement of this Act drugs . . . which are, in accordance with the practice of the trade, to be processed, labeled, or repacked in substantial quantities at establishments other than those where originally processed or packed, on condition that such drugs . . . are not adulterated or misbranded under the provisions of this Act upon removal from such processing, labeling, or repacking establishment.107
The court turned first to a dictionary for the meaning of “any,” noting that the first definition is “‘one, a, an, or some’” while the fourth definition is “all.”108 The court then states:
106 Id. 107 21 U.S.C. § 353(a) (2000) (emphasis added). 108 Genendo, 485 F.3d at 963 (citing WEBSTER’S UNABRIDGED THIRD DICTIONARY OF THE ENGLISH LANGUAGE 96 (2d ed. 2001)).
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Although the statute could be read as if any meant all . . . it could also be read to [mean] some . . . . Given that § 201.150 exempts drugs in transit only from specified labeling and packaging requirements, the Secretary apparently understood it to mean the latter.109
In a footnote, the court addressed a recently decided Supreme Court case cited by Genendo in which the Supreme Court construed “any” air pollutant to mean “all” air pollutants.110 The court distinguished this precedent on the basis that the Supreme Court was construing language in the Clean Air Act, which contained a “sweeping” definition of air pollutant, whereas the exemption in § 353 does not contain a similar sweeping definition or otherwise indicate that “any” should be so construed.111 The court concludes that the Supreme Court’s interpretation in Massachusetts was a specific case where “any” meant “all” but that the holding was not so broad as to mandate that this definition be applied in every other case.112 The court concluded that both Genendo’s and the FDA’s readings of the statute were possible interpretations, and thus that there was enough ambiguity in the statute such that the court should defer to the FDA’s chosen interpretation, provided the interpretation was not arbitrary, capricious or manifestly contrary to the statute.113 The court found that this standard was met and that the interpretation was in line with the court’s “observation in Baxter that the new drug approval process ‘illustrates a congressional view that the way in which drugs are mixed and packaged is no less important than the chemical makeup of the drugs at issue.’”114 The court noted that under Genendo’s interpretation, drugs not packaged in conformity with the
109 Id. 110 Id. at 963 n.3. The Supreme Court decision being discussed is Massachusetts v. EPA, 127 S. Ct. 1438 (2007). 111 Genendo, 485 F.3d at 963 n.3. 112 Id. 113 Id. at 963–64. 114 Id. at 964 (citing United States v. Baxter Healthcare Corp., 901 F.2d 1401, 1411 (7th Cir. 1990)).
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NDA, such as the imported Lipitor packaged in Brazil, but subsequently repackaged under the § 353 exemption successfully avoid the NDA’s requirement that original packaging occur in an approved facility.115 The court stated that “If such a result were intended, we believe that the statute and accompanying regulation would say so explicitly.”116 Genendo argued that the Third Circuit’s holding in United States v. Kaybel117 mandated a different result. In Kaybel, the court held that a wholesale distributor did not introduce an unapproved new drug into interstate commerce when it repackaged the drug without obtaining a new drug application in its own name first.118 The court distinguished Kaybel on two grounds. First, Kaybel did not deal directly with § 353.119 Second, the facts of Kaybel involved the repackaging of a drug that was compliant with the NDA in all respects.120 The court emphasized that Kaybel’s rationale was that other provisions exist to protect drugs from being contaminated by repackagers, and this rationale did not apply to the facts before it.121
V. ANALYSIS OF THE SEVENTH CIRCUIT DECISION
Based on the set of facts before it, the Seventh Circuit correctly decided Genendo. The court’s reasoning, however, is problematic. The court began by noting that the issue before it was one of statutory interpretation—whether Genendo was exempt under § 353 from complying with the NDA provisions—which subjected the district court’s holding to de novo review.122 This led into the main issue of what level of deference the court should give the FDA’s interpretation
115 Id. 116 Id. 117 430 F.2d 1346 (3d Cir. 1970). 118 Id. at 1347. The drug manufacturer, Searle, obtained an NDA in its own name for the drug which was still in effect when the defendant repackaged the drug into smaller bottles for sale. Id. 119 Genendo, 485 F.3d at 965. 120 Id. 121 Id. 122 Genendo, 485 F.3d at 962.
227 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 of § 353(a).123 The court determined that the statute is ambiguous and that it must defer to the reasonableness of the FDA’s interpretation.124 The overarching question is how the court arrived at its conclusion that the statute is ambiguous. The court’s analysis would be sounder if they examined whether Congress spoke to the issue, steered away from reliance upon dictionary definitions, and considered the legislative history and other sections of the FDCA in its investigation.
A. The Chevron Analysis
1. The Vague Intent of Congress
Under the first step of the Chevron125 analysis:
First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute. 126
The court stated that Genendo believed Congress had spoken directly to the issue with § 353 by using the phrase “any labeling and
123 Id. at 962. 124 Id. at 964. 125 Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). 126 Id. at 842–43 (footnotes omitted).
228 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 packaging requirement.”127 The court found this argument problematic because the § 353 exemption lists specific labeling and packaging requirements with which a repackaged drug does not have to comply.128 The court concluded that the § 353 exemption “thus does not exempt drugs in transit to or at a repackager from all labeling and packaging requirements in the Act, as Genendo suggests—simply those listed.”129 On this point, the court is correct. In its brief, Genendo stated that as a result of the language Congress used in § 353, the FDA had “no option but to promulgate a regulation that exempted drugs en route to and while being held by a repacker and labeler from all of the labeling and packaging requirements of the Act. The FDA ‘performed this prescribed duty’ when it promulgated [the § 353 exemption].”130 However, it is hard to see how Genendo can argue the FDA correctly performed its duty by exempting all packaging and labeling requirements when instead its regulation specifically lists only six of those requirements.131 Despite this flaw in Genendo’s argument, the court nevertheless missed the most important part of the argument: just because the regulation lists six specific packaging and labeling exemptions does not mean Congress failed to speak directly to the issue. There is always the possibility that the regulation is improper and has ignored the direct mandate of Congress. Judicial review of such administrative constructions is in place to prevent such occurrences. A court is the final authority on statutory construction and it must reject any administrative construction that is inconsistent with “clear congressional intent. If a court, employing traditional tools of statutory construction, ascertains that Congress had an intention on the precise question at issue, that intention is the law and must be given effect.”132
127 Genendo, 485 F.3d at 962. 128 Id. at 963. 129 Id. 130 Brief of Appellant, Genendo Pharm. N.V., Genendo, 485 F.3d 958 (No. 03 C 6495), 2006 WL 498561, at *14. 131 The six requirements listed as exempted are sections 501(b) and 502 (b), (d), (e), (f), and (g). 21 C.F.R. § 201.150(a). 132 Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843 n.9 (1984) (citations omitted); see also Fed. Election Comm’n v. Democratic
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Here, the court only superficially investigated congressional intent. The only statutory interpretation tool the court consulted was a dictionary definition.133 Relying on Webster’s Unabridged Dictionary of the English Language, Second Edition, as its dictionary of choice, the court stated that “the first definition given for the word any is ‘one, a, an, or some’” while, of course, “all” is not until the fourth definition.134 By itself, this approach is questionable. How did the court determine that the Second Edition of Webster’s Unabridged was the dictionary with the right definition? A cynical answer is that it was simply the dictionary sitting on the desk of the law clerk at the time. However, a different Webster’s Dictionary first defines “any” as “[o]ne, no matter which, of more than two” and provides “some, no matter how much or how little, how many, or what kind” as the second definition.135 In the Oxford English Dictionary, the first definition of “any” is “[a]n indeterminative derivative of one, or rather its weakened adj. form . . . [i]ts primary use is in interrogative, hypothetical and conditional forms of speech” without regard to kind.136 Oxford’s second definition is “[w]ith a specially quantitative force = A quantity or number however great or small.”137 The American Heritage Dictionary’s first definition of “any” is “[o]ne, some, every, or all without specification.”138 Thus, it would appear that if the court consulted any (“any” meaning “all” here) of these dictionaries, the court could have simply picked the dictionary with the most favorable definition. If Congress had intended to exempt repackaged drugs from all packaging and labeling requirements, they could have expressly put
Senatorial Campaign Comm., 454 U.S. 27, 32 (1981) (stating that a court must reject any administrative construction that is inconsistent with Congress’ statutory mandate). 133 Genendo, 485 F.3d at 963. 134 Id. 135 WEBSTER’S NEW WORLD COLLEGE DICTIONARY 64 (4th ed. 2000). 136 THE OXFORD ENGLISH DICTIONARY 538 (2d ed. 1989). 137 Id. at 539. 138 AMERICAN HERITAGE DICTIONARY OF THE ENGLISH LANGUAGE (4th ed. 2000) (emphasis added).
230 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 that language into the statute, as the court implied.139 However, the argument also swings the other way. Congress could have either used the word “some” in place of “any” in § 353 or defined “any” within § 353 if they did not mean to exempt the drugs from all labeling and packaging requirements. Congress did not do either of these. Rather than solely relying upon a dictionary definition, the court could have consulted other sections and subsections of the FDCA for guidance. For example, the word “any” is used twenty-five times other than the disputed instance in § 353 alone.140 A brief glance at these other uses of “any” demonstrates that “any” cannot mean “some” in every single use of the word. Nor can “any” mean “all” in each instance. This suggests that finding the right definition for this particular instance is likely not as easy as flipping open the dictionary and using the first definition. The word has to be read in context of both the specific section and the entire statute. More importantly, the court could have consulted the legislative history of § 353. The entire FDCA went through many versions, resulting in various congressional reports and floor debates.141 One such report notes that:
Section 503 [21 U.S.C. § 353] prescribes exemptions from labeling requirements for drugs and devices similar to those provided for food when the articles are to be processed, labeled, or repacked at points other than their place of production and when, after the processing, labeling, or repacking they comply with the terms of the law . . . .142
In its brief, cited Senator Copeland, the sponsor of the FDCA, on the Senate floor:
139 Genendo, 485 F.3d at 962–63. 140 See 21 U.S.C. § 353 (2000). 141 HARRY A. TOULMIN, JR., A TREATISE ON THE LAW OF FOOD, DRUGS AND COSMETICS § 7 (1942). 142 Id. at § 251 (citing H.R. Rep. No. 75-2139 (1938)).
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[P]erhaps the Senator did not know that on line 3 we have stricken out the word "authorized" and have provided that the Secretary shall be directed. The Secretary is directed to promulgate regulations exempting from labeling such articles as those to which the Senator has referred. I am satisfied that with this change, which was suggested by the Senator from Michigan [Mr. Vandenberg], directing the Secretary to take such action, we are not leaving the matter to anybody. The Secretary must do what the Senator seeks to have done when the substances covered by the provision are shipped in large quantities and are not sold to the consumer. They need not be labeled, and so forth, until after they are ready actually to be sent on to the ultimate consumer. So I feel that under subsection (1) the industry in which the Senator is interested is fully protected, in view of the fact that we have not given the Secretary any option in the matter, but he must perform this prescribed duty.143
Another Legislative statement shows the reasoning behind this prescribed duty: “This exemption is necessary to avoid unwarranted interference with certain legitimate commercial operations, such as the canning of food at branch canneries and delivery to a central plant for labeling, or the bulk shipment of crude drugs for processing and repacking before distribution to consumers.”144 A House Report also explained that, with respect to the food, “these exemptions will apply only where the interests of consumers will not be jeopardized.”145 These congressional statements, when read together, demonstrate that it was the intent of Congress that the exemptions apply so that certain legitimate commercial operations would not be interfered with, so long as the consumer’s interests would not be jeopardized. The legislative intent, demonstrated by these statements, was to protect the
143 Brief of Appellant, Genendo Pharm. N.V., Genendo, 485 F.3d 958 (No. 03 C 6495), 2006 WL 498561, at *13–*14 (emphasis in original). 144 S. REP. NO. 73–493, at 9 (1934). 145 H.R. REP. NO. 75-2139, at 6 (1938).
232 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 consumer. This legislative intent supports the ultimate result in Genendo and would give more credibility to the court’s reasoning. However, Genendo did not base its holding on this congressional intent. Rather, the court held that the statutory language was ambiguous enough to merit turning to the FDA’s interpretation of the rule.146
2. The Reasonableness of Agencies
Once a court has determined that it will defer to an agency’s interpretation, its holding is rarely disturbed because of the high arbitrary and capricious standard.147 In Genendo, it would be hard to argue that the FDA’s interpretation was arbitrary, capricious or manifestly contrary to the statute. The regulation only exempts the packaging and labeling requirements “that the package contain the name and address of the manufacturer or distributor, a statement of the quantity of the contents, the established name of the drug, active and inactive ingredients, and adequate warnings and directions for use.”148 This leaves in place other provisions mandating proper handling of drugs to ensure their safety. The court correctly points out that the interpretation appears to be “consistent with the public health concerns animating the new drug approval process and the FDCA as a whole.”149 It is important to keep in mind that the agency interpretation need not be the only permissible interpretation nor does it have to be the interpretation at which the court would have reached if construing the statute on its own.150 Accordingly, Genendo’s interpretation raises an interesting question as to whether its interpretation would have been permissible had it been the position advanced by the FDA. Genendo claimed that exempting the imported Lipitor from all packaging and labeling
146 Genendo 485 F.3d at 963–64. 147 See Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 844 (1984). 148 Genendo, 485 F.3d at 963. 149 Id. at 964. 150 Chevron, 467 U.S. at 843.
233 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 requirements did not put consumers at any risk because both § 353 and the § 353 exemption still contained a requirement that the drugs not be adulterated or misbranded.151 Thus, any deviations from the NDA that occurred before the drugs were repackaged would still result in the drugs being properly seized as misbranded or adulterated.152 The court in Genendo stated that “even assuming a flawless repackaging process at Phil & Kathy’s . . . certain deviations from the NDA’s requirements are never rectified despite the repackaging. Notably, the fact that the Lipitor was packaged at an unapproved facility in Brazil can never be brought into compliance with the NDA.”153 Genendo’s response was that Congress and the FDA determined through § 353 and the § 353 exemption that the only NDA requirement that needed to be complied with when a drug is being imported is that it was manufactured in an NDA-approved, and thus FDA-approved, facility.154 The result of this regulatory scheme would adequately safeguard consumers.155 If this were the FDA’s interpretation and the government’s argument before the court, the court would likely have to defer to it. “If Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation.”156 If the FDA determined that consumers were adequately safeguarded by such a construction, then the interpretation would also be in line with the underlying purposes of the FDCA. Courts are typically viewed as unqualified to determine whether the agency’s interpretation is correct. Instead courts must defer to the agency because their interpretation is considered reasonable.157
151 Genendo, 485 F.3d at 964. 152 Id. 153 Id. 154 Brief of Appellant, Genendo Pharm. N.V., Genendo, 485 F.3d 958 (No. 03 C 6495), 2006 WL 498561, at *23. 155 Id. 156 Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843– 44 (1984). 157 Id. at 844.
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2. Other Bumps in the Road: Distinguishing the Case Law
On the way to reaching the correct result, the court also had to face some case law that appeared to be on point. First, the court faced the Supreme Court’s new decision in Massachusetts v. EPA,158 in which the Supreme Court construed “any air pollutant” to mean “all” air pollutants.159 While this decision would seem quite relevant, the Genendo court correctly disposed of this argument in a footnote. As discussed infra, the word “any” cannot be given a single meaning within § 353 itself. Thus, it is hard to imagine that the Supreme Court’s interpretation of “any” in a completely different Act could be the definitive meaning of the word in § 353 as well. The court also had to deal with the Kaybel case from the Third Circuit.160 The Kaybel case is easily distinguishable from the facts at bar because the drugs in Kaybel were packaged at an NDA-approved facility.161 In addition, neither § 353 nor the § 353 exemption are at issue in Kaybel.162 Genendo’s argument is that the Kaybel court’s holding is that, “when a valid NDA is in place for the solid oral dosage form of a drug, deviations from the packaging and labeling listed on the NDA do not convert approved solid oral dosage forms of drugs into ‘unapproved new drugs.’”163 Genendo reiterated their version of this holding again as “packaging and labeling do not affect a drug’s status as an approved ‘new drug.’”164 However, with these statements, Genendo repeatedly overstates the holding in Kaybel. The Kaybel court never stated that where a drug was packed is irrelevant to whether it is a “new drug.” The Kaybel court, in fact, says very little in its short opinion. The Seventh Circuit correctly dismisses Kaybel as having very little applicability to the set of facts before it.
158 Massachusetts v. EPA, 127 S. Ct. 1438 (2007). 159 Genendo, 485 F.3d at 963 n. 3. 160 United States v. Kaybel, 430 F.2d 1346 (3d Cir. 1970). 161 Id. at 1347. 162 Id. 163 Brief of Appellant, Genendo Pharm. N.V., Genendo, 485 F.3d 958 (No. 03 C 6495), 2006 WL 498561, at *6. 164 Id. at *16.
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VI. IMPLICATIONS OF THE SEVENTH CIRCUIT’S HOLDING
A. Packaging Concerns and Health Considerations
The FDCA was put in place to protect consumers from the inherent dangers accompanying the drug production process. Both the district court and Seventh Circuit were correctly concerned that imported Lipitor came from an unapproved packaging facility in Brazil. As the Seventh Circuit noted, there was no way of knowing the conditions under which the imported Lipitor was originally packaged and no way of later correcting any of these deficiencies at a repacking facility such as Phil & Kathy’s.165 The FDCA takes these packaging considerations into account in various places. For instance, under § 351(a)(2)(A), a drug will be considered adulterated “if it has been prepared, packed or held under insanitary conditions whereby it may have been contaminated with filth, or whereby it may have been rendered injurious to health . . . .” These same concerns with packaging are reflected in numerous other places throughout the Act.166 Could these packaging provisions have acted as a check on the behavior of parties such as Genendo and Phil & Kathy’s? Consider a hypothetical situation the same as ours here. The Lipitor is manufactured at an FDA-approved facility, but packaged at a facility in Brazil that is not FDA-approved, and instead of being seized at the border, the drugs enter the United States and are successfully repackaged at Phil & Kathy’s. According to Genendo’s argument, the imported Lipitor—and “any other similarly manufactured, packaged, labeled, and unadulterated drugs Genendo would import in the future”—would not be unapproved new drugs or misbranded because they are exempt from the labeling and packaging requirements of the
165 Genendo, 485 F.3d at 964. 166 See e.g., 21 U.S.C. §351(a)(2)(B) (2000) (stating that a drug that is adulterated if the method of its packing does not conform to good manufacturing practices).
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FDCA while on their way to Phil & Kathy’s.167 This argument assumes that the drugs are unadulterated, claiming immunity from being unapproved new drugs nor misbranded. However, if the drugs were packaged in Brazil under insanitary conditions, they are by definition adulterated and subject to seizure.168 This is true without relying upon a statutory construction of § 353 that prohibits any importation of drugs that are not fully compliant with an NDA. The argument that the drugs are unapproved new drugs becomes moot. Conversely, if the drugs packaged in Brazil are not exposed to insanitary conditions, they are not adulterated.169 However, they would still fail to comply with the NDA because they were packaged in a different packaging facility, the labels are not in English, and the expiration period is different.170 Thus, under the current statutory interpretation, they would be unapproved new drugs subject to seizure.171 But what is the harm to the consumer in this case? None of the concerns with unsafe drugs resulting from insanitary packaging would come into play.172 This would then allow parties such as Genendo to import drugs lawfully into the United States for distribution, after a repackaging facility such as Phil & Kathy’s ensures that all of the proper labels, expiration dates, and other relevant information are placed on the drugs. Consumers would benefit by gaining access to another source to obtain safe and effective medication with full and accurate disclosures. Finally, in the situation that the imported drugs were manufactured in an unapproved manufacturing facility, Genendo’s
167 Brief of Appellant, Genendo Pharm. N.V., Genendo, 485 F.3d 958 (No. 03 C 6495), 2006 WL 498561, at *5 (emphasis added). 168 21 U.S.C. § 351(a)(2)(A) (2000) 169 Id. 170 United States v. 1500 90-Tablet Bottles, 384 F. Supp. 2d 1205, 1212 (N.D. Ill. 2005), aff’d sub nom. United States v. Genendo Pharm., N.V., 485 F.3d 958 (7th Cir. 2007). 171 Genendo, 485 F.3d at 963–64. 172 Id. at 964.
237 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 own argument admits that such drugs are unapproved new drugs subject to seizure.173
B. Does Genendo Foreclose All Parallel Imports?
The Seventh Circuit’s interpretation of the statute effectively prevents the majority of parallel imports. Any drug that a company such as Genendo wants to import will have to be purchased after it has been manufactured and packaged at an NDA- approved, and thus FDA-approved, facility. In the present case, this would leave Genendo with only the possibility of buying Lipitor from Frieburg, Germany or Vega Baja, Puerto Rico and not Sao Paulo, Brazil.174 The probable reason the Brazilian facility is not an FDA-approved packaging facility175 is because the drugs being packaged there are intended for distribution abroad. Pfizer has no reason to go through a rigorous FDA inspection for approval of its Brazilian facility if they do not plan for those drugs to enter the United States. This begs the question as to why Pfizer would even allow Genendo to purchase the Lipitor in Brazil. It clearly is not in Pfizer’s interests to have that Lipitor sold in the United States or else the company would be doing that itself. Meanwhile, if Genendo is limited to purchasing drugs manufactured and packaged at an FDA-approved facility, it will have to ensure that the only deviations from the NDA are those listed in the § 353 exemption.176 This could be a hefty task, especially without access to the company’s manufacturing and packaging information. It is easy to see how the transaction costs quickly rise in such a situation making it unfeasible for someone other than the drug’s own
173 Brief for Appellant, Genendo Pharm. N.V., Genendo, 485 F.3d 958 (No. 03 C 6495), 2006 WL 498561, at *12. 174 Genendo, 485 F.3d at 961. 175 Id. 176 Id. at 963. Again, those listed exemptions “relate to the requirement that the package contain the name and address of the manufacturer or distributor, a statement of the quantity of the contents, the established name of the drug, active and inactive ingredients, and adequate warnings and directions for use.” Id.
238 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 manufacturer to import the drug into the United States. Thus, the parallel import is effectively prohibited. If this is the result Congress intended, it could have drafted the original statute accordingly. Congress has demonstrated that it is capable of drafting such a section to prevent certain types of imports when it drafted § 381. That section prohibits anyone other than the manufacturer from re-importing into the United States drugs originally manufactured within the United States but shipped abroad for distribution.177 In that same regard, Congress could have responded with later legislation accomplishing this goal. This brings to the forefront the question of why has Congress not yet acted to explicitly declare parallel imports either legal or illegal? The cynical answer is that Congress is unduly influenced by the pharmaceutical lobby, whose interest it is to block the passage of a statute explicitly allowing parallel imports.178 The pharmaceutical lobby maintains more than 600 lobbyists, more than one lobbyist for each member of Congress.179 These lobbyists spent $435 million in Washington from 1996 to 2003, and doled out almost fifty-eight million dollars in contributions.180 Despite the presence of this strong lobby, it is clear that something needs to be done by Congress. In its first argument to the court, Genendo stated that parallel imports would have a cost saving result for American consumers181and much of American public echo this sentiment.182 There are also those on the other side of the argument who take the view that such imports will result in minimal savings for American consumers.183 Both sides of the argument have some merit, but it is Congress’ job to arrive at a conclusion. An unbiased report
177 21 U.S.C. § 381(d) (2006). 178 Barlett, supra note 4, at 1, 3. 179 Id. 180 Id. 181 Brief of Appellant, Genendo Pharm. N.V., Genendo, 485 F.3d 958 (No. 03 C 6495), 2006 WL 498561, at *i. 182 See, e.g., HHS TASK FORCE, supra note 16, at 65 (noting that consumers import drugs because they believe save money by buying outside of the United States). 183 Danzon, supra note 11; HHS TASK FORCE, supra note 16, at XI, XIII.
239 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 would greatly assist Congress in this task. The process will have to be transparent so that it can be ensured neither the pharmaceutical lobby nor any “pro-import” group can unfairly effect the outcome. Furthermore, the public needs to be educated; a greater understanding of the true benefits and downfalls of drug importation will help dispel many myths that currently exist184 and help ensure that the public understands the final compromise reached by Congress. However, while the debate in Congress goes on, many Americans will continue to import their drugs in other ways, such as through online pharmacies or by driving to Canada or Mexico, all the while facing the threat that the drugs they buy will be part of the twenty-five percent counterfeit or substandard drugs found in developed countries.185 Consumers are in an impossible position – they must choose between not getting any drugs at all because they cannot afford them, or getting drugs from outside the United States and taking a chance of suffering adverse consequences if the drugs are not safe. Consumers should not have to face this risk. This defeats the whole purpose of Congress’ attempt to protect consumers and ensure the safety of their drugs through the FDCA.186 In order to reduce the amount of American consumers forced to turn outside our borders for their drugs, the FDA inspection process at our borders needs report. The FDA is already overburdened with the usual load of imports it must inspect on a daily basis. In 2001 at a House Committee hearing, Representative Greenwood reported that in the course of one month U.S. Customs detained 16,000 shipments in the Los Angeles mail facility alone, yet only had time to inspect 1,900
184 See, e.g., Gracie Marie Turner, Drug Importation Myths Debunked, TRI- STATE MEDIA, June 20, 2007, http://www.tristate- media.com/articles/2007/06/20/warricknews/editorial/01drug.txt; Nina Owcharenko, Debunking the Myths of Drug Importation, THE HERITAGE FOUNDATION, July 20, 2004, http://www.heritage.org/Research/HealthCare/wm542.cfm. Note that the accuracy of these “myths” may also be questioned. 185 PFIZER, CASE STUDY: COUNTERFEIT CONTENTS, http://www.pfizer.com/ files/products/CounterfeitContents.pdf (last visited Nov. 28, 2007). 186 See supra notes 47–53 and accompanying text.
240 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 of those shipments.187 The other shipments continued on to their destinations without any FDA inspection.188 The Department of Health and Human Services confirms the burden on the FDA, stating that the “FDA currently does not have sufficient resources to ensure adequate inspection of current levels and categories of personal shipments of prescription drugs entering the U.S.”189 If parallel imports, like that in Genendo, are explicitly made legal, what can be done to improve this deficient inspection process? One step would be to follow the lead of Genendo. Genendo twice notified the government of its intention to import Lipitor into the United States after trying to obtain a declaratory judgment that its actions were legal.190 This notification probably gave the government sufficient knowledge to seize the imported Lipitor in the first place.191 Subsequent importers should be required to follow this practice. Putting the burden on the importer to notify the United States may help facilitate inspections and ensure the quality of drugs entering the country. Importers seeking to avoid inspection will of course not follow such protocol. However, the importers who do abide by such a procedure will be the legitimate ones and the burden on the FDA would thus be lightened and would allow them to devote more time to stopping rogue importers. A second necessity is that the FDA simply needs more help. This is only going to come through additional funding from Congress. The inspection process cannot become more efficient with the current FDA importation field staff of 450 workers.192 More people working on inspections means that more safe drugs will be properly allowed into the United States, and more importantly, more unsafe drugs will be stopped at our borders.
187 PFIZER, CASE STUDY: BILLION DOLLAR BUSINESS, http://www.pfizer.com/ files/products/BillionDollarBusiness.pdf (last visited Nov. 28, 2007). 188 Id. 189 HHS TASK FORCE, supra note 16, at XI. 190 United States v. 1500 90-Tablet Bottles, 384 F. Supp. 2d 1205, 1210 (N.D. Ill. 2005). 191 Brief of Appellant, Genendo Pharm. N.V., Genendo, 485 F.3d 958 (No. 03 C 6495), 2006 WL 498561, at *3. 192 HHS TASK FORCE, supra note 16, at X.
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CONCLUSION
The facts of Genendo193 cast an interesting light over the on-going debate over how to lower prescription drug prices. The court’s holding in Genendo was correct under the facts before it. It was unclear whether the imported Lipitor had in fact been originally packaged under sanitary conditions. The court erred on the side of safety. However, in arriving at this holding, the court’s statutory interpretation of § 353 reduced opportunities for the importation of safe drugs. The result is that U.S. consumers will not benefit from a safe and inexpensive alternative drug source and may be forced to turn once again to drastic measures in order to save money on drug purchases. The court’s attempt to promote the safety and welfare of American prescription drug consumers thus has the opposite intended effect: consumers are forced to weigh the choice of having no drugs at all, or gambling that far cheaper drugs purchased abroad or on black markets will be safe and effective. This certainly was not the goal of the court in issuing its decision, and it certainly is not a decision American consumers should have to make. This is not an easy issue to resolve. Few consumers would question the requirement that the manufacturing and packaging plants be inspected and approved. The rigorous approval process is why consumers feel safe in using the drugs they receive in the United States.194 However, few consumers would also question the need to lower the costs of prescription drugs. How does Congress balance the consumer need for cheap, effective prescription drugs with the enormous research and development costs pharmaceutical companies must somehow recoup? American consumers are not waiting around for Congress to answer this question. They will continue importing drugs from abroad
193 485 F.3d 958. 194 KAISER FAMILY FOUND., KAISER HEALTH POLL REPORT: VIEWS ON PRESCRIPTION DRUG SAFETY (Feb. 2005), available at http://www.kff.org/ healthpollreport/feb_2005/3.cfm (noting that Eighty percent of the population feels at least “somewhat” comfortable with the safety of prescription drugs they purchase).
242 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 until congressional action is taken. By going out on their own and purchasing potentially counterfeit or substandard drugs, American consumers undermine Congress’ goal of providing safe and effective drugs through the FDCA. Congress needs to specifically address the import issue in order to curtail this growing problem. This will require Congress to stand fast in the face of the powerful pharmaceutical lobby, which has a strong interest in maintaining the status quo. To ensure that it does not appear to be catering to the pharmaceutical lobby, Congress needs to be unbiased and as transparent as possible in the process of making a decision. Congress also needs to ensure that better mechanisms be put in place to ensure that counterfeit and substandard drugs are not entering the United States, lawfully or not. Congress must ensure that the health of the majority of Americans who depend on prescription drugs on a daily basis is not jeopardized.195 As part of this, the FDA inspection process needs to become more efficient. More inspections need to take place at our borders. This will require an increase in the number of FDA staff performing inspections, which in turn will require increased FDA funding. As more packages detained by the FDA are checked, the safety and efficiency goals of the FDCA are more fully served. These are legitimate but difficult policy issues that need to be addressed in the very near future.
195 See KAISER FAMILY FOUND., supra note 1.
243 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007
“BASED UPON” AND THE FALSE CLAIMS ACT’S QUI TAM PROVISION: REEVALUATING THE SEVENTH CIRCUIT’S METHOD OF STATUTORY INTERPRETATION
* ANTONIO J. SENAGORE
Cite as: Antonio J. Senagore, “Based Upon” and the False Claims Act’s Qui Tam Provision: Reevaluating the Seventh Circuit’s Method of Statutory Interpretation, 3 SEVENTH CIRCUIT REV. 244 (2007), at http://www.kentlaw.edu/7cr/v3- 1/senagore.pdf.
INTRODUCTION
Each year, fraud takes approximately $100 billion from the federal government.1 To help recover some of that substantial sum, Congress expanded the False Claims Act (“the FCA”).2 Through its qui tam provision,3 a plaintiff (called a “relator”) may sue those who defraud the government and share the damages the U.S. Attorney’s Office ultimately collects.4 But Congress has struggled to keep opportunistic relators from using publicly available information to file qui tam suits that do not detect any new fraud. In one egregious
* J.D. candidate, May 2008, Chicago-Kent College of Law, Illinois Institute of Technology. 1 See Carl Pacini & Michael Bret Hood, The Role of Qui Tam Actions Under the False Claims Act in Preventing and Deterring Fraud Against Government, 15 U. MIAMI BUS. L. REV. 273, 273 (2007). 2 31 U.S.C. §§ 3729-33 (2002). 3 Qui tam is shorthand for the Latin maxim qui tam pro domino rege quam pro se ipso in hac parte sequitur, which means “who as well for the king as for himself sues in this matter.” BLACK’S LAW DICTIONARY 1282 (8th ed. Bryan A. Garner). 4 See Pacini & Hood, supra note 1, at 273.
244 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 example, United States ex rel. Marcus v. Hess,5 the Supreme Court let a relator proceed even though he copied a criminal indictment verbatim into his qui tam complaint.6 Congress amended the FCA to prevent such abuse, but those amendments ended up barring meritorious qui tam suits. For instance, in United States ex rel. State of Wisconsin v. Dean,7 the Seventh Circuit refused to allow the State of Wisconsin to act as relator even when it had investigated Medicare fraud.8 In rejecting its suit for having relied upon publicly available information, the Seventh Circuit stated that “[i]f the State of Wisconsin desires a special exemption to the False Claims Act because of its requirement to report Medicaid fraud to the federal government, then it should ask Congress to provide the exception.”9 In response, Congress loosened restrictions on qui tam pleading in 1986 amendments to the FCA. But even while seeking to encourage relators to investigate and share their information with the government, Congress remained concerned about “parasitic” suits like Hess. Teetering between these two competing goals, Congress enacted the FCA’s Public Disclosure Bar,10 which bars actions “based upon” a “public disclosure,” unless the relator was the “original source of the information.”11 Although trying to simplify the FCA, Congress ended up confounding the federal courts.12
5 317 U.S. 537 (1943). 6 Id. at 546-48. 7 729 F.2d 1100 (7th Cir. 1984). 8 Id. at 1102. 9 Id. at 1106-07. 10 31 U.S.C § 3729(e)(4). 11 Id. 12 For instance, in United States ex rel. Merena v. SmithKline Beecham Corp., 14 F. Supp. 2d 352 (E.D. Pa. 2000), rev’d, 205 F.3d 97 (3d Cir. 2000), the exasperated district court summed up the difficulty of the issue for the federal courts:
There seems to be no unanimity both among and within individual circuits as to when claims are “based upon” public disclosures, what constitutes a public disclosure, when and under what circumstances a qui tam relator must first inform the government of the claims, the extent of the factual information that must be provided to the government prior to filing the qui tam action, when a qui tam action must be filed where there has been a
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Last term in Rockwell International v. United States,13 the Supreme Court clarified what “original source” means, but did not resolve what makes a claim “based upon . . . a public disclosure.”14 According to the majority of circuits, a qui tam suit is based upon a public disclosure “when the supporting allegations are the same as those that have been publicly disclosed . . . regardless of where the relator obtained his information.”15 However, the Fourth and Seventh Circuits follow a minority standard. They interpret “based upon” to mean that the suit “both depends essentially upon publicly disclosed information and is actually derived from such information.”16 In United States ex rel. Fowler v. Caremark Rx, LLC,17 the Seventh Circuit reaffirmed its minority standard, emphasizing that it “holds the trump card, the plain language interpretation.”18 This Note urges the Seventh Circuit to re-examine that holding according to the three theories of statutory interpretation: textualism,
public disclosure, what are the requisites to be classified as an “original source,” when a claim is “primarily based upon” prior public disclosures and many other issues that arise under the statute.
Id. at 371-72. 13 127 S.Ct. 1397 (2007). 14 See id. at 1405 (noting that the parties “conceded that the claims . . . were based upon publicly disclosed allegations within the meaning of § 3730(e)(4)(A)”). 15 See, e.g., Minnesota Assoc. of Nurse Anesthetists v. Allina Health Sys. Corp., 276 F.3d 1032 (8th Cir. 2002); United States ex rel. Mistick PBT v. Housing Auth. of the City of Pittsburgh, 186 F.3d 376 (3d Cir. 1999); United States ex rel. Biddle v. Bd. of Trustees of the Leland Stanford, Jr. Univ., 147 F.3d 821 (9th Cir. 1998); United States ex rel. McKenzie v. BellSouth Telecommns., Inc., 123 F.3d 935 (6th Cir. 1997); Federal Recovery Servs., Inc. v. United States, 72 F.3d 447 (5th Cir. 1996); Cooper v. Blue Cross and Blue Shield of Florida, Inc., 19 F.3d 562 (11th Cir. 1994); United States ex. rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645 (D.C. Cir. 1994); United States ex rel. the Precision Co. v. Koch Industries, Inc., 971 F.2d 548 (10th Cir. 1992). 16 United States ex rel. Mathews v. Bank of Farmington, 166 F.3d 853, 864 (7th Cir. 1999); accord United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339 (4th Cir. 1994). 17 496 F.3d 730 (2007), reh’g and suggestion for reh’g en banc denied, 2007 U.S. App. LEXIS 22319, at *1 (7th Cir. Sept. 7, 2007). 18 Id. at 738.
246 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 intentionalism, and purposivism.19 Part I summarizes the history of qui tam and the FCA. Part II discusses both sides of the “based upon” circuit split. Part III introduces Fowler and the Seventh Circuit’s method of statutory interpretation. Part IV evaluates the Seventh Circuit’s method according to the three theories of statutory interpretation. Part V explains why the Seventh Circuit should reconsider its minority approach. While the court purports to follow the plain meaning rule, its interpretation deprives “based upon” of its ordinary meaning. In addition, the Seventh Circuit ignores the legislative history of the FCA, which demonstrates Congress intended to limit qui tam suits supported by publicly available information. As a result, the court’s interpretation undermines a key purpose of the FCA: to prevent parasitic suits. Accordingly, this Note recommends that the Seventh Circuit adopt the majority approach.
I. HISTORICAL BACKGROUND
Qui tam arose from 13th Century English common law.20 Even before the Magna Carta, common law qui tam provided an efficient way to pursue fraud without government prosecutors.21 In addition, private citizens valued qui tam more because it allowed them access to Royal Courts.22 Common law qui tam fell into desuetude once Royal Courts were opened to all disputes.23 However, Parliament then enacted statutes that enabled qui tam actions to redress specific public wrongs.24 Only this statutory qui tam entered American law after independence.25 Indeed, the first U.S. Congress enacted qui tam
19 See generally WILLIAM N. ESKERIDGE, Jr., et al., LEGISLATION AND STATUTORY INTERPRETATION 219, 219-56 (2d ed. 2006) (2001). 20 JOHN T. BOESE, CIVIL FALSE CLAIMS & QUI TAM ACTIONS 1, 1-7 (2d ed. 2003). 21 Id. at 1-8. 22 Id. 23 Id. 24 Id. 25 Id.
247 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 statutes in order to supplement the government enforcement against fraud.26 During the Civil War, Congress enacted the FCA to create a new qui tam provision to pursue fraud against the Union Army.27 While nicknamed the “Informer’s Act” and the “Lincoln Law,” the FCA was generally applicable to fraud against the government.28 Fearing frivolous suits, Congress required the relator to pay his own legal fees and allowed the government to take over the suit entirely at any time at its sole discretion.29 These strictures limited the FCA’s use for the first decades it existed.30 Congress amended the FCA in 1943 after the Supreme Court controversially upheld a qui tam suit that completely relied on a publicly disclosed criminal indictment in United States ex. rel. Marcus v. Hess. 31 Electrical contractors employed by the Public Works Administration pleaded guilty to criminal fraud.32 Relator Morris L. Marcus allegedly copied that criminal indictment into his qui tam complaint and—without contributing anything— sought half of any subsequent civil judgment.33 Even though the relator contributed no additional information, the Court upheld the suit.34 Writing for the Court, Justice Hugo Black determined that Mr. Marcus “contributed much to the accomplishing of the purposes for which the Act was passed” by bringing an allegation of fraud to light.35 Acknowledging that Congress might have intended to limit the reward to informers who provided new information to civil prosecutions, the Court nevertheless concluded that “neither the language of the statute nor its history” supported that interpretation.36
26 Id. at 1-9 27 Id. 28 Id. 29 Id. 30 Id. 31 317 U.S. 537, 547-48 (1943). 32 Id. at 529 33 Id. 34 Id. 35 Id. at 545. 36 Id. at 546.
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To avoid the outright repeal of the FCA, Congress amended the FCA in 1943.37 The 1943 amendments eliminated the Hess end-run by barring jurisdiction for relators who had prior knowledge of the allegations of a criminal complaint an absolute bar to subject matter jurisdiction over qui tam suits.38 In addition, the amendments allowed the Justice Department to take over a qui tam case and reduced the maximum damages if the government took over the case.39 These changes initially decreased use of qui tam actions, but dramatic government spending growth besides military spending following World War II increased the use of qui tam.40 As qui tam expanded beyond its historic military bounds, relators started to use the FCA against persons and corporations besides government contractors.41 But some courts, particularly the Seventh Circuit, resisted relators’ use of the FCA in non-military matters. Most notably, in United States ex rel. State of Wisconsin v. Dean,42 the Seventh Circuit refused to allow the State of Wisconsin to act as a qui tam relator in a Medicaid fraud action, even though the investigation had been conducted solely by the State of Wisconsin.43 The court concluded that “[i]f the State of Wisconsin desires a special exemption to the False Claims Act because of its requirement to report Medicaid fraud to the federal government, then it should ask Congress to provide the exception.”44 In 1986 Congress did loosen the restrictions through yet another set of amendments.45 Essentially, the 1986 amendments made the FCA’s qui tam provision more closely resemble the permissive pleadings standards of common law fraud.46 In addition, the
37 Boese, supra note 20, at 1-14. 38 Id. 39 Id. 40 Id. at 1-15. 41 Id. 42 729 F.2d 1100 (7th Cir. 1984). 43 Id. at 1102, 1104. 44 Id. at 1106. 45 See Boese, supra note 20, at 1-19-1-21 (describing important changes made by 1986 amendments). 46 See Pacini & Hood, supra note 1, at 288.
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Committee sought to make the FCA more effective against fraud by altering the burden of proof and other provisions.47 In its current form, FCA relators generally must plead: 1) that a claim presented to the government by the defendant; 2) the claim was made “knowingly”; 3) that the claim was “false” or “fraudulent;” 4) that the false statement was material (in most courts); 5) causation; and 6) damage to the federal government.48 A victorious relator might recover somewhere between 15 and 30 percent of the total damages.49 In explaining the need for these changes, the Senate Judiciary Committee found that fraud pilfers taxpayers and “erodes public confidence in the Government’s ability to efficiently and effectively manage its programs.”50 Moreover, the amendments sought to correct decisions like Dean, which restricted the use of the FCA to only military procurement fraud.51
II. THE “BASED UPON” CIRCUIT SPLIT
The 1986 amendments included Section 3730(A)(4) of the FCA, which deprives a relator of subject matter jurisdiction if her claim is “based upon” a “public disclosure” (the “Public Disclosure Bar”), unless the relator can establish she was the “original source of the information” (the “Original Source Exception).52 Last term in Rockwell, the Supreme Court recognized that these are jurisdictional components of the FCA.53 In addition, the Court held that the Original Source Exception’s phrase “‘information on which the allegations are based’ refers to the relator’s allegations and not the publicly disclosed allegations.”54 However, the Court has not interpreted the meaning of
47 See Boese, supra note 20, at 1-26. 48 See Pacini & Hood, supra note 1, at 288-97. 49 See id. at 298-300. 50 S. REP. NO. 99-345, at 43 (1986), as reprinted in 1986 U.S.C.C.A.N. 5266, 5308. 51 See id. 52 31 U.S.C § 3729(e)(4). 53 Rockwell, 127 S.Ct. at 1406. 54 Id. at 1408. The Court, per Justice Antonin Scalia, focused on Congress’s telling use of the word “information” instead of repeating “allegations or
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“based upon.”55 Thus, the circuits remain split according to two different interpretations of “based upon.” Subsection A examines the majority standard. Subsection B examines the minority standard.
A. The Majority: “based upon” means “supported by”
The leading circuit court case to interpret the Public Disclosure Bar is United States ex rel. Precision Co. v. Koch Industries, Inc.56 The relator alleged that defendant systematically mismeasured crude oil and natural gas for government sale.57 The relator’s allegations partially relied on information from some publicly disclosed RICO civil suits.58 The Tenth Circuit affirmed dismissal of the case, holding that “based upon” meant a qui tam action “based in any part upon publicly disclosed allegations or transactions.”59 In other words, the court determined that “‘based upon’ is properly understood to mean ‘supported by.’”60 In reaching its conclusion, the court asserted that it would not “dramatically alter[] the statute’s plain meaning” by interpreting the term “based upon” to mean “solely based upon.”61 The court also emphasized that “statutes conferring jurisdiction on federal courts are to be strictly construed, and doubts resolved against federal jurisdiction.”62 As a result, the court decided that “based upon” acts as a “quick trigger” to quickly advance a court’s analysis to the Original transactions.” Id. at 1407. Even without considering legislative history, the Court wondered why Congress would care about a distinction that caused courts to measure “the relator’s information against the often unknowable information on which the public disclosure was based.” Id. at 1408. Accordingly, the Court concluded that “[t]o bar a relator with direct and independent knowledge underlying his allegations just because no one can know what information underlies the similar allegations of some other person simply makes no sense.” Id. 55 See id. at 1405. 56 971 F.2d 548 (10th Cir. 1992). 57 Id. at 550. 58 Id. at 554-55. 59 Id. at 553. 60 Id. at 552. 61 Id. 62 United States ex rel. Precision Co. v. Koch Indus., Inc., 971 F.2d 548, 552 (10th Cir. 1992).
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Source Exception.63 In support of this interpretation, the court concluded that it would further two purposes of the FCA: to encourage private citizens with first-hand knowledge of fraud to come forward, and to avoid parasitic lawsuits that do not disclose fraud.64 In United States ex rel. Springfield Terminal Railway Co. v. Quinn,65 the D.C. Circuit similarly held that the Public Disclosure Bar applies “where all of the material elements of the fraudulent transaction are already in the public domain and the qui tam relator comes forward with more evidence incriminating the defendant.”66 However, after parsing the FCA’s language, the D.C. Circuit developed a more nuanced definition of “based upon” than the Tenth Circuit. The court concluded that “Congress sought to prohibit qui tam actions only when either the allegation of fraud or the critical elements of the fraudulent transaction themselves were in the public domain.”67 The court interpretation reconciled the FCA’s text with its legislative history, which sought to navigate between two extremes. First, Congress evinced that the FCA should not let relators simply copy the government’s information verbatim.68 Second, Congress simultaneously sought to permit where the relator has real evidence of fraud, even if those suits were loosely connected to a public disclosure.69 In resolving this dilemma, the court recognized a different test: “whether the information conveyed to the government could have formed the basis for a governmental decision on prosecution, or could at least have alerted law enforcement authorities to the likelihood of wrongdoing.”70 Applying its standard, the court
63 Id. 64 Id. 65 14 F.3d 645 (D.C. Cir. 1994). 66 Id. at 655. 67 Id. at 654. 68 Id. 69 Id. (quoting United States ex rel. Joseph v. Cannon, 642 F.2d 1373, 1377 (D.C. Cir. 1981)). 70 Id. (quoting Cannon, 642 F.2d at 1377).
252 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 concluded that the relator’s information “did not present so clear or substantial an indication of foul play” for a qui tam suit.71 Next, the Third Circuit, per then-Judge Alito, adopted a similar approach in United States ex rel. Mistick PBT v. Housing Authority of the City of Pittsburgh.72 The relator, a general contractor, alleged that the defendant falsely claimed costs for lead-based paint abatement work at city housing projects.73 The relator’s qui tam suit cited documents produced through a Freedom of Information Act (FOIA) request and discovery from a state-court fraud suit.74 The court held that the allegations were based upon the public disclosures.75 In determining the meaning of “based upon,” the court did acknowledge that its ordinary meaning is not “supported by.”76 Even so, the Court reasoned that “based upon” should not mean “actually derived from “ because that would make the Original Source Exception superfluous.77 To circumvent the statute’s plain meaning, the court highlighted the FCA’s many drafting errors, ultimately concluding that “the qui tam provision does not reflect careful drafting.”78 Following similar reasoning, five more circuits have held “based upon” essentially means “supported by.”79
71 United States ex rel. Springfield Terminal Railway Co. v. Quinn, 14 F.3d 645, 656 (D.C. Cir. 1994). 72 186 F.3d 376 (3d Cir. 1999). 73 Id. at 379-81. 74 Id. at 381. 75 Id. at 388. The Court had first determined this FOIA request qualified as a public disclosure. Id. at 383. There is disagreement about this conclusion. See, e.g., United States v. Catholic Healthcare West, 445 F.3d 1147, 1153 (9th Cir. 1999), cert. denied, 127 S.Ct. 725 (2006); 127 S.Ct. 730 (2006). 76 Mistick, 186 F.3d at 386. 77 Id. 78 United States ex rel. Mistick PBT v. Hous. Auth. of City of Pittsburgh, 186 F.3d 376, 387-88 (3d Cir. 1999). 79 See, e.g., Minnesota Ass’n of Nurse Anesthetists v. Allina Health Sys. Corp., 276 F.3d 1032 (8th Cir. 2002); United States ex rel. Biddle v. Bd. of Trustees of the Leland Stanford, Jr. Univ., 147 F.3d 821 (9th Cir. 1998); United States ex rel. McKenzie v. BellSouth Telecomms., Inc., 123 F.3d 935 (6th Cir. 1997); Fed. Recovery Servs., Inc. v. United States, 72 F.3d 447 (5th Cir. 1996); Cooper v. Blue Cross and Blue Shield of Florida, Inc., 19 F.3d 562 (11th Cir. 1994).
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B. The Minority: “based upon” means “actually derived from.”
The Fourth Circuit split the circuits in United States ex rel. Siller v. Becton Dickinson & Co.80 In a previous suit, a health care distributor had sued Becton for breaching its distributorship agreement.81 Becton had allegedly feared that the distributor would alert the federal government to a scheme to overcharge for health care products.82 Becton settled that lawsuit so long as the settlement terms remained confidential.83 David Siller, the brother of the distributor’s president, then sued as relator in a qui tam action based on the overcharging scheme, asserting that he learned about overcharging before the previous lawsuits were filed and had subsequently investigated the overcharging scheme.84 The Fourth Circuit rejected Becton’s motion to dismiss, holding that Siller’s suit was not based upon a public disclosure because “based upon” only means “actually derived from that disclosure the allegations upon which [a relator’s] qui tam action is based.”85 The court relied on the dictionary definition of “based upon” is “to use as a basis for.”86 Accordingly, the court determined “it is self-evident that a suit that includes allegations that happened to be similar (even identical) to those already publicly disclosed, but were not actually derived from those public disclosures, simply is not, in any sense, parasitic.”87 The court distinguished other cases, asserting that it was deciding a case of first impression: whether a qui tam relator may derive the factual basis of his action from a public disclosure for it to
80 21 F.3d 1339 (4th Cir. 1994). 81 Id. at 1340-41. 82 Id. at 1341. 83 Id. 84 Id. 85 United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1347 (4th Cir. 1994). 86 Id. at 1348 (quoting WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 180 (1986)). 87 Id.
254 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 be “based upon” the public disclosure.88 Moreover, the court rejected the majority’s interpretation of “based upon” as “extra-textual requirement that was not intended by Congress.”89 Therefore, the court held that Siller could qualify as an original source.90 Besides the Seventh Circuit, only Third Circuit Chief Judge Becker has supported the minority standard in dissent, arguing that it “alone is faithful to the plain language of the governing statute.”91 In rejecting the argument that the FCA was sloppily drafted, Chief Judge Becker contended that Congress “drew the line at the point of actual public disclosure because it would bring the most fraud to light without engendering unnecessary suits.”92 Moreover, he recognized that “there is nothing ambiguous about the phrase ‘based upon.’”93 Finally, he argued that the minority approach did not read the Original Source Exception out of the statute for two reasons. First, he noted some qui tam suits might fall under the “based upon” language, even if they were not completely derived from public disclosures.94 Second, he reasoned that the “based upon” and “original source” inquiries would, in tandem, successfully deter parasitic lawsuits.95
III. UNITED STATES EX REL. FOWLER V. CAREMARK RX, LLC
In Fowler, the Seventh Circuit readopted the minority standard.96 Defendant Caremark provides prescription drugs for federal
88 Id. at 1349. 89 Id. at 1355 90 Id. at 1351. 91 United States ex rel. Mistick PBT v. Hous. Auth. of City of Pittsburgh, 186 F.3d 376, 389 (3d Cir. 1999) (Becker, C.J., dissenting). 92 Id. at 391 (quoting United States ex rel. Stinson, Lyons, Gerlin & Bustamonte, P.A. v. Prudential Ins. Col, 944 F.2d 1149, 1171 (Scirica, J., dissenting)). 93 Id. at 398-99. 94 Id. at 399. 95 Id. at 400. 96 United States ex rel. Fowler v. Caremark Rx, LLC, 496 F.3d 730, 739 (7th Cir. 2007) (quoting United States ex rel. Mathews v. Bank of Farmington, 166 F.3d 853, 864 (7th Cir. 1999)); accord United States ex rel. Feingold v. AdminaStar Fed., Inc., 324 F.3d 492, 495 (7th Cir. 2003).
255 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 government employee health care plans and employed relators at two of its prescription drug facilities.97 The relators brought a qui tam suit, alleging Caremark had defrauded the government through several overcharging schemes.98 During discovery, Caremark disclosed 113,000 pages of documents to the U.S. Attorney’s Office.99 When the government declined to intervene in the case in January 2006, these discovery documents were unsealed in February 2006.100 The U.S. District Court for the Northern District of Illinois dismissed the first complaint for failing to meet pleading requirements of Federal Rule of Civil Procedure 9(b).101 Defendant Caremark then moved to dismiss the second amended complaint because the Relator’s allegations were “based upon” the discovery materials publicly disclosed to the U.S. Attorney’s Office.102 The court denied that request, but again dismissed the relator’s complaint under Rule 9(b) for failing to “identify a single prescription through which Caremark perpetrated the alleged fraud.”103 The relators appealed the dismissal of their complaint with prejudice under Rule 9(b), and the Seventh Circuit affirmed.104 In an opinion by Judge Kanne, the Seventh Circuit affirmed the district court’s holding that the third amended complaint did not meet Rule 9(b) requirements.105 But despite Caremark’s urging, the court declined to reject its minority interpretation of the FCA’s Public Disclosure Bar.106 The court emphasized that the minority approach
97 Fowler, F.3d at 734. 98 Id. Specifically, the Relators alleged that Caremark defrauded the government by failing to credit returned prescription drugs, changing prescriptions without proper approval, misrepresenting the savings obtained from its recommendations, failing to substitute a generic version of Prilosec, failing to credit lost prescriptions, and manipulating the mandatory times for filing prescriptions. Id. 99 Id. at 735. 100 Id. 101 Id. at 739. 102 Id. at 736. 103 United States ex rel. Fowler v. Caremark Rx, LLC, 496 F.3d 730, 735 (7th Cir. 2007). 104 Id. at 733. 105 Id. at 739-43. 106 Id. at 738.
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“holds the trump card, the plain meaning interpretation.”107 The court asserted that, tellingly, the statute did not include a provision barring actions that are “the same or substantially the same as the public disclosure.”108 Furthermore, the court argued that this strict textualist approach properly balances the FCA’s policies.109 Echoing Chief Judge Becker, the court reasoned that the FCA’s plain meaning alone reflected a careful policy balance in trying to get insiders to come forward with information while deterring self-serving opportunists who file parasitic lawsuits.110 Even though the court acknowledged that perhaps this class of claims should be eliminated, the court declined to rewrite the statute, reserving that “policy choice” for Congress.111 In Fowler, the Seventh Circuit identified two public disclosures: Caremark’s discovery disclosures to relators and Caremark’s discovery disclosures to the U.S. Attorney.112 The court found no evidence that the relators used these public disclosures instead of the inside information they obtained while working at Caremark.113 As a result, the Seventh Circuit upheld the district court’s ruling that the third amended complaint was not actually derived from any publicly disclosure.114 Even so, Caremark still prevailed because the plaintiff’s complaint did not meet Rule 9(b) requirements.115
IV. THE SEVENTH CIRCUIT’S INTERPRETATION OF “BASED UPON” IS INCORRECT UNDER THE THEORIES OF STATUTORY INTERPRETATION
Ultimately, the Seventh Circuit reached the right result; it barred the relator’s allegations. But in reaffirming its minority interpretation
107 Id. 108 Id. at 739. 109 United States ex rel. Fowler v. Caremark Rx, LLC, 496 F.3d 730, 739 (7th Cir. 2007). 110 Id. 111 Id. 112 Id. at 736. 113 Id. at 738. 114 Id. at 739. 115 United States ex rel. Fowler v. Caremark Rx, LLC, 496 F.3d 730, 739-43 (7th Cir. 2007).
257 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 of “based upon,” the Seventh Circuit overlooked important parts of the three principal methods of statutory interpretation: textualism, intentionalism, and purposivism.116 First, the court does not follow a textualist approach because its minority interpretation effectively deprives “based upon” of its ordinary meaning. Second, the court completely ignores the intentionalist approach because it fails to examine the FCA’s legislative history. If it had, the court would have seen that Congress enacted the FCA’s 1986 amendments in response to the Seventh Circuit’s strict textualist approach. Finally, the court’s interpretation undermines the purpose of the FCA to prevent parasitic suits. While its interpretation allows the most fraud-catching suits to be filed, the court ignores empirical evidence that most of these lawsuits are frivolous. Although there is merit on both sides of the circuit split, the Seventh Circuit’s failure to fully consider the tools each of these methods provides forces future qui tam defendants to defend suits on Rule 9(b) grounds that could be more efficiently resolved under the Public Disclosure Bar, as Congress likely intended.
A. Textualism: The Seventh Circuit Assumes Away the Difficulties of Finding a Plain Meaning of “Based Upon”
Above all, textualists follow the Plain Meaning Rule: “where the language of an enactment is clear and construction according to its terms does not lead to absurd or impracticable consequences, the words employed are to be taken as the final expression of the meaning intended.”117 To avoid absurd or impracticable consequences, a court cannot interpret words in an overly burdensome or stingy manner.118 Thus, textualists search for the “ordinary” meaning of a statute’s
116 See generally Eskeridge, supra note 19, at 219-45 (identifying these categories). 117 United States v. Missouri Pac. Ry., 278 U.S. 269, 278 (1929). 118 West Virginia Univ. Hosps., Inc. v. Casey, 499 U.S. 83, 100 (1991)(“Where a statutory term presented to us for the first time is ambiguous, we construe it to contain that permissible meaning which fits most logically and comfortably into the body of both previously and subsequently enacted law.”).
258 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 words. Usually, dictionaries reveal a word’s ordinary meaning.119 But judges often disagree over the proper dictionary.120 Besides dictionaries, courts will interpret even ordinary terms according to the Canons of Statutory Interpretation, which guide interpretation of statutes according important assumptions about how legislative action should work.121 However, textualists generally avoid consulting a statute’s legislative history because only a statute’s text has passed the constitutional strictures of bicameralism and presentment; as a result, textualists believe legislative history is too malleable for authoritative construction.122 While purporting to follow the Plain Meaning Rule, the Seventh Circuit interpreted “based upon” so stingily it deprived the phrase of its ordinary meaning. The court’s reliance on a dictionary definition elides over other relevant definitions of the term. Webster’s Dictionary defines the phrase to mean “to find a base or basis for.”123 This definition does support the minority standard because it implies that the public disclosure serves as the only basis for a qui tam suit. But other dictionaries support the majority approach. For instance, the Oxford English Dictionary defines “based upon” to mean “to place on or upon a foundation or logical basis.”124 In turn, the Oxford Dictionary defines “foundation” to mean “[a] basis or groundwork on which something (immaterial) is raised or by which it is supported or confirmed.”125 This supports the minority interpretation of “supported by.” If two dictionaries support each approach, then the Seventh Circuit’s assertion that “based upon” has a unitary meaning simply begs the question. In any event, because “based upon” is a
119 See Eskeridge, supra note 19, at 259-61. 120 See, e.g., Note, Looking It Up: Dictionaries and Statutory Interpretation, 107 HARV. L. REV. 1437 (1994). 121 See Eskeridge, supra note 19, at 259-94 (describing role of canons in statutory interpretation); see also id. at 389-97 (collecting canons used by the Supreme Court). 122 See Elliott M. Davis, Note, The Newer Textualism: Justice Alito’s Statutory Interpretation, 30 HARV. J. L. & PUB. POL’Y 983, 988 (2007). 123 WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 180 (1986). 124 1 OXFORD ENGLISH DICTIONARY 979 (1989) (emphasis added). 125 6 OXFORD ENGLISH DICTIONARY 120.
