Seventh Circuit Review - Chicago-Kent College of Law

Transcription

SEVENTH CIRCUIT REVIEW
www.kentlaw.edu/7cr
Volume 1, Issue 1
Spring 2006
CONTENTS
Masthead
Foreword
Preface
Dean Harold J. Krent
Professor Hal R. Morris
iv
v
vi
Civil Procedure
Seventh Circuit Moves to the Head of the
Class: Recent Decisions Provide a Broad
Interpretation of Federal Jurisdiction
Under CAFA
Meghan J. Dolan
1
John J. Koltse
20
Devin McComb
46
Jeffrey J. Escher
74
Cross Jurisdictional Tolling of the Statute
of Limitations in Antitrust Claims:
Plaintiffs Lose Their Day in Federal Court
Civil Rights
Civil Right of Prisoners: The Seventh
Circuit and Exhaustion of Remedies Under
the Prison Litigation Reform Act
Copyright
Copyright, Technology & The Boston
Strangler: The Seventh Circuit and the
Future of Online Music Access
Criminal Law - Evidence
Crawford v. Washington - How the Seventh
Circuit Improperly Defined “Testimonial”
i
Robert L. Windon 105
Employment Law
The Seventh Circuit’s Erosion of the
Equal Pay Act
Jessica L. Lindsted 129
ERISA
Conflict of Interest and the Standard of
Review in ERISA Cases: The Seventh
Circuit’s Refusal to Acknowledge What
Other Circuits Already Know
Barbara C. Long 152
First Amendment
Stop the Presses! Seventh Circuit Censors
College Student Media
Julia R. Lissner 182
Immigration - Asylum
Seeking Asylum in a Hostile System: The
Seventh Circuit Reverses to Confront a
Broken Process
John R. Floss 216
Product Liability
Medical Device Preemption: A Reasonable
Avenue of Tort Reform?
Jacob M. Eckburg 272
Securities
Dismissing How the Purchaser-Seller
Rule Affects SLUSA
Stacy A. Manning 304
The Science of Scienter: The Private
Securities Litigation Reform Act’s Effect
and the Long-Awaited Decision of Makor
Issues & Rights, Ltd. v. Tellabs, Inc.
Julie Ann Sullivan 327
ii
Public Welfare – Social Security
Between Empathy and Economy:
The Struggle Over the Substantial
Evidence Standard in Social
Security Disability Determinations
iii
Elaine Wyder-Harshman 357
www.kentlaw.edu/7cr
Volume 1, Issue 1
Spring 2006
Chicago-Kent College of Law
Illinois Institute of Technology
565 West Adams Street, Chicago, Illinois 60661
Hal R. Morris
Professor
John G. New
Executive Editor – Teaching Assistant
Editorial Staff
Meghan J. Dolan
Julia R. Lissner
Jacob M. Eckburg
Barbara C. Long
Jeffrey J. Escher
Stacy A. Manning
John R. Floss
Devin P. McComb
John J. Koltse
Julie Ann Sullivan
Jessica L. Lindsted
Robert L. Windon
Elaine J. Wyder-Harshman
© 2006 Chicago-Kent College of Law, Illinois Institute of Technology.
iv
FOREWORD
I am delighted to announce this inaugural publication of the SEVENTH
CIRCUIT REVIEW at Chicago-Kent College of Law. Chicago-Kent
published a comparable review 20 years ago and, after its demise,
practitioners have bemoaned the lack of a concise exegesis of leading
cases in this critical circuit. I am pleased that we have filled the void.
No other publication analyzes the most important decisions each term
of the Seventh Circuit, and the electronic format ensures that the
information is disseminated in timely fashion. Third-year students at
Chicago-Kent under the supervision of Professor Hal Morris have
worked assiduously to bring this goal to fruition. Thanks also to Sarah
Cnota and John Young for helping to ensure that the resource is user
friendly. Stay tuned for further publications. Please let me know if you
have any suggestions or comments at [email protected].
Harold J. Krent
Dean and Professor of Law
v
PREFACE
On a cold evening in January 2006, a group of highly motivated
individuals came together at Chicago-Kent College of Law to embark
on an ambitious journey. These intrepid individuals chose to be part of
a highly selective honors seminar and to undertake, during the course
of a single semester, the publication of a scholarly journal analyzing
recent Seventh Circuit cases.
Years ago, one of the yearly issues of the CHICAGO-KENT LAW
REVIEW was dedicated to a review of the recently published decisions
of the Seventh Circuit. Indeed, one of my very own law review articles
appears in a 1985 issue of the CHICAGO-KENT LAW REVIEW's Seventh
Circuit Review. Although the CHICAGO-KENT LAW REVIEW has not
published its Seventh Circuit Review for quite a number of years, it
remained a dream of mine to bring it back. Because of the position the
Seventh Circuit holds in our nation's jurisprudence, a scholarly review
of its most recent cases serves an important function to the bar, the
courts, and legal scholarship.
With the unwavering support of Dean Harold Krent, we have brought
the Seventh Circuit Review back as an honors seminar and online
journal. This journal could not have been possible without the tireless
work of John New, my teaching assistant and the SEVENTH CIRCUIT
REVIEW's executive editor, and of John Young and Sarah Cnota of the
Chicago-Kent College of Law Office of Public Affairs. Of course, the
greatest debt is owed to the thirteen students in the seminar who
selected article topics, researched, drafted, edited, rewrote and edited
again, while working within an impossibly short timeframe to put out
a scholarly journal.
vi
As you peruse the abstracts and the articles, you will immediately note
the extremely wide range of topics addressed. These articles challenge
the Seventh Circuit's reasoning, articulate important policy
considerations, and help us understand the cases coming out of the
Seventh Circuit. As the professor who drove this journal, I take
responsibility for any problems and freely give to my remarkable
students the praise they so richly deserve. Please let me know any
thoughts you might have.
Hal R. Morris
Adjunct Professor
Partner, Arnstein & Lehr LLP
vii
Volume 1, Issue 1
Spring 2006
SEVENTH CIRCUIT MOVES TO THE HEAD OF THE
CLASS: RECENT DECISIONS PROVIDE A BROAD
INTERPRETATION OF FEDERAL JURISDICTION
UNDER CAFA
MEGHAN J. DOLAN
∗
Cite as: Meghan J. Dolan, Seventh Circuit Moves to the Head of the Class: Recent
Decisions Provide a Broad Interpretation of Federal Jurisdiction Under CAFA, 1
SEVENTH CIRCUIT REV. 1 (2006), at http://www.kentlaw.edu/7cr/v1-1/dolan.pdf.
INTRODUCTION
On February 18, 2005, Congress passed the Class Action
Fairness Act (“CAFA”).1 CAFA makes major changes to class action
procedure in federal courts, and expands federal courts’ diversity
jurisdiction over class action cases.2 In light of this new legislation,
circuit and district courts face the task of interpreting some of CAFA’s
more ambiguous provisions. In particular, courts must determine to
which cases CAFA applies. Section 9 of CAFA provides that the
“[a]ct shall apply to any civil action commenced on or after the date of
enactment of this Act.”3 Although seemingly straightforward, CAFA
does not define the term “commenced”, leaving courts to interpret the
term in light of existing state and federal law. CAFA clearly applies to
∗ J.D. candidate, May 2006, Chicago-Kent College of Law, Illinois Institute of
Technology; Certificate in Litigation and Alternative Dispute Resolution.
1
Pub. L. 109-2, 119 Stat. 4 (2005).
2
28 U.S.C. 1332 (d)(2), as amended by the Class Action Fairness Act of 2005,
Pub. L. 109-2, 119 Stat. 4 (2005).
3
Pub. L. 109-2, 119 Stat. 4 § 9 (2005).
1
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Spring 2006
cases which were filed after its enactment4, but defendants seeking
removal have argued that CAFA provides diversity jurisdiction over
cases which were already pending in state court in February 18, 2005,
in some circumstances.
Only a handful of circuit courts have addressed when a civil
action has “commenced” for purposes of jurisdiction under CAFA.5
The Seventh Circuit, however, decided a series of cases regarding
CAFA’s applicability to pending state court suits in the past year.6
The Seventh Circuit broadly interpreted the term “commenced”,
holding that CAFA provides jurisdiction over class action suits that
were initially filed in state court pre-CAFA, but where plaintiffs
amend the complaint, post-CAFA, to either: 1) add new defendants, or
2) add new claims which do not relate back to the original pleadings.7
The two circuit courts subsequently addressing the issue have adopted
the Seventh Circuit’s analysis.8
However, some district courts have voiced concern that the
Seventh Circuit’s interpretation is contrary to congressional intent and
the plain language of CAFA, because it retroactively applies the
statute.9 How courts ultimately decide to define “commenced” will
implicate all state class action suits that were filed before CAFA’s
enactment that meet the new requirements for diversity jurisdiction.
4
See generally Pfizer v. Lott, 417 F.3d 725 (7th Cir. 2005); Bush v.
Cheaptickets, 425 F.3d 683 (9th Cir. 2005).
5
The Fifth, Seventh, and Eighth Circuits have all held that a civil action filed
in state court pre-CAFA may be subject to federal jurisdiction if plaintiffs add a new
defendant or new claim post-CAFA. See Braud v. Transport Service Co. of Illinois,
445 F.3d 801 (5th Cir. 2006); Knudsen v. Liberty Mutual Ins. Co. (“Knudsen II”),
435 F.3d 755 (7th Cir. 2006); Plubell v. Merck & Co., 434 F.3d 1070 (8th Cir.
2006).
6
Knudsen v. Liberty Mutual Ins. Co. (“Knudsen I”), 411 F.3d 805 (7th Cir.
2005); Schorsch v. Hewlett-Packard Co., 417 F.3d 748 (7th Cir. 2005); Knudsen II,
435 F.3d 755 (7th Cir. 2006).
7
Id.
8
Braud, 445 F.3d at 806; Plubell, 434 F.3d at 1072-74.
9
Weekly v. Guidant, 392 F. Supp. 2d 1066, 1068 (E.D. Ark. 2005); Brown v.
Kerkhoff, No. 4:05 CV 00274 JEG, 2005 WL 2671529 (S.D. Iowa October 19,
2005); Comes v. Microsoft, 403 F.Supp.2d 897, 903 (S.D. Iowa 2005).
2
Volume 1, Issue 1
Spring 2006
Class members’ settled expectations of staying in state court are likely
to be upset if defendants are able to remove these pending cases to
federal court.10
This article analyzes the Seventh Circuit’s decisions
interpreting CAFA’s commencement provision. Part I provides
background information on CAFA’s provisions and purpose. Part II
outlines both the Seventh Circuit’s decisions interpreting § 9 of CAFA
and the arguments against the Seventh Circuit approach, and
concludes that the Seventh Circuit has reached the correct result in
light of CAFA’s purpose, legislative history, and existing law.
I.
BACKGROUND
Members of Congress have attempted to pass some version of
class action reform for years.11 Proponents of class action reform cite
to numerous abuses in the pre-CAFA system, many of which stem
from the fact that most class actions are adjudicated in state court.12
Proponents claim that state court judges have a reputation for
certifying classes and approving settlements too hastily, the impact
being that class members end up recovering little, costs get passed on
to the consumer, and class counsel ends up the big winner.13 To
remedy this situation, CAFA has three major provisions: first, CAFA
includes a “consumer class action bill of rights” which provides
10
Although there are situations where plaintiffs may prefer to have their suit
litigated in federal court, this article focuses on removal by defendants under the
assumption that plaintiffs would prefer to litigate their claim in state court.
11
See Class Action Fairness Act of 1997, 143 CONG. REC. S. 897 (daily ed,
Jan. 30, 1997) (Statement of Sen. Kohl);The Class Action Fairness Act of 2000,;146
CONG. REC. S. 7812 (daily ed, July 27, 2000) (Statement of Sen. Grams), The Class
Action Fairness Act of 2001, 147 CONG. REC. S. 11946 (daily ed, Nov. 15, 2001)
(Statement of Sen. Grassley); Class Action Fairness Act of 2003, 149 CONG. REC. e.
405 (daily ed, March 7, 2003) (Statement of Sen. Goodlatte); Class Action Fairness
Act of 2005,. 150 CONG. REC. S. 450 (daily ed, Jan 25, 2005) (Statement of Sen.
Kohl).
12
Pub. L. 109-14, 119 Stat. 324 (2005).
13
Pub. L. 109-14, 119 Stat. 324 (2005).
3
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safeguards for coupon settlements14; second, CAFA directs the
Judicial Conference of the United States to review settlements and
attorneys’ fees in class actions, and present Congress with
recommendations for determining fees’ in a more fair and reasonable
manner15; third, and most relevant to this article, CAFA expands
federal diversity jurisdiction over interstate class actions suits.16
Pre-CAFA, defendants faced several obstacles to removing
interstate class action suits to federal court. Defendants could remove
class action suits if the federal court would have had original
jurisdiction over the suit—meaning that there was a federal claim or
the requirements of diversity jurisdiction were met. Federal courts
generally have diversity jurisdiction over a suit where the plaintiff and
defendant are citizens of different states and the amount in controversy
exceeds $75,000.17 Because of the sheer number of parties to class
action suits, these requirements can pose a problem.
The Supreme Court interpreted the diversity requirement of
§1332 to mean that all named class representatives must be diverse
from all named defendants. In other words, plaintiffs could prevent
defendants from removing class actions to federal court by including
one non-diverse class representative or defendant. This complete
diversity requirement had the effect of keeping many interstate suits in
state court.
The amount in controversy requirement also posed an obstacle
to defendants seeking to remove class actions to federal court. An
early Supreme Court case, Zahn v. International Paper Co.,
interpreted the statute to require that each individual class member
have a claim which exceeded $75,000.18 The Supreme Court recently
overturned Zahn, in Exxon Corp. v. Allapattah Services, holding that
28 U.S.C. § 1367, would allow the court to exercise supplemental
jurisdiction over class members who did not have claims exceeding
14
Pub. L. 109-2 119 Stat. 4 § 3(2005).
Id. at § 6.
16
Id. at §§ 4-5.
17
28 U.S.C. § 1332 (2005).
18
414 U.S. 291 (1973).
15
4
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$75,000.19 Therefore, so long as one plaintiff had a claim exceeding
$75,000, a federal court could exercise supplemental jurisdiction over
other claims.20
However, even with a relaxed amount in controversy
requirement, many class action suits would stay in state court. The
purpose of class actions is to make it economically feasible for large
groups of people with small individual claims to pursue litigation to
recover damages.21 It’s possible that many state class action suits will
not have a class member with a claim over $75,000. Therefore, in
order to prevent a defendant from removing a class action to federal
court, a plaintiff would need only avoid pleading a federal question,
and either include a non-diverse named plaintiff or defendant or allege
less than $75,000 in damages for each party. This creates the absurd
result that federal courts can easily hear cases where two parties from
different states have been in a car accident, and one party alleges
damages of $75,001; however, where a nationwide class of plaintiffs
are bringing a $25 million dollar suit against a major corporation and a
local defendant, and no class member has a claim above $75,000,
defendants will be unable to remove that case to federal court.
Because plaintiffs’ lawyers were able to easily evade federal
diversity jurisdiction, the number of state court class actions suits has
increased dramatically in recent years. Moreover, many of these suits
were brought in improbable jurisdictions where judges had a
reputation for certifying most classes or approving crazy settlements.
The Circuit Court of Madison County, Illinois, for example, saw a
huge rise in class actions suits. Madison County is home to less than
one percent of the U.S. population, yet in 2003, 106 class action suits
were filed there. That is an increase of more than 5,000 percent
between 1998 and 2003. Studies have shown that the most of the suits
filed in these “hotbeds” have little, if nothing, to do with the venues in
which they were brought.
19
125 S.Ct. 2611 (2005).
Id.
21
S. Rep. No. 109-14. February 28, 2005.
20
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The Senate Report on CAFA notes that the increase in state
class actions suits cannot be attributed to differences in the rules
governing class action. Rules regarding whether a suit can proceed as
a class are basically the same in state and federal courts—thirty-six
states have adopted Rule 23, which governs federal class actions.
Furthermore, rules in the hotbed state courts are the same as all other
courts in the state. The logical explanation for the popularity of some
courts of others, therefore, is that some state court judges are more lax
about applying the procedural requirements of class action rules.
CAFA, by amending both 28 U.S.C. § 1332 and 28 U.S.C. §
1441, broadens federal jurisdiction over diversity class action suits and
eliminates many of the barriers to removal that have caused concern to
reform proponents. CAFA has three major requirements: (1) any one
plaintiff (named or unnamed) must be diverse from any one defendant;
(2) the aggregate amount in controversy of all plaintiffs must exceed
$5,000,000; and (3) there must be at least 100 members in the
proposed class.22 CAFA, therefore, has eliminated the two major
barriers to removing state class action suits to federal court, complete
diversity and the $75,000 minimal amount in controversy for at least
one class member. Furthermore, CAFA provides that cases may be
removed by a single defendant, changing the rule that all defendants
must consent to removal.23 Finally, CAFA eliminates the one-year
limit on removing diversity cases.24 The effect of CAFA will likely be
a shift in the concentration of class action litigation from state courts
to federal courts. Because of these relaxed removal requirements,
many plaintiffs’ attorneys rushed to file class action suits in state court
before CAFA’s enactment.
Section 9 of CAFA states that it applies “to any civil action
commenced on or after the date of enactment of this Act.”25 However,
CAFA does not define the term “commence”, and defendants have
22
Pub. L. 109-2, 119 Stat. 4 § 3 (2005).
Id. at § 5.
24
Id.
25
Id. at § 9.
23
6
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Spring 2006
offered several interpretations in an attempt to remove pending state
suits.
Defendants have attempted to remove suits that were filed in
state court pre-CAFA on the theory that removal to federal court
constitutes commencement of a new civil action.26 The circuits have
unanimously rejected this argument, holding that state law defines
when a suit is commenced and that removal to federal court does not
re-commence a civil action.27 Most states’ laws mirror Federal Rule
of Civil Procedure 3, which provides that a suit is commenced at the
time it is properly filed in an appropriate court.28
A real concern for practitioners is whether post-CAFA
amendments to complaints, which add new claims or defendants, can
commence a new civil action--and thus allow defendants to remove
pending cases that were filed in state court before CAFA’s enactment.
II.
INTERPRETING § 9 OF CAFA: WHEN DOES A CIVIL ACTION
“COMMENCE”?
Although most circuit courts have not yet addressed CAFA’s
applicability to cases filed in state court before February 18, 2005, the
Seventh Circuit was presented with a series of cases in the past year
that have enabled it to develop a working definition of CAFA’s
commencement provision.
A. The Seventh Circuit’s Approach
In Knudsen v. Liberty Mutual Insurance Co., the Seventh
Circuit concluded that CAFA did not provide jurisdiction over a case
which had been filed in state court prior to the Act, but where
plaintiffs changed the class definition post-CAFA.29 The class
26
Pfizer v. Lott, 417 F.3d 725, 728 (7th Cir. 2005); Bush v. Cheaptickets, 425
F.3d 683, 686 (9th Cir. 2005).
27
Pfizer, 417 F.3d at 728; Bush, 425 F.3d at 686
28
Fed. R. Civ. P. 3
29
411 F.3d 805, 807-808 (7th Cir. 2005).
7
Volume 1, Issue 1
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representatives in Knudsen originally filed their complaint listing
Liberty Mutual Insurance Company (“Liberty Mutual”) as the sole
defendant.30 Liberty Mutual responded that the representatives’
claims derived from policies issued by a separate entity, Liberty
Mutual Fire Insurance Company (“Liberty Mutual Fire”), and thus
they did not belong to a class that had a claim against Liberty.31
Plaintiffs then proposed to amend the class to include all insureds of
both Liberty Mutual and “Liberty Fire Insurance Company”, their
beneficiaries, and their assignees who submitted medical bills and
whose claims were paid for less than the medical charge.32 Although
the proposed amendment added class members who had claims against
another party, the plaintiff class did not purport to add that party as a
defendant.33 Liberty Mutual removed to federal district court before
the state court judge could address the plaintiffs’ proposal.34 The
district court remanded the case on the grounds that CAFA did not
provide jurisdiction over suits which were filed in state court before its
effective date, and the Seventh Circuit heard the case on interlocutory
appeal.35
The Seventh Circuit noted that there were several problems
with plaintiffs’ proposed change in class definition. First, “Liberty
Fire Insurance Company” did not exist; presumably plaintiffs had
intended to include the insureds of “Liberty Mutual Fire”, but made an
error in their proposal.36 Moreover, plaintiffs never added “Liberty
Mutual Fire” as a party to the suit.37 The court granted plaintiffs’
motion to remand, noting that Liberty Mutual could not remove the
30
Id. at 807.
Id.
32
Id.
33
Id.
34
Id.
35
Id. at 806.
36
Id. at 807.
37
Id.
31
8
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case “just because a non-party corporate sibling has been mentioned in
plaintiffs’ latest papers(emphasis added).”38
Although the court found that federal jurisdiction under CAFA
was not present in these circumstances, it hinted at other scenarios
where CAFA might confer jurisdiction. First, if the plaintiff class in
Knudsen added Liberty Mutual Fire as a defendant, Liberty Mutual
Fire would be able to remove because suit against it would have been
commenced after February 18, 2005.39 Second, the court asserted that
“any new claim for relief…or any other step sufficiently distinct that
courts would treat it as independent for limitations purposes, could
well commence a new piece of litigation for federal purposes even if it
bears an old docket number for state purposes.”40 The court, citing to
28 U.S.C. §1446(b), explained that amending pleadings to add a
federal claim or adding a new defendant opens a new window of
removal.41 The court then posited that a similar approach may apply
under CAFA, relying upon Federal Rule of Civil Procedure 15(c),
which defines whether a claim either relates back to the original suit,
or when it is sufficiently independent of the original suit that it must
be treated as new litigation.42 The court did not have occasion to
apply the theory in this stage of Knudsen, but forthcoming cases
presented an opportunity.
In Schorsch v. Hewlett-Packard Co., the Seventh Circuit heard
an interlocutory appeal of a remand order, where defendant removed
on the basis of a change to class definition that occurred post-CAFA.43
Defendant argued that the change in class definition did not relate
back to the original complaint because the amendment asserted a claim
based on computer chips in toner and the original complaint asserted a
claim based on computer chips in drum kits.44
38
Id. at 807-808.
Id.
40
Id. at 807.
41
Id.
42
Id.
43
417 F.3d 728, 751 (7th Cir. 2005).
44
Id. at 750
39
9
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Although the court ultimately concluded that there was no
jurisdiction under CAFA and remanded the case, the court expanded
upon its relation back theory from Knudsen. First, the court explained
that, although it discussed relation back according to federal rules in
Knudsen, state law determines when a suit has been commenced for
diversity purposes, and thus state relation back doctrine must apply in
this case.45 In Illinois, similar to the federal rules, a claim relates back
when it arises out of the same transaction or occurrence as that of the
original complaint. Furthermore, an amendment relates back in
Illinois “when the original complaint ‘furnished to the defendant all
the information necessary…to prepare a defense to the claim
subsequently asserted in the amended complaint.’”46 Concluding that
plaintiffs’ amendment did, indeed, arise out of the same transaction as
the original complaint, the court noted that “[a]mendments to class
definitions do not commence new suits.”47 Amendments asserting
wholly distinct claims may, but “the workaday changes routine in
class suits do not.”48
The Seventh Circuit had occasion to revisit the Knudsen case,
in what is commonly referred to as “Knudsen II.” After Knudsen was
initially remanded, the state court certified the class and defendant,
once again, removed.49 The state court determined that Liberty
Mutual concealed Liberty Mutual Fire’s role in the litigation, and
found this concealment so egregious that it entered a default judgment
on the merits against Liberty Mutual.50 Plaintiffs asked the state court
to certify a class which would hold Liberty Mutual responsible for all
policies issued by any subsidiary or affiliate, and to hold that all
claims on all policies by all insureds throughout the nation be covered
by the default judgment.51 The plaintiffs further asked the court to
45
Id.
Id. at 751.
47
Id.
48
Id.
49
. Knudsen v. Liberty Mutual Ins. Co., 435 F.3d 755, 755-56 (7th Cir. 2006).
50
Id.
51
Id.
46
10
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name them representatives of the nationwide class and to disregard
any differences in other states’ laws.52
The state court judge approved the changes, essentially holding
Liberty Mutual liable by default for a nationwide class of insureds,
many of whom held policies through Liberty Mutual’s unnamed
affiliates.53 The district court again remanded, and the Seventh Circuit
heard the case on interlocutory appeal.54 On appeal from the district
court’s decision to remand, the Seventh Circuit determined that
plaintiffs’ changes constituted an amendment that did not relate back
under Illinois law, and thus a new action had commenced for purposes
of CAFA.55 The court noted that, although a new defendant was not
added, Liberty Mutual was faced with new claims for relief.56 The
court determined that the original pleading could not have afforded
Liberty Mutual with notice of the new claims, because the new claims
sought to hold Liberty Mutual liable for adjustments performed under
a distinct system by an affiliate.57 Finally, the court explained that
Knudsen demonstrated exactly the type of case that prompted
Congress to enact CAFA, noting that:
The conduct of plaintiffs and the state judge in this litigation,
turning an arguable error in discovery into a sprawling
proceeding in which Liberty Mutual will be required to pay on
account of other insurers’ decisions taken long ago under
different rules for calculating proper payment, and without
even an opportunity to defend itself on the merits or even insist
that the policies’ actual terns be honored, illustrates why
Congress enacted the Class Action Fairness Act.58
52
Id. at *1.
Id.
54
Id.
55
Id. at 3.
56
Id.
57
Id.
58
Id.
53
11
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The Seventh Circuit approach, therefore, allows federal jurisdiction
over cases that were filed in state court pre-CAFA, if a plaintiff class
amends the complaint, post-CAFA, to either 1) add a new defendant,
or 2) add a claim which would be considered new for limitations
purposes under state relation back doctrine. CAFA does not provide
jurisdiction, however, when plaintiffs make routine amendments to a
complaint. The court’s decisions seem to have notice as a common
factor—where a defendant could not have been on notice of plaintiffs’
post-CAFA changes, at the time the suit was originally filed in state
court—those changes will commence a new civil action which will be
removable under CAFA.
B. The Narrow Interpretation of CAFA
Although all of the circuit courts to address CAFA’s
commencement provision have adopted the Seventh Circuit’s
interpretation of CAFA’s applicability, district courts in Arkansas59
and Iowa have determined that CAFA applies only to cases which
were filed in state court after February 18, 2005.60 This narrow
interpretation rests upon two major arguments, the plain language and
legislative history of the statute.
1.
Plain Language
In Weekly v. Guidant, an Arkansas district court rejected
defendant’s argument that an amendment to certify a nationwide class
commences a new civil action for purposes of jurisdiction under
CAFA, claiming that Congress used “clear, unambiguous, and familiar
legal terms” when defining to which cases CAFA would apply.61
59
Recently, the 8th Circuit adopted the Seventh Circuit’s approach, rather than
that of the district court in its circuit, without discussion. See Plubell v. Merck &
Co., 434 F.3d 1070 (8th Cir. 2006)
60
Weekly v. Guidant, 392 F. Supp. 2d 1066, 1068 (E.D. Ark. 2005); Comes v.
Microsoft, 403 F.Supp.2d 897, 903 (S.D. Iowa 2005).
61
Id. at 1067.
12
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The district court referenced the use of the phrase “any civil
action” in other removal statutes. Under 28 U.S.C. § 1452, any claim
or cause of action may be removed; the court therefore determined
that statutes delineate between a “civil action” and a “claim or cause of
action.”62 Moreover, in order to amend a pleading, a civil action must
already be commenced.63 The district court concluded that the phrase
“civil action” in CAFA, therefore, refers to all components of a
proceeding, including subsequent changes; as such, it can only be
commenced once.64
The district court also referenced 28 U.S.C. § 1446(b), which
provides that if a case by its initial pleadings is not removable, the
defendant may file notice of removal within thirty days after the
defendant receives “a copy of an amended pleading, motion, order or
other paper from which it may first be ascertained that the case is one
which is or has become removable….”65 The court determined that, if
Congress intended for CAFA to apply to civil actions commenced in
state court pre-CAFA, that became removable post-CAFA, it would
have included the same language in CAFA’s applicability provision.66
The district court dismissed the Seventh Circuit’s relation back
approach on the same grounds, noting that Congress did not include
any language in CAFA stating that it “applied to actions in which the
complaint was amended after February 18, 2005, so as to make the
action removable, unless the amendment related back to the initial
complaint.”67
2. Legislative History
The district court in Weekly also relied upon CAFA’s
legislative history in concluding that Congress intended a narrow
interpretation of § 9. The court noted that a under previous version of
62
Id.
Id.
64
Id.
65
Id. at 1068.
66
Id.
67
Id.
63
13
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the house bill, CAFA provided jurisdiction in cases where a class
certification order was entered after CAFA’s enactment date. Under
that version, CAFA would apply, not only to cases filed in state court
post-CAFA, but also to cases filed in state court pre-CAFA—where
the state court made the class certification decision post-CAFA. The
version of CAFA that Congress eventually passed contained no such
language. The court concluded, therefore, that Congress intended to
narrow CAFA’s applicability to include only cases which were filed in
state court post-CAFA.68
An Iowa district court, in Comes v. Microsoft Corporation,
relied upon much of the same analysis as Weekly in determining that
CAFA applies only to cases which were filed in state court after
CAFA’s enactment.69 The Comes court further pointed out that this
narrow interpretation of CAFA’s applicability comports with
“Congress’s intent to limit the effect of [] CAFA on currently pending
legislation.” The court also cites a previous Iowa district court
decision70, which refers to two statements in the Congressional Record
from sponsoring legislators, indicating that CAFA does not apply to
state cases which were pending at the time CAFA was enacted.71
The district court decisions narrowly interpreting CAFA rest
upon a presumption that Congress did not intend to for CAFA to apply
retroactively. Because of this presumption, these courts held that
CAFA cannot apply to pending state court cases where, post-CAFA,
plaintiffs added either a new defendant or a new claim, because
Congress did not include specific language in the statute.
68
Id. at 1068-69.
Comes v. Microsoft, 403 F.Supp.2d 897, 903 (S.D. Iowa 2005).
70
Brown v. Kerkhoff, No. 4:05 CV 00274 JEG, 2005 WL 2671529 at *6 n.12
(S.D. Iowa October 19, 2005) .
71
151 Cong. Rec. S1080 (daily ed. February 8, 2005) (statement of Sen. Dodd)
([The Act] does not apply retroactively, despite those who wanted it to. A case filed
before the date of enactment will be unaffected by any provision of this
legislation.”); 151 Cong. Rec. H753 (daily ed. February 17, 2005) (statement of Rep.
Goodlatte) (“Since the legislation is not retroactive, it would have absolutely no
effect on the 75 class actions already filed against Merck in the wake of the Vioxx
withdrawal.”)
69
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C. Courts Should Continue to Adopt the Seventh Circuit Approach
The Seventh Circuit’s interpretation of § 9 of CAFA is more
well-reasoned in light of CAFA’s purpose and legislative history, and
in light of existing federal law.
The district court in Weekly looked to CAFA’s legislative
history to conclude that CAFA does not apply to state court suits that
were pending when it passed. The court relied principally on the fact
that a previous version of CAFA included broader language, that
CAFA would apply to suits where the class certification order
occurred post-CAFA. The court concluded that because Congress
changed the language to suits which “commenced” post-CAFA, it
intended that CAFA would not apply to any cases that were already
pending.
The more narrow language of CAFA’s current applicability
provision, however, does not signal that Congress intended to exclude
civil actions with significant post-CAFA amendments from
jurisdiction. If CAFA provided jurisdiction over any case that was
certified as a class after February 18, 2005, there would be a huge
retroactive application of CAFA. Any class action that was filed in
state court pre-CAFA, but where the court did not make a decision
regarding certification until after CAFA passed would be subject to
removal. However, under the Seventh Circuit’s interpretation, the
only cases that can be removed are those where the defendant either
could not have been on notice about a new claim or where a defendant
was not even a party to the suit at the time of filing. Therefore, the
Seventh Circuit’s approach does not retroactively apply CAFA;
jurisdiction will only exist where a civil action has gone through a
significant enough change that it either commences against a new
party or it commences an entirely new claim.
Although allowing removal of some cases that were filed in
state court before CAFA was enacted may upset the settled
expectations of class plaintiffs, class plaintiffs retain control over how
they want their suit to proceed. If a class wants to prevent removal of
the suit, the class need only refrain from adding new parties or
15
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drastically changing the definition of the class at this point in the
litigation.
1.
New Defendants
The Seventh Circuit correctly determined that amending a
complaint to add a new defendant constitutes commencement of a new
civil action, thus providing federal jurisdiction under CAFA. The civil
action commences as to the newly added defendant at the time the
defendant is added, not at the time the suit was originally filed in state
court, for three reasons. First, existing case law dictates that a suit
cannot commence against a defendant before they are a party to the
suit, as they would have no notice and be unable to raise defenses.
Second, existing federal law provides for a new window of removal—
where removal was not originally possible—after a complaint is
amended. Third, under CAFA, any defendant may remove a suit to
federal court—meaning that if a suit commences against a new
defendant after CAFA’s effective date, that new defendant can remove
the entire civil action.
Although CAFA does not contain specific language that it
applies to new parties added post-CAFA, the statute fails to define the
term “commence” altogether. Therefore, it is logical that CAFA was
not intended to replace existing case law regarding when a suit is
commenced against a new defendant. The general rule is that “a party
brought into court by an amendment, and who has, for the first time,
an opportunity to make defense to the action, has a right to treat the
proceeding, as to him, as commenced by the process which brings him
into court.”72 The reasoning behind this rule is that defendants should
not be deprived of actions that they could have taken were they
originally parties to the suit, because they had no notice of the original
proceedings.73 Interpreting CAFA to state that a civil action
commences against a defendant at the time it was initially filed in state
72
Braud v. Transport Service Co. of Illinois, 445 F.3d 801, 805 (5th Cir.
2006) (citing United States v. Martinez, 195 U.S. 469 (1904)).
73
See Braud, 445 F.3d at 805.
16
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court, before that defendant was a party, is contrary to firmly
established principles of notice.
Moreover, under the existing removal statute, a new window of
removal opens where the initial case was not removable, but where a
defendant receives “a copy of an amended pleading, motion, order, or
other paper from which it may first be ascertained that the case is one
which is or has become removable.”74 In any other state court case, if
addition of a new defendant would provide diversity jurisdiction, the
defendants can remove the case to federal court.75 It is logical to
assume that if Congress intended to change existing law regarding
when defendants could remove suits, it would have included specific
language in CAFA speaking to it. Suits filed in state court pre-CAFA
are not removable because CAFA does not retroactively apply;
however, when plaintiffs add a new defendant, the suit becomes
removable by that defendant—because it has commenced as to him
post-CAFA. Because CAFA allows a suit to be removed by any
defendant, the new defendant can remove the entire civil action to
federal court.76
2. New Claims
The Seventh Circuit’s decision that new claims added post-CAFA
may give rise to jurisdiction is logical in light of existing federal law
regarding statutes of limitations.
In deciding that a civil action can commence only once, the
Weekly court relied upon the distinction between a “civil action” and a
“claim” or “cause of action.” The Weekly court held that because a
civil action encompasses all subsequent changes, it can only
commence once—at the time a plaintiff initially files it in state court.
However, this distinction does not undermine the Seventh Circuit’s
interpretation. Although a civil action may commence only once,
when plaintiffs add a new claim that does not relate back to the
original civil action, it is separate and fresh litigation. Therefore, it
74
28 U.S.C. § 1446(b) (2005); Id.
28 U.S.C. § 1446(b) (2005).
76
28 U.S.C. § 1453 (b) (2005).
75
17
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does not “re-commence” the civil action, but rather, it is a new civil
action—commencing for the first time. This is demonstrated by the
use of “relation-back” doctrine in the context of statutes of limitations.
The reason why courts determine that new claims are barred by
statutes of limitations when they do not relate back to the original
cause of action, is because they are considered commencement of new
“civil action”, and that civil action has commenced after the statute of
limitations has run. The Weekly court’s distinction between “civil
actions” and “claims”, if carried over to statutes of limitations, would
seem to dictate that plaintiffs could amend complaints to add new and
wholly distinct “claims” after the statute of limitations had run.
Because the new claims are subsumed by the greater civil action, and
because the civil action was filed within the statute of limitations, the
claims would not be barred.
Although the Seventh Circuit’s relation-back analysis borrows
from a seemingly separate area of law, statutes of limitations, its use in
the CAFA context is appropriate. The purpose of the relation-back
doctrine is to prevent plaintiffs from escaping the statute of limitations
on a new claim simply by tacking it on to a pending claim. However,
plaintiffs are not barred from adding new claims, even after the statute
of limitations has run, if those claims “relate-back” to the original
cause of action. The Federal Rules define relation back as when the
claim asserted in the amended pleading “arose out of the conduct,
transaction, or occurrence set forth…in the original pleading.”77 The
Federal Rules, and most states, employ the relation-back doctrine,
therefore, to exclude only those amendments to the original pleadings
that the defendant did not have notice of. Under this standard, courts
assume that the defendant will not be prejudiced if the new cause of
action is allowed to proceed, because the defendant either was or
should have been aware that it might be liable. However, if the new
cause of action does not arise out of the same conduct, transaction, or
occurrence as the original civil action, it is deemed separate and fresh
litigation—or, in other words, a new civil action which is barred by the
statute of limitations. If an amendment to the original pleadings can
77
Fed. R. Civ. P. 15(c).
18
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be considered new litigation for statute of limitations purposes, it
should also be considered “commencement” of a new civil action in
the CAFA context. If a class action defendant could not have been on
notice of the cause of action in an amended complaint, that cause of
action cannot be said to be part of the original civil action. Rather, it is
a new civil action, which should trigger jurisdiction under CAFA.
CONCLUSION
CAFA has broadened federal diversity jurisdiction over state court
class action suits in several ways. It has lessened diversity, amount in
controversy, and removal requirements. However, determining to
which cases CAFA applies is no easy task. Because the statute fails to
define when a civil action “commences”, federal courts have
attempted to fashion their own interpretation of the term.
The Seventh Circuit has broadly interpreted CAFA’s applicability,
and several other circuits have followed suit. Because Congress failed
to define the term “commence”, the Seventh Circuit borrowed
concepts from existing federal law in reaching the determination that
CAFA can provide jurisdiction over state court class actions suits that
were pending at the time of CAFA’s enactment. Allowing federal
jurisdiction over suits where plaintiffs have added either new
defendants, or new claims which do not relate back to the original
cause of action, does not amount to a retroactive application of CAFA,
and therefore is consistent with CAFA’s legislative history.
Other circuit courts facing this issue should adopt the Seventh
Circuit’s approach. Although plaintiff class members’ settled
expectations of litigating their cases in state court may be upset in
some cases, plaintiffs retain control over how their suit proceeds. If a
plaintiff class refrains from adding new defendants or new claims
which do not relate to the original pleadings, defendants will be unable
to remove those suits to federal court.
19
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CROSS JURISDICTIONAL TOLLING OF THE
STATUTE OF LIMITATIONS IN ANTITRUST
CLAIMS: PLAINTIFFS LOSE THEIR DAY IN
FEDERAL COURT
JOHN J. KOLTSE∗
Cite as: John J. Koltse, Cross Jurisdictional Tolling of the Statute of Limitations in
Antitrust Claims: Plaintiffs Lose Their Day in Federal Court, 1 SEVENTH CIRCUIT
REV. 20 (2006), at http://www.kentlaw.edu/7cr/v1-1/koltse.pdf.
INTRODUCTION:
Recently, the Seventh Circuit Court of Appeals decided the
issue of whether the filing of a state antitrust class action tolls the
statute of limitations for individual members of that class, who after
dismissal of their state class action, attempt to file individual federal
antitrust claims.1 State supreme courts have wrestled with the related
question of whether the filing of a federal class action tolls the statute
of limitations for class members who seek to file subsequent state law
claims after their federal class action is dismissed, reaching opposing
outcomes.2 However, the Seventh Circuit’s decision in In re Copper
∗
J.D. candidate, May 2006, Chicago-Kent College of Law, Illinois Institute of
Technology; University of Illinois B.A. December 2002.
1
See In re Copper Antitrust Litig., 436 F.3d 782 (7th Cir. 2006).
2
See In re Linerboard Antitrust Litig., 223 F.R.D. 335 (E.D. Pa. 2004) (finding
that Colorado, Indiana, Kansas, South Carolina, and Tennessee would all accept
cross jurisdictional tolling); Vaccareillo v. Smith & Nephew Richards, Inc., 94 Ohio
St. 3d 380 (Ohio 2001) (Ohio Supreme Court adopted cross jurisdictional tolling in
an antitrust case); Maestas v. Sofamor Danek Group, Inc., 33 S.W.3d 805, 807
(Tenn. 2000) (stating Tennessee has adopted cross jurisdictional tolling through its
20
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Antitrust Litigation3 marked the first time a federal Court of Appeals
addressed whether members of a state class action whose case had
been dismissed could benefit from the cross jurisdictional tolling of
the statute of limitations for their subsequent federal claims.
The factual underpinnings of In re Copper Antitrust Litigation,4
where the very same antitrust claims that were dismissed in the state
class action were subsequently filed individually by class members in
the federal action,5 forced the Seventh Circuit to address the issue of
cross jurisdictional tolling head on. In a 2-1 decision, the court held
that the filing of a state class action has no tolling effect on the statute
of limitations for subsequently filed federal claims, thereby refusing to
adopt the theory of cross jurisdictional tolling.6
Initially, this Article discusses the conflicts in class action
procedure between the statute of limitations and class certification that
necessitated a tolling rule for class members so that their interests
could truly be protected in the class action procedure, and then
examines the subsequent expansion of the tolling doctrine. Next, this
Article recounts the procedural history of the Seventh Circuit’s
decision in In re Copper Antitrust Litigation,7 where the Plaintiff’s
asserted state class action antitrust claims and then later filed
individual federal antitrust claims presented the possibility that the
tolling doctrine could be extended to apply across jurisdictions. The
final section of this Article analyzes the rationales asserted by the
majority In re Copper Antitrust Litigation8 which refused to extend the
tolling doctrine to the cross jurisdictional context and Judge Wood’s
savings statute, TENN. CODE ANN. § 28-1-115 (2000)); Portwood v. Ford Motor Co.,
183 Ill.2d 459 (Ill. 1998) (Illinois Supreme Court declined to adopt cross
jurisdictional tolling).
3
In re Copper Antitrust Litig., 436 F.3d at 784-85.
4
Id.
5
Id. at 788.
Id. at 796.
7
436 F.3d 782.
8
Id.
6
21
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dissent which contended that the parallel state and federal antitrust
statutory schemes provided the proper context to apply the tolling
doctrine in the cross jurisdictional context.
In order to fully understand the rationale behind the court’s
decision, the relationship between state and federal antitrust law, as
well as the procedural workings of class actions, must be examined.
I.
HISTORY OF CLASS ACTION TOLLING
Antitrust laws have provided fertile ground for the maintenance of
class action suits.9 Specifically, two criteria of the Clayton Act,10 the
federal statutory scheme regulating anticompetitive business practices,
enable antitrust claims to grow into complex class action lawsuits: (1)
a broad standing requirement,11 and (2) a grant of diversity jurisdiction
irrespective of the amount in controversy.12 These two characteristics
of the Clayton Act13 create a large pool of prospective plaintiffs with
many small claims against a single defendant.14 Similarly, the purpose
of the Sherman Act,15 which protects against limitations on the free
flow of interstate commerce, has been interpreted broadly to allow
9
See Stephen Calkins, An Enforcement Official’s Reflections on Antitrust Class
Actions, 39 ARIZ. L. REV. 413, 414 (1997) (“[T]he roots of antitrust class action
practice can be traced to the very beginning of the antitrust laws.”).
10
15 U.S.C. § 15, et seq. (2006).
11
Blue Shield of Va. v. McCready, 457 U.S. 465, 472 (1982) (“[Section 4 of the
Clayton Act] does not confine its protection to consumers, or to purchasers, or to
competitors, or to sellers. . . . The Act is comprehensive in its terms and coverage,
protecting all who are made victims of the forbidden practices by whomever they
may be perpetrated.”).
12
See HERBERT B. NEWBERG & ALBA CONTE, NEWBERG ON CLASS ACTIONS §
18:1 (4th ed. 2002) (“Congress has given private citizens rights of action for
injunctive relief and damages for antitrust violations without regard to the amount in
controversy.”) (citing 28 U.S.C. § 1337 (2002); 15 U.S.C.A. § 15 (2002)).
13
15 U.S.C. § 15, et seq. (2006).
14
See Newberg, supra note 10, at § 18:1.
15
15 U.S.C. § 1, et seq. (2006).
22
Volume 1, Issue 1
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private individuals to pursue diverse antitrust claims.16 However,
instead of requiring these prospective plaintiffs to file suits
individually, Federal Rule of Civil Procedure 23 allows a single
plaintiff to represent all individuals who suffered an antitrust injury
through a class action in order to avoid a multiplicity of actions within
federal court.17
While a class action may improve efficiency by combining
numerous claims into one action, it also presents procedural
complications for individual class members, such as with the statute of
limitations.18 Initially, after the passage of Rule 23, federal courts
dealt with a statute of limitations problem that arose out of the timing
of class certification decisions.19
Until a class of plaintiffs is certified, the proposed members of the
class are typically unaware of the pending suit because they have not
yet received notice of the suit.20 Because class certification decisions
are often in-depth and lengthy proceedings, the statute of limitations
applicable to the prospective plaintiffs’ claims often expire before the
court decides whether to certify the class.21 Therefore, if the court did
16
Paramount Pictures Inc. v. United Motion Picture Theater Owners, Inc., 93
F.2d 714, 719 (3d Cir. 1937) (“Congress intended by the anti-trust acts to prevent all
combinations and conspiracies, whether composed of employees, employers,
producers, users, or consumers, from unreasonably restraining the free flow of
interstate commerce”).
17
See Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538, 551 (1974) (purpose of
Rule 23 is to prevent a multiplicity of actions).
18
See RICHARD L. MARCUS & EDWARD F. SHERMAN, COMPLEX LITIGATION:
CASES AND MATERIALS ON ADVANCED CIVIL PROCEDURE, 460 (4th ed. 2004) (class
actions create timing problems with the statute of limitations).
19
Am. Pipe & Constr. Co., 414 U.S. at 550 (considering whether statute of
limitations for putative class members should be tolled while the court decides class
certification); See also Esplin v. Hirschi, 402 F.2d 94 (10th Cir. 1968); Philadelphia
Elec. Co. v. Anaconda Am. Brass Co., 43 F.R.D. 452 (ED Pa. 1968).
20
See Amchem Prods. v. Windsor, 521 U.S. 591, 617 (1997) (no class action
may be “dismissed or compromised without [court] approval,” preceded by notice to
class members) (quoting Fed. R. Civ. Proc. 23(e)).
21
Am. Pipe & Constr. Co., 414 U.S. at 551 (recognizing that putative class
members may not assert claims before the statute of limitations because they are
23
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Spring 2006
not toll the statute of limitations for prospective class members, either
unaware of their claims or waiting for their claims to be resolved in
the commenced class action, foreclosed class members from taking
any individual action in the suit.22 This “black-hole” created by the
intersection of the timing of a class certification decision and the
expiration of the statue of limitations creates problems when the court
ultimately refuse sto certify a class.23
If the class was eventually certified, prospective class members
escaped this black-hole because Rule 23 provides that their claims are
asserted on their behalf by the class representative, and thus there was
no need for prospective class members to take individual action in the
suit.24 However, if the court ultimately refuses to certify the class,
without the benefit of tolling , prospective class members needed to
take individual action if they sought to intervene in the suit.25
unaware that the suit existed or anticipated that their interests would be protected if
they knew of the commencement of the suit); see also Escott v. Barchris
Construction Corp., 340 F.2d 731, 735 (2d Cir. 1965) (Friendly, J., concurring)
(interplay between statute of limitations and class certification presents a “trap” for
putative class members that are unaware of the pending suit until after the statute of
limitations has expired and then later seek to protect their interests).
22
Am. Pipe & Constr. Co., 414 U.S. at 551.
23
Id. at 551-52 (although the Court's rationale supports tolling only for claims
of putative class members who actually rely on the pendency of a class action, the
tolling doctrine adopted by the court also applies to claims of class members who do
not rely on, or who were unaware of, a pending class action).