259 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 colloquialism derived from ordinary conversation, the utility of dictionaries is diminished. Unlike words with a defined meaning, colloquialisms are simply part of conversational English.126 Justice Scalia criticizes the use of Webster’s Third New International Dictionary because it includes too many colloquial terms.127 Indeed, Congress should not have even used the unclear phrase “based upon.” If Congress had consulted a style manual, it probably would have recommended Congress to use a different construction.128 Thus, these sources suggest ”based upon” is an innately ambiguous term. Since it lacks a plain meaning, the Canons of Statutory Interpretation become most important. Yet the Fowler court improperly applied these Canons. In particular, the court disregarded the Whole Act Rule, which presumes that Congress uses terms consistently throughout a statute.129 Indeed, “it is a cardinal rule of statutory interpretation that no provision should be construed to be entirely redundant.” 130 Relying on the Whole Act Rule, Judge Alito’s Mistick opinion concluded that “based upon” should mean “supported by.” 131 Even though its assumption that Congress is an omniscient author is undercut by the mistakes in the FCA’s drafting,132 the Whole Act Rule properly cautions against the minority interpretation because it smothers the Original Source Exception.133 Furthermore, the Seventh Circuit ignored the presumption of statutory consistency, which further counsels against turning “based
126 A colloquial phrase is a phrase “having to do with or like conversation,” and is thereby more informal. WEBSTER’S NEW WORLD COLLEGE DICTIONARY 288 (4th ed. 2000). 127 See MCI v. AT&T, 512 U.S. 218, 228 n.3 (1994). 128 See, e.g., THE CHICAGO MANUAL OF STYLE 202 (15th ed. 2003). 129 Eskeridge, supra note 19, at 271. 130 Kungys v. United States, 485 U.S. 759, 778 (1988) (plurality opinion of Scalia, J.). 131 United States ex rel. Mistick PBT v. Hous. Auth. of City of Pittsburgh, 186 F.3d 376, 387 (3d Cir. 1999). 132 See id. at 387 -88 (describing mistakes in drafting); Eskeridge, supra note 19, at 271 (discussing assumptions of Whole Act Rule). 133 See Mistick, 186 F.3d at 387.
260 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 upon” into a technical requirement.134 “Based upon” is used throughout the FCA. Specifically, it is used in another jurisdictional bar135 and in a provision explaining the procedure for modifying or setting aside a civil investigative demand. three times in the FCA.136 Moreover, perhaps owing to its colloquial nature, Congress constantly uses “based upon” in its legislation.137 No similar circuit split yet exists over the meaning of “based upon” in other parts of the FCA.138 By determining that “based upon” always means “actually derived from” if used in its ordinary sense risks calling much of the U.S. Code into question, and the presumption of statutory consistency cautions against exactly that result. More troublingly, the Seventh Circuit appears to rely on the Canon of expresio unius, which states that if Congress includes one term, it implies the exclusion of all other terms.139 In the words of the Fowler court, Congress’s choice of “based upon” rules out any other interpretation of the term.140 Yet the primary justifications for this Canon lie in the criminal law context. Like the Rule of Lenity, “[t]his
134 See Eskeridge, supra note 19, at 273-74. 135 31 U.S.C. § 3730(e)(3) (requiring that “[i]n no event may a person bring an action under subsection (b) which is based upon allegations or transactions which are the subject of a civil suit or an administrative civil money penalty proceeding in which the Government is already a party) (emphasis added). 136 31 U.S.C. § 3733(j)(2)(B) (stating that a petition seeking relief “may be based upon any failure of the demand to comply with the provisions of this section or upon any constitutional or other legal right or privilege of such person”) (emphasis added). 137 A Westlaw Search conducted November 26, 2007, revealed 949 documents in the United States Code using “based upon” in their text. 138 No published case discusses Section 3733(j)(e)(2). In interpreting Section 3730(e)(3), the circuits did not similarly split over the meaning of “based upon.” See, e.g., Costner v. URS Consultants, Inc., 153 F.3d 667 (8th Cir. 1998); United States ex rel. S. Prawer v. Fleet Bank of Me., 24 F.3d 320, 328 (1st Cir. 1994) (holding that section 3730(e)(3) typically only bars a qui tam suit “based upon allegations or transactions pleaded by the government trying to recover fraud committed against it”). 139 Expresio unius is shorthand for the Latin maxim “expresio unius est exclusio alterius.” BLACK’S LAW DICTIONARY (8th ed. Bryan A. Garner), at 620. 140 See United States ex rel. Fowler v. Caremark Rx, LLC, 496 F.3d 730, 739 (7th Cir. 2007).
261 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 rule of thumb rests on the supposition that directives normally allow what they don’t prohibit.”141 But the qui tam provision is a unique grant of power to private citizens ordinarily reserved for Attorneys General. Accordingly, the Public Disclosure Bar is not a prohibition on certain conduct. Rather, it simply discusses a baseline rule. Just as commanding a child, “Don’t hit, punch, or choke your sister” does not permit pinching or pushing, expresio unius should not compel the court to let relators bring any action so long as it is not a verbatim copy of a public disclosure.142 Interestingly, no court uses the Canon of Constitutional Avoidance to justify a limitation on the FCA, even though that Canon suggests courts should narrowly interpret “based upon.” The Canon counsels that “if a case can be decided on either of two grounds, one involving a constitutional question, the other a question of statutory construction or general law, the Court will decide only the latter.”143 Indeed, there are doubts about the constitutionality of the FCA.144 The FCA raises separation of powers issues because it arguably permits the judiciary to interfere with the government’s ability to intervene in a suit.145 More troublingly, the prosecutorial powers granted to a private citizen may violate the Appointments Clause of Article II.146 Thus, interpreting “based upon” to increase the power of relators to participate in actions may at some point implicate one of these constitutional issues. Even though several courts have upheld the constitutionality of the FCA, a cautious court should consider the Canon of Constitutional Avoidance in interpreting the meaning of “based upon.” Since “supported by” creates a better limit on the prosecutorial power granted to citizens
141 Eskeridge, supra note 19, at 263. 142 See id. 264. 143 Ashwander v. Tennessee Valley Auth., 297 U.S. 288, 347 (1936) (Brandeis, J., concurring). See generally Eskeridge, supra note 19, at 360-67. 144 See Richard A. Bales, A Constitutional Defense of Qui Tam, 2001 WIS. L. REV. 381, 382 n.3 (2001) (collecting scholarship on the issue). 145 See, e.g., Ara Lovitt, Note, Fight for Your Right to Litigate: Qui Tam, Article II, and the President, 49 STAN. L. REV. 853, 867-68 (1997); James T. Blanch, Note, The Constitutionality of the False Claims Act's Qui Tam Provision, 16 HARV. J.L. & PUB. POL'Y 701, 702 (1993). 146 See, e.g., Lovitt, supra note 145, at 867-68; Blanch, supra note 145, at 702.
262 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 than “actually derived from,” the Canon counsels against the Seventh Circuit’s approach. In any event, the Seventh Circuit’s questionable use of expresio unius eviscerates the Public Disclosure Bar because it assumes that Congress only intended that provision to prohibit qui tam actions actually derived from a public disclosure. By so stingily applying the Plain Meaning Rule, the Seventh Circuit improperly followed the textualist approach. Rather, it merely concluded that the language itself clearly reflects “a careful policy balance” that Congress can easily change. The colloquial term “based upon” is not easily definable, and the text of the FCA does not show that Congress chose that term after careful deliberation. Even the Plain Meaning Rule recognizes that words may not be given their ordinary meaning if it would lead to absurd or impracticable consequences. Moreover, the court assumes away the difficulties of amending legislation.147 Instead, the court should recognize that the Plain Meaning Rule is so difficult to apply here. As a result, the Court should have considered the legislative history of the FCA.
B. Intentionalism: The Seventh Circuit Ignored the FCA’s Legislative History and Thereby Derogated its Gap-Filling Role
Intentionalists seek to resolve statutory ambiguities in favor of the intent evident in its statute’s legislative history.148 Courts consider applicable legislative history according to a hierarchy of reliability.149 Like a poker game, whoever presents the highest-ranked legislative history on point typically prevails. Generally, a Congressional Committee Report is most authoritative document because it usually describes the need for a statute and the role of each provision in serving that need.150 Next, courts consider congressional floor debates.151 These statements explain the need for specific provisions,
147 See generally Eskeridge, supra note 19, at 70-80. 148 See generally id. at 221-26. 149 Id. at 310-22. 150 See id. at 317. 151 See id.
263 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 but are less reliable because they only reflect the views of one legislator— not Congress as a whole.152 After reports and debates, any other legislative history is dramatically less reliable because it does not explain Congress’s rationale for enacting a statute and is more prone to political manipulation by a single legislator.153 The FCA’s legislative history is as confusing as the term “based upon.” The Senate Report best supports the minority position. Led by Sen. Charles E. Grassley of Iowa, several Senators introduced the False Claims Reform Act to the Senate Judiciary Committee on August 1, 1985. 154 The Senate Bill proposed to bar actions:
[B]ased upon allegations or transactions which are the subject of a civil suits in which the Government is already a party or within six months of the disclosure of specific information relating to such allegations or transactions in a criminal civil or administrative hearing, a congressional or Government Accounting Office report or hearing, or from the news media.155
The Senate Report’s explanation of this provision does not help define “based upon.”156 But, indirectly, testimony cited in the Senate Report supports the minority’s position. Summarizing the views of several witnesses, the Senate Report emphasized that its legislation sought to break “the ‘conspiracy of silence’ that has allowed fraud against the Government to flourish.”157 The Committee further stated that it sought to “rectify the unfortunate result” of the Seventh Circuit in Dean, which prevented a state from becoming a relator simply
152 See id. 153 See id. at 312-18 154 S. REP. NO. 99-345, at 13 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5278. 155 False Claims Amendments Act, Pub. L. No. 99-562, § 6 (1986). 156 See S. REP. NO. 99-345, at 30, reprinted in 1986 U.S.C.C.A.N. at 5294 (explaining that proposed § 3730(e)(4) would “disallows jurisdiction for qui tam actions based on allegations in a criminal civil or administrative hearing, a congressional or General Accounting Office report or hearing, or from the news media”). 157 Id. at 6, reprinted in 1986 U.S.C.C.A.N. at 5271.
264 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 because the U.S. Government learned of the fraud through information provided by the State of Wisconsin.158 On the other hand, the House version proposed a Public Disclosure Bar that would have triggered under two circumstances. First, it would have barred actions “based on specific evidence or specific information which the Government disclosed as a basis for allegations” in a different proceeding.159 Second, it would have barred actions “based on specific information disclosed during the course of a Congressional investigation or based on specific public information disseminated by any news media.”160 However, the House version provided a safe harbor for relators if the Government had the publicly disclosed information for six months before the qui tam action was filed and the Government did not intervene.161 In addition, the House version put the “burden on the defendant to prove the facts warranting dismissal of a case under these circumstances”162 The House Report could also support both positions. In its Report, the House Judiciary Committee reaffirmed the need for the 1943 Amendments in order to prevent frivolous lawsuits like the one the Supreme Court upheld in Hess.163 However, the Committee was concerned about barring suits where the Government knew of the information that was the basis of the suit, but decided not to intervene.164 Although the Committee does not cite the case, this resembles the Dean situation that the Senate Report explicitly mentioned. If so, this language supports the majority position. However, the House Report could arguably support the minority
158 Id. at 13, reprinted in 1986 U.S.C.C.A.N. at 5278. 159 Proposed 31 U.S.C. § 3730(b)(5)(A), as reproduced in H.R. REP. NO. 99- 660 (1986), at 2-3, reprinted in U.S. Cong. Serial Set 13702, 99th Cong. 2d Session, January 21-October 18, 1986. 160 Proposed 31 U.S.C. § 3730(b)(5)(B), as reproduced in H.R. REP. NO. 99- 660, at 3. 161 Proposed 31 U.S.C. § 3730(b)(5)(B)(ii), as reproduced in H.R. REP. NO. 99- 660, at 3. 162 H.R. REP. NO. 99-660, at 30. 163 Id. 164 Id. at 22.
265 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 position, since it described these provisions as barring actions based “solely” on publicly available information.165 Since the “based upon” language and the Original Source Exception appeared for the first time in the enacted statute, no sponsor could even discuss the bar in floor debate.166 And those few statements related to the jurisdictional bars preserved in the Congressional Record are often incorrect.167 Despite its reduced reliability, the legislative history considered as a whole suggests that the enacted statute was a compromise. The Senate was particularly concerned with permitting states to use publicly available information that they originally found, trying to overrule Dean.168 But both the Senate and House Committees were concerned about permitting too many frivolous lawsuits like the famous Hess example.169 Presuming that Congress sought to remedy the mischief caused by the Seventh Circuit’s interpretation in Dean, it seems most probable that the enacted bill included the “original source” exception to apply to a situation where a State was the original source of fraud allegations that it publicly disclosed to the government during a fraud investigation. Admittedly, the legislative history does also support the minority approach. Indeed, the House Report mentions that the jurisdictional bar would apply to those actions based solely on a public disclosure, but also sought to encourage the largest number of fraud catching suits.170 The Senate Report similarly wanted to encourage the largest number of fraud-catching qui tam suits.171 Yet, the Seventh Circuit did not address this legislative history at all in Fowler. While
165 H.R. REP. NO. 99-660 (1986), at 22-33, reprinted in U.S. Cong. Serial Set 13702, 99th Cong. 2d Session, January 21-October 18, 1986. 166 See Boese, supra note 20, at 4-44. 167 For instance, Representative Berman explained that the original source must have made information available “to the government or the news media in advance of the false claims being publicly disclosed.” 132 Cong. Rec. 29,322 (Oct. 7, 1986). The statutory language does not support his apparent intent for the jurisdictional bar. 168 S. REP. NO. 99-345, at 12-13 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5277-78. 169 See S. REP. NO. 99-345, at 10-11; 1986 U.S.C.C.A.N. at 5278. 170 H.R. REP. NO. 99-660, at 23. 171 S. REP. NO. 99-345, at 13-14; 1986 U.S.C.C.A.N. at 5277-78.
266 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the Seventh Circuit has previously noted the FCA’s legislative history in passing,172 the court has never examined it in detail. The Fowler court only avoided discussing legislative history because it incorrectly concluded that “based upon” has a “plain language interpretation.”173 But “based upon” does not seem to have only one meaning, particularly because the vast majority of circuits have reached a different interpretation of the term. In addition, the Seventh Circuit did not seriously consider the notion that its overly strict textualist approach in Dean may have caused Congress to amend the FCA in the first place, as the legislative history suggests. Moreover, by failing to consider legislative intent, the Seventh Circuit derogated its responsibility to fill gaps in the application laws, particularly when the legislative history suggests Congress intended that result. For instance, in Green v. Bock Laundry Machine Co.,174 the Supreme Court held that Federal Rule of Evidence 609(a)(1) requires a judge to allow impeachment of a civil witness with evidence of prior felony convictions.175 Even though the plain meaning of the rule suggested that a judge would weigh the prejudice to the defendant as in a criminal trial,176 the Court consulted legislative history that proved that Congress’s textual limitation of the prejudice balance to criminal defendants “resulted from deliberation, not oversight.”177 Even staunch textualist Justice Scalia concurred in the judgment, and although he did not consider legislative history, he recognized that the literal interpretation of the rule “produces an absurd, and perhaps unconstitutional result.”178 Similarly, the Seventh Circuit should recognize that Congress deliberated the FCA and intended it to continue the protections against frivolous suits as in Hess while permitting suits investigated by a
172 United States v. Bank of Farmington, 166 F.3d 853, 857-88 (7th Cir. 1999) 173 United States ex rel. Fowler v. Caremark Rx, LLC, 496 F.3d 730, 738 (7th Cir. 2007). 174 490 U.S. 504 (1989). 175 Id. at 527. 176 Id. at 509. 177 Id. at 523. 178 Id. (Scalia, J., concurring).
267 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 relator as in Dean. In addition, courts have already filled gaps in the interpretation of the FCA. For example, even though it mirrors common law fraud pleading requirements, the FCA does not require that a “material” false or fraudulent claim in order to impose liability.179 However, several circuits infer a materiality requirement from common law fraud.180 Besides following common law fraud requirements, such gap filling is warranted because of the difficulty of amending legislation. For over 20 years, members of Congress and lobbyists have pushed to amend the FCA.181 Indeed, Sen. Grassley recently submitted a bill to amend the FCA in light of Rockwell which would, in part, bar claims “based on a public disclosure only if the person bringing the action derived his knowledge of all essential elements of liability of the action or claim alleged in his complaint from the public disclosure.” 182 While Sen. Grassley evidently supports the minority interpretation of the FCA, the Seventh Circuit should not dare Congress to enact legislation to retroactively deal with the cases before it. Arguably, the Seventh Circuit’s strict textualist approach might encourage Congress to draft clearer statutes. But, until Sen. Grassley’s bill becomes law, the Senate and House Reports are the most authoritative statement of the entire Congress’s intent in enacting these amendments that is available. Since those documents suggest Congress intended to narrowly abrogate the FCA’s protections against parasitic lawsuits in light of Dean, the Seventh Circuit erred by not analyzing this legislative history to interpret an ambiguous statute.
C. Purposivism: The Seventh Circuit’s Interpretation Undermines the FCA’s Purpose to Prevent Parasitic Qui Tam Suits
Furthermore, the Seventh Circuit correctly noted the purposes of the FCA, but failed to properly analyze how its interpretation affects those purposes. As the Supreme Court has long recognized, “a thing
179 See Pacini & Hood, supra note 1, at 293. 180 See id. at 293-95. 181 Boese, supra note 20, at 1-34.2 (describing efforts to amend the FCA). 182 S. 2041, 110th Cong. (2007).
268 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 may be within the letter of the statute and yet not within the statute, because not within its spirit nor within the intention of its makers.”183 Unlike textualists, purposivists generally interpret a statute to further the policy reasons for its enactment.184 Of course, Congress enacts statutes for several, often competing purposes. Nevertheless, by interpreting a statute in light of its general purpose, purposivism achieves democratic legitimacy and allows courts to adapt static language to new and unforeseen circumstances.185 In interpreting the FCA, all circuits—even the textualist Fourth and Seventh Circuits—have justified interpretations of “based upon” in terms of the FCA’s purpose.186 The Seventh Circuit correctly recognized the two competing purposes of the FCA’s jurisdictional bar. On the one hand, Congress sought to loosen the restriction in order to encourage whistle blowing.187 On the other hand, Congress sought to deter “parasitic” lawsuits like the FCA’s 1943 amendments sought to avoid after Hess.188 Basically, the “based upon” circuit split concerns the appropriate balance between these two, competing goals. In the Seventh Circuit’s view, Congress’s choice of the phrase “based upon” reflects a careful “balance” between these two phrases.189 While thoughtful, the Seventh Circuit’s reasoning is misguided because the court does not consider the best source of Congress’ purpose: the FCA’s legislative history. That history shows that Congress’ primary purpose was to let one party (particularly a state) investigate a fraud, then publicly disclose its information to the federal
183 Holy Trinity Church v. United States, 143 U.S. 457, 459 (1892). 184 See generally Eskeridge, supra note 19, at 228-30. 185 See id. at 229. 186 Compare United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1354-55 (4th Cir. 1994) with United States ex rel. Precision Co. v. Koch Indus., Inc., 971 F.2d 548, 552 (10th Cir. 1992) (circuit cases on both sides of split supporting their conclusions with discussion of statutory purpose). 187 United States ex rel. Fowler v. Caremark Rx, LLC, 496 F.3d 730, 739 (7th Cir. 2007). 188 Id. 189 Id.
269 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 government.190 In that situation, the relator is likely the “original source” of the allegations. Even though Congress was concerned about permitting valid qui tam suits, the Seventh Circuit’s narrow interpretation of “based upon” overextends to include too many qui tam suits. Undoubtedly, some of these suits are frivolous. The Seventh Circuit recognized this, but readopted its standard because it believes that the majority standard would “eliminat[e] otherwise valid claims that Congress currently allows to go forth.”191 Yet empirical evidence suggests its premise is mistaken. Between 1986 and 2004, the Attorney General declined to intervene in 78% of all cases that where investigation was completed.192 Presuming that the Attorney General generally does not intervene in non-meritorious suits, one author has concluded that this data suggests that the majority of these cases were probably parasitic.193 If so, the FCA should restrict more qui tam suits in order to accomplish the purpose of preventing parasitic suits. Interpreting “based upon” to bar suits supported by publicly disclosed information would accomplish this goal.
V. WHY “BASED UPON” SHOULD MEAN “SUPPORTED BY.”
Perhaps the Seventh Circuit’s approach does reflect the plain language of the term “based upon;” it may even accord with Congress’s intent and purpose in enacting the Public Disclosure Bar. But troublingly, the Seventh Circuit’s method of statutory interpretation does not use all available tools of each method of statutory interpretation. The court ignores some Canons of Statutory Interpretation entirely.194 The court disregards the FCA’s legislative
190 See S. REP. NO. 99-345 (1986), at 13, reprinted in 1986 U.S.C.C.A.N. 5266, 5278; H.R. REP. NO. 99-660 (1986), at 22-33, as reproduced in U.S. Cong. Serial Set 13702, 99th Cong. 2d Session, January 21-October 18, 1986. 191 Fowler, 496 F.3d at 739. 192 Civil Div., U.S. Dep’t of Justice, Fraud Statistics-Overview (Mar. 4, 2005), at www.taf.org/fcastatistics2006.pdf. 193 Christina Orsini Broderick, Qui Tam Provisions and the Public Interest: An Empirical Analysis, 107 COLUM. L. REV. 949, 971 (2007). 194 See supra notes 129-37; 143-46 and accompanying text.
270 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 history, and in so doing, asserts a purpose that may not have been Congress’s purpose in amending the FCA.195 These additional tools of statutory interpretation suggest that “based upon” should mean “supported by.” Under a textualist Plain Meaning Rule approach, “supported by” more comfortably fits in the statute. Given that ‘based upon” is a colloquial term, Congress probably did not intend it to create a technical, dictionary-based requirement. Instead, as the Tenth Circuit recognized, the ordinary usage suggests “based upon” would serve as a “quick trigger,” barring suits partially supported by public disclosure.196 This interpretation accords with the legislative history, which expressed particular concern at allowing a suit like Dean while keeping the 1943 Amendment’s prohibition on parasitic suits. In addition, because empirical evidence suggests that many qui tam suits are frivolous, interpreting “based upon” to mean “supported by” would further the FCA’s purpose to eliminate parasitic suits.197 Despite these benefits, the majority standard does have costs. First, it makes pleading more difficult for relators. This arguably will stymie the FCA’s purpose to eliminate the “conspiracy of silence” that prevents fraud from coming to light. In addition, there are other vehicles to protect against parasitic suits. Keep in mind that Caremark ultimately won because the relators did not satisfy Rule 9(b) pleading requirements.198 Nevertheless, the Seventh Circuit and the Supreme Court should adopt the majority standard because its benefits outweigh these costs. First, Rule 9(b) is an insufficient guard against parasitic suits. Indeed, in Hess Mr. Marcus probably would have pleaded fraud with particularity when he copied the criminal indictment into his qui tam complaint. Thus, the Public Disclosure Bar should provide an additional safeguard against parasitic suits.
195 See supra notes 148-93 and accompanying text. 196 United States ex rel. Precision Co. v. Koch Indus., Inc., 971 F.2d 548, 552 (10th Cir. 1992). 197 See Broderick, supra note 193, at 971. 198 United States ex rel. Fowler v. Caremark Rx, LLC, 496 F.3d 730, 739-43 (7th Cir. 2007)
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But what exactly is a “parasitic” suit? To clarify this issue, the Seventh Circuit could adopt the First Circuit’s definition of “parasitic” as meaning that a qui tam case receives support from the government without giving any useful or proper return to the government.199 By this standard, the case in Fowler was probably parasitic because it was probably partially derived from the U.S. Attorney’s extensive discovery. Since the U.S. Attorney did not decide to proceed after that fraud, it seems that although the qui tam suit may have brought a fraud allegation to light, the U.S. government did not find enough evidence of fraud to pursue it.200 Therefore, in combination with the quick trigger interpretation of “based upon,” a more specific definition of “parasitic” would properly prevent truly parasitic qui tam suits. Even though this interpretation makes qui tam pleading more difficult for relators, it may further the purposes of the FCA because it might encourage better pleading in qui tam suits. In Rockwell, the Supreme Court already made pleading more difficult for a relator by forcing her to show that she is the original source of every allegation in the complaint.201 By additionally requiring that relators show that each allegation is not supported by a public disclosure, courts would encourage better pleading by relators. In so doing, courts would discourage situations like Fowler, where the relators went through three dismissed complaints.202 Most importantly, the Seventh Circuit should realize that its strict textualist approach in Dean helped cause Congress to amend the FCA in 1986.203 Given the Senate Report’s evident concerns with the Dean decision,204 Congress seems to have intended a narrower interpretation
199 United States ex rel. S. Prawer v. Fleet Bank of Maine, 24 F.3d 320, 327-28 (1st Cir. 1994). 200 See Fowler, 496 F.3d at 735. 201 See Aaron P. Silberman & David F. Innis, The Supreme Court Raids the Public Disclosure Bar: Cleaning Up After Rockwell International v. United States, 42 PROCUREMENT LAW 1, 20 (Summer 2007). 202 See, e.g., Fowler, 496 F.3d at 735. 203 See id. at 738; United States ex rel. State of Wisconsin v. Dean, 729 F.2d 1100, 1106-07 (7th Cir. 1984). 204 S. REP. NO. 99-345, at 13 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5278.
272 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 of the Public Disclosure Bar and Original Source Exception, limited only to let relators investigate and share fraud allegations.205 Even so, Congress did not intend its amendments to return to the days of Hess- type parasitic qui tam suits.206 Yet the Seventh Circuit’s current method of statutory interpretation suggests that Congress must pinpoint exactly what suits to allow and to prohibit when it legislates.207 Although this might encourage Congress to draft statutes more precisely, it derogates the Court’s historic gap-filling role for unclear statutes.208 Moreover, as then-Judge Alito recognized in his Mistick opinion, a strict textualist interpretation renders superfluous the original source exception, thereby smothering its protection against parasitic suits.209
CONCLUSION
In its efforts to clarify the FCA, Congress unfortunately chose the phrase “based upon” for its Public Disclosure Bar. Yet that poor word choice should not defeat the ordinary meaning of the phrase. Moreover, that choice should not defeat Congress’s intent and purpose in enacting the FCA. As the Supreme Court recently recognized in Rockwell, the FCA’s Public Disclosure Bar is anything but clear. In addition, Justice Alito—the author of Mistick—now sits on the Supreme Court. Since his opinion went beyond the difficult text of the FCA to consider legislative history, purpose, and common sense, his approach should be persuasive when the Court inevitably resolves this circuit split. In any event, the Fourth and Seventh Circuits should re- evaluate their minority standard in terms of the three methods of statutory interpretation, and realize their errors in reasoning. Until they
205 See id.; H.R. REP. NO. 99-660 (1986), at 22-33, as reproduced in U.S. Cong. Serial Set 13702, 99th Cong. 2d Session, January 21-October 18, 1986. 206 See S. REP. NO. 99-345, at 13, reprinted in 1986 U.S.C.C.A.N. at 5278; H.R. REP. NO. 99-660, at 30. 207 See United States ex rel. Fowler v. Caremark Rx, LLC, 496 F.3d 730, 738 (7th Cir. 2007); Dean, 729 F.2d at 1106-07. 208 Cf. Green v. Bock Laundry Mach. Co., 490 U.S. 504, 523-27 (1989). 209 See United States ex rel. Mistick PBT v. Hous. Auth. of City of Pittsburgh, 186 F.3d 376, 387 (3d Cir. 1999).
273 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 do, qui tam litigants will have to wait for the Supreme Court or Congress to clarify this confusing provision of the FCA.
274 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007
CRACKING THE DOOR TO STATE RECOVERY FROM FEDERAL THRIFTS
* DANIEL M. ATTAWAY
Cite as: Daniel M. Attaway, Cracking the Door to State Recovery from Federal Thrifts, 3 SEVENTH CIRCUIT REV. 275 (2007), at http://www.kentlaw.edu/7cr/v3- 1/attaway.pdf.
INTRODUCTION
From the end of October 1929 to the end of November 1929, the stock market lost over one hundred billion dollars in value.1 At the time, the loss represented over thirty times the entire federal budget of three billion dollars.2 By 1933, the nadir of the Great Depression, nearly 1,700 state chartered savings and loans had failed,3 and almost half of all home loans were in default.4 Compounding the crisis, the
* J.D. candidate, May 2008, Chicago-Kent College of Law, Illinois Institute of Technology; B.A. English, B.S.Ch.E., May 2001, Rice University. The author would like to thank his friends and family who have supported him through school, career changes, and even more school. The author also wishes to especially thank those people who provided much helpful criticism for this Note. 1 CNN.com, October 29, 1929: “Black Tuesday”, http://www.cnn.com/2003/ US/03/10/sprj.80.1929.crash/ (last visited Nov. 25, 2007). 2 NEW YORK: A DOCUMENTARY FILM (PBS 2007). 3 WFS Fin. Inc. v. Dean, 79 F. Supp. 2d 1024, 1026 (W.D. Wis. 1999). 4 In re Ocwen Loan Servicing, LLC Mortgage Servicing Litig., 491 F.3d 638, 641-42 (7th Cir. 2007) (citing Fid. Fed. Sav. & Loan Ass’n v. de la Cuesta, 458 U.S.141, 159 (1982).). The case name changed between the district court opinion and the Seventh Circuit opinion because Ocwen changed its name and charter. In future short citations, the district court case, In re Ocwen Federal Bank FSB Mortgage Servicing Litig., No. MDL 1604, 04-C-2714, 2006 WL 794739, at *4 n.2 (March 22, 2006)., is referred to as “In re Ocwen I.” The Seventh Circuit opinion, In
275 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 average household owed almost 20% of its income to creditors—an increase of over 10% from 1929.5 Forty-five percent of all farm mortgages were in default and home mortgage defaults were above 38% in over half of twenty-two metropolitan areas.6 Ten million people were unemployed, and nearly four and a half million people had lost their homes and were living in the streets.7 Many modern economists believe that the severity of the Great Depression is partly explained by the collapse of the banking system.8 Afraid of runs and the increasing defaults on their balance sheets, bankers further tightened credit—hoarding cash to remain solvent, but depressing macroeconomic output and worsening the economic depression in the process.9 During the Great Depression, Congress attempted to save the failing banking industry, expand credit, and prevent millions more people from being forced into the streets by enacting the Home Owners’ Loan Act of 1933 (“HOLA”).10 HOLA restored confidence in the banking industry and to end what President Franklin Delano Roosevelt called the rapid “deflation which was depriving [through
re Ocwen Loan Servicing, LLC Mortgage Servicing Litig., 491 F.3d 638, 641-42 (7th Cir. 2007), is referred to as “In re Ocwen II.” 5 BENJAMIN BERNANKE, ESSAYS ON THE GREAT DEPRESSION 46 (2000). 6 Id. 7 Franklin Delano Roosevelt Memorial, The Path to Social Justice: Black Tuesday, http://www.nps.gov/fdrm/generation/btues.htm (last visited Nov. 25, 2007). 8 BERNANKE, supra note 5, at 42-43. 9 Id. It is a situation that bears many similarities to the financial crisis of 2007. Banks are increasingly taking major writedowns on investments and, if they decide to maintain traditional debt to capital ratios, it could reduce lending by $2 trillion— representing a severe tightening in credit in the United States. Bank Capital: Tightening the Safety Belt, ECONOMIST, Nov. 24, 2007, at 77. 10 Home Owners’ Loan Act of 1933 §1, 12 U.S.C. § 1461 (2000). HOLA and the OTS only authorize and regulate federal S&Ls, not federal banks. Federal banks are chartered under the National Bank Act and administered by the Office of the Comptroller of the Currency (“OCC”). Practically, there is little difference between S&Ls and banks, but the OTS mandate is much broader than the OCC’s. See Andrew T. Reardon, An Examination of Recent Preemption Issues in Banking Law, 90 IOWA L. REV. 347, 363-64 (2004).
276 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 default and subsequent foreclosure] many millions of farm and home owners from the title and equity to their property.”11 HOLA created a federally backed and administered system of savings and loans (“S&Ls”), and created what is now the Office of Thrift Supervision (“OTS”).12 The OTS is the agency charged with developing and administering regulations that provide for the “examination, safe and sound operation, and regulation of [S&Ls].”13 Congress gave the OTS “the plenary and full authority . . . to regulate all aspects of the operations of Federal [S&Ls].”14 The OTS’ “plenary and full” authority means its regulations are “preemptive of any state law purporting to address the subject of the operations of a Federal savings association.”15 This authority allows the OTS to preempt state laws and regulate “the powers and operations of every Federal [S&L] from its cradle to its corporate grave.”16 State regulations and common law actions are valid only if they“incidentally affect the lending operations of Federal [S&Ls],” as required by the OTS preemption regulation, 12 C.F.R. § 560.2(c).17 Courts have generally interpreted HOLA and the OTS’ implementing regulations to pre-empt almost all claims against federal S&Ls.18 Even when federal law or the regulations do not provide a
11 Signing statement of Franklin D. Roosevelt on HOLA, June 13, 1933, in THE AMERICAN PRESIDENCY PROJECT (John Woolley and Gerhard Peters, eds.), http://www.presidency.ucsb.edu/ws/?pid=14665 (last visited Nov. 25, 2007). 12 See 12 U.S.C. § 1462(4) (2000). The administrative agency has had several names since its inception. The most recent change was in 1989, when Congress renamed it the OTS. In re Ocwen Federal Bank FSB Mortgage Servicing Litig., No. MDL 1604, 04-C-2714, 2006 WL 794739, at *4 n.2 (March 22, 2006). For consistency, OTS is used to refer to the agency or any of its predecessors. 13 12 U.S.C. § 1463(a)(1) (2000). 1412 C.F.R. § 545.2 (2007). 15 Id. 16 Fid. Fed. Sav. and Loan Ass’n v. de la Cuesta, 458 U.S. 141, 145 (1982) (internal quotations and citations omitted). 17 12 C.F.R. § 560.2(c) (2007). 18 See de la Cuesta, 458 U.S. at 151, n.9 (providing a survey of relevant federal and state cases where state law was preempted by OTS regulations).
277 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 private cause of action, the courts generally do not assert jurisdiction19 because “[e]ven the States’ salutary effort to redress private wrongs . . . cannot be exerted to regulate activities that are potentially subject to the exclusive federal regulatory scheme.”20 Under much of the federal courts’ jurisprudence, national banks are exempt from state regulation unless Congress or the OTS explicitly authorizes the state regulation.21 Recently, the Seventh Circuit decided In re Ocwen Loan Servicing, LLC Mortgage Servicing Litigation (“In re Ocwen II”).22 In it, the court explicitly rejected the OTS’ analysis of its own preemption regulation (12 C.F.R. §560.2), and expanded what actions only “incidentally affect” S&L operations.23 The court refused to dismiss the state and common law claims as preempted under HOLA.24 The opening, though limited, allows for some private actions against federal S&Ls and creates a less deferential test for what only incidentally affects a federal S&L.25 Part I of this Note provides an overview of the historical development of the courts’ extremely deferential attitude towards HOLA and the OTS regulations, and the courts’ willingness to find in favor of preemption. Part II traces the procedural history and holding of In re Ocwen, and analyzes the court’s reasoning and support for creating a modified analytical framework for judging when state law claims are allowable. Part III discusses the competing interests on both sides of the state law preemption debate, and discusses how allowing
19 Silvas v. E*Trade Mortgage Corp., 421 F. Supp. 2d 1315, 1320 (S.D. Cal. 2006). 20 Id. (quoting San Diego Bldg. Trades Council v. Garmon, 359 U.S. 236, 247 (1959)); see also Haehl v. Wash. Mut. Bank, F.A., 277 F. Supp. 2d 933, 942 (S.D. Ind. 2003) (State tort law can only be applied to federal S&Ls when it “incidentally affects” lending operations and will not prove to be a regulation on a preempted area.); but see Barnett Bank v. Nelson, 517 U.S. 25, 33 (1996) (State regulation of federal thrifts is permissible only when it “does not prevent or significantly interfere with the national bank’s exercise of its powers.”). 21 Evan B. Berg, Interstate Banking and Consumer Protection: Curtailing the Comptroller’s Preemption Power, 15 ANN. REV. BANKING L. 497, 502 (1996). 22 491 F.3d 638 (7th Cir. 2007). 23 See generally id. 24 Id. 25 Id.
278 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 additional state regulation and private causes of actions could both help and hinder consumer protection. Finally, Part IV concludes that Judge Posner and the Seventh Circuit reached the correct conclusion in the case and that, on balance, some limited state regulation of federal S&Ls will make the system stronger as a whole.
PART I: THE COMPLETE HISTORY OF U.S. FEDERAL BANKS (ABRIDGED)
For most of the history of the United States, the federal government has had a love/hate relationship with the idea of a national banking system; popular fears of large banks and “trusts” resulted in numerous state and federal laws restricting branch banking.26 The law and competition between state and national banking schemes kept the barriers for banking entry low and encouraged the growth of small, independent banks.27 Traditionally, bank failures in the United States occurred more often than failures in countries with centralized banking systems.28 Additionally, the smallness of U.S. banks made financial panics, or “runs,” much more devastating.29 It was not until 1933, after the collapse of the banking system, that Congress began to seriously regulate the industry.30 In the years since the New Deal, federal agencies have increasingly regulated the banking and lending
26 BERNANKE, supra note 5, at 44 (2d prtg. 2004). 27 Id. 28 Id. at 44-45. 29 Id. A “run” on a bank occurs when depositors are afraid a bank may be insolvent and move to withdraw their money. A large withdrawal by depositors forces the bank to quickly liquidate assets. If the forced liquidation price is significantly lower than the assets’ value, the bank may suffer financial losses and actually cause the bank to fail. Id. at 45. 30 The New Deal saw the rise of the administrative state. Beyond HOLA, these New Deal laws included the Securities Act of 1933, 48 Stat. 74 (codified as amended at 15 U.S.C. § 77(a) (1933) (regulating the sale of securities); the Securities Exchange Act of 1934, 48 Stat. 881 (codified as amended at 15 U.S.C. § 78a) (1934) (creating the Securities and Exchange Commission); the Glass-Steagall Act, 12 U.S.C. § 377 (1933) (repealed by the Gramm-Leach-Bliley (Financial Modernization) Act, Pub. L. No. 106-102, 113 Stat. 1341 (1999)) (creating the Federal Deposit Insurance Corporation and dividing banks into commercial and investment enterprises).
279 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 industry.31 In the case of S&Ls, however, courts have adopted an extremely deferential attitude to regulations from the OTS.32
A. Historical Development of the National Banking System
Almost since the inception of the United States, the government has fought over whether or not a national bank was necessary. George Washington signed the charter for the First National Bank in 1791, although he had doubts that a national bank was constitutional.33 As originally conceived, the bank had private shareholders in addition to the U.S. government, and also had greater operating powers than state banks.34 In 1811, James Madison—a Democratic-Republican— allowed the Bank’s twenty year charter to lapse.35 Just five years later,
31 See Reardon, supra note 11, at 363-64. Based on the economic evidence from the period, the slow financial recovery after the March 1933 “bank holiday” would have been must more difficult without extensive government intervention. The “bank holiday” was the period in March 1933 when President Roosevelt ordered all U.S. banks closed (“on holiday”) until the federal government could determine the bank was solvent. After a bank was reviewed and determined solvent, it was allowed to reopen for business. See BERNANKE, supra note 5, at 65. 32 Reardon, supra note 11, at 358. 33 R. Seymour Long, Andrew Jackson and the National Bank, 12 THE ENGLISH HISTORICAL REVIEW 45, 85, 88 (Jan. 1897). Hamilton and other Federalists saw the banks as necessary to create their vision of America as a commercial empire. For Hamilton, the bank offered the benefits of a uniform paper currency, better administration of public finances, more efficient tax collection, and a stronger national economy. TREASURY DEP’T (Alexander Hamilton), REPORT ON THE BANK OF THE UNITED STATES (1790), reprinted in LEGISLATIVE AND DOCUMENTARY HISTORY OF THE BANK OF THE UNITED STATES: INCLUDING THE ORIGINAL BANK OF NORTH AMERICA (Matthew St. Clair Clarke & David A. Hall, eds., 1832), at 15. Jefferson and the Democratic-Republicans saw the federal government as having more limited powers. See Jefferson Versus Hamilton on the Bank of the United States, in AMERICAN LEGAL HISTORY, at 137 (Kermit L. Hall et al., eds., 2005) [hereinafter Jefferson v. Hamilton]. The Democratic-Republicans believed that since the Constitution did not expressly grant the power to establish a national bank, banking was a state issue and a national bank was unconstitutional. Long, supra note 33, at 88. See Reardon, supra note 11, at 350-51. 34 See Jefferson v. Hamilton, supra note 33, at 137. 35 Long, supra note 33, at 88.
280 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 however, Madison chartered the Second National Bank to help underwrite the War of 1812.36 In 1819 the U.S. Supreme Court agreed to hear a constitutional challenge to the bank’s right to exist.37 The Court first enumerated the idea of implied federal powers in the Constitution and held that the federal government had the authority to create national banks and to preempt state laws attempting to regulate them.38 It was not until 1832 that the national banking system was again challenged. Andrew Jackson—the first Democratic president—was a staunch opponent of the national bank.39 Jackson vetoed the legislation that would have renewed the Second National Bank’s charter and wrote an impassioned veto statement denouncing the bank as unconstitutional.40 When the Second Bank’s charter expired in 1836, the area of “free” or “wildcat” banking began.41 The era was characterized by state regulated banks that created “instability in the nation’s currency and frequent bank failures.”42 The idea of federally authorized banks would not arise again until the Civil War.43 The Union needed to finance the Civil War, but could not legally obtain funds in state bank credit, forcing it to demand payment from banks in gold and tightening the money supply.44 The National Bank Act of 1864 established a system of federally regulated national banks capable of printing
36 Id. 37 McCulloch v. Maryland, 17 U.S. (4 Wheat) 316 (1819). 38 Id. 39 Andrew Jackson’s Veto Message July 10, 1832, reprinted in AMERICAN LEGAL HISTORY, at 161-62 (Kermit L. Hall et al., eds., 2005). 40 Id. 41 Reardon, supra note 11, at 351. 42 Id. at 352. 43 Id. 44 Jonathan R. Macey et al., BANKING LAW AND REGULATION 2-4, at 10 (3d ed. 2001).
281 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 money and encouraged state banks to buy government bonds,45 but they were not a national banking system.46 By the turn of the century, the general sentiment was that President Jackson’s views were correct.47 The banking system evolved into that of an “independent treasury” almost exclusively regulated by the States.48 A series of panics and runs on banks throughout the late 19th and early 20th centuries, however, finally convinced Congress that a national monetary policy was needed.49 In an effort to provide greater monetary control over the U.S. banking system, Congress enacted the Federal Reserve Act of 1913.50 The system set up a decentralized national monetary system, but still did not provide for oversight or regulation of individual banks.51 Importantly, the Federal Reserve was not itself designed to be a consumer bank, but a bank for banks; it was meant to set broad monetary policy and to be a bank’s lender of last resort so that the bank could remain solvent.52 Although the Federal Reserve could set a broad national monetary policy, it could not ensure that banks operated responsibly. In 1933, the country had almost reached the nadir of the Great Depression.53 Following the stock market crash, there had been a run on banks and credit had all but disappeared.54 Over half of the counties in the United States had seen all their S&Ls close and roughly one- fifth of the nation was without access to an institution capable of
45 The National Bank Act, 13 Stat. 100 (June 3, 1864) (codified as amended at 12 U.S.C. §§ 21-216d) (2000). The purpose of the National Bank Act was to “provide a national currency secured by a pledge of United States bonds, and to provide for the circulation and redemption thereof.” See § 38. 46 Id. 47 Long, supra note 33, at 99. 48 Id. See also BERNANKE, supra note 5, at 45 (2d prtg. 2004) (noting that until the Great Depression, panics were contained by “loose organizations of urban banks” that provided stability). 49 BERNANKE, supra note 5, at 45. 50 Federal Reserve Act, 38 Stat. 251 (codified as amended at 12 U.S.C. §§ 221- 522 (2000).). 51 Id. 52 Id. 53 BERNANKE, supra note 5, at 47-48, 62. 54 See generally BERNANKE, supra note 5, at 41-69.
282 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 providing a mortgage.55 In the wake of the collapse of the state banking system and the severe contraction of credit to homeowners, Congress enacted HOLA.56 HOLA created a system of federally- backed and federally-regulated S&Ls to help ensure they would be “permanent associations to promote the thrift of the people in a cooperative manner, to finance their homes and the homes of their neighbors.”57
B. The OTS Regulations
To regulate federally-backed banks, Congress created the OTS under the Department of the Treasury.58 HOLA gave the OTS “plenary authority to issue regulations governing federal savings and loans.”59 The language creating the OTS “expresses no limits on [its] authority to regulate” and even the Supreme Court has noted that “it would have been difficult for Congress to have given the [OTS] a broader mandate.”60 From this grant of authority, the OTS developed regulations, including regulations governing its power to preempt state law.61 The OTS is “authorized to promulgate regulations that preempt state laws affecting the operations of federal savings associations when deemed appropriate to facilitate the safe and sound operation of federal
55 Fid. Fed. Sav. and Loan Ass’n v. de la Cuesta, 458 U.S. 141, 160 (1982). 56 Id. In the wake of the financial collapse, many traditional lenders left the market almost entirely. For example, life insurance companies made $525 million in home mortgage loans in 1929, but only $16 million in 1934. In 1934, the year after HOLA was enacted, seventy-one percent of all home mortgage loans were made by the Home Owners’ Loan Corporation (created by HOLA). See BERNANKE, supra note 5, at 64-65. 57 RD S.REP. 73 CONG.-NO. 91, at 2 (1933). 58 de la Cuesta, 458 U.S. at 162. The original agency was known as the Federal Home Loan Bank Board. OTS is used for consistency. See supra note 12. 59 de la Cuesta, 458 U.S. at 160. 60 Id. at 161. 61 The OTS’ authority to regulate is outlined in sections 4(a) and 5(a) of HOLA. See 12 C.F.R. § 560.2(a) (2007).
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[S&Ls].”62 The OTS regulations—which have been upheld by courts—explicitly give it the power to occupy the “entire field of lending regulation for federal [S&Ls].”63 With only very narrow exceptions, “federal savings associations may extend credit as authorized under federal law, including this part, without regard to state laws purporting to regulate or otherwise affect their credit activities.”64 Because of the broad grant of Congressional power in HOLA, the OTS has, “without limitation,” exempted large swaths of S&L operations from state regulation.65 These areas include licensing and registration, credit terms offered to customers, servicing fees, disbursements, escrow accounts, insurance on mortgages, and insurance due on sale clauses.66 The narrow exception for state laws
62 See HOLA §§ 4(a), 5(a) (codified as amended at 12 U.S.C. §§ 1463(a), 1464(a) (2000)). 63 12 C.F.R. § 560.2(a). 64 Id. According to the OTS regulations, “‘state law’ includes any state statute, regulation, ruling, order or judicial decision.” Id. 65 12 C.F.R. § 560.2(b) (2007). 66 See 12 C.F.R. § 560.2(b). (“Except as provided by the exemption section of the regulation, the following types of state laws are preempted without limitation: (1) Licensing, registration, filings, or reports by creditors; (2)The ability of a creditor to require or obtain private mortgage insurance, insurance for other collateral, or other credit enhancements; (3) Loan-to-value ratios; (4) The terms of credit, including amortization of loans and the deferral and capitalization of interest and adjustments to the interest rate, balance, payments due, or term to maturity of the loan, including the circumstances under which a loan may be called due and payable upon the passage of time or a specified event external to the loan; (5) Loan-related fees, including without limitation, initial charges, late charges, prepayment penalties, servicing fees, and overlimit fees; (6) Escrow accounts, impound accounts, and similar accounts; (7) Security property, including leaseholds; (8) Access to and use of credit reports; (9) Disclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit contracts, or other credit-related documents and laws requiring creditors to supply copies of credit reports to borrowers or applicants; (10) Processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages; (11) Disbursements and repayments; (12)Usury and interest rate ceilings to the extent provided in 12 U.S.C. 1735f-7a and part 590 of this chapter and 12 U.S.C. 1463(g) and § 560.110 of this part; and (13)
284 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 arises when a state law “only incidentally affect[s] the lending operations of Federal [S&Ls] or [is] otherwise consistent with the purposes of [this regulation].”67 The regulation also provides one additional area that is not preempted and gives the OTS the ability to allow state or common law claims to proceed.68 The OTS may declare a state law not preempted if, upon review, it finds that the law: (i) Furthers a vital state interest; and (ii) Either has only an incidental effect on lending operations or is not otherwise contrary to the purposes expressed in paragraph (a) of [the preemption regulation].”69 In interpreting the statute and the resulting regulations, however, the courts had to determine the level of deference appropriate to both HOLA and the OTS regulations.
C. Judicial Deference to the OTS Regulations
All regulatory agencies are not created equal however, and their regulations are subject to varying degrees of deference—both from the states and from the courts.70 With the rise of the administrative state after the New Deal, the tension between conflicting state and federal laws increased.71 To deal with the conflicts, courts looked to the
Due-on-sale clauses to the extent provided in 12 U.S.C. 1701j-3 and part 591 of this chapter.”). 67 12 C.F.R. § 560.2(c) (2007). 68 Id. 69 Id. (“State laws of the following types are not preempted to the extent that they only incidentally affect the lending operations of Federal savings associations or are otherwise consistent with the purposes of paragraph (a) of this section: (1) Contract and commercial law; (2) Real property law; (3) Homestead laws specified in 12 U.S.C. 1462a(f); (4) Tort law; (5) Criminal law; and (6) Any other law that OTS, upon review, finds: (i) Furthers a vital state interest; and (ii) Either has only an incidental effect on lending operations or is not otherwise contrary to the purposes expressed in paragraph (a) of this section.”). 70 For example, the OCC, which regulates national banks, has traditionally had much less authority to preempt state law than the OTS, which regulates national S&Ls. See Reardon, supra note 11, at 358. 71 See Reardon, supra note 11, at 356.
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Supremacy Clause of the Constitution.72 Based on the Supremacy Clause, courts developed a body of precedent that determined when, and to what degree, federal regulations would preempt (i.e. supersede) state laws and regulations.73
1. Preemption Doctrine
To determine whether a state law or regulation is preempted, courts first look to Congressional intent.74 Depending on Congressional intent, courts may find either express or implied federal preemption.75 In express preemption, Congress explicitly states its intent for the federal law to preempt state law.76 Even without explicit Congressional language, Courts may still find implied Congressional intent when the language of the statute requires preemption.77 There are two types of implied preemption: field preemption and conflict preemption.78 In field preemption79, the body of federal law is so encompassing that it makes clear Congress implicitly meant to
72 Id.; see U.S. CONST. art. VI, cl. 2 (“This Constitution, and the Laws of the United States which shall be made in Pursuance thereof, and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”). 73 Reardon, supra note 11, at 356. 74 Cal. Fed. Sav. & Loan Ass’n v. Guerra, 479 U.S. 272, 280 (1987). 75 Gade v. Nat’l Solid Wastes Mgmt. Ass’n, 505 U.S. 88, 98 (1992) (providing an overview of preemption doctrine). 76 Berg, supra note 21, at 500. See also Bank of Am. v. City and County of San Francisco, 309 F.3d 551, 558 (9th Cir. 2002) (citing Guerra, 479 U.S. at 280). 77 Gade, 505 U.S. at 98. 78 Berg, supra note 21, at 500. 79 An example of this type of preemption would be immigration; federal law, and not state law, is responsible for determining whether an immigrant my legally enter the country, become a naturalized citizen, or be deported. Monica Guizar, Facts About Federal Preemption: How to analyze whether state and local initiatives are an unlawful attempt to enforce federal immigration law or regulate immigration (Nat’l Immigration Law Center, Los Angeles, Cal.), June 2007, at 4, available at http://www.nilc.org/immlawpolicy/LocalLaw/federalpreemptionfacts_2007-06- 28.pdf.
286 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 preempt state regulation.80 Conflict preemption occurs when the state and federal schemes are irreconcilable.81 Determining the scope of preemption—often even express preemption—requires a detailed analysis to determine what, exactly, Congress meant to preempt.82 The problem arises because statutory language is open to interpretation by the courts.83 Courts do not generally presume preemption, especially when the federal law or regulations would preempt the traditional police powers of the states.84 If, however, there is a significant history of federal regulation in a particular area, the presumption against preemption does not apply.85 Traditionally, courts have held that the OTS’ regulation of federal S&Ls are so pervasive that they trigger field preemption.86 In fact, some courts have created a reverse presumption in dealing with OTS regulations—that state law is always preempted in the face of OTS regulation.87
80 Bank of Am., 309 F.3d at 558 (9th Cir. 2002) (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947).). This type of field preemption occurs in two situations: (1) the federal law and regulations are so pervasive that they leave no room for state supplementation or (2) the federal law and regulations are so dominant they preclude additional laws. Reardon, supra note 11, at 357. 81 Gade, 505 U.S. at 98. See also Berg, supra note 21, at 500. Conflict preemption occurs when: (1) it is physically impossible to comply with both the federal and state schemes; (2) the state law or regulation thwarts the intent of Congress; or (3) state law preempts the implementation of the federal law or regulation. Reardon, supra note 11, at 358-59. 82 Reardon, supra note 11, at 356-57. 83 Id. 84 Id. at 358-59. 85 United States v. Locke, 529 U.S. 89, 108 (2000). 86 Reardon, supra note 11, at 357 n. 80. The Note catalogues several of the important historical Supreme Court cases where the Court has simply deferred to the OTS regulations. This presumption is important because it often shifts the burden of proof. The OTS’ regulations are presumed to preempt state law. Thus, the party challenging the regulation has the burden to show that the state law is not preempted, rather than the OTS having the burden to show that it is. 87 Id. at 363-64. The article discusses the Ninth Circuit’s decision in Bank of Am. v. City and County of San Francisco, 309 F.3d 551 (9th Cir. 2002). The opinion concerned banking and S&L regulation (administered by the Office of the Comptroller of the Currency (“OCC”) and the OTS, respectively). The court noted
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2. Applying Preemption Doctrine to the OTS Regulations
The OTS regulations clearly evince a belief by the agency that Congress granted it the authority to preempt virtually all state regulation.88 But a regulatory agency’s determination of its power is valid only if the courts uphold both the grant of power and the agency’s exercise of it.89 If the courts decide that the Congressional grant is unconstitutional, they can limit the ability of the agency to make regulations.90 Even if the court holds the grant to be valid, however, they can hold that the regulation is outside the scope of the grant of power.91 By the time HOLA was passed in 1933, Congress had already evinced a willingness to at least dabble in the banking industry for nearly one hundred fifty years. McCulloch v. Maryland first established the Constitutional basis for the federal government to create and regulate a federal banking system.92 Since the National Bank Act of 1864 and the Federal Reserve Act of 1913, the Court has recognized that interpreting Congressional banking regulations was an that federal banking was a traditionally preempted area and stated that it would give deference to the agencies’ regulations as long as they were reasonable. Interestingly, however, the court did not analyze the reasonableness of the regulations, but simply stated the regulations were reasonable. Id. 88 See generally 12 C.F.R. § 560.2 (2007). 89 See generally Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837 (1984). 90 Id. (discussing the standard for deference to administrative regulations and decisions). 91 Id. Chevron established a two step test to determine how much deference a court should give to an administrative agency’s regulations. First, the court must decide whether Congress explicitly delegated the authority to the agency, and, if so, the reviewing court must defer to the agency’s decision unless the delegation of authority was clearly unconstitutional. If Congressional delegation in the statute is ambiguous, the court will defer to the agency if the agency’s interpretation is reasonable and the regulation is not clearly arbitrary or capricious. Id. at 842-43. 92 17 U.S. (4 Wheat) 316 (1819) (holding Congress had the implied power to create a national banking system and that a state may not impede the exercise of that constitutionally granted power).
288 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 exercise in “interpreting grants of both enumerated and incidental ‘powers’ to national banks as grants of authority not normally limited by, but rather ordinarily pre-empting, contrary state law.”93 By the end of the 20th century, both the various circuit courts and the Supreme Court supported the idea that federal regulation of federal banks is so “pervasive as to leave no room for state regulatory control.”94 The courts have also held that the OTS’ regulatory power— while leaving the states some room over traditional common law areas and incidental regulations—effectively preempted the field.95 The regulations receive a presumption of field preemption because “there has been a ‘history of significant federal presence’ in national banking [and] the presumption against preemption of state law is inapplicable.”96 Thus, judicial deference and the history of federal regulation grant the OTS wide latitude in preempting state law affecting S&Ls.97 The OTS had promulgated its own interpretation of how its preemption regulations should be interpreted.98 The OTS guidelines use a two step analysis to determine whether a state statutory or common law action is preempted.99 Under this analysis, the court must first ask whether the state law attempts to regulate any area explicitly preempted by 12 C.F.R. § 560.2(b)—even if the regulation would be indirect.100 If the answer is yes, then the state law claim is automatically preempted by HOLA and 12 C.F.R. § 560.2(c) cannot
93 Barnett Bank of Fla. v. Nelson, 517 U.S. 25, 32 (1996) (tracing the history of preemption from McCulloch to the present day). 94 Conference of Fed. Sav. & Loan Ass’ns v. Stein, 604 F.2d 1256, 1260 (9th Cir. 1979), aff’d, 445 U.S. 921 (1980). 95 Bank of Am. v. City and County of San Francisco, 309 F.3d 551, 558-59 (9th Cir. 2002). 96 Bank of Am., 309 F.3d at 558-59 (9th Cir. 2002) (citing United States v. Locke, 529 U.S. 89, 108 (2000); Barnett Bank, 517 U.S. at 33 (1996); Franklin Nat’l Bank v. New York, 347 U.S. 373, 375-76 (1954)). 97 Bank of Am., 309 F.3d at 558-59 (9th Cir. 2002) (citing Locke, 529 U.S. 89, 108 (2000); Barnett Bank, 517 U.S. at 33 (1996); Franklin Nat’l Bank, 347 U.S. at 375-76 (1954)). 98 61 Fed. Reg. 50,951, 50, 966-67 (Sept. 30, 1996). 99 Id. 100 Id.
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“save” the action.101 Only if the answer is no may the court determine whether the law is not preempted by § 560.2(c) because it would only have an incidental affect on S&L operations. Finally, the OTS has taken the Supreme Court’s invitation to “not feel bound by existing state law.”102 For example, federal and state banks were generally not allowed to expand beyond state lines until 1994, when Congress expressly permitted interstate bank acquisitions regardless of state law.103 Under OTS regulations, however, federal S&Ls were allowed to take over failing S&Ls in other states without regard to state law, and by 1992, the OTS had abolished all geographic limitations on S&L expansion.104 The OTS has continued to aggressively assert its regulatory preemption powers, especially in the areas of establishing branch offices, lending activities, and deposit- taking activities.105 Recently, in 2003, the OTS issued opinions exempting federal S&Ls from state predatory lending laws in Georgia, New York, New Jersey, and New Mexico.106 Because the Supreme Court expressly left open the question of whether all state regulation of federal S&Ls was preempted by HOLA, lower courts have been forced to determine the level of preemption.107 For many courts, including the Seventh Circuit, the question has been answered with almost complete deference to the OTS regulations.108 Only in a minority of courts and jurisdictions have any state regulations been allowed, even when there are only incidental effects
101 Id. 102 Fid. Fed. Sav. and Loan Ass’n v. de la Cuesta, 458 U.S. 141, 162 (1982). 103 Riegle-Neal Interstate Banking and Branching Efficiency Act, Pub. L. No. 103-328, 108 Stat. 2338 (1994) (codifed as amended at 12 U.S.C. §1 (2000)). 104 Arthur E. Wilmarth, Jr., The OCC’s Preemption Rules Exceed the Agency’s Authority and Present a Serious Threat to the Dual Banking System and Consumer Protection, 23 ANN. REV. BANKING & FIN. L. 225, 282-83 (2004). 105 Id. at 285-86. 106 Id. at 286. 107 de la Cuesta, 458 U.S. at 159; see also Wilmarth, supra note 104, at 285. 108 See, e.g., Haehl v. Washington Mut. Bank, F.A., 277 F. Supp. 2d 933, 942 (S.D. Ind. 2003), Wis. League of Fin. Inst., Ltd. v. Galecki, 707 F. Supp. 401, 404 (D. Wis. 1989), Moskowitz v. Wash. Mut. Bank, 768 N.E.2d 262, 264-66 (Ill. App. Ct. 2002); Bank of Am. v. City and County of San Francisco, 309 F.3d 551, 558-60 (9th Cir. 2002).
290 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 to the banking system.109 Generally, courts, including both the Illinois state courts and the Seventh Circuit, have been content to preempt all state regulation of federal S&Ls. As justification, these courts cite the long history of significant federal regulation, judicial deference, and the OTS’ interpretation of its preemption power.
PART II: IN RE OCWEN
In re Ocwen resulted from the consolidation of a number of complaints brought against Ocwen Loan Servicing, LLC (“Ocwen”)110 into a multi-district litigation (“MDL”) class action.111 By 2006, fifty- one plaintiffs had joined the litigation and the Consolidated Complaint listed twenty-three different counts.112 In addition to federal claims under the Fair Debt Collection Practices Act113 and the Real Estate Settlement Procedures Act,114 the plaintiffs alleged violations of various state consumer protection statutes and common law counts for, among other things, fraud, unjust enrichment, and breach of contract.115
109 See, e.g., Gibson v. World Sav. & Loan, 128 Cal. Rptr. 2d 19, 27-31 (Cal. Ct. App. 2002); Wells v. Chevy Chase Bank, 832 A.2d 812, 824-33 (Md. 2003). 110 Ocwen Loan Servicing, LLC was, at the time relevant for the litigation, a federally chartered S&L. Although Ocwen did not actually originate home mortgages, it bought mortgages from other lenders and then administered collecting payments, premiums, and, if necessary, instituted forclosure proceedings. In re Ocwen Loan Servicing, LLC Mortgage Servicing Litig., 491 F.3d 638, 641 (7th Cir. 2007). 111 Transfer Order from the MDL Panel Establishing MDL 1604, In re Ocwen Loan Servicing, LLC Mortgage Servicing Litig., No. 04-C-02714 (Apr. 16, 2004). 112 In re Ocwen Fed. Bank FSB Mortgage Servicing Litig., No. MDL 1604, 04- C-2714, 2006 WL 794739, at *1 (March 22, 2006). 113 15 U.S.C. §§ 1692a – 1692p. (2000). 114 12 U.S.C. §§ 2601 – 17 (2000). 115 See generally Consolidated Class Action Complaint, In re Ocwen I, No. MDL 1604, 04-C-2714, 2004 WL 3688469 (Aug. 23, 2004). The claims encompassed state laws in California, Connecticut, Illinois, New Mexico, and Pennsylvania. In re Ocwen Loan Servicing, LLC Mortgage Servicing Litig., 491 F.3d 638, 641 (7th Cir. 2007).
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The plaintiffs alleged that Ocwen breached their loan agreements by “ignoring grace periods, misapplying and failing to apply loan payments, improperly charging late fees, and force-placing insurance on properties already insured.”116 According to the plaintiffs, this often caused the plaintiffs to be unable to meet their payments, and resulted in Ocwen foreclosing on their mortgages.117 In their complaint, the plaintiffs sought statutory, compensatory, and punitive damages, restitution and an injunction against Ocwen from engaging in similar misconduct.118
A. Procedural History
On April 25, 2005, the district court for the Northern District of Illinois granted Ocwen’s motion for a partial summary judgment, dismissing a single contract claim, but specifically reserving judgment on the rest of the plaintiffs’ state and federal law claims.119 In July 2005, Ocwen filed a motion to enjoin what was, in effect, parallel litigation in the Texas state courts by three Texas law firms that also represented members of the plaintiffs’ class.120 The district court enjoined the Texas proceeding, but was reversed on appeal.121 In reversing the district court, the Seventh Circuit held that “[a]lthough an injunction prohibiting discovery could be appropriate in some circumstances, the broad injunction prohibiting all litigation [in the state of Texas] by the Texas law firms is not supported by the record in this case.”122
116 In re Ocwen I, No. MDL 1604, 04-C-2714, 2006 WL 794739, at *1 (N.D. Ill. Mar. 22, 2006). 117 Consolidated Class Action Complaint, In re Ocwen I, No. MDL 1604, 04-C- 2714, 2004 WL 3688469 (Aug. 23, 2004). 118 Id. 119 In re Ocwen I, No. MDL 1604, 04-C-2714, at *1 (N.D. Ill. Apr. 25, 2005). 120 Prelim. Inj. Motion, In re Ocwen I, No. MDL 1604, 04-C-2714 (N.D. Ill. July 29, 2005). 121 Id., see Brief For Appellants, In re Ocwen I, No. MDL 1604, 04-C-2714, 2006 WL 794739, at *8-12 (N.D. Il. Mar. 22, 2006); In re Ocwen I, No. 05-4268, slip op. at 4 (7th Cir. Dec. 13, 2005). 122 In re Ocwen I, No. 05-4268, slip op. at 4 (7th Cir. Dec. 13, 2005).
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During this time, both parties continued to file motions.123 Ocwen filed motions to dismiss the complaint based on preemption of state law claims, failure to state a claim, and for lack of personal jurisdiction.124 The plaintiffs continued to add new named plaintiffs and filed numerous motions to remand various issues to state courts.125 In January of 2006, the parties and the district court agreed on an order for determining the numerous outstanding motions.126 All parties and the court agreed that most, if not all, of the state causes of action would be dismissed if the court found them preempted by the OTS regulations.127 Thus, the agreement stipulated that Ocwen’s motion for dismissal of the state law claims would be the first motion decided.128 The district court ordered additional briefing in light of the Seventh Circuit’s order vacating the injunction against the Texas law firms and ruled on March 22, 2006.129 In its ruling, the district court noted that “[s]tate regulation of banking is permissible when it ‘does not prevent or significantly interfere with the national bank’s exercise of its powers’.”130 The district court used this concept and the exceptions to federal preemption listed in 12 C.F.R. § 560.2(c) to allow the state law claims to proceed.131 According to exception six under § 560.2(c), a state law
123 See Docket, In re Ocwen I, No. MDL 1604, 04-C-2714 (N.D. Ill.). 124 Id. 125 Id. 126In re Ocwen I, No. MDL 1604, 04-C-2714, 2006 WL 794739, at *2 (N.D. Ill. Mar. 22, 2006). 127Id. 128 Id. The district court ordered additional briefing on the issue because it felt that they related to whether to joined state law claims in the consolidated litigation could go forward. 129 See generally id. 130 Id. at *4, (citing Bank of Am. v. City and County of San Francisco, 309 F.3d 551, 558-59 (9th Cir. 2002) (quoting Barnett Bank of Fla. v. Nelson, 517 U.S. 25, 33 (1996))). 131 Id. at *4-5 (March 22, 2006). “State laws governing federal S&Ls are accepted for the following categories when they only ‘incidentally affect’ lending operations: (1) Contract and commercial law; (2) Real property law; (3) Homestead laws specified in 12 U.S.C. 1462a(f); (4) Tort law; (5) Criminal law; and (6) Any other law that OTS, upon review, finds: (i) Furthers a vital state interest; and (ii)
293 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 may regulate a federal S&L when there is a vital state interest and it would further the aims of HOLA.132 The court reasoned that consumer protection was a vital state interest, satisfying the first part of the test.133 The district court then reasoned that Congress intended for HOLA to protect consumers, and that allowing the state law claims to proceed would further Congressional intent.134 The court allowed Ocwen to file an interlocutory appeal to decide “whether . . . HOLA and its implementing regulations . . . preempt plaintiffs’ state-law claims challenging the mortgage-servicing activities of, and loan- related fees allegedly assessed by, a federal [S&L].”135
B. The Seventh Circuit’s Opinion
A Seventh Circuit panel consisting of Judges Posner, Rovner, and Sykes heard the appeal on March 28, 2007 and Judge Posner issued the opinion of the panel on June 22, 2007.136 Judge Posner, writing for the court, noted that HOLA does not create private rights of action and gives the OTS only limited remedial authority to enforce its regulations.137 In doing so, Judge Posner adopted the reasoning of the district court, and placed consumer protection above a general
Either has only an incidental effect on lending operations or is not otherwise contrary to the purposes expressed in paragraph (a) of this section.” 12 C.F.R. § 560.2(c) (2007). 132 12 C.F.R. § 560.2(c)(6). This is the language that the district court seizes on to deny Ocwen’s motion to dismiss. It is interesting to note, however, that the actual wording of the regulation gives the OTS, not the courts, the final authority to determine whether or not a particular state law meets the criteria. (“Any other law that OTS, upon review, finds . . .”). Id. 133 In re Ocwen I, at *4 (N.D. Ill. March 22, 2006). 134 Id. The court also took notice of the Seventh Circuit’s decision to allow the state law claims in Texas to proceed. According to the court’s reasoning, had the Seventh Circuit felt the state law claims had been preempted, it would not have allowed the Texas state law actions to proceed. Id. 135 Appellants’ Opening Brief, In re Ocwen I, No. MDL 1604, 04-C-2714, 2006 WL 2788080 (Sept. 13, 2006). 136 See In re Ocwen Loan Servicing, LLC Mortgage Servicing Litig., 491 F.3d 638, 643 (7th Cir. 2007). 137 Id.
294 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 preemption of the field.138 The court affirmed the district court’s refusal to dismiss the complaint, but also provided an analysis of the state law claims—giving insight into which claims it thought were preempted and which it did not.139
1. The Court’s Analysis
It is useful to view the court’s opinion as having three parts: in the first, the court discusses the background facts and provides an overview of the law; in the second, the court formulates its own rule; and in the third, the court applies its rule to each of the claims.140 Judge Posner first noted that the complaint “is a hideous sprawling mess” and that “the defendants [could] hardly be blamed for wanting to strangle the monster in its crib” with the motion to preempt most of the litigation.141 The court noted that “of course” Ocwen was correct that the OTS guidelines should be used to interpret the regulations, and even referred to the line between preempted and non-preempted actions as “both intuitive and reasonably clear.”142 Here, however, is where the party ends for Ocwen. The court stated that HOLA gave the OTS broad plenary power to issue regulations for federal S&Ls, and gave it some power to enforce its regulations, but it did not give the OTS power to adjudicate disputes between the S&Ls and their customers.143 The OTS could not provide a remedy to customers who were harmed by S&Ls who violated OTS regulations.144 The court also noted that consumer
138 Id. (“It would be surprising for a federal regulation to forbid the homeowner’s state to give the homeowner a defense based on . . . breach of contract.”); compare In re Ocwen I, No. MDL 1604, 04-C-2714, 2006 WL 794739, at *4 (N.D. Ill. Mar. 22, 2006) (“[C]ourts should be cautious in finding preemption in areas of consumer protection.”). 139 In re Ocwen II, 491 F.3d at 644-50. 140 See generally id. 141 Id. at 643. 142 Id. 143 Id. (citing OTS, “How to Resolve a Consumer Complaint 1-2,” www.ots.treas.gov/docs/4/480924.pdf. (last visited June 5, 2007)). 144 Id.
295 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 protection was part of the reason the OTS was created and given the power to regulate in the first place.145 By emphasizing the purpose of HOLA, the court restricted the language of preempted areas to the actual language of the statute.146 This restriction effectively expanded the definition of what it means to “incidentally affect” lending operations.147 The court recognized that certain common law remedies were enforceable—these remedies may affect S&L operations, but they do so no more than they would affect any business.148 For the court, requiring that S&Ls meet minimum standards of ethical business practice was only an incidental effect on an S&L’s operations, even if it forced the S&L to do something not required—or even allowed—by the OTS regulations. Interestingly, the first part of the opinion is scant on the law of preemption. The court only mentioned preemption in reference to HOLA, the OTS preemption regulation, and the OTS guidelines for interpreting the OTS’ exemption power.149 The court did not discuss how other courts, or even past Seventh Circuit panels, have interpreted the preemption authority Congress gave the OTS under HOLA or even how preemption of state law normally arises.150 On reading the first part of the court’s discussion it appears that the court will hold the OTS’ preemption regulation reasonable without discussion and summarily dismiss the state law claims. This approach would not be without precedent. The Ninth Circuit, in Bank of America v. City and County of San Francisco, noted that regulations must be reasonable, but accepted—without discussion— that the OCC and OTS regulations were reasonable.151 Here, the court seems to accept—without discussion—that the OTS regulations preempt the field. Similarly, it appears here that the Seventh Circuit
145 Id. 146 Id. 147 Id. 148 Id. 149 Id. 150 See generally Id. 151 See generally Bank of Am. v. City and County of San Francisco, 309 F.3d 551 (9th Cir. 2002).
296 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 accepts as obvious that any state law or regulation that attempts to directly regulate the expressly preempted areas is preempted.152 It also states that “[i]t would not do to let the broad standards characteristic of [contracts, commercial law, and torts] morph into a scheme of state regulation.”153 Reading the outline of the law the court provided makes it initially appear that the court will side with precedent and the Ninth Circuit, and adopt an extremely deferential attitude to the OTS regulations.154 Yet precisely the opposite happens—after acknowledging the regulations and interpretations, the court proceeds to ignore them.155 According to the court, subsection (c) of the OTS preemption regulation was not meant to “deprive persons harmed by the wrongful acts of savings and loan associations of their basic state common-law- type remedies.”156 Judge Posner reasoned that Congress has the power to preempt any remedy other than those it prescribes, or to even bar recovery completely, but it does not do so often.157 When Congress bars recovery to an injured plaintiff, it is the exception, not the rule.158 For the court, barring recovery is similar to federal preemption—in order for it to exist, Congress must clearly state its intent that the bar should exist and the reasons for the bar.159 For the court, the OTS meant for state law to complement federal regulations and subsection (c) of the preemption regulation does so by upholding the basic laws and “norms that undergird commercial transactions.”160 The court reasoned that the norms will only incidentally affect federal S&L operations because the state’s objective—consumer protection—is not in conflict with the OTS’ objective of providing for the safe and sound operation of federal
152 In re Ocwen II, 491 F.3d at 643. 153 Id. 154 Id. 155 Id. at 643-44. 156 Id. at 643 (interpreting 12 C.F.R. § 560.2(c) (2007).). 157 In re Ocwen II, 491 F.3d at 644. 158 Id. 159 Id. (noting that ERISA is an example of a federal law that does bar common law suits). 160 Id.
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S&Ls.161 Thus, the court held that despite precedent to the contrary, the general state commercial laws are not preempted precisely because they serve the same purpose as the federal regulations.162 This interpretation tends to disregard the OTS guidelines for preemption that, just a few paragraphs before, the court had accepted as obvious. Additionally, the court—like the district court before it— failed to follow the strict letter of the OTS’ preemption exemption subsection. Both the Seventh Circuit and the district court based their opinion on a state’s compelling interest in protecting its resident consumers.163 Both courts coupled this compelling consumer protection interest with the idea that state consumer protection laws are complementary to the purpose of HOLA and the OTS in general.164 And both ignored the part of the regulation that states that only the OTS can decide whether a law serves a compelling state interest and is complementary to the OTS regulations such that it should not be exempted.165 The court appears to give great deference to the regulations, but bases its fundamental argument on a power the OTS clearly meant to keep out of judicial hands. The court takes the same approach justifying its interpretation with OTS board decisions. It chooses only those decisions that suit its needs. For example, the court cites to an OTS opinion that states that “[s]tate laws prohibiting deceptive acts and practices in the course of commerce are not included in the illustrative list of preempted laws in section 560.2(b).”166 The court ignores, however, the OTS opinions from 2003 that expressly preempted federal S&Ls from state predatory lending laws in Georgia, New York, New Jersey, and New Mexico.167
161 Id. 162 Id. at 644-45. 163 See id.; compare In re Ocwen I, No. MDL 1604, 04-C-2714, 2006 WL 794739, at *4-5 (March 22, 2006). 164 In re Ocwen II, 491 F.3d 638; compare In re Ocwen I, No. MDL 1604, 04- C-2714, 2006 WL 794739, at *4-5 (March 22, 2006). 165 12 C.F.R. § 560.2(c) (2007). 166 In re Ocwen II, 491 F.3d at 644 (quoting Preemption of State Law Applicable to Credit Card Transactions ¶IIC (Opinion of OTS Chief Counsel, Dec 24, 1996, 1996 WL 767462). 167 Wilmarth, supra note 104, at 286.
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The court gives lip service to judicial deference without actually deferring to the OTS. In coming to this decision Judge Posner and the court had to at least partially break with the long line of cases where the courts refused to enforce any state law or remedy that might possibly affect some aspect of a federal S&L’s operations.168 By determining that common law actions that complement the intent of the federal regulations are acceptable, the court implicitly broadened the definition of what is incidental.169 And the court does so while giving the appearance of deference.170 The standard the court seeks to enforce is a far cry from accepting the OTS regulations as so “pervasive as to leave no room for state regulatory control.”171 “[N]o room for state regulatory control” is a clear statement for the states, and the courts, to practice extreme deference when interpreting the regulations and to almost always err on the side of finding preemption.172 By holding that general business law173 can apply to federal S&Ls, Judge Posner and the court broaden incidental effects to cover consumer protection.174 This allows plaintiffs to recover when they may otherwise be barred by either prior precedent or the OTS regulations and guidelines.175 Rather than applying the idea of a pervasive field preemption, the court seems instead to rely on a conflicts analysis of preemption—only those laws that would directly interfere with the federal regulations are preempted, anything else will
168 See supra Part I. 169 In re Ocwen II, 491 F.3d at 643-44. 170 Id. at 643 (In the opening of the opinion, Judge Posner noted that “of course” the OTS regulations were controlling and that the OTS guidelines should be used to interpret the regulations.). 171 Conference of Fed. Sav. & Loan Ass’ns v. Stein, 604 F.2d 1256, 1260 (9th Cir. 1979), aff’d, 445 U.S. 921, 100 (1980). 172 Id. 173 The court talks about general business laws as “state laws prohibiting deceptive acts and practices in the course of commerce.” In re Ocwen II, 491 F.3d at 644. 174 See id. at 643-45 175 See id.
299 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 be saved.176 Taken in this light, it becomes clear why the court chose not to set forth the varying standards of preemption. If the court had more clearly articulated the standard, it would have largely constrained itself to applying broad field preemption.177 By explicitly accepting the OTS regulations as binding, however, the court allows itself greater discretion to interpret the regulation as it sees fit. This approach allowed the court to interpret the regulation for itself—rather than locking it into deference to the OTS. In doing so, the court seems to implicitly accept that even though business standards may differ dramatically from state to state, applying them to federal S&Ls is an acceptable intrusion into the federal regulatory scheme, even though it may force an S&L to conform to a myriad of rules for different jurisdictions. The court’s coup d’etat, then, is not so much which of the state causes of action are not preempted, but rather that the court’s new rule allows the courts—and not the OTS—to decide when state law would apply.
2. Applying a New Standard
The court then used its newfound authority and rule to state, in dicta, “which claims fall on the regulatory side of the ledger and which . . . fall on the common law side.”178 The court took each state law claim in turn, and determined whether it was: (a) clearly preempted, (b) clearly not preempted, or (c) possibly preempted but more information was needed to decide. This Note does not attempt a claim by claim analysis—a process that the court undertook and that it called
176 See supra Part I. (discussing the different methods, relative strength, and presumptions of the various ways of finding preemption). 177 The majority of circuit courts have accepted the OTS guidelines as controlling. See generally Wilmarth, supra note 104; Reardon, supra note 11, at 363- 64. Had the Seventh Circuit more clearly articulated precedent, it is likely that it would have been forced to follow the OTS guidelines. See, e.g. Bank of Am. v. City and County of San Francisco, 309 F.3d 551 (9th Cir. 2002). The guidelines forbid reaching any exceptions to preemption if there is any effect on a preempted area listed in subsection (b). See In re Ocwen II, 491 F.3d at 643. 178 In re Ocwen II, 491 F.3d at 644.
300 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 a “tedious recital.”179 Reviewing the court’s analysis, a pattern emerges.180 From the court’s discussion of which causes of action are preempted and which are not, it is clear that the court intends that only those actions which would squarely fall into the regulation of a prohibited area should be preempted and bar recovery. The court seems willing to allow more regulatory control by the states in an effort to do what it feels the federal regulations have failed to do— protect consumers. First, the court held that only one of the seventeen state law claims was clearly fully preempted.181 Claim thirteen charged fraud and a “gross disparity between the value received by the class and the price paid”182 under the New Mexico Unfair Practices Act.183 The court also stated that many of the claims were allowable because they alleged common law actions. For the court, the key to preemption was whether or not the claim had to be classified as a state law (which would be preempted), or whether it could be a common law action (which would generally not be preempted.) These claims included additional breach of contract claims (claim five), violations of good faith and fair dealing (claim six), fraud (claims three, seven, and twenty), and slander/defamation (claims seventeen, twenty-one);184 the slander and defamation claims are of particular interest. Both allege that Ocwen committed a wrongful act by either: (1) instituting an lis pendens action against the plaintiffs without a valid basis, or (2) representing to third persons that the plaintiffs were in default.185 Recovery of some value of a bank’s assets through foreclosure seems to be intimately bound to the regular
179 Id. at 648. 180 Id. at 644-48. 181 See id. 182 Id. at 647. 183 N.M. STAT. ANN. § 57-12-1 (West 2007). 184 See id. at 644-48. 185 Id. at 648.
301 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 operation of any bank or S&L.186 Here, however, the court holds up both actions as “good example[s] of claim[s] that the regulation does not preempt.”187 The court could not classify nine of the claims. Of those, four included fraud or negligence allegations.188 Although these claims were brought under various state and common laws, they suffered from the same fatal flaw—a failure to provide enough information for the court to understand what was being alleged.189 Three of the claims alleged fraud among other clearly preempted actions.190 The court stated that the three claims were impossible to classify because they did not provide enough information, were not pled with particularity,191 and were impossible to understand.192 Similarly, the court stated that another claim was a bare assertion of common law negligence that could not stand without more information.193 The court also stated that it was unclear whether five additional claims would be preempted because it was unclear whether the plaintiffs allegations covered preempted areas or not.194 It is the five unclear claims that provide the greatest insight into the court’s path forward, however. For several of the claims, the court gave the plaintiffs a roadmap to avoid preemption—at least as far as the Seventh Circuit is concerned. For example, one of the claims largely dealt with the fees charged by banks and deceptive advertising
186 As with any business, banks and S&Ls try to minimize their losses on bad investments. For banks, this means minimizing losses on bad loans through foreclosure and resale. 187 In re Ocwen II, 491 F.3d at 648. 188 Id. at 647-48. 189 Id. 190 The fifteenth claim alleged fraud under the Pennsylvania Uniform Trade Practices and Consumer Protection Law. Id. at 647. The sixteenth claim, brought under the Pennsylvania Fair Credit Extension Uniformity Act, basically alleged “deceptive practices in collection,” but also included numerous references to fraud. Id. at 647-48. The twenty-second claim alleged common law fraud. Id. at 648. 191 See FED R. CIV. P. 9(b) (requiring that fraud be pled with particularity). 192 Id. at 647. 193Id. at 648; 194 See id. at 644-48.
302 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 practices.195 The court held most of the claims preempted, but provided two exceptions.196 In the first exception, the court noted claims of excess fees are generally preempted under the OTS regulations, but would not be preempted if the claim was based on the terms of the loan contract.197 Similarly, the court stated that claims of deceptive advertising are preempted if they are based in state laws that require truthful marketing, but are not preempted if they are based on common law fraud.198 In both cases, the court shows the plaintiffs how to make the claims allowable. The courts determination on when foreclosure fees are due also shows that the court is, to some degree, failing to faithfully defer to the OTS regulations and guidelines. Under Ocwen’s mortgage agreements, the plaintiffs must pay all of the fees to foreclose on their house at the beginning of a foreclosure.199 The claim alleges that this arrangement violated Illinois state law.200 The court stated that the claim would not be preempted as long as it is based in a breach of contract action.201 Here the court clearly expands the definition of “incidentally affects.” Inherent in the court’s reasoning is a radical concept—an area that would be traditionally preempted under the OTS regulations (when a plaintiff must pay foreclosure fees) is not preempted if it is based on a common law action.202 Fees are an area clearly preempted by § 560.2(b), but, as long as the issue is contractual and not regulatory, it only incidentally affects Ocwen’s operations.203 This holding clearly furthers the court’s purpose of allowing plaintiffs to recover under the common law, even though the claims, pled differently, would be preempted. It is an example of just how powerful the Seventh Circuit’s new rule can be.
195 Id. 196 Id. 197 Id. 198 Id. 199 Id. 200 Id. at 647. 201 Id. 202 Id. See also 12 C.F.R. § 560.2(b) (2007). 203 In re Ocwen II, 491 F.3d at 647.
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In dicta, the court makes clear that its earlier decision to allow the alternative Texas litigation to proceed was not a fluke and that it did not fail to address the preemption issue.204 In In re Ocwen, the Seventh Circuit made a policy judgment. From the opinion, it appears the court believes that some state law claims should go forward, even in areas that would traditionally trigger federal preemption. The careful crafting of the opinion and roadmap to avoid preemption make it clear the court feels that states should—at least to some degree—be involved in the regulation of federal S&Ls that operate within their territory. To reach this outcome, however, the court must make an end-run around the pervasive OTS regulations and the OTS guidelines for interpreting preemption. The court attempts to strike a balance between protecting consumers through state law and ensuring that the common law actions do not preempt the federal regulations. The court first recognizes that the OTS has preemptive power, but then interprets the OTS regulations and guidelines in a way that gives ultimate control of what is preempted and what is not to the courts—not the OTS.
PART III: TOO HOT, TOO COLD, OR JUST RIGHT?
The question then becomes, how much state regulation is too much? Generally, courts have barely cracked the door to state regulation.205 Opening the door to even slightly more of state regulation of federal banks runs the risk of undermining the OTS’ authority to preempt state law.206 Undermining that authority could potentially undercut the power of the OTS to enforce its regulations. However, Judge Posner correctly pointed out that barring any state cause of action in blind deference to the OTS seriously undercuts the
204 Id. at 644-48. 205 See, e.g., Gibson v. World Sav. & Loan, 128 Cal. Rptr. 2d 19, 27-31 (Cal. Ct. App. 2002); Wells v. Chevy Chase Bank, 832 A.2d 812, 824-33 (Md. 2003). 206 12 C.F.R. § 560.2(a) (2007). Note as well that the OTS has aggressively campaigned to expand its exemption power since the 1970’s, and has been largely successful in its expansion. See generally Wilmarth, supra note 104.
304 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 ability of consumers to recover because of a federal S&L’s bad or negligent acts.207 There is also the additional worry that too much of a good thing is a bad thing. An extremely deferential court that never challenges the OTS’ regulations runs the risk of concentrating unchecked power in the hands of the agency—which means that there is nothing to stop it from serving interests other than those in its mandate.208 It is perhaps easiest to start with where the two sides agree. No one doubts that regulation on banks is necessary; banks are “an unusual mix of hazardous might and fragility.”209 Leading economists, including Ben Bernake, the Chairman of the Federal Reserve, blame much of the length and severity of the Great Depression on the collapse of the banking system.210 Even today, banks’ balance sheets are composed of liquid debt (deposits that can be called immediately) and illiquid assets (mortgages and other loans).211 Without a safety net, a failure of investor confidence creates financial panics where people seek to withdraw money from the system.212 This forces banks into a liquidity crisis where they must liquidate their illiquid assets, often below market value.213 It also forces them to keep more money in reserve because of higher risk, thus lowering capital available for lending.214 Although the Federal Reserve and the federal regulatory agencies have helped to stabilize the system since the Great Depression, the system is still vulnerable to
207 In re Ocwen, 491 F.3d at 642-43. 208 Several commentators already feel the OTS and the OCC have exceeded their Congressional mandates and are in the midst of a power grab from the states. See, e.g. Keith R. Fisher, Toward a Basal Tenth Amendment: A Riposte to National Bank Preemption of State Consumer Protection Laws, 29 HARV. J. L. & PUB. POL’Y 981 (Summer 2006); Reardon, supra note 11, at 363-64; Donald C. Lampe, Federal Preemption and the Future of Mortgage Loan Regulation, 59 BUS. LAW. 1297 (May 2004); Berg, supra note 21, at 502. 209 Economics Focus: When to Bail Out, ECONOMIST, Oct. 6, 2007, at 90. 210 See generally BENJAMIN BERNANKE, ESSAYS ON THE GREAT DEPRESSION (2d prtg. 2004). 211 Economics Focus: When to Bail Out, supra note 209, at 90. 212 BERNANKE, supra note 5, at 44-45. 213 Id. 214 Id.
305 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 shocks—largely from new financial instruments that are largely unregulated.215 Today, those instruments, worth nearly $1 trillion, are losing hundreds of billions of dollars per month in value, and are increasingly forcing banks to horde money—similar to banking behavior during the Great Depression.216 It is also important to remember that banks and S&Ls are businesses—driven by their shareholders to create new capital. Without regulation, banks—the pillars of capitalism—would act like any other business and seek to maximize profit by minimizing daily operating costs. In other words, banks have an incentive to reduce deposits held in reserve to only the amount necessary to meet daily operating costs and lend the remainder to generate more profit. While this may be fine for normal operations, in the event of a run on the bank, the bank would not be able to meet its obligations and could collapse.217 Part of the original mandate in HOLA is to ensure the “safe and sound operation, and regulation of savings associations.”218 This can only be done when regulations require banks to hold enough cash in reserve to meet at least mild “rainy day” obligations. Of course, agreeing that there needs to be regulation is not agreeing to how much regulation is proper. On the one hand are those, including the OTS, who favor only allowing federal regulation. They argue that if the regulation is “too hot” (i.e. states get in the business of requiring additional regulations of federally-backed S&Ls), it would hinder both the OTS’ mandate to provide a stable and uniform system of national regulation and could deter growth in the industry by forcing S&Ls to contend with a plethora or national and state
215 Bill Gross, Beware our Shadow Banking System, FORTUNE, http://money.cnn.com/2007/11/27/newsmakers/gross_banking.fortune/index.htm?po stversion=2007112807 (last modified Nov. 28, 2007). An example would be collateralized debt obligations—the method by which prime and sub-prime loans were “repackaged” and sold. 216 Id; compare BERNANKE, supra note 5, at 62-64. 217 See generally BENJAMIN BERNANKE, ESSAYS ON THE GREAT DEPRESSION (2d prtg. 2004); see also Economics Focus: When to Bail Out, supra note 209, at 90. 218 12 U.S.C. § 1463(a)(1) (2000).
306 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 regulations.219 Those in favor of greater state regulation argue that if the states are preempted from asserting any power over federal S&Ls and the OTS has only limited enforcement authority, then consumers have no recourse or recovery when S&Ls do commit civil torts.220 The lack of private causes of action provides incentive for S&Ls to maximize profits with little or no concern for the consumer.221 The days of little or no regulation are well behind the United States. Banks and the federal government have entered into a “regulatory pact”—the federal government agrees to guarantee a bank’s deposits and in return, the bank submits to regulation.222 Similarly, the central banks in the United States and other countries have successfully fought inflation for much of the past thirty years— leading to complacency and a belief that inflation will stay low and the central banks will step in whenever there is trouble.223 But the United States is still a vast territory with widely diverse economies—at best, federal regulations are a compromise and are not what will work best in all situations. Perhaps most interestingly, according to many modern macroeconomists, the current financial climate looks eerily similar to the climate that supposedly triggered the Great Depression.224 In the 1920’s, consumers increasingly tapped home equity and credit because the money was easily available.225 When the stock market crashed and prices began to destabilize, those same consumers were spooked and also began to devote proportionately more money to their debt
219 Wilmarth, supra note 104, at 285-86, see also 12 U.S.C. §§ 1463(a), 1464(a) (2000). 220 See generally Fisher, supra note 208; In re Ocwen Loan Servicing, LLC Mortgage Servicing Litig., 491 F.3d 638 (7th Cir. 2007). 221 Economics Focus: When to Bail Out, supra note 209, at 90; CSI: Credit Crunch, ECONOMIST, Oct. 20, 2007, A Special Report on the World Economy 3, at 6-7 (noting that regulations that do not ensure financial consequences “encourages excessive risk-taking”). 222 Economics Focus: When to Bail Out, supra note 209, at 90. 223 See generally Heroes of the Zeroes, ECONOMIST, Oct. 20, 2007, Special Report on the World Economy 8, at 8-16. 224 See generally BERNANKE, supra note 199. 225 BERNANKE, supra note 5, at 46.
307 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 repayments.226 With less money to spend on discretionary purchases, demand declined and credit tightened, which caused further deflation.227 Similarly, banks were afraid of runs and insolvency, and thus held more money in reserve and lent money to only the most credit-worthy customers.228 Part of Congress’ intent in enacting HOLA was to standardize lending practices to specifically avoid speculative lending and to restore the banking industry to solid footing.229 Arguably, HOLA and the OTS managed to do just that, and, with the help of the Federal Reserve, managed the U.S. economy fairly well. However, by the end of the century, lending credit standards were once again irrationally loose.230 Headlines for much of 2007 have been concerned with the fact that the average United States consumer had—for the first time in history—a negative savings rate and the effect that exotic loans and easy credit will have now that housing prices are deflating and credit is “crunched.”231 In England, for the first time in approximately 150 years, there was a run on a bank.232 All these factors contribute to a feeling that the world economy is fragile, although it is unlikely that America or the world would see another Great Depression. The fact that Congress is once again talking about a bailout of consumers for defaulting mortgages shows that, at some level, HOLA and the OTS failed to adequately regulate the system. There are other interests as well, however, and the consumer is only one side of the coin. Banks and federal S&Ls are, at the end of the day, businesses and as such need an incentive to actually operate— primarily profits. Forcing federal S&Ls to comply with a myriad of state regulations as well as federal regulations runs the risk of creating an overregulated industry and could create excessive litigation that
226 Id. 227 Id. 228 See id. at 62-65. During this period, even people with good credit who were a low credit risk found it increasingly difficult to get loans and mortgages. Id. 229 12 U.S.C. §§ 1463(a), 1464(a) (2000). 230 CSI: Credit Crunch, supra note 221, at 6-7. 231 Id. at 6. 232 Id. at 8.
308 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 would discourage S&Ls from operating, lessen competition, and generally harm the economy as a whole. This still leaves us with whether the Seventh Circuit managed to strike an appropriate balance that will maximize both judicial and economic efficiency across the spectrum of players and what implications the court’s new approach to banking regulation is likely to have on regulatory enforcement within the court’s jurisdiction. It seems likely that, on the whole, the court managed to find a workable balance between state and federal regulation. The court’s analysis of the claims makes clear that it is willing to allow states at least some regulatory authority.233 It appears that the court feels that the states, and not the federal government, is best able to determine how to protect the interests of its citizens and that, at any rate, federal protection is inadequate.234 The state law claims that the court allows (i.e. fraud, breach of contract, etc.) are claims that are typically associated with “bad actors” in business.235 Banks are the engines of capitalism, but they are still businesses—and, like any business, should be answerable to their customers. Banks are central to the economy, but they occupy a unique position—the federal government insures their deposits to provide the general population with the security of knowing their money will always be available, but this insurance also means that banks are free to take greater risks with those deposits.236 The federal government will bail them out if their loans go bad and they fail to meet their
233 See generally In re Ocwen Loan Servicing, LLC Mortgage Servicing Litig., 491 F.3d 638 (7th Cir. 2007). 234 See generally In re Ocwen II, 491 F.3d 638; see also On Credit Watch, ECONOMIST, Oct. 20, 2007, Special Report on the World Economy 3, at 26-34 (arguing that lending regulation is to blame for much of the credit crunch in 2007 and that updates to the regulatory scheme are needed to avoid future economic crises); Bill Gross, Beware our Shadow Banking System, FORTUNE, http://money.cnn.com/2007/11/27/newsmakers/gross_banking.fortune/index.htm?po stversion=2007112807 (last modified Nov. 28, 2007) (arguing that much of the threat to the banking system results from no regulation of risky investments, such as collateralized debt obligations). 235 See generally In re Ocwen II, 491 F.3d 638. 236 Economics Focus: When to Bail Out,supra note 209, at 90.
309 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 obligations.237 Thus, even though there is federal regulation, the system encourages banks to take ever larger risks, often at the expense of their consumers and sometimes without being honest about their true motives. By allowing state law claims that implicate good business practices, the Seventh Circuit attempts to correct for the above market distortion. Forcing banks to be more accountable to their consumers makes them less likely to engage in questionable business practices out of fear of litigation. Here, the Seventh Circuit seems to have struck an appropriate balance between ensuring that American thrifts can compete with foreign banks and ensuring that they are not given free reign to run amok.
PART IV: CONCLUSION
For good or ill, Judge Posner is a paragon of the Chicago School of legal reasoning and is widely recognized as a staunch proponent of using the law to create economic efficiency. Here, Judge Posner seems at his best. He holds as clearly preempted those statutes and common law actions that could lead to conflicting state and federal regulations or that may encroach on the efficacy of the federal regulations.238 At the same time, his fluid application of what it means to incidentally affect lending operations provides consumers with the one thing HOLA and the OTS lack, private causes of action against bad acting S&Ls. The courts have indicated which types of claims it feels should be allowed, and that, unlike many other courts, it will allow some measure of consumer protection. Ultimately, this will strengthen the banking system by making S&Ls more accountable to their customers and less likely to zealously advocate exotic or risky loans without full disclosure. In short, the Seventh Circuit’s compromise sacrifices short term gain for long term growth. The test articulated by the court redraws the lines of when, and how, the OTS can preempt state law actions. Judge Posner and the court have made it easier for plaintiffs to bring actions against S&Ls
237 See generally Lessons from the Credit Crunch, ECONOMIST, Oct. 20, 2007, Special Report on the World Economy. 238 In re Ocwen II, 491 F.3d at 645-48.
310 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 by allowing them to recover for claims based on state laws that come from a vital state interest.239 Although not all claims may go forward, even under this rubric, it is significantly less deferential than past precedent. It does not dismiss the state law claims out of hand. It also provides—through the courts—an important check on the power of a single regulatory agency to set policy with impunity. The degree to which those state law claims are allowed to move forward will depend on how courts choose to interpret the OTS’ assertion that it can preempt almost all state law. If more courts follow the less deferential position of the Seventh Circuit, the overall benefit may be that banks are less reliant on the government and are ultimately healthier institutions. Allowing at least some state law claims to go forward will force banks to become more accountable to their ultimate consumer, the American people. The Seventh Circuit has started down the path to ensuring that, like other businesses, banks must answer to those whom they serve.
239 Id. at 643-45.
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PROBATIONERS, PAROLEES AND DNA COLLECTION: IS THIS “JUSTICE FOR ALL”?
∗ JESSICA K. FENDER
Cite as: Jessica K. Fender, Probationers, Parolees and DNA Collection: Is This “Justice for All”?, 3 SEVENTH CIRCUIT REV. 312 (2007), at http://www.kentlaw.edu/7cr/v3-1/fender.pdf.
INTRODUCTION
Since its inception in 1990, the Combined DNA Index System (CODIS) has been used by the federal and state governments to store millions of people’s DNA data. Initially, CODIS was not in widespread use; few states participated, and the federal government could collect DNA only from those convicted of certain violent crimes.1 Today, however, the picture has changed drastically—some state governments, and now the federal government, require DNA samples upon arrest;2 a federal officer has no discretion in determining
∗ Editor-in-Chief, Chicago-Kent Law Review 2007–2008; J.D. candidate, May 2008, Chicago-Kent College of Law, Illinois Institute of Technology; M.S. (Chemistry), University of Washington, May 2005; B.S. (Chemistry), University of Washington, May 2002. The author wishes to thank the Fender family (Steve, Lynn, Erin, Jeremy, and Quintin) and Adam Augustyn for their constant love and support—the author can only hope she’s returned the favor. 1 42 U.S.C. § 14135a(d) (2000 & Supp. IV 2004). 2 In the federal government, see the DNA Fingerprint Act of 2005, Pub. L. No. 109-162, § 1001, 119 Stat. 2960, 3084. State governments requiring DNA upon arrest include, at the present time, Louisiana, Texas, Virginia, California, New Mexico, and Kansas. LA. REV. STAT. ANN. § 15:602 (2007); TEX. GOV’T CODE § 411.1471(a)(2) (2007); VA. CODE ANN. § 19.2-310.2:1 (2007); CAL. PENAL CODE § 296(a)(2)(C) (2007); N.M. STAT. ANN. § 29-3-10 (2007); KAN. STAT. ANN. 21- 2511(e)(1) (2007). Some of these states require a DNA sample from anyone arrested
312 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 whether a person should provide a sample;3 and the list of “qualifying offenses” that require DNA collection continues to grow.4 As a result, more than 4.9 million individual DNA profiles are now available through CODIS.5 DNA collection is undoubtedly a search under the Fourth Amendment.6 Moreover, it is a search that occurs without the two touchstones typically used to guarantee the reasonableness of a search: a warrant, and probable cause. Not only is there no probable cause, there is no cause whatsoever—every circuit has evaluated the constitutionality of DNA collection statutes, and every circuit has implicitly or explicitly found that the searches take place absent any individualized suspicion of wrongdoing.7 The Supreme Court has not directly addressed DNA collection statutes, but since the statutes require collection without any individualized suspicion of wrongdoing, lower courts have been guided by the Supreme Court’s “suspicionless search” jurisprudence. Applying the Court’s suspicionless search law can be difficult. The Court has, at various times, evaluated the constitutionality of such searches using one of two methods: the “totality of the circumstances,” or (the term I will use hereafter for brevity’s sake) “reasonableness” test; and the “special needs” test. Both frameworks permit the for a felony (e.g., New Mexico) whereas others require the sample only if one is arrested for certain violent felonies (e.g., Virginia and Louisiana). 3 E.g., 18 U.S.C. § 3583(d) (2000 & Supp. V 2005) (“The court shall order, as an explicit condition of supervised release, that the defendant cooperate in the collection of a DNA sample . . . .”); 42 U.S.C. § 14135a(a)(2). 4 42 U.S.C. § 14135a(d). The Justice For All Act requires all felons to provide a sample. 5 Federal Bureau of Investigation, Combined DNA Index System (CODIS) Brochure, http://www.fbi.gov/hq/lab /codis/codis_brochures.htm (last visited Dec. 5, 2007). 6 Green v. Berge, 354 F.3d 675, 676 (7th Cir. 2004) (stating that taking a DNA sample is “clearly a search”); Johnson v. Quander, 440 F.3d 489, 493 (D.C. Cir. 2006) (“There is no question that the compulsory extraction of blood for DNA profiling constitutes a ‘search’ within the meaning of the Fourth Amendment.”) (citations omitted). 7 See sources cited infra note 69.
313 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 searching party to forego the warrant and probable-cause requirements in limited circumstances, when the government’s interests outweigh the individual’s privacy interests. The “special needs” test, however, first requires the searching party to identify a need “beyond the normal need for law enforcement” that would justify the lack of a warrant or probable cause. Only the Second, Seventh, and Tenth Circuits use a special needs analysis to evaluate DNA collection statutes.8 The Seventh Circuit first addressed this issue in the 2004 case Green v. Berge,9 when it interpreted a Wisconsin state statute allowing for DNA collection from state prison inmates. After acknowledging that DNA collection is a search under the Fourth Amendment,10 the court noted that DNA collection may still be reasonable if it falls under one of the exceptions to the probable-cause requirement.11 The court found that collecting DNA samples from state prison inmates constituted a “special need”— a need beyond the normal need for law enforcement—and, as such, it was an exception to the rule.12 In doing so, the court ignored a number of other circuits that analyzed state or federal DNA statutes under the reasonableness test. The Fourth Circuit, for example, had already not only applied the reasonableness test, but explicitly overruled a lower court’s use of the special needs test.13 But although explicit reasoning would be nice, the Seventh Circuit was free to take the path less traveled. Because the Supreme Court’s suspicionless search case law is fact-specific, dense, and at times seems contradictory; and because the Court has yet to address any DNA collection statute; disagreement amongst the circuits was to be expected and perhaps even encouraged.
8 United States v. Weikert, 504 F.3d 1, 8-9 (1st Cir. 2007) (listing courts). 9 354 F.3d at 675. 10 Id. at 676 (stating that taking a DNA sample is “clearly a search”); see Johnson, 440 F.3d at 493. 11 Green, 354 F.3d at 677. 12 Id. 13 Jones v. Murray, 962 F.2d 302, 307 n.2 (4th Cir. 1992).
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It is not the Green opinion that is surprising; it is the Seventh Circuit’s next DNA case, United States v. Hook,14 that is truly amazing. There, the court relied on Green and applied the special needs test, this time to the collection of DNA from a federal felon on supervised release. Hook, a white collar criminal, had agreed to certain terms as part of his supervised release conditions. This included an obligation that he “follow the instructions of the probation officer.”15 When his probation officer scheduled him for DNA collection, as recently required by federal law,16 Hook refused, arguing that the search was unconstitutional.17 Hook had not explicitly consented to DNA collection, but since his probation officer requested that he do so, the Seventh Circuit reasoned that his probation agreement required him to submit to the search.18 As in Green, the Seventh Circuit evaluated that collection under the special needs approach.19 The court spent all of one sentence on that choice, simply noting that “[w]hile some circuits have employed a reasonableness standard” the court had “employed the ‘special needs’ approach in Green and will do the same here.”20 This would, of course, be an entirely predictable outcome, were it not for the fact that both the Supreme Court and the Seventh Circuit had, in the intervening period, effectively shut the door on the special needs test for the type of search at issue here. First, more than a year and a half prior to Hook, the Seventh Circuit handed down two opinions addressing suspicionless searches of probationers.21 In United States v. Barnett, the court addressed a
14 471 F.3d 766 (7th Cir. 2006). 15 Id. at 769-70. 16 See sources cited supra notes 3 and 4. 17 Hook, 471 F.3d at 771-72. 18 Id. at 770. 19 Id. at 773. 20 Id. (citation omitted). 21 The Supreme Court has explained the difference between probationers and parolees (which are called “supervised releasees” in the federal system). A parolee is released from prison prior to completing his sentence, and that release is conditioned upon abiding by certain rules. In contrast, a probationer serves probation time
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Fourth Amendment challenge by a probationer who had signed an agreement consenting to suspicionless searches as a condition of his probation.22 The court held that a plea-bargained agreement was a type of contract; consent to the contract terms operated to effectively waive any Fourth Amendment rights the probationer once had.23 This opinion was quickly followed by United States v. Hagenow, where the court not only reaffirmed its adherence to Barnett, but also specifically disclaimed the use of the special needs test in analyzing these searches.24 These two opinions anticipated with surprising accuracy the Supreme Court’s most recent suspicionless search holding. In Samson v. California, the Court held that the Fourth Amendment does not prohibit a police officer from conducting a suspicionless search of a parolee if the parolee consented to searches as part of his parole agreement.25 The Court flatly refused to apply the special needs approach;26 instead, it held that under “general Fourth Amendment principles” a parolee that signed a consent-to-search waiver greatly reduced his expectation of privacy, and therefore a police officer would not need reasonable suspicion prior to conducting a search.27 The Hook court, however, failed to mention Barnett, Hagenow, or Samson—despite the fact that these three cases directly speak to the Hook facts. As in those three cases, Hook dealt with the suspicionless search of a parolee or a probationer, and Hook in effect dealt with the effect of a consent-to-search term in a supervised release outside a penitentiary instead of being imprisoned. Samson v. California, 126 S. Ct. 2193, 2198 (“Federal supervised release . . . in contrast to probation, is meted out in addition, not in lieu of, incarceration.”) (quoting United States v. Reyes, 283 F.3d 446, 461 (2d Cir. 2002)). Because of this difference, parolees often enjoy fewer rights than probationers, and parole is “more akin” to prison than probation. Id. at 2198 & n.2; see also text and accompanying sources cited infra note 82. 22 415 F.3d 690 (7th Cir. 2005). 23 Id. at 692-93. 24 423 F.3d 638, 642-43 (7th Cir. 2005). 25 Samson, 126 S. Ct. at 2202. 26 Id. at 2199 n.3. 27 Id. at 2196, 2199.
316 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 agreement28—yet the Hook court made use of an analytical framework that had been explicitly disclaimed by a previous Seventh Circuit panel and by the Supreme Court. This Comment argues that the Seventh Circuit has improperly applied the special needs test to suspicionless DNA searches. Instead, such searches should be governed by the reasonableness test used in Samson. Further, regardless of which analytical framework a court has adopted, courts have almost universally held that DNA collection statutes do not violate the Fourth Amendment’s search and seizure clause.29 This Comment will show that the Seventh Circuit failed to consider factors unique to DNA collection when it balanced the individual and governmental interests at stake. A careful reconsideration of the weight given to these interests is needed, and this may ultimately require the court to change its stance on the constitutionality of DNA collection for probationers and parolees. Part I(A) of this Comment provides an overview of CODIS, the various DNA techniques used in forensic sciences, and the expansion of the CODIS database through recent changes in federal law. Part I(B) explains what aspects of DNA collection implicate Fourth Amendment search and seizure law. Part II(A) briefly describes the balancing inquiries required for the special needs and reasonableness frameworks, while Part II(B) traces the evolution of the reasonableness and special needs tests through the Supreme Court’s suspicionless search jurisprudence. Part III(A) looks to the Seventh Circuit’s early suspicionless search opinions to provide some historical basis in the law. Part III(B) provides a detailed analysis of the Seventh Circuit’s DNA cases, Green and Hook, and Part III(C) provides an in- depth look at the waiver issue described in Barnett and Hagenow. Part III(D) dissects the Supreme Court’s Samson case, and concludes that post-Samson, the Seventh Circuit improperly employed the special needs framework instead of the reasonableness test in Hook. Finally,
28 See infra text in Section III(B)(2) for an explanation of how the consent term was incorporated into Hook’s supervised release agreement. 29 See Nicholas v. Goord, No. 01 Civ. 7891, 2003 U.S. Dist. LEXIS 1621, at *24-25 (S.D.N.Y. Feb. 6, 2003) (collecting cases).
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Part IV argues that the Seventh Circuit should adopt the reasonableness framework, and that when it does so the court must reconsider not only the relative weight given to individual and governmental interests, but also the very nature of the search at issue in DNA collection. This Part seeks to provides some guidance to those considerations for the Seventh Circuit as it moves forward with DNA collection challenges.
I. CODIS – A BRIEF HISTORY
A. CODIS and DNA Collection
DNA. Incredibly, that small acronym contains the key to a person’s identity. DNA, or deoxyribonucleic acid, is a double-stranded molecule contained in every nucleated cell30 in a person’s body—and despite the fact that DNA is not visible to the naked eye, this tiny molecule contains a person’s entire genetic blueprint. Each person, with the exception of identical twins,31 has a DNA sequence which is completely unique. As such, DNA allows investigators to accurately
30 A nucleated cell is a cell that contains a nucleus. Human red blood cells do not contain nuclei, and therefore are not useful for standard DNA testing. White blood cells, skin cells, saliva, semen, and hair that has been forcefully removed and still has the follicle attached can all be tested for DNA; on occasion, even urine, feces, and vaginal secretions may contain the cells necessary for testing. 31 Identical twins are genetically identical, at least at birth. Despite the fact that identical twins have the same DNA, they may evidence physical differences such as varying susceptibilities to disease. These differences may occur, at least in part, because of differences in genetic expression. Mario F. Fraga et al., Epigenetic Differences Arise During the Lifetime of Monozygotic Twins, 102 PROC. NAT’L ACAD. SCI. 10604, 10604 (2005). Although genetically-identical individuals may seem rare, identical twins actually account for about one in every 250 live births. Id. (citing JUDITH G. HALL & E. LOPEZ-RANGEL, TWINS AND TWINNING 395-404 (A. E. H. Emery & D. L. Rimoin eds., 1966)). It is interesting to note that although current forensic DNA analysis cannot differentiate between identical twins, the tried-and- true method of fingerprinting can. Anil K. Jain et al., On the Similarity of Identical Twin Fingerprints, 35 PATTERN RECOGNITION 2653 (2002).
318 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 identify suspects in criminal cases by “matching” the DNA evidence left at a crime scene to one particular person.32 As techniques were invented that allowed labs to test even the smallest amounts of DNA,33 courts began admitting DNA evidence
32 Forensic DNA technology has changed drastically over time. Sir Alec Jeffreys’ article, infra note 33, described restriction fragment length polymorphism (RFLP) techniques, where DNA is cleaved by special enzymes to produce DNA fragments that have repeating sequences. The number of these repeating sequences varies between individuals, so if a person’s DNA is cleaved using multiple enzymes, a unique pattern of different fragment lengths should emerge. These fragments can be imaged using various size-dependent separation techniques. NAT’L INSTITUTE OF JUSTICE, U.S. DEP’T OF JUSTICE, USING DNA TO SOLVE COLD CASES 5-6 (2002), available at http://www.ncjrs.gov/pdffiles1/nij/194197.pdf; Phillip Jones, DNA Forensics: From RFLP to PCR-STR and Beyond, FORENSIC MAG., Fall 2004. RFLP analysis requires a relatively substantial amount of DNA, however, and the DNA cannot be degraded prior to testing (as often occurs when the DNA sample is exposed to heat or light). C. R. Thacker et al., An Investigation into Methods to Produce Artificially Degraded DNA, 1288 INT’L CONGRESS SERIES 592, 592-93 (2006) (describing DNA degradation). To overcome the problems inherent to RFLP analysis, laboratories now use the polymerase chain reaction (PCR), which allows them to take a small amount of DNA and copy it to create a sizeable sample, in combination with the short tandem repeat (STR) technology that came onto the scene in the early 1990s. See Jones, supra, and sources cited infra note 33. Like RFLP, STR involves the identification of specific locations (called “loci”) on a DNA chain that repeat; these repeats are shorter (up to seven base pairs, as compared to the six to 100 found in RFLP), so PCR amplification works better. Jones, supra. The FBI requires thirteen different loci to “match” a suspect to a DNA profile, which theoretically ensures that a false match is nearly impossible (at least one-in-a- billion). NAT’L INSTITUTE OF JUSTICE, supra, at 6. 33 To briefly trace some highlights in the evolution of DNA amplification techniques, see Arlene R. Wyman & Ray White, A Highly Polymorphic Locus in Human DNA, 77 PROC. NAT’L ACAD. SCI. 6754 (1980); Alec J. Jeffreys, Victoria Wilson & Swee Lay Thein, Hypervariable ‘Minisatellite’ Regions in Human DNA, 314 NATURE 67 (1985); Kary B. Mullis & Fred A. Faloona, Specific Synthesis of DNA in vitro via a Polymerase-catalyzed Chain Reaction, 155 METHODS IN ENZYMOLOGY 335 (1987); Randall Saiki et al., Primer-Directed Enzymatic Amplification of DNA with a Thermostable DNA Polymerase, 239 SCI. 487 (1988); Al Edwards et al., DNA Typing and Genetic Mapping with Trimeric and Tetrameric Tandem Repeats, 49 AM. J. HUM. GENETICS 746 (1991). For an excellent overview of DNA technologies in general, including the ones discussed herein, see DNA
319 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 into the courtroom.34 In 1987, a British man named Colin Pitchfork became the first person ever identified and charged with a crime as a result of DNA testing.35 Shortly thereafter, a Florida judge allowed the use of DNA evidence to convict Tommy Lee Andrews of aggravated battery, sexual battery, and burglary.36 Today, DNA evidence is routinely admitted, both because DNA has been conclusively established as a unique identifier, and because as science strains against the initial limits of the technology, more DNA evidence is available. Smaller sample sizes, different types of DNA recovery (such as mtDNA and Y-STR DNA),37 and larger databases in which to
Technologies, NATURE MILESTONES, Oct. 2007, at S1, available at http://www.nature.com/milestones/dnatechnologies. 34 Tresa Baldas, First DNA Conviction Case Returns, NAT’L L.J., Feb. 9, 2004, at 5. 35 Stephen Michaud, DNA Detectives, N.Y. TIMES MAG., Nov. 6, 1988, at 70. 36 Id. (describing Andrews v. State, a Florida case “in which conviction hinged almost exclusively on DNA testing”). See Andrews v. State, 533 So.2d 841, 850 (Fla. Dist. Ct. App. 1988) (upholding the lower court’s conviction and stating that “evidence from DNA print identification appears based on proven scientific principles.”). Prior to that date, DNA evidence had also been used in a civil context. See Commonwealth v. Pestinikas, Nos. 85-CR-1020-A-E and 85-CR-1019-A-D, aff’d, 617 A.2d 1339 (Pa. Super. Ct. 1992); NORAH RUDIN & KEITH INMAN, AN INTRODUCTION TO FORENSIC DNA ANALYSIS 191 (2d ed. 2002) (describing Pestinikas as the first use of DNA in a U.S. trial). 37 Mitochondrial DNA (mtDNA) is a particular type of DNA found in only in the mitochondria (a particular organelle within the cell) and inherited from one’s mother; an offspring inherits nuclear DNA, on the other hand, from both its mother and father. Mitochondrial DNA is useful in that it may be obtained from samples where nuclear DNA cannot be found (such as in cut hair, which does not have an attached follicle) and less DNA is needed for testing. On the other hand, mtDNA is more prone to contamination than nuclear DNA, and since every person sharing a maternal line will have identical mtDNA, it cannot serve as a unique individual identifier. See Alice R. Isenberg & Jodi M. Moore, Mitochondrial DNA Analysis at the FBI Laboratory, 1 FORENSIC SCI. COMMC’NS (1999), http://www.fbi.gov/hq/lab/fsc/backissu/july1999/dnalist.htm. Likewise, Y-STR DNA analysis looks only to the Y-chromosome of a male suspect or offender and can be used to eliminate a suspect, but generally cannot be used to conclusively identify the perpetrator. See Isabelle Sibille et al., Y-STR DNA Amplification as
320 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 search for suspect matches all contribute to the ubiquity of DNA evidence. The federal government first began collecting and analyzing DNA samples from felons in 1990.38 In 1994, Congress passed the DNA Identification Act, which formally recognized the FBI’s ability to establish and maintain the CODIS national DNA database.39 CODIS is a three-tiered system: the DNA “profiles” (which are generated via chemical analysis of the DNA sample) originate at the local level, and are stored in the Local DNA Index System (LDIS); from there, the profiles flow to the state system (SDIS), where various state laboratories are able to share and compare profiles; and finally, the profiles are indexed in the national system (NDIS).40 Six different DNA profile categories are maintained: the convicted offender database, which contains the vast majority of the profiles; the forensic database, which contains profiles that are gathered from crime scenes and are believed to originate from the perpetrator; the arrestee database, which contains profiles from persons arrested for a qualifying offense under state law;41 the missing persons database; the biological relatives of missing persons database; and finally, the database for unidentified human remains.42 CODIS has continued to grow, due in part to ever-expanding eligibility for inclusion in the system. In 2000, the DNA Analysis Backlog Elimination Act required federal parolees and probationers to
Biological Evidence in Sexually-Assaulted Female Victims With No Cytological Detection of Spermatozoa, 125 FORENSIC SCI. INT’L 212 (2002). 38 Federal Bureau of Investigation, CODIS—Mission Statement & Background, http://www.fbi.gov/hq/lab/codis/program.htm (last visited Dec. 5, 2007). 39 DNA Identification Act of 1994, Pub. L. No. 103-322, § 201301, 108 Stat. 1796, 2065. 40 Federal Bureau of Investigation, supra note 38. 41 See supra note 2. The FBI may have to change this definition shortly in light of the DNA Fingerprint Act of 2005, as this Act extends the reach of DNA collection to include federal arrestee profiles in CODIS. See DNA Fingerprint Act of 2005, Pub. L. No. 109-162, § 1001, 119 Stat. 2960, 3084. 42 Federal Bureau of Investigation, supra note 5.