24
At least with regard to preserving their claims. Id. at 550 ( “filing of a timely
class action complaint commences the action for all members of the class as
subsequently determined”).
25
The Federal Rules of Civil Procedure allow for two types of intervention.
Fed. R. Civ. Proc. 24(a)(2) grants an intervention as of right: “(1) when a statute of
the United States confers an unconditional right to intervene; or (2) when the
applicant claims an interest relating to the property or transaction which is the
subject of the action and he is so situated that the disposition of the action may as a
practical matter impair or impede his ability to protect that interest, unless the
applicant's interest is adequately represented by existing parties.” Fed R. Civ. Proc.
24(b)(2) allows for permissive intervention: “(1) when a statute of the United States
confers a conditional right to intervene; or (2) when an applicant's claim or defense
and the main action have a question of law or fact in common.”
24
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The Supreme Court in American Pipe & Constr. Co. v. Utah,26
addressed this problem involving the relationship between the statute
of limitations and class certification by establishing a class action
tolling rule, whereby the statute of limitations for intervenors is tolled
until the court makes a class certification decision.27 By tolling the
statute of limitations during the class certification process prospective
class members no longer lose their right to individual action in the suit
before they were even aware of the suit,28 thereby removing the blackhole from the Rule 23 landscape.
In American Pipe,29 the State of Utah filed a class action in the
United States District Court for the District of Utah eleven days before
the four year statute of limitations ran under the Sherman Act.30 After
seven months, the district court dismissed Utah’s petition for class
certification, which sought to represent public agencies in Utah and
surrounding states that used concrete and steel.31 Eight days after the
district court dismissed the class action, more than sixty towns,
municipalities and water districts in the State of Utah, each of whom
had been members of the dismissed class, filed a motion to intervene
in the suit.32 The district court denied the motions to intervene,
concluding that the intervenors had no interest in the suit because the
statute of limitations, which applied to their Sherman Act33 claims, had
expired.34 On appeal, the Ninth Circuit reversed the district courts
decision, denying the motions to intervene and concluding that the
intervenors claims had not expired under the statute of limitations
because they were effectively filed when the State of Utah originally
filed a class action on behalf of them as members of a class.35
26
Id. at 559.
28
Id. at 551.
29
Id.
30
Id. at 541.
31
Id. at 542.
32
Am. Pipe & Constr. Co., 414 U.S. 538 at 543-544.
33
15 U.S.C. § 1 (2006).
34
Am. Pipe & Constr. Co., 414 U.S. 538 at 544.
35
Id.
27
25
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The Supreme Court affirmed the Ninth Circuit’s decision,36 but
did not limit its decision to the precise time when prospective class
members’ claims were filed. Instead, the Supreme Court extended the
logic of the Ninth Circuit, noting:
[P]otential class members retain the option to participate in or
withdraw from the class action only until a point in the
litigation “as soon as practical after the commencement” of the
action when the suit is allowed to continue as a class action
and they are sent notice of their inclusion within the confines
of the class.”37
Defining class certification as the point in which class members
must decide whether to opt out of a class action, the Supreme Court
dismissed the notion that taking individual action in the suit after the
statutory limitations has run amounts to a “separate cause of action.”38
The Supreme Court concluded that in light of the amendments to Rule
23, “a federal class action is no longer an invitation to joinder but a
truly representative suit designed to avoid, rather than encourage,
unnecessary filing of repetitious papers and motions.”39 The Supreme
Court went on to reason that if it only allowed potential class members
to participate in a class action if they filed motions to intervene before
the statute of limitations had run, the efficiency principles behind Rule
23, which was designed to allow one plaintiff to file a claim on behalf
of numerous similarly situated plaintiffs to avoid repetitious filings,
36
Id. at 559.
Id. at 549 (citing subdivision (c)(1) of Rule 23, which provides “As soon as
practicable after the commencement of an action brought as a class action, the court
shall determine by order whether it is to be so maintained. An order under this
subdivision may be conditional, and may be altered or amended before the decision
on the merits.”).
38
Id. at 550. (specifically overruling the decision in Athas v. Day, 161 F.Supp.
916 (Colo. 1958) (holding that claims filed by class members after the expiration of
the statute of limitations constituted a “separate cause of action.”)).
39
37
26
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Spring 2006
would be defeated.40 Therefore, to best protect the efficiencies of Rule
23, the Supreme Court adopted a tolling rule which dictates that the
commencement of a class action suit suspends the applicable statute of
limitations for all proposed members of the class,41 including absent
class members.42 By adopting a class action tolling rule, the Supreme
Court gave considerable power to absent class members to extend the
time period in which to file claims.43
The tolling doctrine established in American Pipe44 plays an
important role in assuring that members of a class can actually
participate in the class action litigation, especially when they believe
the class representative has not adequately represented their interests.45
However, the tolling doctrine grew to encompass a far greater power
for class members, the ability to have the statute of limitations tolled
for any subsequent individual claims when a class action status is not
granted.46 After appellate courts began to limit the American Pipe
tolling doctrine strictly to putative class members who filed motions to
40
Id. at 553-554.
Id. at 554.
42
Id. at 551-52 (“We think no different standard should apply to those members
of the class who did not rely upon the commencement of the class action (or who
were even unaware that such a suit existed) and thus cannot claim that they are
refrained from bringing timely motions for individual intervention or joinder because
of a belief that their interests would be represented in the class suit”).
43
See e.g., Mitchell A. Lowenthal & Norman Menachem Feder, The
Impropriety of Class Action Tolling for Mass Tort Statutes of Limitations, 64 GEO.
WASH. L. REV. 532, 540 (1996) (“American Pipe thus invested civil litigants with
unusual power. Merely by filing a pleading labeled a ‘class action,’ the Court
enabled individual litigants to alter the otherwise applicable limitations period
affecting asserted claims.”).
44
Am. Pipe & Constr. Co., 414 U.S. 538.
45
Am. Pipe & Constr. Co., 414 U.S. at 544, n.8 (providing the requirements for
intervention as of right which allows for intervention when the class member’s
interests are not adequately represented).
46
See Crown, Cork & Seal Co., Inc. v. Parker, 462 U.S. 345, 354-55 (1983)
(“Once the statute of limitations has been tolled, it remains tolled for all members of
the putative class until class certification is denied. At that point, class members may
choose to file their own suits or to intervene as plaintiffs in the pending action.”).
41
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intervene after class action status was denied,47 the Supreme Court
expanded the scope of the tolling doctrine.
In order to justify expanding the tolling doctrine to subsequent
individual claims asserted by class action members, the Supreme
Court in Crown, Cork & Seal Co., Inc. v. Parker,48 reiterated its
previous holding in American Pipe49 that a tolling rule for class
actions is not inconsistent with the purposes served by statutes of
limitations.50 Noting that the primary purposes of limitations periods
were met when a class action is commenced,51 the Court determined
that class members that do not file independent suits while the class
action is still proceeding are not “sleeping on their rights,” specifically
because Rule 23 encourages class members to allow the named
plaintiffs to pursue their claims.52 Combined with the view that class
complaints adequately put defendants on notice of the claims sought
against them and that they should preserve appropriate evidence, the
Court stated that tolling the statute of limitations presents no element
of unfair surprise to defendants who are later faced with either a
motion to intervene or a latter individual suit by an absent class
member.53 The Supreme Court concluded that if the tolling rule did
not also apply to individuals filing an individual suit, such an
application would prejudice class members who do not wish to
intervene, but rather opt out of the class action all together.54
47
Id. at 348-49 (citing Pavlak v. Church, 681 F.2d 617 (9th Cir. 1982); Stull v.
Bayard, 561 F.2d 429, 433 (2d Cir. 1977); Arneil v. Ramsey, 550 F.2d 774, 783 (2d
Cir. 1977).
48
Crown, Cork & Seal Co., Inc., 462 U.S. 345.
49
50
See Crown, Cork & Seal Co., Inc., 462 U.S. at 352 (“Limitations periods are
intended to put defendants on notice of adverse claims and to prevent plaintiffs from
sleeping on their rights, but these ends are met when a class action is
commenced.”)(citations omitted).
51
Id.
52
Id.
53
Id.
54
Id. at 350-51. Class members may prefer to opt out of the class action
entirely and file an individual suit as opposed to intervening based on the
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While the majority in Crown55 readily extended the tolling
doctrine to class members subsequent individual claims, the
concurrence offered by Justice Powell cautioned that the “tolling rule
of American Pipe is a generous one, inviting abuse.”56 In light of the
new expansive tolling rule Justice Powell warned district courts that
they should only apply the tolling doctrine to a class members
individual lawsuit if that “suit raises claims that concern the same
evidence, memories, and witnesses as the subject matter of the original
class suit so that the defendant will not be prejudiced.”57
Although the tolling doctrine is established law within the federal
courts, there remains a parallel question of whether the Supreme
Court’s rational in American Pipe58 and Crown59 can be applied to toll
the statute of limitations in a completely different jurisdiction. Much
litigation and scholarship has addressed whether the filing of a federal
class action tolls the statute of limitations for individual class members
in state court claims.60 The intricacies and individual preferences of
state courts have created a split in state courts over whether they will
accommodate cross jurisdictional tolling.61 Despite the relative
frequency with which state courts have addressed cross jurisdictional
tolling, the Seventh Circuit recently became the first federal Appellate
inconvenience of the forum the class action is situated in, a desire to maintain
complete control over the litigation, or as a result of the court’s refusal to grant
intervention. Id. at 351-352.
55
56
Id.at 354.
57
Id. at 355 (internal quotations omitted).
58
Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974).
59
60
See In re Linerboard Antitrust Litig., 223 F.R.D. 335 (finding that Colorado,
Indiana, Kansas, South Carolina, and Tennessee would all accept cross jurisdictional
tolling); Vaccareillo v. Smith & Nephew Richards, Inc., 94 Ohio St. 3d 380 (Ohio
2001) (Ohio Supreme Court adopted cross jurisdictional tolling in an antitrust case);
Maestas v. Sofamor Danek Group, Inc., 33 S.W.3d 805, 807 (Tenn. 2000) (stating
Tennessee has adopted cross jurisdictional tolling through its savings statute, TENN.
CODE ANN. § 28-1-115 (2000)); Portwood v. Ford Motor Co., 183 Ill.2d 459 (Ill.
1998) (Illinois Supreme Court declined to adopt cross jurisdictional tolling).
61
See supra note 58.
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Court to decide whether the principals of American Pipe62 and
Crown63 allow a member of a state class action to receive the benefit
of tolling for their subsequently filed individual federal claims.64
The warnings of Justice Powell’s concurrence in Crown65
seemingly predicted the debate over whether cross jurisdictional
tolling should extend to federal courts.66 The majority’s opinion in In
re Copper Antitrust Litigation67 relied on Justice Powell’s trepidation
that the court’s precedent of extending tolling from intervenors to class
members who assert subsequent independent claims was inviting
abuse of Supreme Court precedent, and denied cross jurisdictional
tolling as an abuse of the American Pipe68 tolling doctrine that over
extends its logic.69 The dissent, however, asserted Justice Powell’s
“same evidence, memories, and witnesses” test70 as a rationale to
allow cross jurisdictional tolling, contending that the state class action
anti-trust claims alleged by the plaintiffs were exactly the same as the
claims subsequently they later alleged individually in federal court.71
The interplay between state and federal antitrust laws provided a
particularly good landscape for the Seventh Circuit to address cross
jurisdictional tolling. Many state courts have adopted the federal
antitrust scheme in their state antitrust laws, thereby creating nearly
identical state and federal remedies for antitrust claims.72 Because the
62
64
In re Copper Antitrust Litig., 436 F.3d 782.
65
66
Id. at 354-55 (“the tolling rule of American Pipe is a generous one, inviting
abuse [and should be limited to situations involving] the same evidence, memories,
and witnesses as the subject matter of the original class suit so that the defendant
will not be prejudiced.”).
67
68
69
In re Copper Antitrust Litig., 436 F.3d at 796 (citing Judge Meskill’s dissent
in Cullen v. Margiotta, 811 F.2d 698 (2d. Cir. 1987)).
70
Crown, Cork & Seal Co., Inc., 462 U.S. at 355.
71
In re Copper Antitrust Litig., 436 F.3d at 799.
72
See, e.g,. Odom v. Lee, 999 P.2d 755, 761 (Alaska 2000); (Claims brought
under Alaska Stat. § 45.50.562 are analogous to claims brought under § 1 of the
63
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state and federal antitrust schemes are so similar, the plaintiffs in In re
Sherman Act, 15 U.S.C.S. § 1, and federal cases construing § 1 of the Sherman Act
will be used as a guide); Brooks Fiber Communications v. GST Tucson Lightwave,
992 F. Supp. 1124 (Ariz. 1997) (ARIZ. REV. STAT. §§ 44-1401-16 mirrors federal
antitrust law; where summary judgment is inappropriate on federal claims under the
Sherman Act, it is also inappropriate on state law claims under this article.);
Oakland-Alameda County Builders’ Exch v. F.P. Lathrop Constr. Co., 4 Cal. 3d 354
(Cal. 1971)( California’s antitrust statute the Cartwright Act is patterned after the
federal Sherman Act, and “federal cases interpreting the Sherman Act are applicable
in construing the Cartwright Act”); Kukui Nuts of Haw., Inc. v. R. Baird & Co., 789
P.2d 501, (Haw. Ct. App. 1990), (HAW. REV. STAT. §§ 480-1 provides restraints on
anticompetitive business activity, must be construed in accordance with judicial
interpretations of similar federal antitrust statutes); Onat v. Penobscot Bay Medical
Center, 574 A.2d 872, 876 (Me. 1990) (evidence that defendant violated Sherman
Act would support a violation of ME. REV. STAT. ANN. tit. 10, § 1101, Maine’s
antitrust provision); General Aviation, Inc. v Garrett Corp., 743 F. Supp 515 (W.D.
Mich. 1990)(Federal precedents interpreting Sherman act are authoritative in
considering virtually identical provisions in Michigan antitrust reform act); Metts v.
Clark Oil & Refining Corp., 618 S.W.2d 698, 701 (Mo. Ct. App. 1981)(“[Missouri’s
Antitrust Statutes are] analogous to and derived from § 1 of the Sherman Act, 15
U.S.C. § 1. Section 416.141 of Missouri's Antitrust Statutes requires that §§ 416.011
to 416.161 be construed in harmony with ruling judicial interpretations of
comparable federal antitrust statutes”); NEV. REV. STAT. §§ 598A.050 (1997)
(construction of the Nevada antitrust statute “shall be construed in harmony with
prevailing judicial interpretations of the federal antitrust statutes”); Smith Mach. Co.
v. Hesston Corp., 878 F.2d 1290,1292-93 (10th Cir. 1989), cert. denied, 493 U.S.
1073, 110 (1990) (“[New Mexico’s antitrust statute] is patterned after § 1 of the
federal Sherman Act, 15 U.S.C.S. § 1 et seq., and mandates a construction in
harmony with judicial interpretations of the federal antitrust laws.”); AnheuserBusch, Inc. v Abrams, 71 NY. 2d 327, (N.Y. 1988) (“the Donnelly Act …, often
called a ‘Little Sherman Act,’ should generally be construed in light of Federal
precedent and given a different interpretation only where State policy, differences in
the statutory language or the legislative history justify such a result.”); Gonzalez v.
San Jacinto Methodist Hosp., 880 S.W.2d 436, 441 (Tx. App. 1994) (citing TEX.
BUS. & COM. CODE ANN. § 15.04 (Vernon 1987) and stating that “the [Texas] state
Antitrust Act should be construed in harmony with federal judicial interpretations of
comparable federal antitrust statutes,”); Net Realty Holding Trust v. Franconia
Properties, Inc., 544 F. Supp. 759, 767, n.10 (E.D. Va. 1982) (“The wording of the
Virginia restraint-of-trade provision is virtually identical to that of its federal
counterpart”).
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Copper Antitrust Litigation73 attempted to adopt the rationale in
Crown74 that tolling is proper where former class members assert
claims individually that are identical to their previous class action
claims, and argue that their federal antitrust claims should be tolled
during the pendency of their state antitrust class action.75
II.
THE IN RE COPPER ANTITRUST LITIGATION DECISION:
A.
Cases Leading to In re Copper Antitrust Litigation
The Seventh Circuit’s decision In re Copper Antitrust Litigation76
resulted from an intriguing intersection between antitrust law and class
action procedures.77 As mentioned supra, antitrust law is not only
useful for providing the basis for class action claims, but also the
interplay between state and federal class action laws provides the
unique opportunity for plaintiffs to seek nearly identical claims in
either state or federal court.78 As a result, a complex series of
interrelated cases can develop, as seen in In re Copper Antitrust
Litigation.79 Two series of cases underlying In re Copper Antitrust
Litigation80 need to be dissected in order to understand the Seventh
Circuit’s decision that state class action members cannot benefit from
tolling when they file subsequent individual federal claims. The first
case is the underlying federal suit, where the plaintiffs in In re Copper
73
75
76
77
In re Copper Antitrust Litig., 436 F.3d at 784 (Justice Wood noting that
“[a]lthough this appeal arises out the extensive alleged conspiracy to fix price in
various copper markets….the issues that concern us here would find a more
comfortable home in a civil procedure class than an anti-trust class.”); Crown, Cork
& Seal Co., Inc. v. Parker, 462 U.S. 345 (1983).
78
See supra notes 7, 8, and 40.
79
80
Id.
74
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Antitrust Litigation81 filed individual federal antitrust claims based on
allegations of price fixing in copper markets.82 The statute of
limitations for the plaintiff’s federal antitrust claims had expired, but
the plaintiffs contended that the previous filing of a state antitrust class
action tolled the statute of limitations for the federal suit.83
Accordingly, the Seventh Circuit also examined the plaintiff’s claims
in the previously filed state class action to determine the availability of
tolling in the underlying federal suit.84
1.
The Federal Suit: Loeb Indus., Inc. v. Sumitomo Corp.
The underlying federal suit, Loeb Indus., Inc. v. Sumitomo Corp.,
dealt with price fixing in copper markets.85 In Loeb, Southwire
Company, a manufacturer and distributor of electrical quality copper
rod, wire and cable, sued three defendants (Morgan, Sumitomo and
Global) based on alleged violations of the Sherman Act86 and the
Clayton Act87 for conspiring to fix the price of copper.88 The district
court determined that Southwire’s claim against the defendants
accrued on July 23, 1996 after a press release implicated each of the
three defendants in a price fixing scheme.89 Using this date for the
beginning of the statute of limitations, the district court found that the
Sherman Act and Clayton Act’s four year statute of limitations had
expired before Southwire actually filed suit against the defendants on
December 30, 2002, and therefore dismissed Southwire’s claims.90
81
Id.
Loeb Indus., Inc. v. Sumitomo Corp., 306 F.3d 469, 477 (7th Cir. 2002).
83
Id.
84
85
Loeb Indus., Inc., 306 F.3d 469.
86
15 U.S.C. § 1, et seq. (2006).
87
15 U.S.C. § 15, et seq. (2006).
88
Loeb Indus., Inc., 306 F.3d at 474-78.
89
90
Id.
82
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Southwire contended that the statute of limitations under the
Sherman Act91 and the Clayton Act92 should have been tolled because
while the statue of limitations was running for its federal claims, it was
involved in a state class action against both Sumitomo and Morgan for
the very same antitrust violations it was alleging in the federal suit.93
In order to determine whether the Southwire was entitled to the benefit
of tolling the court examined Southwire’s antitrust claims in the
previously filed state class action.94
2.
The Previous State Class Actions: The Heliotrope Cases
Southwire originally was an unnamed class member in a class
action filed in California state court on July 8, 1996, asserting state
law antitrust violations against Sumitomo and Global, in which
Morgan was later added as a defendant.95 This case, Heliotrope
General, Inc v. Sumitomo Corp.,96 (Heliotrope I) established a class of
businesses that “purchased copper-based products and paid prices for
such copper-based products that were inflated due to the defendants'
manipulative and unlawful actions,” but was later abandoned by the
plaintiffs in June of 2000.97 A second class action, Heliotrope
General, Inc., v. Credit Lyonnais Rouse Ltd.,98 (Heliotrope II) was
filed on June 5, 2000 and asserted the same antitrust claims under
California law against Sumitomo, Global, and Morgan as Heliotrope
I.99 Three months after the California Superior Court certified the
91
15 U.S.C. § 1, et seq. (2006).
15 U.S.C. § 15, et seq. (2006).
93
94
Id. at 787 (“in order to benefit from the tolling rule for plaintiffs covered by a
class action announced in American Pipe, the court ruled identical legal theories
must be involved in both cases.”) (citations omitted).
95
Heliotrope General, Inc v. Sumitomo Corp., No. 701679 (Cal. Sup. Ct. 1996).
96
Id.
97
98
Heliotrope General, Inc., No. 749280 (Cal. Super. Ct. 2000).
99
92
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class on January 22, 2003, Southwire opted out of the class, pursuing
its previously filed individual federal claims against the defendants.100
3.
The District Court’s Analysis of Southwire’s Individual
Federal Antitrust Claims
The district court rejected Southwire’s argument that the time
from which the second California state class action was commenced
until Southwire exercised its right to opt out, (June 5, 2000 through
March 22, 2003) should have tolled the statute of limitations for its
individual federal antitrust claims asserted in Loeb.101 The district
court completely rejected the notion of cross jurisdictional tolling,
finding that “because the [state class action] did not involve the same
causes of actions as those in [the federal suit] against defendants,
plaintiffs may not claim any tolling benefit from the [state class
action].”102 With this ruling, the district court refused to recognize the
similarity between state and federal antitrust laws by emphasizing that
the federal claims were different causes of action. In doing so, it
dismissed the entire concept of cross jurisdictional tolling by requiring
identical causes of action to facilitate tolling, a much more stringent
standard than expressed by Justice Powell in Crown, which required
only “the same evidence, memories, and witnesses as the subject
matter” to facilitate tolling.103
B. THE SEVENTH CIRCUIT’S ANALYSIS OF CROSS JURISDICTIONAL
TOLLING
100
Id. at 787-788. (Southwire was the last plaintiff to opt-out of the class action
on March 22, 2003).
101
Id. at 788. The district court did conclude that Southwire could benefit from
tolling from the federal class action antitrust suit filed against Morgan, but that time
period was not great enough to make a difference. Loeb Indus., Inc. v. J.P. Mogan &
Co., No. 00-C-274-C (W.D. Wis. 2000).
102
103
Crown, Cork & Seal Co., Inc. v. Parker, 462 U.S. 345, 355 (1983).
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Judge Cudahy issued the opinion for the court regarding the
tolling of Southwire’s federal antitrust claims based on its previously
filed state court class action.104 Confronting the issue of cross
jurisdictional tolling head on, Judge Cudahy stated, “Not only is there
no suggestion in American Pipe, or in Crown that these decisions
construing [Rule 23] have any direct application to parallel state
procedures, but the policies underlying American Pipe and like
precedents simply do not apply in the cross-jurisdictional context.”105
1. Does Cross Jurisdictional Tolling Promote Judicial Efficiency?
Judge Cudahy advanced two arguments to undermine the notion
of cross jurisdictional tolling. First, Judge Cudahy relied on the
procedural aspects of Rule 23 to distinguish between cross and intrajurisdictional tolling.106 Noting that plaintiffs who seek cross
jurisdictional tolling never face the potential to be “forced by the
federal statute of limitation to file duplicative claims” to protect their
interests, Judge Cudahy argued that the essential rationale behind
American Pipe could not apply to former members of a state class
action that later seek to sue individually in federal court.107 Through
this argument, Judge Cudahy contends that the federal courts do not
derive any efficiency from tolling the statute of limitations based on
104
In re Copper Antitrust Litig., 436 F.3d at 793. The majority rendered a two
part opinion, the first dealing with question of the accrual date of Southwire’s claims
which is beyond the scope of this article, and the second which specifically
addressed Southwire’s tolling argument. Id. at 788-793.
105
In re Copper Antitrust Litig.,436 F.3d at 793-94 (citing Am. Pipe & Constr.
Co., 414 U.S. 538; Crown, Cork & Seal Co., Inc., 462 U.S. 345).
106
In re Copper Antitrust Litig., 436 F.3d at 794 (“The situation contemplated
by the plaintiffs here is, however, quite different [from traditional tolling]. Here
plaintiffs have become members of a class in a state class action but want the federal
statute of limitations governing a factually similar federal claim to be tolled”).
107
Id. (“The essential rationale of American Pipe is that members of a class
whose claims are embodied in a class action should not be required by the exigencies
of the statute of limitations to clutter the courts with duplicative lawsuits as long as
their claims are encompassed by the class action.).
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state court actions. This lack of efficiency became Judge Cudahy’s
overarching concern throughout his opinion.108 Contrary to tolling
within a jurisdiction, which is intended to prevent class members from
presumptively filing individual actions to preserve their claims if their
class is not certified, tolling between jurisdictions would not prevent
presumptive filings because plaintiffs who previously filed their
claims in state court must file a claim in federal court as a means to
entering the federal system.109
However, Judge Cudahy’s conclusion that tolling would not
prevent presumptive filings is only applicable if you view the
plaintiff’s decision to file in federal court from the perspective of the
federal court. Judge Cudahy’s limited perspective fails to
acknowledge efficiency concerns of cross jurisdictional tolling beyond
that slight chance that some state filed claims would reach federal
court if the tolling was limited to “the same cause of action.”110
However, there is a dual efficiency served by allowing cross
jurisdictional tolling that Judge Cudahy’s opinion ignores. While
prospective state class action members have an incentive to sit on the
sidelines and wait until a certification decision is made, or to see how
the case is proceeding before deciding to opt out, they have no
incentive to hold off on any federal claims they could also assert.
Under In re Copper Antitrust Litigation,111 these state class members
will file suit as soon as possible to meet the federal statute of
limitations. Judge Cudahy is correct that the timing of this individual
federal suit does not implicate any efficiency concerns for the federal
court once a suit is filed, but it certainly does have an effect on
whether the state class member decides to file an individual federal
claim in the first place. If cross jurisdictional tolling were allowed,
108
Id. at 794-795.
Id. at 794 (“Since filing in federal court is a prerequisite to pursuing a federal
remedy regardless of the state class action, there will be no efficiency gain whether
the federal filing is made while the claimant is part of the state class action or later
[or never]”).
110
Id. at 794-795.
111
Id.
109
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state class members would not feel the pressure to concurrently file
their individual federal antitrust claims, which would provide for an
identical remedy as the state claim, because they could at least wait
and see if their claims were satisfied at the state level first.
Simply put, Judge Cudahy’s opinion assumes that prospective
state class action members will not file suit in federal court if they are
satisfied with the outcome in state court, without similarly assuming
that without the benefit of tolling, state class members will
presumptively file a federal claim as a safeguard to protect their
identical federal interests in case the class is not certified or because
they are not being adequately represented. This is the reason that the
same transaction and similar claims test is so important to the calculus
of extending the tolling doctrine, because it forces the court to view
the decision to file a federal suit from the plaintiff’s position. Judge
Cudahy is quite correct when he states that to the federal courts a
federal antitrust claim is distinct from a state antitrust claim simply
because of the separate jurisdictions,112 but then over extends the logic
of his statement. Judge Cudahy contends that whatever similarities
exist between the state and federal antitrust laws that create an interest
for the federal courts in the outcome of state court class actions; that
interest is not significant enough to extend American Pipe113 to allow
cross jurisdictional tolling. However, when Judge Cudahy’s limits his
view to how the federal court perceives a subsequent individual
federal suit as only necessary to enter into the federal system, he
overlooks the potential that state class members may never want to
pass through the gate in the first place. To the antitrust plaintiff the
state and federal remedies are identical. As a result, plaintiffs are just
as content to resolve their claims in state court as they would be in
federal court. State plaintiffs have no incentive to file a federal suit
until they determine whether or not the state suit is protecting their
interests.
112
Id. at 794.
Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538, 551 (1974).
113
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In her dissent, Judge Wood recognizes that plaintiffs are largely
disinterested in filing a federal suit in federal court until they realize
their interests are not being represented or until the case is dismissed.
Unlike Judge Cudahy, who concentrated on the difference between
state and federal jurisdiction to conclude that cross-jurisdictional
tolling is an over extension of the principles set forth in American
Pipe114 and Crown, 115Judge Wood relies on the similarities between
the state and federal jurisdictions in the antitrust class action
context.116 Judge Wood’s dissent highlights the common ground
between the state and federal jurisdictions through three comparisons.
Judge Wood challenged Judge Cudahy’s contention that crossjurisdictional tolling would not further the efficiency of the federal
courts. Noting, that if tolling is limited to identical causes of actions,
it “would encourage absent state class members to file protective
claims to assert their new legal theories,” as opposed to waiting to see
if their claims were resolved in the class action.117 These claims would
not necessarily remain in state court as diversity or federal subject
matter jurisdiction may place them in federal court. As a result of this
possibility, Judge Wood contended that cross jurisdictional tolling
would allow for the efficient resolution of class actions as
contemplated by Rule 23.118
Clearly the federal system loses efficiency when it adopts a tolling
rule that encourages every single state plaintiff involved in an antitrust
class action to file a simultaneous federal suit, despite the fact they
could obtain the exact same remedy in the state system. The parallel
state and federal antitrust schemes allows this case to fall into Justice
Powell’s “same evidence, memories, and witnesses as the subject
114
Id.
Crown, Cork & Seal Co., Inc. v. Parker, 462 U.S. 345 (1983).
116
See In re Copper Antitrust Litig., 436 F.3d at 803 (“Tolling here would
recognize the near-identity of claims and transactions and at the same time further
the goals of [Rule 23] to promote the fair and efficient adjudication of a
controversy”).
117
Id. at 803.
118
Id.
115
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matter of the original class suit”119 test indicating that in this context
tolling is not only an appropriate extension of the tolling doctrine, but
that cross jurisdictional tolling can promote judicial economy without
harming defendants in the proper context.
Judge Cudahy’s conclusion that tolling between jurisdictions
merely lengthens the time available for plaintiffs to assert their claim
in federal court120 highlights the paradox of cross jurisdictional tolling.
By increasing the time in which state antitrust class members can file
individual federal antitrust claims, the federal court can remove the
incentive for every state class action member to presumptively filing
federal claims, and thus promote judicial efficiency.
2. Do Significant Harms Exist to Offset a Gain in Judicial Efficiency?
Judge Cudahy also refused to adopt cross jurisdictional tolling on
the basis that Rule 23 allows class action litigants to stand aside and
let the class representative maintain their claims for them.121 In other
words, absent class members’ claims for purposes of Rule 23 are
functionally asserted when the class action is filed by the
representative. Therefore, tolling the statute of limitations until the
class is certified, and class members are given the opportunity to opt
out, merely recognizes that the representative tends to the class
members’ claims.122 Judge Cudahy emphasized that this formalistic
rationale behind tolling, which recognizes the “ordinary Rule 23
situation”123 where the class members claims are pursued by a
representative on their behalf is distinct from Southwire’s situation,
119
Crown, Cork & Seal Co., Inc., 462 U.S at 355.
See In re Copper Antitrust Litig., 436 F.3d at 795 (“If the requirements of the
statute of limitations result in the federal suit’s being brought while the state class
action is pending, there is no inefficiency or unfairness”).
121
Id. at 794 (Rule 23 is “in accordance with the theory that someone else is
making identical claims on behalf of the silent class members”).
122
Id. (“As long as [class members] are in effect passively tendering their claim
through inclusion in the class action, they should not be forced to proceed
individually, whether by intervention or otherwise”).
123
Id.
120
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where no one had filed a lawsuit in federal court on its behalf, and no
one may ever file a federal suit at all.124
Judge Cudahy also went on to challenge what he deemed Judge
Wood’s “functional equivalence” standard,125 echoing that the
separateness of state and federal jurisdictions overrides any benefits of
tolling the statute of limitations simply because federal and state
antitrust laws are similar.126
In light of the undeniable need for a state class action litigant to
avail themselves to federal antitrust laws by filing a suit in the federal
courts, Judge Cudahy held that Southwire’s participation in the
California state class action should have no effect on the tolling of the
statute of limitations for federal antitrust claims.127
While Judge Cudahy’s appeal to the distinct nature of the state
and federal jurisdictions is a powerful formalistic argument, it fails to
account for the gain in judicial efficiency associated with cross
jurisdictional tolling in this context. Significantly, Judge Cudahy fails
to identify any significant harm that would result from the expansion
of the tolling doctrine that would offset these gains in efficiency.128
Judge Cudahy does contend that refusing to adopt cross jurisdictional
tolling would allow defendants to be free from stale claims in due
time,129 but this concern contradicts Judge Cudahy’s acceptance of
Judge Wood’s conclusion that the maintenance of a state class action
asserting a state claim that is similar to federal claims puts defendants
124
Id.
Id. at 796.
126
Id. at 794 (“However similar or dissimilar the function of federal antitrust
law may be with respect to state law, the federal claim is part of a distinct that must
be pursued in a wholly different court system”).
127
Id.
128
The only harm identified by Judge Cudahy is that defendants in federal court
should not be expected to be on notice of claims from state court proceedings “two,
five, ten, or even more years down the road” Id. at 797. However, it is unlikely that
if the court adopted cross jurisdictional tolling the tolling period would ever reach
five years, let alone ten or more. The plaintiffs in In re Copper Antitrust Litig. sought
a tolling period of two and a half years. Id. at 788.
129
Id. at 797.
125
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on notice that they might be sued federally, and leads to the
preservation of evidence and memories.130
Judge Wood reached this conclusion by refusing to acknowledge
any functional differences between the way California treats state class
actions and the way Rule 23 treats federal class actions. Citing that
California courts “recognize and preserve the rights of absentee class
members even before the issue of certification has been
determined,”131 Judge Wood noted that California’s class action rules
adopt the same “representative filing” as Federal Rule 23. 132
Extending this reasoning, Judge Wood asserted that “the fact that the
first class action in this case happened to be in California is not
enough [alone] to defeat [cross-jurisdictional] tolling.”133 This
premise establishes the basis for the argument that an antitrust suit in
state court is functionally equivalent to an antitrust claim in federal
court.134
Further dismantling the wall erected by Judge Cudahy between
state and federal jurisdictions, Judge Wood examined the factual and
legal backgrounds of the underlying state and federal suits involved in
the litigation.135 To effectuate this examination, Judge Wood
formulated a standard for cross jurisdictional tolling derived from
Justice Powell’s “the same evidence, memories, and witnesses as the
subject matter” test from Crown,136 which requires that the earlier state
court class action arise out of the same transaction or occurrence as the
subsequent federal action, and that the same claims be asserted from
those transaction and occurrences.137 To support this formulation,
Judge Wood maintained that the purpose of the statute of limitations is
130
Id. at 796.
In re Copper Antitrust Litig., 436 F.3d at 801-02 (citing Shapell Indus., Inc.
v. Super. Ct. Los Angeles County, 34 Cal.Rptr.3d 149 (Cal. Ct. App. 2005)).
132
133
Id.
134
Id. at 799-800. (“The claims in the [previous state class action] are
functionally the same as those in the federal case”).
135
Id. at 800.
136
Crown, Cork & Seal Co., Inc. v. Parker, 462 U.S. 345 (1983).
137
Id. at 355; In re Copper Antitrust Litig., 436 F.3d at 798.
131
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“to promote justice by preventing surprises through the revival of
claims that have been allowed to slumber until evidence has been lost,
memories have faded, and witnesses have disappeared.” 138
Accordingly, Judge Wood concentrated on whether the
Southwire’s state court class action effectively gave the defendants in
the federal suit notice of claims against them.139 After examining the
claims asserted in the California state class action by Southwire, Judge
Wood concluded that all relevant interests of the statute of limitations
would be served by tolling because “the [previous] California suit and
the current suit cover the same ground.”140 Therefore, the defendants
would be aware of the claims asserted against them regardless of
tolling. Specifically drawing comparisons between the state and
federal suits Judge Wood noted that “[t]he Heliotrope litigation
involved the same facts, evidence, and witnesses as the present
action,” and that “the two lawsuits also involve virtually identical legal
claims, albeit with different statutory labels.”141
Judge Wood also recognized that the similarity of the California
antitrust laws and the federal antitrust laws could functionally preclude
plaintiffs from alleging federal causes of action due to claim
preclusion,142 thereby asserting that it is plaintiffs who are actually
harmed by refusing to extend cross jurisdictional tolling, not
defendants. Judge Wood cites the California Supreme Court’s
decision in Aguliar v. Atlantic Richfield Co., which held that “because
[section 1] of California’s Cartwright Act is patterned after the federal
Sherman Act and both have their roots in common law, federal cases
interpreting the Sherman Act are applicable in construing the
Cartwright Act,”143 to reiterate the fact that had Southwire remained in
138
In re Copper Antitrust Litig., 436 F.3d at 798 (citing Order of R.R.
Telegraphers v. Ry. Express Agency, Inc., 321 U.S. 342 (1944).
139
140
Id.
141
Id.
142
Id. at 801-02.
143
Id. (citing Aguilar v. Atl. Richfield Co., 107 Cal.Rptr.2d 841
(Cal. 2001)).
43
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the California State class action issues decided there would have been
precluded in a subsequent federal antitrust suit. While Judge Wood
acknowledged that Southwire’s antitrust claims never faced the
possibility of being completely barred in a federal action under
California’s issue preclusion laws,144 Southwire would have faced the
reality of issue-preclusion had it remained in the California class
action. Due to the similarities in state and federal antitrust laws,145
Judge Wood noted that issue preclusion concerning key antitrust
questions like relevant market would functionally bar Southwire’s
federal claims, and thereby unnamed state class action members would
lose the very same rights they would lose if there class action was filed
in federal court.146
Unlike, Judge Cudahy’s view of the relation between state and
federal court proceedings which are necessarily separate, Judge
Wood’s examination of issue-preclusion attempts to display the
interrelatedness of the state and federal courts within the antitrust
context. Appropriately, the closer these two forums become the easier
it is to justify cross jurisdictional tolling.
III. CONCLUSION
It is clear that American Pipe147 simply asserts a federal interest
in assuring the efficiency and economy of the class action
144
The Supreme Court’s decision in Marrese v. American Academy of
Orthopedic Surgeons, 470 U.S. 373, 375 (1985) dictates that state law principals of
claim preclusion are applied in federal courts when deciding whether federal claims
are barred by a state court’s decision.
145
Both the Cartwright Act, Cal. Bus. & Prof. Code § 16720 (2006), and the
Sherman Act, 15 U.S.C. §1 (2006), require the plaintiff to define the relevant market
in which an anticompetitive effect is created, and identify specific antitrust injuries
resulting from the defendant’s actions.
146
In re Copper Antitrust Litig.,436 F.3d at 802.
147
Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538, 551 (1974).
44
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procedure.148 The intricacies hidden within this broad statement reveal
the significance of the Seventh Circuit’s decision in In re Copper
Antitrust Litigation.149 The dialogue between Judge Cudahy and
Wood sets forth a paradigm for other Circuit Courts to debate the
question of cross jurisdictional tolling. However, the impact of
denying the benefit of tolling to state class action plaintiffs who later
assert federal claims creates an otherwise unnecessary incentive for
those class members to file concurrent federal action at the
commencement of their class action suit. That incentive will directly
result in a loss of judicial efficiency for the federal court system, as it
will be required to deal with claims that otherwise never would have
been filed. In the end, the Seventh Circuit’s desire to maintain a rigid
separation between the federal and state judicial system by rejecting
cross jurisdictional tolling where state and federal claims are
functionally identical will only intertwine the two jurisdictions further
by instituting a policy of dual filing for antitrust claims.
148
Kathleen L. Cerveny, Limitation Tolling When Class Status Denied:
Chardon v. Fumero Soto and Alice In Wonderland, 60 NOTRE DAME L. REV. 686
(1985).
149
In re Copper Antitrust Litig. ,436 F.3d 782.
45
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CIVIL RIGHTS OF PRISONERS: THE SEVENTH
CIRCUIT AND EXHAUSTION OF REMEDIES
UNDER THE PRISON LITIGATION REFORM ACT
DEVIN MCCOMB∗
CITE AS: DEVIN MCCOMB, Civil Rights of Prisoners: The Seventh Circuit and
Exhaustion of Remedies Under the Prison Litigation Reform Act, 1 SEVENTH
CIRCUIT REV. 46 (2006), at http://www.kentlaw.edu/7cr/v1-1/mccomb.pdf.
INTRODUCTION
Recently, the images of Iraqi citizens imprisoned and tortured at
Abu Ghraib enflamed the hearts and minds of many Americans who
believed that our shared values forbid such treatment.1 But within our
own borders, we have turned a blind eye to the often severe and
inhumane conditions and treatment of American citizens incarcerated
in federal and state prisons.2 One criminal judge in the Circuit Court
of Cook County recently described a life spent in prison as "a kind of
Technology.
1
See Larry Seaquist, Op-Ed., U.S. Military's Bad-Guy Dragnet — A Terrible
Way to Win a War, CHRISTIAN SCIENCE MONITOR, May 5, 2004, available at
http://www.csmonitor.com/2004/0505/p09s02-coop.html. See also David Dishneau,
Abu Ghraib Dog Handler Sentenced to Six Months for Tormenting Prisoners, CHI.
SUN-TIMES, March 23, 2006, available at:
http://www.suntimes.com/output/news/cst-nws-abu23.html.
2
Aside from the examples provided by the cases discussed below see Mathie v.
Fries, 121 F.3d 808, 810-11 (2nd Cir. 1997) (inmate's had to be amputated due to
medical neglect) and Williams v. U.S., 747 F. Supp. 967, 971-82 (S.D.N.Y. 1990)
(male inmate sexually assaulted by male prison guard).
46
Volume 1, Issue 1
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slow, torturous death."3 Though Congress created a statute to allow
citizens to sue individuals acting under color of state law for violating
their constitutional rights, this protection is not equally available to all
citizens.4 In fact, a large and steadily increasing group of individuals
in American society, arguably those who have had their rights most
severely curtailed, is not allowed to utilize the broad power of section
1983 as freely as other citizens.5
This unequal treatment was fostered through the Prison Litigation
Reform Act of 1995 ("PLRA"), a federal statute enacted in response to
the large number of prisoner lawsuits alleging civil rights violations.6
The PLRA, in contrast to previous congressional action, requires that
inmates exhaust all administrative remedies before bringing suit
alleging a civil rights violation under any federal statute.7 By placing
an additional hurdle in front of prisoners who claim violations of their
civil rights, Congress has shifted the balance away from protection of
constitutional rights in favor of judicial economy.8 This additional
3
Stefano Esposito, Killer Gets Life Despite Wishes of Girl's Mom, CHI. SUNTIMES, April 11, 2006 (quoting Judge Stanley Sacks) available at
http://www.chicagosuntimes.com/output/news/cst-nws-durr11.html.
4
42 U.S.C. § 1983 (2000). This section reads: “Every person who, under
color of any statute, ordinance, regulation, custom, or usage, of any State or
Territory or the District of Columbia, subjects or causes to be subjected, any citizen
of the United States or other person within the jurisdiction thereof to the deprivation
of any rights, privileges, or immunities secured by the Constitution and laws, shall
be liable to the party injured in an action at law, suit in equity, or other proper
proceeding for redress. ”See generally SHELDON H. NAHMOD, CIVIL RIGHTS AND
CIVIL LIBERTIES LITIGATION: THE LAW OF SECTION 1983 (4th ed. 2004) (discussing
what Section 1983 is and how it provides civil rights protection against state
officials).
5
See Porter v. Nussle, 534 U.S. 516, 520 (2002) (holding that prison inmates
must exhaust all available administrative remedies before instituting a Section 1983
suit).
6
141 CONG. REC. S726 (daily ed. May 23, 1994) (Statement of Sen. Dole)
(describing the detrimental effects of frivolous litigation on justice and court
systems).
7
42 U.S.C. § 1997 (1996).
8
David M. Adlerstein, In Need of Correction: The "Iron Triangle" of the
Prison Litigation Reform Act, 101 COLUM. L. REV. 1681, 1683 (2001).
47
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requirement has immediately and drastically affected the fundamental
rights of prisoners by preventing them from seeking judicial remedies
for many possibly valid claims.9 Further, this exhaustion requirement
must be viewed in the context of the modern penal system, the
complex and often labyrinthine regulations that govern prison life, the
broad range of rights that are affected and the harsh conditions in
which these prisoners live out their lives.
This Article examines the history of prisoner civil rights litigation,
focusing on different congressional attempts to alleviate the burden on
crowded federal dockets, while preserving the rights of prisoners.
This is done by first addressing the predecessor of the PLRA, the Civil
Rights of Institutionalized Persons Act ("CRIPA")10, and then
discussing the purposes and consequences of the PLRA. This is
followed by a discussion of several recent cases in which the Seventh
Circuit has considered the scope of the PLRA's exhaustion
requirement in prisoner civil rights actions. These cases reveal two
trends in recent Seventh Circuit jurisprudence illustrating how the
court has tried to strike a balance between the legitimate goals of the
PLRA and the constitutional rights of prisoners. First, the Seventh
Circuit will carefully consider the administrative remedies at issue to
determine whether or not they are “available.” Second, the court
reasonably examines the actions of inmates to determine whether they
have exhausted all their administrative remedies. Finally, this Note
will address the future landscape of prisoner civil rights litigation, both
in the Seventh Circuit and throughout the country.
BACKGROUND
While the number of individuals currently incarcerated in
American prisons has steadily risen, numbering now over 1.5
9
Jennifer Winslow, The Prison Litigation Reform Act's Physical Injury
Requirement Bars Meritorious Lawsuits: Was It Meant To?, 49 UCLA L. REV.
1655, 1668 (2002).
10
42 U.S.C. §§1997-1997j (1980).
48
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million,11 the goal of correctional facilities has gradually shifted from
rehabilitation to simple punishment.12 Within the states governed by
the Seventh Circuit, over 91,000 men and women are incarcerated in
either federal or state correctional facilities.13 Though prisons are not
meant to be pleasant places, the Supreme Court has repeatedly
acknowledged, "prison walls do not form a barrier separating prison
inmates from the protections of the Constitution."14 There are certain
rights that inmates must forfeit as a consequence of their incarceration,
but they are understandably protective of the few civil rights that they
retain while incarcerated.15 This defensive and protective attitude by
prisoners is exacerbated by the imbalance of power between the
individual inmate and their alleged aggressors, the state or federal
government supervising the facility.16 The Supreme Court noted this
difficulty in Preiser v. Rodriguez, stating that “[w]hat for a private
citizen would be a dispute with his landlord, with his employer, with
his tailor, with his neighbor, or with his banker becomes, for the
prisoner, a dispute with the State.”17 Given the involuntary nature of
their incarceration and the harsh conditions present in the penal
system, it is not surprising that prisoners throughout the country often
file lawsuits alleging violations of their constitutional rights under
section 1983.18
After the Supreme Court acknowledged that inmates could bring
suit under section 1983, the number of lawsuits skyrocketed from
11
Allen J. Beck, U.S. Dep't of Justice, Prisoners in 2004, at 3. (2005) available
at http://www.ojp.gov/bjs/pub/pdf/p04.pdf.
12
Adlerstein, supra note 8, at n.5.
13
Beck, supra note 11, at 3.
14
Turner v. Safley, 482 US 78, 84 (1987).
15
Adlerstein, supra note 8, at 1682.
16
Adlerstein, supra note 8, at 1683.
17
411 U.S. 475, 492 (1973).
18
Aside from section 1983, prisoners may bring: habeas corpus claims, Bivens
actions, a Federal Tort Claims Act against the US, or an Administrative Procedures
Act claim against a specific BOP guideline or procedure.
49
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6,600 in 1975 to 68,000 in 1996.19 This flood of litigation threatened
to overwhelm already crowded federal court dockets.20 These law
suits addressed a broad range of interests, some of which were
constitutionally recognizable and some which were not, including
conditions of confinement, food, privacy, heat, mail, hair length, work
details, segregation cells, religious practice and rehabilitation.21 As the
number of inmate suits in federal court continued to rise, the increased
presence of federal judicial review troubled many prison
administrators, as well as state and local officials.22 Inmates were
successful in achieving many meaningful reforms including greater
access to legal materials23 and medical treatment.24, though there were
certainly examples of frivolous lawsuits and inmates abusing the
system.25 Eventually in 1980, the steadily increasing number of
19
See Jamie Ayers, To Plead or Not to Plead: Does the Prison Litigation
Reform Act's Exhaustion Requirement Establish a Pleading Requirement or an
Affirmative Defense?, 39 U.C. DAVIS L. REV. 247, 248 (2005) (stating that the
number of prisoner complaints rose from 6,600 in 1975 to more than 39,000 in
1994); Danielle M. McGill, To Exhaust or Not to Exhaust?: The Prisoner Litigation
Reform Act Requires Prisoners to Exhaust All Administrative Remedies Before
Filing Excessive Force Claims in Federal Court, 50 CLEV. ST. L. REV. 129, 130
(2003) (discussing that from 1980 to 1996, petitions filed by federal and state
prisoners almost tripled, from 23,230 to 68,235).
20
141 CONG. REC. S726 (daily ed. May 23, 1994) (Remarks of Sen. Dole)
(describing the detrimental effects of frivolous litigation on justice and court
systems).
21
Donald P. Lay, Exhaustion of Grievance Procedures for State Prisoners
under Section 1997(e) of the Civil Rights Act, 71 IOWA L. REV. 935, 936 n. 4 (1986).
22
Christopher E. Smith, The Governance of Corrections: Implications of the
Changing Interface of Courts and Corrections, 2 CRIM. JUST. 113, 126 (2000)
(“States could no longer run prisons and jails according to their own values and for
their own convenience.”).
23
Bounds v. Smith, 430 U.S. 817, 828 (1977) (mandating that prison officials
provide inmates with access to legal materials).
24
Estelle v. Gamble, 429 U.S. 97, 104 (1976) (obligating prison officials to
provide prisoners with seriously needed medical care under the Eighth Amendment).
25
Jeffrey R. Maahs & Rolando V. Del Carmen, Curtailing Frivolous Section
1983 Inmate Litigation: Laws, Practices, and Proposals, FED. PROBATION, Dec.
1995 at 53, 54 (estimating, “in one decade, [a single inmate] filed between 600 and
50
Volume 1, Issue 1
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prisoner lawsuits and the resulting burden on crowded federal dockets,
as well as congressional concerns about the constitutional rights of
inmates, spurred federal legislative action.26
A. The Civil Rights of Institutionalized Persons Act
In an effort to stem the tide of prisoner section 1983 litigation and
strike a balance between deference to state officials and the rights of
the institutionalized, Congress enacted the Civil Rights of
Institutionalized Persons Act (“CRIPA”) in 1980.27 Prior to 1980,
inmates who wanted to sue in court were not required to exhaust their
administrative remedies.28 CRIPA applied only to section 1983
actions and contained the first exhaustion requirement for prisoner
lawsuits.29 CRIPA did not require mandatory exhaustion, however,
and gave judges the power to require plaintiffs to exhaust
administrative remedies when "appropriate and in the interests of
justice."30 A judge could continue a case for up to 180 days if he
700 suits in federal and state courts, the vast majority of which were repetitive,
frivolous, and filed in forma pauperis.”).
26
See Lynn S. Branham, The Prison Litigation Reform Act's Enigmatic
Exhaustion Requirement: What It Means and What Congress, Courts and
Correctional Officials Can Learn from It, 86 CORNELL L. REV. 483, 493 (2001).
27
42 U.S.C. §§1997-1997j (1994 and Supp. III 1997). The question of
whether the number of lawsuits increased is an interesting one: in 1980 there were
12,397 increasing 227% to 40,569 in 1995. But during the same time-span, the
number of inmates increased 237%, thus the per capita rate of suits fell. Adam
Slutsky, Totally Exhausted: Why a Strict Interpretation of 42 U.S.C. § 1997E(A)
Unduly Burdens Courts and Prisoners, 73 Fordham L. Rev. 2289, 2294 (2005).
28
See Winslow, supra note 9, at 1670. (stating that in 1964, in Cooper v. Pate,
the Supreme Court held that the Civil Rights Act of 1871 protects the fundamental
rights of inmates. 378 U.S. 546 (1964). After the Cooper decision, prisoners began
to sue for civil rights violations at an astonishing rate).
29
Civil Rights of Institutionalized Persons Act, 42 US.C. § 1997(e) (1996).
30
42 US.C. § 1997(e)(a) (1996). See also McCarthy v. Madigan, 503 U.S.
140, 146 (1992)(holding that CRIPA's exhaustion requirement was not mandatory).
51
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believed that the suit could be resolved using administrative
remedies.31
This discretionary exhaustion requirement offered prison officials
the ability to resolve violations in administrative proceedings without
involving the courts.32 The exhaustion provision of CRIPA further
limited its own application by mandating that exhaustion could only be
required where the administrative remedies had been certified by the
Attorney General as meeting certain minimum standards.33 These
standards required that inmates be afforded an advisory role in
creating and applying a grievance procedure.34 The Supreme Court
created a balancing test for determining when to require exhaustion
under CRIPA, "federal courts must balance the interest of the
individual in retaining prompt access to a federal judicial forum
against countervailing institutional interests favoring exhaustion."35
Beyond the exhaustion requirement, CRIPA also gave the
Attorney General of the United States authority to sue state and local
officials responsible for facilities exhibiting a pattern or practice of
flagrant or egregious violations of constitutional rights.36 CRIPA also
set forth guidelines for prison administrative procedures and required
that states have their procedure certified by the Attorney General in
order to require exhaustion of remedies.37 Even with this discretionary
exhaustion requirement, CRIPA allowed inmates to participate in the
formation of the grievance procedures and many states refrained from
having their procedures certified because of this requirement.38 The
states’ refusal to adopt these provisions and alter their grievance
procedures to accommodate inmates’ civil rights had the opposite of
31
42 US.C. (e)(a)(1) (1996).
Branham, supra note 26, at 494-95.
33
Civil Rights of Institutionalized Persons Act (e)(a)(2).
34
Minimum Standards for Inmate Grievance Procedures, 28 C.F.R. § 40.2.
35
McCarthy, 503 U.S. at 146.
36
42 U.S.C. § 1997(a) (1996).
37
42 U.S.C. §1997(e)(a)(2) (1996).
38
28 C.F.R. § 40.2 See also Lay, supra note 21 (discussing states’ rejection of
the advisory role of inmates).
32
52
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the intended effect and actually increased the number of prisoner suits
filed and contributed to the burden on federal dockets as well as
increased costs to prisons caused by defending suits.39 In response,
many legal scholars, politicians and judges supported a change in the
system that would reduce the number of frivolous lawsuits.40
B. The Prison Litigation Reform Act of 1995
The civil rights of inmates were again the subject of
Congressional legislation in 1996 with the passage of the aptly named
amendment to CRIPA, the Prisoner Litigation Reform Act
(“PLRA”).41 Though the legislative history is minimal, the PLRA was
intended to stem the tide of purportedly frivolous prisoner lawsuits and
reduce judicial oversight of correctional facilities.42 The PLRA
represented a major change in prison litigation creating barriers such
as requiring physical injury in tort claims, forcing even in forma
pauperis prisoners to pay filing fees, and creating limits on attorney's
fees.43 Most importantly, however, the PLRA drastically modified the
CRIPA’s exhaustion of administrative remedies provision.44 Under the
PLRA, inmates are required to exhaust all administrative remedies
available, mandating, “No action shall be brought with respect to
prison conditions under section 1983 of this title, or any other Federal
39
See 142 CONG. REC. S10, 576 (daily ed. Sept. 16, 1996) (statement of Sen.
Abraham) (States were spending $81 million annually fighting frivolous prisoner
suits). See also, Tracy M. Sullivan, Prisoners' Seeking Monetary Relief for Civil
Rights Claims: Must They Exhaust Administrative Remedies Under § 1997(e)
Before Filing a Claim in Federal Court?, 8 WASH. U. J.L. & POL'Y 419, 421 (2002)
(As the prison population increased, lawsuits filed by prisoners nearly tripled
between 1980 and 1996).
40
See Slutsky, supra note 27, at 2295 (discussing the alliance of the National
Association of Attorneys General and the National District Attorneys Association.)
41
42 U.S.C. § 1997 (amended 1996).
42
141 CONG. REC. S14413-14 (daily ed. September 27, 1995) (statement of
Sen. Dole, who sponsored and introduced the PLRA).
43
See Winslow, supra note 28, at 1660 and Adlerstein, supra note 9, n. 29.
44
See Branham, supra note 26, at 494-96.
53
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Law, by a prisoner confined in any jail, prison, or other correctional
facility until such administrative remedies as are available are
exhausted.”45
The PLRA's exhaustion requirement was more restrictive and
differed from CRIPA in five important ways: First, the PLRA applies
to all state, local and federal prisoners in contrast to CRIPA, which did
not apply to federal prisoners or juveniles.46 Second, the exhaustion
requirement was broadened to include pretrial detainees as well as
convicted prisoners.47 Third, the PLRA requires dismissal of cases in
which administrative remedies were not exhausted.48 Before the
PLRA, courts continued or stayed cases until prisoners had exhausted
administrative remedies.49 The PLRA lacks the discretionary
application of the exhaustion requirement and removes the ability of
judges to determine when requiring exhaustion is appropriate. Finally,
before a court could require a prisoner to use a prison's administrative
grievance process, the process had to met certain requirements.50 The
PLRA removed the requirements that exhaustion of administrative
remedies must be "appropriate and in the interests of justice" or that
the administrative remedies be "plain, speedy and effective."51 The
PLRA also removed the five statutory standards for administrative
remedies and required only that the remedies be "available."52
45
42 U.S.C. § 1997(e)(a) (1996).
42 U.S.C. § 1997(e)(h) (1996) (defining a "prisoner" subject to the
exhaustion requirement as "any person incarcerated or detained in any facility who is
accused of, convicted of, sentenced for, or adjudicated delinquent for, violations of
criminal law or the terms and conditions of parole, probation, pretrial release or
diversionary program.").
47
42 U.S.C. § 1997(e)(h) (1996).
48
42 U.S.C. § 1997(e)(a) (1996).
49
42 U.S.C. § 1997(e)(a)(1) (1996).
50
42 U.S,C. §1997(e)(a)-(b) (1996).
51
42 U.S.C. §1997(e)(a)-(b) (1996).
52
42 U.S.C. §1997(e)(a) (1996). Interestingly, an earlier version of the PLRA
approved by the House of Representatives retained the CRIPA requirements that
administrative remedies be "plain, speedy, and effective" and that the Attorney
General or court find that they meet certain delineated standards or are otherwise
46
54
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The impact of the PLRA on prisoner lawsuits for constitutional
violations was immediate and substantial.53 In the last year under
CRIPA, inmates filed 41,679 civil rights petitions.54 In 2000, four
years after the passage of the PLRA, the number of civil rights
petitions dropped to 25,504, a reduction of 39%.55 Specifically, the
more comprehensive and automatic exhaustion requirement greatly
increased the number of inmate lawsuits that were dismissed for
failure to exhaust all available administrative remedies.56 The
Supreme Court, in interpreting the new exhaustion requirement under
the PLRA, held that inmates were required to exhaust all available
administrative remedies regardless of whether the claims involved
general circumstances of incarceration or particular incidents, thus
ensuring that the PLRA will govern all prisoner lawsuits in every
state.57
THE SEVENTH CIRCUIT AND
EXHAUSTION OF ADMINISTRATIVE REMEDIES
A. Background Seventh Circuit Jurisprudence
There are two Seventh Circuit cases that help provide context for
its more recent decisions. The first is Massey v. Helman, in which the
Seventh Circuit affirmed by strictly interpreting the PLRA’s
exhaustion requirement and clarified the definition of “available”
"fair and effective." H.R. J. RES. 667, 104th Cong. (1995). These requirements were
removed without explanation from the final version of the PLRA..
53
Slutsky, supra note 27, at 2302.
54
John Scalia, U.S. Dep't of Justice, Prisoner Petitions Filed in the U.S.
District Courts, 2000, with Trends 1980-2000, at 1 (2002), available at
http://www.ojp.usdoj.gov/bjs/pub/pdf/ppfusd00.pdf.
55
See Scalia, supra note 54.
56
See Margo Schlanger, Inmate Litigation, 116 HARV. L. REV. 1555, 1627-28
(2003).
57
Porter v. Nussle, 534 U.S. 516, 520 (2002).
55
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remedies.58 Massey claimed that because his lawsuit sought money
damages and there were no administrative procedures in which he
could collect monetary compensation, there were no administrative
remedies “available” within the meaning of the PLRA.59 Relying on
the earlier decision, the court clarified that the “effectiveness” of an
administrative remedy is not the same as its “availability.”60 The court
further stated that the inquiry was whether an administrative grievance
procedure existed and not whether the inmate was satisfied with the
results.61 The Seventh Circuit affirmed the dismissal of the district
court, but acknowledged that if Massey’s hernia had healed before he
filed his lawsuit, then he could have been exempted from the
exhaustion requirement because money may have been the only
remedy to his harm.62 Massey v. Helman also established that
defendants must plead exhaustion of remedies as an affirmative
defense under rule 8(c) of the Federal Rules of Civil Procedure.63
The second case is Pozo v. McCaughtry, in which the Seventh
Circuit addressed whether an inmate’s failure to file a timely appeal
would satisfy the exhaustion of remedies requirement of the PLRA.64
First, the court pointed out that inmates must file complaints and
appeals in the manner provided by the prison’s administrative rules.65
But the court went further to say that if an inmate failed to file a
58
Massey v. Helman, 196 F.3d 727, 729 (7th. Cir. 1999). Massey had not
sought any administrative relief before bringing his suit. See also Bivens v. Six
Unknown Named Agents of the Federal Bureau of Narcotics, 403 U.S. 388 (1971),
(requiring prisons to provide inmates with seriously needed medical care to avoid
constituting cruel and unusual punishment under the Eighth Amendment).
59
Massey, 196 F.3d .at 733-34.
60
Id. (citing Perez v. Wisconsin Department of Corrections, 182 F.3d 532 (7th
Cir. 1999).
61
Id.
62
Id. at 734.
63
Id. at 735.
64
286 F.3d 1022, 1023 (2002).
65
Id. at 1025.
56
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grievance within the prescribed period of time, then he would be
barred from bringing a suit regardless of the merits of his claim.66
B. The Two Trends in Recent Seventh Circuit Exhaustion Analysis
In 2005, the Seventh Circuit’s holdings have attempted to restore
the balance between the civil rights of prisoners and autonomy for
prison officials. There are two related trends that appear in much of
the courts recent jurisprudence that are helping to achieve this return
to equilibrium. First, the Seventh Circuit has carefully reviewed the
administrative procedures at issue to determine whether they are
“available” for purposes of the exhaustion requirement. As the cases
below reveal, this is not simply a rubber-stamp review and has led the
court to find exhaustion in many cases where the correctional facility
argued that there were indeed administrative remedies that were not
exhausted before the suit was filed and the district court agreed by
dismissing the suit.
The second trend involves the court’s consideration given to
inmate efforts to utilize internal prison procedures, even if these efforts
are ultimately unsuccessful in resolving the disputed conduct or
condition. Again, the court has found exhaustion where an inmate has
attempted to use grievance procedures or other “available”
administrative remedies, even where prison officials have argued that
those efforts were not sufficient. These two related trends, as
evidenced by the following cases, show how the Seventh Circuit has
attempted to balance inmate rights against the competing objectives of
administrative autonomy and avoiding crowded federal dockets.
1.
The Seventh Circuit’s Evaluation of “Available”
Administrative Remedies.
In a recent case, Turner v. Huston, the Seventh Circuit carefully
reviewed the actions of prisoner officials and determined that they had
66
Id. at 1024. The Supreme Court recently granted certiorari to decide this
issue. Woodford v. Ngo, 403 F.3d 620 (cert. granted Nov. 14, 2005).
57
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made administrative remedies unavailable.67 Turner had filed his suit
alleging six separate violations of his civil rights.68 First, the court
reiterated that in order to meet the exhaustion requirement, an inmate
must “file complaints and appeals in the place, and at the time, the
prison’s administrative rules require.”69 Next, in reviewing the
administrative remedies at issue, the court considered that the Illinois
Legislature had required that county jails permit inmates to submit
complaints to the jail administration in written form and, if those
complaints were not resolved at the local level, to submit a further
complaint to the Jail and Detention Standards Unit of the IDOC.70 In
order to seek review of the local decision, however, the prison rules
required that a copy of the local decision must be attached to the
complaint.71
Turner alleged that he had submitted written grievances on four of
his six claims, but never received any response from prison officials.72
As a result, he was unable to submit any appeals because he never
received any decision whatsoever and would not be able to attach it to
his appeal as required.73 Further, the court noted the prison
administrators never even explained the grievance procedures that
Turner was supposed to have used to him and failed to respond to his
grievances in any way.74 Accordingly, the court found that the
67
137 Fed. App’x 880, 882 (2005).
He alleged that issues of a magazine were unreasonably withheld, the heat
was not turned on before mid-November and inmates were denied blankets despite
the freezing temperatures, he was subject to disciplinary segregation without
adequate notice or an opportunity to rebut the charges, he was denied phone rights
while in segregation, he was denied access to a copy machine, notary public, prompt
mailing service or legal documents or an adequate law library, and he was denied an
extra sheet even though a doctor had directed he be given one to treat a skin
condition. Id. at 881.
69
Id. (citing Pozo v. McCaughtry, 286 F.3d 1022, 1025 (7th Cir. 2002)).
70
See ILL. ADMIN. CODE tit. 20 § 701.160(c) (2005).
71
See ILL. ADMIN. CODE tit. 20, § 701.160(c)(2) (2005).
72
Turner, 137 Fed. App’x at 881.
73
Id. at 882.
74
Id.
68
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administrative remedies offered by the prison officials had been
rendered unavailable to Turner.75 And where administrative remedies
are unavailable, they are deemed exhausted for purposes of §
1997(e)(a).76 The Seventh Circuit upheld the dismissal of two of
Turner’s claims, however, where he had never submitted grievances at
the local level.77 Even though Turner argued that filing these
grievances would probably not have accomplished anything, the court
held that the apparent futility of filing a grievance is not an exception
to the exhaustion requirement.78
In Brengettcy v. Horton, the Seventh Circuit considered the case
of an inmate at the Cook County Department of Corrections
(“CCDOC”) who alleged violations of his constitutional rights under
Section 1983 stemming from a physical altercation with a corrections
officer.79 The defendants filed two motions to dismiss, one of which
was based on Brengettcy’s alleged failure to exhaust administrative
remedies as required by the PLRA, section 1997(e)(a).80 Initially,
Judge Bucklo, who presided over the case, dismissed both motions.81
On appeal, the Seventh Circuit first examined the circumstances
leading to the lawsuit, focusing on the confrontation with the
correctional officers, to determine what remedies were indeed
75
Id. See also Dale v. Lappin, 376 F.3d 652, 656 (7th Cir. 2004) (preventing
inmates from submitting grievances, or failing to respond to their grievances, renders
administrative remedies unavailable).
76
Id.
77
Id.
78
Turner, 882-883, citing Booth v. Churner, 532 U.S. 731, 741 n.6 (2001);
Dixon v. Page, 291 F.3d 485, 488 (7th Cir. 2002); and Massey v. Wheeler, 221 F.3d
1030, 1034 (7th Cir. 2000).
79
423 F.3d 674, 677 (7th. Cir. 2005).
80
Id.
81
Id. The case was transferred for administrative reasons to Judge St. Eve,
who entered judgment in the defendants’ favor on the exhaustion argument after it
was presented to her in a motion for summary judgment. The Seventh Circuit held
that there was not a compelling reason, as required, to overturn Judge Bucklo’s
ruling regarding exhaustion. Id. at 681.
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available.82 Brengettcy’s complaint alleged that on August 21, 2000
he was verbally abused by one of the defendants, Officer Horton, and
then physically attacked.83 When Brengettcy fought back,
reinforcements were called and he was repeatedly beaten and kicked
by officers, even after he was handcuffed, and was then thrown down
a flight of stairs where he was knocked unconscious.84 Brengettcy
awoke the next morning in the hospital with pain throughout his body,
sutures in his lip, and chipped front teeth.85 Two days later, on August
23, 2000, he filed a written grievance with the CCDOC concerning the
incident, which was within fifteen days as required by CCDOC’s
grievance policy.86 He did not receive a reply within thirty days as the
policy dictated and was not notified that his grievance would take
longer to resolve.87 In October, Brengettcy asked Officer McCullen
about the status of his grievance was told that sometimes the
grievances are destroyed by corrections officers or other officials.88
On November 27, 2000, he filed another grievance and again the
CCDOC failed to respond within 30 days or give notice that it would
take longer.89 Brengettcy brought suit under Section 1983 on March
13, 2001, alleging that the officers’ conduct violated his civil rights.90
In considering the defendants’ motion to dismiss, Judge Bucklo
reasoned that “[p]laintiff’s grievance was filed in 2000. Defendants
do not dispute that plaintiff never received a response... A plaintiff is
not require[ed] to wait an unreasonable length of time-during which
evidence, witnesses and memories may be lost - for a decision before
he can go forward with his federal suit.”91
82
Id. at 677-78.
Id.
84
Id.
85
Id. at 678.
86
Id.
87
Id.
88
Id..
89
Id..
90
Id. at 678-79.
91
Id. at 678-79.
83
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When considering the question of exhaustion, the court first
reiterated the holding that exhaustion is “an affirmative defense that
the defendants have the burden of pleading and proving.”92 Requiring
that prisoners file grievances and appeals according to the prison’s
administrative rules93, a prison official’s failure to respond to a
prisoner’s claim can render administrative remedies unavailable.94
This rule, also followed by the Fifth95 and Eighth96 Circuits, is based
on a refusal to interpret the PLRA so narrowly as to permit prison
officials to “exploit the exhaustion requirement through indefinite
delay in responding to grievances.”97 In examining the facts, the court
found that Brengettcy followed the CCDOC policy regarding filing
grievances, but had not received any response as was required.
Further, the court found that while the policy allowed a prisoner to
appeal a decision within five days of its receipt, there was no policy
regarding what prisoner should do when the CCDOC fails to respond
and there is no decision for them to appeal.98 Accordingly, the court
reversed the entry of summary judgment for the defendants on the
alleged failure to exhaust because Brengettcy alleged that he filed a
grievance within the time period mandated by CCDOC rules and the
defendants had failed to meet their burden of proof.99
In Westefer v. Snyder, the Seventh Circuit considered the claims of
several prisoners, all members of various prison gangs, that they had
been transferred to Tamms Correction Center (“Tamms”) as retaliation
92
Id. at 682 (citing Dale v. Lappin, 376 F.3d 652, 655 (7th Cir. 2004)).
Pozo v. McCaughtry, 286 F.3d 1022, 1025 (7th Cir. 2002).
94
Lewis v. Washington, 300 F.3d 829, 835 (7th Cir. 2002).
95
Powe v. Ennis, 177 F.3d 393, 394 (5th Cir. 1999); Underwood v. Wilson,
151 F.3d 292, 295 (5th Cir. 1998).
96
Foulk v. Charrier, 262 F.3d 687, 698 (8th Cir. 2001); Miller v. Norris, 247
F.3d 736, 740 (8th Cir. 2001).
97
Brengettcy, 423 F.3d 674 at 682.
98
Id.
99
Id.
93
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for exercising their First Amendment rights.100 Tamms is the highest
security prison in Illinois and was designed to be harsh, so that the
threat of transfer to Tamms would deter prisoners throughout the
IDOC from disobeying prison rules.101 The district court had
dismissed the suits of several of the prisoners for failure to exhaust
their administrative remedies.102 As usual, the Seventh Circuit’s
analysis began by examining the administrative procedures by which
the inmates could have challenged their transfers to Tamms.103
As an initial matter, the court requested that the parties file
supplemental briefs discussing the administrative procedures available
to a Tamms prisoner because the record and initial briefs did not
present a “clear picture.”104 The IDOC has two avenues by which
inmates must challenge their transfer to Tamms: through the transfer
review hearing process and the inmate grievance process.105
Additionally, Illinois regulations establish two types of transfer
hearings at Tamms, depending on the inmate’s segregation category
upon arrival at the facility.106 Prisoners are classified as subject to
either administrative or disciplinary segregation, and different review
processes govern each category.107
Inmates in administrative detention are given a transfer review
hearing within ten working days of their arrival at Tamms “whenever
possible.”108 At this hearing inmates can make statements challenging
their placement, submit documentary evidence and request that the
transfer committee interview witnesses.109 This transfer committee
100
422 F.3d 570, 572-573 (7th Cir. 2005).
Id. at 572.
102
Id. at 576.
103
Id. at 577.
104
Id. at 577.
105
Id. at 578. Transfer review hearing at ILL. ADMIN. CODE tit. 20 § 505.60(a)
(2005) and the grievance procedure at ILL. ADMIN. CODE tit. 20 § 504.810(a) (2005).
106
Id. at 578.
107
Id. at 578.
108
ILL. ADMIN. CODE tit. 20 § 505.60(a) (2005).
109
ILL. ADMIN. CODE tit. 20 § 505.60(b) (2005).
101
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makes a recommendation to the warden, who approves or denies the
recommendation before forwarding it to the Deputy Director.110 In
contrast, inmates who are transferred to Tamms in disciplinary
segregation are not afforded an initial transfer review hearing.111 In
fact, prisoners in disciplinary segregation only receive a hearing when
their term of disciplinary segregation ends.112 The court was
concerned by this provision’s possible application, where a prisoner
who was transferred while serving a long disciplinary sentence would
not be able to contest their transfer until the end of that long
sentence.113 After the initial transfer review hearing, inmates are
reviewed every ninety days to determine whether placement at Tamms
is still appropriate.114 Again, however, inmates in disciplinary
segregation are not given this quarterly review.115 Finally, individuals
in administrative segregation are given an annual review while those
in disciplinary segregation are not.116
The court found that this transfer review process was not an
adequate administrative remedy for two reasons.117 First, prisoners
who were transferred in, and remained in, disciplinary segregation had
not yet qualified for a review hearing.118 Accordingly, this remedy
was not “available” to them and did not have to be exhausted.119
Second, prisoners are not informed of the reasons for their transfer to
Tamms and cannot contest these reasons at their review hearings.120 If
a prisoner does find out the reasons for his transfer after completing
the initial transfer review, they must wait at least one more year before
110
ILL. ADMIN. CODE tit. 20 § 505.60(b) and (d) (2005).
ILL. ADMIN. CODE tit. 20 § 505.60(a) (2005).
112
ILL. ADMIN. CODE tit. 20 §505.60(a) (2005).
113
Westefer v. Snyder, 422 F.3d 570, 578 (7th Cir. 2005).
114
115
Westefer, 422 F.3d at 578 (citing 20 ILL. ADMIN. CODE §505.70(a) (2005)).
116
ILL. ADMIN. CODE tit. 20 §505.70(b) (2005).
117
Westefer, 422 F.3d at 579-80.
118
Id. at 579, (relying on ILL. ADMIN. CODE tit. 20 §505.60(a) (2005)).
119
Id. (citing Lewis v. Washington, 300 F.3d 829, 833 (7th Cir. 2002)).
120
Id.
111
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they can present evidence at an annual review hearing.121 Relying on
these issues, the Seventh Circuit found that the IDOC had not shown
that the prisoners had failed to exhaust their administrative
remedies.122
In examining the second administrative remedy by which an
inmate could appeal their transfer to Tamms, the grievance process,
the Seventh Circuit found confusion within the IDOC guidelines.123
In Illinois, “incidents, problems, and complaints” can be addressed
through grievances.124 The grievance process cannot, however, be
used for complaints “regarding decisions that are outside the authority
of the Department, such as parole decisions, clemency, or order
regarding length of sentence or decisions that have been rendered by
the Director.”125 The court interpreted the phrase “or decisions that
have been rendered by the Director” to possibly apply to the
administrative decision to transfer an inmate to Tamms.126 The court
also found that the IDOC’s ultimate grievance appeal body, the
Administrative Review Board (“ARB”), had been inconsistent in
categorizing inmate grievances requesting transfers as properly before
them on appeal or an administrative prerogative of IDOC.127 The
court also considered the fact that a Tamms counselor and other IDOC
officials had given contradictory advice to inmates about the proper
venue for their transfer appeals.128
121
Id.
Id.
123
Id.
124
125
126
Westefer, 422 F.3d at 579.
127
Id. at 579-580. (The ARB had addressed one prisoner’s grievance
complaining of his transfer, but had refused to address another prisoner’s grievance
for transfer saying it was administrative prerogative of IDOC).
128
Id. at 580 (A Tamms counselor said he could not use grievance system,
other prison officials said this was the only way to contest transfer.)
122
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Finally, the court examined the variety of Tamms-specific
regulations in the Illinois Administrative Code129 for a provision
addressing how a prison could challenge his transfer to Tamms.130
Finding none, the court concluded that if there were a regulation that
specified the proper means for this challenge, then prisoners would be
required to fulfill its administrative requirements.131 In struggling to
determine whether an administrative remedy existed at all, the court
predicted, “[i]f the ARB took consistent positions on its authority to
address a transfer grievance, a clear route for the prisoner at least
would be evident and we could proceed to determine its
effectiveness.”132 But absent any such consistency or other remedy,
the court concluded that the grievance process was not an “available”
administrative remedy for the prisoners who wished to appeal their
transfers.133
2.
The Seventh Circuit’s Evaluation of “Exhaustion”
In December 1994, Donald Greeno began complaining of severe
heartburn while incarcerated at Racine Correctional Institution.134
Over the next three years, Greeno was repeatedly denied necessary
medical treatment and eventually suffered severe and permanent
digestive damage.135
In June 2000, Greeno filed suit under Section 1983, alleging that
his doctors and other Wisconsin Department of Correction’s
employees had shown deliberate indifference to his serious medical
needs in violation of the Eighth Amendment.136 Greeno also alleged
deliberate indifference by the employees who had processed his
129
ILL. ADMIN. CODE tit. 20 §505(2005).
Westefer, 422 F.3d at 580.
131
Id.
132
Id.
133
Id.
134
Greeno v. Daley, 414 F.3d 645, 649 (7th Cir. 2005).
135
Id.
136
Id. at 651.
130
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inmate complaints relating to his medical care.137 On appeal, the
defendants argued that Greeno had failed to exhaust his administrative
remedies as required because he “did not appeal every single
complaint that he filed through the highest level of review, the
Department of Corrections Secretary.”138 The Seventh Circuit rejected
this argument and found that there was no requirement that every
inmate complaint be appealed through the highest level.139 The court
also found that Greeno had exhausted his administrative remedies as
required by § 1997(e)(a) where he had filed every grievance according
to the prison’s policies, detailed exactly what his injuries and needs
were, and appealed at least seven of his complaints to the Department
of Corrections Secretary, “Greeno fully exhausted his prison remedies
with respect to complaints that alerted prison officials to the nature of
his problem and gave them an opportunity to resolve it.”140 “In short,
Greeno took all steps prescribed by the prison grievance system, thus
satisfying the exhaustion requirement.”141 The Seventh Circuit
concluded by vacating the district court’s judgment and allowing
Greeno’s claims against most of the prison employees to continue.142
Rodger Thornton is an inmate serving out a life sentence in the
IDOC, currently at the Pontiac Correctional Center.143 After a
disciplinary charge, Thornton was placed in a segregation cell on
January 13, 2000.144 Thornton was very upset by the conditions in his
cell and wrote letters to the Director of the Pontiac Correctional
Center, the Warden, and other officials.145 Thornton received no
response to these requests and submitted an emergency grievance to
137
Id.
Id. at 652.
139
Id.
140
Id. (citing McCoy v. Gilbert, 270 F.3d 503, 512 (7th Cir. 2001)).
141
Id. See Ford v. Johnson, 362 F.3d 395, 397 (7th Cir. 2004).
142
Id. at 658, 659.
143
Thornton v. Snyder, 428 F.3d 690, 692 (7th Cir. 2005).
144
Id.
145
Id.
138
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the warden asking to be moved on January 28, 2000, two weeks after
his placement in the segregation cell.146 Thornton subsequently
received a letter stating that his grievance did not constitute an
emergency.147
On February 22, 2000, after being transferred to another
segregation cell, Thornton filed a grievance requesting a clean
mattress in his new cell.148 After receiving another unsatisfactory
mattress, Thornton was given a satisfactory one on May 11. The next
day, prison officials dismissed the February 22 grievance as moot
since Thornton had received an acceptable mattress.149
Thornton eventually brought suit against several prison officials
pursuant to Section 1983 for alleged violations of his Eighth
Amendment right to be free from cruel and unusual punishment.150
He sought monetary damages for the time he was confined in the
initial segregation cell as well as the time he was in the second
segregation cell without a mattress.151The district court granted
summary judgment for the defendants on Thornton’s cell condition
claims on the basis that he had failed to exhaust his administrative
remedies.152
146
Id. As written, the grievance stated in part:
This seg cell north 106 is in very poor shape. There appears to be
human feces smeared on the walls covering most of the inside of
the cell. It has a foul smell to it. The toilet leaks. There is 2 to 3
inches of water on the floor, it clearly has a sewer aroma to it. The
water that comes from the sink is discolored it looks like rust
water. The conditions of this mattress sir is so bad that there is no
way I can or will sleep on it. Its stained and its got a piss smell to
it...I can’t even eat cuz of the smell in this cell. I’ve already had
several asthma attacks since I’ve been back here. Sir please help
this is just not right at all...Please I beg of you before I contract
some major health problems get me out of here.
147
Id.
148
Id. at 693.
149
Id.
150
Id.
151
Id.
152
Id.
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The Seventh Circuit first examined the grievance process
followed by the IDOC, codified in the Illinois Administrative Code.153
Under that procedure, an inmate can submit a written grievance to a
designated grievance officer, who then submits his recommendation to
the institution warden.154 In response, the warden “shall advise the
offender of the decision in writing within two months after receipt of
the written grievance, where reasonably feasible.155 Alternatively, an
inmate can request that a grievance be handled on an emergency basis
by submitting the grievance directly to the warden.156 If the warden
determines that there is a substantial risk of imminent personal injury
or other serious or irreparable harm, the grievance is to be handled on
an emergency basis.157 The process also provides: “[i]f, after
receiving the response of the [warden], the offender still feels that the
problem, complaint, or grievance has not been resolved to his or her
satisfaction, he or she may appeal in writing to the Director within 30
days after the date of the decision.”158 With this policy in hand, the
Seventh Circuit turned to the defendants’ argument that Thornton had
failed to exhaust his administrative remedies.159
The defendants’ initial exhaustion argument was that Thornton did
not even properly begin the grievance process regarding the conditions
in his first segregation cell.160 Under this argument, the defendants’
claimed that after the warden found that the grievance was not an
emergency, the grievance ceased to exist.161 The Seventh Circuit
disagreed, however, because Thornton had followed the procedures for
filing an emergency grievance when he submitted his grievance
153
Id. at 694 (citing ILL. ADMIN. CODE tit. 20 § 504.800 et seq. (2005))
Id. (citing ILL. ADMIN. CODE tit. 20 §§ 504.810; 504.830 (2005)).
155
ILL. ADMIN. CODE tit. 20 § 504.830(d) (2005).
156
ILL. ADMIN. CODE tit. 20 § 504.840 (2005).
157
ILL. ADMIN. CODE tit. 20 § 504.840 (2005).
158
ILL. ADMIN. CODE tit. 20 § 504.850(2005).
159
Thornton v. Snyder, 428 F.3d 690, 694 (7th Cir. 2005).
160
Id.
161
Id.
154
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directly to the warden.162 When the warden only informed Thornton
that his grievance was not an emergency and did not discuss the merits
of the grievance, “There is nothing in the current regulatory text,
however, that requires an inmate to file a new grievance after learning
that it will not be considered on an emergency basis.”163 Additionally,
the fact that Thornton was transferred, and thus received exactly the
relief he had requested, before the thirty-day time for him to appeal the
warden’s decision had expired led the court to reject this initial
argument.164
In response to the defendants’ larger exhaustion argument,
Thornton argued that he had properly filed his grievances and received
exactly the relief he asked for and thus fulfilled his duty to exhaust his
administrative remedies.165 As to his initial grievance filed on January
28, Thornton had asked to be transferred and was indeed transferred to
another cell by February 22.166 In his second grievance, Thornton
requested a replacement mattress and subsequently received one.167
After he was given the new mattress, the grievance officer and warden
found that the grievance was now moot and dismissed it as such.168
The defendants contended that Thornton should have appealed both of
these grievances to the Director of the Department of Corrections as
allowed in the grievance procedures.169 The court disagreed with the
defendants’ interpretation of the PLRA exhaustion requirement,
however, and found that Thornton did not have to “appeal grievances
that were resolved as he requested and where money damages were
not available.”170
162
Id. (citing ILL. ADMIN. CODE tit. 20 § 504.840 (2005)).
Id.
164
Id.
165
Id. at 694-695.
166
Id. at 695.
167
Id.
168
Id.
169
Id.
170
Id.
163
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In rejecting the defendants’ interpretation that the PLRA required
inmates to appeal grievance resolved favorably to the highest level
possible, the court looked to its previous interpretations as well as the
analysis of the Second and Tenth Circuits on this issue.171 First, the
court found that if an injury has been healed by the time a lawsuit
begins, nothing other than damages could be a “remedy,” and if the
administrative process cannot provide compensation then there is no
administrative remedy to exhaust.172 This conclusion was buttressed
by the Tenth and Second Circuits’ interpretation that prisoners are not
required to appeal favorable decisions.173 Even where the defendants
relied on the statement in Booth v. Churner that futility is not an
excuse for failure to exhaust available remedies, the Seventh Circuit
found that the circumstances of the case made Booth inapplicable.174
While there was a possibility of some relief in Booth, Thornton had
already received what he requested in his grievances and there was
nothing else that prison officials could give him, “Without the
possibility of some relief, the administrative officers would
presumably have no authority to act on the subject of the complaint,
leaving the inmate with nothing to exhaust.”175
Finally, the Seventh Circuit addressed several policy arguments
advanced by the defendants, chief among them the contention that the
grievance system is designed to provide notice to prison officials of
systemic problems and inmates should be required to pursue further
administrative review to ensure such notice is given.176 The court
disagreed and countered that Thornton had properly submitted his
grievances and prison officials were aware of his complaints and it is
not “Thornton’s responsibility to notify persons higher in the chain
when this notification would be solely for the benefit of the prison
171
Id. at 695-696.
Id.
173
Id. (citing Ross v. County of Bernalillo, 365 F.3d 1181, 1187 (10th Cir.
2001) and Ortiz v. McBride, 380 F.3d 649, 653 (2nd Cir. 2004)).
174
Id. (citing Booth v. Churner, 532 U.S. 731, 734 (2001)).
175
Id. (quoting Booth, 532 U.S. at 746 n.6 (2001)).
176
Id. at 696-97.
172
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administration.”177 Further, requiring inmates to appeal favorable
decisions would risk reversal of these decisions and thus increase, not
decrease, the number of inmate suits, in contrast to the very purpose of
the PLRA.178 Accordingly, the court reversed the lower court’s entry
of summary judgment against Thornton and found that he had
exhausted his administrative remedies as required.179
TRENDS AND OVERALL ANALYSIS
Though each case is fact-specific, the cases discussed above
illustrate the two prevailing trends in the Seventh Circuit’s
interpretation of inmate claims under Section 1983. These two related
trends recognize that an efficient exhaustion requirement creates a
burden on both prison officials and prison inmates. In determining
whether any administrative remedies are “available,” the deference
given to prison officials traditionally by the courts with regard to the
operation of prisons and their administration will not prevent the court
from closely examining alleged constitutional violations and the
administrative remedies available to aggrieved inmates. By requiring
that prison officials offer effective and comprehensive administrative
remedies, the Seventh Circuit actually reinforces the primary goal of
the PLRA, a reduction in the number of lawsuits and an increase in the
quality of lawsuits that actually get onto federal dockets. Through
these decisions, the court has been able to critique several
administrative procedural requirements and tip the balance in favor of
civil rights where these remedies are unavailable.
The second group of cases focuses less on the adequacy of the
specific administrative remedy and more on the conduct of the
prisoner who has filed suit. As long as prisoner follow the
administrative procedures as they are described, they will satisfy the
exhaustion of remedies requirement of the PLRA. Further, prisoners
are not forced to appeal favorable decisions in order to preserve their
177
Id. at 697.
Id.
179
Id.
178
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ability to bring suit to vindicate their rights. Additionally, the court
will find that administrative remedies have been exhausted where the
inmate has filed their grievances in a timely manner, even if the prison
officials have not responded as required.
Even though inmates are required to exhaust administrative
procedures, the Seventh Circuit’s characterization of the exhaustion
requirement under the PLRA as an affirmative defense places the
burden on prison officials to show what an inmate should have done
and why they should have done it. Though this burden may be heavy,
it is justified for several reasons. First, prison officials are in a much
betterposition than inmates to understand the often-confusing
administrative regulations and procedures necessary for resolving
complaints and would ,therefore ,be better able to explain an inmate’s
failure to the court. Second, studies show that a large percentage of
inmate suits are brought pro se and to require the average inmate to
adequately understand the administrative procedures and further show
how they were or were not “available” would lead to the dismissal of
many legitimate Section 1983 claims and, thereby, damage to the civil
rights of prisoners everywhere. This is beyond the simple fact that
seven out of ten prisoners have only the lowest level of reading and
writing ability.180
In the cases discussed above, the Seventh Circuit correctly shifted
the burden of proof onto prison officials, rather than placing it on
uneducated and abused prisoners. This helped insure that prisons were
indeed responding to inmate grievances or appeals for change, or that
at least the inmates were given a voice with which to protect their
constitutional rights. While this goes against the interpretations of
many of the district courts throughout the Seventh Circuit, it serves the
purpose of the PLRA where it requires that prisons adopt reasonable
and effective administrative procedures so that inmates do not need to
bring suit in federal court in order to have their rights protected.
While there may be inmates that will file frivolous lawsuits even
where there are administrative remedies available, the recent cases
180
Karl O. Haigler et al., Literacy Behind Prison Walls 17-19 (1994),
available at http://www.nces.ed.gov/pubs94/94102.pdf.
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decided by the Seventh Circuit show that many inmates present valid
claims that could have been remedied had the grievance or other
administrative procedure functioned effectively.
CONCLUSION
The increasing number of inmates in American prisons and
subsequent overcrowding are likely to lead to an increasing number of
lawsuits filed by prisoners. In the face of this tide, the pressure on
federal courts to manage their dockets will only continue to grow.
Under the PLRA, every inmate lawsuit that enters federal court will
force the court to weigh the rights of prisoners against the
administrative remedies available to them. In the Seventh Circuit, the
court should continue to place the burden on prison officials to show
that there were indeed administrative remedies that should have been
exhausted. Further, the court should continue to closely scrutinize the
“availability” of administrative remedies to ensure that grievance
procedures are effective. Finally, given the fact that many prisoners
will not be able to retain lawyer to litigate their section 1983 or other
civil rights claims, the court must look at the conduct of the inmate in
the context of the particular administrative remedies available to
determine whether they have exhausted all available administrative
remedies. Only in this way can the court insure that they do not
sacrifice justice for the sake of judicial economy and protect the
fundamental civil rights of prisoners.
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COPYRIGHT, TECHNOLOGY & THE BOSTON
STRANGLER: THE SEVENTH CIRCUIT AND THE
FUTURE OF ONLINE MUSIC ACCESS
*
JEFFREY J. ESCHER
Cite as: Jeffrey J. Escher, Copyright, Technology & The Boston Strangler: The
Seventh Circuit and the Future of Online Music Access, 1 SEVENTH CIRCUIT REV. 74
(2006), at http://www.kentlaw.edu/7cr/v1-1/escher.pdf.
INTRODUCTION
Recent technological advancements in media have spurned
unprecedented growth in the ever-changing industries of music,
television and motion pictures. Over 22 million Americans ages 18—
39 own portable MP3 players or iPods®.1 In fact, 19% of all
Americans under the age of 30 own these relatively new devices.2
Millions of Americans watch digitally recorded television programs or
movies thanks to “On-Demand” services such as TiVo®, Digital Video
Recorders or VHS tapes.3 In fact, countless numbers of people have
recorded their favorite movie or television program on a VHS or
*
Technology.
1
Lee Rainie, PIP Comments: iPods and MPS Players Storm the Market, PEW
INTERNET AND AMERICAN LIFE PROJECT, February 14, 2005,
http://www.pewinternet.org/PPF/p/1047/pipcomments.asp (last visited April 15,
2006).
2
Id.
3
BILL ROSE & JOE LENSKI, ARBITRON/EDISON MEDIA RESEARCH, INTERNET
AND MULTIMEDIA 2005: THE ON-DEMAND MEDIA CONSUMER (2005), available at
http://www.edisonresearch.com/home/archives/Internet%202005%20Summary%20
Final.pdf (last visited June 25, 2006).
74
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Betamax video tape daily since the United States Supreme Court’s
landmark decision in Sony Corp. of America v. Universal Studios, Inc.4
However great these technological advancements have impacted
the American economy by making entertainment more readily
available to consumers and creating additional markets for producers,
these advancements have also threatened – and continue to threaten –
the delicate balance between rights in copyrighted material and
technological innovation. This article, inspired by the Seventh
Circuit’s recent decision in BMG Music v. Gonzalez5, analyzes this
balance, and looks toward the future of the relationship between
copyright law and technological advancement in the Seventh Circuit.
First, this Article will present a brief history of copyright law in
the United States, which has been forced to evolve as newer and more
efficient technologies have developed. With the advent of these new
technologies, such as peer-to-peer file sharing networks, iPods and
MP3 players, right-holders of copyrighted material face unrestricted
and widespread dissemination of their works. However, the public’s
use of copyrighted material through peer-to-peer file sharing networks
(P2P) has upset this delicate balance between the rights owners
possess in their works and the benefit of open and public access to
them as a result of the overwhelming efficiency in dissemination that
this technology offers.
Second, this article examines the recent Gonzalez decision, the
apex of this conflict on an individual level in the Seventh Circuit.
Companies such as BMG, the plaintiff in Gonzalez, have become
increasingly weary of sophisticated infringement technologies such as
P2P file sharing networks, and have begun to target individual
copyright infringers such as Cecilia Gonzalez.
Lastly, this article will address the problems the recording
industries and consumers face in the years to come when dealing with
online music access. The impossibility of litigating each and every
case against every individual infringer, or even filing suit against every
infringer, is readily apparent to the majority of internet users, thereby
4
5
464 U.S. 417 (1984).
430 F.3d 888 (7th Cir. 2005).
75
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fostering an “it will not happen to me” attitude in the minds of the P2P
communities. Finding the right remedy to this problem can eliminate
copyright infringement in P2P file sharing communities and,
hopefully, will enable this technology to benefit both sides of the
conflict.
HISTORY OF COPYRIGHT LAW IN THE UNITED STATES
I.
A. The Early Days of Copyright Law
The Constitution of the United States provides Congress with the
power “to promote the progress of science and useful arts, by securing
for limited times to authors the exclusive right to their respective
writings and discoveries.”6 The Copyright Act of 1790 granted
American authors the right to print, re-print or publish their work for
fourteen years and to renew that protection for an additional fourteen
years.7 The Copyright Act sought to provide an incentive to authors,
artists, and scientists to create original works by providing creators
with a monopoly; however, this monopoly was limited in order to
“stimulate creativity and the advancement of science and the arts
through wide public access of the works . . .”8
In 1841, the Massachusetts Supreme Court heard a dispute
brought by the owner and editor of a collection of George
Washington’s letters after those letters were used by an author in a
book about Washington’s life.9 Justice Story, delivering the opinion
for the Court, found that the author had infringed on the owner’s
copyright when he published a large number of these letters in his
book.10 The author argued that his use of the letters was justified and
6
U.S. CONST. art. I, § 8, cl. 8.
Association of Research Libraries, Washington D.C., A History of Copyright
Law in the United States, (2002), www.arl.org/info/frn/copy/timeline.html (last
visited June 25, 2006).
8
Id. (emphasis added).
9
Folsom v. Marsh, 9 F. Cas. 342 (D. Mass. 1841).
10
Folsom, 9 F. Cas at 349.