321 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 provide DNA samples,43 and in 2001, the Patriot Act further expanded the list of persons required to give DNA.44 In 2004, Congress passed the Justice for All Act, which expanded CODIS to include those who had been charged with a crime or, in some circumstances, simply arrested.45 Most recently, in the DNA Fingerprint Act of 2005, the federal government has provided for the inclusion of samples from both federal arrestees and non-U.S. citizen detainees.46 It is perhaps unsurprising, then, that as of August 2007 the NDIS contained more than 4.9 million offender profiles and just over 188,000 forensic profiles.47 Over 440,000 of the offender profiles come from the three states in the Seventh Circuit’s jurisdiction.48 And just as the list of qualifying federal offenses has continued to grow, Illinois, Indiana, and Wisconsin are likely to see similar expansions to their statutes—all of these states are considering expanding or have expanded the states’ SDIS databases to include, for example, profiles from persons charged with a crime, convicted of a misdemeanor, or arrested.49
43 DNA Analysis Backlog Elimination Act of 2000, Pub. L. No. 106-546, 114 Stat. 2726. 44 USA Patriot Act, Pub. L. No. 107-56, § 503, 115 Stat. 272, 364 (2001). 45 Justice for All Act of 2004, Pub. L. No. 108-405, § 203, 118 Stat. 2260, 2269. The law allowed CODIS to include profiles from those “charged in an indictment or information with a crime” and “other persons whose DNA samples are collected under applicable legal authorities,” provided that the arrestee samples were not be included in the NDIS. Id. at § 203(a)(1)(B)–(C). They could, presumably, be included in the SDIS or LDIS systems. 46 DNA Fingerprint Act of 2005, Pub. L. No. 109-162, § 1001, 119 Stat. 2960, 3084. 47 Federal Bureau of Investigation, CODIS—National DNA Index System, http://www.fbi.gov/hq/lab/codis/national.htm (last visited Dec. 5, 2007). 48 As of October 2007, the FBI listed 104,176 offender profiles from Wisconsin; 72,331 profiles from Indiana; and 271,438 profiles from Illinois. Federal Bureau of Investigation, CODIS—Statistical Clickable Map, http://www.fbi.gov/hq/lab/codis/clickmap.htm (last visited Dec. 5, 2007). 49 Wisconsin has proposed legislation that allows for the collection of DNA evidence if person is charged with a felony and a court determines that probable cause exists to believe that person committed the felony. Assem. B. 1, 98th Leg.
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B. CODIS and the Fourth Amendment
The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.50
DNA collection statutes have been subjected to a host of constitutional challenges,51 but here I focus on just one—the Fourth Amendment challenge. Obviously, the Fourth Amendment only applies when a search or seizure has occurred. As Justice Harlan explained in Katz v. United States, a search occurs when an individual has a subjective expectation of privacy in the object being searched.52 This subjective expectation alone does not suffice—society must also generally recognize that expectation of privacy as reasonable.53 If both of these criteria are met, then the search (in the colloquial sense) is a “search” (in the constitutional sense). As such, it must be supported by
Sess., Reg. Sess. (Wis. 2007). Illinois collects DNA samples from those convicted of certain sexually-motivated misdemeanors, 2005 Ill. Laws 1018, and is considering legislation that would allow for the collection of DNA evidence upon arrest. H.B. 1901, 95th Gen. Assem., 1st Reg. Sess. (Ill. 2007); S.B. 1315, 95th Gen. Assem., 1st Reg. Sess. (Ill. 2007). Indiana is also considering legislation that would allow collection of a DNA sample upon arrest for certain felonies. H.B. 1730, 115th Gen. Assem., 1st Reg. Sess. (Ind. 2007). 50 U.S. CONST. amend. IV. 51 In United States v. Hook, for example, the defendant challenged the collection under the Fifth, Eighth, Ninth, Tenth and Thirteenth Amendments, as well as under the Ex Post Facto and Bill of Attainder clauses, the Equal Protection clause, and as a violation of separation of powers. 471 F.3d 766, 769 (7th Cir. 2006). 52 389 U.S. 347, 361 (1967) (Harlan, J., concurring). See Kyllo v. United States, 533 U.S. 27, 32-33 (2001) (applying Justice Harlan’s formulation of a “search” under the Fourth Amendment). 53 Katz, 389 U.S. at 361.
323 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 probable cause unless the search falls under one of the exceptions to the probable-cause requirement.54 Courts have firmly embraced the notion that the extraction of a person’s blood for DNA analysis is a search under the Fourth Amendment.55 This result flows from Schmerber v. California, a case in which the Supreme Court held that testing blood samples for evidence of drunkenness plainly constitutes a “search[] of ‘persons’ . . . within the meaning of that Amendment.”56 But it’s not that simple. Some courts have held that more than one search takes place in the context of CODIS: first, the physical drawing of blood; and second, the subsequent chemical analysis of that sample.57 Other
54 The definition of probable cause is ever elusive. The Supreme Court has consistently resisted providing a concrete standard for this idea—it is “a practical, nontechnical” and “fluid concept,” but the various definitions all have one thing in common: “a reasonable ground for belief of guilt, [where] the belief of guilt must be particularized with respect to the person to be searched or seized.” Maryland v. Pringle, 540 U.S. 366, 370-71 (2003) (citations and quotations omitted). 55 Green v. Berge, 354 F.3d 675, 676 (7th Cir. 2004) (stating that taking a DNA sample is “clearly a search”); Johnson v. Quander, 440 F.3d 489, 493 (D.C. Cir. 2006) (“There is no question that the compulsory extraction of blood for DNA profiling constitutes a ‘search’ within the meaning of the Fourth Amendment.”) (citations omitted). 56 384 U.S. 757, 767 (1966). The collection of DNA using other methods, such as cheek swabs, also constitutes a search under the Fourth Amendment. Analyses of blood, urine, cheek cell, and breath samples have all been held to constitute a search. See, e.g., Bd. of Educ. v. Earls, 536 U.S. 822, 828 (2002) (citing Vernonia Sch. Dist. 47J v. Acton, 515 U.S. 646, 652 (1995)); Skinner v. Ry. Labor Executives’ Ass’n, 489 U.S. 602, 614, 617 (1989) (“We are unwilling to conclude . . . that breath and urine tests . . . will not implicate the Fourth Amendment” and “[although] collecting and testing urine samples do[es] not entail a surgical intrusion into the body,” the “chemical analysis of urine, like that of blood, can reveal a host of private medical facts about an employee . . . . Nor can it be disputed that the process of collecting the sample to be tested . . . itself implicates privacy interests.”); Banks v. United States, 490 F.3d 1178, 1183 (10th Cir. 2007) (“[A]nalyzing the DNA . . . from a cheek swab[] must pass Fourth Amendment scrutiny.”) (citing Skinner, 489 U.S. at 616; Schlicher v. Peters, 103 F.3d 940, 942-43 (10th Cir. 1996)). 57 E.g., United States v. Stewart, 468 F. Supp. 2d 261, 276 (D. Mass. 2007); Banks v. Gonzales, 415 F. Supp. 2d 1248, 1254 (N.D. Okla. 2006); State v. Transou, 201 S.W.3d 607, 619 (Tenn. 2006) (citations omitted). Some defendants have
324 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 courts have held that “if the initial search is lawful, the subsequent use of the evidence seized is not a search that implicates the Fourth Amendment.”58 In at least one case, a court even held that the defendant did not have the requisite standing to challenge the use of his DNA profile.59 This debate is not merely one of semantics—it could have important consequences for a person facing DNA collection. Although it is well settled that a blood draw is minimally invasive,60 some courts are increasingly willing to embrace the idea that the chemical analysis of that blood, at least in the DNA context, may create a significant privacy concern.61 The weight given to the privacy interest at stake is of paramount importance, since regardless of which test is used to determine whether a search is unreasonable under the Fourth Amendment, that privacy interest will be considered as a factor in subsequent balancing.62
attempted to argue that the subsequent comparison of their DNA against other samples via CODIS is an additional search, though as yet this proposition finds no support in the case law. E.g., Johnson, 440 F.3d at 498-99 (noting that “the consequences of the contrary conclusion would be staggering”). The Johnson court considered two searches: the collection of a blood sample, and the comparison between that sample and others in CODIS. The court did not consider whether the chemical analysis was a separate search under the Fourth Amendment. 58 E.g., A.A. v. Attorney General, 914 A.2d 260, 266-67 (N.J. 2007) (citing Arizona v. Hicks, 480 U.S. 321, 324-25 (1987)). 59 Smith v. State, 744 N.E.2d 437, 440 (Ind. 2001). 60 See Skinner, 489 U.S. at 625 (citing Schmerber, 384 U.S. at 771; Winston v. Lee, 470 U.S. 753, 762 (1985); South Dakota v. Neville, 459 U.S. 553, 563 (1983); Breithaupt v. Abram, 352 U.S. 432, 436 (1957)) (quotations omitted). 61 Stewart, 468 F. Supp. 2d at 276; Banks, 415 F. Supp. 2d at 1254; Transou, 201 S.W.3d at 619. But see Ferguson v. City of Charleston, 532 U.S. 67, 92-93 (2001) (Scalia, J., dissenting) (arguing that the only search that occurs in the taking and testing of a urine sample is taking of the sample, and analogizing the testing step as akin to the taking of abandoned property, such as garbage left at the curb). 62 See infra Part II(A) for a complete description of the balancing tests.
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II. A TALE OF TWO TESTS: REASONABLENESS AND SPECIAL NEEDS
The Fourth Amendment does not prevent every search by the government—it only requires that the search be “reasonable.” Nor is “reasonable” some absolute standard. As the Supreme Court noted, what is reasonable will depend on the context of the search.63 Generally, reasonable searches require probable cause, and probable cause is required to obtain a warrant.64 But “probable cause is not an irreducible requirement of a valid search” and “[w]here a careful balancing of governmental and private interests suggests that the public interest is best served by a Fourth Amendment standard of reasonableness that stops short of probable cause, [the Supreme Court] has not hesitated to adopt such a standard.”65 Despite that language, the Court continues to insist that it only has permitted a few “narrowly defined intrusions” upon a person’s privacy absent a showing of probable cause.66 Examples of such intrusions can be placed into two categories: those searches that require some individualized suspicion of wrongdoing, but do not require that suspicion to rise to the level of probable cause; and those searches that are completely suspicionless. The former category requires some amount of “reasonable” suspicion; the latter, at issue in DNA
63 New Jersey v. T.L.O., 469 U.S. 325, 337 (1985). 64 The Fourth Amendment does not always require a warrant. See, e.g., Warden, Md. Penitentiary v. Hayden, 387 U.S. 294, 298-99 (1967) (holding that police officers were not required to get a warrant prior to searching a residence when speed was “essential” to officers’ safety and the officers had probable cause to believe the suspect had a weapon and was inside the residence); see also Dunaway v. New York, 442 U.S. 200 (1979); Chambers v. Marony, 399 U.S. 42 (1970). In general, however, those searches that can be executed without a warrant must be based upon probable cause. T.L.O., 469 U.S. at 339 (citing Almeida-Sanchez v. United States, 412 U.S. 266, 273 (1973); Sibron v. New York, 392 U.S. 40, 62-66 (1968)). 65 T.L.O., 469 U.S. at 341. 66 Dunaway, 442 U.S. at 214 (“For all but those narrowly defined intrusions, the requisite ‘balancing’ has been performed in centuries of precedent and is embodied in the principle that seizures are ‘reasonable’ only if supported by probable cause.”).
326 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 collection, is a “closely guarded category”67 that may require other forms of protection against abuse, such as “programmatic protections” that divest authorities of discretion in deciding how and when to administer the search.68 All of the circuit courts have addressed the Fourth Amendment issues raised by state or federal DNA statutes and all have either implicitly or explicitly acknowledged that sample collection is a suspicionless search—one that occurs without any individualized suspicion of wrongdoing.69 Although the circuit courts seem to agree on many things—notably, that DNA collection is a suspicionless search, and that this search is constitutional under the Fourth Amendment, etc.—the courts vary in how they analyze this type of search. Some analyze the search under the general “reasonableness” approach, whereas others first determine whether the search meets a “special need” before going on to weigh the various interests involved. One might ask, “If the starting point and the endpoint are the same, what difference does it make how the courts arrive at their conclusions?” As we will see, it can and should have a significant impact. First, however, a brief description and explanation of the differences between these two frameworks is required.
67 Ferguson v. City of Charleston, 532 U.S. 67, 77 (2001) (citing Chandler v. Miller, 520 U.S. 305, 309 (1997)); see City of Indianapolis v. Edmond, 531 U.S. 32, 36-37 (2000) (“[W]e have recognized only limited circumstances in which the usual rule [requiring individualized suspicion] does not apply.”). 68 Ferguson, 532 U.S. at 81-82; Edmond, 531 U.S. at 45-46 (2000) (citing Whren v. United States, 517 U.S. 806, 813 (1996)). 69 See generally United States v. Weikert, 504 F.3d 1 (1st Cir. 2007); United States v. Amerson, 483 F.3d 73 (2d Cir. 2007); Banks v. United States, 490 F.3d 1178 (10th Cir. 2007); United States v. Hook, 471 F.3d 766 (7th Cir. 2006); United States v. Kraklio, 451 F.3d 922 (8th Cir. 2006); United States v. Conley, 453 F.3d 674 (6th Cir. 2006); Johnson v. Quander, 440 F.3d 489 (D.C. Cir. 2006); United States v. Sczubelek, 402 F.3d 175 (3d Cir. 2005); Padgett v. Donald, 401 F.3d 1273 (11th Cir. 2005); Groceman v. U.S. Dep’t of Justice, 354 F.3d 411 (5th Cir. 2004); United States v. Kincade, 379 F.3d 813 (9th Cir. 2004); Jones v. Murray, 962 F.2d 302 (4th Cir. 1992).
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A. Analytical Frameworks
Historically, the Fourth Amendment required probable cause for any search.70 Over time, however, the courts drifted to a more relaxed interpretation—one that, in certain “limited circumstances,”71 permits a search unsupported by any individualized suspicion. In this context, courts have adopted at least two distinct analytical frameworks.72 The first is the reasonableness standard.73 The reasonableness standard “requires balancing the need to search against the invasion which the search entails. On one side of the balance are arrayed the individual’s legitimate expectations of privacy and personal security; on the other, the government’s need for effective methods to deal with breaches of public order.”74 In other words, “the reasonableness of a search is determined by assessing, on the one hand, the degree to which it intrudes upon an individual’s privacy and, on the other, the
70 4 THE ENCYCLOPEDIA OF CRIME & JUSTICE 1386 (Joshua Dressler ed., 2d ed. 2002) (“[B]y the end of the 1920s . . . . [p]robable cause was required for all searches or arrests. A warrant, obtained in advance, was required at least for searches of homes, and possibly for many other searches as well.”). 71 Edmond, 531 U.S. at 36-37. 72 The jurisprudence in this area is somewhat confusing, as the Supreme Court has never set down a clear division between the various categories of searches which can be supported by something less than probable cause. See id. (describing permissible suspicionless searches in the context of special needs, administrative searches, border patrols, and sobriety checkpoints); Kincade, 379 F.3d at 822-24 (describing three non-mutually exclusive categories of suspicionless searches as the “exempted areas,” such as borders and airports; “administrative searches” in the context of closely-regulated businesses; and “special needs”); Edwin J. Butterfoss, A Suspicionless Search and Seizure Quagmire: The Supreme Court Revives the Pretext Doctrine and Creates Another Fine Fourth Amendment Mess, 40 CREIGHTON L. REV. 419, 421 (2007) (noting that the Court has never identified a discrete category of permissible suspicionless searches, and has justified suspicionless searches at different times as falling under an administrative, special needs, checkpoint or inventory, or “general Fourth Amendment” approach). 73 E.g., United States v. Knights, 534 U.S. 112, 118 (2001) (citing Ohio v. Robinette, 519 U.S. 33, 39 (1996)) (equating the two standards). 74 New Jersey v. T.L.O., 469 U.S. 325, 337 (1985) (citing Camara v. Mun. Court, 387 U.S. 523, 536-37 (1967)) (quotations omitted).
328 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 degree to which it is needed for the promotion of legitimate governmental interests.”75 Under this standard, “both the inception and the scope of the intrusion must be reasonable;”76 the latter requires that the search as conducted must be “reasonably related in scope to the circumstances which justified the interference in the first place.”77 The second is the “special needs” standard. In those instances where the government can identify a special need “beyond the normal need for law enforcement”—a need that makes obtaining a warrant or requiring probable cause impracticable—it may be able to forego the warrant and probable cause requirements.78 First, a court must consider whether the search satisfies a special need.79 If so, the court goes on to balance the nature of the privacy interest compromised by the search and the “character of the intrusion” imposed by the search against the “nature and immediacy of the government’s concerns and the efficacy of the [search] in meeting them.”80 In addition to disagreeing over which test is applicable for DNA collection statutes, the courts have also disagreed over which test is the most rigorous of the two.81 The Third Circuit has held that the reasonableness test is the most stringent, and it adopted that test when it analyzed a supervised releasee’s82 Fourth Amendment challenge to
75 Knights, 534 U.S. at 118-19 (quoting Wyoming v. Houghton, 526 U.S. 295, 300 (1999)) (quotations omitted). 76 O’Connor v. Ortega, 480 U.S. 709, 726 (1987). 77 T.L.O., 469 U.S. at 341 (quoting Terry v. Ohio, 392 U.S. 1, 20 (1968)). 78 Id. at 351 (Blackmun, J., concurring). 79 For a discussion of what suffices as a “special need,” see discussion infra Part II(B). 80 Bd. of Educ. v. Earls, 536 U.S. 822, 830-38 (2002) (citing Vernonia Sch. Dist. 47J v. Acton, 515 U.S. 646 (1995)). 81 United States v. Weikert, 504 F.3d 1, 9 n.6 (1st Cir. 2007). 82 In the federal system, parole was replaced with “supervised release” by the Sentencing Reform Act of 1984, Pub. L. No. 98-473, 98 Stat. 1987. See U.S. SENTENCING COMM’N, FIFTEEN YEARS OF GUIDELINE SENTENCING: AN ASSESSMENT OF HOW WELL THE FEDERAL CRIMINAL JUSTICE SYSTEM IS ACHIEVING THE GOALS OF SENTENCING REFORM 1-11 (2004), available at http://www.ussc.gov/15_year/15_year_study_full.pdf.
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DNA collection.83 The court applied the “more rigorous” reasonableness test because the purpose for collecting DNA went “well beyond the supervision by the Probation Office of an individual on supervised release.”84 The Eighth Circuit also adopted this reasoning when it chose to apply the reasonableness test to DNA collection.85 In United States v. Amerson, however, the Second Circuit persuasively argued that the special needs test was the more stringent of the two. In doing so, the court clarified how it is that courts can apply different tests, yet consistently reach the same result:
The special needs exception requires the court to ask two questions. First, is the search justified by a special need beyond the ordinary need for normal law enforcement? Second, if the search does serve a special need, is the search reasonable when the government's special need is weighed against the intrusion on the individual's privacy interest? A general balancing test, on the other hand, only requires the court to balance the government's interest in conducting the search against the individual's privacy interests.86
83 United States v. Sczubelek, 402 F.3d 175, 184 (3d Cir. 2005) (“[W]e believe that it is appropriate to examine the reasonableness of the taking of the sample under the more rigorous Knights totality of the circumstances test rather than the Griffin special needs exception.”). 84 Id. Precisely how this statement justifies the choice of one framework over another is unclear—if anything, the statement seems to set up the court to adopt the special needs approach, since the choice rests upon the fact that there are larger (presumably non-law enforcement) purposes served by DNA collection. 85 United States v. Kraklio, 451 F.3d 922, 924 (8th Cir. 2006). 86 United States v. Amerson, 483 F.3d 73, 79 n.6 (2d Cir. 2007) (citing Nicholas v. Goord, 430 F.3d 652, 664 n.2 (2d Cir. 2005)) (quotations and citations omitted).
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The court went on to explain that, once one concludes that the government has a special need to obtain DNA samples, the second prong of the special needs test becomes “very similar” to the balancing required under a reasonableness framework. In fact, the court stated that “had we concluded that it was appropriate to apply a general balancing test to suspicionless searches of probationers—which we did not—we would have reached the same result that we do under the special needs test.”87 The Second Circuit’s reasoning makes perfect sense. The balancing tests under both the reasonableness and the special needs standards are indeed very similar. In fact, despite the ostensible language differences (weighing the government’s “legitimate interests” in the reasonableness context versus weighing the government’s “special needs”) most courts do not make this distinction—they engage in the same balancing test regardless of the framework they choose.88 Because the balancing prong of the tests are de facto identical, and because the special needs test requires an additional step before the court may engage in balancing the interests involved, the special needs test must be the more stringent of the two. Most federal circuit courts have chosen to analyze federal and state DNA statutes under the reasonableness standard. A minority, including the Seventh Circuit, have chosen to analyze the statutes under the special needs approach.89 In the next section, I explore the
87 Amerson, 483 F.3d at 79 n.6. 88 E.g., Joy v. Penn-Harris-Madison Sch. Corp., 212 F.3d 1052, 1059 (7th Cir. 2000) (citing Vernonia Sch. Dist. 47J v. Acton, 515 U.S. 646, 654 (1995)) (listing the factors for special needs analysis as “(1) the nature of the privacy interest upon which the search intrudes, (2) the character of the intrusion on the individual’s privacy interest, (3) the nature of the governmental concern at issue, (4) the immediacy of the government’s concern, and (5) the efficacy of the particular means in addressing the problem.”). 89 United States v. Weikert, 504 F.3d 1, 8-9 (1st Cir. 2007) (noting that the Third, Fourth, Fifth, Eighth, Ninth, Eleventh, and D.C. Circuits use the totality of the circumstances analysis; the Second, Seventh, and Tenth Circuits apply the special needs analysis; and the Sixth Circuit has declined to choose a mode of analysis, holding that the DNA Act is constitutional under both the totality of the circumstances and the special needs test).
331 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 evolution of these two exceptions to the warrant and probable cause requirement and why it is the reasonableness approach, not the special needs test, that applies to DNA collection statutes.
B. The Supreme Court’s Suspicionless Search Jurisprudence
The evolution of the special needs test can be traced back at least as far as New Jersey v. T.L.O.90 T.L.O. has the distinction of being the first case in which the Court used the term “special needs.” There, a schoolteacher found a young girl smoking in the bathroom; when taken to the principal’s office, the girl denied it.91 An administrator then demanded the girl’s purse, opened it, and found a pack of cigarettes and some rolling papers.92 The administrator recognized the papers as typical of those used to smoke marijuana, and continued searching the purse until he located the drug. After the student was suspended, she challenged both the initial search of her purse and the search for marijuana under the Fourth Amendment.
90 469 U.S. 325 (1985). Some persuasively argue that its true origin lies within Camara v. Municipal Courts. Butterfoss, supra note 72, at 420. In Camara, the Court examined the warrantless search of a rental unit by a housing inspector. 387 U.S. 523, 525-26 (1967). Despite noting that a routine inspection of private property was not as invasive as when the police search “for the fruits and instrumentalities of crime;” the Court nevertheless held that a significant intrusion had occurred. Id. at 534. The inspector was therefore required to obtain a warrant prior to carrying out the administrative search. That alone, however, did not settle the question. The Court went on to determine “whether some other accommodation between public need and individual right [was] essential.” Id. Instead of using the typical formulation of probable cause—namely, one dependent upon individualized suspicion—the Court defined probable cause in unique terms, holding that “‘probable cause’ to issue a warrant to inspect must exist if reasonable legislative or administrative standards for conducting an area inspection are satisfied.” Id. at 538. Camara, therefore, has the (perhaps ignoble) distinction of being the first case in which the Supreme Court authorized a search absent any individualized suspicion. See O’Connor v. Ortega, 480 U.S. 709, 723 (1987) (describing Camara as holding that “the appropriate standard for administrative searches is not probable cause in its traditional meaning”). 91 T.L.O., 469 U.S. at 328-29. 92 Id.
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Although the term “special needs” is often attributed solely to Justice Blackmun’s concurrence, the majority recognized that “the special needs of the school environment require assessment of the legality of such searches against a standard less exacting than that of probable cause.”93 Instead of requiring probable cause, the Court held that the legality of the searches at issue depended on “the reasonableness, under all the circumstances, of the search[es].”94 To determine whether the searches were reasonable, the Court engaged in the now-canonical balancing test, weighing the student’s legitimate expectation of privacy and security against the government’s interest in dealing with breaches of the public order.95 The Court concluded that both searches were reasonable and constitutional.96 The Court explicitly limited its holding: even though the searches at issue were based on individualized suspicion, the Court refused to decide whether individualized suspicion was “an essential element of the reasonableness standard we adopt for searches by school authorities.”97 Although constitutional searches usually call for some individualized suspicion, such suspicion is not always necessary.98 The Court warned that those exceptions are few and far between, as they are “generally appropriate only where the privacy interests implicated by a search are minimal and where other safeguards are available to assure that the individual’s reasonable expectation of privacy is not subject to the discretion of the official in the field.”99
93 Id. at 333. Although the quoted language actually refers to the Court’s restatement of the Supreme Court of New Jersey and other courts’ opinions, the Court ultimately adopted the same reasoning, holding that “the school setting requires some easing of the restrictions to which searches by public authorities are ordinarily subject.” Id. at 340. Ultimately, the Court required neither a warrant nor probable cause. Id. at 340-42. 94 Id. at 341. 95 Id. at 337. 96 Id. at 346-47 & n.12. 97 Id. at 342 n.8. 98 Id. 99 Id. (quoting Delaware v. Prouse, 440 U.S. 648, 654-55 (1979)) (emphasis added and quotation marks omitted).
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The opinion proffers five different approaches to the same issue. It is Justice Blackmun’s lonely concurrence, however, that continues to inform suspicionless search jurisprudence today. Justice Blackmun largely agreed with the majority’s opinion, but he wrote separately to express concern over what he saw as a divergence from the Court’s past practices.100 He saw those decisions as illustrating that the Framers had already engaged in the requisite balancing, and had determined that “reasonableness” was synonymous with the warrant and probable cause requirements.101 In Justice Blackmun’s view, “Only in those exceptional circumstances in which special needs, beyond the normal need for law enforcement, make the warrant and probable-cause requirement impracticable, is a court entitled to substitute its balancing of interests for that of the Framers.”102 He defined that special need as the “need for greater flexibility,”103 when, “as a practical matter,” it would be impossible to obtain a warrant or to satisfy the probable-cause requirement. Because in T.L.O. teachers, and not police, were conducting the searches; and because there was a special need for an immediate response to anything threatening school safety or learning, Justice Blackmun believed that the searches at issue were constitutional.104 Two years later, Justice Blackmun’s special needs framework was formally adopted in O’Connor v. Ortega.105
100 Id. at 351 (Blackmun, J., concurring). 101 Id. (citing United States v. Place, 462 U.S. 696 (1983)). See Dunaway v. New York, 442 U.S. 200, 214 (1979) (“For all but those narrowly defined intrusions, the requisite ‘balancing’ has been performed in centuries of precedent and is embodied in the principle that seizures are ‘reasonable’ only if supported by probable cause.”). 102 T.L.O., 469 U.S. at 351 (Blackmun, J., concurring). 103 Id. (citing Florida v. Royer, 460 U.S. 491, 514 (1983) (Blackmun, J., dissenting)). 104 Id. at 353. 105 480 U.S. 709, 720, 724-25 (1987). In that case, a public employer searched an employee’s office upon an individualized suspicion of wrongdoing—the employee had allegedly improperly solicited contributions from and sexually harassed other employees. Id. at 712-14. Although the employee had a reasonable expectation of privacy in his office, the Court did not require a warrant or probable cause prior to the search. Id. at 721, 724. Instead, the Court expressly drew on
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The next key case for our purposes, Griffin v. Wisconsin, is of particular relevance because it addressed the warrantless search of a probationer.106 As a felon on probation, Griffin was not permitted to possess a firearm.107 During his probation, a policeman informed Griffin’s probation office that Griffin “had or might have” guns in his apartment.108 Probation officers and the police searched Griffin’s home, where they found an illegal handgun.109 Griffin challenged the search; the Wisconsin Supreme Court affirmed the conviction because under Wisconsin law, the probation officer did not have to obtain a warrant. Instead, the probation officer only was required to obtain supervisor approval and to have “reasonable grounds” to believe that the probationer possessed a forbidden item prior to searching the probationer’s home.110 As in T.L.O. and Ortega, the party conducting the search had an individualized, reasonable suspicion of wrongdoing, and as in Ortega, the Supreme Court applied the special needs test to analyze the constitutionality of the search.111 The Court analogized a state’s operation of a probation system to that of a school or prison, and reasoned that the state had a special need—supervision of probationers—that made the warrant and probable-cause requirements impracticable.112 The Court recognized that a probationer could never enjoy the same absolute liberty to which a law-abiding citizen is
Justice Blackmun’s reasoning in T.L.O. to support its holding that the warrant and probable cause requirements were “impracticable” for “legitimate work-related, noninvestigatory intrusions as well as investigations of work-related misconduct.” Id. at 725. And as in T.L.O., the Court again refused to comment on whether individualized suspicion was an essential element of the standard of reasonableness. Id. at 726. 106 483 U.S. 868 (1987). 107 Id. at 871-72. 108 Id. at 880. 109 Id. 110 Id. at 870-72. 111 Id. at 873. The Court did so without any discussion as to why it chose to apply the special needs test instead of the totality of the circumstances test. 112 Id. at 873-75.
335 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 entitled, but also took care to note that the probationer did not lose all protection against invasions of his privacy.113 After determining that the search did not require a warrant or probable cause,114 the Court went on to determine whether that search was reasonable. The Court agreed that the search satisfied Wisconsin’s “reasonable grounds” standard and that the search was constitutional because “it was conducted pursuant to a valid regulation governing probationers.”115 The Griffin decision seemed to signal that the special needs framework applied to probationer searches, at least when the searcher had an individualized suspicion of wrongdoing. But Griffin, T.L.O., and Ortega all dealt with searches as a result of individualized suspicion; other cases addressed the issue as to whether the special needs test could apply to suspicionless searches. In using the special needs test to evaluate suspicionless searches, however, the Court opened up a new line of inquiry: just what, precisely, is required to show that a “need beyond the normal need for law enforcement” exists?
113 See id. at 874. 114 Id. at 876 (“A warrant requirement would interfere to an appreciable degree with the probation system, setting up a magistrate rather than the probation officer as the judge of how close a supervision the probationer requires. Moreover, the delay inherent in obtaining a warrant would make it more difficult for probation officials to respond quickly to evidence of misconduct . . . and would reduce the deterrent effect that the possibility of expeditious searches would otherwise create . . . .”). In analyzing the probable-cause requirement, the Court relied upon a textual interpretation of the Constitution, noting that although probable cause might be required in circumstances where a warrant was not, the reverse was not true, since “no Warrants shall issue, but upon probable cause.” Therefore, when a judicially- issued warrant is required, “[the search] is also of such a nature as to require probable cause.” Id. at 877-78. Even absent this reading, the Court would have required a lesser degree of suspicion since the “probation regime would also be unduly disrupted by a requirement of probable cause.” Id. at 878. 115 Id. at 880. Earlier in the opinion, the Court referenced Camara, stating that it had permitted searches pursuant to a regulatory scheme without a warrant or probable cause when the search met “reasonable legislative or administrative standards.” Id. at 873. It is not clear whether the Court was stating that the search at issue in Griffin was such a regulatory search. See id. at 878 n.4.
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In Ferguson v. City of Charleston, for example, the Court used the special needs test to evaluate a suspicionless drug-testing program.116 In response to an apparent increase in “crack babies,” a public hospital instituted a program whereby it identified nine possible signs117 that a pregnant woman was using cocaine; upon satisfying at least one of the criteria, the hospital would collect the mother’s urine for drug testing without her consent or knowledge.118 Women thus identified as cocaine abusers were threatened with “law enforcement involvement” if they did not agree to take part in certain educational activities or to join a substance abuse program.119 The Court found that there was no reasonable suspicion whatsoever that the women identified in this manner abused illegal drugs.120 The Court analyzed the suspicionless search using the special needs approach, bringing Ferguson in line with four previous cases in which it had evaluated drug-testing programs.121 In each of those
116 532 U.S. 67 (2001). 117 These criteria included (1) lack of any prenatal care, (2) late prenatal care (that is, prenatal care after twenty-four weeks of gestation), (3) “incomplete” prenatal care, (4) abruption placentae, (5) intrauterine fetal death, (6) preterm labor “of no obvious cause,” (7) intrauterine growth retardation “of no obvious cause,” (8) previously known drug or alcohol abuse, and (9) any unexplained congenital anomalies. Id. at 71 n.4. 118 Id. at 70-72. The consent issue was not addressed by the Court; instead, it assumed without deciding that the searches were conducted without informed consent and decided the case on special needs grounds. It then remanded the case for a determination of the consent issue. Id. at 76, 77 & n.11. 119 Id. at 72. 120 Id. at 76-77. The Court did not undertake its own substantive analysis of this issue, but it did note that the hospital did not point to any evidence that any of the nine factors “was more apt to be caused by cocaine use than by some other factor, such as malnutrition, illness, or indigency. More significantly . . . the reasoning of the majority panel opinion rest on the premise that the policy would be valid even if the tests were conducted randomly.” Id. at 77 n.10. 121 Id. at 77. These included Skinner v. Ry. Labor Executives’ Ass’n, 489 U.S. 602 (1989); Nat’l Treasury Employees Union v. Von Raab, 489 U.S. 656 (1989); Vernonia Sch. Dist. 47J v. Acton, 515 U.S. 646 (1995); and Chandler v. Miller, 520 U.S. 305 (1997). The Ferguson Court noted that in the first three of these cases, it upheld drug tests, whereas in Chandler, the Court struck down the testing as
337 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 cases, government officials argued that the search met a special need “divorced from the State’s general interest in law enforcement.”122 Here, in contrast, the Court believed that the “central and indispensable feature” of the program was the use of law enforcement to pressure women into treatment programs.123 The Court distinguished the three earlier cases in which it had upheld drug- testing programs, reasoning that it had permitted those warrantless, suspicionless searches in part “because there was no law enforcement purpose behind the searches . . . and there was little, if any, entanglement with law enforcement.”124 In fact, the State had argued that the ultimate purpose of the program was not law enforcement, but to protect the health of the mother and fetus.125 The Court, however, refused to accept the State’s characterization of the program’s purpose; instead, it engaged in a “close review” to make its own determination.126 The Court built upon the programmatic purpose reasoning it first described in City of Indianapolis v. Edmond,127 refining the inquiry into one of the unconstitutional. Ferguson, 532 U.S. at 77. In each of these cases, the Court used a special needs framework to evaluate the constitutionality of the search at issue. 122 Ferguson, 532 U.S. at 79. 123 Id. at 80. 124 Id. at 81. 125 Id. 126 Id. (citing Chandler, 520 U.S. at 322). 127 531 U.S. 32 (2000). Edmond is not technically a special needs case, since the Edmond Court discussed its checkpoint cases as being in a category apart from special needs. Id. at 37-38. In Edmond, the plaintiffs were stopped at a suspicionless narcotics checkpoint; an officer examined the driver and the car using a narcotics- detection dog. Id. at 35-36. The Court had previously upheld some suspicionless checkpoint searches, but it distinguished the facts in Edmond by focusing on the “primary purpose” of the seizure—in Edmond, the program “unquestionably ha[d] the primary purpose of interdicting illegal narcotics,” and the Court emphasized that it had never approved a checkpoint program with the primary purpose of detecting “evidence of ordinary criminal wrongdoing.” Id. at 40-41. Moreover, in permitting inquiry into the programmatic purposes of a search, the Court included the special needs framework, stating that its “special needs and administrative search cases demonstrate that purpose is often relevant when suspicionless intrusions pursuant to a general scheme are at issue.” Id. at 47.
338 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 program’s relevant primary purpose.128 Even though the ultimate point of the program was to obtain substance abuse help for expectant mothers, the immediate objective129 was to generate evidence for law enforcement, since the “policy was specifically designed to gather evidence of violations of penal laws.”130 The search could not, therefore, satisfy a special need beyond the normal need for law enforcement.131 After Ferguson, the Court seemed to be consistently applying the special needs test to evaluate searches unsupported by warrants or probable cause. But in United States v. Knights, the Court revisited the applicability of the special needs framework when it examined the warrantless search of a probationer.132 Knights had been sentenced to probation for a drug offense, and as a condition of that probation he signed an order that permitted the search of his person or residence without a warrant or “reasonable cause.”133 Lo and behold, Knights’ apartment was searched—but not without reasonable cause.134 Knights had a previous run-in with an electric company, and when the company suffered $1.5 million in damage from an act of vandalism, Knights became a suspect.135 A detective decided to search Knights’ apartment without a warrant, and upon doing so discovered evidence
128 Ferguson, 532 U.S. at 81. The Court distinguished this “primary purpose” from an “ultimate” purpose or goal—and even where the ultimate purpose was not related to law enforcement, if the primary purpose was for law enforcement purposes, the search required a warrant and individualized suspicion. Id. at 82-84. To allow otherwise, apparently, would be to constitutionalize almost any suspicionless search, since the search could be justified by its ultimate purpose. Id. at 84. 129 The Court used the terms “immediate objective” and “primary purpose” interchangeably. 130 Ferguson, 532 U.S. at 84. 131 Id. at 86. 132 534 U.S. 112 (2001). 133 Id. at 114. 134 Id. at 115. 135 Id. at 114.
339 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 of the crime.136 The district court granted a motion to suppress this evidence, and the government appealed.137 Knights relied on the Griffin holding, arguing that the search had to be analyzed under the special needs framework.138 The Court disagreed, stating that “[t]his dubious logic . . . runs contrary to Griffin’s express statement that its ‘special needs’ holding made it ‘unnecessary to consider whether’ warrantless searches of probationers were otherwise reasonable within the meaning of the Fourth Amendment.”139 But the Court did not explain why the special needs framework was inappropriate; instead, the Court simply used the reasonableness test.140 The Court balanced Knights’ privacy interest against the government’s interests, and began with the observation that Knights’ probationer status informed “both sides of that balance.”141 Because Knights was a probationer, the Court held that he had a significantly diminished expectation of privacy; when weighed against the government’s interest in rehabilitating Knights and in “protecting society against future criminal violations,” the government’s interests handily surpassed Knights’.142 The Court limited this holding by refusing to address the constitutionality of a suspicionless search under these circumstances—namely, when a probationer consents to suspicionless searches as part of his probation agreement.143 What, then, are the lessons an appellate court would draw from looking at the Supreme Court’s Fourth Amendment jurisprudence up to and including Knights? Although the special needs framework first came into being in cases where the searching party reasonably
136 Id. at 115 & n.1. 137 Id. at 116. 138 Id. at 117. 139 Id. at 117-18. 140 Id. at 118. 141 Id. at 119. 142 Id. at 118-20. 143 Id. at 120 n.6 (“[W]e need not address the constitutionality of a suspicionless search because the search in this case was supported by reasonable suspicion.”).
340 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 suspected an individual of some wrongdoing, over time the framework evolved to address suspicionless searches like those in Ferguson. Griffin seemed to indicate that the special needs framework applied to probationer searches supported by individualized suspicion, but Knights indicates that under similar facts, the Court endorsed the reasonableness test for use in determining whether a search is constitutional. In not overruling Griffin, however, the Knights Court left open the possibility that the special needs framework could still be appropriate when one is analyzing a probationer search supported by individualized suspicion of wrongdoing, but the Court did not explain how a lower court would decide which framework to use. Nor did Knights speak to suspicionless searches—although the Court apparently thought that it left the issue unresolved, Ferguson indicates that perhaps the question had already been answered; those cases might lead an appellate court to reason that suspicionless searches are governed by the special needs test. Ferguson and Edmond also specifically call for an inquiry into the programmatic purpose (or the primary purpose, or the immediate objective) of suspicionless searches, and ask an appellate court to engage in a “close review” of any proffered rationales for an administrative scheme that endorses such searches. Finally, none of these cases truly clarified what, precisely, was meant by the requirement that one have a need “beyond the normal need for law enforcement.”144 It is not surprising, then, that when analyzing a suspicionless search the Seventh Circuit would understand these cases to endorse a special needs approach—and this is, in fact, precisely what one sees in the Seventh Circuit’s suspicionless search case law.
144 Butterfoss, supra note 72, at 422-23 (citing various Supreme Court cases for the proposition that the Court has, at various times, “expressed concern over, or suggested a different outcome for, searches motivated by,” for example, a law enforcement purpose, general crime control purposes, an intent to aid law enforcement efforts, a purely investigatory purpose, an investigatory police motive, a search to detect evidence of ordinary criminal wrongdoing, or a search to obtain evidence of violations of the penal law).
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III. SEVENTH CIRCUIT IMPROPERLY APPLIES SPECIAL NEEDS TO FEDERAL DNA COLLECTION
A. The Seventh Circuit’s Special Needs Cases
The Seventh Circuit recognized the special needs test at least as early as 1996, in its Thompson v. Harper case.145 Since then, the court has proven quite capable of applying the special needs factors— making the court’s failure to properly balance those factors in its DNA cases is all the more surprising. In Joy v. Penn-Harris-Madison School Corp., for example, the Seventh Circuit engaged in a careful balancing of the relevant factors.146 As in T.L.O., certain high school students were subjected to random, suspicionless drug (including alcohol and nicotine) testing.147 The Seventh Circuit wasted little time explaining why the special needs framework was appropriate; instead, after citing various other drug testing cases where the special needs test was used,148 and noting
145 77 F.3d 484 (1996) (unpublished table opinion). There, the court referenced Griffin for its understanding that the probation system poses special needs that could justify warrantless searches unsupported by probable cause, but the court did not actually engage in special needs balancing. The court took a more detailed look at the doctrine in United States v. Jones, when it rejected a parolee’s argument that the only special need capable of justifying a warrantless search unsupported by probable cause was the “need to act quickly to prevent harm to the probationer and society.” 152 F.3d 680, 686 (1998). The Jones court also noted that it would review de novo a district court’s determination of whether “reasonable grounds” existed to support such a search. Id. at 687. 146 212 F.3d 1052 (2000). 147 Id. at 1054-55. The group of students that could be tested included those involved in non-athletic extracurricular activities and those that drove to school. 148 Id. at 1058 (citing Skinner v. Ry. Labor Executives’ Ass’n, 489 U.S. 602 (1989) (using special needs analysis for suspicionless drug testing of railroad employees); Chandler v. Miller, 520 U.S. 305 (1997) (same for drug testing of public office candidates); Vernonia Sch. Dist 47J v. Acton, 515 U.S. 646 (1995) (same for suspicionless drug testing of public school students); Nat’l Treasury Employees Union v. Von Raab, 489 U.S. 656 (1989) (same for suspicionless drug testing for U.S. Custom Service employees); Willis v. Anderson Community Sch.
342 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 that special needs in particular seem to arise in the public school context, it dove into its analysis.149 The court laid forth a series of factors that it used to balance between the government’s interests and those of the individual, including: “(1) the nature of the privacy interest upon which the search intrudes, (2) the character of the intrusion on the individual’s privacy interest, (3) the nature of the governmental concern at issue,150 (4) the immediacy of the government’s concern,151 and (5) the efficacy of the particular means in addressing the problem.”152 In addition to the complicated balancing of these various factors, the court also had to contend with some of its own unwelcome precedent. The court previously addressed suspicionless drug testing in Todd v. Rush County Schools153 and Willis v. Anderson Community School Corp.154 The Joy panel stated that were it relying solely upon Supreme Court precedent, it would hold the random drug testing of students participating in extracurricular activities unconstitutional.155 Under the doctrine of stare decisis, however, the court felt compelled
Corp., 158 F.3d 415 (7th Cir. 1998) (same for drug testing of a public school student accused of fighting)). 149 Id. at 1058. The court’s language indicates that it may not have realized it had a choice, as it stated that to “be a reasonable search without a warrant and probable cause, the government must show a ‘special need,’ beyond the normal need for law enforcement . . . .” Id. (emphasis added). 150 The court analyzed this factor from two perspectives: first, whether there is a correlation between the defined population and drug abuse; and second, whether there is a correlation between the abuse and the government’s interest in protecting property and life. Id. at 1064. 151 In Willis v. Anderson Community School Corp., the Seventh Circuit placed particular emphasis on this factor, stating that “it may be that when a suspicion- based search is workable, the needs of the government will never be strong enough to outweigh the privacy interests of the individual.” 158 F.3d 415, 422 (7th Cir. 1998) (emphasis added). 152 Joy, 212 F.3d at 1059 (citing Vernonia, 515 U.S. at 654, 658, 661, 662, 663) (internal citations omitted). 153 133 F.3d 984 (7th Cir. 1998). 154 158 F.3d 415 (7th Cir. 1998). 155 Joy, 212 F.3d at 1062-63.
343 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 to affirm the lower court’s decision on the basis of Todd—an opinion that did not even reference relevant Supreme Court precedent. Therefore, the court warned against an overly broad reading of its holding and strictly limited its conclusions to the facts of Joy,156 stating that “[u]ntil we receive further guidance from the Supreme Court, we shall stand by our admonishment in Willis that the special needs exception must be justified” according to the factors described above.157 Whether the court meant to further limit its holding as relevant only to suspicionless drug testing cases is not clear. It is clear that in its next special needs case, the Seventh Circuit did not reference the factors it highlighted so carefully in Joy. That case was Green v. Berge, the first Seventh Circuit decision to address DNA collection.
B. The Seventh Circuit’s DNA Cases
1. Green v. Berge
In Green v. Berge, the Seventh Circuit evaluated the constitutionality of a Wisconsin law that had been amended to require all convicted felons to provide DNA samples.158 Four prisoners in Wisconsin’s Supermax penitentiary filed a suit challenging their DNA collection.159 From the moment one begins reading, it is clear that the opinion does not bode well for the plaintiffs. The court began by mentioning that almost all challenges to state- and federally-mandated DNA collections had failed, and as such, “the plaintiffs in this suit face a decidedly uphill struggle . . . .”160
156 Id. at 1066. 157 Id. at 1067. 158 354 F.3d 675 (2004). The Wisconsin law at issue was WIS. STAT. § 165.76 (1993) (amended 1999). 159 Green, 354 F.3d at 676. 160 Id. at 676-77 (“[The] state and federal courts that have [addressed the issue] are almost unanimous in holding that these statutes do not violate the Fourth Amendment.”).
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The Seventh Circuit acknowledged that taking a person’s DNA is a search161 and that there was no individualized reasonable suspicion to believe these prisoners had committed a new crime.162 Without addressing the facts specific to this case, the court proffered other courts’ justifications for upholding these statutes:
Courts uphold these DNA collection statutes because the government interest in obtaining reliable DNA identification evidence for storage in a database and possible use in solving past and future crimes outweighs the limited privacy interests that prisoners retain. Also, courts generally conclude that the collection of biological samples is only a minimal intrusion on one’s personal physical integrity. These courts find that the government has a special need in obtaining identity DNA samples.163
The court agreed with the Tenth Circuit that a desire to build a DNA database went beyond the ordinary needs of law enforcement.164 It then explicitly adopted the reasoning of Chief Judge Crabb in the Western District of Wisconsin, who held that “[a]lthough the state’s DNA testing of inmates is ultimately for a law enforcement goal,” DNA collection seemed “to fit within the special needs analysis . . . since it is not undertaken for the investigation of a specific crime.”165
161 Id. at 676-77 (“Although the taking of a DNA sample is clearly a search, the Fourth Amendment does not proscribe all searches, only those that are unreasonable.”). 162 Id. at 676. 163 Id. at 677. 164 Id. (citing United States v. Kimler, 335 F.3d 1132, 1146 (10th Cir. 2003)). 165 Id. at 678 (citing Shelton v. Gudmanson, 934 F. Supp. 1048, 1050-51 (W.D. Wis. 1996)). The court strongly agreed, calling the special needs framework “firmly entrenched” later in the opinion. Id. at 679.
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The plaintiffs argued that the Supreme Court’s decisions in Edmond and Ferguson dictated a contrary result.166 Those opinions required inquiry into a suspicionless search program’s primary purpose or immediate objective. Since the plaintiffs believed that the primary purpose of DNA collection was to assist law enforcement, it followed that the search could not meet a special need. The Seventh Circuit did not find Edmond or Ferguson applicable. It first distinguished Edmond, finding that the primary purpose of the Edmond search had been to see if “then and there” a driver was using illegal drugs. In contrast, the court held that Wisconsin’s DNA statute did not have the purpose of searching for evidence of criminal behavior; instead, its purpose was to “obtain reliable proof of a felon’s identity.”167 The court also distinguished Ferguson. It interpreted Ferguson to show that the Supreme Court classified suspicionless drug testing cases as constitutional if (1) the person providing a sample understood the purpose of the test, and (2) the results of the test were protected from dissemination to third parties.168 Because the Green plaintiffs did not misunderstand the purpose of the DNA test, and because the Wisconsin statute prohibited unauthorized dissemination of the results, Ferguson was of little assistance. The court concluded that Wisconsin’s DNA statute was constitutional. Judge Easterbrook concurred. Although he joined the opinion without reservation, he wrote separately to express concern over the “lump[ing] together” of all persons potentially subjected to DNA collection.169 In his view, at least four distinct categories of persons exist for Fourth Amendment purposes: prisoners, people on conditional release, felons with expired terms, and those never convicted of a felony.170 Belying his own classification scheme, however, Judge Easterbrook did not take issue with DNA collection from within the first three categories; instead, he argued that only
166 Id. at 678. 167 Id. 168 Id. at 678-79. 169 Id. at 679 (Easterbrook, J., concurring). 170 Id. at 680.
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DNA collection from those in the fourth category might require a special need or individualized suspicion.171 He criticized a Ninth Circuit opinion that had applied the special needs framework to the DNA collection of a person on supervised release, claiming that the court “confuse[d] the fourth category with the second.”172 The judge concluded by noting that the fourth category was not at issue in Green, and that he read the court’s opinion to mean that a suspicionless DNA search was only permissible when conducted on those persons outside of his fourth category.173 The Green opinion left many issues unresolved. Notably, the court did not address whether other searches occur in the context of DNA testing, such as, for example, the chemical analysis of a DNA sample.174 Nor did the court identify why the special needs framework, as opposed to the reasonableness framework, was the appropriate choice in this case of first impression. The Seventh Circuit also failed to evaluate those factors crucial in determining whether a special need exists, despite having identified the factors both in Joy175 and in its adoption of Chief Judge Crabb’s factor list in Green.176 The court simply accepted the outcome of other courts’ balancing. Finally, although Judge Easterbrook raised the subject, the majority opinion failed to address what effect, if any, the “continuum of possible punishments ranging from solitary confinement . . . to a few hours of mandatory community service”177 would have on its special needs analysis, since expectations of privacy vary as a convict’s status
171 Id. at 680-81. 172 Id. at 681. Judge Easterbrook’s reasoning is less than clear, since his own Green panel applied special needs analysis to imprisoned felons (thereby apparently confusing the fourth category with the first). 173 Id. 174 See cases cited supra notes 55-62 & 254-57 and accompanying text. 175 See discussion supra Part III(A). 176 Green, 354 F.3d at 678 (citing Shelton v. Gudmanson, 934 F. Supp. 1048, 1050-51 (W.D. Wis. 1996) (listing the factors the Supreme Court used to determine the reasonableness of various searches)). 177 Griffin v. Wisconsin, 483 U.S. 868, 874 (1987).
347 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 changes. But despite these issues, the next Seventh Circuit case to address DNA collection adopted the Green reasoning wholesale.
2. U.S. v. Hook
In United States v. Hook, the Seventh Circuit revisited the issue of DNA collection.178 George Hook was a white collar criminal, convicted of wire fraud, money laundering, and theft from an employee benefit plan.179 After serving his full prison term, he began serving his thirty-six month period of supervised release.180 As one of the terms of his release, Hook agreed to “follow the instructions of the probation officer.”181 That agreement was put to the test when, after about a year into his supervised release, Hook’s probation officer requested that Hook submit a DNA sample under the recently enacted Justice for All Act of 2004.182 Hook refused, and filed a petition in the Northern District of Illinois challenging the collection.183 At the district court, Judge Lefkow recognized that courts have used two different approaches in analyzing DNA collection statutes.184 The judge felt that there was no “constitutionally relevant distinction” between the Wisconsin law analyzed in Green and the facts in Hook’s case.185 Therefore, relying on Green, she used the special needs approach to determine whether Hook’s DNA collection was reasonable.186 Guided by the Supreme Court’s Edmond holding, she looked to the primary purpose of the federal DNA collection statute, and found that the “ultimate goal” was solving past and future crimes,
178 471 F.3d 766 (2006). 179 Id. at 769. 180 Id. 181 Id. at 770. 182 Id. at 769. 183 United States v. Hook, No. 04-CR-1045, 2006 U.S. Dist. LEXIS 2386, at *1-13 (N.D. Ill. Jan. 20, 2006). 184 Id. at *5. 185 Id. at *7. 186 Id.
348 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 exonerating innocent persons, and deterring recidivism.187 These purposes went beyond the ordinary need for law enforcement, and constituted a special need. That being the case, the district court then moved on to the reasonableness analysis, weighing Hook’s privacy interests against the government’s special need.188 Citing Griffin, she held that people on conditional release have a greatly diminished expectation of privacy, and have no privacy interest in proof of their identities.189 That Hook had not explicitly consented to providing a DNA sample as a term of his release was of no import—the court stated that this had no effect on Hook’s expectation of privacy.190 Judge Lefkow defined the search at issue as the extraction of blood, and in accordance with other courts held that such an intrusion was minimal.191 Although the government in this case did not identify its interests in the DNA collection, the judge used the same interests she had identified as providing a special need—solving crime, promoting accuracy in the judicial system, and reducing recidivism—to find that the government had “several important government interests.”192 The district court therefore denied Hook’s petition,193 and Hook appealed. At the Seventh Circuit, the panel largely agreed with Judge Lefkow’s analysis. Prior to diving into the special needs analysis, though, the court addressed the issue of consent.194 Hook argued that because DNA collection was not included in the original terms of his supervised release agreement, he was not required to provide a
187 Id. at *8-9. 188 Id. at *9-10. 189 Id. (citing Griffin v. Wisconsin, 483 U.S. 868, 874 (1987); United States v. Sczubelek, 402 F.3d 175, 184 (3d Cir. 2005); Padgett v. Donald, 401 F.3d 1273, 1279-80 (11th Cir. 2005)). 190 Id. at *11 n.3. 191 Id. at *11. 192 Id. at *11-12. 193 Id. at *25. 194 United States v. Hook, 471 F.3d 766, 770 (7th Cir. 2006).
349 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 sample.195 The court remained unpersuaded: “[T]he original term of supervised release instituted by the district court required Hook to ‘follow the instructions of the probation officer’ . . . . In this case, the probation officer instructed Hook to submit to DNA collection, and this brings the DNA collection into his original sentence.”196 In addition, the court noted that the district court held a hearing before ordering Hook to comply with the DNA collection. That hearing satisfied the conditions precedent to modifying the terms of supervised release.197 Hook also argued that there was, in effect, a breach of contract—but Hook was sentenced by a jury, and was not on probation as the result of a plea agreement. The court found that no contract existed.198 After addressing those arguments, the court analyzed Hook’s Fourth Amendment claim. As at the district court, the Seventh Circuit felt that the federal DNA act presented issues identical to those in Green.199 Hook tried to distinguish Green by noting that Green dealt with incarcerated felons, whereas he was only on supervised release— but the court found that this was “a distinction without difference for the purposes of the DNA Act and the Fourth Amendment.”200 The court acknowledged that other circuits used the reasonableness standard, but was not persuaded to change or even justify its special needs framework. Instead, the court stated that “[w]hile some circuits have employed a reasonableness standard, we employed the ‘special needs’ approach in Green and will do the same here.”201 Reiterating its Green reasoning, the court again held that the purpose of DNA collection was not ordinary law enforcement, but to
195 Id. 196 Id. 197 Id. 198 Id. at 771. Instead, Hook’s situation is more akin to that in Hagenow, with the probation term being a part of the original sentence. See discussion infra section III(C). 199 Hook, 471 F.3d at 772. 200 Id. 201 Id. at 773 (citations omitted).
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“establish a database of accurate felon identification information and to deter recidivism, not to search for information on a specific crime or to detect ‘ordinary criminal wrongdoing.’”202 The court also took solace in the fact that the federal DNA Act provides penalties for unauthorized access to CODIS, and that a probation officer has no discretion in deciding whether someone must provide a sample.203 The purpose of the above reasoning was solely to establish that a special need did, in fact, exist. The court did not engage in the reasonableness balancing anew—after finding a special need, the court simply “appl[ied] the reasoning in Green” and concluded that Hook’s DNA collection did not violate the Fourth Amendment.204 Of course, as noted above, the Green court also failed to engage in a detailed balancing of the interests at issue. The court clearly was capable of doing so, as it already had in Joy and other special needs cases. But as alluded to earlier, the problems in Hook go far beyond a mere failure to flesh out important considerations left unresolved in Green. In the time between Green and Hook, three opinions made it clear that the special needs approach was not the appropriate method for determining the constitutionality of DNA collection, at least insofar as that collection takes place in the context of supervised releasees. The first two of these cases were Seventh Circuit opinions that addressed the effect of a waiver, much like the one the court read into Hook’s supervised release agreement.
C. Waiver, Barnett, and Hagenow
About a year and a half after the Seventh Circuit issued the Green opinion, it took up suspicionless searches again in United States v. Barnett.205 The court’s opinion bears little resemblance to Green; instead, the court focused almost entirely on the issue of waiver. In Barnett, a probationer plea bargained with the government and agreed
202 Id. 203 Id. 204 Id. 205 415 F.3d 690 (7th Cir. 2005).
351 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 to various probation conditions in lieu of serving prison time.206 One of the conditions required Barnett to permit searches of his body, home, and any other effects whenever his probation officer requested access.207 Barnett agreed, and at some point (the court does not go into the facts of the case) his probation officer searched his house and found a gun.208 Barnett challenged the blanket waiver of his Fourth Amendment rights as unconstitutional—the issue the Supreme Court left open in Knights. The court quickly disposed of the case, noting that “[c]onstitutional rights like other rights can be waived, provided that the waiver is knowing and intelligent.”209 Further, plea bargains are a form of contract, and are evaluated according to the norms of contract interpretation.210 Therefore, the plea bargain had to be interpreted “in light of common sense,”211 meaning it implicitly forbade those searches having no law enforcement purpose as well as those greatly exceeding legitimate law enforcement needs.212 Finally, Barnett pointed to discrepancies between his particular probation agreement (which permitted suspicionless searches) and the probation office’s policy manual (which required reasonable suspicion of a parole violation or crime). He argued that the policy manual’s
206 Id. at 691. 207 Id. 208 Id. 209 Id. Some courts have held that probationers’ blanket waivers of Fourth Amendment rights are valid; others have imposed limits on how, if at all, such rights may be waived. Such a discussion is beyond the scope of this note. See generally Jay M. Zitter, Annotation, Validity of Requirement that, as Condition of Probation, Defendant Submit to Warrantless Searches, 99 A.L.R. 5TH 557 (2002); Antoine McNamara, The “Special Needs” of Prison, Probation, and Parole, 82 N.Y.U. L. REV. 209, 235-36 (2007) (noting that the common counterargument to the Seventh Circuit’s Barnett reasoning is the doctrine of “unconstitutional conditions,” but also noting that the doctrine itself is the subject of debate). 210 Barnett, 415 F.3d at 692-93 (citations omitted). 211 Id. at 692 (quoting McElroy v. B. F. Goodrich Co., 73 F.3d 722, 726-27 (7th Cir. 1996)). 212 Id. (citing RESTATEMENT (SECOND) OF CONTRACTS § 203 (1981)).