7
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that he had a right to use the letters for his original work.11 Justice
Story disagreed, holding that if so much of a work is taken “that the
value of the original is sensibly diminished, or the labors of the
original author are substantially to an injurious extent appropriated by
another, that is sufficient . . . to constitute piracy pro tanto.”12
Further, the court held that the question of piracy depends upon
the balance of:
the comparative use made in one of the materials of the
other; the nature, extent and value of the materials thus
used; the objects of each work; and the degree to which
each writer may be fairly presumed to have resorted to
the same common sources of information, or to have
exercised the same common diligence in the selection
and arrangement of the materials.13
In 1909, Congress revised the Copyright Act of 1790 and for the
first time addressed the rights a composer holds in his music. The
main purpose, Congress said, was:
in expanding copyright protection accorded to music
has been to give the composer an adequate return for
the value of his composition, and it has been a serious
and difficult task to combine the protection of the
composer with the protection of the public, and to so
frame an act that it would accomplish the double
purpose of securing to the composer an adequate return
for all use made of his composition and at the same
time prevent the formation of oppressive monopolies,
which might be founded upon the very rights granted to
the composer for the purpose of protecting his rights.14
11
Id. at 342-44.
Id. at 348.
13
Id. at 344.
14
Association of Research Libraries, supra note 7.
12
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B. Moving Toward the Modern Years
This “difficult task” recognized by Congress in 1909 would only
increase with the development of new technology. In 1973, the
photocopier made its way into the realm of copyright law. In Williams
& Wilkins Co. v. United States,15 the National Institutes of Health and
the National Library of Medicine photocopied articles in medical
journals published by plaintiff and gave them to physicians and
medical researchers for use in their professional work.16 The Court of
Claims opined that medical research and medicine in general would be
harmed if this were found to be infringement.17 In the decision, Judge
Davis, while pleading for congressional treatment of this new
technology in copyright law, held that that use of the photocopier to
copy this important medical information constituted fair use, but also
specifically noted that plaintiff failed to demonstrate any harm from its
use.18
This “fair” use the Supreme Court talked about was a major part
of the revisions included in the Copyright Act of 1976. This Act
superseded all previous copyright law and was brought about in part
because of new technological advancements and their impact on what
might be copyrighted.19 This revision codified for the first time the
“fair use” doctrine, and also extended copyright to unpublished
works.20
The “fair use” doctrine provides that the “fair use of a copyrighted
work, including such use by reproduction in copies or phonorecords or
by any other means specified by that section, for purposes such as
criticism, comment, news reporting, teaching (including multiple
copies for classroom use), scholarship, or research, is not an
15
480 F. 2d 1345 (C.C.P.A. 1973).
Williams, 480 F. 2d at 1347-48.
17
Id. at 1354.
18
Id. at 1353-54.
19
Association of Research Libraries, supra note 7.
20
Id.
16
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infringement of copyright.”21 Four factors are determinative of
whether an act constitutes fair use: the purpose and character of the
use, nature of the copyrighted work, the amount and substantiality of
the portion used in relation to the whole, and the effect of the use on
the potential market.22 This doctrine is subject to interpretation for
each specific case before a court.23 Because of that, its application is
difficult, and both the legislature and the courts have recognized as
much:
The statement of the fair use doctrine in section 107
offers some guidance to users in determining when the
principles of the doctrine apply. However, the endless
variety of situations and combinations of circumstances
that can rise in particular cases precludes the
formulation of exact rules in the statute. The bill
endorses the purpose and general scope of the judicial
doctrine of fair use, but there is no disposition to freeze
the doctrine in the statute, especially during a period of
rapid technological change. Beyond a very broad
statutory explanation of what fair use is and some of the
criteria applicable to it, the courts must be free to adapt
the doctrine to particular situations on a case-by-case
basis.24
C. Sony Corp. of America v. Universal Studios, Inc.
When Sony introduced the Betamax to the market in 1975, this
case-specific nature of the fair use doctrine would play a major role in
the advancement of this new technology. Industry heads feared that it,
and subsequent VCR technology, would encourage consumers to copy
and “library” movies and programs from television, “thereby reducing
21
17 U.S.C. § 107 (2006).
Id.
23
Sony Corp. of America v. Universal Studios, 464 U.S. 417, 450 (1984).
24
Sony, 464 U.S. at 450 (1984).
22
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the demand for future syndication of these programs.”25 In fact, the
head of the Motion Picture Association of America at the time, Jack
Valenti, famously testified in 1982 to the House of Representatives
that “the VCR is to the American film producer and the American
public as the Boston strangler is to the woman home alone.”26
It did not take long for the Courts to become involved in the
Betamax conflict. In 1979, the United States District Court for the
Central District of California heard argument and ruled in the case of
Universal Studios, Inc. v. Sony Corp. of America.27 Because of the
importance of this case, it and its subsequent decisions in the United
States Court of Appeals and the United States Supreme Court will be
discussed at length.
In Sony, plaintiff Universal Studios alleged that the use of the
Betamax to record telecasts and to copy audio-visual material to be
viewed at a later time infringed on its copyrights and that Sony was
either a direct or contributory infringer for distributing the Betamax to
individual consumers.28 Universal sought injunctive relief to prevent
any future copyright infringement.29
25
Fred von Lohmann, iPods, Tivo and Fair Use as Innovation Policy,
Presented at the 2005 Fordham Intellectual Property Conference (March 31-April 1,
2005), available at
http://www.law.berkeley.edu/institutes/bclt/courses/fall05/ipscholarship/Von%20Lo
hmann%20Fair%20Use%20As%20Innovation%20Policy.pdf at 10 (last visited June
25, 2006).
26
Home Recording of Copyrighted Works, Hearings Before the Subcommittee
on Courts, Civil Liberties, and the Administration of Justice of the Committee on the
Judiciary of the House of Representatives, 97th Cong. (2d Sess. 1982) (statement of
Jack Valenti), available at http://cryptome.org/hrcw-hear.htm (last visited June 25,
2006).
27
480 F. Supp. 429 (C.D. Cal., 1979).
28
Sony, 480 F. Supp. at 432.
Curiously, before Sony was filed, Universal Studios began marketing its
products on pre-recorded discs and planned to release these discs before and after the
pictures were released. Id. at 433. Perhaps Universal Studios was concerned with
Sony’s entrance into the home-video market; alleging and proving copyright
infringement could have been a way to monopolize its new dissemination tactic.
29
Id. at 442.
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Sony marketed the Betamax as a device capable of recording
favorite programs or building a library of recorded works.30 Its
advertising strategy also suggested to the public that it record “novels
for television” and “classic movies.”31 None of the advertisements
warned the public that recording copyrighted shows could constitute
infringement.32 However, the Betamax instruction booklet did make it
known that “[t]elevision programs, films, videotapes and other
materials may be copyrighted. Unauthorized recording of such
material may be contrary to the provisions of the United States
copyright laws.”33
Both Universal Studios and Sony conducted surveys regarding the
usage of the Betamax.34 Some notable findings revealed that:
•
75.4% of owners use their machines to record for timeshifting purposes half or most of the time. Sony’s survey showed that
96% of the Betamax owners had used the machine to record programs
they otherwise would have missed.35
•
55.8% of users said there were 10 or fewer tapes in
their possession. In Sony’s survey, of the total programs viewed by
interviewees, 70.4% had been viewed only that one time and for
57.9%, there were no plans for further viewing.36
•
According to Universal Studio’s survey, 58.3% of the
owners eliminate commercials from the recording either “sometimes,”
“rarely,” or “never”; 56.1% use the fast-forward function to pass
commercials either “sometimes,” “rarely,” or “never.” Defendant’s
interviewees bypassed commercials 24.6% of the time.37
30
Id. at 436.
Id.
32
Id.
33
Id.
34
Id.
35
Id. at 438.
36
Id.
37
Id. at 439.
31
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•
83.2% of the interviewees reported that their frequency
of going to the theatre to view movies was unaffected by the
Betamax.38
Universal conceded that the Betamax had not harmed its business
relationships nor caused it any economic damage.39 Further, expert
testimony presented by Universal was inconclusive as to when or after
what amount of sales the Betamax would cause Universal any
recognizable harm.40
Before rendering its opinion, the District Court opined that:
[t]he ramifications of this new technology are greater
than the boundaries of this lawsuit. A court reviewing the
limited claims of specified parties in a particular factual
setting cannot and should not undertake the role of a
government commission or legislative body exploring and
evaluating all the uses and consequences of the videotape
recorder.41
After a lengthy discussion of the Copyright Act of 1909 (of which
some of the alleged infringement were governed), the Copyright Act
of 1976 (which governed the remaining infringements), and the fair
use doctrine, the court found that the 1971 Amendment to the 1909
Copyright Act permitted home use audio recording.42 In fact, the court
cited congressional discussions regarding this Amendment, one of
which speaks volumes to the subject here. The Court’s citation of the
discussion is as follows:
When the 1971 Amendment reached the House floor,
the question of noncommercial home recording was
38
Id.
Id.
40
Id.
41
Id. at 442.
42
Id. at 444.
39
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raised by Representative Kazen of Texas and answered
by Representative Kastenmeier. Representative
Kastenmeier was chairman of the House Judiciary
Subcommittee responsible for the New Act, a sponsor
of the general revision legislation, and a member of the
Conference Committee which put the New Act in final
form. The dialogue was as follows:
MR. KAZEN. Am I correct in assuming that the bill
protects copyrighted material that [i]s duplicated for
commercial purposes only?
MR. KASTENMEIER. Yes.
MR. KAZEN. In other words, if your child were to
Record off of a program which comes through the air
on [t]he radio or Television, and then used it for her
own personal pleasure, for listening pleasure, this
would not be included under the penalties of this bill?
MR. KASTENMEIER. This is not included in the bill.
I am glad the gentleman raises the point.
On page 7 of the report, under “Home Recordings,”
Members will note that under the bill the same practice
which prevails today is called for; namely, [t]his is
considered both presently and under the proposed law
to be fair use. The child does not do this for commercial
purposes. This is made clear in the report.43
This legislative history, the court noted, evidences “that, in
balance, Congress did not find that protection of copyright holders’
rights over reproduction of their works was worth the privacy and
enforcement problems which restraint of home-use recording would
43
Id. at 446.
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create.”44 This, the court held, was further evidence that the 1909 and
1976 Copyright Acts permitted, under the fair use doctrine, home
recording of both sound-recordings and audio-visual pictures.45
In applying the four criteria of the fair use doctrine, the court
found (1) that Universal Studios had admitted that there was no
economic harm, (2) that because Universal derives the majority of its
revenues from advertisements, the harm resulting from the
infringement was even more speculative, (3) that because the use
occurs within private homes, enforcement would be highly intrusive
and practically impossible, and (4) that although the use of the works
was substantial, it still constitutes fair use because “there is no
accompanying reduction in the market for ‘plaintiff's original
work.’”46
Universal appealed to the United States Court of Appeals for
the Ninth Circuit.47 The Ninth Circuit reversed, opining that:
There is no clear legislative language indicating that
home video recording is not within the exclusive rights
granted by § 106. The statute itself and the House and
Senate Reports accompanying the 1976 Act do not
provide for a broad based home use exception. There
was never a considered review of the home video
recording problem. The statements supporting the
district court’s conclusion hardly represent – when
considered in the content in which they were made and
in the context of the 20 year copyright revision process
– a firm expression of Congressional intent to carve out
a major exception to the copyright scheme.48
44
Id. at 448.
Id. at 447.
46
Id. at 450-54.
47
Universal Studios, Inc. v. Sony Corp. of America, 659 F.2d 963 (9th Cir.
1981).
48
Sony, 659 F.2d at 968.
45
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The court further dismissed the legislative history relied upon by
the District Court, suggesting that it was not intended to apply to home
video recording, because Congress was not considering home video
recording during its discussions on the 1971 amendment.49 As such,
the Ninth Circuit held that it was not fair use to record programs using
the Betamax, and remanded to the District Court for purposes of
developing appropriate remedies for copyright owners.50
Immediately following the court’s decision, legislation was
introduced addressing the problem.51 For example, one bill sought to
exempt all private, noncommercial home recording from any liability
for copyright infringement.52 A second bill sought to “grant users of
video cassette recorders a compulsory license with royalties to be paid
to copyright owners from the sale of machines and blank tapes.”53
“The immediate and widespread interest in the Sony case is
unprecedented in the history of copyright litigation.”54 Legislators
feared that millions of private citizens could be subject to damages and
that the manufacturers of the infringing products would go bankrupt.55
Now it was Sony’s turn to appeal, and the Supreme Court
accepted certiorari and heard the case of Sony Corp. of America v.
Universal Studios.56 The Supreme Court recognized that “the average
member of the public uses a VTR principally to record a program he
cannot view as it is being televised and then to watch it once at a later
time,” thereby acknowledging the practice of time shifting.57 However,
49
Id. at 968.
Id. at 972.
51
Home Recording of Copyrighted Works, Hearings Before the Subcommittee
on Courts, Civil Liberties, and the Administration of Justice of the Committee on the
Judiciary of the House of Representatives, 97th Cong. (2d Sess. 1982) (statement of
Jack Valenti), available at http://cryptome.org/hrcw-hear.htm.
52
Id.
53
Id.
54
Id.
55
Id.
56
464 U.S. 417 (1984).
57
Sony, 464 U.S. at 420.
50
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the Court noted that the Betamax was also used for “library building”
and for “commercial skipping.”58
Faced with this evidence, the court opined:
If vicarious liability is to be imposed on Sony in this
case, it must rest on the fact that it has sold equipment
with constructive knowledge of the fact that its customers
may use that equipment to make unauthorized copies of
copyrighted material. There is no precedent in the law of
copyright for imposition of vicarious liability on such a
theory.59
The court also reasoned that the sale of copying equipment did not
constitute contributory infringement if the product was widely used for
non-infringing purposes.60 Because the Betamax allowed its customers
to record non-copyrighted works as well as copyrighted ones, Sony
could not be held liable for contributory copyright infringement.61
Furthermore, in determining whether the use of the Betamax
constituted fair use of the copyrighted works, the Supreme Court held
that time-shifting constituted a fair use of the product because it
enlarged the audience for the program.62
II.
LIFE AFTER SONY
We should all be as lucky as Universal Studios. The VCR became
an establishment in the homes of millions of American families, and
the movie studios recognized the ability to capitalize on this fact.63
The movie studios began to allow consumers to rent and purchase
58
Id.
Id. at 437.
60
Id. at 442.
61
Id.
62
Id. at 443.
63
von Lohmann, supra note 25, at 11.
59
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movies which created the home video market.64 According to Fred
von Lohmann, this market accounts for almost twice as much revenue
than that brought in by the box office today.65 The readily available
material for fair use recording served as the “bait that persuaded
American consumers to make the (initially) large investment in this
new fair use technology.”66
The Sony case represents the dilemma courts have been faced
with when technology and copyright laws collide. Today, P2P file
sharing technology could be called the Betamax of the 21st century
when looked at in a copyright-technology framework. Because of the
Supreme Court’s decision in Sony, a new market opened – and
flourished – for the benefit of those trying to close that very market. If
the courts or the legislature were able to find a way to open new
markets for copyrighted music via P2P technology, perhaps the same
results would follow for the recording industries.
A. In re: Aimster
Courts are again being faced with a rift between technology and
copyright laws. The popularity of new devices such as iPods and MP3
players have fostered online file sharing networks which are being
used to fill these players with free, copyrighted music.
In 2003, the Seventh Circuit Court of Appeals addressed this very
issue in In re :Aimster.67 Numerous plaintiffs joined together to sue
Aimster, an online file sharing network, for contributory and vicarious
infringement of copyrights.68 The district court judge issued an
injunction which effectively shut Aimster down pending the resolution
of the suit, and the defendant appealed.69
64
Id.
Id.
66
Id.
67
334 F. 3d 643 (7th Cir. 2003).
68
Id. at 645.
69
Id.
65
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The Seventh Circuit noted the high popularity of such online file
sharing networks among teenagers and young adults.70 The Court also
noted that if the music shared on these networks is copyrighted,
sharing digital copies of this music infringes copyright.71 Because of
the impossibility of suing all primary or direct infringers of
copyrighted works, the Court acknowledged that the law allows
rightholders to sue a contributor to the infringement instead.72
In determining whether Aimster was a contributory infringer of
copyrighted works, it was necessary for the Seventh Circuit to address
exactly how the software works. The software could be downloaded
for free from Aimster’s website and then the user registered on the
system by entering a password and user name.73 After doing so, he or
she could designate any other user as a “buddy” and was able to
communicate directly with them, attaching any files he or she wanted
to share with them.74 Because the songs were stored on the
individuals’ computers, Aimster, the court opined, could not be
considered a direct infringer of the copyrighted works.75
However, the court recognized that the ability of a service
provider like Aimster to prevent its customers from infringing is a
factor to be considered in determining whether the provider is a
contributory infringer.76 Further, the court held that when a supplier
like Aimster is offering a product or service that has non-infringing as
well as infringing uses, “some estimate of the respective magnitudes
of these uses is necessary for a finding of contributory
infringement.”77
In addressing the respective arguments of the parties, the court
noted that “to the recording industry, a single known infringing use
70
Id.
Id.
72
Id.
73
Id. at 646.
74
Id.
75
Id.
76
Id. at 648.
77
Id.
71
88
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brands the facilitator as a contributory infringer. To the Aimsters of
this world, a single, non-infringing use provides complete immunity
from liability. Neither is correct.”78 Because Aimster failed to provide
any evidence of non-infringing uses, the court assumed that there was
no such evidence.79 Therefore, the court affirmed the decision of the
lower court and upheld the injunction.80
B. MGM v. Grokster
In 2005, the United States Supreme Court issued its opinion in
MGM v. Grokster.81 In Grokster, copyright holders sued a software
distributor, alleging the distributor was liable for copyright
infringement because the software was intended to allow users to
infringe copyrighted works.82 The issue on review was under what
circumstances the distributor of a product capable of both lawful and
unlawful use is liable for acts of copyright infringement by third
parties using the product – similar to the issues addressed in Sony.83
Grokster (and co-defendant Streamcast Networks, Inc.) distributed
free software which allowed the public to download music through
P2P file sharing networks.84 A study commissioned by MGM revealed
that 90% of all works downloaded from the Grokster software were
copyrighted works.85 Grokster argued, in Sony fashion, that its
software was capable of significant non-infringing uses; therefore, it
was not in violation of copyright law.86
While Grokster’s argument may have sounded in Sony fashion, a
clear distinction was made by the Supreme Court. When Grokster
78
Id. at 651.
Id. at 653.
80
Id. at 655-56.
81
125 S. Ct. 2764 (2005).
82
Grokster, 125 S. Ct. at 2766.
83
Id. at 2770.
84
Id.
85
Id.
86
Id. at 2272.
79
89
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distributed its free software, it “clearly voiced the objective that
recipients use it to download copyrighted works, and each took active
steps to encourage infringement.”87 In fact, when another file sharing
system – Napster – was shut down by the Court, Grokster and
Streamcast targeted its user base, going so far as to “introduce itself to
some potential advertisers as a company ‘which is similar to what
Napster was.’”88 It also “broadcast banner advertisements to users of
other Napster-compatible software, urging them to adopt its
[software].”89 A company email stated:
We have put this network in place so that when Napster
pulls the plug on their free service . . . or if the Court
orders them shut down prior to that . . . we will be
positioned to capture the flood of their 32 million users
that will be actively looking for an alternative.90
The defendants blatantly advertised that they sought to exploit the
illegal uses of their software and that their goal was to get sued
because “[i]ts the best way to get in the news.”91 No evidence was
presented that Grokster or Streamcast made any effort to prohibit its
users from downloading copyrighted materials.92
The Supreme Court discussed the case in the context of the Sony
decision and noted that in Sony, there was no evidence of intent by the
defendants to promote copyright infringement, and there, the only
possible way of imposing liability on Sony was for its distribution of
the Betamax.93 Further, because the VCR was “capable of
commercially significant noninfringing uses,” the Supreme Court held
87
Id.
Id. at 2773.
89
Id.
90
Id. (internal citations omitted).
91
Id.
92
Id. at 2274.
93
Id. at 2777.
88
90
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the manufacturer could not be liable solely on the basis of its
distribution.94
The Supreme Court in Grokster declined to limit the Sony
decision; however, it noted that in Sony it was found that:
[i]f vicarious liability is to be imposed on Sony in this
case, it must rest on the fact that it has sold equipment
with constructive knowledge of the potential for
infringement. Thus, where evidence goes beyond a
product’s characteristics or the knowledge that it may be
put to infringing uses, and shows statements or actions
directed to promoting infringement, Sony’s staple-article
rule will not preclude liability.95
The Supreme Court thereby adopted in Grokster this new
“inducement” test, whereby a defendant who actively induces
copyright infringement cannot claim protection under Sony.96
However, the Court limited its hoding to only those situations in which
actual inducement was shown, noting that:
mere knowledge of infringing potential or of actual
infringing uses would not be enough here to subject a
distributor to liability. Nor would ordinary acts incident to
product distribution, such as offering customers technical
support or product updates, support liability in themselves.
The inducement rule, instead, premises liability on
purposeful, culpable expression and conduct, and thus
does nothing to compromise legitimate commerce or
discourage innovation having a lawful promise.97
94
Id.
Id.
96
Id. at 2780.
97
Id.
95
91
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Because the court found actual inducement and the evidence
showed actual infringement by the users of Grokster’s software, the
Court vacated the opinions of the lower courts and directed the case to
proceed consistent with its opinion.98
III. BMG MUSIC V. GONZALEZ
While courts have begun to hold companies who develop file
sharing software liable for contributory infringement, seemingly
cutting to the source of the problem, the epidemic still exists. More
and more file sharing networks have sprung up, and more and more
individuals, or direct infringers, can download the latest hits in a
matter of seconds. The Seventh Circuit’s recent decision in BMG
Music v. Gonzalez should serve as notice to consumers and those who
participate in online file sharing activities that rightholders are now
targeting them, and are getting results.
BMG Music, Sony Entertainment, Inc., UMG Recordings, Inc.,
and Atlantic Recording Corp. (hereinafter, jointly “Recording
Companies”), brought suit in the United States District Court for the
Northern District of Illinois against Cecilia Gonzalez due to her
alleged copyright infringement by downloading thirty songs onto her
computer.99 Gonzalez admitted that she infringed on the Recording
Companies’ copyrights by downloading thirty songs she did not
own.100 However, Gonzalez claimed that summary judgment was
inappropriate because the fair use defense was applicable to her
situation and she was entitled to the “innocent infringer” defense with
respect to damages.101
Gonzalez argued that her use of the songs was “fair” because (1)
she was sampling the music to determine which songs she would like
to purchase; (2) she owned many of the songs she downloaded; and (3)
98
Id. at 2783.
BMG Music v. Cecilia Gonzalez, 03 C 6276 2005 U.S. Dist. LEXIS 910, *12 (January 12, 2005).
100
Id. at *1-2.
101
Id. at *2.
99
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she did not cause the plaintiffs any financial harm by downloading the
thirty songs which formed the basis of the suit against her.102
However, the court rejected her “sampling” defense , noting the Ninth
Circuit rejected the same defense in a similar case.103 The court held
that “the cumulative effect of direct infringers, like Gonzalez, harms
the recording industry by reducing sales and ‘raising barriers’ to the
recording industry’s ‘entry into the market for digital downloading of
music.’”104 Accordingly, the court granted summary judgment in
favor of the plaintiffs on the infringement claim.105
Gonzalez sought to go to trial on the issue of damages and
contended that the statutory damages attributable to her were too high
because she was an “innocent infringer.”106 In “innocent infringer”
situations, the court may award damages of only $200 where the
infringer proves that she “was not aware and had no reason to believe
that . . . her acts constituted infringement.”107 However, the court
noted that the “innocent infringer” defense is inapplicable in situations
where a notice of copyright appeared on the recordings to which the
infringer had access.108 Notice of the copyrights of the thirty songs at
issue here was located on the compact discs sold in stores, not in
Gonzalez’s possession; however, a question of fact existed as to
whether Gonzalez had access to these discs.109 Although this question
of fact existed, the plaintiffs needed only to prove that the notice was
“in circulation and available to the infringer.”110 The Court then held:
102
103
Id. at *2-3.
Id. at *3 (citing A&M Records v. Napster, 239 F.3d 1004, 1014-19 (9th Cir.
2005)).
104
Id.
Id.
106
Id.
107
Id. at *4.
108
Id.
109
Id.
110
Id. at *4-5.
105
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[B]ecause it is undisputed that the copyrights of the 30
songs at issue were properly noticed on the covers of the
CDs, there is no question of fact as to whether Gonzalez
had ‘access’ to notice of the copyrights. Indeed, Gonzalez
(sic) admits that she and her husband have legally
purchased over 200 CDs. To allow Gonzalez to assert this
defense based on her ignorance would eviscerate copyright
protection and the old adage that ‘ignorance is no defense
to the law.’ This Court thus holds that she is not entitled to
the innocent infringer defense and awards the Record
Companies $ 22,500 (30 songs times the minimum
statutory penalty ($ 750)).111
The relatively short District Court opinion lacks the reasoning and
factual background of the Seventh Circuit’s decision in Gonzalez.112 In
the Seventh Circuit’s opinion, readers learn that Gonzalez downloaded
more than 1,370 copyrighted songs and kept them on her computer
until she was caught.113 The Seventh Circuit recognized that keeping
these songs on her computer was not a form of time-shifting in the
likes of Sony, because “a copy of music downloaded, played and
retained and one’s hard drive for future use is a direct substitute for a
purchased copy without the benefit of a license fee paid to the
rightholder.”114 The court noted that the premise of the Sony decision
was that the broadcast was licensed for one transmission and thus one
viewing; therefore, this “time-shifting” of this single viewing
constituted fair use.115
In addressing her fair use defense, the Seventh Circuit realized
that because of the circumstances of the case, the only avenue for
Gonzalez was to argue that her use of the songs did not affect the
111
Id. at 5.
BMG Music v. Cecilia Gonzalez, 430 F. 3d 888 (7th Cir. 2005).
113
Id. at 888-90.
114
Id.
115
Id.
112
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potential market for or the value of the copyrighted works.116
Gonzalez attempted to prove that her activities were beneficial to the
recording industry because they served as advertising for the
rightholders.117 However, the court noted that “as file sharing has
increased over the last four years, the sales of recorded music have
dropped by almost 30%.”118 Faced with this statistic, the court could
not bring itself to believe that downloading copies of copyrighted
music constituted fair use.119
Important to those engaged in file sharing activity is the court’s
statement, in dicta, about the songs BMG sought compensation for.
The court reasoned that:
[A]lthough BMG Music sought damages for only the 30
songs that Gonzalez concedes she has never purchased, all
1000+ of her downloads violated the statute. All created
copies of an entire work. All undermined the means by
which authors seek to profit. Gonzalez proceeds as if the
authors’ only interest were in selling compact discs
containing collections of works. Not so; there is a market
in ways to introduce potential customers to music.120
The court recognized that there were other options available for
Gonzalez to sample music if she merely wanted to sample it, such as
listening to live-stream radio over the internet and paying a fee for the
right to do so.121 Had she done this, the court opined, the authors of the
works would have received royalties from the broadcasters and it
would have reduced the risk of consumers not purchasing actual music
from a retail store.122 Also important to the court was that in these
116
Id. at 890.
Id.
118
Id.
119
Id.
120
Id. at 891.
121
Id.
122
Id.
117
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alternative options, the song does not remain on the listener’s
computer.123 Therefore, the court held that:
[W]ith all these means available to consumers who want
to choose where to spend their money, downloading full
copies of copyrighted material without compensation to
authors cannot be deemed ‘fair use.’ People such as
Gonzalez cannot ask courts to second-guess the market
and call wholesale copying ‘fair use’ if they think that
authors err in understanding their own economic interests
or that Congress erred in granting authors the rights in the
copyright statute.124
The court then upheld the award of damages in the amount of
$22,500 and affirmed the judgment of the lower court.
The Seventh Circuit also upheld the District Court’s ruling on
Gonzalez’s “innocent infringer” claim. MGM was awarded statutory
damages on summary judgment in this case. Under 17 U.S.C
504(c)(1), a plaintiff may recover damages between $750 and $30,000
for each work infringed.125 Here, MGM sought the minimum $750 for
each of the thirty songs Gonzalez downloaded, did not own, and kept
on her computer. In rejecting Gonzalez’s argument, Seventh Circuit
found that she was not an “innocent infringer” because one cannot be
held to such status if a copyright notice appeared on a copy of the
copyrighted work.126 While the downloaded songs lacked such notice,
the Seventh Circuit agreed with the District Court that Gonzalez
clearly had access to compact discs with such notices, and had she
inquired, she could have readily found out.127 Accordingly, the trial
court’s grant of damages on summary judgment was upheld.128
123
Id.
Id.
125
Id.
126
Id. at 892.
127
Id.
128
Id. at 893.
124
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While Gonzalez raises no new issues in terms of copyright law, it
does have a few interesting comments in dicta that could serve to
notify consumers or potential infringers exactly how this court will
rule in the future. Matt Schruers and Jonathan Band, in their article
BMG Music v. Gonzalez, offer three such scenarios.
Schruers and Band argue that Gonzalez limits the landmark Sony
case to its facts, holding that time shifting for a single use constitutes
fair use while at the same time ignoring the fact that a great number of
people “library” or “archive” video cassettes.129 This limitation “calls
into doubt – at least in the Seventh Circuit – the activity of ‘librarying’
or ‘archiving’ video enabled by both the videocassette recorders and
personal video recorders.”130
Second, Schruers and Band note that the Seventh Circuit found
that Gonzalez was not using these songs for “non-profit” use;
however, she was not selling these songs, nor was she gaining any
other sort of profit from them, “unless the court considers listening to
music a ‘profit.’”131 If the court was referring to this personal use not
equating to “non-profit educational usage,” Schruers and Band urge
the Court to clarify its ruling in this respect.132
Lastly, Schruers and Band criticize the Seventh Circuit’s “verbal
attack on direct infringers” by equating downloading music to
shoplifting.133 They note that the Supreme Court had previously
clearly distinguished between infringement and theft because
“interference with copyright does not easily equate with theft,
conversion or fraud.”134 This equation by the Seventh Circuit, they
argue, “constitutes an unfortunate trend in judicial decisions and
129
Matthew Schruers & Jonathan Band, BMG Music, et al. v. Gonzalez, 5 ECOM. LAW. REP. 14 (2005), available at
http://www.policybandwidth.com/doc/gonzalez.pdf (last visited June 25, 2006).
130
Id.
131
Id.
132
Id.
133
Id.
134
Id.
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policy discussions of blurring the significant distinctions between
intellectual property and tangible property.”135
Schruers and Band effectively display the importance Gonzalez
plays not only in terms of the file sharing community, but also in terms
of its relation to Sony. While the distinctions between the two cases
are obvious (i.e., direct infringers vs. contributory infringers),
Gonzalez offers a look at how courts are interpreting new P2P
technology in relation to the Sony decision.
IV. SOLUTIONS TO THE PROBLEM
A. Is New Legislation Needed?
In Sony, the District Court began its opinion by recognizing the
importance and ramifications of the new Betamax or video-recording
technology and refused to “undertake the role of a government
commission or legislative body exploring and evaluating all the uses
and consequences and the videotape recorder.”136 The court seemed to
suggest (or cry out for) the need for legislative action or assistance,
similar to the cry for legislative action in Wilkins when the photocopier
made its way into the copyright arena. With the advent of P2P
technology, a cry for help should sound from both sides of the crisis,
and it should be heard and addressed by the legislature. This
technology offers enormous and far-reaching (literally) benefits to its
users; however, it has fostered a world of copyright infringement
which continues to grow.
The Supreme Court accepted the time shifting argument of
recording, watching, and erasing recorded, copyrighted materials.137
However, does anyone – consumer, producer, copyright holder,
Supreme Court Justice – really believe this scenario to be the norm
amongst the video-recording public?
135
Id.
Universal Studios, Inc. v. Sony Corp. of America, 480 F. Supp. 429, 442
(C.D. Cal., 1979).
137
Sony Corp. of America v. Universal Studios, Inc., 464 U.S. 417, 455 (1984).
136
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So how did the Sony Court rule the way it did? Was the Supreme
Court searching for a reason to allow the use of this copyrightinfringing technology? Did the Court recognize the economic impact
it would have and find a way to keep it in the market? Did the Sony
Court know the ends it wanted to reach, and did it search (or stretch?)
to find the means necessary to reach those ends? When compared to
the decisions in Aimster, Grokster, and Gonzalez, it seems the answer
to the preceding questions is “yes.”
Copyright must be able to change with the advent of new
technologies.138 “Prior to the introduction of [P2P] technology,
copyright infringement via the Internet was arguably a manageable
issue . . .”139 File sharing represents the latest and most pressing
challenges to copyright law in recent years. However, courts have not
yet been willing to embrace this new technology and allow its
dissemination when infringement is prevalent, and with good reason.
Gonzalez’s actions were clearly in violation of the Copyright Act and
its purpose to protect the interests of authors, artists, and scientists in
their original works.
However, Gonzalez is merely a grain of sand on the beach of
online file sharers engaging in copyright infringement everyday. It
would require a Herculean effort by the courts and the music industry
to eliminate each and every individual infringer like Gonzalez. On the
other hand, this problem cannot persist and grow to the point of
creating irreparable harm to the music industry, record labels, and
individual artists.
Perhaps Congress should act, and act now, to find a solution to
this crisis and re-establish the balance between technological
advancement and copyright protections. However, any Congressional
138
Id. at 432 (quoting Twentieth Century Music Corp. v. Aiken, 422 U.S. 151,
156 (1975) (“When technological change has rendered its literal terms ambiguous,
the Copyright Act must be construed in light of this basic purpose”).
139
Robert A. Gilmore, Peer-to-Peer: Copyright Jurisprudence in the New FileSharing Word, the Post Grokster Landscape of Indirect Copyright Infringement and
the Digital Millennium Copyright Act, 5 FL. COASTAL L.J. 85, 86-87 (2004) (citing
Wendy M. Pollack, Tuning In: Future of Copyright Protection For Online Music In
The Digital Millennium, 65 FORDHAM L. REV. 2445, 2445-46 (2000)).
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stance on the matter should be “progressive” and strong, and leave no
room for debate.140 To be weak on the matter “would result in an
imbalanced solution to the P2P debate and will thereby weaken the
fundamental goals of copyright law.”141
Much of the legislation currently proposed in Congress fails to
adequately address the balance which is the subject of this article –
that of rights in copyrighted material and technology.142 In 2002,
Representative Howard Berman (D-Cal) proposed the Peer-to-Peer
Piracy Prevention Act (H.R. 5211). This act (1) enables copyright
owners to use technology to deter or prevent the unauthorized
distribution of copyrighted works over the Internet, (2) grants
copyright holders the right to use any technology at their disposal to
disable, interfere, or block the distribution of copyrighted works, and
(3) limits liability for the impairment of personal computers, as long as
the economic loss suffered by the user is less than fifty dollars.143
Notably, Berman’s constituent base is Hollywood.144
Berman’s proposal fails to realize how prevalent the use of P2P
technology is today. While his proposed legislation offers a seemingly
one-sided solution to the problem, it does not recognize the
improbability of curtailing this widespread use. Only when the
recording industries, internet service providers and software
distributors come together to form a workable solution will this
technology, and this industry, find a way to grow and prosper together.
B. Alternative Compensation Schemes
This, and other proposed P2P legislation, offers a bleak outlook
for P2P technology and the balance between this type of media
140
John M. Moye, How Sony Survived: Peer-to-Peer Software, Grokster, and
Contributory Copyright Liability in the Twenty-First Century, 84 N.C.L. REV. 646,
689 (2006).
141
Id. at 689.
142
Id. at 686.
143
Id.
144
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technology and copyright sought by the Sony Court.145 What, then, are
acceptable Congressional responses? Alternative compensation to the
recording industry may be one way to get around this evolving
problem. John M. Moye argues for a “compulsory licensing scheme,
which would set a rate at which copyrighted works would have to be
licensed over the Internet.”146 Under this type of system, Congress
would have the ability to guarantee compensation to copyright owners
while at the same time allowing this information to be disseminated on
the Internet.147 Such a solution was originally proposed for Universal
Studios in Sony by the Ninth Circuit.148 It suggested that “a continuing
royalty pursuant to a . . . compulsory license may very well be an
acceptable resolution of the impasse between the VCR manufacturers
and the film companies.”149 If Congress were to implement such a
plan, Moye argues, it would force the two sides of the conflict to work
together and ensure compensation to the copyright owners.150 If the
alternative is to receive no compensation for their works, copyright
owners may be willing to discuss such a plan.151
Michael Rucci, in his article entitled Congress Wants to Give the
RIAA Control of Your iPod: How the Induce Act Chills Innovation and
Abrogates Sony, has proposed a different alternative compensation
plan.152 Under his plan, he argues that because file sharing networks
will always exist, the record labels should adjust to market rather than
taking their aggression out on their customers or lobbying Congress to
145
Id. at 688.
Id. at 689.
147
Id.
148
Id.
149
Id. (citing Sony Corp. of America v. Universal Studios, Inc., 464 U.S. 417,
428 (1984)).
150
Moye, supra note 140, at 690.
151
Id. (citing Jennifer Norman, Staying Alive: Can the Recording Industry
Survive Peer-to-Peer?, 26 COLUM. J. L. & ARTS 371, 399 (2003)).
152
Michael Rucci, Congress Wants to Give the RIAA Control of Your iPod:
How the Induce Act Chills Innovation and Abrogates Sony, 4 J. MARSHALL REV.
INTELL. PROP. L. 534 (2005).
146
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make changes to existing copyright law.153 One solution he cites is for
each internet service provider (ISP) to ask their users if they want to
pay an additional $1 per month for legal access to as many MP3s as
they desire.154 Then, these ISPs could track downloads and distribute
revenues directly to the artists based on their popularity.155 A solution,
he argues, “which gives incentive to the creation of new works is not
antithetical to the Copyright Clause and supports a free market
economy.”156
Rucci’s cited alternative seems the better fit to deal with the
evolving technologies which promote or enable copyright
infringement. Under his plan, individuals have the option of either (1)
being a legitimate downloader of music with unlimited access to
copyrighted works, or (2) infringing where known avenues of
legitimate access to music are available. Further, his plan would allow
appropriate compensation to the authors of the copyrighted works. His
plan is the closest step yet to achieving a workable and sustainable
balance between technology and copyright infringement. Under either
Moye’s or Rucci’s plans, the hope is that both sides of the conflict will
work together to achieve a solution – a definite step in the right
direction.
C. Compulsory Alternative Compensation
Rucci’s plan offers an interesting alternative solution; however,
perhaps a compulsory alternative compensation system for all internet
users, the proceeds of which would be applied to offset the yearly
losses incurred by copyright owners, could provide a more
comprehensive – and mandatory – guarantee for copyright owners.
According to the Recording Industry Association of America (RIAA),
the recording industry loses yearly, on average, $4.2 billion worldwide
153
Id. at 557.
Id.
155
Id.
156
Id.
154
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as a result of copyright infringement.157 Americans – 205,326,680 to
be exact – use the Internet.158 This number also accounts for 20.1% of
all Internet usage worldwide.159 If all American Internet users were
required to pay an additional $0.50 per month (half of that proposed
by Michael Rucci) to offset the losses incurred by the recording
industry – in exchange for unlimited Internet music access – the
recording industry would receive $1,231,960,080 yearly. This would
account for over 29% of all losses suffered by the recording industry
as a result of online file sharing – more than the percentage of
Americans using the Internet.
While obstacles would certainly exists in the implementation of
any alternative compensation system, these systems seem to offer the
simplest, and most effective, way of allowing P2P technology to
continue while actively protecting copyrights in original works. A
small fee for unlimited access to copyrighted works could be
appealing to the file sharing community, especially with a guarantee
that those users would not be subject to prosecution or liability for
copyright infringement.
V. CONCLUSION
Technological advancements have forced owners of copyrighted
material to pursue legal action against individual infringers – and they
are getting results, evidence by the Seventh Circuit’s Gonzalez case.
Until a solution to the file sharing problem evolves, there will continue
to be direct and contributory infringers of copyrighted work.
Addressing this problem, while not upsetting consumer innovation and
the economic impact that this sort of technology can have serves as the
greatest obstacle to come for copyright owners.
157
Recording Industry Association of America , Issues: Anti-Piracy,
http://www.riaa.com/issues/piracy/default.asp (last visited April 19, 2006).
158
Internet World States, “Usage and Population Statistics,” available at
www.InternetWorldStats.com (last visited April 19, 2006).
159
Id.
103
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Legislation implementing an alternative compensation system
certainly seems to be the most effective way to curtail online copyright
infringement. However, any legislation would need to be thorough and
address both sides of the conflict. If legislation were implemented
which serves only to penalize individual infringers, those infringers
would inevitably go further “underground” and seek alternative
methods of sharing or downloading music. The public has tasted the
benefits of online music access. Its appetite will not be easy to subdue.
The Boston Strangler is back, and alive and well in the eyes of the
recording and motion picture industries. While the decisions in
Grokster, Aimster, and Gonzalez were correctly decided under existing
law, it is the effects and benefits the public and to the motion picture
industry derived from the Sony decision that should be the goal when
dealing with this new dissemination technology. If the market adjusts
and the technological advancement continues to create new avenues
for dissemination of music and video in a profitable and legal way for
both rightholders in copyrighted material and the public, it is hopeful
that both sides of the conflict will be satisfied.
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CRAWFORD V. WASHINGTON- HOW THE
SEVENTH CIRCUIT IMPROPERLY DEFINED
“TESTIMONIAL”
ROBERT L. WINDON∗
Cite as: Robert L. Windon, Crawford v. Washington - How the Seventh Circuit
Improperly Defined “Testimonial,” 1 SEVENTH CIRCUIT REV. 105 (2006), at
http://www.kentlaw.edu/7cr/v1-1/windon.pdf.
INTRODUCTION
The Supreme Court changed the landscape of admitting
hearsay statements into evidence with its decision in Crawford v.
Washington. In Crawford the Court held that the Confrontation
Clause of the Constitution precludes the admission of out of court
“testimonial” statements at trial unless either the witness is available to
testify or there has been a previous opportunity for cross examination.1
In the wake of this landmark decision, lower courts throughout the
nation were left to fill in many holes, including the underlying
question: what is testimonial?2 Many federal courts of appeals,
including the Seventh Circuit in United States v. Gilbertson, have
started explaining how they define testimonial, giving guidance to trial
courts.3 Presently, not all federal courts of appeals have weighed in on
Technology.
1
Crawford v. Washington, 541 U.S. 36, 68 (2004).
2
Id.
3
435 F.3d 790 (7th Cir. 2006); United States v. Saget, 377 F.3d 223 (2d Cir.
2004); United States v. Cromer, 389 F.3d 662 (6th Cir. 2004); Horton v. Allen, 370
F.3d 75 (1st Cir. 2004); United States v. Summers, 414 F.3d 1287 (10th Cir. 2005);
United States v. Hinton, 423 F.3d 355 (3d Cir. 2005).
105
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the issue, but the ones that have seem to be in consensus that a
statement is testimonial when a reasonable person would believe that
the statement could be used at trial.4
This note illustrates how the Seventh Circuit has mistakenly
modified this test by adding that the communication must be initiated
by the government.5 The first part of this note gives an brief
overview of hearsay and the Confrontation Clause. The second part of
this note analyzes the Supreme Court’s Crawford decision. The third
part of this note explains how other courts of appeals have analyzed
Crawford and how they define testimonial. The fourth part of this
note explains how the Seventh Circuit properly applies a reasonable
expectation of the declarant test but also improperly asserts that the
communication must be initiated by the government to be testimonial.
The fourth part also explains that this addition strays from the
reasoning behind Crawford.
I. HEARSAY AND THE CONFRONTATION CLAUSE
A. Hearsay
The Federal Rules of Evidence define hearsay as “a statement
other than one made by the declarant while testifying at the trial or
hearing, offered in evidence to prove the truth of the matter asserted.”6
These statements are generally inadmissible at trial because they are
considered inherently unreliable.7 This unreliability is inferred
because there has been no opportunity for cross-examination, nor have
the judge and jury had an opportunity to see the witness to weigh the
4
Gilbertson, 435 F.3d at 796; Saget, 377 F.3d at 229; Cromer, 389 F.3d at 675;
Horton, 370 F.3d at 83-84; Summers, 414 F.3d at 1302; Hinton, 423 F.3d at 360.
5
Gilbertson, 435 F.3d at 795-96.
6
FED. R. EVID. 801(a).
7
FED. R. EVID. 802; Whitney Baugh, Why the Sky Didn’t Fall: Using Judicial
Creativity to Circumvent Crawford v. Washington, 38 LOY. L.A. L. REV. 1835, 1845
(2005).
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witness’ credibility.8 These concerns are at the heart of the
Confrontation Clause.9
B. The Confrontation Clause
The Confrontation Clause of the United States Constitution
requires that in all criminal prosecutions, “the accused shall enjoy the
right . . . to be confronted with the witnesses against him.”10
The Supreme Court has long recognized that “[i]f one were to
read this language literally, it would require, on objection, the
exclusion of any statement make by a declarant not present at trial,”
but the Court has rejected this as “unintended and too extreme.”11
Therefore, the Court has consistently allowed some hearsay exceptions
to apply when the declarant is unavailable.12 However, there is little
doubt that the Confrontation Clause was intended to exclude some
hearsay.13 In fact, the Court has established that the Clause “reflects a
preference for face-to-face confrontation at trial, and that a primary
interest secured by [the provision] is the right of cross-examination.”14
The Confrontation Clause envisions
a personal examination and cross-examination, in
which the accused has an opportunity, not only of
testing the recollection and sifting the conscience of the
witness, but of compelling him to stand face to face
with the jury in order that they may look at him, and
judge by his demeanor upon the stand and the manner
in which he gives his testimony whether he is worth yof
belief.15
8
See California v. Green, 399 U.S. 149, 158 (1970).
See Crawford v. Washington, 541 U.S. 36, 49 (2004).
10
U.S. CONST. amend. VI.
11
Ohio v. Roberts, 448 U.S. 56, 63 (1980).
12
Id..
13
Id.; See also Green, 399 U.S. 149 at 156-57.
14
Roberts, 448 U.S. at 63 (citing Douglass v. Alabama, 380 U.S. 415, 418
(1965)) (internal quotation marks omitted).
15
Mattox v. United States, 156 U.S. 237, 242-43 (1895).
9
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The Framers included the Confrontation Clause within the
Constitution because one of the main “evils” that worried them when
they wrote the Constitution was the English “civil-law mode of
criminal procedure, and particularly its use of ex parte examinations as
evidence against the accused.”16 During the 16th and 17th centuries,
England commonly used justices of the peace, magistrates, and other
agents of the Crown to conduct pretrial examinations of suspects and
witnesses that were then used at trial in lieu of live testimony against
the defendant.17
For years the Court’s decisions were largely consistent with
this theory of the Confrontation Clause.18 In Mattox v. United States
the Court allowed a hearsay statement to be admitted at trial, relying
on the fact that the defendant had an adequate opportunity to confront
the witness.19 The Court’s later cases continued to respect the
Confrontation Clause.20 But eventually the Court’s rationale departed
from the original intent of the Clause and allowed lower court’s
decisions to do so as well.21
C. Pre-Crawford Analysis
For over twenty years, the Court’s decision in Ohio v. Roberts
governed the admissibility of hearsay of an unavailable witness at
trial.22 The Roberts Court rationalized that the Confrontation Clause
operates in two separate ways to restrict the range of admissible
hearsay.23 First, the Court said that in adherence with the Framers’
preference for face-to-face accusation, the Sixth Amendment
establishes that the prosecution must either produce the witness for
16
Id. at 44.
18
Id. at 57.
19
156 U.S. at 250.
20
See Crawford, 541 U.S. at 57; Mancuis v. Stubbs, 408 U.S. 204, 213-16
(1972); California v. Green, 399 U.S. 149, 165-68 (1970).
21
Crawford, 541 U.S. at 60.
22
Id. at 60.
23
Ohio v. Roberts, 448 U.S. 56, 65 (1980).
17
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trial or prove that the witness is unavailable.24 Therefore, the
prosecution is generally required to produce, or demonstrate the
unavailability of, the declarant of the statement it wishes to use against
the defendant, whether or not there has been a prior opportunity for
cross-examination.25 Once the witness is shown to be unavailable,26
the Court rationalized that if the declarant is unavailable, there must be
assurances that the hearsay is reliable.27 The underlying purpose of
the Confrontation Clause is to enhance accuracy in the fact-finding
process, therefore, it only approves of hearsay that is “marked with
such trustworthiness that there is no material departure from the reason
of the general rule.”28 The Court opined that the main concern has
been to “insure that there ‘are indicia of reliability which have been
widely viewed as determinative of whether a statement may be placed
before the jury though there is no confrontation of the declarant.’”29
Furthermore, the purpose of the Confrontation Clause is to “afford the
trier of fact a satisfactory basis for evaluating the truth of the prior
statement.”30 The Court said this “indicia of reliability” requirement
was applied principally by concluding that certain hearsay exceptions
rest upon such solid foundations that admission of virtually any
evidence within them comports with the “substance of the
constitutional protection.”31
The Court held in Roberts that when the proponent of an out of
court statement is not present for cross-examination at trial, the
Confrontation Clause normally requires a showing that he is
24
Id.