352 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 terms should be implicitly included in his agreement.213 The court deftly dispatched this argument using standard contract construction: if an indefinite contract should not be enforced, the court could invalidate the plea agreement, thereby placing Barnett back before a court for resentencing.214 Since Barnett did not appear to relish this option, the court left the contract undisturbed.215 Less than two months after the Barnett opinion, the Seventh Circuit further fleshed out its answer to the Knights question. As in Barnett, the probationer in United States v. Hagenow signed a waiver permitting suspicionless searches of his person or property.216 The court provided a two-pronged response. First, it held that a reasonable suspicion of wrongdoing existed, which alone would validate the search.217 Second, it held that under Barnett, a blanket waiver of Fourth Amendment rights eliminates any expectation of privacy that a probationer might have, which likewise eliminates the need for any individualized suspicion.218 This was true even though in Barnett, the court used a “plea bargain as contract” approach, whereas in Hagenow the probationer did not have a plea bargain, but merely consented to searches as a condition of his probation—the waivers were “similar” and the same reasoning applied.219 As a result, the Seventh Circuit held that the suspicionless search of a probationer who consented to all searches as a condition of parole is inherently reasonable. Perhaps more importantly for the purposes of this note, the court also specifically recognized and disregarded the special needs
213 Id. at 693. 214 Id. Under this analysis, it would appear that probation office policy manuals are meaningless—either the same terms appear in both the manual and the individual probationer’s agreement, and no indefiniteness exists; or there are discrepancies between the two, and a probationer can challenge the probation agreement only if he is willing to give up probation entirely. It is hard to imagine a probationer willing to choose that route to make a point. 215 Id. 216 423 F.3d 638, 641 (7th Cir. 2005). 217 Id. at 642-43. 218 Id. at 643. 219 Id.
353 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 framework.220 Hagenow attacked the search by arguing that Griffin required a special need; the Seventh Circuit parried, citing the Knights Court’s rejection of this argument.221 The court concluded that “[b]ecause Hagenow signed a waiver agreeing to submit to searches while on probation, this case falls under Knights and its progeny, not Griffin, and the ‘special needs’ test does not apply.”222 After Barnett and Hagenow, a strong argument can be made that a consent-to-search clause in a probation agreement automatically renders a suspicionless search constitutional in the Seventh Circuit. Further, the Hagenow court specifically cautioned against use of the special needs analysis when consent to a search had been given. And Green, of course, did not speak to this issue, as the DNA searches in that case were performed on prisoners who did not consent to the search. How does all of this relate to DNA collection? Under federal law, a sentencing court that grants a period of supervised release now must include “as an explicit condition of supervised release, that the defendant cooperate in the collection of a DNA sample” if DNA collection is otherwise required under the DNA Analysis Backlog Elimination Act.223 Under this DNA Act, samples must be collected from anyone convicted of (1) any felony; (2) any offense listed in chapter 109A, title 18 of the United States Code; (3) any crime of violence, as that term is defined in section 16, title 18 of the United
220 Id. (“[T]he Griffin v. Wisconsin ‘special needs’ doctrine does not apply here.”) (citation omitted). 221 Id. 222 Id. 223 18 U.S.C. § 3583(d) (2000). The DNA Analysis Backlog Elimination Act of 2000 also states that “[t]he probation office responsible for the supervision under Federal law of an individual on probation, parole, or supervised release shall collect a DNA sample from each such individual who is, or has been, convicted of a qualifying Federal . . . or a qualifying military offense . . . .” 42 U.S.C. § 14135a(a)(2) (2000 & Supp. IV 2004).
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States Code; or (4) any attempt or conspiracy to commit any of the offenses listed above.224 Therefore, a person placed on supervised release after the recent spate of amendments to the federal DNA statute would necessarily have to sign a blanket waiver like those seen in Barnett and Hagenow—the person would have to consent to the suspicionless search that occurs when DNA is collected.225 In effect, such was the case in Hook—as I explained above, at the time Hook was placed on supervised release he did not explicitly consent to DNA collection; the Seventh Circuit read the DNA collection condition into his agreement. Nonetheless, the Hook court did not follow, nor did it even mention, Barnett and Hagenow. Instead, the court relied almost exclusively on its Green opinion, thereby directly contradicting its own precedent. In addition to ignoring its own relevant precedent, the Seventh Circuit also failed to account for a Supreme Court opinion that issued well in advance of the arguments in Hook. That decision, Samson v. California, was anticipated by both Barnett and Hagenow—like Barnett and Hagenow, the Samson opinion dealt directly with the Supreme Court’s Knights holding. But as with those Seventh Circuit opinions, the Hook court ignored Samson—an oversight that is all the more inexplicable given that Judge Easterbrook explicitly relied upon Knights in his Green concurrence.226
224 42 U.S.C. § 14135a(d) (as amended by the Justice For All Act of 2004, Pub. L. No. 108-405, § 203, 118 Stat. 2260). 225 Failure to consent to such a search is a misdemeanor under the federal DNA collection statutes, and the refusing person “shall be punished” as mandated by Title 18 of the United States Code. 42 U.S.C. § 14135a(a)(5)(A)–(B). The collecting party may “may use or authorize the use of such means as are reasonably necessary to detain, restrain, and collect a DNA sample from an individual who refuses to cooperate in the collection of the sample.” 42 U.S.C. § 14135a(a)(4)(A). This is also true in at least some states: in California, for example, “use of reasonable force” is appropriate to obtain a sample from an offender that refuses to cooperate. CAL. PENAL CODE 298.1(a)–(c) (2007). 226 Green v. Berge, 354 F.3d 675, 680-81 (7th Cir. 2004) (Easterbrook, J., concurring).
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D. Survival of Special Needs in Light of Samson v. California
In Samson v. California, the Supreme Court sought to answer a question it left open in Knights: “whether a condition of release can so diminish or eliminate a released prisoner’s expectation of privacy that a suspicionless search by a law enforcement officer” would be constitutional.227 Under California law, every prisoner eligible for parole has to sign an agreement permitting suspicionless searches and seizures by a parole officer at any time.228 In Samson, a police officer saw Samson, a parolee—one that the officer believed had an outstanding warrant—walking down the street.229 When the officer stopped Samson, however, Samson told him that no outstanding warrant existed.230 The officer verified this information, but still decided to search Samson. Upon doing so, the officer discovered methamphetamine.231 Samson was charged with possession, and filed a motion to suppress on the basis that the search was unconstitutional.232 At the trial court, the judge denied Samson’s motion to suppress the evidence; the California appellate court affirmed that ruling, since in California, a search is reasonable as long as it is not arbitrary, capricious, or harassing.233 The Supreme Court took up the case to resolve the Knights issue, and used the reasonableness framework instead of the special needs test in doing so. The Court declined to use the special needs approach because “under general Fourth Amendment principles” such an analysis was unnecessary.234 The Court reiterated the proper balancing test for determining whether a search is reasonable: the test requires
227 126 S. Ct. 2193, 2196 (2006). 228 CAL. PENAL CODE § 3067(a) (West 2000). 229 Samson, 126 S. Ct. at 2196. 230 Id. 231 Id. 232 Id. 233 People v. Samson, No. A102394, 2004 WL 2307111, at *1-3 (Cal. Ct. App. Oct. 14, 2004). 234 Samson, 126 S. Ct. at 2199 n.3.
356 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 weighing the degree to which the search intrudes on a person’s privacy against the degree to which the search promotes a legitimate governmental interest.235 Under Knights, the Court had already addressed that balancing, and it adopted the same weighing of interests in Samson.236 Moreover, as in Knights, the Court focused on the fact that Samson consented to suspicionless searches.237 While that condition weighed heavily in the Court’s balancing test (as Samson’s awareness that he could be searched at any time served to significantly diminish any expectation of privacy that he had), the Court did not rely on the consent-to-search condition in Samson’s parolee agreement as the basis for its holding.238 This allowed the Court to definitively answer the question it left in Knights—the Court’s reasonableness analysis alone provided its rationale for holding that the search was constitutional.239 The Court also fleshed out the “continuum” of privacy interests that go along with varying punishments in the penal system. In Knights, the Court had held that probationers did not enjoy the same rights as free citizens; in Samson, the Court further found that parole was “more akin” to imprisonment than probation—meaning that a parolee has less of an expectation of privacy than a probationer.240 But the Court drew the line at the dissent’s characterization of that holding, and stated that it did not go so far as to find that parolees had no Fourth Amendment rights.241 After weighing Samson’s diminished expectation of privacy against important governmental interests such
235 Id. at 2197. 236 Id. 237 Id. at 2199. 238 Id. at 2199 n.3. 239 Id. The Court refrained from doing so in part because the California Supreme Court had not yet had a chance to construe the statute that required a consent-to-search provision in any parolee’s agreement. Id. 240 Id. at 2197-98. Note that under the current federal sentencing guidelines, parole has been replaced by supervised release. See supra notes 21 and 82 and accompanying text. 241 Id. at 2198.
357 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 as supervising parolees and reducing recidivism, the Court concluded that the search was reasonable under the Fourth Amendment.242 After Samson, how could the Seventh Circuit still believe the special needs approach was appropriate? After all, Hook was a supervised releasee and the court interpreted his agreement to include DNA collection. One answer could lie in the Second Circuit’s reasoning. The Second Circuit, along with the Tenth Circuit, had previously joined the Seventh in applying the special needs framework to DNA collection. In United States v. Amerson, the Second Circuit revisited DNA collection.243 Contrary to the Seventh Circuit’s approach, the Second Circuit realized that Samson warranted discussion. Interestingly, in Amerson the Second Circuit held that the special needs test remained viable.244 But the Amerson case dealt with two probationers, and the court strictly limited its reading of Samson, noting:
While after Samson it can no longer be said that ‘the Supreme Court has never applied a general balancing test to a suspicionless-search regime,’ nothing in Samson suggests that a general balancing test should replace special needs as the primary mode of analysis of suspicionless searches outside the context of the highly diminished expectation of privacy presented in Samson. . . . [T]he Supreme Court has not, to date, held that the expectations of privacy of probationers are sufficiently diminished to permit probationer suspicionless searches to be tested by a general balancing test . . . .245
Even under Amerson’s rejection of the reasonableness test, then, Hook’s DNA collection would have been analyzed under the
242 Id. at 2200-02. 243 483 F.3d 73 (2007). 244 Id. at 89. 245 Id. at 79 (emphasis in original) (citations omitted).
358 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 reasonableness test, since Hook, like Samson, was on supervised release (or parole, depending on the language of the jurisdiction). The Tenth Circuit also found that Samson modified its suspicionless search law. In United States v. Freeman, that court reinterpreted the Griffin line of cases.246 It limited the special needs test to apply only to those searches conducted by a parole officer, because it felt that the rehabilitative relationship between officer and parolee was key to Griffin’s reasoning.247 The Tenth Circuit still shifted its position on the special needs test post-Samson, however, holding that suspicionless searches by “ordinary law enforcement officers” would be evaluated under the reasonableness test.248 Perhaps, then, Freeman could provide some justification for the outcome of Hook, since Hook’s DNA collection was at the behest of his parole officer—but the Seventh Circuit’s own case law forecloses that avenue. Although Barnett relied upon the existence of a plea agreement to interpret the consent-to-search provisions as part of a contract, Hagenow had no such limitation—Hagenow had no plea agreement, but the Seventh Circuit held that Hagenow’s waiver alone made the search reasonable. Further, both Hagenow and Barnett were probationers, and under Samson they both have a greater expectation of privacy than the supervised releasee in Hook. Finally, under the Tenth Circuit’s Freeman holding, if the court in Hook had not read DNA collection into the terms of Hook’s probation agreement, the outcome might have been different—in Hook’s case. Going forward, such reasoning is bound to fail since the federal DNA collection statutes now require consent to DNA collection in every eligible supervised releasee’s agreement.249 While the federal government and some state governments may require some amount of
246 479 F.3d 743 (10th Cir. 2007). 247 Id. at 748. 248 Id. 249 18 U.S.C. § 3583(d) (2000) (“The court shall order, as an explicit condition of supervised release, that the defendant cooperate in the collection of a DNA sample . . . .”); 42 U.S.C. § 14135a(a)(2) (2000 & Supp. IV 2004).
359 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 individualized suspicion before searching in other cases,250 the federal government is the entity that requires a suspicionless search in the context of DNA collection. Every agreement will operate to bring the supervised releasee into the confines of Hagenow and Samson. Since the reasonableness test probably should have applied in Hook, and will apply in any case where a supervised releasee consents (as required by federal law) to DNA collection, the Seventh Circuit erred in applying the special needs test to Hook’s case. But beyond using the wrong framework to analyze DNA collection, the court further erred in failing to engage in a careful balancing of the relevant interests at stake. The special needs test collapses into the reasonableness test once a “special need” is identified251—had the court carefully considered the privacy interests at stake in Green and Hook, much of that reasoning would remain viable upon adoption of the proper reasonableness test. Instead, the Seventh Circuit must evaluate the reasonableness factors anew. Upon doing so, the court may conclude that DNA collection as mandated by federal law is unconstitutional with respect to probationers, and perhaps even for persons on supervised release.
IV. BALANCING INTERESTS IN FEDERAL DNA COLLECTION
The next time the Seventh Circuit is presented with the DNA collection of a federal probationer or a supervised releasee, the Seventh Circuit should disclaim the special needs test and adopt the reasonableness framework. In doing so, it is key that the Seventh Circuit engage in a careful weighing of the interests involved, since
250 Samson, 126 S. Ct. at 2201; see also Freeman, 479 F.3d at 748 (“The Court [in Samson] noted ‘that some States and the Federal Government require a level of individualized suspicion,’ and strongly implied that in such jurisdictions a suspicionless search would remain impermissible. Parolee searches are therefore an example of the rare instance in which the contours of a federal constitutional right are determined, in part, by the content of state law.”) (quoting Samson, 126 S. Ct. at 2201). 251 See the discussion of United States v. Amerson in the Second Circuit, supra Part II(A).
360 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 many of the assumptions in Green and Hook no longer hold true. For instance, in Samson the Supreme Court explicitly recognized that persons on supervised release are closer to prisoners in their privacy interests; while it is clear that probationers likewise have a diminished expectation of privacy, it is not clear how a probationer’s interest will compare to a supervised releasee’s interest. In Hook, however, the Seventh Circuit rejected Hook’s attempt to distinguish between Green’s incarcerated prisoners and himself, stated that no distinction existed between those in custody and those on supervised release.252 Under the reasonableness approach, DNA collection may not pass constitutional muster for probationers or supervised releasees. As the Supreme Court reiterated in Samson, the reasonableness of a search is determined by weighing the degree of intrusion on an individual’s privacy against the degree to which the search is needed to promote legitimate governmental interests.253 Before weighing the interests involved, however, the Seventh Circuit should first reevaluate which search is at issue. Courts analyzing DNA collection have largely focused on the initial blood draw as the relevant Fourth Amendment search. But as mentioned above, some courts have held that more than one search takes place when DNA is collected: first, the physical drawing of blood (or swabbing of cheek cells, or similar method for obtaining DNA); and second, the subsequent biochemical analysis of that sample.254 On the other hand, some courts have held that if the initial
252 United States v. Hook, 471 F.3d 766, 772 (7th Cir. 2006) (citing Griffin for the observation that supervised releasees, like probationers, are not entitled to the same absolute liberty to which a citizen is entitled.). 253 Samson, 126 S. Ct. at 2197. 254 E.g., United States v. Stewart, 468 F. Supp. 2d 261, 276 (D. Mass. 2007); Banks v. Gonzales, 415 F. Supp. 2d 1248, 1254 (N.D. Okla. 2006); State v. Transou, 201 S.W.3d 607, 619 (Tenn. 2006) (citations omitted). Although some probationers or parolees further argue that every comparison of their DNA against other samples via CODIS is an additional search, this reasoning has not been adopted by a court. E.g., Johnson v. Quander, 440 F.3d 489, 498-99 (D.C. Cir. 2006) (noting that “the consequences of the contrary conclusion would be staggering”).
361 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 search is lawful, any later use of the evidence is not a search under the Fourth Amendment.255 Which search the court analyzes has serious implications in a balancing of the privacy interests at stake. In other contexts, the Seventh Circuit has recognized that more than one search may occur within the same series of events, and that each search must be evaluated individually.256 Courts are disingenuous when they support the outcome of their balancing tests based only on the privacy interests implicated in the search that occurs when a DNA sample is obtained.257 Instead, the Seventh Circuit should evaluate the “second search” that occurs when the DNA sample undergoes processing and is uploaded into the CODIS system. If the court does so, it is bound to find that the privacy interests at stake shift dramatically. Unlike fingerprints, it cannot properly be said that “the DNA profile derived from [a] defendant’s blood sample establishes only a record of the defendant’s identity—otherwise personal information in which the qualified offender can claim no right of privacy once lawfully convicted of a qualifying offense.”258 Moreover, in the chemical analysis of other bodily tissues or fluids, the privacy interests are relatively minimal—the analysis typically provides an answer to such questions as whether a person has been drinking or using illegal drugs. That may not be the case in DNA analysis—it has, at the very least, the potential to reveal much more. Although a DNA profile is theoretically comprised of “non-coding” or “junk” DNA—DNA regions selected because those DNA sequences were not associated
255 E.g., A.A. v. Attorney General, 914 A.2d 260, 266-67 (N.J. 2007) (citing Arizona v. Hicks, 480 U.S. 321, 324-25 (1987)). 256 E.g., United States v. Brown, 188 F.3d 860, 864-66 (7th Cir. 1999) (analyzing a traffic stop, a search that does not require reasonable suspicion, and the subsequent pat-down search, which does, as two distinct searches). 257 See United States v. Kincade, 379 F.3d 813, 867-68 (9th Cir. 2004) (Reinhardt, J., dissenting) (“The search in question, however, constitutes far more of an intrusion than the mere insertion of a needle into an individual’s body and the consequent extraction of a blood sample.”). 258 Id. at 837 (majority opinion).
362 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 with physical or medical characteristics259—the notion that any DNA is purely “junk” has been strongly refuted.260 Professor Cole clarifies the distinction between non-coding DNA and functional DNA: functional DNA actually performs a specific, identifiable function in the body, whereas non-coding DNA does not yield specific physical traits.261 But while non-coding DNA may not be “functional” in the traditional sense, it can indicate a propensity for physical traits, thereby creating privacy concerns.262 These concerns extend to the short tandem repeat sequences, or STRs, that are uploaded into CODIS.263 STRs are non-coding portions of DNA, but those sequences may nevertheless yield information about an individual, such as whether an individual has a propensity toward particular genetic diseases. While some argue that none of the sequences used in forensic STR have been found to be predictive, other STR sequences
259 United States v. Weikert, 504 F.3d 1, 3-4 (1st Cir. 2007) (citing H.R. REP. NO. 106-900(I) (2000)). 260 E.g., ‘Junk’ DNA Now Looks Like Powerful Regulator, Scientists Find, SCI. DAILY, Apr. 24, 2007, http://www.sciencedaily.com/releases/2007/04/070423185538.htm; Julianna Kettlewell, ‘Junk’ Throws Up Precious Secret, BBC NEWS, May 12, 2004, http://news.bbc.co.uk/2/hi/science/nature/3703935.stm; Helen Pearson, ‘Junk’ DNA Reveals Vital Role, NATURE NEWS, May 7, 2004, http://www.nature.com/news/2004/040503/full/news040503-9.html; Not ‘Junk DNA’ After All: Tiny RNAs Play Big Role Controlling Genes, SCI. DAILY, Oct. 26, 2007, http://www.sciencedaily.com/releases/2007/10/071025112059.htm; Paul Rincon, Salvage Prospect for ‘Junk’ DNA, BBC NEWS, Apr. 26, 2006, http://news.bbc.co.uk/2/hi/science/nature/ 4940654.stm; Scientists Explore Function of ‘Junk DNA,’ SCI. DAILY, Nov. 21, 2006, http://www.sciencedaily.com/releases/2006/11/061113180029.htm. 261 Simon Cole, Is the “Junk” DNA Designation Bunk?, 102 NW. U. L. REV. COLLOQUY 54 (2007), http://colloquy.law.northwestern.edu/main/2007/09/is-the- junk-dna.html. 262 Id. at 56-57. 263 See notes and accompanying text supra note 32 and 33. The entirety of a person’s DNA sequence is not uploaded into CODIS. Instead, only those thirteen specific STR sequences chosen by the FBI for identification purposes are uploaded into CODIS.
363 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 have proven useful in tracking genetic diseases.264 As Judge Gould in the Ninth Circuit noted, “the threat of a loss of privacy is real, even if we cannot yet discern the full scope of the problem.”265 The privacy interests implicated in STR DNA sequences are hotly debated,266 and these interests deserve at the very least a closer exploration in the Seventh Circuit. In addition, the DNA sequences in CODIS can also yield information about people in Judge Easterbrook’s “fourth category”— those who have never been convicted or arrested of a crime. CODIS yields the best matches, not only “identical” matches, and a forensic expert takes those matches and draws conclusions based upon personal examination. In at least one instance, a near-match in CODIS led the investigators to suspect not the individual whose sample was included in the system, but a close relative—in that case, a brother.267 The potential for CODIS to yield genetic information about those never convicted of a crime raises unique privacy concerns—many of the courts, and indeed the Seventh Circuit, have recognized that a free citizen has a much greater expectation of privacy than one convicted of a crime, and free citizens generally cannot be subjected to searches
264 Cole, supra note 261, at 58-59 (citing David H. Kaye, Science Fiction and Shed DNA, 101 NW. U. L. REV. COLLOQUY 62 (2006), http://www.law.northwestern.edu/lawreview/colloquy/2006/7/; Colin Kimpton et al., Report on the Second EDNAP Collaborative STR Exercise, 71 FORENSIC SCI. INT’L 137 (1995)). 265 United States v. Kincade, 379 F.3d 813, 842 (9th Cir. 2004) (Gould, J., concurring). 266 See, e.g., TANIA SIMONCELLI & SHELDON KRIMSKY, A NEW ERA OF DNA COLLECTIONS: AT WHAT COST TO CIVIL LIBERTIES? (2007), http://www.acslaw.org/node/5338; Colloquy, Privacy Risks of DNA Archiving, 101 NW. U. L. REV. COLLOQUY 62 (2006), http://www.law.northwestern.edu/lawreview/colloquy/prior-colloquies/junk- dna.html; Symposium, DNA Fingerprinting and Civil Liberties, 34 J.L. & MED. ETHICS 147 (2006). 267 Heather Bennett, Comment, Taking the “Banks” Out of Banks v. Gonzales: DNA Databanks and the Fourth Amendment Prohibition on Unreasonable Searches and Seizures, 15 AM. U. J. GENDER SOC. POL’Y & L. 547, 573-74 (2007) (citing Flowers v. Indiana, 654 N.E.2d 1124, 1124 (Ind. 1995)).
364 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 without a warrant or probable cause.268 DNA collections clearly raise issues that are not properly addressed when a court focuses only on the initial DNA collection. Many commentators have identified additional concerns in the context of DNA searches. Some have expressed concern over the fact that once a person has served the entirety of his sentence, the DNA profile in CODIS nevertheless remains active.269 This indefinite retention belies the fact that expectations of privacy vary over the course of one’s sentence (from incarceration, to supervised release, to probation).270 Further, DNA collection from all offenders, regardless of offense, “does not necessarily serve the government’s interests equally.”271 In Hook, for example, the supervised releasee was a white collar criminal: the chance of his DNA ever being left at a future crime scene is slim to none. Persuasive arguments also have been made that white collar criminals do not re-offend at the same rates,272 yet the Seventh Circuit failed to account for this possibility in looking at the government’s interests. And as alluded to previously, it may well be necessary to draw different conclusions when balancing the expectations of privacy for supervised releasees as compared to probationers, much as the Second Circuit did in Amerson. The Supreme Court’s Samson holding indicates that the expectations of privacy may vary substantially between these two classes.
268 See United States v. Hook, 471 F.3d 766, 772-73 (7th Cir. 2006) (citing Knights and Griffin for the proposition that “[t]hose under supervised release do not enjoy the absolute liberty to which every citizen is entitled, but only . . . conditional liberty properly dependent on observance of special restrictions.”). 269 Kincade, 379 F.3d at 841-42 (Gould, J., concurring). 270 Eric May, Who’s Next? The Continued Expansion of DNA Databases in United States v. Kincade, 43 CRIM. L. BULL. 113 (2007). 271 Id. 272 Ellen S. Podgor, Throwing Away the Key, 116 YALE L.J. POCKET PART 279 (2007), http://thepocketpart.org/2007/02/21/podgor.html. But see Andrew Weissmann & Joshua A. Block, White-Collar Defendants and White-Collar Crimes, 116 YALE L.J. POCKET PART 286 (2007), http://thepocketpart.org/2007/02/21/weissmann_block.html.
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In light of the unique considerations that go hand-in-hand with DNA, the Seventh Circuit needs to engage in a detailed, fresh look at DNA collection. If the court embraces the special concerns inherent to DNA information, it is bound to find that the privacy interests in DNA searches look quite different than those the court considered (or failed to consider) in Hook.
CONCLUSION
The Seventh Circuit erred in using the special needs approach to evaluate the constitutionality of a supervised releasee’s DNA collection. At the time the court decided Green, the state of the Supreme Court’s suspicionless search jurisprudence was decidedly confusing, and the Green court can be forgiven for applying the special needs test. After Barnett, Hagenow, and Samson, however, both the Seventh Circuit and the Supreme Court had effectively closed the door on the special needs framework as a method for analyzing searches like the one in Hook. The Seventh Circuit should account for those cases by adopting the reasonableness approach when next it analyzes DNA collection. Further, where a supervised releasee consents to a suspicionless search, as will be the case for every qualifying federal felon subject to the federal DNA collection statutes, Samson dictates that the consent operates to diminish the releasee’s expectation of privacy so much that a suspicionless search becomes inherently reasonable. Under the Second Circuit’s Amerson holding, the Seventh Circuit may still be able to apply the special needs test to DNA collection from probationers. Regardless of the test used, however, the balancing of interests that a court must engage in remains relatively unchanged—and if the interests are properly weighed, the result is that DNA collection from either a supervised releasee or a probationer may very well be unconstitutional.
366 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007
KRIEG V. SEYBOLD: THE SEVENTH CIRCUIT ADOPTS A BRIGHT LINE IN FAVOR OF RANDOM DRUG TESTING
∗ DANA E. LOBELLE
Cite as: Dana E. Lobelle, Krieg v. Seybold: The Seventh Circuit Adopts a Bright Line in Favor of Random Drug Testing, 3 SEVENTH CIRCUIT REV. 367 (2007), at http://www.kentlaw.edu/7cr/v3-1/lobelle.pdf.
INTRODUCTION
In Krieg v. Seybold,1 the United States Court of Appeals for the Seventh Circuit asserted that Robert Krieg—a dump truck, front end loader, and backhoe operator—had a “safety-sensitive” job, and that the City of Marion, Indiana, could therefore test his urine for evidence of drug use. Normally, the Fourth Amendment protection against unreasonable searches and seizures requires a public employer to have a reasonable and individualized suspicion that an employee has used illegal drugs before that employer can require him to submit to drug testing. But the City of Marion claimed, and the Seventh Circuit agreed, that a “safety” exception to this requirement should expand to cover Krieg’s job in the Department of Streets and Sanitation. Thus, the City could test Krieg for drugs on a random basis.
∗ J.D. candidate, May 2008, Chicago-Kent College of Law, Illinois Institute of Technology. With special thanks to Professor David S. Rudstein, Chicago-Kent College of Law, whose course entitled Criminal Procedure: The Investigatory Process provided the author with the necessary background to undertake this project. 1 481 F.3d 512 (7th Cir. 2007).
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The Supreme Court established this safety exception in Skinner v. Railway Labor Executives’ Ass’n2 and National Treasury Employees Union v. Von Raab.3 In these cases, the Court held that certain jobs created significant safety concerns in circumstances where it would be impractical to require an employer to develop individualized suspicion. Thus, the jobs created “special” governmental needs, and these needs eliminated the presumption that a suspicionless search is unreasonable. The Seventh Circuit should have explained in detail why Krieg’s job as a heavy equipment operator raised sufficient safety concerns to fall within this exception. Next, it should have explained why the circumstances surrounding Krieg’s job made it impractical for the City to use a suspicion-based drug testing program to address these concerns. Instead, the court read Skinner and Von Raab to create a bright line rule that all employees whose jobs create serious safety concerns are excluded from the normal protections of the Fourth Amendment. Even if the Seventh Circuit correctly interpreted Skinner and Von Raab, it failed to create a principled reason why heavy equipment operators are safety-sensitive employees within the meaning of those cases. This failure jeopardizes the Fourth Amendment protection against suspicionless searches because labeling jobs such as Krieg’s as “safety-sensitive” leaves little room outside the safety exception for any kind of blue-collar labor. Part I below provides background information about the normal requirements of the Fourth Amendment as they apply to public employers. Part II explains the reasoning of the Krieg case, showing that the Seventh Circuit employed a bright line rule with regard to safety-sensitive employees. Part III argues that the Supreme Court has not adopted a bright line rule excepting safety-sensitive employees from normal Fourth Amendment protections, in the way that the Krieg court claims it has. Part IV explains why the Krieg court was not
2 489 U.S. 602 (1989). 3 489 U.S. 656 (1989).
368 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 compelled to hold that Krieg’s position was safety-sensitive and why its choice to do so gives the error in Krieg a far-reaching effect.
I. PUBLIC EMPLOYERS DO NOT NEED A WARRANT OR PROBABLE CAUSE
The Fourth Amendment protects persons against unreasonable searches and seizures by government agents,4 and requires that warrants for searches or seizures be supported by probable cause.5 The Supreme Court has explained that the Fourth Amendment serves at least the following purposes: First, the protection against unreasonable searches protects citizens against intrusions on their privacy where those intrusions are not justified at the outset by some legitimate governmental interest.6 Second, the protection against unreasonable seizures of persons protects citizens from unjustified restraints on their
4 See Skinner, 489 U.S. at 613-16 (private employers can be subject to the requirements of the Fourth Amendment when they act with the “encouragement, endorsement, and participation” of a State or federal actor). In a Fourth Amendment analysis, it is typical to proceed by first determining whether the challenged intrusion was carried out by a government actor, then to determine whether it was a “search” within the meaning of the Fourth Amendment, and then to determine whether that search was reasonable under whatever framework applies to the situation at issue. See, e.g., id. at 613-19. 5 The Fourth Amendment provides: The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized. U.S. CONST. amend. IV. 6 See, e.g., Terry v. Ohio, 392 U.S. 1, 9 (1968) (“No right is held more sacred, or is more carefully guarded, by the common law, than the right of every individual to the possession and control of his own person, free from all restraint or interference of others, unless by clear and unquestionable authority of law.” (quoting Union Pac. R. Co. v. Botsford, 141 U.S. 250, 251 (1891))).
369 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 freedom of movement.7 Third, the protection against unreasonable seizures protects citizens’ possessory interests in their property from infringement by government agents, unless such infringement is justified.8 Next, the requirement of a warrant ensures that some neutral body (normally a magistrate) evaluates the character of the intrusion on one of the above interests and determines whether this intrusion is justified before the actual intrusion occurs.9 The neutral body will also determine the scope of the justified intrusion by describing the persons, places, and things to be affected.10 Finally, the requirement that a warrant be supported by probable cause sets a uniform measure below which an intrusion will not be justified.11 By creating a high threshold,12 it has the effect of weighting the balance of interests between citizen and government strongly in favor of the citizen. The Supreme Court has decided, however, that warrants are not always required. It has created exceptions to the requirement of a warrant for searches that are part of a lawful arrest, for situations in
7 See, e.g., Skinner, 489 U.S. at 616 (stating that the detention of a railway employee awaiting a drug test may be a seizure if it “amounts to a meaningful interference with his freedom of movement”). 8 See, e.g., id. at 617 n.4 (stating that the taking of a urine sample might be a seizure if it creates a “meaningful interference with the employee’s possessory interest in his bodily fluids”). 9 Id. at 621-22. 10 See U.S. CONST. amend. IV (requiring that warrants “particularly describ[e] the place to be searched, and the persons or things to be seized”). 11 See, e.g., Maryland v. Pringle, 540 U.S. 366, 370 (2003) (“The long- prevailing standard of probable cause protects ‘citizens from rash and unreasonable interferences with privacy and from unfounded charges of crime,’ while giving ‘fair leeway for enforcing the law in the community’s protection.’” (quoting Brinegar v. United States, 338 U.S. 160, 176 (1949))); Skinner, 489 U.S. at 619 (“Except in certain well-defined circumstances, a search or seizure . . . is not reasonable unless it is accomplished pursuant to a judicial warrant issued upon probable cause.”) (citations omitted). 12 See Pringle, 540 U.S. at 371 (defining probable cause as a “reasonable ground for belief of guilt” which is “particularized with respect to the person to be searched”) (citations omitted).
370 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 which police or other officials must act quickly to prevent physical harm or the destruction of evidence, and for various other circumstances.13 Each of these exceptions allows government agents to conduct searches or seizures without a warrant, but these acts still must be justified by probable cause.14 In a different category are searches conducted by government agents who are not acting in a law enforcement capacity.15 Searches of this kind include, among others, residential housing inspections,16 inventory searches of impounded vehicles,17 and searches that take place in public schools.18 These searches often do not require a
13 See, e.g., Chambers v. Maroney, 399 U.S. 42 (1970) (limited exception for searches of automobiles), abrogated on other grounds by Brecht v. Abrahamson, 507 U.S. 619 (1993); the line of cases following Chimel v. California, 395 U.S. 752 (1969) (search incident to lawful arrest); Warden, Md. Penitentiary v. Hayden, 387 U.S. 294 (1967) (exigent circumstances). 14 See, e.g., United States v. Santana, 427 U.S. 38, 42-43 (1976) (describing the rationale of Hayden); Chambers, 399 U.S. at 48; Chimel, 395 U.S. at 754-55 (the arrest underlying an incident search must be supported by probable cause). There are exceptions to this rule that are beyond the scope of this article. For example, some searches, such as a limited search for weapons, are conducted without a warrant and can be justified by a lesser degree of individualized suspicion than probable cause. See, e.g., Terry v. Ohio, 392 U.S. 1 (1968). In addition, sobriety and border-control checkpoints involve brief seizures for law enforcement purposes that are permissible despite their suspicionless nature. These seizures are limited in nature because they allow an officer to look for only one type of information, for example immigration documents, United States v. Martinez-Fuerte, 428 U.S. 543 (1976), or indications that a driver might be intoxicated, Mich. Dep’t of State Police v. Sitz, 496 U.S. 444 (1990). When an officer wishes to engage in more extensive sobriety testing than “preliminary questioning and observation,” the Fourth Amendment may require “individualized suspicion.” Sitz, 496 U.S. at 450-51. In any event, the Supreme Court has made clear that the cases regarding checkpoints and other brief law- enforcement stops are of a different category than the line of cases under Von Raab. Sitz, 496 U.S. at 449-50 (rejecting motorists’ claim that the Von Raab standard should apply and that the State police must therefore show a special governmental need that justifies departure from the general rule of individual suspicion). 15 Skinner, 489 U.S. at 619. 16 E.g., Camara v. Mun. Court of San Francisco, 387 U.S. 523 (1967). 17 E.g., South Dakota v. Opperman, 428 U.S. 364 (1976). 18 E.g., New Jersey v. T.L.O., 469 U.S. 325 (1985).
371 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 warrant, and may require a lesser degree of suspicion than probable cause19 or even no suspicion at all.20 The Supreme Court has not placed drug testing in the workplace in any of the above categories.21 Instead, it has created yet another category that is unique to the public workplace environment. Therefore, a public employer is able to test its employees for drug use when that employer reasonably suspects that such drug use has occurred.22 It may not test all employees, but only those whom it suspects on an individual basis.23 This rule reflects a balance between governmental and personal interests that is unique to adult citizens working on behalf of their government.24 It is a balance that favors the employee, but the Supreme Court has further held that this balance may shift—creating an even scale—in certain situations. Such a situation arises where the capacity in which the citizen works is particularly safety-sensitive and the nature of the workplace makes the
19 Id. at 337 (“The determination of the standard of reasonableness governing any specific class of searches requires ‘balancing the need to search against the invasion which the search entails.’” (quoting Camara, 387 U.S. at 536-37)); id. at 341 (“Thus, we have in a number of cases recognized the legality of searches and seizures based on suspicions that, although “reasonable,” do not rise to the level of probable cause.”) (citations omitted). 20 E.g., Opperman, 428 U.S. at 373-76 (routine inventory searches). 21 See Mich. Dep’t of State Police v. Sitz, 496 U.S. 444, 449-50 (1990) (distinguishing from the line of cases regarding sobriety checkpoints and other brief law-enforcement stops); see also L. Camille Hebert, Early Fourth Amendment Challenges to Drug Testing, 1 EMP. PRIVACY LAW § 3:4 (June 2007) (explaining that prior to Skinner and Von Raab some federal circuit courts characterized workplace drug testing as an administrative search similar to those applicable to businesses that participate in closely regulated industries). 22 See infra Part III. In Terry v. Ohio, 392 U.S. 1, 27 (1968), the Supreme Court explains this standard of individualized suspicion in the law enforcement context as a reasonable conclusion, based on inferences drawn from the facts of the situation and from the officer’s own experience, that his safety or the safety of others is in danger. 23 Krieg v. Seybold, 481 F.3d 512, 517 (7th Cir. 2007). 24 Compare Skinner v. Railway Labor Executives’ Ass’n, 489 U.S. 602 (1989) and Nat’l Treasury Employees Union v. Von Raab, 489 U.S. 656 (1989) with T.L.O., 469 U.S. 325.
372 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 general requirement of individual suspicion impractical. In such cases, the Fourth Amendment may allow for random drug testing. The Supreme Court created this second measure of permissible employer conduct in the cases of Skinner and Von Raab.25
II. THE SEVENTH CIRCUIT CREATES A BRIGHT LINE RULE
The Seventh Circuit case of Krieg v. Seybold 26 was rooted in this second measure of permissible employer conduct. In that case, the Seventh Circuit reviewed an appeal from the United States District Court for the Northern District of Indiana. The district court had granted summary judgment to the City of Marion, Indiana, in an action challenging the City’s random drug testing policy.27 Robert Krieg had been an employee of the City’s Department of Streets and Sanitation since 1985, and was a union member.28 Under the collective bargaining agreement for the years 2003-2004, employees were subject to drug testing based upon reasonable suspicion, and were also subject to such testing following workplace accidents. The bargaining agreement incorporated a personnel handbook, and that handbook provided for random drug testing of all “safety-sensitive” employees.29 Krieg was a “driver/laborer,” which meant that he sometimes operated large equipment such as a one-ton dump truck, a dump truck with a plow, a front end loader, and a backhoe, but he did not have a commercial driver’s license (CDL)30 and these vehicles were not commercial motor vehicles. Therefore, Krieg did not fall within the definition of “safety-sensitive” that was set forth in the City’s handbook. When the City required Krieg to submit to a drug test in 2002 and he tested positive for marijuana, the City admitted that it
25 See infra Part III. 26 481 F.3d 512 (7th Cir. 2007). 27 Id. at 516; Krieg v. Seybold, 427 F. Supp. 2d 842 (N.D. Ind. 2006). 28 Krieg, 481 F.3d at 514. 29 Id. at 514-15. 30 Id.
373 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 should not have tested Krieg under its current policies.31 In 2004, however, the City unilaterally changed its testing policies. It redefined “safety-sensitive” to include “any duty related to the safe operation of City equipment.” The City employees refused to consent to this change and objected to it as one about which the City should have negotiated with the union.32 Later that year, without any prior notice and without resolving the employees’ concerns regarding the new drug testing policy, the City required all employees of the Department of Streets and Sanitation to submit to immediate drug tests.33 Any employee who refused would be terminated.34 When Krieg refused to submit to the test and tried to call his attorney, his boss told him to leave the building because he was fired. He also threatened to call the police when Krieg did not leave right away.35 The City Board of Works later officially fired Krieg, after a meeting about the incident.36 Krieg—together with the union—filed a complaint in district court under 42 U.S.C. § 1983.37 Krieg alleged violations of both the Fourth Amendment and his Due Process right to certain termination procedures. The district court granted summary judgment in favor of the City.38 The Seventh Circuit affirmed its judgment as to both claims, but this note will focus only on the Seventh Circuit’s analysis of the Fourth Amendment. The Seventh Circuit began its analysis with the general rule that “drug testing must be based upon individualized suspicion.”39 It then looked to Von Raab for the proposition that “random drug testing is constitutionally permissible when it ‘serves special governmental
31 Id. at 515. 32 Id. 33 See id. 34 Id. 35 Id. at 515-16. 36 Id. at 516. 37 See id. 38 Id.; Krieg v. Seybold, 427 F. Supp. 2d 842 (N.D. Ind. 2006). 39 Krieg, 481 F.3d at 517 (citing Chandler v. Miller, 520 U.S. 305, 313 (1997)).
374 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 needs.’”40 “Special needs” is a shorthand for the Supreme Court’s assertion that in certain circumstances a search will serve an important enough governmental interest that it can be conducted despite the absence of a warrant and probable cause.41 The asserted need must be something more than the “normal need for law enforcement”42— therefore government agents such as public employers and school officials often invoke the special needs doctrine to justify searches.43 However, a special need is not sufficient on its own to justify a departure from the normal requirements of the Fourth Amendment. Instead, as the Krieg court properly explained, “when such a special need exists, courts should ‘balance the individual’s privacy expectations against the government’s interests to determine whether it is impractical to require a warrant or some level of individualized suspicion in the particular context.’”44 As will be shown below, the Seventh Circuit did not adhere to this last requirement. Not only did the court fail to determine whether requiring the City of Marion to show “some level of individualized suspicion” would be “impractical,” it also failed to point to a single reason why the City could not have complied with that requirement. In short, the Seventh Circuit treated Von Raab as if it created bright line rule that a special need could—by itself—justify drug testing without suspicion.45 As will be shown in Part III, below, the Supreme Court has never condoned such a rule.
40 Id. (quoting Nat’l Treasury Employees Union v. Von Raab, 489 U.S. 656, 665 (1989)). 41 Skinner v. Railway Labor Executives’ Ass’n, 489 U.S. 602, 619 (1989). 42 Id. 43 See infra Part III for more on the requirements of the special needs doctrine and on how the Supreme Court has applied this doctrine to employers versus to school officials. 44 Krieg, 481 F.3d at 517 (quoting Von Raab, 489 U.S. at 665). 45 See id. (“However, the Supreme Court has held that random drug testing is constitutionally permissible when it ‘serves special governmental needs . . . .’” (quoting Von Raab, 489 U.S. at 665)).
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A. The Seventh Circuit’s Definition of a Special Need
To determine whether a special need existed in Marion, Indiana, the Seventh Circuit asserted that “a special need exists when the government employee subjected to random drug testing holds a ‘safety sensitive’ position.”46 It then set forth the following test, relying on Skinner: “To determine whether an employee occupies a safety sensitive position, courts must inquire whether the employee’s duties were ‘fraught with such risks of injury to others that even a momentary lapse of attention [could] have disastrous consequences.’”47 The court looked to several cases from other courts that had interpreted this definition of “safety-sensitive.” According to the Krieg court, lower federal courts had held that duties such as operating forklifts, tractors, cranes, and other types of heavy equipment satisfied the Skinner definition.48 The court also explained that lower courts had rejected claims that public employees such as mail van drivers, shuttle bus drivers, and passenger car drivers held safety-sensitive positions.49 The Seventh Circuit held that because Krieg operated “large vehicles and equipment” and these could “present a substantial risk of injury to others if operated by an employee under the influence of drugs or alcohol,” Krieg “performed a safety sensitive job.”50 His job raised greater safety concerns than those of van and passenger car drivers because Krieg’s equipment was “larger and more difficult to operate.”51 Finally, the court emphasized that Krieg operated his equipment “in the City near other vehicles and pedestrians” rather than
46 Id. (quoting Skinner, 489 U.S. at 630). 47 Id. (quoting Skinner, 489 U.S. at 628) (bracketed material in original). 48 Id. at 518. 49 Id. (referring to Nat’l Treasury Employees Union v. Watkins, 722 F. Supp. 766 (D.D.C. 1989); Nat’l Treasury Employees Union v. Lyng, 706 F. Supp. 934 (D.D.C. 1988)). 50 Id. (Krieg “regularly operated a one-ton dump truck, a dump truck with a plow, a front end loader, and a backhoe”). 51 Id.
376 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 in “rural areas.”52 Thus, the court held, “any reasonable jury would conclude that Krieg’s job duties” were safety-sensitive within the meaning of Skinner.53
B. The Seventh Circuit’s Balancing Test Demonstrates That It Adopted a Bright Line Rule
Next, the Seventh Circuit balanced the “intrusion on [Krieg’s] Fourth Amendment interests” against the extent to which the City’s drug testing program would promote a “legitimate governmental interest.”54 It considered these factors:
1) the nature of the privacy interest upon which the search intrudes, 2) the character of the intrusion on the individuals’ privacy interest, 3) the nature and immediacy of the governmental concern at issue, and 4) the efficacy of the particular means used to address the problem.55
Based on these factors, it held that the City of Marion had “shown a governmental interest sufficient to justify submitting Krieg to random, suspicionless drug testing.”56 Though engaging in a balancing test once it had identified a special governmental need was consistent with the requirement of Von Raab (mentioned above),57 the court here relied on Vernonia School District 47J v. Acton and on the Seventh Circuit case of Joy v. Penn- Harris-Madison School Corp. to explain the test.58 Each of these two
52 Id. 53 Id. 54 Id. (quoting Vernonia Sch. Dist. 47J v. Acton, 515 U.S. 646, 653 (1995)). 55 Id. (citing Joy v. Penn-Harris-Madison Sch. Corp., 212 F.3d 1052, 1059 (7th Cir. 2000)). 56 Id. at 519. 57 See id. at 517. 58 Id. at 518 (citing Vernonia, 515 U.S. at 653; Joy, 212 F.3d at 1059).
377 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 cases dealt with randomly testing schoolchildren for drug use. As explained in Part III below, randomly drug testing schoolchildren implicates a different body of Supreme Court precedent than does randomly drug testing adults.59 Setting forth the balancing test under these two school cases, the court simply asserted that it should consider the factors above. It did not mention—even though it had recognized as much when it set forth the special needs test under Von Raab, one page earlier—that the purpose of its balancing test should have been to determine whether it was impractical to require “some level of individualized suspicion in the particular context.”60 The court’s treatment of each factor further demonstrates it did not conduct this balancing test with the purpose of determining whether the City was justified in departing from the general rule requiring individual suspicion. The court held that the nature of Krieg’s privacy interest was diminished because he had submitted to drug testing on a previous occasion.61 It then rejected Krieg’s claim that the character of the intrusion was “severe” because the City did not follow its own testing policy.62 This claim centered on whether choosing a random date on which to test an entire Department was truly “random, suspicionless drug testing.”63 The Seventh Circuit concluded that the City had complied with its own policy.64 Clearly, neither of these arguments or conclusions relate to whether testing Department employees only when the City had reason to suspect they had used drugs would be impractical. Instead, the court’s consideration of these two factors related only to the degree of intrusion on Krieg’s privacy interests.65
59 See infra Part III. 60 Compare Krieg, 481 F.3d at 517 with id. at 518. 61 Id. at 518-19. As mentioned earlier, the prior program was aimed at CDL holders. Krieg does not have a CDL, and the City conceded that it was improper to test him under that program. Id. at 515. 62 Id. at 519. 63 See id. 64 Id. 65 It was not improper for the court to consider only the intrusion on individual privacy when it evaluated these first two factors. See, e.g., Skinner v. Railway Labor
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The court next addressed the nature and immediacy of the City’s need for the drug testing program. “[T]he City [had] a compelling interest in ensuring that its employees who regularly drive large equipment around the City are not impaired by drugs or alcohol.”66 With regard to the immediacy of the need, the court claimed that it was irrelevant that the City had not shown a “history of drug-related accidents by non-CDL holders” (such as Krieg) because the Supreme Court “has not required” such a showing.67 Even if it is true that the Supreme Court has not so required, the purpose of balancing these factors should have been to determine whether it would be impractical to impose a similar requirement.68 The Seventh Circuit did not address any practical concerns in its treatment of this factor. With regard to the final factor—the efficacy of the means chosen by the City to address its legitimate governmental concern—the court rejected Krieg’s claim that the City must “demonstrate that it could not address the problem by observing Department employees for
Executives’ Ass’n, 489 U.S. 602, 624-28 (1989) (analyzing the intrusion on railroad employees’ privacy and contrasting these “limited threats” with “the Government interest in testing without a showing of individualized suspicion”). However, at some point during this balancing test, the court should have considered the practicality of a suspicion-based testing program. The court’s failure in this regard is demonstrated below. 66 Krieg, 481 F.3d at 519. 67 Id. The court cites to Board of Education of Independent School District No. 92 v. Earls, 536 U.S. 822, 835 (2002) for the claim that the Supreme Court does not require a showing of a “particularized or pervasive drug problem” in order to justify suspicionless drug testing. Krieg, 481 F.3d at 519. But Earls is also a case about testing schoolchildren for drug use, not about testing adults. Nevertheless, the Von Raab Court did allow the Customs Service to employ a program of suspicionless drug testing even though the Service had not shown a pervasive drug problem among its (adult) employees. Nat’l Treasury Employees Union v. Von Raab, 489 U.S. 656, 673-74 (1989). See more on this issue infra Part III. 68 While the practicality question under Von Raab is whether the City could have formed some level of individualized suspicion, suspicion based on a history of drug use among the group targeted for random testing would at least have been closer to such a threshold. Instead, the court here upholds a program of testing persons whom the City has absolutely no reason to suspect of drug use—either individually or as a group.
379 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 suspicious behavior.”69 This is the only time in its balancing test that the court mentioned the practicality of requiring some level of suspicion. The court’s response, however, was that “neither the Supreme Court nor this Court has ever held that this showing is a requirement of imposing random drug tests.”70 It may be true that neither court has ever required this specific showing. However (as will be shown in Part III below), the Supreme Court has required some reason that developing individual suspicion would be impractical.71 If the Seventh Circuit did ascertain such a reason in this case, it did not share that reason with its readers. Thus, in this brief opinion, the Seventh Circuit adopted a bright line rule that safety concerns alone are sufficient to justify random, suspicionless drug testing. Further, it showed that the court will eschew any attempt to require a governmental body to demonstrate that the normal requirements of the Fourth Amendment would undermine that body’s attempt to address such safety concerns.
III. THE SUPREME COURT USES A FACT-SPECIFIC APPROACH FOR THE PUBLIC WORKPLACE
The Supreme Court has upheld suspicionless workplace drug testing by government agents in two cases: Skinner72 and Von Raab.73 Each of these cases involved a policy that required workplace drug testing triggered by a certain event—a train accident and an application for promotion, respectively—rather than by individualized suspicion. Each case placed substantial emphasis on both the safety concerns raised by the job at issue and the way in which the relevant policy limited the discretion of the government agents.74 In addition, each case emphasized that the circumstances giving rise to a need for
69 Krieg, 481 F.3d at 519. 70 Id. (citing Von Raab, 489 U.S. at 674). 71 See infra Part III. 72 Skinner v. Railway Labor Executives’ Ass’n, 489 U.S. 602 (1989). 73 Nat’l Treasury Employees Union v. Von Raab, 489 U.S. 656 (1989). 74 See infra Parts III(A) and III(B).
380 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 drug testing justified a departure from the normal requirement of reasonable suspicion.75 By contrast, the Supreme Court struck down a suspicionless drug testing scheme in Chandler v. Miller,76 where the scheme was meant to deter drug use among political candidates. The proponents of the testing program argued that it addressed safety concerns similar to those that justified the program in Von Raab.77 In addition, the program was statutory, and the statute defined the persons affected, the timing of the tests, and the process of information collection.78 Therefore, government agents would have had limited discretion in the administration of the program. Nonetheless, the concerns the program addressed did not arise in circumstances unusual enough to justify a departure from the need for individualized suspicion.79 When drug testing programs target schoolchildren, however, the Supreme Court has not required school officials to identify an unusual circumstance that would make drug testing based upon individualized suspicion impractical.80 Instead, it has adopted a bright line rule— justified by and specific to the school setting—that eliminates the presumption in favor of individualized suspicion.81 Therefore, when evaluating drug testing programs in schools, the Supreme Court will balance the interests of the individual and the government on an even scale, rather than on a scale weighted in favor of the individual. Thus, the Supreme Court has created differing rules with regard to suspicionless drug testing for various contexts. In the context of schools, the overriding safety concern of preventing childhood drug use will be sufficient on its own to justify suspicionless testing, and
75 See infra Parts III(A) and III(B). 76 520 U.S. 305 (1997). 77 See infra Part III(C). 78 Chandler, 520 U.S. at 309-10. 79 See infra Part III(C). 80 See infra Part III(D) for a discussion of the rules applicable to school settings. 81 This is not to say that all suspicionless drug testing programs in schools will be constitutionally permissible. A court might still consider a testing program’s suspicionless nature when deciding whether it is reasonable. See infra Part III(D).
381 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the Court will only ask whether the particular program at issue was reasonable. In the workplace, safety concerns have been sufficient to justify suspicionless testing only where they arise in circumstances that make individualized suspicion impractical. Because the testing program in Krieg affected adults (as opposed to schoolchildren), the Seventh Circuit should have followed the context-specific approach used by the Supreme Court in Skinner, Von Raab, and Chandler.
A. Safety, Regulation, and an Unusual Need in Skinner
In Skinner, a private railroad company was subject to regulations promulgated by the Federal Railroad Administration (F.R.A.),82 and these regulations required the company to provide the F.R.A. with urine samples from all employees of the railroad who were directly involved in any major train accident.83 In addition, the F.R.A. regulations allowed railroad companies to test employees in particular positions when certain rule violations occurred, such as “noncompliance with a signal and excessive speeding.”84 A F.R.A. laboratory would test these samples for drugs and for alcohol content.85 To ensure that all employees were tested in the aftermath of major accidents, the railroad company had to transport them directly to a testing facility.86 The Skinner Court addressed a constitutional challenge to this testing scheme by first determining whether the Fourth Amendment applied to the railroad company’s acts87 and whether collection of
82 Skinner v. Railway Labor Executives’ Ass’n, 489 U.S. 602, 614-15 (1989). 83 Id. at 609. The regulations also required blood samples. The Court analyzed these separately throughout its opinion, so this article will focus only on the urine sampling. 84 Id. at 611. 85 Id. at 610 (regarding samples taken post-accident). Samples taken after a rule violation would be processed at an independent facility. Id. at 611. 86 Id. at 609. 87 Id. at 614-15. In these circumstances, the railroad company was a government agent with regard to the post-accident testing. And, with regard to the post-rule violation testing, the government was sufficiently involved in the railroad
382 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 urine for testing was a search,88answering both in the affirmative. Next, it evaluated whether the search could be reasonable in the absence of the default threshold: a warrant and probable cause.89 It determined that, in the circumstances presented, such searches could be reasonable because (a) the purpose of the testing went “beyond normal law enforcement,” creating a “special need;”90 and (b) the purposes of the warrant requirement were satisfied by the regulations themselves.91 The purpose of the drug testing at issue was “to prevent accidents and casualties in railroad operations,” thus protecting the safety of “the traveling public and of the employees.”92 As evidence of this purpose, the Court looked in part to the categories of employees covered by the regulations.93 These employees included persons “handling orders concerning train movements, operating crews, and those engaged in the maintenance and repair of signal systems.”94 Both parties conceded that these positions required “safety-sensitive tasks.”95 The Court did not assume that the “special need” created by this safety purpose and by the safety-sensitive nature of the employees’ tasks would automatically allow government agents to search employees without a warrant. Instead, it examined the purposes of the warrant requirement to decide whether that requirement should apply in the particular circumstances before it. It defined these purposes as: company’s acts where it “removed all legal barriers to the testing,” had a “strong preference” that the company conduct such testing, and “share[d] the fruits of such intrusions.” Id. at 615. 88 Id. at 617. The Court in Vernonia began in the same way, i.e., by determining that the Fourth Amendment protections reached public school officials and that compelled urinalysis constituted a search. Vernonia Sch. Dist. 47J v. Acton, 515 U.S. 646, 652 (1995). 89 Skinner, 489 U.S. at 619. 90 Id. at 620 (citations omitted). 91 Id. at 621-24. 92 Id. at 620-21. 93 Id. at 620. 94 Id. 95 Id.
383 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 to assure citizens that searches are not “random or arbitrary acts of government agents;” to ensure that searches are narrow in both objective and scope; and to allow a neutral, objective magistrate to determine whether a search is justified in each particular case.96The F.R.A. regulations satisfied these purposes 97 because they specifically defined the narrow objectives and scope of the drug testing program, and because they were well-known to the employees affected.98 In addition, the regulations left “minimal discretion” to the persons who would administer the search.99 Even though the Skinner Court had thus determined that the railroad company’s drug testing program served a special need and that the regulations mandating the program obviated the need for a warrant, it still had to decide whether the special need would justify a search without suspicion.100 It characterized the circumstances in which a search can be reasonable in the absence of any individualized suspicion as limited to those where (a) the intrusion on the individual’s privacy interests is minimal, (b) the government’s interests are important, and (c) requiring suspicion would undermine the government’s objective.101 The Court found that the intrusion on the railway workers’ privacy was minimal because the collection environment was similar to a routine medical examination, and because the regulations limited the private facts revealed to those related to alcohol or drug use.102 The
96 Id. at 621-22. 97 Id. at 624. 98 Id. at 622. The Court also looked to the way that requiring a warrant would frustrate the objectives of the government in conducting the search. Here, the objective was to help determine whether drugs were a factor in a major train accident. Waiting for a warrant could allow evidence of these substances to metabolize out of the bodily fluids of the involved employees. Id. at 623. 99 Id. at 622. 100 Id. at 624. 101 Id. 102 Id. at 626-27. The testing procedures would also include information about any other medications that the employees were taking. The Court assumed in its
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Court emphasized that the workers knew that their industry involved many regulations to ensure safety and that these regulations frequently dealt with employee health and fitness.103 Further, it emphasized that many companies in the railway industry required routine physical examinations, such as eye exams, for some groups of employees.104 Thus, the workers had a diminished expectation of privacy.105 The government’s interest in safety was important because of the danger presented by even a “momentary lapse of attention” by a person in the covered employees’ position.106 Therefore, the Court would not impose a requirement of reasonable suspicion if it would “seriously impede” the government’s objective. The Court gave three reasons that a requirement of reasonable suspicion would impede the government’s objective in these circumstances. First, an “impaired employee” would not show signs of impairment that an ordinary person could detect.107 Second, an investigator at the “chaotic” scene of a train accident would have difficulty determining who was responsible for the accident.108 Third, likewise, the time required to determine which of the individuals responsible for a rule violation might have been under the influence of drugs or alcohol would create a risk that the evidence available through urinalysis would metabolize and be lost.109 Thus, because of the particular difficulties of the circumstances giving rise to the need for drug testing, it would be “unrealistic” to require the railroad company to develop individualized suspicion of drug use prior to administering the tests.110
analysis that this information would be used only to prevent false positives and would be kept confidential. Id. at 626 n.7. 103 Id. at 627-28. 104 Id. at 627 & n.8. 105 Id. at 627. 106 Id. at 628. 107 Id. at 628-29. 108 Id. at 631. 109 Id. 110 Id.
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Only after it had thus considered whether the asserted special need of railroad safety would justify a departure from the requirement of individualized suspicion did the Skinner Court go on to determine whether the particular scheme of suspicionless tests required by the regulations was reasonable. For this inquiry, it looked to the efficacy of the means chosen by the F.R.A.111 Because the F.R.A. had “expressly considered various alternatives” and “reasonably found them wanting,”112 the Court held that it would not independently determine whether less intrusive means for obtaining evidence of drug or alcohol use were available.113 Therefore, the drug testing required by the F.R.A. regulations was reasonable.114
B. Safety, Uniform Policy, and an Unusual Need in Von Raab
The Court in Von Raab undertook a similar analysis when it addressed a challenge by the National Treasury Employees Union to the Customs Service’s policy of requiring a drug test from all applicants for promotion to positions that required carrying firearms or involved enforcing laws regarding illegal drugs.115 It began by determining whether a warrant was required. It stated that, because the purpose of the program was to “deter drug use among those eligible for promotion to sensitive positions,” the program served a special governmental need.116 Once it found this special need, it was “necessary” to “balance the individual’s privacy expectations against the Government’s interest to determine whether it [was]
111 Id. at 631-32. 112 Id. at 629 n.9. 113 The court below asserted that the tests themselves were unreliable, but the Skinner Court held that the drug test need not provide conclusive proof of drug use in order to be reasonable. Id. at 631-32. 114 Id. at 633-34. 115 Nat’l Treasury Employees Union v. Von Raab, 489 U.S. 656 (1989). Also at issue was the testing of employees who would handle classified materials. Id. at 661. The Court did not resolve the issue as to this group. Id. at 677-78. 116 Id. at 666.