Id. (citing, inter alia, Mancusi v. Stubbs, 408 U.S. 204 (1972); Barber v.
Page, 390 U.S. 719 (1968)).
26
Roberts, 448 U.S. at 65.
27
Id. at 66.
28
Id. at 65-66 (quoting Snyder v. Massachusetts, 291 U.S. 97, 107 (1934))
(internal quotation marks omitted).
29
Roberts, 448 U.S. at 66 (quoting Dutton v. Evans, 400 U.S. 74, 89 (1970)).
30
Roberts, 448 U.S. at 65-66 (quoting California v. Green, 399 U.S. 149, 161
(1920)).
31
Roberts, 448 U.S.at 66 (citing Mattox v. United States, 156 U.S. 237, 244
(1895)).
25
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unavailable.32 Even then, however, the statement must bear adequate
“indicia of reliability” to be admissible at trial.33 The Roberts Court
rationalized that reliability can be inferred, without more, in a case
where the evidence falls within a firmly rooted hearsay exception,
though the Court never defined what constituted a firmly rooted
hearsay exception.34 Therefore, as long as the statement falls within
such a firmly rooted hearsay exception it could be admitted at trial
whether or not the declarant is available.35 If it does not, further
inquiry is necessary to determine if the hearsay shows particularized
guarantees of trustworthiness to be admitted at trial.36 The Roberts
Court left to the lower courts the analysis of what it meant to have
these guarantees of trustworthiness.37
Therefore, before the Supreme Court’s decision in Crawford a
prosecutor had three ways to admit hearsay against a defendant, as
long as the statement fit into one of the hearsay exceptions. First, the
prosecutor could make the witness available for cross-examination at
the trial.38 Second, he could make a showing that the witness is
unavailable and show that the hearsay falls into some firmly rooted
exception to the hearsay rule.39 And third, he could make a showing
that the witness is unavailable for trial and convince the trial judge that
the hearsay has indicia of reliability that averts a Sixth Amendment
issue.40
II. CRAWFORD V. WASHINGTON
With its decision in Crawford v. Washington in 2004, the
Supreme Court re-wrote the rule of evidence as it pertains to the
admissibility of hearsay from an unavailable declarant. The Court
32
Roberts, 448 U.S. at 66.
Id.
34
Id.
35
Id.
36
Id.
37
Id. at 56.
38
Id. at 66.
39
Id.
40
Id.
33
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noted that the Roberts Court’s objective was not wrong, just the
rationale.41 For years before the Crawford decision many scholars and
members of the Court suggested that the Court revise its Confrontation
Clause doctrine.42 Two different propositions had been suggested to
the Court.43 First, the Confrontation Clause should only be applied to
testimonial statements, leaving the remainder to regulation by hearsay
law.44 Second, there should be an absolute bar to statements that are
testimonial, unless there had been a prior opportunity for crossexamination.45 The Court reiterated its rejection of the first proposal
in Crawford, and left the Roberts test in place for non-testimonial
hearsay evidence.46 But the Court noted the second proposal was
clearly at issue in Crawford.47
In Crawford the Court opined, that the Roberts test allowed a
jury to hear evidence that was untested by the adversarial process and
that was merely based on a judicial determination of reliability,48
which was never the intent of the Founding Fathers.49 Instead of
basing admissibility of evidence on the constitutionally prescribed
method, the Roberts test did so based on a completely foreign one.50
The Court noted that the Roberts test was based upon reliability of
evidence in a way that was completely amorphous and entirely
subjective.51 This was apparent to the Court by looking at the factor
intensive tests used by the Courts of Appeals.52 The Court did not
41
Id. at 60-61.
43
Id. at 61.
44
Id.
45
Id.
46
Id. (citing White v. Illinois, 502 U.S. 346, 352-53 (1992)).
47
48
Id. at 62.
49
Id.
50
Id.
51
Id. at 63.
52
Id. (See United States v. Doerr, 886 F.2d 944, 956 (7th Cir. 1989) for
analysis of the seven factor test used by the Seventh Circuit. The elements of the test
consist of: 1) the character of the witness for truthfulness and honesty, and the
availability of evidence on the issue; 2) whether the testimony was given voluntarily,
under oath, subject to cross-examination and a penalty of perjury; 3) the witness’
42
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believe that the Framers wanted to leave the Sixth Amendment’s
protection “to the vagaries of the rules of evidence, much less to
amorphous notions of reliability.”53 The Court admitted that though
the Clause’s ultimate goal is to ensure reliability of evidence, “it is a
procedural rather than a substantive guarantee.”54 In other words, the
Court noted that the Constitution and the Confrontation Clause do not
require that evidence actually be reliable, “but that reliability be
assessed in a particular manner: by testing in the crucible of crossexamination.”55 In fact, under the Roberts test, “some of the courts
that admit untested testimonial statements find reliability in the very
factors that make the statements testimonial.”56 However, it was not
just the lack of reliability that bothered the Court, it was the fact that
the Roberts test admitted “core testimonial statements that the
Confrontation Clause plainly meant to exclude.”57 The Court left the
Roberts test in place when dealing with the admissibility of
nontestimonial hearsay.58
The Court further held that the Framers’ concern at the time of
drafting the Confrontation Clause was to protect against “inquisitorial
practices.”59 Therefore, defendants have a right to confront people
relationship with both the defendant and the government and his motivation to testify
… .; 4) the extent to which the witness’ testimony reflects his personal knowledge;
5) whether the witness ever recanted his testimony; 6) the existence of corroborating
evidence; and 7) the reasons for the witness’ unavailability.).
53
Crawford, 541 U.S. at 61 (internal quotation marks omitted).
54
Id. at 61.
55
Id.
56
Id. at 65 (citing Nowlin v. Commonwealth of Virginia, 579 S.E.2d 367, 37072 (Va. Ct. App. 2003) (the fact that the defendnat’s statements were made while in
custody on pending charges made this statement clearly against penal interest and
thus more reliable).
57
58
See United States v. Hinton, 423 F.3d 355, 358 n.1 (2005) (quoting
Crawford, 541 U.S. at 68 (“Where nontestimonial hearsay is at issue, it is wholly
consistent with the Framers’ design to afford the States flexibility in their
development of hearsay law — as does Roberts, and as would an approach that
exempted such statements from Confrontation Clause scrutiny altogether.”)).
59
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who “bear testimony” against them.60 The Court said that “the
constitutional text, like the history underlying the common-law right
of confrontation, thus reflects an especially acute concern with a
specific type of out-of-court statement.”61 Thus, the Confrontation
Clause applies to testimonial evidence, requiring unavailability of the
witness combined with a prior opportunity for cross-examination.62
Therefore, the Confrontation Clause requires the exclusion of hearsay
testimony unless either the witness is available for trial or there has
been a prior opportunity for cross-examination.63 Presumably, the
only possible exception is that of a dying declaration. The Court
refused to decide that issue, but stated that “if this exception must be
accepted on historical grounds, it is sui generis.”64
A. Why the Court Found Cross-Examinations So Important
The Crawford decision displays why cross-examination is
vitally important to the survival of our adversarial process.65 The
Confrontation Clause guarantees the right of the accused to confront
hostile witnesses; therefore, it protects the right of crossexamination.66 Defendants have the right to test the credibility of their
accusers and confrontation increases the likelihood that an accusation
by an adverse witness is truthful by requiring the witness to confront
the accused.67 The Court has said that “the absence of proper
confrontation at trials calls into question the ultimate integrity of the
60
Id. (The Court in Crawford quoted the definition of testimony as “[a] solemn
declaration or affirmation made for the purpose of establishing or proving some
fact.” (citing NOAH WEBSTER, 1 AN AMERICAN DICTIONARY OF THE ENGLISH
LANGUAGE (1828)).
61
62
Id. at 69 (“Non-testimonial” hearsay does not implicate the Confrontation
Clause and admissibility is determined by applying appropriate rules of evidence).
63
Id.
64
Id. at 56 n.6.
65
Id. at 65.
66
Baugh, supra note 7, at 1845.
67
Id. at 1846 (citing California v. Green, 399 U.S. 149, 156 (1920); Mattox v.
United States, 156 U.S. 237, 242-43 (1895)).
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fact-finding process.”68 The Court further said that when “testimonial
statements are at issue, the only indicia of reliability sufficient to
satisfy constitutional demands are the one the Constitution actually
prescribes: confrontation.”69 The Court went on to analogize the
disposal of confrontation simply because the evidence is reliable to the
disposal of a jury trial simply because the defendant is obviously
guilty.70
When the Framers inserted the Confrontation Clause into the
Sixth Amendment, they intended it to include a right of crossexamination.71 This was obvious to the Crawford Court by looking at
debate prior to the ratification of the Constitution. Many of the
“declarations of rights adopted around the time of the Revolution”
included a right to confrontation, but the proposed Federal
Constitution did not.72 This caused much of objection, specifically
during the ratifying convention in Massachusetts from Abraham
Holmes who said: “The mode of trial is altogether indetermined; …
whether [the defendant] is to be allowed to confront the witnesses, and
have the advantage of cross-examination, we are not yet told….”73
From this, the Court noted that the inclusion of a right to confrontation
in the Federal Constitution was specifically intended to guarantee the
right to cross examination.74
B. Definition of Testimonial
In Crawford the Supreme Court refused to define what makes a
statement testimonial, stating that “we leave for another day any effort
to spell out a comprehensive definition of testimonial.”75 All the
Court explicitly stated was that the term testimonial “applies at a
68
Id. (quoting Chambers v. Mississippi, 410 U.S. 284, 295 (1973) (internal
quotation marks omitted)).
69
Crawford, 541 U.S. at 68-69.
70
Id. at 62.
71
Id.
72
Id. 48.
73
Id.
74
Id. at 48-49.
75
Id. at 68.
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minimum to prior testimony at a preliminary hearing, before a grand
jury, or at a former trial; and to police interrogations.”76 Therefore,
trial and appellate courts throughout the country have been left to
provide their own definition of testimonial. But, even though the
Court did not explicitly define testimonial, it did provide the lower
courts with guidance.
The Court provided three “formulations of [the] core class of
testimonial statements.”77 The first, which Crawford himself urged
upon the Court, is that testimonial statements consist of “ex parte incourt testimony or its functional equivalent… such as affidavits,
custodial examinations, prior testimony that the defendant was unable
to cross-examine or similar pretrial statements that declarants would
reasonably expect to be used prosecutorially.”78 The second, which
Justice Scalia took from concurring justices in past decisions, defines
testimonial statements as “extrajudicial statements… in formalized
testimonial materials, such as affidavits, depositions, prior testimony,
or confessions.”79 The last, which was suggested in an amici curia
from the National Association of Criminal Defense Lawyers, describes
testimonial statements as those that are made under circumstances
which would “lead an objective witness reasonably to believe that the
statement would be available for use at a later trial.”80
Since the Court refused to define testimonial it is logical to
look at the schools of thought of the definition of testimonial that the
Court referenced in its decision. Once one accepts what the Court
articulates in Crawford, that testimonial evidence is not limited to incourt or sworn testimony,81 then these two schools of thought are in
complete opposition to each other. The first is a very narrow
definition that has been advanced in the work of Professor Ahkil Reed
76
Id.
Horton v. Allen, 370 F.3d 75, 84 (1st Cir. 2004) (quoting Crawford, 541 U.S.
at 51-52).
78
79
Id. (quoting White v. Ill., 502 U.S. 346, 365 (1992)).
80
Id.
81
Id. at 50, 52 n.3.
77
115
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Amar from Yale University.82 Professor Amar believes that a witness
provides testimonial evidence when he testifies “either by taking the
stand in person or via government-prepared affidavits, depositions,
videotapes, and the like.”83 This would barely be more than the
minimum standard that the Court set out in Crawford.84 The second
school of thought, championed by Professor Richard Friedman at the
University of Michigan,85 is much broader and encompasses a
statement that is “made in circumstances in which a reasonable person
would realize that it likely would be used in the investigation or
prosecution of a crime.”86 It is important to note that this theory is not
based upon what the speaker actually believed, but what a reasonable
person would believe, which is very close to the one suggested by the
National Association of Criminal Defense Lawyers.87 Based on his
proposed definition, Friedman offers five rules of thumb:
A statement made knowingly to the authorities that
describes criminal activity is almost always testimonial.
A statement made by a person claiming to be the victim
of a crime and describing the crime is usually
testimonial, whether made to the authorities or not. If,
in the case of a crime committed over a short period of
time, a statement is made before the crime is
committed, it almost certainly is not testimonial. A
statement made by one participant in a criminal
enterprise to another, intended to further the enterprise,
is not testimonial. And neither is a statement made in
the course of going about one’s ordinary business,
82
Franny A. Forsman, Esq., Rene L. Valladares, Esq., Grappling with what
statements are testimonial under Crawford v. Washington: “The Reasonable
Expectation of the Declarant” Test, (October 2005) NEV. LAW. 26 (2005).
83
Id.
84
85
Forsman, supra note 82, at 26.
86
Id.; Richard D. Friedman & Bridget McCormack, Dial-In Testimony, 150 U.
PA. L. REV. 1171, 1240-41 (2002).
87
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made before the criminal act has occurred or with no
recognition that it relates to criminal activity.88
These two ideas examined by the Court in Crawford give
guideposts to lower courts about the Supreme Court’s intended
definition of testimonial.
III. HOW SISTER CIRCUITS ARE DEFINING TESTIMONIAL
About half of the federal courts of appeals have given trial
courts guidance about their definition of testimonial.89 Some of these
courts have utilized the “core class of testimonial statements” that the
Court put forth and others have analyzed the two schools of thought
referenced in Crawford.90 Whichever methodology they use, the
courts of appeals that have addressed the issue all agree that a
statement is testimonial when a reasonable declarant would anticipate
its use at trial.
A. Core Class of Testimonial Statements
In United States v. Summers, the Tenth Circuit Court of
Appeals recognized that even though the Supreme Court did not
rigidly define the term testimonial, it was not “devoid of guidance.”91
In fact, the Court provided relevant “guideposts” to frame lower
courts’ analyses.92 First, the Court provided a baseline, saying
“[w]hatever else the term covers, it applies at a minimum to prior
testimony at a preliminary hearing, before a grand jury, or at a formal
88
United States v. Cromer, 389 F.3d 662, 673-74 (6th Cir. 2004) (citing
Friedman, supra note 86, at 1042-43).
89
See United States v. Gilbertson, 435 F.3d 790 (7th Cir. 2006); United States
v. Saget, 377 F.3d 223 (2d Cir. 2004); Cromer, 389 F.3d 662; Horton v. Allen, 370
F.3d 75 (1st Cir. 2004); United States v. Summers, 414 F.3d 1287 (10th Cir. 2005);
United States v. Hinton, 423 F.3d 355 (3d Cir. 2005).
90
Id.
91
Summers, 414 F.3d at 1300.
92
Id.
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trial; and to police interrogations.”93 The court further noted that the
“formulations of the core class of testimonial statements” that the
Supreme Court referred to in Crawford constituted the rest of the
guidance needed.94 The Tenth Circuit held that the “common nucleus”
in the Court’s reasoning in Crawford was the reasonable expectations
of the declarant.95 Therefore, the Tenth Circuit said that a test that
emphasizes the reasonable expectations of the declarant is most
closely aligned with the original underpinnings of the Sixth
Amendment.96 Though it declined to define this test, the court
ultimately said that testimony by an arresting officer relating to a
statement by the co-defendant, who did not testify, was testimonial.97
In Horton v. Allen, a First Circuit case, the defendant objected
to the admission of hearsay testimony from a woman who had a
conversation with Horton’s accomplice who was not on trial.98 The
court also looked to the three “formulations of [the] core class of
testimonial statements.”99 In doing so the court said that not only were
the statements made at Horton’s trial not contained in formalized
documents such as affidavits, depositions, or prior testimony but the
statements admitted at trial were not “statements under circumstances
in which an objective person would reasonably believe that the
statement would be available for use at a later trial.”100
In United States v Hinton, the Third Circuit also relied on the
“core class of testimonial statements.”101 In doing so it recognized an
appreciation for “the third formulation of testimonial offered by the
Court in Crawford” and it endorsed this same test.102 Even though the
Sixth Circuit did not rely upon these formulations of testimonial as
much, the court in Hinton noted that the Sixth Circuit’s reasoning in
93
Id. at 1301 (quoting Crawford v. Washington, 541 U.S. 36, 68 (2004)).
Summers, 414 F.3d at 1301-02 (internal citation omitted).
95
Id. at 1302.
96
Id.
97
Id. at 1303.
98
Horton v. Allen, 370 F.3d 75, 83 (1st Cir. 2004).
99
Id. at 84 (quoting Crawford v. Washington, 541 U.S. 36, 51-52 (2004)).
100
Horton v. Allen, 370 F.3d at 84.
101
United States v. Hinton, 423 F.3d 355, 359 (3d Cir. 2005).
102
Id.
94
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United States v. Cromer was instructive.103 The court believed that the
reasonable expectation of the declarant test was important because the
“broader definition is necessary to ensure that the adjudication system
does not effectively invite witnesses to testify in informal ways that
avoid confrontation.”104
B. Two Schools of Thought
The Sixth Circuit has done the most in depth evaluation of
these two schools of thought. In United States v. Cromer, the court
admitted into evidence statements by a confidential informant to an
officer.105 The Sixth Circuit held that the district court erred by not
requiring the production of the confidential informant after admitting
the hearsay statements made by the informant.106 Just as the Tenth
Circuit did in Summers, this court recognized that Crawford provided
guidance on the definition of testimonial.107 Specifically, it looked to
the works of Professor Amar and Professor Friedman that the
Crawford Court relied on when redefining the Confrontation
Clause.108
The Sixth Circuit found that the approach put forth by
Professor Friedman is the most consistent with the stated purpose of
the Confrontation Clause, especially in light of the Court’s emphasis,
in Crawford, that the Clause refers to those that “bear testimony
against the accused.”109 The Sixth Circuit believed that statements
that are made to the authorities when the declarant knows that they
will most likely be used in trial are the exact statements that the
Confrontation Clause was intended to protect against, whether or not
103
Id. 360 (citing United States v. Cromer, 389 F.3d 662, 674-75 (6th Cir.
2004)).
104
Hinton, 423 F.3d at 360 (3d Cir. 2005) (quoting Cromer, 389 F.3d at 674-75
(internal quotation marks omitted)).
105
Cromer, 389 F.3d at 666.
106
Id. at 670.
107
Id. at 673.
108
Id.
109
Id. at 674.
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they are formal statements.110 The court recognized that this “broader
definition” is necessary to make sure that a witness does not
intentionally testify in an informal way to avoid confrontation, which
would eviscerate our adjudicative and adversarial process.111 In fact,
the Sixth Circuit went on to note that there is actually a greater danger
to defendants to allow admission, without confrontation, of an
informal statement volunteered to police as opposed to one elicited by
police.112 The court stated that “one can imagine the temptation that
someone who bears a grudge might have to volunteer to police,
truthfully or not, information of the commission of a crime, especially
when that person is assured he will not be subject to confrontation.”113
The Sixth Circuit referenced an example by Professor Friedman of a
rape victim that is assured by a private rape counselor that she is able
to give a videotaped statement that can be provided to prosecutors and
there is little chance that she will have to testify in court.114 The court
notes that this will only give witnesses incentive to ensure that all
testimony they give is informal.115 Therefore, the Sixth Circuit stated
that the proper inquiry is “whether the declarant intends to bear
testimony against the accused,” and that intent can be inferred by
deciding whether a reasonable person would anticipate that the
statement would be used against the accused.116 It is within this
framework that the Sixth Circuit decided that a confidential
informants’ statement are testimonial.
The Second Circuit Court also looked to these schools of
thought in its analysis of testimonial.117 In United States v. Saget, the
court held that a statement the defendant made to a confidential
informant was not testimonial, when the defendant did not know that
the person was an informant.118 That court discussed the Supreme
110
Id.
Id.
112
Id. at 675.
113
114
115
Id.
116
Id.
117
United States v. Saget, 377 F.3d 223, 228 (2d Cir. 2004).
118
Id. at 229-30.
111
120
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Court’s reference of Professor Friedman’s article in Crawford and
noted that even though Crawford does not explicitly endorse
Friedman’s views, it does suggest that the “determinative factor in
determining whether a declarant bears testimony is the declarant’s
awareness or expectation that his or her statements may later be used
at a trial.”119
IV. DOES THE SEVENTH CIRCUIT PROPERLY DEFINE TESTIMONIAL?
A. The Seventh Circuit: Post Crawford
For almost two years after Crawford, the Seventh Circuit did
not provide any real guidance to the trial courts about its definition of
testimonial. Instead, the court simply ruled on the facts before it,
saying whether or not the hearsay at issue was testimonial. During
this time the court indicated that Crawford does not apply to
sentencing hearings,120 police alerts,121 or a government file containing
intercepted correspondence incriminating the defendant.122
Furthermore, the Seventh Circuit followed the many other circuits that
held statements of co-conspirators are not hearsay and, therefore, are
not testimonial.123 The court also held that it is doubtless a casual
conversation between two people would not be considered
testimonial.124 But the court has held that a confession of a co-
119
Id. at 228.
United States v. Roche, 415 F.3d 614, 618 (7th Cir. 2005) (stating that the
relevant provision to sentencing is the Due Process Clause and not the Confrontation
Clause).
121
United States v. Prince, 418 F.3d 771,780-81 n.5 (7th Cir. 2005) (stating
that the admission of the police alert was not for the truth of the matter asserted and
therefore not hearsay and even if it was being used to establish truth of the matter
asserted it would not necessarily be testimonial).
122
United States v. Dumeisi, 424 F.3d 566, 576 (7th Cir. 2005).
123
United States v. Jenkins, 419 F.3d 614, 618 (7th Cir. 2005); United States v.
Reyes 362 F.3d 536, 540 n.4 (8th Cir. 2004).
124
United States v. Danford, 435 F.3d 682, 687 (7th Cir. 2006) (citing
Crawford v. Washington, 541 U.S. 36, 51 (2004)).
120
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defendant, who was tried separately, was testimonial.125 Though it
could be interpreted that the court was applying the same reasonable
expectation of the declarant test, the court never explicitly held either
way.
That all changed when the Seventh Circuit published its recent
decision in United States v. Gilbertson.126 In Gilbertson, the
defendant asserted that the admission of odometer statements from the
certificates of title violated his Sixth Amendment rights.127 In its
decision, the court did not go into an abundance of detail but noted
that the Supreme Court provided guidance for lower courts about the
definition of testimonial.128 The Seventh Circuit, like the Tenth, First
and Third, turned to the three formulations of the “core class of
testimonial statements.”129
Because Gilbertson himself focused on the second formulation,
the court first focused on that formulation of testimonial.130 The
second formulation that was mentioned by the Court in Crawford was
based on Justice Thomas’ concurrence in White v. Illinois.131 The
Seventh Circuit noted that the “evil” Justice Thomas referred to in his
opinion “was the civil-law mode of criminal procedure, and
particularly its use of ex parte examinations against the accused.”132
The court went on to note that “reading Justice Thomas’ formulation
with the first and the third formulations, it is readily apparent from
Crawford that ‘[o]nly statements made following government official
initiated ex parte examinations or interrogation developed in
anticipation of or in aid of criminal litigation are encompassed within
the core meaning of the confrontation clause.’”133
125
See United States v. Jones, 371 F.3d 363 (7th Cir. 2004).
435 F.3d 790 (7th Cir. 2006).
127
Id. at 794.
128
Id. at 795.
129
Id.
130
Id.
131
502 U.S. 346, 365 (1992).
132
Gilbertson, 435 F.3d at 795 (quoting Crawford v. Washington, 541 U.S. 36,
50 (2004)).
133
Id. at 795 (quoting MICHAEL H. GRAHAM, FEDERAL PRACTICE AND
PROCEDURE § 7032 (2d ed. Supp. 2005)).
126
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Therefore, the Seventh Circuit adopted the same reasonable
expectation of the declarant test used by many other circuits.134 But,
the court did not end there. Unlike any other circuit, the court required
that communication be initiated by the government for any statements
to be considered testimonial.135
B. Is the Seventh Circuit Correct?
Yes and no.
The decision of the Seventh Circuit as well as many other
circuits to apply the reasonable expectation of the declarant test is
appropriate in light of the Court’s reasoning in Crawford. Since the
Court chose not to define testimonial; individual courts were left to
make that determination for themselves. As many circuits noted, in
doing so, they are not without guidance from the Supreme Court.136
The first thing that most courts have done is look at what
parameters the Crawford Court did draw. As the Tenth Circuit noted
in Summers, the Court established a “baseline”137 in Crawford,
explicitly saying that at a minimum the term testimonial applies “to
prior testimony at a preliminary hearing, before a grand jury, or at a
former trial; and to police interrogations.”138 Therefore, courts have a
starting point from which to work. Furthermore, the Court did draw
the line on the other side of the spectrum. The Court noted that “[a]n
accuser who makes a formal statement to government officers bears
testimony in a sense that a person who makes a casual remark to an
acquaintance does not.”139 These are not the only guideposts; the
Court also gave three “core formulations” of testimonial as well as to
reference two specific scholars that have debated the definition of
testimonial.140 As the Second Circuit noted, it is the common nucleus
134
Id. at 796.
Id. at 795-96.
136
Id. at 795; United States v. Cromer, 389 F.3d 662, 673 (6th Cir. 2004).
137
United States v. Summers, 414 F.3d 1287, 1301 (10th Cir. 2005).
138
139
Id. at 51.
140
Id. 51-52.
135
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present in the formulations that “centers on the reasonable expectation
of the declarant.”141 The court further noted that it is the reasonable
expectation of the declarant that “distinguishes the flippant remark,
proffered to a casual acquaintance from the true testimonial
statement.”142
But where the Seventh Circuit went wrong was finding that for
a statement to be testimonial the communication must have been
initiated by the government.143 In doing so, the court’s analysis of
testimonial became much more aligned with Professor Amar’s
definition than Professor Friedman’s. But this definition is not inline
with the core concerns of the Confrontation Clause. In Cromer, the
Sixth Circuit quickly dispensed with Professor Amar’s definition of
testimonial.144 It noted that “[t]he Crawford Court found the absence
of an oath not to be determinative in considering whether a statement
is testimonial” and the court noted that the other formalities identified
by Professor Amar were not necessary components of a testimonial
statement.145 The court further declared that the danger to a defendant
might actually be greater if the admitted statement is volunteered to
police rather than elicited through formalized police interrogation,
“[o]ne can imagine the temptation that someone who bears a grudge
might have to volunteer to police, truthfully, or not, information of the
commission of a crime, especially when that person is assured he will
not be subject to confrontation.”146 The Confrontation Clause applies
to witnesses who “bear testimony,”147 therefore; the proper inquiry
revolves around the intent of the declarant and not who initiates the
conversation.148 Basing the definition on who initiates the
conversation would only encourage witnesses to give statements
informally.149 It is also important to note the purpose of the
141
Summers, 414 F.3d at 1302.
Id.
143
Gilbertson, 435 F.3d at 795-96.
144
United States v. Cromer, 389 F.3d 662, 674-75 (6th Cir. 2004).
145
Id. at 674.
146
Id. at 675.
147
148
See Cromer, 389 F.3d at 675.
149
Id.
142
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Confrontation Clause was not just to curb lying, but it was also
implemented to give the judge and jury an opportunity to see the
witness to weigh the witness’ credibility as well as the witness’
recollection of the events.150 Therefore, even if a person who
volunteers information about a crime is truthful, the defense is
supposed to have the opportunity to cross-examine that witness about
the accuracy of the information. Applying the Seventh Circuit’s test
would strip the defense of this right.
Furthermore, the Court noted that “[t]he most notorious
instances of civil-law examination occurred in the great political trials
of the 16th and 17th centuries.”151 During these trials English courts
refused defendants’ requests that accusers be brought before them.152
The Court used the treason trial of Sir Walter Raleigh as one of the
best examples of what the Framers wanted to avoid with the
implementation of the Confrontation Clause.153 Lord Cobham,
Raleigh’s alleged accomplice, implicated Raleigh in both an
examination and in a letter that he sent to the court without
provocation.154 Raleigh believed that Lord Cobham would recant and
“demanded that the judges call him to appear, arguing that the Proof of
the Common Law is by witness and jury: let Cobham be here, let him
speak it.”155 The court refused and allowed the reading of the
examination and the letter into evidence.156 One of the trial judges
“later lamented that the justice of England has never been so degraded
and inured as by the condemnation of Sir Walter Raleigh.”157 This
case spurred reform that not only required face to face accusations at
150
See California v. Green, 399 U.S. 149, 158 (1970).
152
Id. at 43 (citing J. STEPHEN, 1 HISTORY OF THE CRIMINAL LAW OF ENGLAND
326 (1883); W. HOLDSWORTH, 9 HISTORY OF ENGLISH LAW 216-17, 228 (3d ed.
1944)).
153
154
Id.
155
Id. (quoting 2 How. St. Tr., at 15-16 (1603)) (internal quotation marks
omitted).
156
157
Id. (quoting D. JARDINE, 1 CRIMINAL TRIALS, 520 (1832) (internal quotation
marks omitted).
151
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arraignment, but the Court of King’s Bench said that it mandated the
right to cross-examine.158
In dispensing of the Roberts test, the Court noted that “[t]he
Raleigh trial itself involved the very sorts of reliability determinations
that Roberts authorizes.”159 In that trial, the prosecution used “many
of the arguments a court applying Roberts might invoke today: that
Cobham’s statement were self-incriminating, that they were not made
in the heart of passion, and that they were not extracted from him upon
the hopes or promise of a Pardon.”160 Furthermore, the Court went on
to say that,
It is not plausible that the Framers’ only objection to
the trial was that Raleigh’s judges did not properly
weigh these factors before sentencing him to death.
Rather, the problem was that the judges refused to
allow Raleigh to confront Cobham in court, where he
could cross-examine him and try to expose his
accusation as a lie.161
The main “evil” the Framers’ attempted to protect against with
the inclusion of the Confrontation Clause was these “civil law
examinations,”162 but this protection was not limited to government
initiation communication. In fact, looking at the Raleigh case, that the
Court relied heavily on in its Crawford decision, it is apparent that the
Court did not intend to limit testimonial evidence to formal
investigations or interrogations.163 The Court noted in Crawford that
one of the pieces of evidence used against Raleigh was a letter that
was sent without provocation.164 The Court used the introduction at
158
Crawford, 541 U.S. at 44-45 (citing King v. Paine, 87 Eng. Rep. 584
(1696)).
159
Id. (citation omitted).
161
Id.
162
Id. at 44.
163
Id. at 45.
164
Id.
160
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trial of both the pre-trial examination and the letter as examples of
what the Framers tried to avoid with the implementation of the
Confrontation Clause.165 Accordingly, it is apparent that the Court did
not intend to limit the definition of testimonial to statements that were
obtained through government initiated communication.
Furthermore, the Seventh Circuit misread opinions from its
sister courts. In Gilbertson, after declaring that a testimonial statement
is one in which the communication is initiated by the government; the
court noted that “[o]ther circuits have come to a similar
conclusion.”166 This is simply inaccurate. While it is true that the
other circuits the Seventh Circuit cites all agree about the use of the
reasonable expectation of the declarant test, not one of those circuits
agree that the communication must be initiated by the government.
V. CONCLUSION
Since the Supreme Court handed down its Crawford decision,
courts across the country have attempted to decipher what testimonial
means. Some courts, including the Seventh Circuit, have given
guidance to the trial courts, holding that the applicable test is whether
a reasonable person would believe the statement would be used at
trial.167 Based on the Court’s analysis of the Confrontation Clause and
the guideposts it left for lower courts, this is the appropriate decision.
Unfortunately, the Seventh Circuit did not end its analysis there. The
Seventh Circuit further opined that for a statement to be testimonial it
must be the product of government initiated communication.168 By
looking to the three formulations of testimonial statements, the two
165
Id. at 44.
See United States v. Gilbertson, 435 F.3d 790, 796 (7th Cir. 2006) (citing
United States v. Saget, 377 F.3d 223 (2d Cir. 2004); United States v. Cromer, 389
F.3d 662 (6th Cir. 2004); Horton v. Allen, 370 F.3d 75 (1st Cir. 2004); United States
v. Summers, 414 F.3d 1287 (10th Cir. 2005); United States v. Hinton, 423 F.3d 355
(3d Cir. 2005)).
167
. Gilbertson, 435 F.3d at 796; Saget, 377 F.3d at 229; Cromer, 389 F.3d at
675; Horton, 370 F.3d at 83-84; Summers, 414 F.3d at 1302; Hinton, 423 F.3d at
360.
168
Gilberston, 435 F.3d at 795-96.
166
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schools of thought concerning testimonial and to trial of Sir Walter
Raleigh that the Court referenced in Crawford, it is apparent that this
formulation is simply the wrong conclusion to draw from Crawford
and the history of the Confrontation Clause.
128
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THE SEVENTH CIRCUIT’S EROSION OF THE
EQUAL PAY ACT
JESSICA L. LINDSTED ∗
Cite as: Jessica L. Lindsted, The Seventh Circuit’s Erosion of the Equal Pay Act, 1
SEVENTH CIRCUIT REV. 129 (2006), at http://www.kentlaw.edu/7cr/v11/lindsted.pdf.
I. INTRODUCTION
The Equal Pay Act of 1963 (“EPA”), 1 an amendment to the
Fair Labor Standards Act (“FLSA”) of 1938, added to § 6 of the FLSA
“the principle of equal pay for equal work regardless of sex.” 2 The
EPA was the first modern employment discrimination statute, and it
addresses a very specific form of gender discrimination in
employment—unequal pay for equal work. 3 Less than one year later,
Congress passed Title VII of the Civil Rights Act of 1964 which also
prohibits sex-based wage discrimination. 4 Title VII is broader than
the EPA because it also prohibits many other forms of discriminatory
employment practices based on other protected traits including an
individual’s race, color, religion, sex, or national origin. 5 Although
Technology; Litigation and Alternative Dispute Resolution Certificate.
1
29 U.S.C. § 206(d)(1) (2000).
2
Corning Glass Works v. Brennan, 417 U.S. 188, 190 (1974).
3
MARK A. ROTHSTEIN ET AL., EMPLOYMENT LAW 366 (3d ed. 2004).
4
42 U.S.C. §2000e-2(a)(1) (2000).
5
Section 703(a)(1), 42 U.S.C. §2000e-2(a)(1) (2000). Section 703(a)(1) states
that it is an “unlawful employment practice” for a covered employer “to fail or
refuse to hire or to discharge any individual, or otherwise to discriminate against any
individual with respect to his compensation terms, conditions or privileges of
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both statutes protect an employee from sex-based wage discrimination
in employment, the statutes function differently. 6
Section 206(d)(1) of the EPA establishes that
[n]o employer having employees subject to any provisions of
this section shall discriminate, between employees on the basis
of sex by paying wages to employees in such establishment at
the rate less than the rate at which he pays wages to employees
of the opposite sex in such establishment for equal work on
jobs the performance of which requires equal skill, effort, and
responsibility, and which are performed under similar working
conditions. 7
The EPA has four exceptions for discriminatory pay between the sexes
where an employer has in place “(i) a seniority system; (ii) a merit
system; (iii) a system which measures earnings by quantity or quality
of production; or (iv) a differential based on any other factor other
than sex.” 8 Thus, the EPA is divided into two parts—part one is
prohibitory, while the second part lays out the affirmative defenses. 9
The affirmative defenses, in effect, “authorize” employers to
differentiate in pay if the reason for that differentiation falls within one
of the four categories, even though that differentiation might otherwise
violate the Act. 10
The circuit courts are split in their interpretation of the “factor
other than sex” defense. 11 Employers frequently assert that a
difference in wages between employees of opposite sexes is the result
of basing their initial salary on the prior salary an employee was
employment, because of such individual’s race, color, religion, sex, or national
origin.”
6
See County of Wash. v. Gunther, 452 U.S. 161, 170 (1981).
7
29 U.S.C. § 206(d)(1) (2000).
8
Id.
9
Gunther, 452 U.S. at 169.
10
Id.
11
See infra notes 13-14.
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earning elsewhere. They argue that the use of prior salary in setting
wages qualifies as a “factor other than sex,” and therefore is not a
violation of the EPA. 12 The Seventh Circuit, along with the Eighth
Circuit, finds that any gender-neutral reason asserted by the employer
qualifies as a factor other than sex. 13 On the other hand, several
circuits, including the Second, Ninth and Eleventh Circuits, use a
legitimate business reason test when examining an employer’s “factor
other than sex.” 14
This article will show that the Seventh Circuit incorrectly
analyzed an EPA claim in Wernsing v. Department of Human
Services. 15 In this decision, the court also rejected the legitimate
business reason test from the Ninth Circuit based on the Seventh
Circuit’s incorrect analysis of an EPA claim. 16
Part of the problem interpreting the factor other than sex
defense stems from the interaction of the EPA with Title VII. The
Seventh Circuit treated the EPA claim in Wernsing as if it were the
same as a Title VII claim. 17 In doing so, the Seventh Circuit has made
EPA litigation defendant-friendly, creating an enormous difficulty for
a plaintiff seeking to prove a violation of the EPA, and has thus eroded
the intent and purpose of the statute.
II. THE FACTOR OTHER THAN SEX DEFENSE OF THE EQUAL PAY ACT
AND THE RELATIONSHIP BETWEEN THE EQUAL PAY ACT AND TITLE VII
The Supreme Court has only decided one case brought under an
Equal Pay Act claim. 18 Although the Supreme Court’s decision
12
See infra notes 13-14.
Wernsing v. Dep’t of Human Servs., 427 F.3d 466 (7th Cir. 2005); Strecker
v. Grand Forks County Soc. Serv. Bd., 640 F.2d 96 (8th Cir. 1980).
14
Aldrich v. Randolph Cent. Sch. Dist., 963 F.2d 520 (2d Cir. 1992); Kouba v.
Allstate Ins. Co., 691 F.2d 873 (9th Cir. 1982); Glenn v. General Motors Corp., 841
F.2d 1567 (11th Cir. 1988).
15
Wernsing, 427 F.3d at 466.
16
Id.
17
See infra note 125.
18
Corning Glass Works v. Brennan, 417 U.S. 188 (1974).
13
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provides some guidance for interpreting the Act’s factor other than sex
defense, the Supreme Court did not articulate a standard for
determining what qualifies as a factor other than sex. 19 In addition,
the Court has also examined the Act in claims brought under Title
VII. 20 An examination of the differences between EPA and Title VII
litigation, combined with the Supreme Court’s interpretations of the
EPA, and the Act’s purposes and legislative history, is an integral
inquiry in order to formulate a standard for determining what qualifies
as a factor other than sex.
A. Supreme Court decisions addressing the EPA’s Factor Other than
Sex Defense.
The landmark case of Corning Glass Works v. Brennan, has
been the only instance where the Supreme Court has decided a case
that was brought under the EPA. 21 Corning Glass involved a wage
disparity between male night shift inspectors and female day
inspectors. 22 The wage disparity had somewhat of a historical basis –
Corning initially instituted a night shift between 1925 and 1930 when
New York and Pennsylvania law prohibited women from working at
night. 23 Therefore, the company needed to fill the night shift inspector
position, traditionally a female position, with male day workers. 24
These men demanded and received higher wages than those paid to the
female day inspectors. 25 At this time, the only pay disparity between
19
Id.
County of Wash. v. Gunther, 452 U.S. 161 (1981); City of L.A. Dep’t of
Water & Power v. Manhart, 435 U.S. 702 (1978). Both of these cases were brought
under Title VII’s Bennett Amendment, 42 U.S.C. § 2000e-2(h) (2000).
21
417 U.S. 188 (1974).
22
Id. at 190.
23
Id. at 191.
24
Id.
25
Id.
20
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the night shift and day shift positions existed with respect to the
position of inspector. 26
After the laws of New York and Pennsylvania were amended
to allow women to work at night, women at Corning were allowed to
bid on the higher paid night inspection jobs. 27 In 1969, a new
collective bargaining agreement eliminated the wage disparity
between day and night inspectors hired after the date of the agreement,
but provided a “red circle” rate for current inspectors, thus allowing
for a continued disparity between day and night inspectors. 28
Corning argued that day shift work and night shift work were
not performed under “similar working conditions” as required by the
EPA. 29 The Secretary of Labor contended that such a shift differential
would fall under the “factor other than sex” exception, and that
Corning had failed to prove that paying higher wages to its male night
inspectors was based on any factor other than sex. 30 The Court looked
to the statute’s language, history, and Congressional intent, and
determined that the work at issue was “equal work” as defined by the
EPA. 31
The Court found that Corning failed to prove that its
compensation system for the inspector position was not based upon
sex. 32 Although the EPA allows for wage differentials based on
nondiscriminatory shift differentials, in Corning the pay disparity
arose simply because the men originally thought the inspector work
performed by women demeaning. In order to perform this work
during a night shift, they demanded higher pay, but all other positions
were paid the same whether performed during the night or day shift. 33
Therefore, the Court concluded, the pay disparity “reflected a job
26
Id. at 191-92.
Id. at 192-93.
28
Id. at 194.
29
Id. at 197.
30
Id. at 197-202.
31
Id. at 203.
32
Id. at 204-05.
33
Id. at 205.
27
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market in which Corning could pay women less than men for the same
work.” 34
B. Supreme Court decision regarding the relationship between the
Equal Protection Act and Title VII.
The Supreme Court has also had occasion to examine the EPA
in cases brought under Title VII. County of Washington v. Gunther
involved the relationship between Title VII and the EPA. 35 The
Bennett Amendment, contained in section 703(h) of Title VII,
provides that
[i]t shall not be an unlawful employment practice under [Title
VII] for any employer to differentiate upon the basis of sex in
determining the amount of the wages or compensation paid or
to be paid to employees of such employer if such
differentiation is authorized by the provisions of [the Equal
Pay Act]. 36
The Supreme Court examined the affect of the Bennett Amendment on
Title VII wage-based discrimination claims in County of Washington
v. Gunther. 37
In County of Washington, female guards in a county jail filed a
wage discrimination claim under Title VII, alleging that the County of
Washington intentionally discriminated against them by paying the
female guards in the female section of the jail less than the wages paid
to the male guards in the male section of the jail. 38 The county
defended the suit by claiming that the Bennett Amendment restricted
sex-based wage discrimination claims under Title VII to those that
34
Id.
452 U.S. 161 (1981).
36
42 U.S.C. § 2000e-2(h) (2005).
37
County of Wash. v. Gunther, 452 U.S. 161 (1981).
38
Id. at 163-64.
35
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could also be brought under the Equal Pay Act. 39 Because the Equal
Pay Act only permits claims for “equal work,” the county argued that
the Bennett Amendment precluded suit because the jobs of the male
and female guards were not “equal.” 40
The plaintiffs argued that the Bennett Amendment was
designed only to incorporate the four affirmative defenses of the EPA
into Title VII for sex-based wage discrimination claims, and therefore
did not restrict Title VII claims to the “equal or substantially equal
work” standard of the EPA. 41 The Supreme Court agreed with the
plaintiff’s argument, finding that the Bennett Amendment to Title VII
incorporated the affirmative defenses of the EPA into an unequal pay
claim under Title VII. 42 Additionally, the Court noted that it was not
deciding how discrimination litigation under Title VII should be
structured to incorporate the EPA’s affirmative defense of “factor
other than sex,” which requires an employer to prove that a wage
differential is not based on sex, different from Title VII’s burden of
proof shifting. 43
Although the Court did not articulate a standard for
determining what qualifies as a factor other than sex in Gunther, the
case does provide some guidance for determining how sex-based wage
discrimination claims should be decided. First, the Court noted that
employers may defend against charges of sex-based wage
discrimination under the EPA where pay differentials “are based on a
bona fide use of ‘other factors other than sex.’” 44 Also, the Court
recognized that EPA and Title VII are structured differently, and
function under different burdens of proof. 45
C. The Equal Pay Act and Title VII: Different Burdens of Proof.
39
Id. at 168.
Id.
41
Id.
42
Id.
43
Id. at 169-70.
44
Id. at 170. (emphasis added).
45
Id.
40
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One year after the EPA was enacted, Congress passed Title VII
of the Civil Rights Act of 1964 (“Title VII”), prohibiting, inter alia,
gender discrimination in all “terms, conditions or privileges” of
employment. 46 Title VII also prohibits sex-based wage
discrimination, but unlike the EPA’s narrow application to wage
differentials attributable to sex discrimination, Title VII’s prohibitions
were “intended to be broadly inclusive, proscribing ‘not only overt
discrimination but also practices that are fair in form, but
discriminatory in operation.’” 47 The structure of Title VII litigation,
with its shifting burdens of proof, varying defenses, and presumptions,
was designed to reflect its broad nature. 48 On the other hand, EPA
litigation, specifically the fourth affirmative defense, has been
structured differently than Title VII. 49 EPA litigation is designed to
allow employers to defend against charges of wage discrimination
where pay differentials are based “on a bona fide use of ‘other factors
other than sex.’” 50
1. EPA: Burden of Proof.
In order to make out a prima facie case under the EPA, the
plaintiff has a heavy burden of proof 51 to establish that employees of
the opposite sex receive different wages “for equal work on jobs the
performance of which requires equal skill, effort, and responsibility,
and which are performed under similar working conditions.” 52 A
female plaintiff establishes a prima facie case by showing “(1) higher
wages were paid to a male employee, (2) for equal work requiring
46
Section 703(a)(1), 42 U.S.C.A. § 2000e-2(a)(1) (2005).
County of Wash. v. Gunther, 452 U.S. 161, 170 (1981) (quoting Griggs v.
Duke Power Co., 401 U.S. 424, 439 (1971)).
48
Id.
49
Id.
50
Id.
51
52
Id.
47
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substantially similar skill, effort and responsibilities, and (3) the work
was performed under similar working conditions.” 53 Once a prima
facie case is established, the burden of proof shifts to the defendant to
establish that the difference in pay is permitted under one of the four
exceptions, or affirmative defenses, permitted by the EPA. 54
Therefore, under the EPA, the “risk of nonpersuasion rests with the
employer on the ultimate issue of liability.” 55
The EPA does not require a plaintiff to show intent to
discriminate, and has been referred to as a “strict liability” statute for
this reason. 56 In contrast, under Title VII claims the burden of
persuasion rests with the plaintiff at all times to show discriminatory
intent. 57
2. Title VII: Burden of Proof.
The standard for proof of discrimination under Title VII is
different from the EPA because EPA litigation follows a two-step
burden-shifting paradigm, whereas Title VII follows a three-step
burden shifting framework. 58 Under Title VII, individuals proving
discrimination can proceed either through a theory of disparate
treatment or disparate impact. 59 The burden framework for both
theories is divided into three steps. This framework for a disparate
treatment case was first announced in McDonnell-Douglas Corp. v.
Green. 60
53
Stopka v. Alliance of Am. Insurers, 141 F.3d 681, 685 (7th Cir. 1998).
Fallon v. State of Ill., 882 F.2d 1206, 1213 (7th Cir. 1989) (citing Corning
Glass Works, 417 U.S. at 195).
55
Id.
56
Ryduchowski v. Port Auth. of N.Y. and N.J., 203 F.3d 135, 142 (2d Cir.
2000); Fallon, 882 F.2d at 1213.
57
Fallon, 882 F.2d at 1213.
58
Stanziale v. Jargowsky, 200 F.3d 101, 107 (3d Cir. 2000).
59
See McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973); Griggs v.
Duke Power Co., 401 U.S. 424 (1971).
60
411 U.S. 792 (1973). Alternatively, in 1971, the Court announced the
disparate impact theory of liability for cases brought under Title VII in Griggs v.