386 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 impractical to require a warrant or some level of individualized suspicion in the particular context.”117 Thus, the Von Raab Court did not discuss the purposes of the warrant requirement in such depth as did the Skinner Court, but instead assumed that “some level of individualized suspicion” could be sufficient to meet the mandate of the Fourth Amendment.118The Von Raab Court concluded that requiring a warrant would be impractical because it would divert resources without creating any additional protection for the applicants. The interests protected by the warrant requirement were already satisfied because the testing policy was well-known to the applicants and left no room for discretion as to who would be tested.119 The Von Raab Court also did not use Skinner’s language regarding the circumstances in which testing without suspicion could be permissible. However, it set forth a similar principle: suspicionless tests are constitutional in “certain limited circumstances” where there is a “compelling” governmental need that will “justify the intrusion on privacy.”120 In the Von Raab formulation, such compelling needs exist when the government must “discover . . . latent or hidden conditions” or “prevent their development.”121 This portion of the Von Raab standard addresses concerns similar to those in the Skinner test above122 because, clearly, requiring individualized suspicion of
117 Id. at 665-66. 118 See id. 119 Id. at 666-67. 120 Id. at 668. The full standard is: “[I]n certain limited circumstances, the Government’s need to discover such latent or hidden conditions, or to prevent their development, is sufficiently compelling to justify the intrusion on privacy entailed by conducting such searches without any measure of individualized suspicion.” Id. 121 Id. 122 Supra Part III(A). Suspicionless searches can be reasonable if (a) the intrusion on the individual’s privacy interests is minimal, (b) the government’s interests are important, and (c) requiring suspicion would undermine the government’s objective. Skinner v. Railway Labor Executives’ Ass’n, 489 U.S. 602, 624 (1989).
387 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 wrongdoing would frustrate the objective of discovering hidden crimes or preventing criminal patterns that had not yet developed. The Von Raab Court thus upheld the Custom Service’s suspicionless drug testing policy123 where (1) the applicants expected inquiry into their fitness with regard to judgment and dexterity;124 (2) the safety and national security risks of promoting drug users to positions involving firearms and controlled substance enforcement were “extraordinary;”125 (3) the nature of the job did not permit day- to-day supervision that would allow authorities to detect impairment;126 and (4) the government had a “compelling interest” in preventing even off-duty drug use by its applicants.127 The Von Raab Court recited each of these circumstances as part of a larger inquiry into whether the interests of the government would outweigh those of the individual applicants.128 Therefore, the Von Raab decision might not require that lower courts consider each of the factors implicated by these circumstances: the expectations of the applicants, the magnitude of the safety concerns at issue, the degree of legitimate government interest, and the practicality of suspicion-based testing in the specific work environment at issue.129 However, at least this much is clear: the Von Raab Court did not hold that safety concerns on their own would suffice to justify suspicionless testing, and it did not hold anything with regard to random drug testing.
123 Von Raab, 489 U.S. at 677. 124 Id. at 672. 125 Id. at 674. 126 Id. 127 Id. 128 See id. at 677. 129 See id. at 667-677.
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C. The Chandler Court Rejects a Testing Program Where Circumstances Were Not Unusual Enough
In the case of Chandler v. Miller,130 the Supreme Court struck down a Georgia statute that required that candidates for certain state offices pass a drug test within thirty days prior to nomination or election.131 The Eleventh Circuit had upheld the statute by relying upon the logic in Skinner and Von Raab: the statute served a special governmental need.132 The court looked to the state’s interest in ensuring that its officials could be trusted with the “ultimate responsibility for law enforcement” and the supervision of “drug interdiction efforts.”133 These were similar to the interests relied upon in Von Raab: ensuring that drug interdiction personnel “are physically fit, and have unimpeachable integrity and judgment.”134 The Eleventh Circuit held that the state’s interests outweighed those of the candidates.135 The Supreme Court began its analysis with the general rule, consistent with Skinner and Von Raab, that government officials normally must have individualized suspicion with regard to the subject of a search before the search can be reasonable within the meaning of the Fourth Amendment.136 The Court went on to explain that “particularized exceptions” to this rule are “sometimes” permissible when based upon a special governmental need.137 “When such ‘special needs’ . . . are alleged,” the Court explained, “courts must undertake a
130 520 U.S. 305 (1997). 131 Id. at 308-10. 132 Id. at 311-12. 133 Id. 134 Von Raab, 489 U.S. at 670. 135 Chandler, 520 U.S. at 312. 136 See id. at 308, 313. 137 Id. at 313; see id. at 308 (citing to Von Raab, 489 U.S. at 668, and referring to border checkpoints, sobriety checkpoints, and administrative inspections of “closely regulated” businesses as examples of “certain limited circumstances” in which a search may be reasonable in the absence of individual suspicion).
389 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 context-specific inquiry, examining closely the competing private and public interests advanced by the parties.”138 This explanation of the legal framework behind the Skinner and Von Raab safety exception makes explicit that the inquiry is “context- specific” rather than a bright line. Though the context in Chandler differed from that in Skinner, Von Raab, and Krieg (because the persons to be tested were candidates for office rather than large groups of public employees), the underlying analysis was uniform. In none of these situations was the special governmental need in itself sufficient to justify suspicionless testing. Courts must use a fact-specific approach to determine whether some unusual circumstance will justify a departure from the general rule. The Chandler Court used the Skinner formulation to explain what circumstances provide such a justification, namely, “where the privacy interests implicated by the search are minimal, and where an important governmental interest furthered by the intrusion would be placed in jeopardy by a requirement of individualized suspicion.”139 The Georgia statute did not address an important governmental interest. Because concerns about candidates’ trustworthiness were “hypothetical”—there was not an existing drug problem among this group—the asserted special need was not “substantial” enough to justify intruding upon recognized privacy interests in the absence of individualized suspicion.140 The Court emphasized that while it is not true that in all cases there must be a demonstrated drug problem before a government agency can adopt a suspicionless drug testing program, the existence of a drug problem can help to justify such a program.141 In addition, Georgia had not shown that requiring normal, suspicion-based searches would jeopardize the government’s ability to
138 Id. at 314 (citing Von Raab, 489 U.S. at 665-66, 668). 139 Id. (quoting Skinner v. Railway. Labor Executives’ Ass’n, 489 U.S. 602, 624 (1989)). 140 Id. at 318-19 (“Notably lacking in respondents’ presentation is any indication of a concrete danger demanding departure from the Fourth Amendment’s main rule.”). 141 Id. at 319.
390 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 meet its goal of deterring drug use among public officials.142 This was true because the candidates worked in the public eye—in sharp contrast to Von Raab, where the targeted group worked in a situation in which “day-to-day scrutiny” was impossible.143 When comparing Chandler to Von Raab, the Court further emphasized that Von Raab did not “open[] broad vistas for suspicionless searches.”144 In sum, the Chandler Court confirmed that Skinner and Von Raab did not create a broad rule that special safety needs will always justify suspicionless searches. In other words, the Supreme Court has not created a bright line rule allowing suspicionless drug testing programs whenever such programs serve a special governmental need. Moreover, the Court established several facts relevant to the “context-specific” inquiry that each court must undertake before upholding a suspicionless testing program premised on a special need. First, situations allegedly creating safety concerns will not justify suspicionless searches where the concerns are merely hypothetical. Second, the existence of a drug problem is relevant to whether there is an important governmental interest at stake. And finally, the absence of a suspicion-based approach sufficient to address the relevant safety concerns is key to the inquiry of whether a suspicionless program can be justified.
D. In Schools, No Unusual Circumstance is Necessary
In contrast to the above cases regarding testing adults for drug use, the Supreme Court has created two bright line rules regarding drug testing in schools. First, schools present special governmental needs. Second, the particular role of school officials as guardians over schoolchildren justifies suspicionless drug testing programs that target students in voluntary extracurricular activities. Therefore, the cases of Vernonia145 and Board of Education of Independent School District
142 Id. at 320. 143 Id. at 321. 144 Id. 145 Vernonia Sch. Dist. 47J v. Acton, 515 U.S. 646 (1995).
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No. 92 v. Earls,146 dealing with suspicionless drug testing in schools, are inappropriate sources of authority for a court to rely upon when determining whether suspicionless drug testing in a workplace is constitutionally permissible. In Vernonia, the Court recognized the first of these bright line rules—that schools present special governmental needs. In Vernonia, student athletes challenged a policy that required them to undergo random drug testing.147 The school administration thought athletes were “the leaders of the drug culture” and had therefore adopted the policy in response to a “sharp increase” in drug use in the school district.148 The Court started with the general rule that, when law enforcement officials try to obtain “evidence of criminal wrongdoing,” a search will not be reasonable without a warrant supported by probable cause.149 It then set forth the principle that “when special needs, beyond the normal need for law enforcement, make the warrant and probable-cause requirement impracticable” a search can be reasonable even though it is not supported by probable cause.150 Next, the Court cited New Jersey v. T.L.O. for the proposition that special needs “exist in the public school context” because (a) the “warrant requirement would unduly interfere with the maintenance of the swift and informal disciplinary procedures [that are] needed;” and (b) the requirement of probable cause “would undercut the substantial need of teachers and administrators for freedom to maintain order in the schools.”151 The Court did not make reference to any need for a context-specific inquiry to determine whether the Vernonia schools
146 536 U.S. 822 (2002). 147 Vernonia, 515 U.S. at 648-49. 148 Id. 149 Id. at 652-53. 150 Id. at 653 (quoting Griffin v. Wisconsin, 483 U.S. 868, 873 (1987)). 151 Id. (citing T.L.O., 469 U.S. 325, 340-41 (1985)) (internal quotation marks omitted).
392 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 presented special governmental needs.152 Rather, it treated this language from T.L.O. as a bright line rule. This bright line rule did not establish that random drug testing was permissible in schools, because T.L.O. dealt with a search based on individualized suspicion.153 Thus, the next inquiry of the Vernonia Court was whether this special need would allow school officials to conduct suspicionless searches. To answer this question, the Court considered the nature of the privacy interest, the character of the intrusion, the nature and immediacy of the governmental concern, and the efficacy of the means used to address the concern.154 In holding that a suspicionless search was justified, the Court emphasized that, because the testing program affected schoolchildren, the “most significant element” in its decision was that the school had “responsibilities . . . as guardian and tutor of children entrusted to its care.”155 Further, the Court “caution[ed] against the assumption that suspicionless drug testing [would] readily pass constitutional muster in other contexts.”156 In this cautionary paragraph, it contrasted the context of a school, where one must ask whether the officials acted as reasonable guardians, with the context of employment, where one must ask whether the officials acted as reasonable employers.157
152 See id. at 653-54. 153 Id. at 653; T.L.O., 469 U.S. at 344-46. 154 Vernonia, 515 U.S. at 654-64. Although the Vernonia Court cited to Skinner for the proposition that some suspicionless searches are acceptable, it did not explicitly employ the test for whether a search can be reasonable in the absence of suspicion that Skinner set forth (supra Part III(A)). See id. at 653-54. However, in the course of its balancing test (which used factors articulated in similar language to those used by the Krieg court), it explicitly addressed whether testing based on suspicion would be practicable in public schools. See id. at 663-64. Though it used the language of “efficacy,” it also addressed the inquiry of whether requiring suspicion would frustrate the objective of the administrators. Id. In this discussion, it pointed to parent resistance to suspicion-based testing, to possible unfair effects on troubled children, and to the burden that would be posed on schoolteachers where they are not trained in the duty of recognizing signs of drug use. Id. 155 Id. at 665. 156 Id. 157 Id.
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The next case addressing suspicionless drug testing in schools was Earls.158 In that case, students in extracurricular activities again challenged a random drug testing policy. The Earls Court started with the bright line rule recognized in Vernonia: that “‘special needs’ inhere in the public school context” such that probable cause may not be necessary to justify a search.159 However, unlike the Court in Vernonia, the Earls Court did not conduct a separate inquiry into whether suspicionless searches could be reasonable. Instead, based on the Vernonia proposition that in public schools “the ‘reasonableness’ inquiry cannot disregard the schools’ custodial and tutelary responsibility for children,”160 the Court asserted that “a finding of individualized suspicion may not be necessary when a school conducts drug testing.”161 The Court clarified the meaning of this assertion later in its opinion, when it rejected the students’ claim that drug testing presumptively requires individualized suspicion by saying, “[i]n this context, the Fourth Amendment does not require a finding of individualized suspicion.”162 To support this response, the Court referred the reader back to the section of its opinion regarding the special needs inherent in schools.163 Thus, in sharp contrast to the cases of Skinner, Von Raab, and Chandler, the Earls Court did not undertake a context-specific balancing test to determine whether a departure from the normal requirement of individualized suspicion could be justified by some unusual circumstance. Instead, the Earls Court created a bright line rule that individualized suspicion is not presumptively necessary in the context of school drug tests, even though it is presumptively necessary for other drug tests.164 Thus, the school context will—in effect—
158 Bd. of Educ. of Indep. Sch. Dist. No. 92 v. Earls, 536 U.S. 822 (2002). 159 Id. at 829 (quoting Vernonia, 515 U.S. at 653). 160 Id. at 830 (quoting Vernonia, 515 U.S. at 656). 161 Id. 162 Id. at 837. 163 Id. 164 See supra Parts III(A)-III(C).
394 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 replace a balancing test that is weighted in favor of individual privacy with one that is measured on an even scale.165
E. Summary of Supreme Court Treatment of Suspicionless Drug Tests
Skinner and Von Raab make clear that the fact that government agents have a safety purpose for their drug testing program will not obviate the need to determine whether those agents were justified in departing from the requirement of individualized suspicion. Instead, the Supreme Court will look to the circumstances surrounding the safety concern for some reason that it would be impractical to require individual suspicion.166 Further, the Chandler case has shown that not all safety concerns are important enough to present a special governmental need. Instead, the concerns that the testing program addresses must be real and substantial. Finally, the Chandler Court explained that when it looks for an unusual circumstance that will justify a suspicionless test, it will consider whether there was a drug problem among the targeted group of persons.167 By contrast, in the school context, the Supreme Court has eliminated any presumption that individualized suspicion is required before a drug testing program involving school children can be reasonable. Instead, it allows courts to balance the interests of the individual students against those of the school officials and to assess the efficacy of those officials’ chosen method of drug deterrence without any initial inquiry into whether the school’s needs could be served by a suspicion-based program.168
165 This bright line rule does not mean that all drug testing in schools will be reasonable within the meaning of the Fourth Amendment. Earls, 536 U.S. at 830. However, it does allow courts to look directly to whether a reasonable guardian would have acted as the school district did without first asking whether some unusual circumstance justified the school district in disregarding general rule requiring individualized suspicion. 166 Supra Parts III(A) and III(B). 167 Supra Part III(C). 168 Supra Part III(D).
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IV. THE SEVENTH CIRCUIT’S BRIGHT LINE RULE CREATES SIGNIFICANT POLICY CONCERNS
As shown above in Part II, the Krieg court treated the fact that the City of Marion had a safety purpose for its drug testing program as sufficient to eliminate any presumption that individualized suspicion was required. Thus, it analyzed Krieg’s case in a manner more appropriate to a school context than to a workplace. This was inappropriate because, as shown above, the cases addressing drug testing in schools have been premised almost entirely on the role of school administrators as the guardians of the minor children for whom they are responsible.169 Had it used the Skinner framework for evaluating workplace drug testing by government agents, the Krieg court would have first determined whether (a) the intrusion on Krieg’s privacy interest was minimal, (b) the City’s interests were important, and (c) requiring suspicion would have undermined the City’s objective.170 Only after determining that this threshold was met would it have been possible for the court to hold that the City’s suspicionless drug testing program was reasonable. Instead, the Krieg court balanced the interests of Krieg and the City on even scale, ignoring the presumption that when the City chose a random drug testing program it chose an unreasonable method of pursuing its interests.171 By omitting the analytical step of determining whether the special need asserted by the government created some unusual circumstance that would make the normal application of the Fourth Amendment (requiring individualized suspicion at an absolute minimum) impractical, the Seventh Circuit “un-tipped” a balance that normally weighs in favor of individual privacy rights. This creates significant policy concerns. First, it stretches a narrow exception to
169 See supra Part III(D). 170 Supra Part III(A); Skinner v. Railway Labor Executives’ Ass’n, 489 U.S. 602, 624 (1989). 171 See supra Part II for the reasoning used by the Krieg court.
396 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 constitutionally-required protections to include a large number of blue- collar workers, without explaining why it was appropriate to do so. Second, even if it were appropriate, the decision is not desirable in that it undermines the goals of the Fourth Amendment. It does so by diminishing the incentive for public employers to obtain public input and to consider less intrusive means before implementing drug testing programs that will affect large numbers of people.
A. The Seventh Circuit Expanded the Exception to the Supreme Court’s Rule
As will be shown, the Seventh Circuit broadly interpreted the safety concerns that will satisfy Skinner. This is not necessarily incorrect. However, when paired with the bright line effect that the Seventh Circuit has given to the Skinner test, the result is an exception permitting suspicionless drug testing that threatens to swallow the rule. In short, the Seventh Circuit has applied the concept of safety- sensitive positions in a way that will include much of the blue-collar public workforce. The Seventh Circuit has also interpreted Skinner, Von Raab, Vernonia, and Earls to mean that, where a worker holds a safety-sensitive position, a public employer can test that worker for drug use without any need for individualized suspicion.172 Thus, the general rule that an employer must have individualized suspicion to test an employee for drug use will apply to far fewer people than it would have if the court had applied the Skinner rule differently in the Krieg decision. Because of the widespread effect of its interpretation of Skinner, and because this interpretation was not compelled by precedent, the Krieg court should have explained why it was appropriate to adopt a broad view of the types of safety concerns that will satisfy the Skinner test.
172 Supra Part II.
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1. The Seventh Circuit’s Interpretation of Skinner Was Not Compelled by Precedent
Consistent with Skinner, the Krieg court defined safety-sensitive positions as those “fraught with such risks of injury to others that even a momentary lapse of attention [could] have disastrous consequences.”173 Using primarily district court cases from other circuits, the court concluded that Krieg’s position was similar enough to the other safety-sensitive positions for which random drug testing had been allowed that a “reasonable jury would conclude” that Krieg was a safety-sensitive employee.174 The Seventh Circuit cited first to appellate level cases from other circuits about random drug testing in the aviation, rail, highway, and water transportation industries, listing some of the employees covered in these industries’ testing regimes.175 However, it did not mention any similarities between the positions covered in those cases and Krieg’s position as the operator of several types of heavy equipment, such as a one-ton dump truck, a dump truck with a plow, a front end loader, and a backhoe.176 The court then looked to two federal district court cases and to a Michigan Supreme Court case, each of which involved heavy equipment operators of some kind.177 Based on these cases, the Seventh Circuit claimed that “[a] number of courts” agree that heavy
173 Krieg v. Seybold, 481 F.3d 512, 517 (7th Cir. 2007) (quoting Skinner, 489 U.S. at 628) (bracketed material in original). 174 Id. at 518. 175 Bluestein v. Dep’t of Transp., 908 F.2d 451 (9th Cir. 1990); Am. Fed’n Gov’t Employees v. Skinner, 885 F.2d 884 (D.C. Cir. 1989). These cases are immediately distinguishable from the situation in Krieg because, like Skinner, they involved testing regimes created by regulations or official orders that limited the scope and circumstances of each drug test. Bluestein, 908 F.2d at 453; Am. Fed’n Gov’t Employees, 885 F.2d at 886-88. 176 See Krieg, 481 F.3d at 518. 177 Id. (citing Am. Fed’n Gov’t Employees v. Cheney, Nos. C-88-3823-DLJ, C-89-4112-DLJ, C-89-4443-DLJ, 1992 WL 403388 (N.D. Cal. Aug. 14, 1992); Plane v. United States, 796 F. Supp. 1070 (W.D. Mich. 1992); Middlebrooks v. Wayne County, 521 N.W.2d 774 (Mich. 1994)).
398 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 equipment operators can create a threat to safety that is sufficient under Skinner.178 The court next looked to federal district court cases in which public employees’ positions were not safety-sensitive.179Two of those cases held that workers such as mail van and shuttle bus drivers did not satisfy the Skinner test. Krieg’s job was safety-sensitive because Krieg operated equipment that was “larger and more difficult to operate” than the equipment in those cases.180 The fact that he did not operate this equipment in a rural area away from other vehicles and pedestrians added to the safety-sensitive nature of Krieg’s job.181 The first case the Krieg court relied upon was American Federation of Government Employees v. Cheney, an unpublished case from the United States District Court for the Northern District of California.182 In Cheney, civilian employees of the Navy challenged the Navy’s Drug-Free Workplace Plan, which was created in compliance with President Reagan’s Executive Order requiring all federal agencies to create programs to eliminate drugs from their workplace.183 The Navy’s program included random testing for certain categories of employees.184 All employees were subject to testing in the aftermath of an accident and to testing based on individualized suspicion.185 The Cheney court asserted that, in addition to balancing private interests against governmental interests in order to determine whether random drug testing was permissible, a court must also find that “there
178 Id. 179 Id. (citing Burka v. N.Y. City Transit Auth., 751 F. Supp. 441, 443-44 (S.D.N.Y. 1990); Nat’l Treasury Employees Union v. Watkins, 722 F. Supp. 766, 770 (D.D.C. 1989); Nat’l Treasury Employees Union v. Lyng, 706 F. Supp. 934, 947 (D.D.C. 1988)). 180 Id. (referring to Watkins and Lyng). 181 Id. 182 Am. Fed’n Gov’t Employees v. Cheney, Nos. C-88-3823-DLJ, C-89-4112- DLJ, C-89-4443-DLJ, 1992 WL 403388 (N.D. Cal. Aug. 14, 1992). 183 Id. at *1. 184 Id. 185 Id.
399 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 is a clear, direct nexus between the nature of the employee’s duties and the compelling governmental interest articulated by the government.”186 Throughout its opinion, the court emphasized that jobs that were “no more dangerous” than “traditional blue-collar tasks” would not raise safety concerns of the “significant level” required to justify a suspicionless search.187 On a motion for summary judgment, the court held that the government had not shown that the duties of forklift operators, tractor operators, road sweeper operators, and engineering equipment operators had a sufficient nexus to its interest in safety.188 Instead, among those challenged, the only category of employees from the “Transportation Mobile Equipment Operators Family” of employees that did have the requisite nexus to safety was crane operators.189 Unlike the other types of heavy equipment operators, crane operators lifted large loads above the ground, creating an opportunity for true disaster.190 By contrast, the other operators did not create exceptional safety concerns because they drove their vehicles at “slower speeds than automobiles” and normally did not drive on public roads.191Thus, the court granted the plaintiffs’ motion for summary judgment as to all of the mobile equipment operators except for the crane operators.192
186 Id. at *2. 187 Id. at **11-12. Most pipefitters, riggers, and shipwrights performed tasks that were no more dangerous than ordinary blue-collar work. Id. The court emphasized elsewhere in its opinion that “[w]ork with machinery does not automatically carry with it the risk of unpredictable catastrophic accidents.” Id. at *12. In all, the court analyzed thirteen different “families” of positions within the Navy’s civilian workforce; these families were grouped by duties and were titled “plumbing family,” “metal work family,” “electrician work group,” and the like. The court held that eight of these families were not safety-sensitive or were defined in a manner that included too many non-safety-sensitive workers. Three families were safety-sensitive. The court parsed the remaining two families, holding that some positions within those families were safety-sensitive and others were not. 188 Id. at *13. 189 Id. at **13-14. 190 Id. at *13. 191 Id. 192 Id. at *14.
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The next case Krieg relied upon was Plane v. United States, from the United States District Court for the Western District of Michigan.193 In that case, civilian employees of the Defense Logistics Agency sought summary judgment in their challenge of that agency’s Drug-Free Workplace Plan, which required certain groups of employees to undergo random drug testing.194 These employees included forklift operators, tractor operators, engineering operators, and crane operators.195 In holding that the duties of these employees presented a sufficient nexus to the government’s safety concern, the court emphasized that the jobs at issue involved using heavy equipment to lift and move thousands of pounds to heights ranging from fourteen to fifty feet, and that some of the positions involved operating cutting torches near “fuel cells and other hazardous devices.”196 The court then held that the dangers to safety that these jobs presented were sufficient to justify random drug testing.197 The court did not explain why the magnitude of these harms was “disastrous” within the meaning of Skinner; it only explained that the harms that could result were “immediate.”198 Finally, the Krieg court drew support from Middlebrooks v. Wayne County, in the Supreme Court of Michigan,199 for its claim that heavy equipment operators can create safety risks that are sufficient under
193 Plane v. United States, 796 F. Supp. 1070 (W.D. Mich. 1992). 194 Id. at 1070-71. 195 Id. at 1075. 196 Id. at 1075-76. Forklift operators might lift up to 10,000 pounds, tractor operators tow trailers through narrow passages and other difficult to navigate spaces and thus must make sure that all couplings are secure and that speed, clearance, and weight limitations are observed, crane operators lift up to 50 tons, engineering operators operate the cutting torches, and some of these jobs also involve operating a bulldozer. Id. 197 Id. at 1077. Operators could drop their loads onto a fellow employee, hazardous materials could be released by a cutting torch accident, trailers towed by a tractor could tip over while navigating a narrow passage, equipment operators may back over someone while not looking, etc. Id. 198 See id. (concluding that the harms were “immediate” and deciding, without reasoning, that they were “quite significant”). 199 521 N.W.2d 774 (Mich. 1994).
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Skinner to justify testing without individualized suspicion. The holding in Middlebrooks provides the strongest support for the conclusion that Krieg’s job was safety-sensitive, because the plaintiff in Middlebrooks operated several of the same kinds of machines that Krieg operated. There, the plaintiff was an applicant for a position with the Wayne County Road Commission that would require him to operate “a riding lawn mower on highway medians and embankments,” to drive “dump trucks carrying equipment” between road commission work sites and repair facilities, and to operate a front end loader.200 The court emphasized that the safety risks involved in the job for which Mr. Middlebrooks applied were more significant than those inherent in the operation of motor vehicles by the general public, because he would be operating this heavy equipment on the medians and embankments of roads designed for cars, vans, and trucks traveling at high rates of speed.201 The court balanced these safety concerns against the diminished expectation of privacy that occurred when Mr. Middlebrooks applied for a job that he knew required drug testing—and when he, in fact, consented to the test.202 It then concluded that it was appropriate to dismiss the plaintiff’s claim that Wayne County violated his Fourth Amendment rights when it tested his urine for illegal drugs.203 In Middlebrooks, the court recognized that federal courts have not uniformly agreed that heavy equipment operation creates a safety risk of sufficient magnitude to justify drug testing without individualized suspicion, under the Skinner standard.204 The Middlebrooks court lengthens its list of courts that have held in favor of testing heavy equipment operators by including cases regarding drivers of passenger
200 Id. at 775. 201 Id. at 779-80. 202 Id. at 778-80. 203 Id. at 779. 204 Id. at 778-79.
402 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 vehicles, but the authority that it cites directly is limited to two cases—one of which is the Plane case discussed above.205 Therefore, the cases on which the Seventh Circuit relied to conclude that Krieg’s position was safety-sensitive within the meaning of Skinner reveal only the following: First, one district court has held that most heavy equipment operators fall outside the “safety-sensitive” designation, but that crane operators fall within that title because they lift heavy loads high in the air.206 Second, another district court held that several heavy equipment operators created safety risks that were “immediate” because they lifted heavy loads high in the air, moved heavy loads through difficult-to-manage passages, or operated cutting torches near explosive devices.207 Third, a state court held that operating certain kinds of heavy equipment—the same kinds that Krieg operated—on highway medians or on highways created a safety risk within the meaning of Skinner.208 And finally, lower federal courts overall have been divided about whether heavy equipment operation is a safety-sensitive task within the meaning of Skinner.209 All together, these cases do not justify the Seventh Circuit in resting on a simple assertion that courts have “upheld drug testing of heavy equipment operators” and have limited the groups that can be drug tested by excluding persons who drive mail vans and shuttle busses.210 Thus, the Seventh Circuit’s decision to include Krieg within the class of safety-sensitive employees was neither required by precedent nor supported by uniform persuasive authority. The Seventh Circuit announced its agreement with a rule that heavy equipment operators are safety-sensitive employees within the meaning of Skinner without ever addressing the fact that persuasive authorities were divided about whether they should be.
205 Id. at 779 nn.25, 26. 206 See Am. Fed’n Gov’t Employees v. Cheney, Nos. C-88-3823-DLJ, C-89- 4112-DLJ, C-89-4443-DLJ, 1992 WL 403388 (N.D. Cal. Aug. 14, 1992). 207 See Plane v. United States, 796 F. Supp. 1070 (W.D. Mich. 1992). 208 See Middlebrooks, 521 N.W.2d 774. 209 See id. 210 Krieg v. Seybold, 481 F.3d 512, 518 (7th Cir. 2007).
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2. The Seventh Circuit’s Broad Interpretation of Skinner Will Have Widespread Effect
Because the Seventh Circuit employed a broader application of the Skinner concept of safety-sensitive employees than did some federal courts, it should have explained why it was adopting the broader view. Beyond the need for reasoned judicial opinions, this failure on the part of the court is particularly severe because the effect of this application was to create a bright line rule211 excepting a large number of public employees from a constitutionally-required protection. While not every blue-collar worker operates heavy machinery, the Seventh Circuit makes clear in Krieg that blue-collar workers other than heavy equipment operators have safety-sensitive positions as well. The court lists, as representatives of some of the other groups of safety-sensitive employees, workers in the aviation, rail, highway, and water transportation industries.212 Blue-collar workers account for approximately 245,000 of the federal government’s 1.75 million employees.213 That is about 14% of the federal workforce. Add to these all of the blue-collar workers employed by State and local governments, and the result is a sizable portion of the public workforce. While there are many instances in which members of the public will be subject to suspicionless searches of some kind—such as airport screenings and business inspections—each of these exceptions has
211 See supra Part II. 212 Krieg, 481 F.3d at 518. 213 Am. Fed’n of Gov’t Employees, AFGE At A Glance, http://www.afge.org/ Index.cfm?Page=AFGEFacts (last visited Dec. 6, 2007); Stephen Barr, Eagerly Anticipated Raises for Blue-Collar Workers Are a Tangle, WASH. POST, Mar. 10, 2004, at B02, available at http://www.washingtonpost.com/ac2/wp-dyn/A44771- 2004Mar9?language=printer.
404 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 been the result of significant discussion on the part of the courts.214 Each has its own narrowly drawn limits and each expansion of such exception is in effect “tampering with the scales of justice” in an area of law in which a “citizen’s interest in freedom” is supposed to be given additional weight.215 The Seventh Circuit incorrectly interpreted the limits of the exception for workplace drug testing by removing any weight on the side of a requirement of individualized suspicion.216 Theoretically problematic on its own, this mistake became disastrous when the court additionally held, without adequate explanation, that large numbers of ordinary blue-collar workers are subject to that exception. This failure is particularly troublesome because one of the three cases on which the Seventh Circuit relied makes clear that the safety exception should not be construed in a manner that will encompass ordinary blue-collar workers.217
B. A Lost Incentive for Non-Governmental Input and for Less Intrusive Means
Even if it was appropriate for the Seventh Circuit to expand the safety exception in this way, it is not at all clear that this expansion is desirable. This is because the policies underlying the Fourth Amendment favor the encouragement of methods whereby government agents seek input from the public or from the targets of searches before conducting those searches. For example, one purpose of the Fourth Amendment is to protect citizens against intrusions on their privacy where those intrusions are
214 See supra Part I for an introduction to these exceptions. See also Mich. Dep’t of State Police v. Sitz, 496 U.S. 444, 449-50 (1990) (safety-based checkpoint stops rely on different precedent than do safety-based workplace drug tests). 215 See Sitz, 496 U.S. at 473 (Stevens, J., dissenting). 216 See supra Part II. 217 Am. Fed’n Gov’t Employees v. Cheney, Nos. C-88-3823-DLJ, C-89-4112- DLJ, C-89-4443-DLJ, 1992 WL 403388, **11-12 (N.D. Cal. Aug. 14, 1992).
405 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 not justified at the outset by some legitimate governmental interest.218 This purpose is better served when unreasonable searches are prevented than when such searches are merely punished or stopped.219 Input from the public or from the intended subjects of a search could help government bodies become aware of potential problems with their intended drug testing programs. For example, there might be reasons why a particular group should be excluded from testing220 or why a particular collection protocol is worrisome. Discovering these problems before the testing program is implemented could both decrease the need for litigation and promote the Fourth Amendment policy of preventing unnecessary intrusion. Public input also serves the purpose that underlies the warrant requirement: ensuring that a neutral body determines the scope of the justified intrusion by describing the persons, places, and things to be affected.221 If the government and the individuals to be affected discuss these terms before a testing program is implemented, then they can potentially reach an agreement about what kind of testing program is reasonable. This might include not only the time, place, and persons involved, but could also include a discussion of less intrusive alternatives to random testing. This agreement may not be “neutral,” but it will represent both interested parties rather than only one. Clearly, the Fourth Amendment does not require such input. However, input of this kind promotes the interests that underlie the law.
218 See, e.g., Terry v. Ohio, 392 U.S. 1, 9 (1968) (“No right is held more sacred, or is more carefully guarded, by the common law, than the right of every individual to the possession and control of his own person, free from all restraint or interference of others, unless by clear and unquestionable authority of law.” (quoting Union Pac. R. Co. v. Botsford, 141 U.S. 250, 251 (1891))). 219 See Mapp v. Ohio, 367 U.S. 643, 648 (1961) (discussing the need for a “deterrent safeguard” to protect the Fourth Amendment), abrogated in part by United States v. Leon, 468 U.S. 897 (1984). 220 See Nat’l Treasury Employees Union v. Von Raab, 489 U.S. 656, 677-78 (1989) (upholding a testing program with regard to one group of Customs Service employees but remanding for further information as to the need for testing all employees in a separate group). 221 Skinner v. Railway Labor Executives’ Ass’n, 489 U.S. 602, 621-22 (1989).
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The City of Marion apparently believed that there was some benefit to receiving input from the workers of the Department of Streets and Sanitation about the City’s drug testing policy. The City had bargained with the union representing those employees and signed a collective bargaining agreement that allowed the City to test workers for drugs after accidents and upon reasonable suspicion.222 Further, the parties had negotiated a personnel handbook that allowed the City to test “safety-sensitive” employees—those who held a commercial driver’s license or operated commercial motor vehicles—on a random basis.223 Nonetheless, the City unilaterally adopted a new handbook that re-defined “safety-sensitive” employees to include all employees with duties “related to the safe operation of City equipment.”224 The union and the employees represented by it refused to agree to these terms, but the City implemented them anyway.225 Krieg fell within this new category of safety-sensitive employees.226 Therefore, in essence, Krieg’s termination and subsequent lawsuit was the result of the City’s decision to back out of the deal that it had made with its employees about what kinds of searches were permissible. Does the Fourth Amendment provide redress for such bad behavior? Of course not. But when the City chose to bargain with the employees, it obtained their consent227 before conducting an intrusive
222 Krieg v. Seybold, 481 F.3d 512, 514-15 (7th Cir. 2007). 223 Id. at 515. 224 Id. 225 Id. 226 Id. at 515-16. 227 Here, the author uses this term “consent” in its more colloquial sense. Krieg argued that because Indiana unions do not have the benefit of certain public employee collective bargaining laws available in other states, the union in this case could not have waived his Fourth Amendment right to be free from unreasonable searches even if it had agreed to random drug testing of non-CDL holders. Nonetheless, Krieg agreed that some unions do have the power to waive employees’ rights. See Reply Brief of Plaintiffs-Appellants, Robert Krieg and American Federation of State, County, and Municipal Employees, Local 3063, 2006 WL 3098735, at **14-17, Krieg v. Seybold, 481 F.3d 512 (7th Cir. 2007).
407 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 search. When it unilaterally adopted a different policy with regard to such searches, the result was that employees felt—correctly or incorrectly—that the intrusion was unjustified.228 By condoning the City’s behavior in the Krieg case, the Seventh Circuit has diminished the incentive for the City to bargain in the future. If the City can implement a random drug testing program without showing that it is the only workable way to address its safety concerns, then it will have little incentive to engage in the lengthy and costly process of bargaining with its employees about whether and to what extent such a program is necessary. Where before the City sought the union’s input into which employees should be subject to random testing, it has now been told that it need not bother.
CONCLUSION
The Seventh Circuit’s decision to consider Krieg a safety- sensitive employee was not wrong. However, because the Seventh Circuit incorrectly asserted that safety-sensitive employees can be subject to suspicionless drug testing as long as the interests promoted by the testing program outweigh the employees’ privacy interests, the overall result of the court’s decision in Krieg was problematic. First, it misconstrues Supreme Court precedent in a way that confuses the context of a public workplace with that of a public school. This confusion created a bright line rule in an area where the Supreme Court has required a fact-sensitive inquiry. Second, the result of this confusion was that the court failed to inquire whether departure from the Fourth Amendment requirement of individualized suspicion was
228 This effect can be seen in Krieg’s reaction to the unannounced drug test that precipitated this lawsuit. Krieg first refused to submit to the test, and then immediately tried to call his union attorney. Krieg, 481 F.3d at 515-16. One can infer that Krieg did not believe that the City was permitted to test him in the manner it was asserting that it could. As a result, the City had to resort to threats to call police before Krieg would leave the premises. Id. If the City had resolved its differences with its employees through bargaining, then Krieg would have known that whatever options his boss presented to him were the same options that he would hear from his union representative. If nothing else, this would have the value of reassuring Krieg that he was not being unfairly singled-out or otherwise mistreated.
408 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 justified by the safety concerns that the City of Marion raised. Third, this failure undermines incentives for bargaining with public employees with regard to the conditions that will trigger drug testing. Such bargaining is desirable because it promotes the goals of the Fourth Amendment itself. Because when the court labeled Krieg a safety-sensitive employee it did not include a principled reason to distinguish him from other heavy equipment operators or from large numbers of other kinds of blue-collar workers, these problematic results will be far-reaching in effect, if the Seventh Circuit does not remedy its mistakes.
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IJ BIAS: THE CONTAMINATION THEORY
∗ MICHAEL YEONG JOON KO
Cite as Michael Y. Ko, IJ Bias: The Contamination Theory, 3 Seventh Circuit Rev. 410 (2007), at http://www.kentlaw.edu/7cr/v3-1/ko.pdf.
INTRODUCTION
At her removal hearing, Afi Marie Apouviepseakoda testified about the day when soldiers came to her house in Togo, looking for her husband.1 Through an interpreter, she told the Immigration Judge (“IJ”) about how soldiers ransacked her home, searched the place, and confiscated personal documents and photos of her husband.2 They were looking for her husband.3 And when Afi Marie could not tell the soldiers where her husband was, the soldiers beat Afi Marie with their fists and their batons for thirty minutes.4 The blows put her into a hospital for ten days and made her brain swell. 5 Afterwards, Afi Marie recovered from her wounds, left the hospital, and took her children to her mother's home in a different part of Togo.6 From there, Afi Marie and her children fled to neighboring Ghana and then to the United States.7 After six months in the States,
∗ J.D. candidate, May 2008, Chicago-Kent College of Law, Illinois Institute of Technology. 1 Apouviepseakoda v. Gonzales, 475 F.3d 881, 883 (7th Cir. 2007). 2 Id. 3 Id. 4 Id. 5 Id. at 895 (Posner, J., dissenting). 6 Id. at 884 (majority opinion). 7 Id.
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Afi Marie returned to Togo. Alone.8 She went to secure money and to find her husband, whom she believed was in hiding in Ghana.9 Afi Marie's husband was a businessman in Togo.10 He was friends with the mayor and held city contracts in waste disposal.11 He first went into hiding when the mayor of Lome, the capital of Togo, had been arrested and jailed.12 The mayor was a member of the opposition political party, and the government became interested in Afi Marie's husband because he was a known supporter and friend of the mayor.13 When he learned that the government was sending soldiers after him, Afi Marie's husband fled.14 When Afi Marie went to look for her husband, she was able to enter Togo with the help of a friend who was a lieutenant in the army.15 Upon her arrival into Togo, a warrant was issued for Afi Marie's arrest.16 Six days later, a second warrant for her arrest was issued.17 Three days after that, a summons was issued requiring Afi Marie's appearance before the police.18 During that time, Afi Marie stayed at her mother's house.19 She was able to raise some money for herself and her children, but she was not able to find any information on the whereabouts or well-being of her husband.20 Afi Marie once again enlisted the help of her friend in
8 Id. 9 Id. 10 Id. at 883. 11 Id. 12 Id. 13 Id. 14 Id. at 883. 15 Id. at 884. 16 Id. 17 Id. 18 Id. 19 Id. 20 Id.
411 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the military to help her back out of the country.21 She returned to the United States, this time to Chicago, where she sought asylum.22 This is the story that Afi Marie began to tell during her removal hearing. But before she could get very far in this explanation, the IJ told her:
[Y]ou have to speak up so I can hear your voice. Today passiveness and demureness is not the regiment [sic] of the day. Today aggressiveness and loudness is [sic] the regiment [sic] of the day and you can even scream at the Court. I will not take offense to that, but I want to hear your voice. So, if you force me repeatedly to ask you to raise your voice I will not be pleased. And also might indicate the posture of your case as well. If you’re really strong in your convictions you’ll express it in a strong manner. If your answers are weak the Court may believe that you’re [sic] claim is also weak so conduct yourself accordingly.23
Then, at the end of her hearing, the IJ denied Afi Marie’s asylum application on the basis of an adverse credibility determination.24 The IJ held that Afi Marie was simply not believable.25 Central to asylum law is the simple premise that a refugee's testimony, in and of itself, can be enough to show eligibility.26 The rationale is based upon the fact that refugees come from places where documentation is difficult to obtain, where governments are corrupt or
21 Id. 22 Id. 23 Id. at 897 (Posner, J., dissenting) (quoting IJ’s statement during the asylum hearing). 24 Id. at 884 (majority opinion). 25 See Id. 26 See Georgis v. Ashcroft, 328 F.3d 962, 969 (7th Cir. 2003) (citing 8 C.F.R. § 208.13(a) (2007)).
412 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 ineffective, and where the refugee's life is in immediate peril.27 Under such circumstances, it is simply illogical to require, in addition to escaping with one's life, that the refugee also escape with incontrovertible documentary proof. In a perfect world, we would be able to take the asylum applicants at their word, and we would not have to worry about credibility. But taking the applicants at their word is difficult. The benefits of asylum are numerous, 28 and this creates a substantial incentive to lie.29 Sitting as the gatekeeper to asylum is the Immigration Judge. The IJ is tasked with serving the traditional role of the judge in an adversarial proceeding.30 The IJ is also responsible for ensuring that the record is fully developed for each asylum applicant.31 Although this dual role may benefit the applicant, it also creates a potential problem. IJs are only human, and might exhibit bias against the asylum applicant. In a traditional jury trial, bias might not be problematic, as the trial judge’s ability to participate is limited. However, because the IJ is acting as both fact-finder and advocate, the risk that bias may compromise a decision is magnified. This note will argue that, where the IJ makes an adverse credibility determination,
27 “Indeed, we frequently have acknowledged that it is unreasonable to expect asylum applicants to procure corroborating documents when official records are ‘in disarray,’ either because of war, revolution or simply lack of institutional regularity.” Korniejew v. Ashcroft, 371 F.3d 377, 387 (7th Cir. 2004). 28 8 U.S.C. §1158(c)(1) (2006) states: In the case of an alien granted asylum under subsection (b) of this section, the Attorney General (A) shall not remove or return the alien to the alien's country of nationality or, in the case of a person having no nationality, the country of the alien's last habitual residence; (B) shall authorize the alien to engage in employment in the United States and provide the alien with appropriate endorsement of that authorization; and (C) may allow the alien to travel abroad with the prior consent of the Attorney General. 29 See Apouviepseakoda, 475 F.3d at 892. 30 8 U.S.C. §1229a(b)(1) (2006); 8 C.F.R. §1240.1(c) (2007). 31 See 8 U.S.C. §1229a(b)(1).
413 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 courts should apply a contamination theory that calls for remand where the IJ exhibits bias. In Part I, I will discuss the critical role of the Immigration Judge in asylum proceedings. In Part II, I will discuss the case of Apouviepseakoda v. Gonzales. In Part III, I will discuss how a contamination theory of IJ bias will better achieve the goals of asylum law.
I. IMMIGRATION JUDGES AND THE ASYLUM PROCESS
The realities of removal hearings make it difficult to determine whether an asylum applicant satisfies these requirements of past persecution or reasonable fear of future persecution. Asylum applicants almost always need the aid of an interpreter. They will frequently be unable to obtain direct documentary proof.32 Furthermore, asylum applicants frequently arrive from countries with customs and cultures that are very different from what the IJs will be familiar with.33 This is what the IJ must deal with on a daily basis.
A. The role of the IJ
For the most part, the IJ functions as any other judge.34 The IJ directs discovery, hears motions, conducts case management, and controls the removal hearing.35 However, in the immigration court system, the IJ takes on responsibilities that are permissible because of the fact that it is an administrative court. The IJ is also charged with ensuring that the parties can fully develop the record.36 An IJ may
32 Capric v. Ashcroft, 355 F.3d 1075, 1085 (7th Cir. 2004) (“direct authentication or verification of an alien’s testimony and/or evidence is typically very difficult and often impossible”). 33 Apouviepseakoda, 475 F.3d 897 (Posner, J., dissenting). 34 8 C.F.R. §1240.1(c). 35 8 U.S.C. §1229a(b)(1). 36 Giday v. Gonzales, 434 F.3d 543, 549 (7th Cir. 2006) (citing Hasanaj v. Ashcroft, 381 F.3d 687, 701 (7th Cir. 2004), for the proposition that the IJ has an obligation to establish the record).
414 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 question a witness, and it does not necessarily matter if the IJ asks more questions than either party’s counsel.37 The IJ need only avoid exhibiting "impatience, hostility, or a predisposition" against the asylum applicant.38 In addition, the IJ can bar evidence or testimony if it would be irrelevant, unreliable, duplicative, or otherwise a waste of judicial time.39 The only limit to this discretion is that the judge should not bar whole chunks of the applicant's case.40
B. Asylum: An Overview
To be eligible for asylum, the applicant must be a refugee.41 As defined by statute, a refugee is one who is unable or unwilling to return to their country due to persecution or a well-founded fear of persecution.42 Persecution is described as actions that are distinguished from mere harassment, even if such harassment would be unfair, unjust, unlawful, or unconstitutional.43 To show that she has been persecuted, an applicant must show that she has suffered harm such as, “detention, arrest, interrogation, prosecution, imprisonment, illegal searches, confiscation of property, surveillance, beatings, or torture” inflicted for political or religious reasons.44
37 Apouviepseakoda, 475 F.3d at 887. 38 Huang v. Gonzales, 403 F.3d 945,948 (7th Cir. 2005). 39 Apouviepseakoda, 475 F.3d at 887. 40 Kerciku v. INS, 314 F.3d 913, 918 (7th Cir. 2003). 41 8 U.S.C. § 1158(b)(l) (2006). 42 8 U.S.C. § 1101(a)(42)(A) (2006). 43 Firmansjah v. Gonzales, 424 F.3d 598, 605 (7th Cir. 2005). 44 Id. (quoting Toptchev v. I.N.S., 295 F.3d 714,720 (7th Cir. 2002) (internal quotations omitted)). Many of the asylum cases that reach the Seventh Circuit require the court to place the harm that the asylum applicant suffers on a point on that persecution spectrum. This has lead to what seems to be comparison of evils in terms of what degree of harm inflicted that it will take to be granted asylum. For example, in reversing an IJ’s determination that the harm suffered did not rise to the level of persecution, the court in Tchemkou v. Gonzales, 495 F.3d 785, 791-792 (7th Cir. 2007) cited the following examples: See, e.g., Gomes v. Gonzales, 473 F.3d 746, 754 (7th Cir. 2007) (reversing agency finding of no persecution where petitioner had
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In the alternative, an applicant can obtain asylum where she can show a well-founded fear of persecution.45 In such a case, the asylum applicant needs to show that her fear of future persecution is subjectively and objectively reasonable.46 The subjective component is satisfied via credibility determination that the applicant possesses actual fear.47 The objective component is satisfied by showing “credible, direct and specific evidence in the record of facts that would support a reasonable fear that the petitioner faces persecution.”48 If the asylum applicant’s claim is rejected, the asylum applicant may appeal to another administrative court, the applicant may make file a motion to reopen or a motion to reconsider.49 Motions to reopen are will be granted where the asylum applicant is aware of new material facts or evidence that was not reasonably available at the time
been beaten, had his home invaded and had been threatened, and noting that “[t]here is no requirement ... that a person must endure repeated beatings and physical torment in order to establish past persecution”); Soumahoro v. Gonzales, 415 F.3d 732, 737 (7th Cir. 2005) (holding that imprisonment for two weeks, during which time petitioner was beaten, denied adequate food and water, and had salt rubbed in his wounds, constituted past persecution); Vaduva v. INS, 131 F.3d 689, 690 (7th Cir. 1997) (noting that “the Board reasonably concluded Vaduva ... suffered at least one instance of political persecution” when “he was beaten up (he was punched, his face bruised, and his finger broken) by strangers who told him to stay away from the pro-democratic forces in the country”). Tchemkou, 495 F.3d at 791-792. 45 8 U.S.C. § 1158(b)(1)(B)(i) (2006); 8 U.S.C. § 1101(a)(42)(A); 8 C.F.R. 1208.16(b)(2) (2007). 46 INS v. Cardoza-Fonseca, 480 U.S. 421,430-31 (1987); Liu v. Ashcroft, 380 F.3d 307, 312 (7th Cir 2004). 47 Liu, 380 F.3d at 313. 48 Id. (quoting Ahmad v. INS, 163 F.3d 457, 461 (7th Cir. 1999) (citations omitted)). 49 8 C.F.R. §1003.23(b)(1) (2007).
416 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 of the initial removal hearing.50 Motions to reconsider will be granted where the IJ has made errors of law or fact.51 The denied asylum applicant may also file an appeal of the IJ’s decision with the Board of Immigration Appeals (“BIA”).52 Asylum applicants may appeal to these three-member panels as a matter of right.53 If the BIA affirms the IJ’s denial, the asylum applicant then can take her appeal outside of the administrative system by filing a petition for review in the relevant Circuit Court of Appeals.54
C. IJ Bias
On appeal, IJ bias can be attacked in two ways. First, where the application is denied on the merits of the claim, the applicant may challenge the IJ’s behavior as denying due process.55 Aliens must be given “a reasonable opportunity to examine the evidence against the alien, to present evidence on the alien's own behalf, and to cross- examine witnesses presented by the Government.”56A petition for review may be granted where the applicant is denied a “full and fair opportunity to put on [their] case.”57 Ultimately, the question is whether the asylum applicant had a full and fair opportunity to present her case.58 Similarly, if by asking questions to the applicant, an IJ
50 Id. at (b)(3). 51 Id. at (b)(2). 52 8 C.F.R. § 1003.38(a) (2007). 53 See id.; 8 C.F.R. §1003.1(a)(3) (2007). 54 8 U.S.C. §1251(a)(1), (b)(2) (2006). 55 See Reno v. Flores, 507 U.S. 292, 306 (1993); Floroiu v. Gonzales, 481 F.3d 970, 973 (7th Cir. 2007). 56 8 U.S.C. §1229a(b)(4)(B) (2006). 57 Floriou, 481 F.3d at 974 (quoting Giday v. Gonzales, 434 F.3d 543, 548 (7th Cir. 2006)). 58 Rodriguez Galicia v. Gonzales, 422 F.3d 529, 538 (7th Cir. 2005).
417 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 begins to act as if the IJ were an attorney for the government, the petition for review should be granted.59 Second, if the IJ denies the application on the basis of an adverse credibility determination, the asylum applicant can challenge IJ bias by challenging the adverse credibility determination itself. In making an adverse credibility determination, the IJ may rely upon inconsistencies between documents in the record or the testimony of the asylum applicant.60 However, to support an adverse credibility determination, an inconsistency in the testimony must be substantial, and it must constitute a linchpin of the asylum claim.61 The adverse credibility determination is not necessarily fatal to an asylum applicant’s claim. An applicant can rehabilitate her claims by providing corroborating evidence.62 However, because documentary evidence may simply not be available for certain types of injuries or from certain countries, the IJ must explain why it would be reasonable to expect the corroborating evidence before the IJ can penalize the applicant for failing to provide it.63 Thus, if the asylum applicant is unable to produce the required corroborating evidence, the IJ must allow the asylum applicant to explain that failure.64 Where the IJ does not accept the applicant's explanation, the IJ must state a specific reason why the failure to produce is unacceptable.65
59 Id. at 538-39. See Elias v. Gonzales, 490 F.3d 444, 451 (6th Cir. 2007) (“An immigration judge has a responsibility to function as a neutral, impartial arbiter and must refrain from taking on the role of advocate for either party.”). 60 Korniejew v. Ashcroft, 371 F.3d 377, 382-83 (7th Cir. 2004).. 61 See id. at 383-384. 62 Gontcharova v. Ashcroft, 384 F.3d 873, 877 (7th Cir. 2004). 63 Id. 64 Id. at 877. 65 Id.
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II. APOUVIEPSEAKODA V. GONZALES
The IJ denied Afi Marie's request for asylum and ordered Afi Marie removed to Togo.66 The BIA summarily affirmed the decision.67 Afi Marie filed her petition for review with the Seventh Circuit.
A. The Immigration Court
In addition to her testimony, Afi Marie brought a medical certificate issued at the time of her hospitalization, as well as some photos that were taken at the hospital.68 Other documents submitted included two arrests warrants issued against Afi Marie by the Togolese government; her membership card to the opposition party; letters from the opposition party’s First Vice President, her father, and her cousins; and country reports issued by the State Department and Amnesty International.69 She also brought two witnesses: her daughter and a family friend who had fled Togo in 1996.70 Nevertheless, the IJ made an adverse credibility determination against Afi Marie at the end of her removal hearing and found that her proffered documentary evidence did not sufficiently corroborate her claims.71 The IJ did not reach the merits of Afi Marie’s claims and did not analyze whether Afi Marie would have qualified for asylum if her story were believable.
66 Apouviepseakoda v. Gonzales, 475 F.3d 881, 884 (7th Cir. 2007). 67 Id. at 883. 68 Id. at 890. 69 Decision of the Immigration Judge at 3, In the Matter of Afi Marie Apouviepseakoda, Immigration Court, Chicago, Illinois, (June 14, 2004) (File: A78- 863-025), available at www.ca7.uscourts.gov (follow “Briefs” link, search for case No. 05-3752, follow “05-3752” link, follow “05-3752_002.pdf” link). 70 Brief of Petitioner at 20, Apouviepseakoda v. Gonzales, 475 F.3d 881 (7th Cir. 2007) (No. 05-3752), available at www.ca7.uscourts.gov (follow “Briefs” link, search for case No. 05-3752, follow “05-3752” link, follow “05-3752_001.pdf” link). 71 Apouviepseakoda, 475 F.3d at 884.
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1. Adverse credibility determination
The IJ began by identifying six bases upon which he found Afi Marie’s testimony to be unbelievable.72 First, he found her explanation as to why she was being targeted to be “vague and unconvincing.”73 The IJ noted that Afi Marie claimed that the Togolese government was targeting her family because of her husband.74 Given that her husband was not directly supporting the opposition party but was merely supporting the mayor, who happened to be a member of the opposition party, the IJ thought that this was a tenuous basis for the government 75 to target her and her family. This tenuousness continued to be a concern in the second basis for the IJ’s adverse credibility determination. Surely, if Afi Marie truly were a card-carrying member of the opposition party, 76 the soldiers who came to her home would have taken her documents too, in addition to her husband’s. 77 The third basis for the IJ’s adverse credibility determination was his disbelief that Afi Marie was hospitalized for ten days.78 The medical certificate seemed to have inconsistent dates on it. Although it was dated on September 18, 2001, the document’s text indicated that Afi Marie would be discharged on the 28th.79 To the IJ, this indicated that the document seemed to know the future.80 In addition, the document was signed by “Dr. Theophile Fonkoue, M.D., Gynecology-
72 Decision of the Immigration Judge, supra note 69, at 8-10. 73 Id. at 8. 74 Id. 75 Id. 76 Id. at 11. 77 Id. at 8. 78 Id. 79 Id. 80 Id. at 8-9.
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Obstetrics-General Medicine.”81 The IJ found it inconsistent that Afi Marie would see a gynecologist, if she had actually been beaten. 82 The IJ next turned his attention to the photographs that Afi Marie had submitted.83 These photographs were taken by Afi Marie’s cousin, and they depicted Afi Marie in a medical facility.84 However, in the pictures, it did not look like Afi Marie had been beaten at all.85 Afi Marie’s face and arms did not seem to have any bruises or bandages on them, which the IJ presumably anticipated would have been there if Afi Marie had actually been beaten by soldiers for thirty minutes.86 In addition, most of Afi Marie’s body was covered in those pictures.87 Afi Marie was wearing a scarf covering her head, so any injuries that would have been visible on her head were not depicted in the pictures.88 The lack of visible injuries in the pictures only exacerbated an additional problem that the IJ saw with the photographs – they seemed to be dated incorrectly.89 They were all marked with what appeared to be a stamp of “03 4 16.”90 The IJ saw that this too was an inconsistency in Afi Marie’s testimony.91 She testified that she was beaten in 2001, but the photos that she submitted as proof of the resulting hospitalization did not seem to have been taken until 2003.92 The IJ reasoned that, if the photos were not taken during the
81 Id. at 9. 82 Id. 83 Id. 84 Id. 85 Id. 86 Id. 87 Id. 88 Id. 89 Id. 90 Id. at 5, note 11. 91 Id. at 9. 92 Id.
421 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 hospitalization as Afi Marie had claimed they were, this cast doubt onto whether Afi Marie was ever hospitalized at all.93 Fourth, the IJ questioned the fact that Afi Marie was able to travel safely back to Togo without being harmed or arrested. Typically, the concern with applicants who are able to return to the country they fled is that, if they were willing to return voluntarily, then the conditions they had previously fled might not have been that bad after all.94 Indeed, other cases have laid out this concern more explicitly.95 And in these cases, the conclusion drawn from the ability of a asylum applicant to return to safely travel to and from their home country, even if temporarily, is that the people who were persecuting the applicants either have lost interest in exacting further persecution or the harms that were previously inflicted were not that bad after all.96 The IJ in Apouviepseakoda was no exception, as the IJ expressed incredulity at the fact that Afi Marie was able to travel into and out of the country, despite the fact that warrants had been issued for her arrest.97 Afi Marie explained that she was able to do so with the help of a friend in the army.98 The IJ rejected this explanation in two parts. First, he noted that, although Afi Marie mentioned her return to Togo in her asylum application, this assistance of her military friend was omitted in her asylum application.99 But what really stood out to the IJ was the fact that Afi Marie took the time to go to the hospital.100 And
93 Id. 94 See Firmansjah v. Gonzales, 424 F.3d 598, 606-607 (7th Cir. 2005) (stating that, “We have recognized before that the absence of any evidence of harm to family members undermines an applicant’s claim of a fear of future persecution.”). 95 Recently, the Seventh Circuit stated in a non-precedential decision: “The fact that [the asylum applicant] has returned to [to her home country] several times since her encounter, and that both her family members and those of her husband still live there peacefully, undercuts her claim to fear returning.” Pupella v. Gonzales, 207 Fed.Appx. 683, 686 (7th Cir. 2006). 96 See id. 97 Apouviepseakoda v. Gonzales, 475 F.3d 881, 891 (7th Cir. 2007). 98 Id. 99 Id. 100 Id.