54
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Under a McDonnell Douglas framework, a plaintiff proving a
sex-based wage discrimination claim must first establish that a
member of the opposite sex in a similar job position as plaintiff
receives a higher level of pay. 61 The burden then shifts to the
defendant to articulate a legitimate nondiscriminatory reason for the
wage discrepancy. 62 Once this minimal burden of articulation is met,
the plaintiff then has the burden of proof to establish that the proffered
reason was a pretext for discrimination. 63 Under Title VII, the burden
of proof remains with the plaintiff at all times. 64 Once a plaintiff
establishes a prima facie case, the burden of production shifts to the
defendant to articulate a nondiscriminatory reason for its action. 65 If
this occurs, the plaintiff must then prove that the proffered reason is
merely a pretext for discrimination. 66 Therefore, under a Title VII
claim, the plaintiff always bears the risk of nonpersuasion. 67
D. The Legislative History and Purpose of the Equal Pay Act.
The statement of purpose of the EPA declares Congress’
findings that wage differentials based on sex “depress[] wages and
living standards for employees necessary for their health and
Duke Power Co. Unlike disparate treatment, the employer’s discriminatory intent in
irrelevant under a disparate impact theory. A plaintiff establishes a prima facie case
of discrimination under a disparate impact theory by establishing that a neutral
employment policy or practice had a significant discriminatory impact on a protected
group. Once this is established, the burden then shifts to the employer to show that
the policy or practice was job-related or consistent with business necessity. The
plaintiff may still prevail at this point by showing that an alternative practice existed.
401 U.S. 424 (1971). Congress officially codified the disparate impact theory in its
amendments to Title VII in the Civil Rights Act of 1991.
61
Texas Dep’t. of Cmty Affairs v. Burdine, 450 U.S. 248, 252-53 (1981).
62
Id.
63
Id. at 253; McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973).
64
Fallon v. State of Illinois, 882 F.2d 1206, 1213 (7th Cir. 1989).
65
Id.
66
Id.
67
Id.
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efficiency.” 68 Congress furthered declared that the policy of the EPA
was to correct these conditions. 69
Congress enacted the EPA in 1963 in order to “remedy what
was perceived to be a serious and endemic problem” in private
employment industries – that many wages were scaled on “an ancient
but outmoded belief that a man, because of his role in society, should
be paid more than a woman even though his duties are the same.” 70 In
addition, the Supreme Court has noted that the EPA itself is “broadly
remedial” and should be interpreted and applied in order to achieve its
underlying purposes. 71
The Supreme Court examined the legislative history behind the
EPA in Corning Glass Works v. Brennan. 72 The original version of
the Equal Pay bill only allowed for two exceptions for wage
differentials, those based on a seniority or merit increase system that
did not discriminate on the basis of sex. 73 Due to a concern that this
version of the bill did not fully encompass job evaluation systems that
established equitable wages in the industry, the amended version of
the Act defined equal work in terms of “skill, effort, responsibility,
and working conditions.” 74 The Court found that Congress’ clear
intent in incorporating this language was to “ensure that wage
differentials based upon bona fide job evaluation plans would be
outside the purview of the Act.” 75 To support this intent, the Court
quoted the House Report:
This language [skill, effort, responsibility, and working
conditions] recognizes that there are many factors which may
be used to measure the relationships between jobs and which
68
Pub. L. No. 88-38, §2(a), 77 Stat. 56 (1963).
Pub. L. No. 88-38, §2(b), 77 Stat. 56 (1963).
70
71
Id. at 208.
72
417 U.S. at 188.
73
Id. at 198.
74
Id. at 201.
75
Id. at 201 (emphasis added).
69
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establish a valid basis for a difference in pay. These factors
will be found in a majority of the job classification systems.
Thus, it is anticipated that a bona fide job classification
program that does not discriminate on the basis of sex will
serve as a valid defense to a charge of discrimination. 76
Although the Court in Corning used the legislative history to interpret
the phrase “working conditions” as used in the EPA, 77 Congress’s
characterizations of job evaluation plans and classification systems as
bona fide demonstrate its intent to only allow factors tied to legitimate
business reasons to defend against charges of discrimination.
Of the four affirmative defenses, Congress intended the fourth
one, “factor other than sex,” to be a “broad general exception.” 78 It
was designed in order to narrow the scope of the EPA to wage
differentials based on sex discrimination. 79 Therefore, employers may
defend against discrimination litigation brought under the EPA where
differentials in pay are based “on a bona fide use of ‘other factors
other than sex.’” 80
III.
VARYING INTERPRETATIONS BETWEEN THE CIRCUIT COURTS
REGARDING PRIOR SALARY AS A FACTOR OTHER THAN SEX
A. Other Circuit Interpretations Regarding the Equal Pay Act’s Factor
Other than Sex Defense.
In County of Washington v. Gunther, the Court stated in dicta
that the fourth affirmative defense of the EPA differs from Title VII
litigation. Title VII was intended to encompass both intentional
discrimination as well as “practices that are fair in form, but
76
417 U.S. at 201 (quoting H.R. REP. NO. 88-309 at 8 (1963)).
Id.
78
Patkus v. Sangamon-Cass Consortium, 769 F.2d 1251, 1261 (7th Cir. 1985).
79
County of Wash. v. Gunther, 452 U.S. 161, 170 (1981).
80
Id.
77
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discriminatory in operation,” 81 whereas the EPA’s “factor other than
sex” defense was designed in order to narrow the scope of the EPA to
wage differentials based on sex discrimination. 82 However, the Court
noted that it was not deciding how discrimination litigation under Title
VII should be structured to incorporate the EPA’s affirmative defense
of “factor other than sex” which requires an employer to show that a
wage differential is not based on sex, different from Title VII’s burden
of proof shifting.
The Seventh Circuit inferred that this passage stated that the
EPA was limited to disparate treatment claims, and did not have a
disparate impact component. 83 However, because the Supreme Court
also noted in the same passage that EPA litigation is structured in
order to permit employers to defend charges of discrimination by
showing that a wage differential is based on bona fide uses of “other
factors other than sex,” 84 other circuits have interpreted this passage
differently than the Seventh, requiring an “acceptable business
reason” 85 in conjunction with a “factor other than sex” defense.
Circuits requiring an acceptable business to justify the EPA’s
factor other than sex defense correctly analyze EPA claims. As noted
above, EPA and Title VII litigation functions differently, with
different burdens of proof. Disparate treatment and disparate impact
analysis reflects Title VII analysis. Requiring an acceptable business
reason to justify a factor other than sex defense under an EPA claim
properly requires an employer to prove an affirmative defense.
In Kouba v. Allstate Insurance Co., 86 a Title VII case dealing
with the EPA’s “factor other than sex” defense incorporated into Title
VII by the Bennett Amendment, the Ninth Circuit examined whether
Allstate’s policy of setting wages based on an employee’s former
salary constituted a “factor other than sex.” The Ninth Circuit held
81
Id. (quoting Griggs v. Duke Power Co., 401 U.S. 424, 431 (1971)).
83
Wernsing v. Dep’t of Human Servs., 427 F.3d 466, 469 (7th Cir. 2005).
84
85
Kouba v. Allstate Ins. Co., 691 F.2d 873, 876 (9th Cir. 1982).
86
691 F.2d 873 (9th Cir. 1982).
82
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that the EPA does not prohibit the use of prior salary as a “factor other
than sex,” but any such use should be justified by an acceptable
business reason. 87 The court reasoned that because the EPA is
concerned with business practices, any “factor other than sex” defense
must still be tied to an acceptable business reason. 88 Allowing wage
differentials where an employer asserts a “factor other than sex” that is
unrelated to business practices is thus “nonsensical” under the EPA. 89
The Second Circuit also requires the legitimate business reason
test when examining a factor other than sex and has correctly
distinguished EPA from Title VII litigation. In Aldrich v. Randolph
Central School District, 90 the school district defended a claim of sexbased wage discrimination under both the EPA and Title VII, claiming
that its job classification system was a “factor other than sex” under
the EPA. The school district employed both “cleaners” and
“custodians,” with custodians receiving higher pay. 91 Under local
civil service rules, custodian applicants were required to take a civil
service exam. 92 Aldrich, employed as a cleaner, claimed that she
performed the same work as male custodians but was classified and
paid as a cleaner in violation of the EPA.
The court held that a gender neutral job classification system is
a “factor other than sex” where the employer can also establish a
business related justification for the use of the system. 93 Looking to
the statutory history of the EPA, the court found an employer could
not assert a job classification system as a “factor other than sex”
87
Id. at 878.
Id. at 876.
89
Id. Similarly, the Eleventh Circuit held in Irby v. Bittick that prior salary
alone is not a legitimate factor other than sex, but reliance on prior salary and
experience in setting wages for a new employee is a successful affirmative defense
as a “factor other than sex” because other business reasons then explain the use of
prior salary. 44 F.3d 949, 955-56 (11th Cir. 1995).
90
963 F.2d 520 (2d Cir. 1992).
91
Id. at 522.
92
Id.
93
Id. at 526.
88
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without more. 94 Requiring an employer to prove that a legitimate
business reason for the classification system carries out Congress’s
goal to eradicate wage discrimination. Without a business reason,
employers will be able to use a classification system as a pretext for
discrimination, thus thwarting the purpose and intent behind the
EPA. 95
The requirement for an acceptable business reason is consistent
with the legislative history of the EPA relied on by the Court in
Corning, the purpose and policy of the EPA, and the Supreme Court
decisions in Corning and Gunther. The “factor other than sex”
defense was intended to be a catch-all exception to cover bona fide
business factors other than sex. However, requiring an employer to
justify its use of a factor other than sex with a legitimate business
reason test satisfies the two-step burden shifting required by the EPA.
Requiring this test ensures that a defendant employer prove that its
wage discrepancy is not based on sex. Without the business reason
test, employers would be able to merely articulate any factor other
than sex, which does not satisfy the burden placed on defendants under
EPA litigation, and also “provides a gaping loophole in the [EPA]
statute through which many pretexts for discrimination would be
sanctioned.” 96
94
Id. at 525.
Id.
96
Id. The court stated:
Based on [the Act’s] statutory history, we conclude that employers
cannot meet their burden of proving that a factor-other-than-sex is
responsible for a wage differential by asserting use of a genderneutral classification system without more. Rather, Congress
intended for a job classification system to serve as a factor-otherthan-sex defense to sex-based wage discrimination claims only
when the employer proves that the job classification system
resulting in differential pay is rooted in legitimate business-related
differences in work responsibilities and qualifications for the
particular positions at issue.”
Aldrich, 963 F.2d at 525.
95
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B. The Seventh Circuit’s Previous Interpretations regarding the Equal
Pay Act’s Factor Other than Sex Defense.
The Seventh Circuit’s recent holding in Wernsing v.
Department of Human Services stems from its prior cases under the
EPA dealing the Act’s factor other than sex defense. The Seventh
Circuit has never held that the defense requires justification by a
business-related reason. However, an examination of the circuit’s
previous decisions shows a relaxation over the years of the defendant’s
burden under the EPA, that culminates with a failure to force
defendants to actually prove their defense.
In Covington v. Southern Illinois University, 97 the plaintiff
alleged that the University discriminated against her by paying her less
than a male professor under the EPA and Title VII. 98 The district
court had found that the wage disparity was based on a “factor other
than sex”: the male professor had a higher education and experience,
and the university also employed a sex-neutral policy of maintaining
an employee’s salary when transferred from one assignment to another
within the university. 99 The university argued that this policy was
adopted to promote employee morale. 100 The plaintiff argued that the
factor other than sex defense under the EPA and Title VII where the
university maintained an employee’s salary who changed assignments
required a business-related reason or needed to relate to the
requirements of the position. 101
The court held that the university’s salary retention policy
qualified as a factor other than sex. 102 While rejecting requiring a
justification of the factor other than sex defense where prior salary is
at issue, the court distinguished this case from the decision of the
Ninth Circuit in Kouba, because a salary retention plan relies on the
97
816 F.2d 317 (7th Cir. 1987).
Id. at 321.
99
Id.
100
Id. at 322 n.7.
101
Id. at 321.
102
Id. at 322.
98
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prior salary from the same employer, and not a previous employer. 103
The Seventh Circuit stated that the Kouba court held that because
wages based on prior salary from a previous employer might be due to
prior discrimination, prior salary qualifies as a factor other than sex
only if its use is business-related. If SIU had considered Covington’s
prior salary in setting her starting salary, “the same concerns that
underlie Kouba would still be relevant.” 104
However, the Court continued to note that the male professor’s
salary was influenced by his seven years experience with the
university that the plaintiff did not possess. 105 In this regard, the Court
supports its holding that a salary retention plan qualifies as a factor
other than sex defense where it is justified by a business related reason
– previous experience.
In addition, the salary retention policy itself had another
business related component relied on by the Court: “We do not believe
that the EPA precludes an employer from implementing a policy
aimed at improving employee morale when there is no evidence that
that policy is either discriminatorily applied or has a discriminatory
effect.” 106 The Court further stated that although a plaintiff does not
need to establish discriminatory intent under the EPA, 107 an employer
is not barred from implementing a policy that has not been shown to
undermine the EPA, even where the policy is not related to the
requirements of the job. 108
After Covington, the Seventh Circuit examined a case
involving prior salary again in Dey v. Colt Construction &
Development. 109 The plaintiff, Dey, brought a claim alleging that Colt
violated the EPA where she was paid substantially less than her male
103
Id. at 322-23.
Id. at 323 n.8.
105
Id. at 324.
106
Id. at 322.
107
Id.
108
Id.
109
28 F.3d 1446 (7th Cir. 1994).
104
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successor. 110 Finding that the male successor negotiated a salary
closer to his previous rate after an initial offer by Colt, combined with
an educational background superior to Dey’s, the Court held that the
male successor’s higher salary was based on factors other than sex and
not therefore in violation of the EPA. 111 In its analysis, the Court
noted that the “factor other than sex” defense did not need to relate to
the job position or even be business related. 112 Interesting to note, the
Court stated that in considering a factor other than sex, “we ask only
whether the factor is bona fide, whether it has been discriminatorily
applied, and in some circumstances, whether it may have a
discriminatory effect.” 113
Dey’s successor negotiated his salary to an amount closer to
his prior salary after an initial offer and the court noted that this type
of evidence “should be considered with some caution…as undue
reliance on salary history to explain an existing wage disparity may
serve to perpetuate differentials that ultimately may be linked to
sex.” 114 Although the court made a specific point of noting that the
“factor other than sex” defense need not be justified by a business
reason, it in fact was. Colt did not rely solely on prior salary to
determine the successor’s initial salary, and the successor instigated
negotiations over his salary. Further, at this point the court still
cautions that in considering a factor other than sex, the factor should
be bona fide and the court should question whether it may have a
discriminatory effect. 115
Thus, although the Seventh Circuit has never articulated a
requirement of a legitimate business reason to justify a factor other
than sex under the EPA, this requirement is nonetheless evidenced by
these two cases involving the use of prior salary to set wages.
110
Id. at 1461.
Id. at 1461-62.
112
Id. at 1462.
113
Id. (citing Fallon v. State of Ill., 882 F.2d 1206, 1211 (7th Cir. 1989.)
114
Id.
115
Id.
111
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IV. THE SEVENTH CIRCUIT’S RECENT DECISION INTERPRETING PRIOR
SALARY AS A FACTOR OTHER THAN SEX IN AN EQUAL PAY ACT CLAIM
Wernsing v. Department of Human Services was the first case
before the Seventh Circuit where an employee’s salary was set solely
on the basis of her prior salary from a previous employer. The court
not only incorrectly analyzed the EPA claim in Wernsing, but also
ignored its own warning in Covington that where an employer sets
starting salary based on prior salary from a previous employer “the
same concerns that underlie Kouba would … be relevant.” 116
A. Wernsing v. Department of Human Services.
In this case, the plaintiff, Wernsing, brought a claim against
her employer, the Department of Human Services of Illinois, under the
EPA, alleging that she performed the same tasks as a male coworker,
under the same working conditions, but was paid substantially less. 117
Wernsing was hired as an Internal Security Investigator II, a position
that had a monthly pay scale between $2,478 to $4,466 based on prior
experience and years of service. 118 Wernsing had been earning $1,925
a month at her previous employment, and began with the Department
at $2,478 a month, almost 30% more than her previous salary. 119
Bingaman, a male coworker hired at the same time as Wernsing for
the same position, had a starting monthly salary with the Department
of $3,739, 10% higher than his prior salary. 120 Bingaman, therefore,
was earning substantially more than Wernsing for the same work
because the Department based its initial starting salaries on the
previous salary of lateral entrants, plus a raise if possible under the pay
scale for the position. 121 Further, annual 10% raises would preserve
116
Covington v. S. Ill. Univ., 816 F.2d 317, 323 n.8 (7th Cir. 1987).
118
Id.
119
Id.
120
Id.
121
Id.
117
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the gap until employees reached the maximum amount under the pay
scale. 122
The district court held that prior salary is a “factor other than
sex,” and that the Department was not therefore in violation of the
EPA. The district court granted summary judgment for Department
and Wernsing appealed. On appeal, Wernsing argued that the
Department lacked an “acceptable business reason” for using prior
salaries to set current ones. 123 Recognizing that other circuits require
an acceptable business reason for this approach, the Seventh Circuit
stated that the EPA only requires that an employer have a reason other
than sex for its business practices, and does not require that the reason
be “acceptable.” 124
The court analogized the EPA to Title VII and other antidiscrimination statutes, stating
once the plaintiff makes a prima facie case of discrimination,
all the employer need do is articulate a ground of decision that
avoids reliance on the forbidden grounds. The plaintiff then
bears the burden to show that the stated reason is a pretext for a
decision really made on prohibited criteria. 125
The court then criticized the circuits that hold prior salary
qualifies as a factor other than sex when it is justified by an acceptable
business reason. 126 The Seventh Circuit found that the Ninth Circuit
in Kouba treated an EPA claim to a disparate impact theory under
Title VII: where a plaintiff establishes that an employment practice has
122
Id.
Id. at 468. Wernsing also advanced a second argument: “that because all
pay systems discriminate on account of sex, any use of prior pay to set salary must
be discriminatory.” Id. This article focuses on Wernsing’s first argument, that
wages are a factor other than sex only when justified by an “acceptable business
reason.”
124
Id.
125
Id. at 469 (citing St. Mary’s Honor Ctr. v. Hicks, 509 U.S. 502 (1993))
(emphasis in original).
126
Id.
123
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a discriminatory effect on a protected group, the employer must then
show a business necessity for the use of that practice. 127 Because the
EPA deals only with disparate treatment, 128 the Seventh Circuit found
no justification for a business reason under its interpretation of the
Kouba court’s analysis. 129 The applicable rule, the Seventh Circuit
stated, is the one found in disparate treatment litigation and other
employment discrimination statutes: “the employer may act for any
reason, good or bad, that is not one of the prohibited criteria such as
race, sex, age, or religion.” 130
B. A Critique of the Seventh Circuit’s Decision in Wernsing v. Dep’t of
Human Services.
The problem with the analysis of the Equal Pay Act claim by
the Seventh Circuit in Wernsing is that the court analogized the EPA
to Title VII and other discrimination statutes. 131 Because the EPA has
a different burden of proof than other discrimination statutes – a twostep burden as opposed to the three step burden of proof under Title
VII – an employer must prove an affirmative defense under the EPA
and not merely articulate one. 132
The court stated that the EPA statute “asks whether the
employer has a reason other than sex – not whether it has a “good”
reason.” 133 This statement is not entirely correct because the statute
requires an employer to prove its affirmative defense, or “reason other
than sex,” and not merely to articulate one. 134
In addition, the Seventh Circuit also incorrectly rejected the
legitimate business reason test articulated by the Ninth Circuit in
127
Id.
Id. (citing County of Washington v. Gunther, 452 U.S. 161, 170-71 (1981)).
129
Id.
130
Id..
131
Id.
132
Stanziale v. Jargowsky, 200 F.3d 101, 107 (3d Cir. 2000).
133
134
Stanziale, 200 F.3d at 107.
128
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Kouba. The court found that the Ninth Circuit analogized the EPA to
a disparate impact theory and rejected this test because the EPA only
deals with disparate treatment and not disparate impact. The problem
here is that while Title VII deals with disparate treatment and disparate
impact, theories applying the three-step burden shifting process, the
EPA has its own two-step burden shifting framework. The Seventh
Circuit incorrectly identified the Ninth Circuit as using a disparate
impact theory because the language “legitimate business reason” is
also used in the three-step burden shifting framework of disparate
impact analysis. However, the Ninth Circuit in Kouba v. Allstate Ins.
applied the correct two-step EPA burden shift. Its use of requiring an
employer to justify the use of prior salary as a factor other than sex
with a legitimate business reason correctly requires an employer to
prove its affirmative defense, consistent with the framework of an
EPA analysis. Further, as the Second Circuit noted in Aldrick v.
Randolph Central School District, failing to require the use of a
legitimate business reason “would provide a gaping loophole in the
statute through which many pretexts for discrimination would be
sanctioned.” 135
The Seventh Circuit’s holding creates a situation where EPA
plaintiffs can win only where they can show that an employer’s
assertion of prior salary as a reason for a wage discrepancy is really a
pretext for discriminatory intent. 136
V. CONCLUSION
The EPA can still be an effective tool in ending wage disparities
between the sexes, but only if it is utilized correctly. By using the
three-step burden shifting framework of Title VII to analyze EPA
claims, the court is effectively eroding the EPA. EPA claims should be
treated the way Congress intended – under the two-step burden
shifting framework provided by the statute. Under this framework,
employers must offer concrete proof that the salaries of their
135
136
963 F.2d 520, 524 (2d Cir. 1992).
MARK A. ROTHSTEIN ET. AL., EMPLOYMENT LAW 373 (3d ed. 2004).
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employees are not based on sex. Analogizing EPA litigation to that of
Title VII permits courts to too easily accept a mere articulation of a
reason other than sex, rather than requiring employers to carry their
burden of proof.
One method to ensure employers do carry their burden of proof is
to use the legitimate business test to justify a factor other than sex,
particularly where the use of prior salary from a previous employer is
at issue. Not only does this test ensure that employers will actually
have to prove that wages are not sex-related, but it is also consistent
with the purpose and legislative intent behind the statute.
Congress passed the EPA in order to remedy the broad wage
disparity between men and women. 137 Because the EPA does not
require proof of discriminatory intent on behalf of employers, it can be
even more useful than Title VII in ending the wage disparity, but only
if it is correctly implemented by the courts. Treating EPA claims in
the same manner as Title VII claims erodes the EPA, creates
defendant-friendly litigation, and undermines the purpose of the EPA –
the requirement of equal pay for equal work.
137
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CONFLICT OF INTEREST AND THE STANDARD OF
REVIEW IN ERISA CASES: THE SEVENTH
CIRCUIT’S REFUSAL TO ACKNOWLEDGE
WHAT OTHER CIRCUITS ALREADY KNOW.
BARBARA C. LONG
∗
Cite as: Barbara C. Long, Conflict of Interest and the Standard of Review in ERISA
Cases: The Seventh Circuit’s Refusal to Acknowledge What Other Circuits Already
Know, 1 SEVENTH CIRCUIT REV. 152 (2006), at http://www.kentlaw.edu/7cr/v11/long.pdf.
INTRODUCTION
The Employee Retirement Income Security Act (“ERISA”) 1 was
enacted by Congress to “promote the interests of employees and their
beneficiaries in employee benefit plans, and to protect contractually
defined benefits.” 2 While perhaps best known as the “pension reform
law,” ERISA litigation for benefits under employee welfare plans now
constitutes the largest category of ERISA litigation. 3 For employees,
the stakes in such litigation are high: denial of medical care, disability
benefits, severance pay, accident and life insurance, and a variety of
∗
Technology.
1
Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. (2000).
Citation hereafter is to ERISA § numbers rather than to U.S.C. numbers.
2
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 113 (1989) (citations
and internal quotation marks omitted). “Employee benefit plans” include both
pension and welfare plans. ERISA § 1002(3).
3
See John Langbein, The Supreme Court Flunks Trusts, 1990 SUP. CT. REV.
207, 208 (1990) (discussing how the Firestone decision is of great practical
importance for employee welfare plans).
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other contractual entitlements. 4 Particularly in the area of disability
benefits, employees – and indeed much of this country - depend upon
private insurers to carry out the essential public function of ensuring
that disability does not lead to poverty. 5
But the stakes for the companies sponsoring unfunded plans (i.e.,
plans that are not funded through the establishment of a trust), are also
high, because whenever benefits are paid, the money comes directly
out of the company’s own revenue. 6 This profit motive creates a
strong incentive for private insurers to cut costs by denying valid
claims. 7 It is easy to see, therefore, that where a company sponsoring
an unfunded plan is also empowered to administer and thus make
claims decisions under the plan, the company is faced with an inherent
conflict of interest in approving or denying a given claim. 8
This Comment will focus on how, in defiance of the Supreme
Court’s dictate in Firestone Tire & Rubber Co. v. Bruch, and contrary
to the wisdom of nearly every other circuit court of appeals, the
Seventh Circuit has failed to account for this conflict of interest when
formulating its standard of review. Part I of this Article examines the
background and legal basis of the Firestone decision. Part II follows
4
ERISA broadly defines “employee welfare plan[s]” or “welfare plan[s]” to
include any “plan, fund or program which …was established or is maintained for the
purpose of providing for its participants or their beneficiaries, though the purchase of
insurance or otherwise, (A) medical surgical, or hospital care or benefits, or benefits
in the event of sickness, accident, disability, death or unemployment, or vacations
benefits, apprenticeship or other training programs, or day care centers, scholarship
funds, or prepaid legal services….” ERISA § 1002(J) (2000).
5
See Radford Trust v. First Unum Life Insur. Co. of Am., 321 F. Supp. 2d 226,
240 (D. Mass. 2004).
6
Although ERISA requires employers to fund employee pension plans through
the establishment of a trust or through the purchase of insurance, the statute
specifically exempts employee welfare plans from these funding requirements.
ERISA § 1081(a)(1).
7
See Radford, 321 F. Supp. 2d at 240.
8
The ERISA statute itself gives rise to this conflict by providing that
employers may appoint their own officers to administer ERISA plans even if the
company is a “party in interest,” in conjunction with exempting employee welfare
plans from its funding requirements. ERISA § 1108(c)(3) (2000).
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the Seventh Circuit’s evolution towards its current approach to the
conflict of interest issue, with a focus on how its standard solidified in
the past year. Part III critiques the various rationales offered by the
Seventh Circuit in support of its decisions, and Part IV suggests how
an inherent conflict of interest should be acknowledged and taken into
account by reviewing courts.
I.
The Supreme Court Addresses the Question Left Open by ERISA:
What is the Applicable Standard of Review for Claims
Determinations?
The ERISA statute affords every participant and beneficiary of
employee benefit plans the right to bring suit “to recover benefits due
to him under the terms of the plan, to enforce his rights under the
terms of the plan, or to clarify his rights to future benefits under the
terms of the plan.” 9 The ERISA statute further specifies that in
accordance with regulations of the Secretary, every employee plan
shall:
(1) provide adequate notice in writing to any participant
or beneficiary whose claim for benefits under the plan
has been denied, setting forth the specific reasons for
the denial, written in a manner calculated to be
understood by the participant, and
(2) afford a reasonable opportunity to any participant
whose claim for benefits has been denied for a full and
fair review by the appropriate named fiduciary of the
decision denying the claim. 10
Notably absent from the statute, however, is any indication as to what
standard of review courts should use when reviewing the decision of a
plan administrator to deny benefits. 11 Instead, the courts were
9
ERISA § 1132(a)(1)(B) (2000).
ERISA § 1133 (2000).
11
Firestone, 489 U.S. at 109.
10
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instructed to develop a “federal common law of rights and obligations
under ERISA-regulated plans.” 12
By the late 1980s, the overwhelming majority of courts, including
the Seventh Circuit, were using the extremely deferential “arbitrary
and capricious” standard of review. 13 The courts differed greatly,
however, as to how to apply the standard in cases where there is a
conflict. 14 In 1989, the Supreme Court finally granted certiorari to
provide guidance on this important issue. 15
In Firestone Tire & Rubber Co. v. Bruch, a group of plaintiffs
sued their employer for wrongfully terminating benefits under an
unfunded plan. 16 Applying the labor law “arbitrary and capricious”
standard, the district court upheld the employer’s decision to deny
benefits. 17 The Third Circuit reversed, finding that de novo review is
the proper standard where the employer is both the fiduciary and
administrator of an unfunded plan. 18 The court held that “[t]he
12
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56 (1987).
Kathryn Kennedy, Judicial Standard of Review in ERISA Benefit Claim
Cases, 50 Am. U. L. Rev. 1083, 1109-119 (2001). For the purposes of this
Comment, the terms “deferential review,” “arbitrary and capricious,” and “abuse of
discretion” will be used interchangeably. Most courts find that these terms are a
“distinction without a difference.” Chambers v. Family Health Plan Corp., 100 F.3d
818 (10th Cir. 1996) (citing Cox v. Mid-America Dairymen, Inc., 965 F.2d 569, 572
n.3 (8th Cir. 1992)). Courts adopted this standard from 29 U.S.C. § 186(c), a
provision of the Labor Management Relations Act of 1947. Firestone, 489 U.S. at
109. The Seventh Circuit will uphold a plan administrator’s decision under the
“arbitrary and capricious” standard as long as: (1) “it is possible to offer a reasoned
explanation, based on the evidence, for a particular outcome,” (2) the decision “is
based on a reasonable explanation of relevant plan documents,” or (3) the
administrator “has based its decision on a consideration of the relevant factors that
encompass the important aspects of the problem.” Exbom v. Central States,
Southeast and Southwest Areas Health and Welfare Fund, 900 F.2d 1138, 1142-43
(7th Cir. 1990) (internal citations omitted).
14
See Kennedy, supra note 13. at 1110 n.141. (collecting cases).
15
Firestone, 489 U.S. 101 at 108.
16
Id. at 105.
17
Firestone Tire & Rubber Co. v. Bruch, 640 F.Supp. 519, 522 (E.D. Pa.
1986).
18
Firestone Tire & Rubber Co. v. Bruch, 828 F.2d 134, 145 (3rd Cir. 1987).
13
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principles of trust law instruct that when a trustee is thought to have
acted in his own interest and contrary to the interest of the
beneficiaries, his decisions are to be scrutinized with the greatest
possible care.” 19
Affirming the specific holding of the lower court, the Supreme
Court held that the standard of review is de novo, “unless the benefit
plan gives the administrator or fiduciary discretionary authority to
determine eligibility for benefits or to construe the terms of the
plan.” 20 Explaining the standard, the Court stated that “[t]rust
principles make a deferential standard of review appropriate when a
trustee exercises discretionary powers.” 21 In so doing, the Supreme
Court adopted a significantly different rationale than the Third Circuit,
focusing on whether the plan administrator retained discretionary
powers, rather than whether the plan administrator was impartial.22 As
a result of this holding, plan sponsors simply needed to add boilerplate
language to its policies conferring discretion to secure deferential
review by the courts. 23 As many legal scholars predicted, companies
quickly seized upon this opportunity. 24
19
Id. at 145.
21
Id. A discussion of how the Firestone decision misapplied trust principles is
outside the scope of this Comment; however, much commentary has already been
devoted to this topic. See e.g., John Langbein, The Supreme Court Flunks Trusts,
1990 SUP. CT. REV. 207, 208 (1990) (noting that unfunded plans are different in a
crucial respect from other trusts: there is no neutral fiduciary in ERISA plans,
because the employer “has continuing economic interests in the plans that it
sponsors.”); Donald Bogan, 38 J. MARSHALL L. REV. 629 (2004), ERISA: ReThinking Firestone in light of great-west—implications for standard of review and
the right to a jury trial in welfare benefit claims, (“[F]ederal courts continue to
overlook the fundamental premise that unfunded and insured ERISA plans are not
trusts.”)
22
23
The National Association of Insurance Commissioners (NAIC) enacted
Model Act #42, which prohibits these sorts of discretionary clauses in health and
disability policies. To date, Illinois and California have both adopted this law. 29
Ill. Reg. 10172 (July 15, 2005); California Insurance Code § 10291.5(f). As one
commenter noted, states that adopt Model Act #42 “significantly assist ERISA plan
20
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But even in situations where a company has reserved such
discretion, Firestone left open the possibility that conflict or bias could
affect the standard of review. 25 The Court stated in dicta that while a
deferential standard of review is appropriate when a trustee exercises
discretionary powers, “if a benefit plan gives discretion to an
administrator or fiduciary who is operating under a conflict of interest,
that conflict must be weighed as a ‘factor in determining whether there
is an abuse of discretion.’” 26
Courts have taken a variety of different approaches to giving
effect to this statement in the context of unfunded plans. 27 As the
Third Circuit Court of Appeals aptly noted in Pinto v. Reliance
Standard Insurance Co., “[s]ince Firestone, courts have struggled to
give effect to this delphic statement, and to determine both what
constitutes a conflict of interest and how a conflict should affect the
scrutiny of an administrator’s decision to deny benefits.” 28 Of all the
circuit courts of appeals, the Seventh Circuit has distinguished itself
by refusing to both acknowledge that a significant inherent conflict
exists, and in turn provide for an adjusted standard of review when
such a conflict is shown. 29
participants in gaining an equal footing with ERISA plan insueres in disputes arising
from insured ERISA benefits plans.” Bogan, supra note 21, at 740.
24
See Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377, 383 n.2 (3rd Cir.
2000) (remarking that Professor Langbein, in his article, supra note 21 at 217,
accurately predicted that plan sponsors would quickly add grants of discretion to
their plans and that “problems of how courts should deal with conflicted fiduciaries
would resurface”).
25
26
Id. (quoting Restatement (Second) of Trusts § 187, cmt. d (1959)) (emphasis
added).
27
See infra Section IV, discussing these various approaches.
28
Pinto, 214 F.3d at 383. Interestingly, the author of Pinto, Judge Becker, also
authored the Third Circuit’s decision in Firestone.
29
See Mers v. Marriott Int’l Group Accidental Death and Dismemberment
Plan, 144 F.3d 1014, 1020 (7th Cir. 1998) (finding that an insurance company who
pays benefits out of its own assets and interprets its own policies has a “potential”
conflict, but that this “is not enough to show an actual bias” worthy of adjusting the
standard of review). In more recent cases, the Seventh Circuit has arguably
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II. The Evolution of the Seventh Circuit’s Standard of
Review for Conflicts
Although a complete survey of the Seventh Circuit’s decisions
regarding plan administrator conflict of interest is beyond the scope of
this Comment, the following cases were all instrumental in the
development of how the court recognizes (or fails to recognize) a
conflict of interest. With the exception of the Van Boxel decision
discussed below, the following cases all involve unfunded plans in
which either the employer or insurer also administers the plan, thus
giving rise to the conflict of interest.
A. Pre-Firestone: Judge Posner’s Influential Van Boxel v. Journal
Company Employees Pension Trust Decision
The plaintiffs in Van Boxel v. The Journal Company Employees’
Pension Trust, directly challenged the district court’s use of the
“arbitrary and capricious” standard of review. 30 Although ultimately
rejecting the challenge, the court stated in an opinion by Judge Richard
Posner, that “[w]e are not entirely unsympathetic to the challenge, and
notice that although the weight of authority is against him there is
acknowledged - at least on a semantic basis - that there is some sort conflict. See,
e.g., Rud v. Liberty Life Assurance Co. of Am., 438 F.3d 772, 775 (7th Cir. 2006)
(“There is no contract the parties to which do not have a conflict of interest in the
same severely attenuated sense, because each party wants to get as much out of the
contract as possible.”); Hess v. Reg-Ellen Machine Tool Corp., 423 F.3d 653, 660
(7th Cir. 2005) (“we have repeatedly rejected arguments for a heightened standard of
review solely because a corporation or insurer interprets its on plan to deny
benefits.”).
30
836 F.2d 1048, 1049 (7th Cir. 1987). The plaintiff in this case challenged
the decision of the Company’s pension trust fund to reject his claim for a pension.
Id. Although this pension plan was funded, the court noted that there is still an
issue whether the plan is “adequately funded,” noting ERISA’s exemption of certain
benefit plans from its funding requirements. Id. at 1050-1051. Thus, the concerns
over neutrality on the part of plan administrators discussed in this decision have
equal, if not more, force in the context of unfunded plans.
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growing skepticism about the orthodox approach.” 31 Notably, the
court cited the Third Circuit’s Firestone decision as one example of
such skepticism. 32 The court also noted that although the “arbitrary
and capricious” standard is used in the administrative law context,
ERISA plans are easily distinguishable because the administrators of
such plans are not operating under a broad grant of delegated power. 33
Without committing to one specific approach, Judge Posner
ultimately employed a law and economics rationale for applying some
form of deferential, rather than de novo review. 34 He reasoned that the
impact on a company’s welfare of granting or denying an individual
application for benefits “will usually be too slight” to compromise the
impartiality of the administrators, even if they are all associated with
the company. 35 For example, a corporation which generates annual
revenues of six billion dollars is not likely to flinch at paying out
$240,000 on one claim. 36 Judge Posner also noted that dealing fairly
with claims is in the company’s “long-run best interest” because if
claims are treated unfairly, because employees will in turn demand
31
Id. at 1049.
Id.
33
Id. at 1050; see generally, Mark DeBofsky, The Paradox of the Misuse of
Administrative Law in ERISA Benefit Claims, 37 J. MARSHALL L. REV. 727 (2004)
(discussing the myriad of ways that administrative law principles have been
improperly imported to the ERISA context).
34
Van Boxel, 836 F.2d at 1051-52. The Seventh Circuit gave the “law and
economics” label to this approach in subsequent cases. See e.g., Mers v. Marriott
Int’l Group Accidental Death and Dismemberment Plan, 144 F.3d 1014, 1020 (7th
Cir. 1998) (“we have rejected the theory that an inherent conflict is sufficient to alter
the standard of review by applying a law-and-economics rationale to establish that
no conflict exists.”). As Judge Posner has explained in other writings, the purpose
of applying economic analysis to the law “is to construct and test models of human
behavior for the purpose of predicting and (where appropriate) controlling that
behavior.” RICHARD A. POSNER, OVERCOMING LAW 15-16 (Harvard University
Press 2002) (1995). While not an infallible calculator, the individual imagined by
this approach is assumed to pursue goals in a “forward-looking fashion by
comparing the opportunities open to him at the moment he must choose.” Id.
35
Van Boxel, 836 F.2d at 1051.
36
This is the example used in Chalmers v. Quaker Oats Co., 61 F.3d 1340,
1344 (7th Cir. 1995), a case that relied on Van Boxel’s law and economics rationale.
32
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higher wages. 37 This is all assuming, of course, that the employee is
“rational and well informed.” 38
Notably, however, Judge Posner explicitly acknowledged the
limitations of this rationale, stating:
pension rights are too important these days for most
employees to want to place them at the mercy of a
biased tribunal subject only to a narrow form of
“arbitrary and capricious” review, relying on the
company’s interest in its reputation to prevent it from
acting on its bias. Nor is it clear that the contractual
perspective is the correct one in which to view claims
under ERISA. A congress committed to the principles
of freedom of contract would not have enacted a statute
that interferes with pension arrangements voluntarily
agreed on by employers and employees. ERISA is
paternalistic; and it seems incongruous therefore to
deny disappointed pension claimants a meaningful
degree of judicial review on the theory that they might
be said to have implicitly waived it. 39
Judge Posner then discussed how several courts do not apply the
“arbitrary and capricious” standard of review where the presumption
of neutrality fails, ultimately proposing a “sliding scale” approach
within the “arbitrary and capricious” standard of review framework. 40
Under this rule, reviewing courts are allowed to “make the necessary
adjustments for possible bias in the trustees’ decision.” 41 The court
did not, however, ultimately determine whether a conflict of interest
37
Van Boxel, 836 F.2d at 1051.
Id.
39
Id. at 1052.
40
Id.
41
Id. at 1053.
38
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was present in this case, finding that the decision of the trustee was
“clearly” reasonable. 42
B. Post-Firestone Decisions: 1995 to 2004.
In Chalmers v. Quaker Oats Co., the Seventh Circuit again
invoked the law and economics rationale articulated in Van Boxel, but
gave the first of many indications that the drawbacks of the approach
would not have much bearing on the standard of review applied. 43
Chalmers involved an employee’s claim for benefits under a severance
program, after being discharged for violating Quaker’s sexual
harassment policy. 44 Although Chalmers admitted to violating the
policy, he argued that his conduct fell short of a Title VII claim, and
that therefore, he was still entitled to benefits under Quaker’s
severance program. 45 Chalmers further argued that the court’s
deference to Quaker’s decision should be limited because the officers
of Quaker who served on the committee that makes benefits decisions
had an inherent conflict of interest by both administering and funding
the plan. 46
Rejecting these challenges, the court first noted that ERISA
specifically endorses the notion of a corporate officer who doubles as
a plan administrator. 47 Noting its previous decision in Van Boxel, the
court also held that rejecting Chalmer’s claim would have little effect
on the company’s bottom line and that denying meritorious claims
would be a poor business decision. 48 In so doing, the court reaffirmed
its stance that the structure of an unfunded plan merely constitutes a
42
Id.
Id. at 1344.
44
Id. at 1342.
45
Id. at 1343-45.
46
Id. at 1344.
47
Id. (citing ERISA § 1108(c)(3), which allows employers to appoint their own
officers to administer ERSIA plans even if the company is a “party in interest.”).
48
Chalmers v. Quaker Oats Co., 61 F.3d 1340, 1344 (7th Cir. 1995).
43
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“potential” conflict; not an actual or inherent one. 49 Such “potential”
conflicts, therefore, do not justify a court engaging in any closer
scrutiny of the plan administrator’s decision to deny benefits. 50
In Mers v. Marriott International Group Accidental Death and
Dismemberment Plan, the Seventh Circuit rejected the district court’s
presumption that the insurer was operating under an inherent conflict
of interest by serving as the plan insurer and administrator. 51
Reversing the district court’s decision, the Seventh Circuit adopted
precisely the opposite presumption: “that a fiduciary is acting neutrally
unless a claimant shows by specific evidence of actual bias that there
is a significant conflict.” 52 The court did not, however, elaborate upon
what evidence would be required to show a “substantial conflict” or
“actual bias.” That the court adopted this presumption is significant,
because in so doing, the court explicitly acknowledged – and then
rejected - the approach taken by several other circuits.53
The Seventh Circuit again rejected a district court’s attempt to
“put a thumb on the scale” against the administrator of an unfunded
plan, in Perlman v. Swiss Bank Corp. Comprehensive Disability
Protection Plan. 54 Affirming the rational used in Mers, the court
stated that “it is unsound for the judiciary automatically to impute the
plan administrator’s position to the person who decides on its behalf”
because insurance companies “lack any stake in the outcome.” 55 The
court further reasoned that because the plaintiff did not ask the court to
investigate a specific compensation and promotion scheme within the
company, that “we have no reason to think the actual decision-makers
at UNUM [the insurer] approached their task any differently than do
49
Id. at 1345.
Id.
51
144 F.3d 1014, 1020 (7th Cir. 1997).
52
Id. at 1020.
53
Id. at 1021. (“While some courts have found that a denial of benefits is
presumptively void and must be reviewed de novo where a similar conflict may
exist, we have not.”) (internal citations omitted).
54
195 F.3d 975, 980 (7th Cir. 1999).
55
Id. at 981.
50
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the decisionmakers at the Social Security Administration….” 56 With
this statement, the court continued its delineation of an extremely
demanding burden on the claimant to prove bias (i.e., that the specific
agents must have a stake in the outcome) and resurrected the
administrative law analogy that the court specifically warned against
in Van Boxel. 57 The court also, as Judge Wood noted in her dissenting
opinion, reversed the district court’s decision despite its commitment
to addressing mixed questions of law and fact (such as conflicts) with
a “light appellate touch.” 58
In Leipzig v. AIG Life Insurance Co., the court provided two
additional rationales for not adjusting the standard of review. 59 First,
the court made an efficiency argument, noting that “this plan puts
decisions in the hands of medical specialists (which federal judges and
juries assuredly are not) and curtails the cost of litigation, which
makes it possible to provide workers with better benefits on a given
budget.” 60 Second, the court set forth a freedom of contract argument,
remarking that courts have no more authority to override a
discretionary clause than they would to require benefits to be set at a
higher percentage, or to change the definition of disability. 61 Citing
Mers, the court also articulated a rigid formulation of its “reputational
incentives” rationale, stating that “[u]nless an insurer or plan
administrator pays its staff more for denying claims than for granting
them, the people who actually implement these systems are
impartial.” 62
56
Id.
Id. See also supra note 33.
58
Id. at 986 (Wood, D., dissenting) (citing Dean Foods Co. v. Brancel, 187
F.3d 609, 616 (7th Cir. 1999)). Judge Wood further stated that “[t]hus, while I do
not mean to imply that this court must blindly follow a district court’s finding of a
conflict, I think it inconsistent with our usual practice to dismiss the lower court’s
conclusion without setting forth a powerful reason to do so.” Perlman, 195 F.3d at
986.
59
362 F.3d 406 (7th Cir. 2004).
60
Id. at 408.
61
Id.
62
Id. at 409.
57
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C. The Seventh Circuit Solidifies its Standard – 2005 to the Present
The Seventh Circuit began 2005 by solidifying its commitment to
denying plenary review in conflict cases. In Shyman v. Unum Life
Insurance Co., the court flatly rejected a plaintiff’s claim that a more
searching review is necessary, stating that “the law of this circuit is
otherwise.” 63 Remarkably, however, the court nearly recognized a
conflict in its Hess v. Reg-Ellen Machine Tool Corp. decision. 64 At
issue in Hess, was the plaintiffs’ attempt to roll their plan distribution
into an IRA account of their choosing. 65 Denying the claims, the
administrator found that the plaintiffs were not entitled to diversify
their stock until they were 55 years old, as required by a recent
amendment to the plan. 66 The plaintiffs challenged the decision,
arguing not only that there was an inherent conflict of interest, but also
a more “significant” bias because the employer actually lacked
sufficient assets to grant their requests for diversification. 67 This
argument was bolstered by the employer’s concession that paying out
the requested amount would “change the whole forecasting going
forward” as far as what the plan could provide to other plan
participants. 68
Given these extraordinary facts, the Seventh Circuit conceded that
the Hesses’ claim of bias “has more teeth to it than similar claims that
we have rejected in the past,” and stated that “we may perform a
slightly ‘more penetrating review.’” 69 The court was also careful to
reiterate, however, that “we have repeatedly rejected arguments for a
heightened standard of review solely because a corporation or insurer
63
427 F.3d 452, 455 (7th Cir. 2005).
423 F.3d 653 (7th Cir. 2005).
65
Id. at 657.
66
Id.
67
Id. at 659.
68
Id. at 659.
69
Id. at 660.
64
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interprets its own plan to deny benefits.” 70 In the end, the court
applied the “arbitrary and capricious” standard and upheld the plan
administrator’s decision without any trace of a more searching
review. 71
The Hess case illustrates just how far the Seventh Circuit will go
in rejecting conflict of interest arguments. The fact that the court only
stated that they “may perform a slightly more penetrating review” in
light of the conceded conflict of interest, begs the question as to what
kind of conflict a plaintiff would have to show in order to have any
meaningful review. 72 This question has yet to be answered by the
court.
In Semien v. Life Insurance Co. of N. America, the court added yet
another obstacle to proving conflict: virtually no discovery. 73 In
Semien, the plaintiff argued that the review of a disability claim by
non-examining physicians doctors did not constitute sufficient grounds
to deny her claim. 74 Noting its general disfavor of discovery in
ERISA cases, the court held that claimants must make a prima facie
showing of bias or show a “good faith basis to believe that limited
discovery will produce such evidence.” 75 An example of an
acceptable prima facie showing would be where evidence is provided
that the claimant’s application was not given a “genuine evaluation” –
for example where there is evidence that the plan administrator did not
do what it said it did, such as throwing an application in the trash
70
Id. at 659.
Id. at 663.
72
Id. at 660.
73
436 F.3d 805, 814 (7th Cir. 2006), petition for cert. filed (April 28, 2006)
(No. 04-3664).
74
Brief for Petitioner, Semien v. Life Insur. Co. of N. Am. (No. 04-3664).
75
Semien, 436 F.3d at 814. (citing Perlman v. Swiss Bank Corp.
Comprehensive Disability Protection Plan, 195 F.3d 975, 985 (7th Cir. 2000); see
also, Perlman, 195 F.3d at 982. (“[W]hen there can be no doubt that the application
was given a genuine evaluation, judicial review is limited to the evidence that was
submitted in support of the application for benefits….”).