422 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 what's more, she went to the very same hospital in her hometown that had treated her for her post-beating injuries.101 Presumably, if Afi Marie really did fear persecution, she would have avoided the places that authorities would know to look for her. Fifth, the IJ found a testimonial inconsistency as to the whereabouts of her husband.102 She testified that her husband came to the United States on August 20, 2002, and the affidavit of a friend indicated that her husband was living with her in the States.103 However, her asylum application, which was submitted on August 22, 2002, stated that she had no idea where he was.104 Finally, the IJ found another consistency in the testimony that Afi Marie’s husband returned to Togo from neighboring Ghana to try and sell the radio station that he owned.105 The problem that the IJ had with this testimony is similar to the problem he had with Afi Marie’s ability to return to Togo.106 If Afi Marie, or her husband, was willing to go back to Togo for something as mundane as selling a radio station, then maybe the risks appurtenant were not all that bad.107
2. Corroborative evidence
Having made the adverse credibility determination, the IJ then evaluated whether any of the documentary evidence rehabilitated Afi Marie’s claim.108 The IJ began his analysis by evaluating the submitted photographs and medical record for a second time, again stating that the photos did not prove any injuries and seemed to be taken after the
101 Id. 102 Decision of the Immigration Judge at 9-10, In the Matter of Afi Marie Apouviepseakoda, Immigration Court, Chicago, Illinois, (June 14, 2004) (File: A78- 863-025), available at www.ca7.uscourts.gov (follow “Briefs” link, search for case No. 05-3752, follow “05-3752” link, follow “05-3752_002.pdf” link). 103 Id. at 10-11. 104 Id. 105 Id. at 10 106 Id. 107 Id. 108 Id.
423 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 dates Afi Marie claimed injury.109 On the second time around however, the IJ attributed another fault to the medical certificate, this time noting that it was suspicious that the document was signed by a consulting doctor.110 The IJ then evaluated other forms of corroborating evidence, none of which was sufficient to rehabilitate Afi Marie’s credibility.111 First, Afi Marie submitted two warrants issued by the Togolese government for her arrest.112 The IJ found the arrest warrants for Afi Marie issued by the Togolese government to be suspect because one of the warrants referred to Afi Marie as a “Mme” and the other referred to her as a “Mlle.”113 In addition, one of the arrest warrants was issued after she returned to Togo, but it did not seem to affect her ability to leave using her own passport.114 The IJ then proceeded to give similarly brief analysis to the rest of Afi Marie’s documents. The IJ did not give any weight to Afi Marie’s membership in the opposition political party because, although she submitted a membership card, there was no indication on the card that Afi Marie was a dues-paying member.115 Similarly, the IJ declined to give much weight to the letters from the opposition political party’s First Vice President because it did not mention the fact that Afi Marie was beaten or that Afi Marie’s husband had contributed to the party.116 The letter written by her father suffered the same shortcoming in the eyes of the IJ.117 It, too, failed to mention Afi Marie’s 2001 beating.118
109 Id. at 11. 110 Id. at 8. 111 Id. 11-12. 112 Id. at 11. 113 Id. 114 Id. 115 Id. 116 Id. 117 Id. 118 Id.
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The affidavit of a friend who knew Afi Marie’s family in Togo was rejected because the affiant had left for the United States prior to the events upon which Afi Marie founded her claim.119 The IJ did not even bother to discuss the contents of this affidavit. Photocopied letters from her cousins in Togo indicated that her home had been looted and that the reigning political party was upset with her for contacting opposition activists.120 The IJ dismissed these letters as exaggerations.121 Even the Togo country reports issued by the Amnesty International and U.S. State Department were not sufficient to help Afi Marie.122 They only went so far as to establish that political activists might be targeted in Togo. However, they did not establish that Afi Marie herself would be targeted.123 After reviewing the evidence, the IJ found that Afi Marie was not credible and that her documentary submissions were not sufficient to rehabilitate her credibility.124 The IJ thus denied Afi Marie’s application for asylum125
B. Seventh Circuit Majority
On appeal to the Seventh Circuit, Afi Marie made two arguments. First, she argued that the IJ erred in making an adverse credibility determination.126 Second, Afi Marie argued that the IJ's conduct during
119 Id. at 11-12. 120 Id. at 12. 121 Id. 122 Id. 123 Id. 124 Id. 125 Id. The IJ also denied Afi Marie’s applications for withholding from removal and protection under the Convention Against Torture. These forms of relief were similarly denied for the same reasons why he denied the asylum claim. Id. at 12-14. 126 Apouviepseakoda v. Gonzales, 475 F.3d 881, 884 (7th Cir. 2007).
425 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the removal hearing denied her due process.127 The Seventh Circuit rejected both of Afi Marie's arguments.128
1. Due Process Challenge
On appeal, the Seventh Circuit first looked to Afi Marie's argument that IJ bias in her removal hearing denied her due process.129 The majority noted that “the form of [the IJ's] interruptions were occasionally jarring,”130 but this was not enough to warrant remand.131 In reviewing the IJ's behavior, the Seventh Circuit seemed to ignore any transgressions or excesses the IJ may have committed, so long as the IJ was not barring testimony or evidence.132 First, the Seventh Circuit noted that Afi Marie's hearing lasted six hours and reasoned that six hours was a strong indication that Afi Marie had a reasonable opportunity to present her case.133 Second, although the two witnesses who appeared at Afi Marie's hearing did
127 Id. 128 Id. at 893. 129 Id. at 884. This type of due process claim seems to be common amongst petitioners before the Seventh Circuit. See id. at 885 (citing Rehman v. Gonzales, 441 F.3d 506, 508 (7th Cir. 2006); Boyanivsky v. Gonzales, 450 F.3d 286, 292 (7th Cir. 2006); Pornsivakulchai v. Gonzales, 461 F.3d 903, 907 (7th Cir. 2006)). A recent trend in the treatment of the due process challenge has been to reclassify these arguments as statutory violations instead of constitutional claims: “In other words, Apouviepseakoda, like many before her, has made the mistake of employing “flabby constitutional arguments to displace more focused contentions,” and is really arguing that the IJ’s hearing violated these statutory and regulatory provisions.” Apouviepseakoda, 475 F.3d at 885 (internal citations omitted). However, Seventh Circuit panels have been inconsistent in this nomenclature. Although no panel has declined review for failure to correctly classify the claim, some panels apply the flabby constitutional claim critique while others discuss the issue in terms of due process. Nevertheless, the Seventh Circuit was willing to address Afi Marie’s argument as if it were appropriately proposed. Apouviepseakoda, 475 F.3d at 884. 130 Apouviepseakoda, 475 F.3d at 887. 131 Id. at 889. 132 See id. at 888-889. 133 Id. at 889.
426 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 not testify, the Seventh Circuit did not think it was a problem because the IJ accepted the offer of proof on what their testimony would have been.134
2. Adverse Credibility Determination
Having determined that the IJ’s behavior did not have an adverse affect on Afi Marie’s case, the majority then evaluated the substance of the IJ’s adverse credibility determination.135 First, the majority looked at the two problems the IJ had with the photos that Afi Marie had submitted with her claim.136 The Seventh Circuit joined in the IJ’s critique that the photos could not offer evidence of the wounds because Afi Marie was wearing a headdress and gown that covered the areas she claimed were injured.137 Furthermore, the majority also noted parenthetically that, in some of the pictures, Afi Marie appeared to be relatively mobile.138 The IJ and the majority were also troubled by what appeared to be a date stamp on all of the photos.139 It is unclear from the record as to why, but the originals that were part of Afi Marie’s asylum files were not before the IJ.140 Instead, the IJ only had photocopies available, and these photocopies made it difficult to read what seemed to be a date stamp “03 4 16” on all of the photos.141 On the one hand, if the 03 stood for 2003, that would mean that the pictures were taken almost two years after Afi Marie claimed that the events had transpired in 2001. But on the other hand, Afi Marie filed her asylum claim in
134 Id. at 888-89. 135 Id. at 889. 136 Id. at 890. 137 Id. 138 Id. 139 Id. 140 Id. 141 Id.
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2002.142 When asked about the “03 4 16” marking, Afi Marie could only offer that she was not in Togo in 2003.143 The majority decided to address this issue by way of footnote, explaining that the pictures may have been submitted even after the 2002 asylum application because it was not certain that photographs were a part of that application:
[T]he application itself does not refer to these documents or suggest additional attachments; the exhibits offer no stamp to certify their filing with the original application; and they do not carry any page numbers that would suggest they are part of a package. Finally, while some of the documents in these exhibits are dated based on when they were translated into English, the photos offer no indication of when they were placed there.144
The majority took these shortcomings to be sufficient to support the IJ’s concerns, reasoning that Afi Marie had simply failed to satisfy her burden of explaining away this uncertainty.145 Second, the Seventh Circuit majority next looked to what has often been a fatal fact to many other asylum applicant’s claims.146 The Seventh Circuit majority echoed the IJ’s concern regarding Afi Marie’s ability to return to Togo by noting that, not only did she return, she went back to the same hospital she had last been the last time she needed medical attention.147 Furthermore, unlike the first time, the majority noted that the condition for which she was risking capture on
142 Id. 143 Id. 144 Id. at 890 n.5. 145 Id. 146 See Firmanshjah v. Gonzales, 424 F.3d 598 (7th Cir. 2005); Pupella v. Gonzales, 207 Fed.Appx 683 (7th Cir. 2006). 147 Apouviepseakoda, 475 F.3d at 891.
428 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 this second visit was not even a matter of life and death. It was gynecological.148
3. Corroborative Evidence
In its review of the IJ’s treatment of Afi Marie’s corroborative evidence, the majority rehashes many of the same inconsistencies in the documentary evidence that it first propounded in its analysis of Afi Marie’s testimony. Although Afi Marie presented several pieces of corroborative evidence, the only new analysis the Seventh Circuit majority conducts is to review the letter from Afi Marie’s father.149 Although the Seventh Circuit majority concedes that the letter does describe hardships experienced by other members of her family and warns Afi Marie to be cautious with whom she speaks with in United States regarding Togo, both the IJ and the Seventh Circuit fault the letter for not mentioning either Afi Marie’s arrest warrants or her earlier beating.150
C. Judge Posner’s Dissent: A Critique in Three Parts
Judge Posner’s dissent in Afi Marie’s case is particularly scathing. He begins by identifying the IJ by name in his dissent, adding that this is not the first time that the Seventh Circuit has reviewed an allegation that this particular IJ exhibited less than decorous behavior in a
148 Id. at 891 n.6 (stating that “This April visit to a gynecologist prompts us to note a coincidence not recognized by the IJ.”) (emphasis in original). Afi Marie testified that the beating and its subsequent hospitalization occurred in April, 2001. Her return to that same Togo hospital also occurred in the month of April – the implication being that, on both occasions, Afi Marie was simply visiting her gynecologist for her annual exam. Notwithstanding that there was nothing in the record to indicate whether Togolese standards in gynecology adopted the American standard of care in annual exams, what the Seventh Circuit majority seems to be doing is masking a de novo finding of fact by burying it in a footnote. 149 Id. at 892. 150 Id.
429 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 removal hearing.151 Judge Posner notes that, the last time the Seventh Circuit reviewed one of his decisions, the panel was left with “no idea why the IJ ruled as he did.”152 Judge Posner’s dissent takes on three major issues in the majority opinion. First, Judge Posner attacks the IJ’s evaluation of Afi Marie’s evidence. Second, he addresses the inappropriateness of the IJ’s behavior. Third, he then discusses how the problems in this case are institutional.
1. On the IJ’s Reasoning
In reviewing the IJ’s decision in Afi Marie’s case, Judge Posner addressed each inconsistency that the IJ identified. First, Judge Posner notes that it is “often bad news” for the entire family of a person who is a member of a political party that opposes a dictator.153 So, the IJ’s confusion as to whether Afi Marie was targeted because of her own, personal membership in the opposition party or because of her husband’s connections to the mayor did not matter to Judge Posner. Each basis could independently support an asylum claim.154 Judge Posner then addressed the IJ’s concerns over why the soldiers were ransacking Afi Marie’s house.155 He found particularly troubling the IJ’s conclusion that, because Afi Marie could not explain why the soldiers did not find and take Afi Marie’s travel documents, she must have been lying.156 In response, Judge Posner points out that Afi Marie should not be blamed for her inability to explain the
151 “As is apparent from his opinion and from the transcript of the hearing, the immigration judge, O. John Brahos, has, once again, ‘doubted the applicant’s credibility on grounds that, because of factual error, bootless speculation, and errors of logic, lack a rational basis.’” Apouviepseakoda, 475 F.3d at 894 (Posner, J., dissenting) (quoting Pramatarov v. Gonzales, 454 F.3d 764, 765 (7th Cir 2006)). 152 Id. (quoting Gomes v. Gonzales, 473 F.3d 746, 755 (7th Cir.2007)). 153 Id. 154 Id. (“[t]his is not an esoteric point, but Judge Brahos overlooked it”). 155 Id. 156 Id. at 894-895.
430 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 soldier’s actions or omissions.157 After all, she could not possibly know what the soldiers were each individually thinking at the time of the ransacking. If she had offered any further explanation, it would have been pure speculation.158 Judge Posner next addresses the IJ’s problems with the medical certificate that Afi Marie submitted with her asylum claim. Although the IJ found it problematic that Afi Marie was treated by a gynecologist, Judge Posner quickly points out that the doctor who signed the certificate listed his practices as “Gynecology-Obstetrics- General Medicine.”159 To Judge Posner, this indicated that, not only was the doctor a gynecologist, but he also practiced general medicine, which would have made the diagnosis the doctor gave within his realm of expertise.160 Additionally, Judge Posner addresses a problem with other assumptions of the IJ in regards to the medical certificate. The IJ found it troubling that Afi Marie’s medical certificate was signed by a consulting physician rather than a treating physician.161 Because a treating physician would have had access to information regarding any pre-existing conditions, only a treating physician, the IJ reasoned, would have noted whether the injuries, if any, were the result of a new trauma.162 The IJ then concluded that, because a consulting physician would not have had similar access to prior medical history, the medical
157 Id. at 894. 158 Id. Judge Posner additionally suggests that, since the soldiers weren’t looking for her or her children, it makes complete sense that they didn’t care about their documents. Id. 159 Id. at 895. 160 Id. Afi Marie’s diagnosis was for “chronic insomnia, psychosis, and total [illegible] cerebral edema.” Id. However, Judge Posner concedes a “genuine anomaly” in the fact that the medical document was signed on September 18th but indicated that Afi Marie would be discharged ten days later. Id. But he dismisses this anomaly as being no more than a “mistake” that can be found in generally in medical records, even in the U.S. Id. 161 Id. 162 Id. at 896.
431 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 certificate signed by the consulting physician deserved little weight.163 Judge Posner addresses this line of reasoning simply: the IJ is not an expert in Togolese medicine and his conclusions were based on an assumption that medicine is practiced in Togo in the exact same way it is practiced in the United States.164 Such “a priori views about how authoritarian regimes conduct themselves” are no substitute for evidence, Judge Posner said.165 Judge Posner next addresses the IJ’s treatment of Afi Marie’s photos.166 Whereas the IJ was concerned that Afi Marie’s seemed to be covered or masked in the photos, Judge Posner notes that women in Togo commonly wear headdresses.167 In addition, even if she were not wearing a headdress, Judge Posner notes that Afi Marie was diagnosed with cerebral edema, a swelling of the brain which simply would not be outwardly visible.168 And in case there was any doubt that Afi Marie had a head injury, Judge Posner points out that her other two diagnoses, chronic insomnia and psychosis are two symptoms a cerebral edema.169 When Judge Posner addresses the date stamp on the photos, he notes that whatever the “03 4 16” marking on the photos means, it is not a date.170 The numbers could not represent a 2003 photo date because the photos were submitted with Afi Marie’s 2002 asylum application.171 Furthermore, the numbers could not be the result of a
163 Id. 164 Id. 165 Id. (quoting Banks v. Gonzales, 453 F.3d 449, 453 (7th Cir. 2006)). 166 Id. at 895. 167 Id. 168 Id. 169 Id. 170 Id. at 896. 171 Id.
432 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 forgery attempt because then they would have had the correct date on them.172 Finally, Judge Posner addresses Afi Marie’s ability to return to Togo and then later leave a second time.173 For Judge Posner, because Afi Marie was relatively wealthy and, because her husband was still in hiding, the desire to return to Togo to retrieve money and to find her husband would have been sufficient to overcome any fear that she would be harmed on her return.174 Furthermore, because she was able to enlist the protection of an officer to escort her through customs, this explained to Judge Posner why she was able to enter and then subsequently leave the county where there were warrants outstanding for Afi Marie’s arrest.175
2. Judge Posner on the IJ’s Behavior
Searching for an explanation as to why the IJ would make such seeming lapses in logic, Judge Posner then looks to the transcript.176 There, he notes some appalling behavior on the part of the IJ.177 When Afi Marie began her testimony in a soft voice, the IJ stopped her and told her to shout out her testimony, warning, “if you force me repeatedly to ask you to raise your voice I will not be pleased”178 Judge Posner points out that this invitation (“you can even scream at the court”179) could not have been motivated by difficulty in hearing. 180 Afi Marie was speaking through a French interpreter.181 The
172 Judge Posner also notes that the record only provides photocopies of the photographs. And he notes that it would have been the Department of Homeland Security, not Afi Marie, who had control over the photos. Id. 173 Id. 174 Id. 175 Id. 176 Id. at 897. 177 Id. 178 Id. 179 Id. 180 Id.
433 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 interpreter had no problems hearing Afi Marie.182 And the IJ did not seem to have any problems hearing the interpreter.183 Another reason why the IJ asked Afi Marie to speak loudly was because he felt that it “also might indicate the posture of [Afi Marie’s] case as well.”184 Apparently, the IJ presumed some sort of positive correlation between the loudness of testimony and its truthfulness – to which Judge Posner notes, “I have never before heard it suggested that truthfulness can be inferred from a witness’s decibel level.”185 Had the IJ’s behavior simply remained unorthodox, that might not have warranted criticism. However, this unorthodoxy turned into hostility, which Judge Posner additionally commented upon. The IJ asked for proof that Afi Marie’s husband owned a radio station, and she was able to provide a photograph of her husband at the radio station.186 In response, he stated, “I have photographs also in high school where I took pictures with a radio transmitter there. Does that mean that that is an operating business because you have a photograph?”187 And lest there be any confusion as to what the IJ was specifically looking for, the IJ clarified that he was looking for evidence in the record “from the listeners to verify that they heard the station.”188 Judge Posner also noted two problems with the way the IJ treated Afi Marie’s testimony about her husband’s garbage collection business. The IJ wanted more information about the nature of the
181 Id. 182 Id. 183 Id. 184 Id. (quoting the IJ as explaining, “If you’re really strong in your convictions you’ll express it in a strong manner. If your answers are weak the Court may believe that you’re [sic] claim is also weak so conduct yourself accordingly.”). 185 Id. 186 Id. 187 Id. 188 Id.
434 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 collection business, to which Afi Marie admitted that she could not provide much help.189 But the IJ just would not let it go:
Q: A spouse does not know what her husband is doing when he’s working, is that what you wish me to believe? A: Yes. In Africa, it is very difficult for a woman to be involved in her husband’s business. Q: So, when he goes to work in the morning you don’t know where he’s going, is that what you’re saying? He doesn’t tell you. A: He tells me that he goes to work but I don’t follow him to see where he, he’s would go. Q: That’s amazing. Q: (to the interpreter) You want to tell her that’s amazing. You want to tell her.190
To his credit, the IJ eventually did let Afi Marie know what type of evidence he was looking for.191 He explained that he was looking for statements from former employees of Afi Marie’s husband that would verify their employment.192 To which Judge Posner replied, “does Judge Brahos really expect garbage men in Togo to provide affidavits concerning their former employer, now an enemy of the state?”193 Based upon these exchanges, Judge Posner believes that the deference normally afforded to an IJ’s adverse credibility determination should not apply.194 Typically, such deference derives from being able to observe the demeanor of a witness who testifies.195 The majority relies heavily on this point, stating that it was the IJ and
189 Id. 190 Id. at 898. 191 Id. at 897. 192 Id. 193 Id. 194 Id. at 893-894. 195 Id. at 897.
435 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 not the appellate court that spent six hours with Afi Marie.196 Judge Posner responds, however, that the deference should not apply where the underlying rationale is absent.197 Because of the fact that the IJ had to listen to the testimony through an interpreter and had to observe the mannerisms of a person from another culture, Judge Posner doubts that mere observation gives an IJ any more of an ability to filter for the truth.198
3. Judge Posner on the Problems with the Immigration Court System in General
As scathing and thorough as Judge Posner’s dissent was, he ultimately signals that the shortcomings in the handling of Afi Marie’s case are institutional rather than individual.199 He cites the Herculean task ascribed to IJs, noting the horrendous workloads, the typical lack of reliable evidence, the generally poor conditions from which the asylum applicants arrive, and the overall unfamiliarity of Americans with those foreign countries and cultures.200 Judge Posner personally, along with other judges from several circuit courts of appeal, has criticized the immigration system as necessarily engendering bad decisions.201 Here, Judge Posner once
196 Id. at 893 (majority opinion). 197 Id. at 897 (Posner, J., dissenting). 198 Id. 199 Id. at 898. 200 Id. 201 Id. at 886 n.2 (majority opinion): The system is in turmoil as the nation’s immigration judges (218 at last count) struggle to complete some 350,000 cases a year, all without law clerks, bailiffs, stenographers, and often competent lawyers and interpreters. Often, immigration judges are hearing three contested hearings a day and up to 15 in a week. As Judge John M. Walker, Jr., of the United States Court of Appeals for the Second Circuit, told the Senate Judiciary Committee last April, “I fail to see how immigration judges can be expected to make thorough and competent findings of fact and conclusions of law under these circumstances.” Id.
436 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 again faults both Congress and the Justice Department for failing to correct at least those conditions over which it has control.202 Ultimately, however, as morally forgivable as Judge Posner finds the actions of the IJ in this case, he reasons that the behavior was still legally deficient.203 Therefore, he dissents, stating, “The immigration judge’s opinion is pervaded by gross errors of fact and logic, and read in light of the hearing transcript is an embarrassment to American justice.”204
III. IJ BIAS: THE CONTAMINATION THEORY
Courts have had a difficult time figuring out quite how to address the various arguments raised on appeal where there is both IJ bias and an adverse credibility determination involved. The following section will first discuss the shortcomings in the current scheme. Then, this section will discuss the benefits of applying a contamination theory in adverse credibility determination cases. Finally, this section will conclude with a discussion of how the contamination theory would apply in Afi Marie’s case.
A. The Existing Standards are Inadequate
The problem with the due process challenge is that it is too narrow and only detects the most egregious cases of IJ bias. The Seventh Circuit’s approach to due process challenges based on IJ bias, and that of many other circuits, requires actual prejudice.205 Only in
202 Id. at 898 (Posner, J., dissenting). 203 Id. 204 Id. 205 See, e.g., Abdulrahman v. Ashcroft, 330 F.3d 587, 597 (3d Cir. 2003) (declining to find a due process violation even though IJ exhibited “a lack of courtesy and the absence of the expected level of professionalism.”); Elias v. Gonzales, 490 F.3d 444, 450 (6th Cir. 2007) (“we are especially troubled by the conduct of the IJ during the hearing and its effect on the petitioner’s ability to testify accurately.”); e.g., Ciroba v. Ashcroft, 323 F.3d 539, 544 (7th Cir. 2003) (holding that IJ’s initial assessment of the evidence “without more, do[es] not establish bias
437 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the most flagrant of circumstances does improper IJ behavior constitute reversible error.206 Otherwise, the applicant must show that they suffered a physical or procedural inability to testify. A physical inability occurs when harsh or over-zealous cross-examination frazzles the witness, making it difficult for the witness to continue testifying.207 A procedural inability occurs when an IJ’s actions bars critical testimony or evidence.208 This standard overlooks the possibility that there are cases where the bias of the IJ, albeit falling short of the due process violation standard, has incorrectly denied benefits to a deserving applicant. Assume that two asylum applicants with identical histories of actual persecution face the same, biased IJ. If one asylum applicant breaks down in tears in response to inappropriate IJ behavior, and if the other asylum applicant merely withdraws into silence, this would lead to an odd result upon review of the adverse credibility determination. Because of the prejudice requirement, the same behavior of the IJ could produce different results for the similarly situated asylum applicants who faced similar IJ bias. The petitioner who broke down in tears would have shown actual prejudice, warranting remand. The petitioner who simply remained silent under the same inappropriate IJ behavior would not be able to show prejudice – she would not be entitled to a new hearing. Thus, because it could produce different results between two identically situated asylum applicants, a prejudice requirement is inappropriate in the review of adverse credibility determinations.
on the part of the IJ.”); Colmenar v. INS, 210 F.3d 967, 971 (9th Cir. 2000) (requiring a showing that the outcome of the proceeding may have been affected). 206 For example, in Floriou v. Gonzales, 481 F.3d 970, 974 (7th Cir. 2007), where the Seventh Circuit granted a petition for review where the IJ blamed the asylum applicants themselves for being persecuted. Id. The IJ called the asylum applicants “zealots” and concluded that they were harmed only because they provoked their attackers with their religious beliefs. Id. 207 Apouviepseakoda, 475 F.3d at 885-886 (majority opinion) (quoting Giday v. Gonzales, 434 F.3d 543, 549 (7th Cir. 2006)). 208 Id. (quoting Kerciku v. INS, 314 F.3d 913, 918 (7th Cir. 2002)).
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There are instances, however, where the requirement of actual prejudice is desirable. If an IJ has found an applicant to be credible but has denied the application on the merits, remand for a new hearing may not be necessary. In that situation, the IJ takes the asylum applicant’s claims as true. The only challenge would be whether the facts, as the applicant portrays them, qualify the applicant for asylum. The denied but credible applicant would factually have nothing new to add. This challenge on the merits is adequately addressed by the existing standards of review. However, where the rejection is based on an adverse credibility determination, courts should apply a contamination standard. Once it is determined that the IJ has crossed that line into IJ bias, this should constitute reversible error. Where the IJ has exhibited an inability to remain impartial in making subjective evaluations such as is required in gauging truthfulness, such subjective evaluations should not be given much weight.
B. The Contamination Theory Better Achieves the Goals of Asylum Law
What is unique to the immigration systems is the extent to which bias is tolerated. In a state or federal court, potential jurors may be excused for cause, or they may be excused through a peremptory challenge.209 Judges in jury trial or a bench trial may excuse themselves if their participation would be biased or would harbor even the appearance of bias.210 Removing bias from the courtroom is necessary to the accuracy of the fact-finder’s result. Similarly, in the immigration context, we should demand impartiality from the IJ, particularly when the IJ makes as subjective a determination as truthfulness. Applying a contamination theory to inappropriate IJ behavior better achieves the goals of asylum law because of the intermediate standard it provides. When reviewing an adverse credibility
209 E.g., 28 U.S.C. § 1870 (2006); 725 ILCS 5/115-4(d). 210 28 U.S.C. §144 (2006).
439 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 determination, even bias that does not reach the level of a due process violation should be considered grounds for granting a petition for review. The IJ is unique in that the IJ is called upon to make findings in a system that cannot avail itself to the normal barometers of truthfulness. As Judge Posner’s dissent noted, the ability to observe the witness testify is of lesser value when the asylum applicant testifies through an interpreter and brings to the stand the cultural mannerisms of the unfamiliar country from which she came.211 Where the IJ has very little corroborative documentary evidence to go on and must make decisions on whether an asylum applicant is telling the truth, we should demand the highest degree of impartiality and tolerate the least amount of bias. Where the IJ shows bias, it not only “demeans the witness,”212 but this also affects the IJ’s ability to appropriately weigh the evidence. Yet, except in the most extreme cases,213 IJ bias does not constitute a factor in whether the IJ’s decision was an abuse of discretion. For example, in Afi Marie’s case, the Seventh Circuit majority examined the due process argument first and then separately analyzed the challenge to the adverse credibility determination.214 This has the effect of insulating IJ bias from detection. On review, even a biased credibility determination will be reviewed under an abuse of discretion. The unacceptability of this result is highlighted when placed up against the rationales for why IJs are even allowed such a degree of
211 Apouviepseakoda, 475 F.3d at 897 (Posner, J., dissenting) 212 Islam v. Gonzales, 469 F.3d 53, 55 (2d Cir. 2006) (granting petition for review where IJ argued with and intimidated asylum applicant). 213 Recently, the Seventh Circuit joined the Second, Third, Sixth, and Ninth Circuits in recognizing that there are instances where the effect of IJ bias is palpable from the cold record alone. Foriou v. Gonzales, 481 F.3d 970, 974 (7th Cir, 2007). Those cases do not preempt the need for a contamination theory of IJ bias. In each of those cases, the petition for review could have been granted on other bases, such as through a challenge of the adverse credibility determination or through the due process analysis. If IJ bias is to serve as a basis for remand, it should be construed to have its own distinct purpose. 214 Apouviepseakoda, 475 F.3d at 884 (majority opinion).
440 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 participation in the first place. The presumption supporting the ability of the IJ to depart from a judge’s normally hands-off role is that, without such interference by the IJ, the asylum applicant, who is unfamiliar with the English language and American legal system, would be unable to sufficiently plead their case for asylum.215 And so to avoid this injustice, and so as to ensure that we grant asylum to those who deserve it, we allow the IJs to step in and develop the record more fully. However, where the policy concerns that permit the IJ to interfere are absent, tolerance of IJ participation should decrease. Thus, where the asylum applicant is represented by an attorney, the IJ should not be as intrusive as the IJ might be if the asylum applicant were proceeding pro se. If the asylum applicant is represented, and if the government’s interests are similarly represented by counsel, the rationale for departing from the traditional adversarial system disappears. Yet, there is no rule against IJ participation, even where all parties are represented by counsel. The regulations provide that the IJ may perform a direct examination, a cross examination, or otherwise participate in order to fully develop the record.216 However, the trend has been for IJs to take this privilege one step further. Rarely do IJs help elicit favorable testimony. Instead, they more often try to debunk the asylum applicant’s claims.217 While there is no regulatory bar against pressing an asylum applicant to find the truth, there needs to be something more than the due process consideration to prevent the IJ from
215 See Hasanaj v. Ashcroft, 385 F.3d 780, 783 (7th Cir. 2004) (agreeing with the government’s contention during oral argument that “the fact that an IJ asks questions during the proceedings is helpful to develop the record and is better than a silent bench that says nothing throughout the proceedings and then denies the request for asylum because the petitioner did not provide sufficient evidence”). 216 8 U.S.C. § 1229a(b)(1) (2006). 217 E.g., Benslimane v. Gonzales, 430 F.3d 828, 829 (7th Cir. 2005) (listing various cases within the Seventh Circuit where IJs were hostile, abusive, biased, or skewed with prejudgment). See also Reyes-Melendez v. INS, 342 F.3d 1001 (9th Cir 2003) (discussing cases where IJ has “behaved not as a neutral fact-finder interested in hearing the petitioner’s evidence, but as a partisan adjudicator seeking to intimidate the [alien] and his counsel.”).
441 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 becoming a second Attorney General working against the asylum applicant.
C. Applying the Theory to Afi Marie’s Case
Creating a rule to detect IJ bias will necessarily be multi-factored, and it will also necessarily require a case-by-case development of IJ contamination law. But that doesn’t mean that Courts would be without guidance. To determine whether an IJ was biased, courts should look to the same factors that IJs use for making adverse credibility determinations: demeanor, internal inconsistency, corroboration, and plausibility.
1. Demeanor
As a factor in the contamination analysis, courts should view combative demeanor as circumstantial evidence of pre-decision. In examining the IJ’s demeanor for bias, courts should compare the IJ’s behavior with what would normally be expected of a judge. Where the IJ fails to show the “patience and dignity befitting a person privileged to exercise judicial authority,”218 courts should construe the IJ’s demeanor as circumstantial evidence of a compromised decision- making ability. In Afi Marie’s case, Judge Posner found the IJ’s performance in Afi Marie’s case to be “appalling.”219 To conclude, he went so far as to call the IJ’s decision as “an embarrassment to American justice.”220 Even the majority conceded that the IJ’s behavior was “hardly a model of patience and decorum.”221 The majority further described the IJ’s behavior as “unseemly,”222 “mocking,”223 “demonstrat[ing]
218 See Islam v. Gonzales, 469 F.3d 53, 55 (2d Cir. 2006), 219 Apouviepseakoda, 475 F.3d at 898 (Posner, J., dissenting). 220 Id. 221 Id. at 886 (majority opinion). 222 Id. 223 Id.
442 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 intemperance,”224 and “jarring.”225 Under either the majority’s or the dissent’s view of this case, the IJ’s behavior falls far short of the level of decorum necessary to impart a sense of reliability in the result. Thus, under a contamination theory, the demeanor factor would favor remand.
2. Internally Inconsistent
When immigration judges conduct their adverse credibility determination analyses, they frequently rely upon internal inconsistencies to discredit the testimony.226 Similarly, if an IJ is internally inconsistent in terms of what is required of the asylum applicant, courts should consider the reliability of the IJs rulings to be undermined. Internal inconsistency in IJ decisions presents itself as the impossibility of satisfying the IJ’s evidentiary requirements. This factor may be satisfied where the IJ requires supporting documents for certain portions of the asylum applicant’s testimony but simultaneously rejects the supporting evidence that same type of document when produced for other portions of the testimony. Letters from home are one frequent way in which asylum applicants try to corroborate their claims. Some letters will function more like affidavits and describe the persecutory behavior expressly, but most will discuss persecution tangentially. For example, asylum applicants have submitted letters indicating whether it would be safe to return,227 whether the applicant’s friends back in their home countries were killed,228 or whether others were under surveillance or were arrested.229 However, when submitted, these types of letters are
224 Id. 225 Id. at 887. 226 See, e.g., Kadia v. Gonzales, 501 F.3d 817, 820 (7th Cir. 2007) (explaining that an applicant’s claims “may be so internally inconsistent or implausible on its face that a reasonable fact-finder would not credit it”). 227 Oyekunle v. Gonzales, 498 F.3d 715, 716 (7th Cir. 2007). 228 Tchemkou v. Gonzales, 495 F.3d 785, 794 (7th Cir. 2007). 229 Gebreeyesus v. Gonzales, 482 F.3d 952, 954 (7th Cir. 2007).
443 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 frequently discounted by IJs on the grounds that they were written by family members who would write anything,230 were not specific enough,231 or otherwise deserved little weight. In Afi Marie’s case, the IJ wanted some sort of evidence from listeners of her husband’s radio station in Togo or evidence from former employees of her husband’s garbage collection company.232 When she could not provide either type of letter, the IJ presumed that her husband must not have held waste disposal contracts and must not have had a radio station at all, even despite the fact that Afi Marie also submitted a photo of her husband at the station.233 What is perhaps the most baffling in the IJ’s treatment of the documentary evidence is that, when Afi Marie provided letters from her cousins that her home had been looted and from her father that the authorities were looking for her, the IJ deems the letters as deserving little weight.234 He criticizes one letter as not being specific enough, while the other one as containing apparent “exaggerations.”235 This is an evidentiary game that seems impossible for asylum applicants to win. The impossibility of satisfying the IJ in this case is further exemplified by the treatment of the other witnesses in this case. The IJ
230 Islam v. Gonzales, 469 F.3d 53, 55 n.1 (2d Cir. 2006). The asylum applicant had his family mail his father’s death certificate to him to support his applicant’s claim. The IJ expressed his concerns as to the authenticity of such a document by asking, “Well, sir, if you asked for a certificate saying that you’re the president of Bangladesh, would they send you something?” Id. 231 Adekpe v. Gonzales, 480 F.3d 525, 530 (7th Cir. 2007). Although the asylum applicant in this case submitted corroborating letters from his family, the IJ found them insufficient because they did not “corroborate the incidents that occurred specifically to him.” Id. 232 Apouviepseakoda v. Gonzales, 475 F.3d 881, 897 (7th Cir. 2007) (Posner, J., dissenting). 233 Id. 234 Decision of the Immigration Judge at 11-12, In the Matter of Afi Marie Apouviepseakoda, Immigration Court, Chicago, Illinois, (June 14, 2004), available at www.ca7.uscourts.gov (follow “Briefs” link, search for case No. 05-3752, follow “05-3752” link, follow “05-3752_002.pdf” link). 235 Id.
444 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 noted that it was already 6:45pm and that “there’s only so much time that the Court can grant to you.”236 In the interests of time, the IJ stated that he would accept an offer of proof regarding the testimony of the Apouviepseakoda family friend and Afi Marie’s daughter.237 The family friend was also a refugee of Togo who began working with a Canadian organization that documented Togolese abuses.238 In addition, this witness also had direct, personal knowledge on the participation and support of the Apouviepseakoda family for the opposition party.239 If the IJ accepted the offer of proof, as he stated that he would, the inconsistencies questioning Afi Marie’s and her husband’s affiliation with the opposition party should have dissolved. Yet, despite the IJ’s acceptance of the offer of proof, this witness’ testimony was ignored and the alleged inconsistencies remained. The second witness who would have testified, were it not for the IJ, was Afi Marie’s daughter.240 She was going to testify to the beating that she saw the Togolese soldiers inflict upon her mother.241 If the IJ is going to accept the offer of proof, he should have considered the fact that Afi Marie's daughter would have provided testimony consistent with Afi Marie’s. This would have been a crucial point of corroborating testimony—one that the IJ frequently complained was lacking in Afi Marie’s asylum claim242—but the ability of the offers of
236 Brief of Petitioner at 19, Apouviepseakoda v. Gonzales, 475 F.3d 881 (7th Cir. 2007) (No. 05-3752), available at www.ca7.uscourts.gov (follow “Briefs” link, search for case No. 05-3752, follow “05-3752” link, follow “05-3752_001.pdf” link). 237 Apouviepseakoda, 475 F.3d at 888 (majority opinion). 238 Brief of Petitioner, supra note 70, at 19-20. 239 Id. at 20. 240 Apouviepseakoda, 475 F.3d at 888. 241 Brief of Petitioner, supra note 70, at 19. 242 See, e.g., Decision of the Immigration Judge at 5, In the Matter of Afi Marie Apouviepseakoda, Immigration Court, Chicago, Illinois, (June 14, 2004), available at www.ca7.uscourts.gov (follow “Briefs” link, search for case No. 05-3752, follow “05-3752” link, follow “05-3752_002.pdf” link) (discussing photos and medical certificate).
445 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 proof to rehabilitate and corroborate Afi Marie’s testimony did not figure into the IJ's calculus. Afi Marie’s daughter would have provided a second point of corroborating testimony that the IJ complained was missing. The daughter would have been able to provide precisely that information that the IJ wanted:
Q: Do we have any license from the government of Togo authorizing your husband to operate a station in Togo? A. Yes, we had documents, but as I was leaving Lome I had difficulties and I couldn’t collect all the documents. Q. I see you have some documents here, but does this mean that this is an operating business or how do I know this was not a station that was expected to go on line and needed completion before it did so? A. Well, you can ask my, my daughter. Q. I see. Well, would I expect your daughter to contradict you? And how, how ---this radio station, can you tell me what it’s potential to reach the public? A. Yes. Q. And what, what – did it have a regular schedule operation? A. Yes, the radio has a schedule. Q. And how did the public understand when to tune in to this radio station? A. If you turn your radio on, turn your radio on 97.5 or you hear the radio. Q. I see. Now this radio station 95 – 97.5, well, how, how – was there any programming, any, any circulation of scheduling for the general public so they know when to tune in to hear any particular programming? A. This I, yes, there was a schedule circulated, but since I was not involved in, in that business I, I really can’t tell you how they were circulated. All I know is that my husband had a functioning radio station.
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Q. I see. Do we have anything to verify that that was true other than your statements? A. I have a photo. Q. I see. I see a photo too. I have photographs also in high school where I took pictures with a radio transmitter there. Does that mean that that is an operating business because you have a photograph? A. I couldn’t gather all the paper, all the documents together. It’s necessary to ask my child. Q. To wit, ma’am, I don’t want to hear the question ask my child because your child is not going to be the confirming information for the Court.243
Afi Marie consistently and repeatedly admitted that she knew very little about this business.244 The daughter would have testified that the radio station did exist and that her father was indeed the owner.245 But, even after the IJ accepted the offer of proof regarding the daughter’s testimony, the IJ’s skepticism regarding the operational status of the radio station remained. The impossibility of satisfying the IJ’s evidentiary demands was clear. Afi Marie had the very evidence that the IJ was looking for, but when she presented it, it was always somehow insufficient.
3. Corroboration (Arguing Outside the Record)
When invoked, the corroboration requirement demands that asylum applicants be able to bolster their claims with documentary evidence.246 Similarly, when an IJ’s adverse credibility determination is being challenged for bias, reviewing courts should examine the extent to which an IJ forms conclusions based upon evidence not in the record on appeal. Typically, IJ opinions that lack such
243 Brief of Petitioner, supra note 70, at 17-18. 244 Id. 245 Id. at 19. 246 Gontcharova v. Ashcroft, 384 F.3d 873, 877 (7th Cir. 2004).
447 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 corroboration rely upon the personal experiences of the IJ to draw conclusions from the asylum applicant’s testimony.247 The problem with IJs relying upon personal experience, or what they perceive as “common sense,” is that what is common in the United States is not necessarily common in a foreign culture.248 The problem with reviewing a biased IJ’s decision is that the reviewing court will be tempted in to looking for ways to show that the IJ wasn’t that far off. This leads to the incorporation of unsupported assumptions of the IJ. On several occasions, the Seventh Circuit majority’s analysis becomes this sort of fact-finding foray. The IJ found two problems with the signed medical certificate that Afi Marie submitted. First, the IJ noted that the physician saw Afi Marie “in consultation” as opposed to having been her treating physician.249 The IJ explained, “some injuries are a result of a complication because of preexisting condition and the treating doctor would have that information in his report.”250 Apparently, the IJ was concerned that, to the extent that Afi Marie was being treated for legitimate injuries, it may have been due to an automobile accident.251 However, nothing in the record suggests that there was ever any car accident.252 There is similarly nothing in the record to suggest that treating physicians in Togo would have information different than what consulting physicians in Togo would have.253 The IJ’s reliance upon this distinction to discredit Afi Marie’s testimony should be construed as evidence of a tainted adverse credibility determination.
247 See e.g., Jiang v. Gonzales, 485 F.3d 992, 995 (7th Cir. 2007). 248 As Judge Posner notes in his dissent, “Most asylum applicants come from distant, poor, and poorly governed countries about which Americans, including the immigration judges, who are not selected for their knowledge of foreign countries, know nothing.” Apouviepseakoda v. Gonzales, 475 F.3d 881, 898 (7th Cir. 2007) (Posner, J., dissenting). 249 Id. at 895. 250 Id. at 896. 251 Id. 252 Id. 253 Id.
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Second, the physician who signed Afi Marie’s medical certificate specialized in ‘‘Gynecology–Obstetrics, General Medicine.”254 The IJ ignores the “General Medicine” portion of the title to find that it was inconsistent for Afi Marie to have been treated for serious bodily injuries by an Ob-Gyn.255 The Seventh Circuit took this a step further when it noted that Afi Marie’s initial visit to the doctor was in April which happened to be the same month she visited the doctor when she returned to Togo: “This April visit to a gynecologist prompts us to note a coincidence not recognized by the IJ.”256 This newly noted coincidence is problematic for the same reason that IJs are so strictly confined to the evidence in their records. The Seventh Circuit majority’s intimation presumes to understand common medical practice amongst Togolese doctors and patients. The record is certainly silent as to whether Togolese woman have adopted the practice of obtaining an annual examination by the gynecologists. And there is nothing in the record to suggest that Afi Marie could not go to the same hospital for trauma as for a gynecological exam. Finally, the IJ’s characterization of the second trip to the Togo hospital as being elective is entirely irrational. If Afi Marie simply needed to have a gynecological exam, why would she not have waited until she returned to the medical system of the United States? There must have been some reason for her to see a doctor there. Her attendance to her medical health should not be construed as an inconsistency, particularly where there is nothing in the record to support the IJ’s or the Seventh Circuit’s explanation.
4. Plausibility (logic)
Even if the asylum applicant’s claim is internally consistent and supported through documentary evidence, the IJ may make an adverse
254 Id. at 891 n.6 (majority opinion). 255 Id. at 895 (Posner, J., dissenting). 256 Id. at 891 n.6 (majority opinion) (emphasis in original).
449 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 credibility determination on the basis of implausibility.257 Analogously, where the IJ’s decision is being challenged for bias, reviewing courts should look to the plausibility of the reasons for the IJ’s adverse credibility determination. In other words, courts should look simply to whether the IJ is being logical. In Afi Marie’s case, Judge Posner describes the logical pitfalls in the IJ’s decision as “yawning chasms.”258 The biggest obstacle for the IJ seems to be the numbers stamped on the Lome hospitalization photos. Each of the two photographs submitted by Afi Marie had the numbers “03 4 16” on them,259 with the “03” portion being more difficult to make out than the other numbers.260 The IJ asked whether the numbers meant that the photos were taken on April 16, 2003—a problematic date given that her hospitalization occurred in 2001 and her asylum application was filed in 2002.261 Afi Marie could only respond, “I think it’s just a date because I wasn’t in Lome in the year 2003.”262 Furthermore, Judge Posner notes that the IJ did not question the fact that the photos were submitted with the rest of the 2002 asylum application.263 Given the date Afi Marie submitted her materials, it is simply implausible that the numbers represent a date.264 The IJ’s insistence, in the face of this apparent inconsistency, should be construed as evidence of bias.
CONCLUSION
It is far from clear whether Afi Marie qualifies for asylum. But what is clear is that her adverse credibility determination was tainted
257 8 U.S.C. §1158(b)(1)(B)(iii) (2006); Kadia v. Gonzales, 501 F.3d 817, 821 (7th Cir. 2007). 258 Apouviepseakoda, 475 F.3d at 897 (Posner, J., dissenting). 259 Id. at 896. 260 Id. at 890 (majority opinion). 261 Id. 262 Id. 263 Apouviepseakoda, 475 F.3d at 896 (Posner, J., dissenting). 264 Id.
450 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 with bias. Her petition for review should have been granted with instructions to remand to a new immigration judge. Because the adverse credibility determination completely incapacitates the asylum claim, courts should be more cautious in the amount of bias that they tolerate on review. The four factors of IJ bias in an adverse credibility setting proposed in this note are by no means exhaustive. And by no means would all four factors need be present to warrant remand. The current safeguards against pre-decision and IJ bias detect too few decisions that should be vacated. Where IJ bias reaches a level sufficient for reversal on due process considerations, a reviewing court would easily be able to reverse on a challenge to the adverse credibility determination itself. The contamination theory applies in those instances where the IJ’s adverse credibility determination is not as patently incorrect. Where the IJ is denying an asylum applicant’s claim not on the merits, but on the basis of an adverse credibility determination, the threshold tolerance for bias should be low. This is the only way that we can rely upon the findings of fact from a system where the usual aids in detecting truth are unavailable. Because the denial of an asylum application can literally be a matter of life and death, the immigration system should strive to minimize the number of denials to deserving applicants. To the extent that some error is unavoidable, the immigration system should err on the side of caution.
451 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007
THE SEVENTH CIRCUIT’S APPROACH TO DETERRING THE TRADEMARK TROLL: SAY GOODBYE TO YOUR REGISTRATION AND PAY THE COSTS OF LITIGATION
ANNA B. FOLGERS*
Cite as: Anna B. Folgers, The Seventh Circuit’s Approach to Deterring the Trademark Troll: Say Goodbye to Your Registration and Pay the Costs of Litigation, 3 SEVENTH CIRCUIT REV. 452 (2007), at http://www.kentlaw.edu/7cr/v3- 1/folgers.pdf.
INTRODUCTION
Known for his role as an intellectual property “entrepreneur”1, Mr. Leo Stoller is the prototypical trademark troll.2 Stoller has made it his business to sue as many parties as possible for the use of “his” STEALTH trademark.3 One court recently described Stoller as
* J.D. candidate, May 2008, Chicago-Kent College of Law, Illinois Institute of Technology; pursuing Certificate in Intellectual Property Law; B.A. Political Science, June 2005, DePaul University. 1 Colin Moynihan, He Says He Owns The Word ‘Stealth’ (Actually, He Claims ‘Chutzpa’, Too), N.Y. TIMES, July 4, 2005, accessible at: http://www.nytimes.com /2005/07/04/business/04stealth.html. 2 The trademark troll sets out to register as many marks as possible, without the intent to use and invest in the mark. Just as the “forest troll” appears to collect his “toll” from travelers passing over a bridge, the trademark troll magically appears when an unsuspecting producer adopts the same or similar mark and poses upon them two choices: pay to get a license to use my mark or litigate. 3 Central Manufacturing, Inc. v. Brett, 492 F.3d 876, 880 (7th Cir. 2007) (“Acting as a sort of intellectual property entrepreneur, Stoller has federally registered scores of trademarks with the U.S. PTO…many containing everyday words that regularly pop up in commercial enterprise”).
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“running an industry that produces often spurious, vexatious, and harassing federal litigation.”4 The problem with Mr. Stoller is that the intellectual property community and the courts doubt whether Stoller actually uses the STEALTH mark on actual goods sold in commerce.5 Rather, he merely exploits his trademark registrations to negotiate and extract licensing fees from companies using the mark on their own products.6 Some of those third parties, when threatened with litigation, have entered into licensing or settlement agreements for use of the STEALTH mark. These agreements cover a startling collection of products, ranging from “hand tools to make prosthetic limbs to construction consulting services to track lighting.”7 It was reported that Stoller even accused Sony Pictures of infringing the STEALTH mark by including the word as the title of a film featuring Navy pilots.8 Although Stoller purports to have been hired to serve as a trademark expert at various trademark trials throughout the country,9 his situation exemplifies a common misunderstanding that exists among the public, legal practitioners, and even district courts. The mere federal registration of a mark does not give the trademark owner a monopoly over that mark; as the Seventh Circuit has noted, “bare registration is not enough.”10 Under the Lanham Trademark Act, a
4 Central Manufacturing, Inc. v. Brett, No. 04 C 3049, 2005 WL 2445898 at *1 (N.D. Ill. Sept. 30, 2005) aff’d, 492 F.3d 876, 880 (7th Cir. 2007). 5 Id. at *2. 6 Id. 7 Id. 8 Moynihan, supra note 1. 9 Stoller’s website is accessible at: http://rentmark.blogspot.com. On this site Stoller identifies himself as the “Director and national spokesman” [sic] for the Americans for the Enforcement of Intellectual Property Rights, which “advocates the strict enforcement of American intellectual property rights”. He also identifies himself as a “Trademark Expert” and offers the following services: “trademark valuations, licensing, appeal drafting etc.” 10 Custom Vehicles, Inc. v. Forest River, Inc., 476 F.3d 481, 485 (7th Cir. 2007); see also Zazu Designs v. L’Oreal, S.A., 979 F.2d 499, 504 (7th Cir. 1992) (registration itself only establishes a rebuttable presumption of use as of the filing date.”); Allard Enter., Inc. v. Advanced Programming Resources, Inc., 146 F.3d 350, 356 (6th Cir. 1998) (“One of the bedrock principles of trademark law is that trademark or service marks ownership is not acquired by federal or state registration.
453 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 trademark owner must use the mark in commerce to acquire and maintain ownership rights in that mark.11 This requirement operates to prevent the “banking” or “warehousing” of marks.12 Warehousing is a term used to describe the practice of a party that registers trademarks and effectively collects and stores them as opposed to actually using them. This type of activity is barred both under the Lanham Act and at common law. One cannot register a trademark, cease using the mark on ones’ products and/or services, and then attempt to extract a licensing fee from sellers of products or services well-suited to adopt that trademark.13 This type of operation was, and continues to be, Stoller’s modus operandi.14 Stoller or one of his corporate entities have been involved in at least 49 cases in the Northern District of Illinois alone and at least 47 of them purport to involve trademark infringement.15 Tellingly, no court has ever found infringement of any trademark allegedly held by Stoller or his related companies in any reported opinion.16 Although one would think that these staggering statistics alone would deter Stoller, this apparently has not been the case. In fact, Stoller’s cases have generally “proven so frivolous and
Rather, ownership rights flow only from prior appropriation and actual use in the market.”); Boxcar Media, LLC v. Redneckjunk, LLC, 345 F. Supp. 2d 76, 79 (D. Mass. 2004) (“Federal registration is irrelevant to a determination of whether a trademark is granted protection.”). 11 15 U.S.C. § 1127 (2006). 12 Custom Vehicles, Inc., 476 F.3d 481 at 485. 13 See id. 14 See Central Manufacturing, Inc. v. Brett, 492 F.3d 876, 880 (7th Cir. 2007) (stating that this practice formed an “essential part of [Stoler’s] business strategy” and noting that if “there was a Hall of Fame for Hyperactive trademark litigators, Stoller would be on it”). 15 Central Manufacturing, Inc. v. Brett, 2005 WL 2445898 *1, 1 (N.D. Ill. Sept. 30, 2005) aff’d, 492 F.3d 876, 880 (7th Cir. 2007). 16 Id. at *2. The Northern District court alone has ordered Stoller or his corporate entities to pay defendants' attorneys' fees and costs in at least six other reported cases: S Indus., Inc. v. Ecolab Inc., 1999 WL 162785, *1 (N.D. Ill. Mar. 16, 1999); S Indus., Inc. v. Stone Age Equip., Inc., 12 F. Supp. 2d 796 (N.D. Ill. 1998); S Indus., Inc. v. Centra 2000, Inc., 1998 WL 157067 (N.D. Ill. Mar.31, 1998); S Indus., Inc. v. Diamond Multimedia Sys., Inc., 991 F.Supp. 1012 (N.D. Ill. 1998); S Indus., Inc. v. Diamond Multimedia Sys., Inc., 17 F. Supp. 2d 775 (N.D. Ill. 1998); S Indus., Inc. v. Hobbico, Inc., 940 F. Supp. 210 (N..D. Ill. 1996)
454 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 wasteful of court resources” that in his most recent action, the Northern District of Illinois enjoined him from filing any new civil action in the district courts without first obtaining the court’s permission.17 In Central Manufacturing, Inc. v. Brett, the Seventh Circuit affirmed a decision of the Northern District of Illinois in which the court utilized two important weapons to counter Stoller’s most recent meritless trademark infringement suit: the power to order the cancellation of a trademark registration and the power to award attorney’s fees and costs to the prevailing party.18 Not only did the Seventh Circuit approve of the district courts decision to cancel the plaintiff’s mark, the court stated that “where . . . a registrant’s asserted rights to a mark are shown to be invalid, cancellation is not merely appropriate, it is the best course.”19 If the approach taken by the Seventh Circuit is implemented more often by district courts throughout the country, trademark trolls such as Stoller may think twice about bringing suit for infringement of a mark in which no protectable rights exist. This Comment proposes that other courts should follow the lead of the Seventh Circuit and that the cancellation-as-best-course rule should become the norm rather than the exception.20 A more liberal invocation of the court’s discretionary power of cancellation promotes trademark law’s three policy components: protection of producers, protection of consumers from confusion, and the encouragement of fair competition. Second, this policy assuages the costs associated with needless trademark litigation. Third, it places the public on notice of cancellations as ordered by the courts and provides increased certainty regarding trademark rights to the public. Finally, this policy also operates as a judicial “refreshing” mechanism for clearance of the unused trademark from the trademark register. The combination of mark cancellation and the award of attorney’s fees and costs to the prevailing party creates a powerful situation which may deter
17 Central Manufacturing, Inc., 492 F.3d at 881. 18 Id. at 876. 19 Id. at 883. 20 Id.
455 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 trademark trolls, such as Stoller, from filing or threatening to file meritless suit against innocent parties for use of a mark he lacks valid ownerships rights. Section I of this Comment outlines the commercial use requirement as found in the Lanham Trademark Act (“Lanham Act”) including its connection to the acquisition of federal registration, determining priority among competing claimants, and its relevance to deterring trademark warehousing. This section also discusses the commercial use requirement’s relationship to the “triumvirate” − the consumers, producers, and competitors the Lanham Act seeks to protect. Section II analyzes the consequences of the failure to use a mark in commerce, particularly in the context of litigation, where non- use is used to collaterally attack the registration of the plaintiff. Most importantly, this section discusses the power of the court to order the cancellation of registrations pursuant to 15 U.S.C. § 1119 of the Lanham Act. Section III discusses the practical, evidentiary issues of proof where a plaintiff must prove commercial use to establish ownership and prevail on an infringement claim. Section IV introduces the decision of the Seventh Circuit in Central Manufacturing. Section V discusses the Seventh Circuit’s view of proper invocation of the power of cancellation and the award of attorneys’ fees in cases involving trademark trolls and proposes the cancellation-as-best- course is a valuable and recommended approach that other circuits should follow. Finally, Section VI sets forth a separate discussion of the award of attorneys’ fees and costs in trademark litigation in the Seventh Circuit and its role in deterring the trademark troll.
I. BACKGROUND: THE LANHAM ACT AND TRADEMARK LAW POLICY
The Lanham Act was created in 1946 and remains the federal statute governing trademark rights.21 The Act protects both registered and common law rights and defines the term “trademark” to include “any word, name, symbol, or device or any combination thereof: (1) used by a person or (2) which a person has a bona fide intention to use
21 See 15 U.S.C. §§ 1051-1141(n) (2006).
456 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 in commerce…to identify and distinguish his or her goods… from those manufactured or sold by others and to indicate the source of the goods, even if that source is unknown.”22 Under this definition, in order to qualify for protection a mark must be “distinctive.”23 In Abercrombie & Fitch Co. v. Hunting World, Inc., the Second Circuit set forth the now well-known categories of marks: (1) generic, (2) descriptive, (3) suggestive, and (4) arbitrary or fanciful.24 Generic marks never merit protection; descriptive marks are only protectable with proof of secondary meaning or acquired distinctiveness; suggestive and arbitrary or fanciful marks are protectable without proof of secondary meaning.25 A mark achieves secondary meaning when, after being introduced to the market, unknown to consumers, the products catches on and the mark comes to be uniquely associated with the original source.26 The Abercrombie spectrum indicates a progressive degree of distinctiveness and therefore a concomitant increase in the strength of a mark.27 Arbitrary and fanciful marks are on one end and generic marks on the other. A mark owner is “better off adopting a fanciful or arbitrary mark” where they have yet to achieve the brand popularity level of someone like Nike.28 By not adopting a mark that is merely descriptive, a mark owner need not prove that the mark has acquired secondary meaning in the minds of the relevant buying public.29 It is easier to gain protection in the first instance and gives the mark owner time to develop consumer recognition through promotion and
22 Id. at § 1127. 23 Wal-Mart Stores v. Samara, Bros., 529 U.S. 205, 210-216 (2001) (discussing distinctiveness in the context of trade dress protection). 24 537 F.2d 4, 9 (2d Cir. 1976). 25 Id. at 9-11. 26 Custom Vehicles, Inc. v. Forest River, Inc., 476 F.3d 481, 483-484 (7th Cir. 2007); see also 15 U.S.C. § 1052(f) (“…nothing in this chapter shall prevent the registration of a mark used by the applicant which has become distinctive of the applicant's goods in commerce…”). 27 American Society of Plumbing Engineers v. TMB Pub., Inc., 109 Fed. Appx. 781,789 n.9 (7th Cir. 2004). 28 Custom Vehicles, 476 F.3d 481 at 484 (7th Cir. 2007). 29 Id.
457 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 investment. On other hand, refusing protection for generic marks ensures that typical words are not monopolized.
A. Commercial Use and Acquisition of Trademark Rights
Once a mark has met the statutory definition of a trademark by obtaining the requisite degree of distinctiveness the mark owner must meet the second requirement for registration: use in commerce.30 The distinctiveness and commercial use requirements are closely related: the more a mark is used in commerce the more likely the mark is to be viewed as distinctive of the registrant’s goods. The commercial use requirement is tied to Congress’ ability to regulate trademarks in the first instance: the power to regulate trademarks arises out of the Commerce Clause of the Constitution.31 There are two methods of registration.32 First, a mark owner who has already begun use of the mark in commerce may file an application for registration.33 Second, a person who has yet to use the mark in commerce, but has a bona fide intent to use the mark in commerce, may file an intent to use application (“ITU”).34 Where a person files an ITU application it must be followed up with proof of actual use of the mark in commerce within six months of the date of filing.35 Filing an ITU application establishes priority as of the date of
30 15 U.S.C. § 1051. 31 See The Trademark Cases, 100 U.S. 82, 94-95 (1879) (distinguishing between Congress’s express power to regulate patent and copyright under Article I, Section 8 and the power to regulate trademarks as falling only under the Commerce Clause); see also 15 U.S.C. § 1127 (defining commerce as “all commerce which may lawfully be regulated”). 32 See 15 U.S.C. §§ 1051(a), 1051(b). 33 Id. at § 1051(a). 34 Id. at § 1051(b) (“(1) A person who has a bona fide intention … to use a trademark in commerce may request registration … (3) The statement shall … specify-- (A) that the person making the verification believes that he or she… [is] be entitled to use the mark in commerce…”). 35 Id. at § 1051(d).