71
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rather than evaluating it on the merits. 76 Thus, a smoking gun is
essentially required. Not surprisingly, the court found that because
there was “no basis to believe that the physicians in this case did not
conduct a full and fair evaluation of Semien’s condition,” the court
denied her request for discovery.77
Significantly, the court also offered a new rationale for refusing to
question a plan administrator’s neutrality, stating:
Congress has not provided Article III courts with the
statutory authority, nor the judicial resources, to engage
in a full review of the motivations behind every plan
administrator’s discretionary decisions. To engage in
such review would usurp plan administrators’
discretionary authority and move towards a costly
system….[that] would undermine one of the primary
goals of the ERISA program: providing a method for
workers and beneficiaries to resolve disputes over
benefits inexpensively and expeditiously. 78
In so doing, the Semien court clarified that plaintiffs must not only
make a prima facie showing of bias or conflict before adjusting the
standard of review, but must do so without conducting any discovery
to prove that a conflict actually exists, thus compounding the already
difficult task of overcoming the “arbitrary and capricious” standard of
review. 79 The court also made clear that in the cost/benefit calculus, a
claimant’s potential entitlement to benefits must cede to the plan
sponsor’s interest in keeping costs down where discovery is required
to prove the claim.
The Seventh Circuit’s recent decision, Rud v. Liberty Life
Assurance Co. of Boston, provided a startling elaboration on the
76
Semien, 436 F.3d at 814 (citing Perlman v. Swiss Bank Corp.
Comprehensive Disability Protection Plan, 195 F.3d 975, 981-82 (7th Cir. 2000)).
77
Id.
78
Id. (internal quotes and cites omitted).
79
See Id.
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freedom of contract argument alluded to in Leipzig. 80 In Rud, the
court again questioned whether the insurer’s status and benefit payor
and administrator created a conflict, stating that every contract has a
conflict of interest in “the same severely attenuated sense” because
“each party wants to get as much out of the contract as possible.” 81
The court reasoned that if an employer wishes to cut costs, lower
wages and benefits would have been promised from the start;
therefore, this is no need for employers to “steal” contracted-for
benefits “through the back door” by denying meritorious claims. 82
The court then analogized to the Supreme Court cases upholding
forum selection clauses, even though they are rarely read by the
consumer, reasoning that overriding the terms of the benefits contract
in this case would “destabilize” large reaches of contract law. 83
III. Why the Seventh Circuit’s Rationales for Refusing to Acknowledge
an Inherent Conflict of Interest are Unsupportable.
As a preliminary matter, it bears noting that the Seventh Circuit is
one of only two 84 courts of appeals that refuse to recognize an inherent
conflict where the employer or insurer both funds and makes decisions
80
438 F.3d 772 (7th Cir. 2006).
Id. at 776.
82
Id.
83
Id.
84
As of now, the Second Circuit does not recognize an inherent conflict;
however, the court may be backing off from this view. See Whitney v. Empire Blue
Cross & Blue Shield, 106 F.3d 475 (2d Cir. 1997) (reasons not from effect but
language, concluding that Firestone simply does not require anything but arbitrary
and capricious review unless the plaintiff demonstrates how a conflict biased a
fiduciary’s decision.); see also, Locher v. Unum Life Ins. Co., 389 F.3d 288, 296
(2nd Cir. 2004) (“we do not conclude that a finding of a conflicted administrator,
standing alone, can never constitute good cause. We need not address that possibility
here, as it is not presented to us, but we note that it may be possible, in unforeseen
circumstances, for good cause to rest entirely on the existence of a conflicted
administrator.”). As discussed in Section IV, however, unlike the Seventh Circuit,
the Second Circuit grants de novo review after a conflict showing is made.
81
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under the plan. 85 Section A of this Part will discuss the Third Circuit’s
critique of the Seventh Circuit’s conclusion that reputational concerns
and the bargaining power of employees protect against self-serving
behavior on the part of a plan administrators. Section B will discuss
how the multistate investigation of UnumProvident provides, at the
very least, one example of how a company may deny meritorious
claims to reduce costs. Part C will discuss why neither efficiency
concerns nor a perceived lack of Article III court power justifies
disallowing claimants discovery to prove a conflict of interest.
A. The Third Circuit Critiques the Seventh Circuit’s “Overly
Optimistic” Law and Economics Approach to Conflicts.
As described in Section II, the Seventh Circuit justifies its
standard by claiming that the plan sponsor’s reputational interests in
conjunction with the negotiating power of employees negate any
incentive for plan administrators to deny valid claims. 86 In Pinto v.
Reliance Standard Life Insurance Co., the Third Circuit directly
addressed and convincingly refuted both of these assumptions. 87
To begin, the Third Circuit agreed with the Seventh Circuit that
reputational concerns may motivate employer/insurer behavior to
some extent; however, the court ultimately concluded these concerns
do not negate the plan administrator’s incentive to deny valid claims. 88
The court explained that because ERISA litigation generally arises
85
See, e.g., Evans v. UnumProvident Corp., 434 F.3d 866, 876 (6th Cir. 2006);
Fought v. Unum Life Ins. Co. of Am., 379 F.3d 997, 1006 (10th Cir. 2004); Pinto v.
Reliance Standard Life Ins. Co., 214 F.3d 377, 387 (3d Cir. 2000); Vega v. Nat’l
Life Ins. Serv., Inc., 188 F.3d 287, 295 (5th Cir. 1999); Armstrong v. Aetna Life Ins.
Co., 128 F.3d 1263 (8th Cir. 1997); Doe v. Group Hospitalization & Med. Servs., 3
F.3d 80 (4th Cir. 1993); Brown v. Blue Cross Blue Shield of Ala., 898 F.2d 1556,
1561 (11th Cir. 1990); Lang v. Long-Term Disability Plan Sponsor Applied Remote
Tech., Inc. 125 F.3d 794, 794 (9th Cir. 1997).
86
See discussion supra Sections II(B)-(C).
87
Pinto v. Reliance Standard Life Ins. Co. of Am., 214 F.3d 377, 389 (3d Cir.
2000).
88
Id. at 388.
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only in close cases, there is little incentive for an insurer to treat these
borderline cases “with the level of attentiveness and solicitude that
Congress imagined when it created ERISA ‘fiduciaries.’” 89 Rather,
insurance carriers have an active incentive to deny close claims in
order to keep costs down so that companies will choose them as their
insurers. 90 Interestingly, this sentiment echoes what the Seventh
Circuit itself has stated: rights under a benefit plan are too important
for most employees to rely on the “company’s interest in its reputation
to prevent it from acting on its benefit.” 91 As noted by the Pinto court,
this economic consideration has unfortunately been since neglected by
the Seventh Circuit. 92
The Pinto court also recognized the problems underlying the
Seventh Circuit’s assumptions regarding the bargaining power of
employees, stating:
while in a perfect world, employees might pressure
their companies to switch from self-dealing insurers,
there are likely to be problems of imperfect information
and information flow. Employees typically do not have
access to information about claim-denying by insurance
companies…so long as obviously meritorious claims
are well-handled, it is unlikely that an insurance
company’s business will suffer because of its client’s
dissatisfaction. 93
89
Id.
Id.
91
See supra Section II(a), discussing Van Boxel.
92
Id. at 388. Judge Posner actually acknowledged the Third Circuit’s critique
in the Rud v. Liberty Life opinion, but ultimately ignored the societal importance of
employee benefits. See 438 F.3d 772, 776 (7th Cir. 2006) (noting that ERISA is
subject to contract law because employers are not required to establish such plans)
93
214 F.3d at 388; see also, Wright v. R.R. Donnelley & Sons Co. Group
Benefits Plan, 402 F.3d 67, 75 n.5 (1st Cir. 2005) (similarly acknowledging that
other courts have rejected the Seventh Circuit’s market forces rationale).
90
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This lack of information is particularly prevalent in many cases, where
the claims for benefits occur after the individuals have left active
employment and are seeking pension or disability benefits. 94
Similarly, access to information will also not likely be available where
the company is dissolving or restructuring because the long-term
relationship between the employer and employee is also dissolving. 95
While criticizing the Seventh Circuit’s conclusions, the Pinto
court did recognize that some assumptions about economic behavior
are necessary. 96 The assumptions made however, are “less
exceptional” than those of the Seventh Circuit, which has an “overly
optimistic view of the flow of information and sophistication of
employees.” 97 Indeed, even assuming a less devious view of plan
administrators, the Seventh Circuit’s reasoning still fails. As the
Fourth Circuit has observed, “even the most careful and sensitive
fiduciary [when operating under a conflict of interest] may
unconsciously favor its profit interest over the interests of the plan,
leaving beneficiaries less protected than when the trustee acts without
self-interest and solely for the benefit of the plan.” 98
Moreover, as law and economics scholars have pointed out in
other contexts, consumers cannot consider all dimensions of product
quality because they generally have a limited ability to process
complex information. 99 This “bounded rationality” in the ERISA
94
Pinto, 214 F.3d at 388.
Langbein, note 2 at 216; see also, Radford Trust v. First Unum Life Insur.
Co. of Am., 321 F. Supp. 2d 226, 240 (D. Mass. 2004) (“the complexity of the
insurance market and the imperfect information available to consumers make it
difficult to determine whether an insurer is keeping costs down through legitimate or
illegitimate means.”).
96
Pinto, 214 F.3d at 388 (“We recognize that the preceding section involves
implicit assumptions about economic behavior, but such assumptions have become
necessary in the post-Firestone era as we, and other courts, must somehow
determine when a conflict warrants close scrutiny.”).
97
Id..
98
Doe v. Group Hospitalization & Med. Serv., 3 F.3d 80, 86-87 (4th Cir.
1993).
99
Russell Korobkin, Bounded Rationality and Unconscionability: A behavioral
Approach to Policing Form Contracts, 70 U. CHI. L. REV. 1203 (2003).
95
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context, means that employees do not have the bargaining power to
meaningfully negotiate or bargain for plenary review by the courts. It
is for this reason that California and Illinois have prohibited
discretionary clauses altogether, thus requiring both state and federal
courts to review claims on a de novo basis. 100
B. The UnumProvident Scandal: An Example of Where
the Seventh Circuit’s Rationale for Deferential Review Fails.
In November 2004, UnumProvident (“Unum”) entered into a
multistate settlement agreement, requiring Unum to pay a 15 million
dollar fine, to reopen and review de novo over 200,000 previously
denied claims, and to make significant changes to its claim review
procedure and corporate governance. 101 The multistate
investigation 102 leading up to the agreement identified several specific
claim handling procedures of concern to the state regulators, including
an excessive reliance on in-house medical staff to support the denial of
benefits, unfair evaluation and interpretation of attending physician or
independent medical examiner reports, failure to evaluate the totality
of the claimant’s medical condition, and an inappropriate burden
100
See supra note 23, discussing the NAIC prohibition on discretionary
clauses generally. See also Mark D. DeBofsky, The Disability Insurance Industry’s
Attack on California’s Consumer Protection Initiative, INSUR. F., INC., Feb.-March
2006, discussing a recent lawsuit filed by several industry associations, challenging
the California Commissioner’s ability to prohibit discretionary clauses.
101
See UnumProvident Settlement Agreement, Exhibit D (Report of the
Targeted Multistate Mark Conduct Investigation), available at:
http://www.state.tn.us/commerce/insurance/unum/UnumSettlementTn.pdf. (Nov.
18, 2004).
102
On September 2, 2003, the chief insurance regulators of Massachusetts,
Tennessee, and Main (“the lead regulators”) called a multistate targeted market
conduct examination to determine if Unum’s individual and group long term
disability income claims procedures reflected “unfair claim settlement practices,” as
defined by the National Association of Insurance Commissioners (“NAIC”). See
UnumProvident Settlement Agreement, Exhibit D (Report of the Targeted Multistate
Mark Conduct Investigation), available at:
http://www.state.tn.us/commerce/insurance/unum/UnumSettlementTn.pdf. (Nov.
18, 2004).
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placed on claimants to justify eligibility for benefits. 103 These
procedures have been called into question in several cases.
In one such case, McSharry v. UnumProvident Corp., the court
unearthed striking and telling evidence of bias in Unum’s claims
handling procedures. 104 McSharry involved a wrongful termination
claim by Dr. Patrick McSharry, who worked as a staff physician in
Unum’s claim department. 105 Dr. McSharry alleged that Unum had a
policy of requiring medical professionals to use only language in their
reports supporting a denial of benefits, to evaluate claimants’ medical
conditions in isolation rather in combination, and that the medical
advisors were generally expected to render opinions about medical
conditions outside of his or her specialty, without requesting review by
a specialist. 106 In another decision, Radford Trust v. First Unum Life
Insurance Co. of America, the court collected cases where the courts
have commented “unfavorably” on Unum’s conduct, including one
court’s description of Unum’s behavior as “culpably abusive.” 107
Thus, it is clear that in at least one case, an insurer was not able to
resist the temptation to cut costs by denying benefits, and that
reputational interests do not always save a benefits provider from this
temptation. Indeed, it is hard to believe that Unum’s actions were
unique and that other insurers – operating under the same motivation –
did not act with the same self-interest. It is arguably fair to say,
103
Press Release, Tennessee Department of Insurance, available at
http://tennessee.gov/commerce/pdf/press/prsRls111804.pdf. (Nov. 18, 2004).
104
237 F. Supp. 2d 875 (E.D. Tenn. 2002). This case arose on the
Defendant’s motion to remove the case to federal district court. The court denied the
motion, holding that the claims were completely preempted by ERISA, and that the
action was properly removed pursuant to 28 U.S.C. §§ 1331 and 1441(b) (2000). Id.
at 876.
105
Id. at 876.
106
Id. at 877-88. Although Dr. McSharry attempted to follow these guidelines
while still rendering truthful medical reports, he ultimately told his supervisors that
he would not be able to participate in what he considered unethical and illegal
practices. Id. at 877.
107
321 F. Supp. 2d 226, 249 n.20 (rev’d on other grounds) (D. Mass. 2004),
(citing Keller v. Unum Life Ins. Co. of Am., No. 90 Civ. 5718 (VLB), 1992 WL
346343, at *2 (S.D.N.Y. Sept. 20, 1993)).
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therefore, that the Third Circuit’s economic assumptions are “less
exceptional” than those of the Seventh Circuit, and that there is an
actual, readily apparent conflict; not just the mere potential for one. 108
The Unum investigation also shows that in order to protect an
employee’s entitlement to benefits, the court must undertake some
review of the quality and quantity of evidence, even where the insurer
has retained discretion.
C. Neither Concerns over Efficiency nor the Power of Article III
Courts Justify Disallowing Discovery to Prove a Conflict of Interest.
For the reasons discussed above, an inherent conflict of interest
should be recognized in cases where the plan sponsor both funds and
makes eligibility determinations under the plan. But even if the
Seventh Circuit is unwilling to presume this conflict, claimants at the
very least, should be allowed to prove a conflict by conducting
discovery – as several circuit courts of appeals already permit. 109 As
per the Seventh Circuit’s recent Semien decision, however, such
discovery is not permitted absent a smoking gun or extraordinary
circumstances. 110
As discussed in Section II(C), the premise in support of this
argument is that one of the primary goals of ERISA is to resolve
disputes over benefits “inexpensively and expeditiously” and that
providing a full review of the motivations behind claims decisions
108
Killian v. Healthsource Provident Administrators, 152 F.3d 514, 521 (6th
Cir. 1998).
109
See e.g., Evans v. UnumProvident Corp., 434 F.3d 866, 876 (6th Cir. 2006);
Liston v. Unum Corp. Officer Severance Plan, 330 F.3d 19 (1st Cir. 2003); Zervos v.
Verizon N.Y., Inc., 252 F.3d 163 (2d Cir. 2001); Pinto v. Reliance Standard Life Ins.
Co., 214 F.3d 377 (3d Cir. 2000); Kergosien v. Ocean Energy, Inc., 390 F.3d 346,
356 (5th Cir. 2004); Farley v. Arkansas Blue Cross & Blue Shield, 147 F.3d 774 (8th
Cir. 1998); Tremain v. Bell Industries, 196 F.3d 970 (9th Cir. 1999); Moon v.
American Home Assur. Co., 888 F.2d 86 (11th Cir. 1989).
110
See supra Section II(c), discussing when discovery is allowed.
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would exceed the statutory authority provided by Congress. 111 This
Article III rationale is the driving force behind Plaintiff Semien’s
petition for certiorari to the United States Supreme Court, appealing
the Seventh Circuit’s decision. 112 Indeed, after examining the purpose
of the ERISA statute, the United States Constitution, and the
Legislative history of ERISA, it is clear that Article III courts are
empowered to allow discovery and that efficiency cannot justify
giving claimants an important tool to prove their claim.
To begin unraveling the Seventh Circuit’s rationale, it is
instructive to look at the stated purpose behind the ERISA statute,
which provides:
It is hereby declared to be the policy of this chapter to
protect interstate commerce and the interests of
participants in employee benefit plans and their
beneficiaries, by requiring the disclosure and reporting
to participants and beneficiaries of financial and other
information with respect thereto, by establishing
standards of conduct, responsibility, and obligation for
fiduciaries of employee benefit plans, and by providing
appropriate remedies, sanctions, and ready access to the
federal courts. 113
Nowhere does the stated purpose even hint at a desire to limit the
authority of the federal courts. 114 Indeed, Congress specifically
empowered aggrieved individuals seeking employee benefits to bring
a “civil action…to recover benefits due.” 115 Nor does the legislative
111
Semien v. Life Insurance Co. of N. America, 436 F.3d 805, 815 (7th Cir.
2006).
112
The arguments in this section are borrowed heavily from Semien’s writ of
certiorari, submitted by her attorney Mark DeBofsky.
113
(emphasis added) 29 U.S.C. § 1001(b) (2000).
114
There is also quite obviously no “ERISA” exception in the text of Article II,
Section 2 of the United States Constitution, which extends the judicial power to “all
cases, in law and equity.”
115
ERISA § 1132(a)(1)(B) (2006).
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history of ERISA support the conclusion that one of the “primary
goals” of ERISA is to resolve disputes over benefits inexpensively and
expeditiously. As one of ERISA’s main sponsors, Jacob Javits,
explained, House conferees were opposed to an administrative dispute
mechanism “on grounds it might be too costly to plans and a stimulant
to frivolous benefit disputes, and at their insistence it was dropped in
conference.” 116
Moreover, even if efficiency were one of ERISA’s goals – which
it decidedly is not - there would still be no justification for denying
claimants discovery. As Professor Jay Conison convincingly stated:
[E]ven if there were some basis for believing that the
treatment of a benefit suit as an evidentiary proceeding
would interfere with the ‘prompt resolution of claims
by the fiduciary, the rationale would still fail. For it to
be plausible, one would have to add two premises: that
‘prompt resolution of claims’ is something Congress
intended for the protection of sponsors and fiduciaries;
and that such protection of sponsors and fiduciaries is
more important than protection of the participants’ right
to receive benefits due. Merely to state these premises
is to reveal their untenability. 117
These “untenable” premises are particularly clear given that the
Supreme Court has stated that claimants should not fare worse under
ERISA as they did before its enactment. 118 Before ERISA’s
enactment, claimants undoubtedly had a right to both discovery and an
evidentiary hearing; taking away these rights, therefore, could not
have been what Congress intended. 119 As a practical matter, allowing
discovery to prove the existence of a conflict is crucial – indeed, how
116
117
3 Legislative History of ERISA, n.4 at 4769.
Jay Conison, Suits for Benefits Under ERISA, 54 U. PITT. L. REV. 1, 57-60
(1992).
118
119
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 114 (1989).
See Semien’s petition for certiorari at 74 U.S.L.W. (April 28, 2006).
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is a claimant to prove bias without the means of investigating the
benefits provider? The Supreme Court itself has stated that the
physicians retained by benefits plans “may have an incentive to make
a finding of ‘not disabled’ in order to save their employers money and
preserve their own consulting arrangements.” 120 Authoritative
medical journals such as the New England Journal of Medicine have
remarked that “ERISA plans have a financial incentive to deny
care…without liability, there is nothing in the law to counterbalance
the financial incentive to deny care.” 121 Without discovery, however,
this proposition can never be proven. Accordingly, if the Seventh
Circuit continues to refuse to acknowledge an inherent conflict of
interest, the court should at the very least allow the claimants
discovery to prove that a bias exists.
IV. How Conflicts of Interest Should Affect the Standard of Review
For the reasons stated in Section III, the Seventh Circuit should
recognize that there is an inherent conflict where an insurance
company both funds and administers an ERISA plan. A separate and
perhaps even more important issue, however, is how to incorporate
this conflict into the deferential review mandated by Firestone. The
circuit courts have recognized essentially three approaches recognized
approaches to dealing with conflict: de novo review, burden shifting,
and the sliding scale. First I will discuss why the de novo and burden
shifting approaches are unsatisfactory, and then I will suggest that the
Seventh Circuit adopt the sliding scale approach because it comports
with Firestone’s mandate, and adequately addresses the concerns
behind the conflict.
A. De Novo Review and Burden Shifting: Two Unsatisfactory
Approaches.
120
Black & Decker Disability Plan v. Nord, 538 U.S. 822, 832 (2003).
Wendy K. Mariner, What Recourse? — Liability for Managed-Care
Decisions and the Employee Retirement Income Security Act, 343 New England
Journal of Medicine 592, 595 (August 24, 2000).
121
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Although remarkably stringent in requiring particular evidence
that a conflict infected the decision-making process, the Second
Circuit uses the de novo review standard once it credits such
evidence. 122 Thus, once a conflict is alleged, the “arbitrary and
capricious” standard becomes a two-pronged test: first, whether the
administrator’s decision was reasonable; and second, whether the
evidence shows that the administrator was in fact influenced by the
conflict of interest. 123 If the court determines that the decision was in
fact affected by the conflict of interest, de novo review becomes the
standard of review. 124
As desirable as de novo review may be in these cases, courts are
currently bound by Firestone’s requirement that conflict be “a factor”
within the “arbitrary and capricious” framework. Thus, unless and
until the Supreme Court revisits Firestone, a better approach would be
for the Second Circuit to relax the plaintiff’s burden in showing a
conflict, and then to use conflict as a factor under the “arbitrary and
capricious” standard, either using the burden shifting or sliding scale
approach. 125
In contrast to the Second Circuit, the Ninth and Eleventh Circuits
take a burden shifting (or “presumptively void”) approach. 126 As
articulated by the Eleventh Circuit, the approach first requires a
showing of an inherent or “substantial” conflict of interest; once the
conflict is shown, the burden shifts to the fiduciary to demonstrate that
the conflict did not infect the benefit determination. 127 To determine
whether the conflict infected the denial process, the court examines
122
Sullivan v. LTV, 82 F.3d 1251, 1255-56 (2d Cir. 1996).
Id. at 1255-56.
124
Id.
125
As the Third Circuit stated in Pinto v. Reliance Standard Life Ins. Co.,
“only the Supreme Court can undo the legacy of Firestone.” 214 F.3d 377, 393 (3d
Cir. 2000).
126
See e.g., Brown v. Blue Cross Blue Shield of Ala., 898 F.3d 1556 (11th Cir.
1990); Atwood v. Newmont Gold Co, 45 F.3d 1317, 1323 (9th Cir. 1995).
127
Brown, 898 F.2d at 1556.
123
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whether the decision was wrong from the perspective of de novo
review. 128
Once the burden is shifted, the plan administrator can meet its
burden by demonstrating a routine practice or by giving other
plausible justifications for the decision; for example, by showing that
the fiduciary was acting out of concern for other beneficiaries. 129 If
the plan administrator is successful in meeting this burden, the court
characterizes the decision as being “wrong but apparently
reasonable.” 130 In so doing, the court seems to assume that the
decision is wrong because of the bias, but presumed reliable under the
“arbitrary and capricious” standard. 131 If the administrator is
unsuccessful in meeting its burden, the decision is then held arbitrary
and capricious. 132 This standard undoubtedly weighs heavily on the
plan administrator to disprove that the denial was not tainted by a
conflict of interest; therefore, while the burden-shifting approach
purports not to be de novo, in practice, the two standards bear little
difference.
B. The Sliding Scale: The Most Viable Approach
The sliding scale approach, applied by the majority of courts,
lessens the deference afforded to the plan administrator’s decision in
proportion to the conflict of interest at issue. 133 Notably and
somewhat ironically, this is the approach advocated by the Seventh
Circuit in Van Boxel, where the court set forth a sensible means to
128
Id. at 1566-67.
See Id. at 1567. (“Even a conflicted fiduciary should receive deference
when it demonstrates that it is exercising discretion among choices which reasonably
may be considered to be in the interests of the participants and beneficiaries.”)
130
Id. at 1567.
131
See Kennedy, supra note 13, at 1160-1161 (2001).
132
Brown, 898 F.3d at 1567.
133
See, e.g., Fought v. UNUM Life Ins. Co. of Am., 379 F.3d 997 (10th Cir.
2004); Evans v. UnumProvident Corp., 434 F.3d 866 (6th Cir. 2006); Woo v. Deluxe
Corp., 144 F.3d 1157 (8th Cir. 1998); Vega v. Nat’l Life Ins. Serv., Inc., 188 F.3d
287 (5th Cir. 1999).
129
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adjust the standard of review, without adopting a de novo standard.
The court stated:
[F]lexibility in the scope of judicial review need not
require a proliferation of different standards of review;
the arbitrary and capricious standard may be a range,
not a point. There may be in effect a sliding scale of
judicial review of trustees’ decisions. 134
But as discussed, the Seventh Circuit rarely if ever finds a conflict;
therefore, this standard has not really been put to practice by the court.
Other courts, however, have found this standard to be a satisfactory
means of staying within Firestone while lessening deference afforded
to administrators operating under a conflict.
The Third Circuit recently adopted this approach in Pinto. The
court found that the standard allows each case to be examined on its
facts, including the ability to take into consideration the sophistication
of the parties, the information accessible to them, and the exact
financial arrangement between the insurer and the party. 135 Within
this approach, the court is able to adhere to Firestone’s dictate that
conflict must be considered a “factor,” rather than doing away with the
deferential standard altogether. 136 Thus, plan administrators are still
given deference, but the deference is reduced to the extent needed to
counteract any conflict. 137
The Tenth Circuit elaborated upon the sliding-scale standard
employed by the Pinto court, in its Fought v. Unum Life Insurance Co.
of America decision. 138 In Fought, the court elaborated upon “just
how much less deference” a reviewing court should afford to the
134
Van Boxel v. The Journal Co. Employees’ Pension Trust, 836 F.2d 1048,
1053 (7th Cir. 1987).
135
Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377, 392 (3d Cir. 2000).
136
Pinto, 214 F.3d at 392.
137
See Vega, 188 F.3d at 296.
138
379 F.3d 997 (10th Cir. 2004).
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decision of a conflicted administrator. 139 The court held that where an
inherent conflict exists, the plan administrator will bear the burden of
proving the reasonableness of its decision, using the “arbitrary and
capricious” framework. 140 Although this standard uses “burdenshifting” as a step in the sliding-scale review, the standard still differs
from the Eleventh Circuit’s approach, by providing for a greater
“slide” or burden depending on the conflict or conflicts at issue. 141
Like the burden shifting approach, the sliding-scale approach,
may be fairly subject to the criticism that this is merely de novo
review by another name. As the Pinto court noted, there is something
“intellectually dissatisfying, or at least discomforting” in having a
heightened “arbitrary and capricious” standard. 142 To be sure, once
conflict becomes a factor to consider, the “arbitrary and capricious”
standard starts sounding like a form of intermediate scrutiny. 143 But
because only the Supreme Court can undo the “legacy” of Firestone,
the sliding scale approach best accommodates using conflict as a
factor within the “arbitrary and capricious” framework. 144
CONCLUSION
The ERISA statute was enacted not only to protect employees’
expectations and ensuring that employees received promised benefits,
139
Id. at 1005.
Id. at 1006.
141
Id. at 1005-6. In addition to the “inherent” conflict of interest discussed in
this Comment, the Tenth Circuit provided for several other situations warranting
heightened scrutiny, including where there is a serious procedural irregularity, the
plan administrator’s performance reviews or level of compensation are linked to the
denial of benefits, and where the provision of benefits has a significant economic
impact on the company administering the plan. Id. If one or more of these conflicts
are shown, the court is required to “slide along the scale” and further reduce the
deference afforded to the plan administrator’s decision. Id. at 1007.
142
Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377, 392 (3rd Cir. 2000).
143
Id.
144
Id. at 393.
140
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but also to foster the growth of private employee benefit plans. 145 And
to be sure, allowing plenary review of benefits determinations will to
some extent increase an employer’s cost associated with providing
such plans. 146 But because of the importance of these benefits, and the
employees’ expectation that benefits will be paid when they are due,
the interests in cutting-costs cannot prevail. The courts must not
abdicate their duty under ERISA and Article III of the United States
Constitution to provide a real, substantive check on potential abuses.
That being said, there are essentially three ways that the conflict
of interest issue can be resolved. First, Congress could amend the
ERISA statute to specifically provide that de novo review must always
be used when the plan at issue is unfunded. Alternatively, the
Supreme Court could revisit Firestone and impose a similar
requirement, or at least flesh out what constitutes a conflict and how
that conflict must affect the standard of review. But barring any action
from Congress or the Supreme Court, plaintiffs suing for ERISA
benefits in the district courts of the Seventh Circuit should continue to
argue that unfunded plans give rise to an inherent conflict that must
adjust the standard of review. It is to be hoped that one day soon, the
Seventh Circuit will finally acknowledge what every other circuit
already knows.
145
See Catherine L. Fisk, Lochner Redux: The Renaissance of Laissez-Faire
Contract in the Federal Common Law of Employee Benefits, 56 Ohio St. L.J. 153
(1995) (discussing the inherent tension between Congress’s aim of protecting
benefits while maintaining employers’ economic prerogative over the labor force
and costs associated with labor).
146
Any increase in cost, however, may be de minimus. According to a report
issued on November 14, 2004 by Milliman, Inc., who was commissioned by
America’s Health Insurance Plans, the effect that prohibiting discretionary clauses
will have on cost will be around 3 to 4 percent due to anticipated higher incidences
of litigation, higher cost per litigated claim, and lower claim recovery costs.
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STOP THE PRESSES!
SEVENTH CIRCUIT CENSORS
COLLEGE STUDENT MEDIA
JULIA R. LISSNER
∗
Cite as: Julia R. Lissner, Stop the Presses! Seventh Circuit Censors College Student
Media, 1 SEVENTH CIRCUIT REV. 182 (2006), at http://www.kentlaw.edu/7cr/v11/lissner.pdf.
INTRODUCTION
For over the last three decades, the United States Supreme Court
has consistently held that officials at public colleges and universities
must operate within the confines of the First Amendment, and are thus
generally precluded from impinging upon the fundamental rights of
college and university students to freedom of speech and freedom of
the press.1 Nonetheless, in June, 2005, the Court of Appeals for the
∗
J.D. candidate and Certificate in Litigation and Alternative Dispute
Resolution candidate, May 2007, Chicago-Kent College of Law, Illinois Institute of
Technology; B.S. cum laude, June 2004, Northwestern University, Medill School of
Journalism. Julia R. Lissner is deeply indebted to the following individuals for their
comprehensive input on this Comment: Professor Hal R. Morris, John G. New,
Barbara C. Long, and Julie Ann Sullivan.
1
See Rosenberger v. Rector, 515 U.S. 819 (1995) (university officials
constitutionally prohibited from denying funding to religious student magazine
based on content); Papish v. Bd. of Curators, 410 U.S. 667 (1973) (state university’s
expulsion of student for disseminating student newspaper that officials deemed
indecent was unconstitutional); Healy v. James, 408 U.S. 169 (1972) (universities
cannot refuse to recognize controversial campus groups or speakers); see also, e.g.,
Stanley v. Magrath, 719 F.2d 279 (8th Cir. 1983) (university acted unconstitutionally
by attempting to restructure funding to student newspaper because of controversial
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Seventh Circuit rendered a decision that runs contrary to the spirit of
the Supreme Court’s precedent and the Court’s commitment to
protecting free speech at institutions of higher learning.2 In Hosty v.
Carter,3 a 7-4 decision en banc, the Seventh Circuit extended the
Supreme Court’s high school-specific standard set forth in Hazelwood
School District v. Kuhlmeier4 to review a student newspaper
censorship claim at Governors State University (“GSU”), a public
university in Illinois.5 The decision en banc overturned the earlier
judgment of a unanimous three-judge panel of the Seventh Circuit that
held that, given the more than 30 years of law providing strong First
Amendment protection to the college student press, the Hazelwood
standard was limited to primary and secondary education.6 In addition,
the majority in the decision en banc discounted the significance of
Hazelwood’s footnote seven, in which the Supreme Court stated that it
“need not now decide whether the same degree of deference [to the
decisions of high school administrators] is appropriate with respect to
school-sponsored expressive activities at the college and university
level.”7
issue); Schiff v. Williams, 519 F.2d 257 (5th Cir. 1975) (university could not censor
student newspaper and dismiss student editors for alleged poor grammar and
spelling); Joyner v. Whiting, 477 F.2d 456 (4th Cir. 1973) (university may not
withdraw support for student newspaper because university disagrees with views
expressed in publication); Bazaar v. Fortune, 476 F.2d 570 (5th Cir. 1973)
(university may not prevent publication and distribution of student yearbook on
grounds that publication contained language that is “inappropriate and in bad taste”);
Troy State Univ. v. Dickey, 402 F.2d 515 (5th Cir. 1968) (university acted
unconstitutionally by suspending editor of student newspaper editor for contentrelated reasons).
2
See Hosty v. Carter (Hosty II), 412 F.3d 731 (7th Cir. 2005) en banc.
3
Id.
4
Hazelwood Sch. Dist. v. Kuhlmeier, 484 U.S. 260 (1988) (permits high
school administrators to censor school-sponsored speech if their actions are
supported by “legitimate pedagogical concerns”).
5
Hosty II, 412 F.3d at 731.
6
Id.; Hosty v. Carter (Hosty I), 325 F.3d 945 (7th Cir. 2003) reh’g en banc
granted, opinion vacated,.
7
Hazelwood, 484 U.S. at 273 n.7.
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This Comment will contend that the Seventh Circuit erred in
extending the Hazelwood analysis to college and university campuses
absent more direction from the Supreme Court. Section I will recount
the Hazelwood decision and detail the Hosty litigation. Section II will
compare the Seventh Circuit’s analyses to how other circuit courts
have interpreted and applied the Hazelwood holding. Section III will
examine the differences in age and maturity level between high school
and college students, as well as the distinct missions of their respective
educational institutions. Section IV will further discuss the difficulties
in reconciling the Hosty decision en banc with Supreme Court
precedent relating to subsidized funding and prior restraints.
I. HAZELWOOD AND ITS APPLICATION BY THE SEVENTH CIRCUIT
Hazelwood School District v. Kuhlmeier is a unique, fact-specific
holding that is distinguishable from the college newspaper censorship
claim at issue in Hosty v. Carter. In the 1988 Hazelwood decision, the
Supreme Court held that high school administrators have broad
powers to censor school-sponsored newspapers if their actions are
supported by “legitimate pedagogical concerns.”8 However, the
Supreme Court explicitly left open the question of whether this First
Amendment standard is appropriate with respect to censoring college
student speech9— as was the issue before the Seventh Circuit in
Hosty.10
A. Pre-Hazelwood Decisions
The Supreme Court decisions leading up to Hazelwood, namely
Tinker v. Des Moines Independent Community School District11 and
8
Id. at 261.
Id. at 273 n.7.
10
See generally. Hosty v. Carter (Hosty II), 412 F.3d 731 (7th Cir. 2005) en
banc,
11
Tinker v. Des Moines Indep. Cmty. Sch. Dist., 393 U.S. 503 (1969).
9
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Bethel School District No. 403 v. Fraser,12 evince an important
distinction between school-sponsored speech, and speech that merely
occurs on campus. This distinction is critical to understanding the
Supreme Court’s Hazelwood decision, and is now at issue in
evaluating the Seventh Circuit’s Hosty decision en banc.
Before the Supreme Court decided Hazelwood in 1988, the Court
applied the “material and substantial interference” standard to evaluate
educational decisions challenged on First Amendment grounds.13 As
the Court explained in the 1969 case of Tinker v. Des Moines
Independent Community School District, a school can permissibly
censor its students where student conduct “materially and substantially
interfere[s] with the requirements of appropriate discipline in the
operation of the school.”14 In Tinker, the court held that the high
school officials acted unconstitutionally in suspending students who
refused to remove armbands symbolizing their disapproval of the
Vietnam War.15 The Court stated that the record failed to evidence any
facts which might have reasonably led school officials “to forecast
substantial disruption of or material interference with school
activities” when the students donned the armbands, and that “no
disturbances or disorders on the school premises in fact occurred.”16
Yet, the Supreme Court narrowed the Tinker standard in the 1986
case of Bethel School District No. 403 v. Fraser.17 In Bethel, the Court
held that the First Amendment does not prevent schools from
determining when lewd and vulgar speech undermines the school's
basic educational mission, and that it is “perfectly appropriate for the
school to disassociate itself” from this sort of speech.18 In particular,
the Court found that the Bethel high school acted properly by
imposing a two day suspension on a student who gave a lewd speech
12
Bethel Sch. Dist. No. 403 v. Fraser, 478 U.S. 675 (1986).
Tinker, 393 U.S. at 510.
14
Id. at 509 (quoting Burnside v. Byars, 363 F.2d 744, 749 (5th Cir. 1966)).
15
Tinker, 393 U.S. at 514.
16
Id.
17
Bethel, 478 U.S. at 675.
18
Id. at 685.
13
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at a school assembly.19 The Court explained that a high school
assembly or classroom is no place for a sexually explicit monologue
directed towards an unsuspecting audience of teenage students.20
The significance of Tinker and Bethel in understanding the
Supreme Court’s Hazelwood decision, and in now evaluating the
Seventh Circuit’s Hosty decision en banc, is that the Supreme Court in
Bethel drew a distinction between the speech in Tinker and Bethel.21
Notably, the acceptable speech at issue in Tinker was a political
message that did not intrude upon the mission of the schools or the
rights of other students, whereas the censorable speech at issue in
Bethel was the sexual content of a school assembly speech that
undermined the school's basic educational mission.22 Thus, the Court
marked the emergence of a distinction between school-sponsored
curricular speech, and speech that merely occurs on campus.23
B. Hazelwood School District v. Kuhlmeier
This curricular/non-curricular distinction later resonated through
the Court’s 1988 Hazelwood decision.24 Hazelwood involved a high
school student newspaper, written in the course of and as a curricular
component of a high school journalism class.25 The high school’s
curriculum guide described the class, titled Journalism II, as a
“laboratory situation in which the students publish the school
newspaper applying skills they have learned in Journalism I.”26 The
teacher oversaw the style and content of the high school newspaper,
19
Id. at 686.
Id. at 685-86.
21
Id.
22
Id.
23
See id.
24
See generally Hazelwood Sch. Dist. v. Kuhlmeier, 484 U.S. 260 (1988).
25
Id. at 268.
26
Id.
20
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and was required to submit proof pages to the high school’s principal
before publication.27
Hazelwood arose after the principal objected to two articles
awaiting publication in the high school newspaper: one story reporting
on three high school students’ experiences with pregnancy, and a
second story describing the impact of divorce on students at the
school.28 The principal objected to the pregnancy article due to
concern that pregnant students might be identifiable from the text
(though unidentified by name), and that “the article’s references to
sexual activity and birth control were inappropriate for some of the
younger students at the school.”29 The principal objected to the
divorce article because an identified student disparaged her father in
the article, and the article’s author did not provide the father an
opportunity to respond to his daughter’s remarks.30 Believing that
there was no time to alter the stories before the paper went to press,
the principal withheld the two pages of the issue that contained these
two stories in dispute.31
In response to the principal’s decision, a journalism student sued
the school district on the grounds that the principal violated her First
Amendment rights by withholding the two pages from publication.32
Despite this claim, the Supreme Court ruled that the principal acted
reasonably in finding that the two articles were unsuitable for the high
school newspaper because the students were not operating in a public
27
Id.
Id. at 263.
29
Id.
30
Id.
31
Id. at 263-64. The Court stated:
The two pages deleted from the newspaper also contained articles
on teenage marriage, runaways, and juvenile delinquents, as well
as a general article on teenage pregnancy. [The principal] testified
that he had no objection to these articles and that they were deleted
only because they appeared on the same pages as the two
objectionable articles..
Id. at 264 n.1.
32
Id. at 264.
28
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forum and thus the school could reasonably curtail the students’ First
Amendment rights.33 The Court explained that the high school’s
facilities may be deemed to be public fora only if school authorities
have by policy or by practice opened those facilities for indiscriminate
use by the general public, or by some segment of the public, such as
student organizations.34 However, if the facilities have instead been
reserved for other intended purposes, “communicative or otherwise,”
such as a curricular, instructional environment, “then no public forum
has been created, and school officials may impose reasonable
restrictions on the speech of students, teachers, and other members of
the school community.”35 The Court explained that a school “does not
create a public forum by inaction or by permitting limited discourse,”
as in a journalism class for example, but rather “only by intentionally
opening a nontraditional forum for public discourse.”36
The Supreme Court, accordingly, held that the high school
principal’s actions did not offend the journalism students’ First
Amendment rights, because: (1) the newspaper was produced by a
journalism class and had not been opened by the school as a public
forum for student expression; (2) as a nonpublic forum, school
officials would be allowed to censor such student speech if their
actions were “reasonably related to legitimate pedagogical concerns;”
and (3) the principal’s objections to the articles were reasonably
related to legitimate pedagogical concerns.37 What is more, the Court
limited its holding in the case to censorship of student media in lower
education, and dropped a footnote explicitly explaining that the Court
did not intend for its “legitimate pedagogical concerns” test to extend
to higher education:
33
Id. at 276.
Id. at 267 (citing Perry Educ. Ass’n. v. Perry Local Educators’ Ass’n., 460
U.S. 37, 47 (1983)).
35
Hazelwood, 484 U.S. at 267.
36
Id. (citing Cornelius v. NAACP, 473 U.S. 788, 802 (1985)).
37
Id. at 270-72, 274; see Brief for Student Press Law Center, et. al. as Amici
Curiae in Support of Petitioners Margaret L. Hosty, Jeni S. Porche, and Steven P.
Barba, 126 S.Ct. 1330 (2006) (No. 05-377).
34
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FN7. A number of lower federal courts have similarly
recognized that educators' decisions with regard to the
content of school-sponsored newspapers, dramatic
productions, and other expressive activities are entitled
to substantial deference. We need not now decide
whether the same degree of deference is appropriate
with respect to school-sponsored expressive activities
at the college and university level.38
With this footnote, the Court explicitly left open the question of
whether the Hazelwood First Amendment standard is appropriate with
respect to censoring college student speech,39 and such now becomes
the crux of the controversy with respect to the Seventh Circuit’s
decision en banc in the case of Hosty v. Carter.40
B. Hosty v. Carter
1. From “Innovators” to Litigators
In January, 2001, three student journalists, proceeding pro se,
sued officials at Governors State University, alleging prior restraint
violations of their First Amendment rights.41 Editor Margaret Hosty,
Managing Editor Jeni Porche, and Staff Reporter Steven Barba filed
suit after the Dean of Student Affairs and Services Patricia Carter
ordered their newspaper’s printer to hold future issues of the
publication until a school official could give approval to the paper’s
contents.42 The university student newspaper, the Innovator, had
occasionally published news stories and editorials critical of the
38
Hazelwood, 484 U.S. at 273 n.7 (internal citations omitted) (emphasis
added).
39
Id.
Hosty v. Carter (Hosty II), 412 F.3d 731 (7th Cir. 2005) en banc,
41
Id.; Hosty v. Carter Information Page, Student Law Press Center,
http://www.splc.org/legalresearch.asp?id=49 (last visited April 14, 2006).
42
40
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administration.43 Dean Carter issued the directive for prepublication
review despite the public university’s policy that student newspaper
staff “will determine content and format . . . without censorship or
advance approval.”44
On August 30, 2001, the U.S. District Court for the Northern
District of Illinois allowed the students’ case to go forward, denying
the university’s motion to dismiss for lack of jurisdiction and failure to
state a claim.45 Then, on November 15, 2001, on motion for summary
judgment, the federal district court held that all university officials
named in the suit— except Dean Carter— were entitled to qualified
immunity.46 The court cited a question of fact as to the dean’s actions
in halting future publication of the Innovator.47
Shortly thereafter, Dean Carter appealed the decision of the
district court.48 In support of her interlocutory appeal, Illinois Attorney
General Jim Ryan asked the Seventh Circuit to apply and extend the
Supreme Court’s Hazelwood decision— which set forth the standard
under which high school administrators could permissibly censor
school-sponsored speech— to the university context.49
2. First Draft: Seventh Circuit’s Three-Judge Panel
On April 10, 2003, a three-judge panel of the Seventh Circuit
issued a decision in favor of the college free press, and unanimously
upheld the district court’s refusal to grant summary judgment in favor
43
Id. at 732, 742. The articles included report on university’s decision not to
renew teaching contract of newspaper’s faculty advisor, and commentaries critical of
other university officials, including the dean of the College of Arts and Sciences. Id.
44
Id. at 744.
45
Hosty v. Governors State Univer., 174 F. Supp.2d 782 (N.D. Ill. 2001).
46
Hosty v. Governors State Univer., No. 01 C 500, 2001 WL 1465621, at *1
(N.D. Ill. Nov. 15, 2001) (rev’d by Hosty II, 412 F.3d 731).
47
Id. at *7.
48
See generally Hosty v. Carter (Hosty I), 325 F.3d 945 (7th Cir. 2003),
49
See Brief for Defendant-Appellant Patricia Carter, 325 F.3d 945 (7th Cir.
2003) (No. 01-4155).
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of Dean Carter.50 The panel, composed of Judges Coffey, Rovner, and
Evans ruled that college and university students possess greater press
freedoms than high school students, and refused to grant qualified
immunity to Dean Carter.51 Writing for the unanimous panel, Judge
Evans explained that “qualified immunity protects government
officials performing discretionary functions when their conduct does
not violate clearly established statutory or constitutional rights of
which a reasonable person would have known.”52 The panel rejected
Dean Carter's argument that she could not reasonably have known that
it was illegal to order the Innovator’s printer to halt publication of the
newspaper or to require prior approval of the newspaper's content in
light of the existing, well-established law.53 In particular, the
unanimous panel emphasized the more than three decades of precedent
supporting First Amendment protections across college and university
campuses, and thus declined to extend the Supreme Court’s
Hazelwood standard for censoring high school speech to apply to the
college student media censorship claim at issue in the case.54
In response to the decision, Illinois Attorney General Lisa
Madigan filed a petition on behalf of Dean Carter for a rehearing en
banc.55 Rehearings en banc are generally rare and not favored by the
courts; as such, they require a majority of the circuit judges who are in
regular active service to order the rehearing by the full court.56 A
rehearing en banc will typically only be ordered when consideration
by the full court is necessary to secure or maintain uniformity of its
decisions, or when the proceeding involves a question of exceptional
50
See generally Hosty I, 325 F.3d 945.
Id. at 949 (general view is to favor “broad First Amendment rights for
students at the university level”).
52
Id. at 947.
53
Id. at 948.
54
See generally id.
55
Petition of Defendant-Appellant Patricia Carter for Rehearing with
Suggestions for Rehearing en banc, 325 F.3d 945 (7th Cir. 2003) (No. 01-4155).
56
See FED. R. APP. P. 35(a).
51
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importance.57 In support of the Hosty rehearing en banc, Madigan
argued that the three-judge panel overlooked previous decisions that
demonstrate that the law governing free speech rights for college and
university students is not clearly established.58
On June 25, 2003, a majority of the active Seventh Circuit judges
granted the petition for a rehearing en banc and vacated the unanimous
judgment of the three-judge panel.59 Despite the arguments put forth
by Madigan, the Seventh Circuit likely ordered the rehearing because
the case involved a “question of exceptional importance”: notably, the
extension of a Supreme Court standard applied to First Amendment
censorship claims.60 On its face, the case appears to be merely a
procedural posture— an appeal of a summary judgment decision
denying Dean Carter qualified immunity.61 However, beneath the
surface, the outcome of the case could possibly define and inhibit
college student speech both within the Seventh Circuit, and through
the rest of the country because of its interpretation and application of
the Supreme Court’s Hazelwood decision.62
This underlying question of extending the Supreme Court’s high
school-specific holding in Hazelwood, and applying it in the university
context (as in Hosty), should— and likely will— come before the
Supreme Court for clarification due to the lack of direction from the
Court in Hazelwood (most specifically in footnote seven).63 Thus it is
possible that the Seventh Circuit granted the rehearing en banc in
order to set forth a more deliberate decision to submit to the Supreme
Court so that the Court may fully elucidate its Hazelwood standard
with respect to college student speech. Whereas the unanimous
57
Id.