458 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 filing (except as against those already using the mark) and thus serves as a “place-holder.”36 Under the Lanham Act, the term “use in commerce” means the “bona fide use of a mark in the ordinary course of trade, and not made merely to reserve a right in a mark.”37 This definition represents an effort on behalf of Congress to eliminate what was known as the “token use” of a trademark, or, minor acts or sales made to meet the threshold commercial use requirement in order to register the mark, maintain the mark, or to even prevent others from adopting the mark.38 As evidenced by the aforementioned requirements, although trademark rights are established through use, not by virtue of registration,39 federal registration remains desirable because it endows additional benefits not provided at common law including: (1) nationwide constructive notice of the use and ownership of the mark; (2) original jurisdiction in federal courts based on federal question jurisdiction for actions concerning the mark; (3) prima facie evidence of the validity of the mark; (4) the right to use the mark nationally; (5) the right to use the mark; (6) the assistance of customs officials in policing the importation products bearing infringing marks.40 Thus, in litigation, favorable presumptions of validity, ownership, and the exclusive right to use the mark attach where a registered mark is at issue.41 The Seventh Circuit has noted, however, that the evidentiary value of a certificate of registration may be one of minor
36 Zazu Designs v. L'Oreal, S.A., 979 F.2d 499, 503 (7th Cir. 1992). 37 15 U.S.C. § 1127. 38 See Paramount Pictures Corp. v. White, 31 U.S.P.Q.2d 1768, 1774 (T.T.A.B 1994); see also The Trademark Law Revision Act, Public Law 100-667 (1988). 39 See In re ECCS, Inc., 94 F.3d 1578, 1579 (Fed.Cir.1996); see also In re Int’l Flavors & Fragrances, Inc., 183 F.3d 1362, 1366 (Fed. Cir. 1999) (“The federal registration of a trademark does not create an exclusive property right in the mark”). 40 America Online, Inc. v. AT&T Corp., 243 F.3d 812, 818 (4th Cir. 2001); see also 15 U.S.C. §§ 1072, 1121, 1115, 1072, 1111, and 1125(b). 41 15 U.S.C. § 1115.
459 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 significance because the presumption is an easily rebuttable one.42 It “merely shifts the burden of production to the alleged infringer.”43
B. Commercial Use and Priority Contests
Commercial use is also relevant to establishing priority among competing claimants of trademark rights. “Priority contests” arise where two or more parties allege prior use, and thus, valid rights in, the same trademark for similar products or services.44 The first date of commercial use serves as a guidepost to determining who has better rights, or, priority, in the mark. The first party to use a mark is generally considered the “senior” user and is entitled to enjoin the “junior” user from using the same, or a confusingly similar, mark.45 The senior user receives priority over the junior user and has the power to enjoin the junior user from using the mark on the same or related goods. Further, the scope of protection enjoyed by a trademark owner is not restricted to the original owner’s use of the mark. The “natural expansion” doctrine allows that owner to extend the scope of its protection for products the mark was originally used, but also related product lines.46 Under this doctrine, the senior trademark owner’s rights are limited to those goods that have been used and those related to the original goods, but also those that lie within the realm of natural expansion.47 Accordingly, commercial use has repercussions for a trademark owner’s use of the mark when faced with others using the mark on the same products, but also other products so long as they are related to the original.
42 Custom Vehicles, Inc. v. Forest River, Inc., 476 F.3d 481, 486 (7th Cir. 2007). 43 Id. (citing Door Systems, Inc. v. Pro-Line Door Systems, Inc., 83 F.3d 169, 172 (7th Cir.1996)); see also KP Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 408 F.3d 596, 604 (9th Cir. 2005). 44 See J. Thomas McCarthy, 3 MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 20:17 (4th Ed.)(2007). 45 Id. at § 16:5 (discussing the nature of the senior users market and the “zone of natural expansion” doctrine). 46 Id. 47 Id.
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C. Commercial Use, Trademark Warehousing, and Policy Implications
The commercial use requirement also prevents mark owners from warehousing and hoarding trademarks.48 As Judge Posner of the Seventh Circuit recently explained in Custom Vehicles, Inc. v. Forest River:
Bare registration is not enough. Trademarks cannot be “banked” or “warehoused”- that is, you cannot register thousands of names, unrelated to any product or service that you sell, in the hope of extracting a license fee from sellers of products or services for which one of your names might be apt.49
When trademarks are warehoused they do not serve the principle policies that form the very basis for trademark protection: protecting consumers, protecting trademark owner’s investments in their mark, and protecting and fostering fair competition. Trademark law protects consumers from confusion between brands in the marketplace and also allows consumers to distinguish between competing products.50 The law functions to prevent confusion by reserving protection only for marks that are distinctive of the goods or services of the mark owner. Because others are prohibited from using the mark on the same or similar goods, consumers are guaranteed that the products they buy originate with the same source,
48 Imperial Tobacco, Ltd. v. Philip Morris, Inc., 899 F.2d 1575, 1581 (Fed.Cir.1990) (“The Lanham Act was not intended to provide a warehouse for unused marks”). 49 Custom Vehicles, Inc. v. Forest River, Inc., 476 F.3d 481, 485 (7th Cir. 2007) (citing Harrods Ltd. v. Sixty Internet Domain Names, 302 F.3d 214, 219 (4th Cir. 2002)). 50 See Graham B. Dinwoodie & Mark D. Janis, Confusion Over Use: Contextualism In Trademark Law, 92 IOWA L. REV. 1597, 1613 (2007) (“Once consumer understanding, and hence a trademark right, is established, the primary goal of trademark law is to protect the integrity of that understanding by minimizing consumer confusion.”).
461 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 thus preventing consumer confusion. If a mark is not used, the consuming public cannot make the necessary link between the mark and a specific product.51 Thus, hoarding prevents other producers from making rightful use of a mark and inhibits the creation of real connections between products and their sources. These connections not only assist consumers in making purchasing decision by distinguishing among competing brands, but also function to reduce consumer search costs.52 Trademarks serve as source-identifiers by furnishing information about a products source, quality, and other important characteristics in a quick and costless fashion. This phenomenon is referred to as the reduction of “consumer search costs.”53 When a consumer makes a connection between a product or service in terms of price, quality, or the sheer image of life- style a consumer wishes to exude54, the trademark becomes something they can rely on time and again to assist them in making their purchasing decisions. Thus, consumer “search costs” are reduced due to the ease by which a consumer chooses a product based upon the association of the mark with the product and its source.55 Neither of the aforementioned consumer-related policies of trademark law could be fulfilled without the commercial use requirement. Mark hoarding minimizes the communication between the consumer, the mark, and the producer. Hence, consumers lose meaningful and valuable information that they may use in making purchasing decisions. Trademark law also functions to protect trademark producers. The law protects the trademark owners’ rightful use from appropriation by others. The law bans pirating use by others who may create and sell products or market services of sub-standard quality. Protection promotes and rewards investment by preserving the value of marks by
51 See, e.g. Panavision Int’l., L.P. v. Toeppen, 141 F.3d 1316, 1325 (9th Cir. 1998). 52 See Stephen L. Carter, The Trouble With Trademark, 99 YALE L.J. 759, 759 (1990) (“Successful marks are like packets of information. They lower consumer search costs, thus promoting the efficient functioning of the market.”). 53 See generally George J. Stigler, The Economics of Information, 69 J.POL.ECON. 213 (1961). 54 Ty Inc. v. Perryman, 306 F.3d 509, 510 (7th Cir. 2002). 55 Id. at 510-511.
462 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 prohibiting others from using the mark. By prohibiting others from free-loading off of the good-will a mark has established producers and owners are rewarded for investing time, effort, and money in producing and developing new brands with corresponding new products. Thus, producers and owners are rewarded for creation and use by receiving the protection the law affords them in exchange. Trademark owners are also rewarded with continued patronage and brand loyalty, when they have made efficient use of their marks. As noted above, trademarks reduce consumer search costs, thereby increasing the ability and perhaps frequency of repeat purchasers. The use in commerce requirement is a necessary tradeoff for these benefits to accrue to the mark owner. In theory, if they do not use the marks in commerce they will not benefit financially from the trademark registration. Thus, it is always in their best interest to market and promote their mark as much as possible and to create quality goods associated with the mark in order to increase sales and brand loyalty. The commercial use requirement also functions to protect and promote fair and honest competition between businesses. Commercial use prevents trademark hoarding, thereby discouraging the artificial reservation and depletion of the trademark reservoir. In exchange for protection, mark owners are permitted to appropriate a term. The trademark rights scenario inherently impairs competition by “impeding the ability of competitors to indicate that their brands are in the same product space.”56 By forcing registrants to actually use marks or lose them trademark law grants producers freedom to pick and choose terms to accurately describe products and services, unless someone has already adopted and made valid, fair use of the term before them. Furthermore, innocent trademark adopters are protected from trademark trolls threatening license or litigation. Confident that the law only protects registrants who make valid commercial use of their mark producers need not heed to such demands. Accordingly, the commercial use requirement forms the very core of the fundamental policies trademark law was designed to protect.
56 Custom Vehicles, Inc. v. Forest River, Inc., 476 F.3d 481, 485 (7th Cir. 2007).
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Consumers, trademark owners, and competition all directly benefit by vigilant enforcement of the use in commerce requirement.
II. CONSEQUENCES OF FAILURE TO USE MARK IN COMMERCE
The failure to use a mark in commerce may arise in two contexts: in inter-partes proceedings before the United State Patent and Trademark Office (“USPTO”) and when raised as a collateral attack in litigation. The Lanham Act gives concurrent power to order the cancellation of a mark to the Trademark Trial and Appeal Board (“TTAB”) and the courts.57 In either context, the non-use of a mark may be challenged on grounds of abandonment or a user may allege use of the mark prior to the date of registration thereby creating a priority contest.58 A party may file a petition to cancel a trademark directly with the USPTO subject to certain restrictions as explained supra in Section B.59 One can also challenge the validity of a mark and request a court to order its cancellation during trademark litigation.60
A. Commercial Use and Grounds for Cancellation
In some cases, 15 U.S.C. § 1064 of the Lanham Act acts as five- year statute of limitations on an opponent’s ability to challenge a mark.61 Marks that have been registered for less than five years may be cancelled “for any reason which would have been sufficient to deny registration in the first instance.”62 This limit applies to claims that there was no bona fide use of the mark in commerce to support the
57 See 15 U.S.C. §§ 1067, 1119. 58 Id. at § 1064 (setting forth grounds for cancellation). 59 Id. at § 1064. 60 Id. at §§ 1119, 1067. 61 Id. at § 1154. 62 Id. at §§ 1064, 1071(b)(1); Int’l. Order of Jobs Daughters v. Lindeburg & Co., 727 F.2d 1087, 1091 (Fed. Cir. 1984); see also McCarthy, supra note 44, at § 20:52.
464 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 original registration.63 However, a mark may always be challenged on the grounds that it has been abandoned regardless of how long a mark has been registered.64 During the hypothetical priority contest, a party will inevitably invoke § 1052(d), which states that a trademark may not be registered if it “consists of or comprises a mark which so resembles” a mark “previously used in the U.S. by another and not abandoned, as to be likely, when used on or in connection with the goods of the applicant, to cause confusion, or to cause mistake, or to deceive . . . .”65 Where a party realizes that a mark they have been using is the same or confusingly similar to a mark on the register they may have cause to file a petition to cancel that mark if the party’s date of first use is before that of the registrant.66 In this context, the first step to establish priority is to demonstrate a date of use prior to that of the registrant.67 The second step is proving likelihood of confusion, assessed under the TTAB’s likelihood of confusion factors, which includes the similarities between the marks and the similarities between the goods or services in which the mark is used.68 If these two elements are met,
63 15 U.S.C. § 1064; see also Jonathon Hudis, Beginning An Inter Partes Proceedings Before The Trademark Trial and Appeal Board: Nature, Grounds, and Initial Pleadings, 890 PLI/Pate 103 at 117 (2007). 64 15 U.S.C. § 1064. Other challenges that are not subject to the five year statute of limitations includes claims that: (1) the mark has become generic; (2) the mark is functional; (3) the mark was obtained fraudulently; (4) that the mark misrepresents its source; (5) that the mark was obtained contrary to the provisions of § 1064, which sets forth the standards for registering “collective” and “certification” marks; or (6) that the mark . . . is comprised of, among other things . . . immoral, deceptive, or scandalous matter. 65 Id. at § 1052. 66 See e.g. Ford Motor Co. v. Ford, 462 F.2d 1405 (C.C.P.A. 1972), cert. denied, 409 U.S. 1109 (1973) (cancelling “Ford Records” registration because of likelihood of confusion with Ford Motor Company’s trademark “Ford”); Southern Enters., Inc. v. Burger King of Florida, Inc., 419 F.2d 460 (C.C.P.A. 1970) (cancelling “Whoppaburger” registration because of likelihood of confusion with Burger King’s “Whopper” trademark”). 67 Hudis, supra note 63, at 120. 68 Id; see also In re E.I. du Pont de Nemours & Co., 476 F.2d 1357, 1361 (C.C.P.A. 1972) (setting forth factors relevant to likelihood of confusion analysis).
465 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 that party will likely be deemed the “senior” user and the registrant the “junior” user and the junior user’s registered mark should be cancelled pursuant to § 1052(d). On the other hand, a more direct consequence of the failure to make bona fide use of a mark in commerce arises in the context of a claim of abandonment. Pursuant to § 1127, a trademark has been abandoned where use has been discontinued with the intent not to resume.69 Thus, the existence of abandonment is a two prong inquiry: (1) there must be a period of non-use and (2) the user must also intend not to resume that use.70 Intent may be inferred from the circumstances.71 It is also a question of fact.72 Non-use of a trademark for three consecutive years constitutes prima facie evidence of abandonment.73 The effect of this prima facie case is to eliminate the challenger’s burden to establish the element of intent.74 Thus, it shifts the burden of producing evidence to rebut the presumption of intent to abandon to the plaintiff or trademark owner.75 A claim of abandonment may be the basis of a cancellation proceeding in the TTAB or may be asserted as an affirmative defense to litigation.
B. Cancellation and Inter-Partes Proceedings Before the U.S. Patent and Trademark Office
The TTAB has jurisdiction over four types of inter partes proceedings: oppositions, cancellations, interferences, and concurrent
69 Id. at § 1127 70 Id.; see also McCarthy, supra note 44, at § 17:9. 71 15 U.S.C. § 1127; see also M. L. Cross, Abandonment of a Trademark or Tradename, 3 A.L.R.2d 1226 (2007) (recognizing that intent is most often presumed from the circumstances because rarely do mark owners expressly indicate their intent to abandon a mark); see also FirstHealth of Carolinas, Inc. v. CareFirst of Maryland, Inc. 479 F.3d 825, 830 (Fed. Cir. 2007) (“abandonment is a question of fact”). 72 FirstHealth of Carolinas, Inc., 479 F.3d 825 at 830. 73 15 U.S.C. § 1127. 74 Imperial Tobacco, Ltd. v. Philip Morris, Inc., 899 F.2d 1575, 1579 (Fed. Cir. 1990). 75 Id. at 1579.
466 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 use proceedings.76 Cancellation proceedings may be initiated by any person who believes that they are or will be damaged by a registered mark.77 An inter partes proceedings before the TTAB is similar to district court proceedings in that there are pleadings, motions, discovery and brief filing.78 They differ, however, because the TTAB is an administrative tribunal and thus, proceedings are conducted solely in writing.79 A party to a proceedings may never even come before the board, by way of giving witness testimony or otherwise, unless a party requests oral hearing on the matter.80 Although the failure to petition for cancellation over a long period of time will not preclude a party from raising cancellation as a defense to an infringement suit brought by the registrant81, that failure may “smack tactical afterthoughts” to a court in later proceedings.82 Thus, where one doubts the validity of a registration it is always the better course to petition to cancel the mark rather than adopting a “wait and see” approach.83 Although hindsight is twenty-twenty, there are major benefits to filing a petition to cancel, aside from the obvious proactive avoidance of being placed in the defending position in litigation. First, an inter partes proceeding is doubtlessly less costly than the assertion of either priority or abandonment as an affirmative defense in litigation. Second, an inter partes proceeding is a less time-consuming endeavor. Although it is arguable that the TTAB is just as backlogged
76 See Hudis, supra note 63, at 111; see also 15 U.S.C. §§ 1063, 1064, 1092. 77 A person may oppose the registration of a mark shown in pending application pursuant to 15 U.S.C. § 1063 and may also petition for cancellation of a mark post-registration pursuant to 15 U.S.C. § 1064. 78 See Trademark Trial and Appeal Board Manual of Procedure (hereinafter “TBMP”), Chapter 102.02, 2d Ed., 1st Rev. (March 12, 2004) accessible at: http://www.uspto.gov/go/dcom/ttab (USPTO rules governing the procedures are designed to approximate the proceedings in a courtroom trial)). 79 Id. at Chapter 102.02. 80 Id. 81 Central Manufacturing Inc. v. Brett, 2005 WL 2445898 *1, 6 n.5 (N.D. Ill. Sept. 30, 2005) aff’d, 492 F.3d 876, 880 (7th Cir. 2007). 82 See McCarthy, supra note 44, at § 30:109. 83 Id.
467 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 as the district courts, the average time is much less than that of litigation. Further, where a party receives an adverse decision from the TTAB, that party is entitled to appeal. A party may appeal a decision of the TTAB to either the U.S. Court of Appeals for the Federal Circuit or to a federal district court.84 In an appeal to the Federal Circuit, the case proceeds on the closed administrative record and no new evidence is permitted.85 In contrast, an appeal to the district court is both an appeal and a new action, which allows the parties to request additional relief and to submit new evidence.86 The courts of appeals, other than the Federal Circuit, have appellate jurisdiction to review the district court's decision.87
C. Cancellation and Litigation
The power to cancel a trademark is not limited to the USPTO. As Judge Easterbrook has noted, “trademark law does not reserve the cancellation power to the PTO. A court may cancel a mark itself or order the agency to do so.”88 The power to order the cancellation of a mark is governed by 15 U.S.C. § 1119.89 That section provides: “In any action involving a registered mark the court may determine the right to registration, order the cancellation of registrations, in whole or in part, restore cancelled registrations, and otherwise rectify the register with respect to the registrations of any party to the action.”90 The “net effect” of 15 U.S.C § 1119 is to give the courts “concurrent
84 15 U.S.C § 1071; see also CAE, Inc. v. Clean Air Engineering, Inc. 267 F.3d 660, 673 (7th Cir. 2001); see also McCarthy, supra note 44, at §§ 21:20, 21:25, 21:26. 85 15 U.S.C. § 1071(a)(4); see also CAE, Inc., 267 F.3d at 660. 86 CAE, Inc., 267 F.3d at 660 (citing Spraying Sys. Co. v. Delavan, Inc., 975 F.2d 387, 390 (7th Cir.1992)); see also McCarthy, supra note 44, at § 21:20. 87 15 U.S.C. § 1121(a). 88 Ruth Foundation v. World Church of the Creator, 297 F.3d 662, 665 (7th Cir. 2002). 89 15 U.S.C. § 1119; see also Ruth Foundation, 297 F.3d at 665. 90 Ruth Foundation, 297 F.3d at 665.
468 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 power” with the USPTO to conduct cancellation proceedings.91 The Supreme Court has noted that § 1119 grants the court “broad power” to order the cancellation of a registered mark."92 Unlike inter partes procedures before the TTAB, cancellation of a trademark cannot be the only basis of a plaintiff’s suit.93 The Seventh Circuit has held that federal courts do not have jurisdiction to hear a claim for cancellation brought by a plaintiff without a current registration.94 The reasoning for this stems from the language of the Lanham Act and policy implications. First, the plain language of 15 U.S.C. § 1119 states that the court may order cancellation “in any action involving a registered mark” and 15 U.S.C. § 1121 grants jurisdiction to the federal courts “of all actions arising under this Act.”95 Thus, where a registered mark is not involved a plaintiff may not invoke the jurisdictional grants of the Lanham Act.96 Second, “if one could file suit in federal court solely for cancellation of a registration, this would undercut and short-circuit the power of the [TTAB].”97 Thus, some other ground for jurisdiction must exist to invoke the federal jurisdiction of the federal courts, but, theoretically, diversity alone would suffice.98
91 15 U.S.C. § 1119; see also McCarthy, supra note 44, at § 30:109. 92 Park’n Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189, 213 (1985). 93 See Jasin R. Berne, Court Intervention But Not In Classic Form: A Survey of Remedies in Internet Trademark Cases, 43 ST. LOUIS U.L.J. 1157, 1167 (1999). 94 Homemakers, Inc. v. Chicago Home for Friendless, 313 F.Supp 1087, 1087 (N.D. Ill 1970), aff’d, 169 U.S.P.Q. 262 (7th Cir. 1971). 95 15 U.S.C. § 1121; see also id. at § 1338(a). 96 See McCarthy, supra note 44, at § 30:110. 97 Id. 98 See, e.g. Simmonds Aerocessories, Ltd. v. Elastic Stop Nut Corp., 257 F.2d 485,486 (3d Cir. 1958) (diversity jurisdiction); but see Sam S. Goldstein Industries, Inc. v. Botany Industries, Inc., 301 F. Supp. 728, 730 (S.D.N.Y. 1969).
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III. CENTRAL MANUFACTURING, INC. V. BRETT: CANCELLATION OF THE STEALTH MARK AND THE “EXCEPTIONAL” CASE
On April 29, 2004, Stealth Industries, later amended to include Central Manufacturing, Inc. and Leo Stoller99, filed suit against George Brett and Brett Brothers Sports International, Inc., seeking an injunction and damages for the defendant’s improper use of the “STEALTH” mark on baseball bats in the U.S. District Court for the Northern District of Illinois.100 In response, the defendants asserted thirteen affirmative defenses, three of which are relevant to this comment: (1) unenforceability due to invalid or void registrations; (2) abandonment due to failure to use the mark in connection with the plaintiff’s business; and (3) non- infringement due to the defendant’s use of the mark prior to the plaintiff’s.101 In filing their motion for summary judgment, the defendant argued that the plaintiff failed to meet his burden of producing evidence that would create a genuine issue of material fact for trial for three reasons. First, the plaintiff could not show actual use of the mark on goods sold to the public before the defendant’s first use of the mark, despite the existence of a federal registration.102 Second, even if the registration was valid in the first instance, the plaintiff’s lack of commercial use constituted an abandonment of the mark.103 Third, there could be no likelihood of confusion between the parties use of the marks because confusion cannot arise in the absence of use.104 Finally, the defendant asked the court to order the cancellation
99 See Defendants' Answer and Affirmative Defenses to Plaintiff's Amended Complaint, 2004 WL 2817117 (N.D. Ill., Sep. 2, 2004) (Stoller is the President and sole shareholder of STEALTH Industries, Inc. and Central Mfg. Co.). 100 Central Manufacturing Inc. v. Brett, 2005 WL 2445898 *1, 1 (N.D. Ill. Sept. 30, 2005) aff’d, 492 F.3d 876, 880 (7th Cir. 2007). 101 See Defendants' Answer and Affirmative Defenses to Plaintiff's Amended Complaint, 2004 WL 2817117 (N.D. Ill., Sep. 2, 2004). 102 Id. 103 Id; see also 15 U.S.C. § 1127. 104 See Defendants' Answer and Affirmative Defenses, 2004 WL 2817117 (N.D. Ill., Sep. 2, 2004). The Seventh Circuit’s likelihood of confusion analysis involves the application of the following factors: (1) the similarity of the marks in appearance
470 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 of the plaintiff’s ‘249 registration of the STEALTH mark.105 The defendant did not mention 15 U.S.C. § 1119, which is the section of the Lanham Act that actually gives the court concurrent authority with the United States Patent and Trademark Office (“USPTO”) to order the cancellation of the mark.106 Instead, the defendant argued that the ’249 registration should be cancelled pursuant to 15 U.S.C. § 1052(d), which merely recites the grounds for ordering the cancellation of the mark.107 However, this distinction is one without much significance. The court still invoked its authority pursuant to that section. After analyzing each of the defendant’s arguments in turn, on September 30, 2005, Judge Coar of the Northern District of Illinois granted the defendant’s motion for summary judgment and ordered the cancellation of the plaintiff’s ‘249 registration.108 First, the court addressed the validity of the plaintiff’s trademark, setting forth the two requirements that a plaintiff must demonstrate in order to prove up a claim of trademark infringement: (1) ownership of a valid trademark and (2) the infringement of that mark.109 In assessing the validity of the plaintiffs’ trademark, the court held that despite the presumption of validity that a trademark registration provides, the plaintiffs failed to provide sufficient evidence of use of the mark in
and suggestion; (2) the similarity of the products; (3) the area and manner of concurrent use; (4) the degree of care likely to be used by consumers; (5) the strength of the plaintiff's mark; (6) whether any actual confusion exists; and (7) the defendant's intent to palm off its goods as those of the plaintiffs. See Helene Curtis Industries, Inc. v. Church & Dwight Co., Inc, 560 F.2d 1325, 1330 (7th Cir. 1977). 105 See Defendants' Answer and Affirmative Defenses, 2004 WL 2817117 (N.D. Ill., Sep. 2, 2004)(The defendant’s invoked 15 U.S.C.§§ 1064 and 1068, which provide that a mark may be cancelled if it would cause confusion with a previously existing mark, stating, “[b]ecause it is undisputed that Brett Bros, use of ‘Stealth’ for baseball bats pre-dates Stoller's alleged use and the goods contained in Stoller's ′249 registration (‘baseball, softball and t-ball bats,’) are similar to Brett Bros’ “Stealth” mark, there is clearly a likelihood of confusion between the marks”). 106 Id. 107 Id. 108 Id. at *1. 109 Id. at *5.
471 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 commerce.110 Thus, the plaintiffs could not, and did not, own the mark “STEALTH” for baseballs or baseball bats.111
A. The Priority Contest: Evidentiary Proof of Commercial Use
Central Manufacturing was a classic priority contest. The defendants first began using the STEALTH mark on baseball bats and sold them in commerce in 1999.112 The defendant’s STEALTH baseball bat has been recognized by the Little League Baseball Association and the Major League Baseball Association.113 To this day, the defendant continues to sell its STEALTH bats online and at various retail outlets.114 The plaintiff, on the other hand, claimed that his first use of the STEALTH mark on baseball related products was in at least 1982.115 As noted above, although the plaintiff claimed to be either the registrant or assignee of “33 federally registered STEALTH or STEALTH formative marks,” only two were conceivably relevant to this suit.116 This is due to the likelihood of confusion requirement: only the use of a mark that is likely to cause consumer confusion is actionable.117 Thus, the plaintiff invoked two registrations for products related to baseball rather than invoking the STEALTH registrations on wholly unrelated products. The first registration occurred on August 29, 1984 when the plaintiff registered the STEALTH mark for “sporting goods, specifically, tennis rackets, golf clubs, tennis balls, basketballs, soccer balls, golf balls, cross bows, tennis racket strings
110 Id. 111 Id. 112 Id. 113 Id. at *2. 114 See Brett Brothers Home Page, http://www.brettbats.com (last visited Jan. 3, 2008). 115 Central Manufacturing, Inc. v. Brett, 2005 WL 2445898, *1, 3 (N.D. Ill. Sept. 30, 2005) aff’d, 492 F.3d 876, 880 (7th Cir. 2007). 116 Id. at *2. 117 15 U.S.C. § 1125(a)(1)(A).
472 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 and shuttle cocks” (the “‘378 Registration”).118 On February 9, 2002, the plaintiff registered the STEALTH mark for “baseball, softball, T- ball bats,” (“the ‘249 Registration”).119 The ‘249 Registration’s first use date of the STEALTH mark for baseball bats was January 3, 2001.120 The court noted that it was undisputed that the plaintiff acquired a registration for the use of the word “STEALTH” with respect to baseballs in 1984 (the ‘378 Registration), but equally clear was the fact that the plaintiffs did not acquire a registration for the use of the STEALTH mark in relation to baseball bats until 2004 (the ‘249 Registration).121 Thus, if adequate proof existed for the continuous commercial use of the STEALTH mark on baseball related products from the date of the first registration, the plaintiff would have priority over the defendant’s use of the mark.122 However, the plaintiffs “failed completely to support their claim that they actually used the STEALTH mark in connection with an established, presently existing, and ongoing business prior to [defendant’s] use of the word STEALTH on baseball bats in 1999.”123 The court found it incredulous that the plaintiff, who claimed to have used the mark for more than a decade, could not provide a sole invoice indicating any commercial transaction involving the sale of any baseball-related product under the STEALTH mark.124 The defendant, however, easily demonstrated that they began selling baseball bats on their website in 1999 – nearly five years before
118 See United States Trademark Registration No. 1,332,378 (filed August 29, 1984) (cancelled June 26, 2007). 119 See United States Trademark Registration No. 2,892,249 (filed February 1, 2007) (cancelled June 26, 2007). 120 Id. 121 Central Manufacturing Inc. v. Brett, 2005 WL 2445898 *1, 3 (N.D. Ill. Sept. 30, 2005) aff’d, 492 F.3d 876, 880 (7th Cir. 2007). 122 This would only be the case if the court found that the use of the STEALTH marks on baseball bats was confusingly similar to the plaintiff’s use of the STEALTH marks on baseballs. This argument was only made in the alternative by the parties at the district court level because they simply attacked the validity of the plaintiffs claim to the trademark in the first place under grounds of priority and abandonment. 123 Central Manufacturing, Inc., 2005 WL 2445898 at *5. 124 Id.
473 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the 249’ Registration.125 Accordingly, the court found that the defendant could not infringe because they were the “senior” users to the mark.126 Thus, the defendants were the parties with valid ownership rights in the STEALTH mark for baseball bats by virtue of their prior use.127 Central Manufacturing illustrates that the type and amount of evidence of commercial use can prove problematic for some plaintiffs. Stoller’s complete and utter lack of proof of commercial use represents the extreme case. But, what sort of evidence is sufficient to prove commercial use? What must a plaintiff show to demonstrate sufficient use in commerce to prove ownership of a valid and enforceable mark? If there were a commercial use spectrum, Central Manufacturing would be at the bottom of the evidentiary standard of proof. In characterizing the plaintiff’s proof as “unsupported assertions” and “unauthenticated evidence of small amounts of sales,” the court held the plaintiff failed to prove ownership rights to the STEALTH mark.128 The most obvious problem was the lack of invoices and receipts characteristic of actual business transactions between the plaintiff and consumers or businesses.129 However, to support his claim of ownership the plaintiff attempted to admit the following documentary evidence: advertising material and charts of “sales” activity.130 The court rejected this evidence as unsubstantiated, unbelievable or both. First, in rejecting the plaintiff’s attempt to introduce a sporting goods magazine to prove “alleged licensee was active in the baseball market,” the court stated the law was clear that “mere advertising and documentary use of a notion apart from the goods do not constitute technical trademark use.131 Plaintiff also attempted to introduce an advertising flyer for a STEALTH baseball.132 Both were rejected
125 Id. at *13-15. 126 Id. at *15. 127 Id. 128 Id. at *5. 129 Id. 130 Id. 131 Id. (quoting Powermatics, Inc. v. Globe Roofing Prods. Co., 341 F.2d 127, 130 (C.C.P.A. 1965)). 132 Id.
474 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 because mere “marketing and promotional materials” alone are insufficient to constitute trademark use, particularly in the absence of evidence that the flyer was ever sent out to a potential customer nor resulted in a single sale of the bat.133 Second, the plaintiff attempted to introduce “Sale Quote Sheets” and “Stealth Brand Baseball Sales”, but could not explain where the lump sum yearly numbers came from or to whom or where the alleged sales were made.134 The court stated that there was simply nothing in record to indicate that the “sales sheet[s] bear any relation to reality and is not simply something Plaintiffs generated on a home computer for the purposes of this litigation.”135 Further, there was no evidence that the “products ever existed except as lines on a piece of promotional paper or that any of these corporations ordered even one item from Plaintiffs.”136 The sales sheets also failed to overcome the mere advertising hurdle.137 Although the plaintiff testified at his deposition that he had sold baseball bats, the court refused to give credence to his self-serving deposition testimony.138 The court did note that “registration, coupled with slight sales, establishes an exclusive right in the mark against junior users”, but here, there was absolutely no credible evidence of baseball related product sales to establish their exclusive right in the STEALTH mark for baseballs, much less for baseball bats.139 So, what type of evidence is sufficient to establish commercial use for the purposes of ownership? The Seventh Circuit has stated that this determination is made on a case by case basis and upon consideration of the “totality of the circumstances.”140 Although the Ninth Circuit
133 Id. 134 Id. 135 Id. 136 Id. 137 Id. 138 Id. at *3. 139 Id. at *5. 140 See, e.g., Johnny Blastoff, Inc. v. L.A. Rams Football Co., 188 F.3d 427, 433 (7th Cir. 1999) (“The determination of whether a party has established protectable rights in a trademark is made on a case by case basis, considering the totality of the circumstances”).
475 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 has held that commercial use sufficient to establish ownership rights may be proven without evidence of a sale, the Seventh Circuit has not been so generous.141 In Zazu Designs v. L’Oreal, S.A., the Seventh Circuit found evidence of a few sales of products to which the mark had been affixed insufficient to establish trademark ownership.142 In that case, the plaintiff hair salon had sold a few bottles of shampoo bearing the mark over the counter and via mail.143 The court found such limited sales “neither link the [mark] with [the plaintiff’s] product in the minds of consumers nor put other producers on notice.”144 Just before Central Manufacturing was decided in 2007, the Seventh Circuit was presented with the opportunity to pass on another trademark case relating to the commercial use requirement. In Custom Vehicles, the court affirmed the decision of the Northern District of Indiana, dismissing a trademark infringement complaint of the alleged owner of the mark “Work-N-Play.”145 The court found that the mark was descriptive when used for a van that could be converted from an office to a camper, but more importantly, the court held that the sale of one van without using the trademark was insufficient to place the mark in use in commerce for the purposes of the Lanham Act.146 The plaintiffs had filed an intent-to-use application for the mark, however, that same year a much larger company started using the same mark in similar types of vans.147 The sales of the second company totaled more than $10 million whereas the plaintiff had made only one sale of its van and not even under the Work-N-Play mark.148 Judge Posner, writing for the court, first noted that even if the mark had been used in
141 Planetary Motion, Inc. v. Techsplosion, Inc., 261 F.3d 1188, 1195-1196 (existence of sales or lack thereof does not by itself determine whether a user of a mark has established ownership rights therein). 142 979 F.2d at 503-04. 143 Id. at 503. 144 Id. 145 Custom Vehicles, Inc. v. Forest River, Inc., 476 F.3d 481, 482 (7th Cir. 2007). 146 Id. at 485. 147 Id. 148 Id.
476 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the sale, it would not have been enough to place the trademark in the “ordinary course of trade.”149 The court then went on to state: “[w]e suppose that one sale of a $150 million airplane or yacht within the first six months might be sufficient use, for it would be enough to seize the attention of the relevant market.”150 The court went on to acknowledge that the Ninth Circuit has held that “where a mark has been placed on goods, a single sale or shipment may be sufficient to support an application to register the mark” so long as that use is bona fide,” but the court declined to follow its reasoning.151 The court did note an exception for the “superexpensive prototype,” such as the yacht example noted above, where one sale may be sufficient to demonstrate commercial use, but “not one sale of a van.”152 This singular sale would be too “obscure an event to alert any significant number of consumers” as to the marks existence.153 Thus, in assessing the commercial use requirement, the focus is on whether the mark was adopted and used in a manner sufficiently public to identify and distinguish the goods to likely consumers of those particular goods. De minimis use is not sufficient to meet this standard.154 Hence, slight sales of a product affixed with the mark will likely not meet the commercial use requirement. Accordingly, in the district courts governed by the Seventh Circuit, plaintiffs must be prepared to present actual and substantiated evidence of sales of the specific goods affixed with the mark in question before even contemplating filing suit for trademark infringement. The defendant’s alternative argument for a claim to priority was that the plaintiff abandoned the STEALTH mark.155 Although the
149 Id. (citing Lucent Information Management, Inc. v. Lucent Technologies, Inc., 186 F.3d 315-317 (3rd Cir. 1999)). 150 Id. 151 Id. at 485-486 (discussing Chance v. Pac-Tel Teletrac Inc., 242 F.3d 1151, 1157 (9th Cir. 2001)). 152 Id. at 485. 153 Id. 154 See McCarthy, supra note 44, at §16:6. 155 Central Manufacturing Inc. v. Brett, 2005 WL 2445898 *1, 5 (N.D. Ill. Sept. 30, 2005) aff’d, 492 F.3d 876, 880 (7th Cir. 2007).
477 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 district court already determined that the defendant was in fact the senior user, the court nevertheless engaged in an abandonment analysis, holding that the plaintiff’s complete inability to produce evidence of commercial use supported a finding of abandonment.156
B. The District Court’s Ruling
Finally, despite finding that the plaintiff failed its burden of proving the first prong of the trademark analysis, ownership of a valid mark, the court continued to apply the seven-factor likelihood of confusion test.157 Stoller argued that the ‘378 registration, although did not include baseball bats, was sufficiently strong and related to baseball bats to cause likelihood of confusion.158 The district court, however, found that the application of the likelihood of confusion test weighed overwhelmingly in the defendants favor.159 After assessing the parties’ respective arguments, the district court granted the defendant’s motion for summary judgment.160 In granting the defendant’s motion, the court also took two steps seemingly outside of the norm of trademark litigation: the court ordered the plaintiff to pay the defendant’s attorneys’ fees and costs and ordered the cancellation of the plaintiff’s 249’ registration.161 First, by invoking the court’s power to order the cancellation of a mark pursuant to 15 U.S.C § 1119, the court went beyond what was absolutely required in order for justice to be served in this case. The defendant’s argued that because they were the senior users of the STEALTH mark, the plaintiff’s continued registration of the STEALTH mark for the same goods, baseball bats, violated 15 U.S.C. 1052(d).162 This section states that a mark may be cancelled if it “[c]onsists of or comprises a mark which so resembles ... a mark or
156 Id. at *6. 157 Id. at *9-13. 158 Id. at *10. 159 Id. 160 Id. 161 Id. 162 Id. at *14.
478 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 trade name previously used in the United States by another and not abandoned, as to be likely, when used on or in connection with the goods of the applicant, to cause confusion, or to cause mistake, or to deceive.”163 Because the defendant’s were the first to use the STEALTH mark and the ‘249 Registration claimed baseball bats, the same goods the defendant’s sold using the mark, sufficiently likelihood of confusion justified cancellation of the ‘249 registration.164 Accordingly, the district court ordered the cancellation of the ‘249 registration.165 Second, the award of attorney’s fees under the Lanham Act is reserved only for those “exceptional” cases; thus, it is unlikely that a court will award attorneys fees in trademark litigation. A discussion of the award of attorneys’ fees and costs is discussed in Section VI infra. The plaintiff appealed to the Seventh Circuit, challenging the district court’s grant of summary judgment in favor of the defendants, the cancellation of the plaintiff’s registration, and the award of attorney’s fees in costs.166
V. CANCELLATION AS “BEST COURSE” AND THE “STINKING DEAD FISH” STANDARD FOR REVIEWING ATTORNEYS FEES: THE SEVENTH CIRCUIT APPROACH
In affirming the district court’s decision regarding the plaintiff’s failure to prove valid commercial use of the mark, the Judge Evans, writing for the court, extensively quoted the district court’s analysis and rejection of the plaintiff’s evidence, or lack thereof, showing commercial use of the mark.167 In addressing the district court’s decision to cancel the plaintiff’s ‘249 registration, the court stated that “where… a registrant’s asserted rights to a mark are shown to be
163 15 U.S.C. § 1052(d). 164 Central Manufacturing Inc. v. Brett, 2005 WL 2445898 *1,14 (N.D. Ill. Sept. 30, 2005) aff’d, 492 F.3d 876, 880 (7th Cir. 2007). 165 Id. at *10. 166 Central Manufacturing, Inc. v. Brett, 492 F.3d 876, 880 (7th Cir. 2007). 167 Id. at 882-883.
479 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 invalid, cancellation is not merely appropriate, it is the best course.”168 Finally, in upholding the district court’s award of attorney’s fees and costs the court eloquently noted that the court would “not reverse a determination [to award attorney’s fees and costs] for clear error unless it strikes us as wrong with the force of a 5-week-old, unrefrigerated, dead fish.”169 In applying this “olfactory standard” the court found that the only thing that stunk was the defendant’s actions in filing suit.170 The issue of trademark cancellation arose by virtue of the defendant’s collateral attack on the validity of the STEALTH mark.171 The defendants recognized the existence of two important facts in responding to the plaintiff’s complaint: they were truly the senior users of the STEALTH mark as used on baseball bats and the lack of evidence of commercial use also constituted an abandonment of the STEALTH mark.172 A district court is not required to order the cancellation of a mark where, as in Central Manufacturing, the mark is invalid. However, a court need not even wait for a party to request cancellation: cancellation is a purely optional and discretionary affirmative step taken on behalf of the court, either prompted by the alleged infringer’s response to the complaint or on the court’s own accord. Thus, when the validity of a mark is put in issue173, a court is faced with a to-cancel or not-to-cancel dilemma. The power to order the cancellation of a mark is an option often overlooked by many district courts. But, where a registrant-plaintiff clearly lacks rights to a mark, through the failure to commercially use the mark or otherwise, courts should be much more willing to invoke the power of
168 Id. at 883. 169 Id. 170 See Rodriguez v. Anderson, 973 F.2d 550, 553 (7th Cir. 1992) (describing this standard of review as an “olfactory” one). 171 Central Manufacturing Inc. v. Brett, 2005 WL 2445898 *1, 14 -15 (N.D. Ill. Sept. 30, 2005) aff’d, 492 F.3d 876, 880 (7th Cir. 2007). 172 Id. 173 Id. at *14 (“The court may cancel a trademark in an action where the mark’s validity is placed in issue”).
480 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 cancellation, as the Seventh Circuit advocated in Central Manufacturing.174 The Seventh Circuit not only approved of the district court’s invocation of its Section 1119 powers in cancelling the plaintiffs mark but also characterized the action as “not merely appropriate” but “the best course.”175 Accordingly, more courts should invoke their power to cancel in trademark litigation where it is obvious that the plaintiff’s trademark rights are invalid. This approach is supported not only by the statutory mandate of commercial use and Section 1119’s explicit grant of the power to cancel to the court, but also many important policy considerations. In Central Manufacturing the court itself noted two policies justifying this approach in its opinion. First, the court characterized the invocation of Section 1119 as putting “the public on notice of its trademark-related judgments.”176 Second, the court stated that Section 1119 “arms the court with the power to update the federal trademark register to account for a mark’s actual legal status (or lack thereof) after it has been adjudicated, thereby reducing the potential for future uncertainty over the rights in a particular mark.”177 Below, these policy implications are assessed. Finally, the Seventh Circuit’s unique characterization of its standard of review for attorney’s fees in Lanham cases warrants separate attention.178
A. Certainty, Public Notice, and “Refreshing” Function
The court first noted that a positive effect of the invocation of the power to cancel serves to “put the public on notice of its trademark- related judgments.”179 Once there has been a final judgment either ordering or affirming an order to cancel and the proper procedures are followed, that mark is still present on the register, but its status is “cancelled.” Hence, when the court orders cancellation of a mark that
174 Central Manufacturing, Inc. v. Brett, 492 F.3d 876, 883 (7th Cir. 2007). 175 Id. 176 Id. 177 Id. 178 Id. 179 Id.
481 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 has been abandoned due to non-use or has been invalided on the basis of priority, the court fulfills the goal of “rectifying the register” as set forth in Section 1119. This rectification is similar to hitting the refresh button on an internet webpage: once pressed the old data is discarded and only new data remains. Thus, the invocation of Section 1119 cancellation serves an important gap-filling function: the USPTO has neither the resources nor the ability to police every mark on the register to assure that they are being used in commerce. The liberal use of Section 1119 serves as a judicial cleansing mechanism to produce a more updated and coherent register of marks that are actually used, thereby producing a more accurate picture for those searching for conflicts in their quest to adopt their own mark. Thus, judicial refreshment via Section 1119 puts the public on notice of trademark related judgments. The court also posited that this refreshment mechanism also “reduces the potential for future uncertainly over the rights in a particular mark.”180 Cancellation results in the release of marks back into the marketplace for others to adopt and invest in. This also encourages healthy competition. Where the public is on notice of what marks or terms are monopolized for the purposes of adoption for specific goods or services, that public is on notice of what marks it can or cannot appropriate in the course of their own trademark development and adoption. The more often the register is refreshed, the more accurate picture trademark-seekers may have to assess trademark conflicts. Thus, new producers and hopeful mark owners may adopt words with ease and with confidence.
B. Reduction of Trademark “Thickets”
In addition to providing greater certainty by putting the public on notice of a marks status, ordering the cancellation of marks reduces trademark “thickets.” In Custom Vehicles, Judge Posner used the term “thicket” to describe a situation that would develop where, as here, trademark owners failed to use (or made commercially insignificant
180 Id.
482 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 use of) a registered mark.181 Trademark thickets “make it difficult for new producers to find suitable names for their products that had not already been appropriated to no worthier end than providing the premise for an infringement suit.”182 Further, “by insisting that firms use marks to obtain rights in them, the law prevents entrepreneurs from reserving brand names in order to make their rivals’ marketing more costly.”183 Thus, proper cancellation hinders the development of trademark thickets, thereby ensuring that words or marks are not depleted from the public arena and businesses are free to use and adopt them as their own. Unless a trademark registrant actually makes use of its mark in commerce, the seller should not be allowed to appropriate the mark, “denying its use to sellers who can actually sell.”184
C. Deterring Trademark Troll and Long-Term Savings
The liberal use of the power to cancel deters acts of trademark “trolls,” such as Stoller, who have failed to make legitimate use of their marks. This in turn results in long-term savings. Cancellation cuts off the presumptions associated with registration and thus may result in fewer cases filed by trademark trolls. The fewer frivolous trademark infringement suits that are filed, the fewer judicial recourses and time that are wasted. In Central Manufacturing, and every other case in which Leo Stoller had filed suit, the end result was the same: dismissal or a grant of summary judgment. In addition to deterring trademark trolls from filing suit, cancellation protects producers from the threat of suit and/or licensing demands for the use of a trademark that is no longer valid. In Central Manufacturing, for example, the plaintiff had “repeatedly sought ways to get around the law’s prohibition of stockpiling of unused marks, and this case is no different.”185 By cancelling the plaintiffs mark, the party
181 Custom Vehicles, Inc. v. Forest River, Inc., 476 F.3d 481, 485 (7th Cir. 2007). 182 Id. at 485. 183 Zazu Designs v. L’Oreal, S.A., 979 F.2d 499, 503 (7th Cir. 1992). 184 Custom Vehicles, Inc., 476 F.3d at 486. 185 Id.
483 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 loses a valuable instrument in negotiation: the party no longer has a conceptually concrete basis for threatening to file suit. Where a registration is at issue, parties are much more likely to take the threat seriously than if only common law rights are asserted. Thus, the trademark troll loses an important bargaining chip when attempting to extort licensing fees from unsuspecting, innocent users of marks: the ability to claim ownership rights to, and presumptions associated with, registration of a trademark.
D. Critiques
The assumptions of long-term savings and deterrence as the result of cancellation is flawed for one important reason: because registration merely confers a presumption of the right to use, ownership, and validity, the loss of the registration results in only the loss of a registered right. Because trademark rights arise out of use and not registration, a party may still claim ownership of a valid mark at common law.186 Thus, a party like Stoller, who despite never winning one case and being forced to pay for all the costs of litigation in some, are keen on still filing suit may simply continue to do so. Although the presumptions of validity are not present, one can still claim rights to a mark based on mere use pursuant to common law and state claims of unfair competition. The Lanham Act still provides protection for unregistered marks. As such, the cancellation of a mark does not bar an ambitious trademark troll from bringing suit or threatening to file suit if a licensing agreement is not reached between the parties. Thus, deterrence and resulting long-term savings may be positive thinking rather than a realistic result of proactive cancellation by the courts. However, as discussed below, the threat of not only paying one’s own costs of litigation, but also the other party’s, may provide an even greater push to stop trademark trolls from filing suit for infringement of a mark they do not have rights in.
186See Posting of John L. Welsh to http://www.thettablog.blogspot.com, “TTABlog Says: It’s Time to Tackle the ‘Trademark Trolls,’” January 28, 2006 (urging trademark practitioners to demand that the USPTO and TTAB “crack down” on trademark trolls).
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VI. AWARD OF ATTORNEY’S FEES AND COSTS: LACK OF EVIDENCE OF COMMERCIAL USE
Where mark cancellation and an award of attorney’s fees and costs to the defendant are combined, it provides powerful incentives to only bring suit where a party has confidence in the right to use that mark. The Seventh Circuit also has a highly unique way of characterizing the standard under which it reviews a district court’s award of attorney fees. In reviewing the award in Central Manufacturing, the court stated, “[w]e will not reverse a determination for clear error unless it strikes us as wrong with the force of a 5-week- old, unrefrigerated, dead fish.”187 In applying this “olfactory standard” the court found that the only thing that stunk was the defendant’s actions in filing suit.188 Aside from this notable characterization of the standard of review for attorney’s fees, the Seventh Circuit’s review of attorney’s fees under the Lanham Act has had a colorful progression.189 While an award of attorneys’ fees to the prevailing party is the exception and not the rule, the Seventh Circuit has broadened the scope of “exceptional” cases to include not just pre-litigation, but also litigation, conduct.190
187 Id. 188 See Rodriguez v. Anderson, 973 F.2d 550, 553 (7th Cir. 1992) (describing this standard of review as an olfactory one). The “dead fish” standard apparently originated with Jude Bauer in Parts and Elec. Motors, Inc. v. Sterling Elec., Inc., 866 F.2d 228, 233 (7thCir.1988), an antitrust case and was also used by Judge Evans in an earlier trademark infringement case, S Industries, Inc. v. Centra 2000 Inc., 249 F.3d 625, 627 (7thCir. 2001), also involving the Stoller. It seems as though Judge Evans reinvented this language and applied it to the trademark contest due to the nature of the Stoller’s actions. 189 See generally Anne M. Mellen, Awarding Attorneys’ Fees Under The Lanham Act: Egregious Litigation Conduct In The Exceptional Case, 74 U. CIN. L. REV. 1111, 1115 (2004). 190 Id. at 1117 (arguing that “no court has gone as far as the Seventh Circuit, which shifted attorneys fees for egregious litigation conduct other than of the filing of vexatious or harassing lawsuits” in discussion of TE-TA-MA Truth Foundation- Family of URI, Inc. v. World Church of the Creator, 297 F.3d 662 (7thCir. 2002)).
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Generally, the award of attorney’s fees and litigation costs is an atypical occurrence in trademark litigation.191 There are five possible bases for awarding attorney fees under federal law.192 First, the Lanham Act provides for the award of attorneys to the prevailing party for “exceptional cases.”193 Congress added this section in order to address the issue of intentional counterfeiting, which makes an award “virtually mandatory” in such cases.194 Courts may also authorize attorney fees under Federal Rule of Appellate Procedure 38 where an appeal is “frivolous”195 and likewise under Federal Rule of Civil Procedure 11 in the form of sanctions.196 Of course, all federal courts have the power to award attorneys fees in cases of bad-faith litigation practices.197 These awards are available to the prevailing party, whether that is the prevailing plaintiff or a prevailing defendant.198
191 See id. at 1115. 192 Theodore H. Davis, Jr. & Jordan S. Weinstein, The Fifty-Eighth Year of Administration of the Lanham Trademark Act of 1946, 96 TRADEMARK REP. 6, 191 - 192 (2006) (“It is possible in some jurisdictions for prevailing parties to secure awards of attorneys' fees under state law. Nevertheless, most cases to have addressed the subject have done so under federal law, which generally recognizes five bases for fee awards.”). 193 15 U.S.C. § 1117(a) (2000). This 1967 Amendment to the Lanham Act has been commonly regarded as a response to the Supreme Court’s decision in Fleischmann Distilling Corp. v. Maier Brewing, Co., 386 U.S. 714 (1967) which held that federal courts did not possess the power to grant attorney fee awards under the Lanham Act. See also Davis & Weinstein, supra note 192, at 191 - 192 (2006) 194 See Rolex Watch U.S.A., Inc. v. Michel Co., 179 F.3d 704, 50 U.S.P.Q.2d 1939 (9th Cir. 1999) (distinguishing between awards under Section 35(a) and Section 25(b) of the Lanham Act; see also Davis & Weinstein, supra note 192, at 191-192 (noting that award of attorney’s fees is required by court in cases of intentional counterfeiting “unless the court finds extenuating circumstances”). 195 Fed. R. App. P. 38 (“If a court of appeals determines that an appeal is frivolous, it may, after a separately filed motion or notice from the court and reasonable opportunity to respond, award just damages and single or double costs to the appellee.”); see also Davis & Weinstein, supra note 192, at 191-192 (2006). 196 Fed. R. Civ. P. 11; see also Davis & Weinstein, supra note 192, at 191 -192 (2006). 197 Chambers v. NASCO, Inc., 501 U.S. 32, 45 (1991). 198 Central Manufacturing, Inc. v. Brett, 2005 WL 2445898 *1, 13 (N.D. Ill. Sept. 30, 2005) aff’d, 492 F.3d 876, 880 (7th Cir. 2007); see also 15 U.S.C. § 1117(a).
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As the district court in Central Manufacturing also explained, there exists a sixth basis to award attorney’s fees and costs in trademark litigation where the Illinois Consumer Fraud and Deceptive Business Practice Act (“ICA”) is invoked.199 Stoller alleged a violation of the ICA in addition to his Lanham Act claims.200 This is the Illinois state equivalent to a trademark statute and essentially traces Section 1114 of the Lanham Act. A person is engaged in a deceptive trade practice if “during the course of his or her business: … (2) causes likelihood of confusion or of misunderstanding as to the source, sponsorship, approval or certification of goods or services … [or] (3) causes likelihood of confusion or of misunderstanding as to affiliation, connection, or association with or certification by another.”201 These claims were resolved against him for the same reasons his Lanham Act claims were rejected: he failed to prove that he had a protectable mark and the defendant’s use was not likely to cause confusion.202 The district court only identified two sources of law authorizing the award of attorneys’ fees: the Lanham Act and the ICA. Under both, the court has discretion to award attorneys’ fees to the prevailing parties.203 As noted above, to qualify under the Lanham Act, the case must be “exceptional.”204 Under the ICA standard, a prevailing defendant must show that the plaintiff’s suit was “oppressive.”205 The Seventh Circuit has held that, “a suit can be oppressive because of a lack of merit and cost of defending though the plaintiff honestly though mistakenly believes that he has a good case and is not trying merely to extract a settlement based on the suit's nuisance value.”206 This standard is “malicious, fraudulent, deliberate or willful
199 Central Manufacturing, Inc., 2005 WL 2445898 at *13, citing Illinois Uniform Deceptive Trade Practices Act, 815 ILCS 510/1 (West 2007). 200 Central Manufacturing Inc., 2005 WL 2445898 at *13. 201 815 ILCS 510/2. 202 Id. 203 Id; see also15 U.S.C. § 1117(a); see also 815 ILCS 510/10a(c). 204 15 U.S.C. § 1117(a). 205 Central Manufacturing Inc v. Brett, 2005 WL 2445898, *1, 13 (N.D. Ill. Sept. 30, 2005) aff’d, 492 F.3d 876, 880 (7th Cir. 2007). 206 Id.
487 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 conduct.”207 The district court found this standard unquestionably met in this case: not only did Stoller offer useless, contradictory, and “seemingly fantastical” documents and uncorroborated “arguably false” testimony, but brought suit before he had even obtained the ‘249 registration.208 Having found that Stoller’s actions met the “oppressive” standard under the ICA, the court also held that this case was an “exceptional” one, finding a second basis to award attorney’s fees and costs.209 The court reasoned that the plaintiffs exemplified “paradigmatic examples of litigants in the business of bringing oppressive litigation designed to extract settlement.”210 Although the district court Central Manufacturing seemed to suggest that the standard for awarding attorneys’ fees and costs were different under the Lanham Act and under the ICA (“exceptional” versus “oppressive”), two trademark decisions by the Seventh Circuit clarify that the court considers this standard to be the same. First, in Door Systems v. Pro-Line Door Systems, Inc.,211 the Seventh Circuit held that the “canonical formula” for determining whether to award attorney’s fees to the defendant in a Lanham Act case in the Seventh Circuit is “malicious, fraudulent, deliberate, or willful.”212 In Te-Ta-Ma Truth Foundation-Family of URI, Inc. v. World Church of the Creator, the Seventh Circuit confirmed its holding in Door Systems, stating “we concluded that [in a Lanham Act case] the appropriate inquiry when the defendant is the prevailing party is whether the plaintiff’s suit is oppressive….[w]e have clarified that a suit may be oppressive “if it lacked merit, had elements of an abuse of process claim, and [the] plaintiff's conduct unreasonably increased the cost of defending 213 against the suit.” In this case, however, this was a distinction without a difference. It was obvious that the plaintiff’s actions constituted vexatious and
207 Id. 208 Id. at *13-14. 209 Id. at *14. 210 Id. 211 126 F.3d 1028, 1031 (7th Cir. 1997). 212 Id. 213 392 F.3d 248 257-58 (7th Cir. 2004).
488 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 wasteful litigation warranting reprisal and the award of attorneys’ fees and costs. The question of whether the failure to provide evidence of commercial use after bringing a trademark infringement suit will always rise to the level of egregiousness in order to qualify for an award of attorney’s fees and costs is a fact intensive question assessed on a case-by-case basis.214 However, the statutory mandate is explicitly apparent: if one does not use a mark in commerce one does not have ownership rights to that mark. Accordingly, where it is clear at the outset of filing suit that the plaintiff’s theory of ownership is meritless or lacking in evidentiary support, the plaintiff’s conduct should be considered sufficiently culpable to meet the Seventh Circuit’s “oppressive” standard and the award of attorneys’ fees and costs should be awarded.
CONCLUSION
It is axiomatic that the commercial use of a trademark and not its registration confers enforceable rights in that mark. As basic as it may seem to those well-versed in the field of trademark law, it is apparent that some still misunderstand the U.S.’s use-based system of registration. In Central Manufacturing, the plaintiff was certainly confused. Fortunately, the Seventh Circuit got it right. The district courts should not wait for a defendant to plead cancellation as an affirmative defense to trademark infringement where it is clear that the plaintiff’s registration is invalid. Rather, district courts should adopt the “cancellation-as-best-course” approach enunciated by the Seventh Circuit in Central Manufacturing, and invoke the power to cancel sua sponte when given the opportunity by a plaintiff filing suit without valid rights to the registered mark in question. A more liberal invocation of the courts’ power to cancel promotes each of the three policy components that form the very foundation of trademark law: protecting producers, protecting consumers from confusion, and fostering fair competition. In addition,
214 Id. at 258 (“No one factor is determinative . . . we have concluded that a case may be exceptional if a losing plaintiff's litigation conduct is particularly egregious”).
489 SEVENTH CIRCUIT REVIEW Volume 3, Issue 1 Fall 2007 the cancellation-as-best-course route provides greater certainty regarding the status of trademark rights by putting the public on notice of the district court’s trademark related judgments and refreshing the federal register. It will also reduce the production of trademark thickets thereby releasing marks into the public domain for other producers to make meaningful use. Further, a combination of the threat of cancellation and the award of attorney’s fees creates a powerful situation which may deter trademark trolls from either filing, or threatening to file, meritless trademark infringement suits. Although Stoller was the extreme case due to the nature of his extensive litigation history, Central Manufacturing stands for the proposition that if a party chooses to bring a trademark infringement suit, they better be sure to have credible evidence establishing commercial use. Otherwise, they may not only risk losing their registration, but may be forced to pay the costs of litigation.
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