Petition of Defendant-Appellant Patricia Carter for Rehearing with
Suggestions for Rehearing en banc, 325 F.3d 945 (7th Cir. 2003) (No. 01-4155).
59
See Hosty I, 325 F.3d at 945.
60
See FED. R. APP. P. 35(a).
61
Hosty I, 325 F.3d at 945.
62
Id.
63
See Hazelwood Sch. Dist. v. Kuhlmeier, 484 U.S. 260, 273 n.7 (1988); but
see Hosty v. Carter, 126 S.Ct. 1330 (Mem.) (Feb. 21, 2006) (denying certiorari on
Hosty v. Carter (Hosty II), 412 F.3d 731 (7th Cir. 2005) en banc.).
58
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decision of the three-judge panel was neither blatantly wrong, nor
undermining of the uniformity of Seventh Circuit decisions, the threejudge panel’s ruling was somewhat sparse, in that it did not explicitly
address Hazelwood’s footnote seven and did not address any sort of
forum analysis.64 For these reasons, the Seventh Circuit may have
granted the rehearing en banc in order to better satisfy the Supreme
Court by putting forth a more comprehensive analysis on this issue
that will likely go before the high court at some point for much needed
clarification.
3. Editing the Story: Seventh Circuit’s Decision En Banc
On January 8, 2004, an eleven-judge panel of the Seventh Circuit
sat en banc to rehear oral arguments.65 The full panel handed down a
decision, on June 25, 2005, supporting the university, and starkly
opposing the previous decision of the original three-judge panel.66 In a
seven-judge majority, the Seventh Circuit extended the Supreme
Court’s Hazelwood decision to the collegiate level, yet declined to
define the First Amendment rights of college journalists.67 With
regards to the Hazelwood footnote in which the Supreme Court left
open the issue of extending the “legitimate pedagogical concerns” test
to the college and university setting, the Seventh Circuit majority
contended that the “footnote does not even hint at the possibility of an
on/off switch: high school papers reviewable, college papers not
reviewable. It addresses degrees of deference.”68 The majority
opinion, written by Judge Easterbrook, further asserted that
Hazelwood’s framework depends in large part on the public-forum
analysis, and (in contrast to the vacated decision of the unanimous
three-judge panel) does not necessarily vary depending upon the
64
See Hosty I, 325 F.3d at 945.
Hosty v. Carter Information Page, Student Law Press Center,
http://www.splc.org/legalresearch.asp?id=49 (last visited April 14, 2006).
66
67
Id. at 735.
68
Id. at 734.
65
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speakers’ age/level of education, or upon the distinction between
curricular and extracurricular activities.69 Judge Easterbrook cited the
possibility that some “high school seniors are older than some college
freshmen,” and also declared that many “junior colleges are similar to
many high schools.”70
The majority concluded that the Innovator did not participate in a
traditional public forum because the newspaper received student
funding, and because “[f]reedom of speech does not imply that
someone else must pay.”71 Relying upon the Supreme Court’s
decisions in Rust v. Sullivan72 and National Endowment for the Arts v.
Finley,73 the majority stated that Hazelwood’s framework for free
speech analysis applies to subsidized student newspapers at
elementary and secondary schools, as well as subsidized student
newspapers at colleges and universities, like the Innovator at GSU.74
Further, the majority suggested that even if GSU created a “designated
public forum” or “limited-purpose public forum” for the Innovator,
Dean Carter is still entitled to qualified immunity for damages because
she could not have reasonably known that the limitations of the
Hazelwood judgment and because she should not be held liable for
“constitutional uncertainties.”75
69
Id. at 738.
Id. at 734-35 (“The Supreme Court itself has established that age does not
control the public-forum question. See generally Symposium: Do Children Have the
Same First Amendment Rights as Adults?, 79 CHI.-KENT L.REV. 3 (2004) (including
many articles collecting and discussing these decisions)”).
71
Id. at 737.
72
Rust v. Sullivan, 500 U.S. 173 (1991) (family planning restrictions did not
violate free speech rights of Title X funding recipients by imposing conditions on
government medical subsidies).
73
Nat’l Endowment for the Arts v. Finley, 524 U.S. 569 (1998) (statute
requiring National Endowment of the Arts to consider decency and respect when
judging grant applications did not violate artists’ First Amendment rights because
statute not directly aimed at regulating speech).
74
75
Id. at 737. However, the Innovator was published by the GSU Student
Communications Media Board, which was made up of four students, two faculty
members, and one civil service or support employee of the university. The Board
70
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In contrast, the dissent of Judges Rovner, Williams, Wood, and
Evans contended that the majority’s conclusion stemmed from the
“incorrect premise - that there is no legal distinction between college
and high school students.”76 Writing for the dissent, Judge Evans77 set
forth two reasons why the law draws a distinction between high school
and college level students: 1) high school students are less mature than
their college counterparts, and 2) the missions of their respective
institutions are different.78 The dissent concluded that “no pedagogical
concerns can justify suppressing the student speech” in this case
because the Supreme Court created Hazelwood for the “narrow
circumstances of elementary and secondary education.”79 In addition,
the dissenting opinion disagreed with the majority’s holding that Dean
Carter is entitled to qualified immunity since decisions prior to
Hazelwood consistently established that university officials cannot
“require prior review of student media or otherwise censor student
publications.”80 The dissent explained that neither Hazelwood, nor
post-Hazelwood decisions, changed this well-established rule, and that
Dean Carter “violated clearly established First Amendment law in
censoring the student newspaper.”81
4. Further Revisions Necessary
laid down the rules for publication and established that “each funded publication will
determine content and format . . . without censorship or advance approval.” Id.
76
Id. at 740 (Evans, J. dissenting). Judge Coffey, who ruled in favor of the
student journalists at the first hearing, evidently changed his position and ruled in
favor of the university at the rehearing en banc.
77
Judge Evans also wrote the decision for the original three judge panel. See
Hosty v. Carter (Hosty I), 325 F.3d 945 (7th Cir. 2003) reh’g en banc granted,
opinion vacated,
78
Hosty II, 412 F.3d at 740 (Evans, J. dissenting).
79
Id. at 739, 744 (Evans, J. dissenting).
80
Id. at 742 (Evans, J. dissenting).
81
Id. at 743-44 (Evans, J. dissenting).
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On September 16, 2005, the student journalists filed a petition for
writ of certiorari to the U.S. Supreme Court.82 The Illinois Attorney
General’s office declined to respond to the students’ petition, which
prompted the Supreme Court to specifically request that the office file
a response.83 Some legal commentators have viewed this as favorable
for the student journalists because the Supreme Court typically only
asks for a response if the Court believes that the petition likely has
merit.84 Thus, this request demonstrated the high court’s interest in the
case, and arguably illustrates that the Hosty decision en banc is worthy
of review.85
5. BREAKING NEWS: Petition for Writ of Certiorari Denied
On February 21, 2006, the Supreme Court denied the student
journalists’ petition for writ of certiorari.86 However, this denial does
not establish that Seventh Circuit correctly extended the Hazelwood
analysis and that the decision en banc is not worthy of skepticism by
the legal community. If anything, it may suggest that the Supreme
Court wishes to wait and see how more circuit courts will interpret the
Hazelwood standard in future cases.
Inevitably, the Supreme Court will have to accept a petition for
writ of certiorari on this issue of whether the Supreme Court’s
Hazelwood standard for addressing censorship claims relating to high
school speech can be extended to censorship in higher education. This
is a critical First Amendment controversy, stemming from the Supreme
82
Petition for Writ of Certiorari, 126 S.Ct. 1330 (2006) (No. 05-377).
Supreme Court requests response in Hosty case, Student Press Law Center
(2005), http://www.splc.org/newsflash.asp?id=1115 (last visited April 14, 2006).
(“‘Although your office has waived the right to file a response to the petition for a
writ of certiorari . . . The Court nevertheless has directed this office to request that a
response be filed,’ stated a letter from the Supreme Court clerk to the Illinois
Attorney General’s office dated Oct. 27, 2005.”)
84
Id. (quoting excerpt from Supreme Court Practice faxed to Student Press
Law Center by Supreme Court’s public information office).
85
Id.
86
.Hosty v. Carter, 126 S.Ct. 1330 (Mem.) (Feb. 21, 2006).
83
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Court’s own elaboration of a standard for addressing high school
censorship claims, and further confused by the Court’s inclusion of
footnote seven which leaves the door open with respect to a standard
for evaluating college censorship claims.87 The lack of direction from
the Supreme Court up to this point has greatly confused the circuit
courts, as evidenced in the Hosty decisions, and has led to a circuit
split.88 Thus, even though the Court has now declined to hear Hosty,
First Amendment jurisprudence requires the high court to clarify the
underlying issue of the case. For the reasons set forth in the remainder
of this Comment, once the Supreme Court does accept a petition for
writ of certiorari on the issue of applying the Court’s Hazelwood
analysis in the university context, the Court should establish that
Hazelwood does not apply in higher education, as the Court halfheartedly tried to establish by dropping footnote seven in its
Hazelwood decision.
II. THE SEVENTH CIRCUIT OVERLOOKS
CURRICULAR/NON-CURRICULAR SPEECH DISTINCTION AND
ERRONEOUSLY APPLIES FORUM ANALYSIS
The Hosty decision en banc conflicts with the Hazelwood
interpretations of several other circuit courts.89 Whereas circuit court
decisions have reflected the growing confusion in extending the
Hazelwood analysis to institutions of higher learning, no circuit has
interpreted the Supreme Court decision to extend to such lengths as
the Seventh Circuit’s decision en banc— notably non-curricular
speech in an institution of higher education.90 Specifically, several
87
Cf. Hazelwood Sch. Dist. v. Kuhlmeier, 484 U.S. 260, 273 n.7 (1988).
See Axson-Flynn v. Johnson, 356 F.3d 1277 (10th Cir. 2004); Brown v. Li,
308 F.3d 939 (9th Cir. 2002); Kincaid v. Gibson, 236 F.3d 342 (6th Cir. 2001);
Bishop v. Aronov, 926 F.2d 1066 (11th Cir. 1991); Student Gov. Ass’n v. Bd. of
Trs., 868 F.2d 473 (1st Cir. 1989).
89
See Hazelwood, 484 U.S. at 260; Kincaid, 236 F.3d at 342; Student Gov.,
868 F.2d at 473.
90
See, e.g., Axson-Flynn, 356 F.3d at 1277; Brown, 308 F.3d at 939; Kincaid,
236 F.3d at 342; Bishop, 926 F.2d at 1066; Student Gov., 868 F.2d at 473.
88
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circuits have declined to extend Hazelwood’s high-school specific
analysis to evaluate censorship of college student speech,91 and the
circuits that have extended Hazelwood have limited their holdings to
curricular speech in higher education.92
In the nearly two decades since the Supreme Court set forth its
“legitimate pedagogical concerns” test in Hazelwood, circuit courts
have for the most part been reluctant to extend Hazelwood to the
university realm.93 For instance, the First Circuit implicitly declined to
extend Hazelwood in Student Government Association v. Board of
Trustees, on the grounds that Hazelwood “is not applicable to college
newspapers.”94 Likewise, the Sixth Circuit, in Kincaid v. Gibson,
explicitly declined to extend Hazelwood into the university context,
holding that university officials violated the First Amendment rights of
two college yearbook editors by confiscating and refusing to distribute
the student-published yearbook.95 The Second Circuit explained that
Hazelwood has little application in Kincaid because forum analysis
requires that the yearbook be analyzed as a limited (or designated)
public forum rather than a nonpublic forum.96 Because the yearbook
was a limited public forum, university officials did not impose
reasonable time, place and manner restrictions by confiscating all
copies of the yearbook on the grounds that the quality was lacking.97
The few circuits that have applied Hazelwood to the college
environment are factually distinguishable from Hosty because the
speech at issue was exclusively free speech rights within the
classroom, and thus would not be thought of as a public forum or
91
See Kincaid, 236 F.3d at 342; Student Gov., 868 F.2d at 473.
See Axson-Flynn, 356 F.3d at 1277; Brown, 308 F.3d at 939; Bishop, 926
F.2d at 1066.
93
See, e.g., Kincaid, 236 F.3d at 342; Student Gov., 868 F.2d at 473.
94
Student Gov., 868 F.2d at 480 n.6.
95
Kincaid, 236 F.3d at 347.
96
Id. at 346 n.5.
97
Id. at 354-56.
92
198
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limited public forum.98 For instance, the Eleventh Circuit suggested
that Hazelwood has some relevance at the college level in such limited
circumstances as religious speech in the classroom environment.99 The
circuit court explained in Bishop v. Aronov that university classrooms
do not operate as public fora during instructional periods because they
are reserved for the limited purpose of teaching a particular university
course for academic credit.100 Likewise, the Tenth Circuit, in AxsonFlynn v. Johnson, chose to extend Hazelwood to address college
speech at issue in the case because the speech occurred as part of a
mandatory curricular assignment during class time and in the
classroom.101 The Tenth Circuit explained that the classroom of the
university’s actor training program constituted a nonpublic forum,
where university officials could regulate speech in any reasonable
manner; and that the classroom could not reasonably be considered a
traditional public forum, or a designated public forum, absent more
direction from the university authorities.102 Yet, the Tenth Circuit
explicitly recognized “that some circuits have cast doubt on the
application of Hazelwood in the context of university extracurricular
activities,” and that their Axson-Flynn decision did not need to put
forth analysis on this distinction because of the exclusively curricular
speech at issue in the case.103 The Ninth Circuit is also cited, though
less frequently, for extending the Hazelwood analysis to the university
realm in Brown v. Li.104 However, the Ninth Circuit’s extension of
98
See Axson-Flynn v. Johnson, 356 F.3d 1277 (10th Cir. 2004); Brown v. Li,
308 F.3d 939 (9th Cir. 2002); Bishop v. Aronov, 926 F.2d 1066 (11th Cir. 1991).
99
Bishop, 926 F.2d at 1071. Bishop held that a memo instructing a university
professor to refrain from interjecting religious beliefs during instructional periods
did not infringe professor’s free speech rights. Id. at 1078.
100
Id. at 1071.
101
Axson-Flynn, 356 F.3d at 1290. Axson-Flynn held that an acting student at
the university could be required to say script lines that conflict with the student’s
Mormon faith as part of the curriculum. Id.
102
Id. at 1285.
103
Id. at 1287 n.6.
104
Brown v. Li, 308 F.3d 939 (9th Cir. 2002). Brown held that a masters
student did “not have a First Amendment right to have his nonconforming thesis
199
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Hazelwood is extremely narrow— only one judge on the three-judge
panel explicitly approved of the application of Hazelwood, while
another judge explicitly disproved of the Hazelwood application.105
Still, the one judge to rely on the Hazelwood ruling qualified his
application by stating that “[we] do not know with certainty . . . that
Hazelwood controls the inquiry into whether a university's
requirements for and evaluation of a [graduate] student’s curricular
speech infringe that student’s First Amendment rights.” 106
In contrast to the facts of both Hazelwood and cases where circuit
courts have applied the Hazelwood analysis, Hosty does not involve
curricular speech.107 Rather, the GSU college student newspaper was
an autonomous extracurricular activity and not part of the university’s
curriculum.108 The Innovator was overseen by a Board made up of
“four students, two faculty members, and one civil service or support
employee of the university.”109 The Board set up rules for publication,
and determined that the Innovator would establish “its content and
format . . . without censorship or advance approval from the
administration.”110 Furthermore, Dean Carter’s complaints were not
pedagogical in nature111 (as to render the objections falling under
Hazelwood’s “legitimate pedagogical concerns” test) and a university
approved, nor did he have a right to a formal hearing with respect to his committee's
academic decision not to approve the thesis.” Id. at 955.
105
Id. at 950 (one judge writing opinion, one judge concurring, and one judge
partially concurring, partially dissenting).
106
Id. at 951.
107
Compare Hazelwood Sch. Dist. v. Kuhlmeier, 484 U.S. 260 (1988); AxsonFlynn v. Johnson, 356 F.3d 1277 (10th Cir. 2004); Brown, 308 F.3d at 939; Bishop
v. Aronov, 926 F.2d 1066 (11th Cir. 1991) with Hosty v. Carter (Hosty I), 325 F.3d
945, 946-47 (7th Cir. 2003); see also Lueth v. St. Clair, 732 F. Supp. 1410, 1412
(E.D. Mich. 1990) (declining to apply Hazelwood because high school student
newspaper was not part of curriculum and not under principal’s ultimate authority).
108
See Hosty v. Carter (Hosty II), 412 F.3d 731, 737-38 (7th Cir. 2005) en
banc.
109
Id. at 737.
110
Id.
111
Id. at 733. GSU officials complained that articles in the Innovator were
irresponsible and defamatory journalism. Id.
200
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should not suppress student speech merely because it dislikes editorial
comments.112 Thus, because several circuits have refused to extend
Hazelwood to apply to college level speech, and because the Hosty
decision en banc is factually distinguishable from the circuit courts
that have applied Hazelwood to the university realm, the Seventh
Circuit likely erred in extending the Supreme Court decision to assess
the censorship claims involving non-curricular speech in higher
education.
Moreover, the Hosty decision en banc is grounded upon an
“overly mechanistic application of public forum analysis,” 113 as
opposed to the curricular/non-curricular distinction, discussed
above.114 Rather than relying on the “longstanding presumption that
student media is not merely a public forum but an independent forum,”
the Seventh Circuit majority instead examined whether the GSU
student newspaper was operating in a public forum, a non-public
forum, or a closed-forum.115 Nonetheless, the Seventh Circuit’s forum
analysis is likely inappropriate with respect to the GSU students’
censorship claim which involved an extracurricular college student
newspaper. To compare, in Hazelwood, there was an actual need to go
through this forum analysis due to the question of whether or not the
high school student newspaper was a public forum because it was also
part of a class curriculum.116 Such was also the case in the Ninth,
112
See Joyner v. Whiting, 477 F.2d 456, 460 (4th Cir. 1973) (holding that
university's president violated First Amendment by irrevocably withdrawing
financial support from official student newspaper that had segregationist editorial
policy).
113
Brief for the Foundation for Individual Rights in Education and Support for
Academic Freedom as Amicus Curia in Support of Petitioners, 126 S.Ct. 1330
(2006) (No. 05-377).
114
See, e.g., Kincaid v. Gibson, 236 F.3d 342, 346 n.5 (6th Cir. 2001); Student
Gov. Ass’n v. Bd. of Trs., 868 F.2d 473, 480 n.6 (1st Cir. 1989); Axson-Flynn v.
Johnson, 356 F.3d 1277, 1287 n.6 (10th Cir. 2004).
115
Brief for the Foundation for Individual Rights in Educ., et. al, and Supp.
for Academic Freedom in Supp. of Pet’rs, Hosty, 126 S.Ct. 1330 (05-377).
116
Greg Lukianoff & Samantha Harris, FIRE Policy Statement on ‘Hosty v.
Carter,’ Foundation for Individual Rights in Education,
http://www.thefire.org/index.php/article/6269.html (last visited April 14, 2006).
201
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Tenth, and Eleventh circuit court decisions, discussed above, that
extended the Hazelwood standard to assess censorship claims relating
to curricular speech in higher education.117 In addition, the Supreme
Court found the forum analysis necessary in Hazelwood because there
was concern that the two questionable student articles might be viewed
as being endorsed by the high school.118 However, in Hosty, the
Seventh Circuit was not pressed to go through a forum analysis— the
court was presented with the classic college student newspaper
operating as an extracurricular activity, and freedom of student presses
is generally presumed without the need to elaborate upon a forum
analysis.119 Thus, rather than engaging in the overly-complicated
forum analysis, the Seventh Circuit should have first evaluated the
student journalists’ censorship claim through a simple factual
examination of whether the Innovator constituted a curricular or
extracurricular publication.
Yet, even if the forum analysis was necessary in deciding whether
there was a First Amendment violation in Hosty, the decision en banc
should have still found a violation on the GSU students’ First
Amendment rights. After reviewing the record, it appears likely that
the Innovator was operating in a public forum.120 The student
newspaper was an extracurricular activity, governed by a Board who
established its rules for publication and who explicitly determined that
the Innovator would “determine its content and format without
censorship or advance approval from the administration.”121 Hence,
117
See Brown v. Li, 308 F.3d at 939 (9th Cir. 2002); Bishop v. Aronov, 926
F.2d 1066 (11th Cir. 1991); Axson-Flynn, 356 F.3d at 1277.
118
See Brief for Student Press Law Center, et. al. as Amici Curiae in Support
of Petition of Margaret L. Hosty, Jeni S. Porche, and Steven P. Barba for Writ of
Certirari, 126 S.Ct. 1330 (No. 05-377).
119
See Hosty v. Carter (Hosty I), 325 F.3d 945 (7th Cir. 2003); see also , e.g.,
Joyner v. Whiting, 477 F.2d 456, 460 (4th Cir. 1973) (“if a college has a student
newspaper, its publication cannot be suppressed because college officials dislike its
editorial comment”); Kincaid, 236 F.3d at 342 (college student yearbook is a limited
public forum).
120
See Hosty v. Carter (Hosty II), 412 F.3d 731, 737-38 (7th Cir. 2005).
121
Id. at 737.
202
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this university policy explicitly created a public forum for
indiscriminate use by the student newspaper organization.122 However,
even if the Innovator operated in a limited (or designated) public
forum, as discussed by the decision en banc, the Second Circuit’s
Kincaid decision suggests that the Seventh Circuit should have still
held that Hazelwood is inapplicable to assess the GSU students’
censorship claim.123 If the Innovator operated in a limited (or
designated) public forum, like the yearbook in Kincaid, then the GSU
student newspaper could only be permissibly limited by reasonable
time, place and manner restrictions, and thus Dean Carter still would
not have been permitted to abruptly halt the presses at whim.124
Therefore, the forum analysis of the Seventh Circuit’s decision en
banc remains questionable in light of the extracurricular college
speech at issue in the case, and the GSU policy apparently opening the
forum for indiscriminate use by Innovator’s staff.
III. THE SEVENTH CIRCUIT OVERLOOKS
HIGH SCHOOL/COLLEGE DISTINCTION
Although the majority in the Hosty decision en banc asserted that
Hazelwood provided their “starting point,”125 the Seventh Circuit also
improperly extended that Supreme Court’s decision by ignoring the
fundamental distinctions between high school and college students,
and the different missions of the respective institutions— both of
which Judge Evans noted in the vacated decision of the three-judge
panel and in his dissent to the decision en banc.126 Instead of engaging
in a forum analysis like the majority in the decision en banc, the
original panel and the dissent of the decision en banc found this
122
See Hazelwood Sch. Dist. v. Kuhlmeier, 484 U.S. 260, 267 (1988) (citing
Perry Educ. Ass’n. v. Perry Local Educators’ Ass’n., 460 U.S. 37, 47 (1983)).
123
See Kincaid, 236 F.3d at 342.
124
Id.
125
Cf. Hosty II, 412 F.3d at 734.
126
See id. at 743-44 (Evans, J. dissenting); Hosty v. Carter (Hosty I), 325 F.3d
945 (7th Cir. 2003).
203
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analysis to be inapplicable to deciding the facts presented before them,
as they were charged with ruling upon the First Amendment rights of
highly educated adults in a historically free and open educational
institution.127
A. The Hosty decision en banc ignores the relevant age and maturity
distinctions between high school and college students.
The majority in the Hosty decision en banc failed to regard the
important dichotomy between high school student speech and college
level speech.128 The courts have consistently looked to this distinction
in determining constitutional freedoms, and this distinction
underscores the fundamental inapplicability of extending Hazelwood
into the university context.129 “[T]he status of minors under the law is
unique in many respects,” and age (for which grade is a good
indicator) has been a tool the courts have regularly used to define legal
rights.130
The Supreme Court has explained that the First Amendment rights
of elementary and secondary students in the public schools “are not
automatically coextensive with the rights of adults in other settings,”
and thus must be applied in light of the special characteristics of the
educational environment.131 In particular, in Hazelwood, the Supreme
Court emphasized the emotional immaturity of high school-age
127
See Hosty II, 412 F.3d at 743-44 (Evans, J. dissenting); Hosty I, 325 F.3d at
948.
128
See Nicholson v. Bd. of Educ., 682 F.2d 858, 863 n. 4 (9th Cir. 1982)
(stating that “[d]ifferent considerations govern application of the First Amendment
on the college campus and at lower level educational institutions [and that] activities
of high school students” may be reviewed more stringently than those of college
students because “the former are in a much more adolescent and immature stage of
life and less able to screen fact from propaganda”).
129
See Bethel Sch. Dist. No. 403 v. Fraser, 478 U.S. 675, 682 (1986).
130
See Hosty II, 412 F.3d at 740 (Evans, J. dissenting); Bellotti v. Baird, 443
U.S. 622, 635 (1979) (“during the formative years of childhood and adolescence,
minors often lack the experience, perspective, and judgment to recognize and avoid
choices that could be detrimental to them”).
131
Bellotti, 443 U.S. at 682.
204
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students, and specifically explained that “a school must be able to take
into account the emotional maturity of the intended audience in
determining whether to disseminate student speech on potentially
sensitive topics.”132
Though Hazelwood informs the courts that younger students in a
high school setting must endure First Amendment restrictions, nothing
in that case changes “the general view of favoring broad First
Amendment rights for students at the university level.”133 College
students are distinguishable from high school students because college
students are more mature, rational and independent thinkers.134
“According to the U.S. Census Bureau, only one percent of those
enrolled in American colleges and universities in 2000 were under the
age of 18,” and over half of those enrolled are over the age of 22.135
University students are not children; they are young adults, and are
less impressionable than elementary and secondary school students.136
As the three-judge panel in the original Hosty decision explained,
treating college and university students “like 15-year-old high school
students and restricting their First Amendment rights by an unwise
extension of Hazelwood [is] an extreme step for [the Seventh Circuit]
to take absent more direction from the Supreme Court.”137 Thus, the
Seventh Circuit’s Hazelwood application in the university setting
undermines the distinction between high school and college students,
and infantilizes some of the most mature students in our nation’s
132
Hazelwood Sch. Dist. v. Kuhlmeier, 484 U.S. 260, 272-73 (1988) (citing
potentially sensitive topics such as the existence of Santa Claus and discussions of
teenage sexual activity).
133
Hosty v. Carter (Hosty I), 325 F.3d 945, 949 (7th Cir. 2003); see also
Hazelwood, 484 U.S. at 272-73.
134
See Tilton v. Richardson, 403 U.S. 672, 686 (1971) (upholding federal law
that provided funding to church-related colleges and universities for construction of
facilities for secular educational purposes; noting that pre-college students may not
have the maturity to make their own decisions on religion, and that college students
are less impressionable).
135
Hosty II, 412 F.3d at 740 n.1 (Evans, J. dissenting); see also Hosty I, 325
F.3d at 948-49.
136
Widmar v. Vincent, 454 U.S. 263, 274 n.14 (1981); Tilton, 403 U.S. at 686.
137
Hosty I, 325 F.3d at 949.
205
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educational system.
B. The Hosty decision en banc ignores the distinct mission
of higher education.
The Seventh Circuit’s decision en banc additionally
underestimates the special importance that the Supreme Court has
placed on free and open exchange in higher education.138 The Supreme
Court has long recognized that the college classroom with its
surrounding environs is the paradigmatic “marketplace of ideas.”139
Colleges and universities seek to expose adult students to a wide range
of viewpoints and strive to facilitate vibrant debates of “philosophical,
religious, scientific, social and political subjects in [both their
classrooms and] their extracurricular campus life outside the lecture
hall.”140 In contrast, primary and secondary schools have a custodial
and tutelary responsibility for their young students.141 Elementary
schools and high schools constitute a principal instrument in
“awakening the child to cultural values, in preparing him for later
professional training, and in helping him to adjust more normally to
his environment.”142
The Seventh Circuit’s decision en banc ignores the longrecognized and long-supported relationship between higher education
138
Healy v. James, 408 U.S. 169, 180 (1972); see also Keyishian v. Bd. of
Regents, 385 U.S. 589, 603 (1967).
139
Bd. of Regents of the Univ. of Wisconsin v. Southworth, 529 U.S. 217, 233
(2000).
140
Southworth, 529 U.S. at 231. “[Wisconsin] law defines the University's
mission in broad terms: ‘to develop human resources, to discover and disseminate
knowledge, to extend knowledge and its application beyond the boundaries of its
campuses and to serve and stimulate society by developing in students heightened
intellectual, cultural and humane sensitivities . . . and a sense of purpose.’” Id. at
221.
141
Bd. of Educ. v. Earls, 536 U.S. 822, 823 (2002) (holding that Fourth
Amendment rights are different in public schools than elsewhere).
142
Hazelwood Sch. Dist. v. Kuhlmeier, 484 U.S. 260, 272 (1988) (citing
Brown v. Bd. of Educ., 347 U.S. 483, 493 (1954)).
206
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and free speech,143 and thus extending Hazelwood at the university
level risks the suppression of ideas and creative inquiry that is so vital
to the nation’s intellectual life.144 This decision could have a snowball
effect or, yet worse, a “tsunami effect”— spawning censorship of any
school-sponsored student activity, and requiring students to gain prior
approval in the realm of student government, theater, speakers, films,
and a host of other expressive activities that are traditionally weaved
into university life.145 In addition, the disastrous consequences of
applying Hazelwood to the university context could “extend outside
the ivy-covered walls.”146 A Hazelwood regime at the college level
could turn “college newspapers into the timid house organs that most
high school newspaper have [now] become.”147 Post-Hazelwood
studies evidence “that high school newspapers suffered a severe
chilling effect” after the high court’s decision and that students
avoided covering controversial issues.148 At the college level, this
“chilling effect” could further hinder the flow of ideas to the offcampus readership, and also “chill” students’ post-college/on-the-job
143
See Stanley v. Magrath, 719 F.2d 279, 282 (8th Cir. 1983) (holding that a
public university may not constitutionally take adverse action against a student
newspaper such as withdrawing or reducing the paper’s funding because it
disapproves of the content of the paper).
144
Rosenberger v. Rector, 515 U.S. 819, 836 (1995) (decided eight years after
Hazelwood and involving challenge to university’s refusal to sponsor a Christian
student group with funds intended to support a broad range of extracurricular student
activities that are related to educational purpose of institution).
145
Brief for Student Press Law Center, et. al. as Amici Curiae in Support of
Petition of Margaret L. Hosty, Jeni S. Porche, and Steven P. Barba for Writ of Cert.,
126 S.Ct. 1330 (No. 05-377).
146
Brief for the Association for Education in Journalism and Mass
Commcation and the Association of Schools of Journalism and Mass Commcation as
Amici Curiae in Support of Petitioner, 126 S.Ct. 1330 (2006) (No. 05-377).
147
Id.
148
Id. (citing Carol S. Lomicky, Analysis of High School Newspaper Editorials
Before and After Hazelwood School District v. Kuhlmeier: A Content Analysis Case
Study, 29 J.L. & EDUC. 462 (2000)).
207
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reporting by interfering with campus newspapers’ “recruitment and
training of tomorrow’s professional journalists.”149
Fortunately, college and university officials in the states
composing the Seventh Circuit have not yet used the Hosty decision en
banc as an absolute license to censor, and instead many universities
have employed the Seventh Circuit’s ruling as a platform to advocate
for the college free press.150 In particular, the administrators at four
public colleges/universities151 in the three states composing the
Seventh Circuit have formally designated their school’s student
newspapers as public fora— explicitly enabling student editors to
make all content decisions without the threat of censorship or
necessity for prepublication approval from the universities.152 Most
recently, administrators at Illinois Central College have shielded their
students from the Hosty decision en banc by declaring that students
149
See Brief for the Association for Education in Journalism and Mass
Commcation and the Association of Schools of Journalism and Mass Commcation as
Amici Curiae in Support of Petitioner, 126 S.Ct. 1330 (2006) (No. 05-377).
150
Amicus Curia briefs were filed by two dozen media organizations, First
Amendment organizations, and journalism education organizations, including
colleges and universities. See, e.g., Answer of Student Press Law Center and Amici
Listed on Reverse Side as Amici Curiae in Response to Defendant-Appellant Patricia
Carter’s Petition for Rehearing with Suggestions for Rehearing en banc, 325 F.3d
945 (7th Cir. 2003) (No. 01-4155); Brief for the Foundation for Individual Rights in
Education and Support for Academic Freedom et al. as Amici Curiae in Support of
Petitioners, 126 S.Ct. 1330 (No. 05-377).
151
The Public Forum List, Student Press Law Center,
http://www.splc.org/publicforumcolleges (last visited April 14, 2006). (Illinois State
University, University of Southern Indiana, University of Wisconsin Platteville
operate in public fora; University of Illinois’s daily student newspaper is fully
independent of the school and a public forum statement is therefore unnecessary);
Matthew Chayes, College paper’s editors given control over content, CHICAGO
TRIBUNE, March 30, 2006 at p.4 (Students at Illinois Central College will have final
say over what is published).
152
University of Southern Indiana president signs public forum statement,
Student Press Law Center, http://www.splc.org/newsflash.asp?id=1070 (last visited
April 14, 2006); The Public Forum List, Student Press Law Center (2005),
http://www.splc.org/publicforumcolleges (last visited April 14, 2006).
208
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will have the final authority over the student newspaper decisions.153
However, there remain over 80 public colleges and universities in this
region, and countless private schools, that have yet to follow suit, and
it is unfortunate that such lengths need to be taken by educational
institutions that have historically operated as free and open fora that
encourage and promote a diversity of viewpoints.154 But unless the
administrations of all colleges and universities in the Seventh Circuit
states follow this sort of example and explicitly declare that the
publications are public fora,155 the suspect forum analysis of the Hosty
decision en banc will still threaten the college free press and still
undermine the fundamental mission of higher education.
IV. THE SEVENTH CIRCUIT FURTHER MISAPPLIES
SUPREME COURT PRECEDENT
Hazelwood is a factually-distinct standard that is problematic to
apply outside the specific context in which it arose— that of
curricular, high school speech.156 Hence, once the Seventh Circuit
majority decided to extend Hazelwood to non-curricular speech in
higher education, the court’s suspect decision-making did not stop
there. Instead, the majority’s logic in the Hosty decision en banc
continued to fly in the face of Supreme Court precedent, as the
153
Matthew Chayes, College paper’s editors given control over content,
CHICAGO TRIBUNE, March 30, 2006, at p.4. A faculty adviser at Illinois Central
College threatened to shut down the campus paper after the student editors resisted
the advisor’s demands to control the content. Id.
154
The Public Forum List, Student Press Law Center,
http://www.splc.org/publicforumcolleges (last visited April 14, 2006).
155
See id. (The Student Press Law Center is encouraging students in Illinois,
Indiana and Wisconsin to call upon their schools to pledge their commitment to free
speech by explicitly designating their student media as “public fora” where student
editors have the right to make editorial decisions free from administrative
interference).
156
See Brief for Student Press Law Center, et. al. as Amici Curiae in Support
of Petition of Margaret L. Hosty, Jeni S. Porche, and Steven P. Barba for Writ of
Certiorari, 126 S.Ct. 1330 (No. 05-377).
209
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Seventh Circuit misapplied the high court’s analysis regarding
subsidized funding and prior restraints.
A. The Hosty decision en banc confuses student fees and
government subsidies.
The Seventh Circuit appears to have also ignored the critical
distinction between funding from mandatory student fees and
government subsidies.157 The Hosty decision en banc transformed
student money into government money— “forc[ing] students to pay
into a student activities funds earmarked for a student-run newspaper
only to have [the funds] used to finance an administrati[ve]
mouthpiece.”158 Because the Innovator was an extracurricular activity
supported by student activity fees,159 “[t]he Seventh Circuit directly
contradicted Supreme Court precedent by applying doctrines relevant
to institutionally ‘subsidized’ speech.”160
In particular, the Seventh Circuit improperly treated the
mandatory student activity fees as a conventional governmental
subsidy, diametrically opposed to the Supreme Court’s recent
decisions.161 Under the high court’s analyses in Board of Regents v.
Southworth162 and Rosenberger v. Rector,163 student fees are
157
See Greg Lukianoff & Samantha Harris, FIRE Policy Statement on ‘Hosty
v. Carter,’ Foundation for Individual Rights in Education,
http://www.thefire.org/index.php/article/6269.html (last visited April 14, 2006).
158
Brief for The Foundation for Individual Rights in Education and Supp. for
Academic Freedom et al. as Amici Curiae in Support of Petitioners, 126 S.Ct. 1330
(No. 05-377).
159
Hosty v. Carter (Hosty I), 325 F.3d 945, 946 (7th Cir. 2003).
160
(No. 05-377)
161
Id.
162
Bd. of Regents of the Univ. of Wisconsin v. Southworth, 529 U.S. 217, 233
(2000) (group of students challenged use of mandatory student fees to fund speech
with which they disagreed).
163
Rosenberger v. Rector, 515 U.S. 819 (1995) (Christian student publication
sought student fee funding).
210
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considered to be part of a pool of student money to encourage a
diversity of views from private speakers, and “are not considered part
of a university’s discretionary funds.”164 The majority’s analysis in the
Hosty decision en banc cannot be reconciled with the Supreme Court’s
decision in Rosenberger, for example, where the high court held that
the First Amendment prohibits a public university from denying
funding to a student publication because of its religious or political
message.165 Under the majority’s analysis in Hosty, the university in
Rosenberger could demand both the right to review the Christian
student publication at issue and to censor its religious contents “once
the publication accepted any funding.”166 However, this is not what the
Supreme Court held in Rosenberger, and thus evinces how the Seventh
Circuit misconstrued the high court’s precedent in the Hosty decision
en banc.
B. The Hosty decision en banc undermines “prior restraint”
jurisprudence.
In concluding that Dean Carter is entitled to qualified immunity
for ordering the printer to stop publishing the Innovator, the Seventh
Circuit has further undermined the long-standing, widely-accepted
premise that prior restraints are repugnant to the basic values of our
society.167 As the dissent of the decision en banc explained, the law
prior to Hazelwood consistently established that university officials
164
(No. 05-377) (citing Southworth, 529 U.S. 217; Rosenberger, 515 U.S. 819).
165
See generally Rosenberger, 515 U.S. 819.
166
. Brief for Student Press Law Center, et. al. as Amici Curiae in Support of
Petition of Margaret L. Hosty, Jeni S. Porche, and Steven P. Barba for Writ of
Certiorari, 126 S.Ct. 1330 (No. 05-377)
167
See Answer of Student Press Law Center and Amici Listed on Reverse Side
as Amici Curiae in Response to Defendant-Appellant Patricia Carter’s Petition for
Rehearing with Suggestions for Rehearing en Banc, 325 F.3d 945 (7th Cir. 2003)
(No. 01-4155); Brief for the Foundation for Individual Rights in Education and
Support for Academic Freedom et al. as Amici Curiae in Support of Petitioners, 126
S.Ct. 1330 (No. 05-377).
211
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could not require prior review of student media; and the law after
Hazelwood did not change this well-established rule.168 The U.S.
Supreme Court has steadily held that prior restraints on expression are
presumptively unconstitutional,169 and the courts have long equated
and analyzed state-mandated prepublication reviews as prior
restraints.170 The Supreme Court has moreover asserted that public
officers, like the GSU administrators, “whose character and conduct
remain open to debate and free discussion in the press, [must] find
their remedies . . . under libel laws providing for redress and
punishment, and not in proceedings to restrain publication.”171
Contrary to the majority’s logic in the Hosty decision en banc,
Hazelwood was not generally understood to grant officials the
authority to regulate college student media, at the time when Dean
Carter ordered the Innovator’s printer to stop the presses;172 and Dean
Carter, or anyone in a similar position of authority, would have
reasonably understood such an action to constitute an impermissible
168
Hosty v. Carter (Hosty II), 412 F.3d 731, 742-43 (7th Cir. 2005) en banc
(Evans, J. dissenting).
169
See Neb. Free Press Ass’n v. Stuart, 427 U.S. 539, 559 (1976) (“prior
restraints on speech and publication are the most serious and least tolerable
infringement on First Amendment rights”); N.Y. Times Co. v. U.S., 403 U.S. 713,
717 (1971) (“Both the history and language of the First Amendment support the
view that the press must be left to publish the news . . . without censorship,
injunction or prior restraints”); Near v. State of Minn., 283 U.S. 697, 713 (1931)
(“[I]t has been generally, if not universally, considered that it is the chief purpose of
the [First Amendment’s] guaranty to prevent previous restraints upon publication”).
170
See Answer of Student Press Law Center and Amici Listed on Reverse
Side as Amici Curiae in Response to Defendant-Appellant Patricia Carter’s Petition
for Rehearing with Suggestions for Rehearing en Banc, 325 F.3d 945 (7th Cir. 2003)
(No. 01-4155) (citing Fujishima v. Bd. of Educ., 460 F. 2d 1355 (7th Cir. 1972) (rule
prohibiting students from distributing any publication on school grounds without
prior approval of superintendent violated First Amendment)).
171
Near v. State of Minn., 283 U.S. 697, 718-19 (1931).
172
See Brief for the Foundation for Individual Rights in Education and Support
for Academic Freedom et al. as Amici Curiae in Support of Petitioners, 126 S.Ct.
1330 (No. 05-377) (explaining that even the “most comprehensive text dealing with
higher education law does not even mention Hazelwood as a case that is applicable”
to college student media).
212
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prior restraint. In addition, as the Dean of Student Affairs and
Services, Carter would have been reasonably informed of the GSU
policy “that each funded publication ‘will determine content and
format . . . without censorship or advance approval.’”173 Yet, despite
the rather obvious warnings that her actions were improper, the Hosty
decision en banc granted qualified immunity to Dean Carter upon the
arguably faulty premise that she could not have known that she was
acting improperly in issuing her directive for mandatory
prepublication review of the contents of the GSU student
newspaper.174
CONCLUSION
The Seventh Circuit’s extension of the U.S. Supreme Court’s
Hazelwood decision was an extreme step for the court to take, absent
more direction from the Supreme Court, and in light of contrary
decisions from several circuit courts. Even though the Supreme Court
has recently declined to review the Seventh Circuit’s decision en banc,
Hosty v. Carter is still worthy of critical and cautious acceptance from
the legal community. The decision en banc conflicts with the
Hazelwood interpretations of several circuit courts, preemptively
extends the Hazelwood holding to college student media, and runs
contrary to the spirit of Supreme Court precedent.
As a result of the Hosty litigation, the Innovator no longer
publishes at Governor’s State University or in any other forum,175 and
with the Seventh Circuit’s Hazelwood interpretation still intact, it will
not be surprising if the presses of other collegiate newspapers are
likewise forced to shut down. For now, the only choice that college
student journalists have is to petition their administrations to explicitly
declare that their student publications operate as fully public fora, so
173
Hosty II, 412 F.3d at 737 (Evans, J. dissenting) (quoting the
Communications Media Board’s policy statement).
174
Id. at 739.
175
First Amendment Center, Full 7th Circuit upholds college against
newspaper, http://www.firstamendmentcenter.org/news.aspx?id=15452 (last visited
April 14, 2006).
213
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as to protect themselves from Hosty’s questionable forum analysis and
suspect extension of Hazelwood’s standard for evaluating censorship
claims in the university context.
As a consequence of the Hosty decision en banc, the law
regarding the censorship of college student media remains unclear in
the Seventh Circuit. Thus, without further direction from the Supreme
Court, courts throughout the country will inevitably muddle the
Hazelwood analysis in future applications and misapplications of this
factually-distinct, high school-specific Supreme Court decision.
214
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Volume 1, Issue 1
Spring 2006
SEEKING ASYLUM IN A HOSTILE SYSTEM:
THE SEVENTH CIRCUIT REVERSES TO
CONFRONT A BROKEN PROCESS
JOHN R. FLOSS
Cite as: 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.
INTRODUCTION.
The United States has long been known as a bastion of freedom
and a nation that readily opens its arms to those seeking refuge from
persecution. As emblazoned on the Statue of Liberty, “give me your
tired, your poor, your huddled masses yearning to breathe free.” 1 This
premise stems largely from principles considered fundamental to
Americans, i.e. the free exercise of religion, freedom of speech,
freedom of association, among others. Further, it has long been a
practice that the U.S. will not return a foreign national to a country
where that national’s life or freedom is threatened. 2 The U.S.
promotes this policy through the application of its asylum laws. 3 The
1
EMMA LAZARUS, THE NEW COLOSSUS (1883), reprinted in EMMA LAZARUS:
SELECTIONS FROM HER POETRY AND PROSE 48 (Morris Schappes ed. Jewish
Historical Society of New York 1967). The poem was inscribed on the base of the
Statue of Liberty in 1903.
2
Ruth Ellen Wasem, CRS Report for Congress: U.S. Immigration Policy on
Asylum Seekers, May 5, 2005, available at
http://www.fas.org/sgp/crs/misc/RL32621.pdf (last visited Apr. 26, 2006).
3
Asylum is the process by which the United States grants lawful presence to a
refugee fleeing a foreign country due to persecution on account of race, religion,
nationality, membership in a particular social group, or political opinion. An alien
who successfully demonstrates that he or she has faced past persecution in a foreign
216
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United States’ commitment to these principles and its ubiquitous
reputation and stance as the land of the free has long provided
persecuted aliens the opportunity to start life anew.
What is the result then, if the ability of aliens fleeing from
genuine persecution becomes endangered in administrative
blundering, ignorance, incompetence, or perhaps political posturing?
Does this begin to taint our history as an oasis for persecuted refugees?
Or is it necessary to rethink and reform our long held status as a
sanctuary for the persecuted in light of the dangers a relatively open
door policy can pose in the post-9/11 era?
The answers to these questions are complex and may differ
amongst political ideologies, but what remains certain is that there
exists a fundamental problem in the area of immigration adjudication,
and in particular, asylum adjudication. The number of asylum
adjudication cases appealed to the U.S. circuit courts of appeals from
the government agencies charged with adjudicating such cases has
risen sharply in the past several years. 4 In and of itself, a rise in the
number of appeals to the federal courts poses little problem other than
an increased burden on judicial resources. However, the troubling
aspect of these appeals, and a further indication of a fundamental and
underlying problem, is the unusually high rate at which aliens’
petitions to review are granted and federal agencies’ decisions are
thereby reversed. 5 For example, in the period between June 15, 2005
and December 15, 2005, the United States Court of Appeals for the
Seventh Circuit granted the alien’s petition for review in
approximately two-thirds (19 of 29) of the published opinions that
country or likely would face future persecution if returned to that country is
protected and immune from extradition to the country from which he or she has fled.
8 U.S.C. § 1158(b) (2005); 8 U.S.C. § 1101(a)(42)(A) (2006).
4
U.S. Department of Justice: Executive Office for Immigration Review, BIA
Restructuring and Streamlining Procedures, (Dec. 8, 2004 revised),
http://www.usdoj.gov/eoir/press/04/BIAStreamlining120804.pdf (last visited Apr.
26, 2006). “The rate of new petitions — the number of BIA decisions appealed to
the Federal courts compared to the total number of BIA decisions — has increased
from an historical 5 percent (before 2002) to a current [December 8, 2004] level of
approximately 25 percent.” Id.
5
See Benslimane v. Gonzales, 430 F.3d 828, 829 (7th Cir. 2005).
217
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dealt with asylum denial issues. 6 What is the source of this high rate
of reversal and what can be done to remedy it? How are the Seventh
Circuit and the U.S. Government responding to the problems
identified?
This Comment will explore some of the problems inherent in the
immigration adjudication system identified throughout opinions issued
by the Seventh Circuit between June 15, 2005 and December 15, 2005.
Part I introduces the basics of the asylum adjudication process. Part II
addresses the unusually high rate of reversal seen in recent Seventh
Circuit decisions. Part III explores several of the most common flaws
identified in immigration judge (“IJ”) and Board of Immigration
Appeals (“BIA”) decisions, particularly credibility determinations and
corroboration requirements, and explores potential remedies to these
problems. Part IV discusses several procedural problems created by
federal agencies that have helped contribute to the high rate of
reversals. In addition, this Comment explores the role the Seventh
Circuit is playing in effectuating change in the system of asylum
6
Cases in which the petition was granted: Kllokoqi v. Gonzales, 439 F.3d 336
(7th Cir. 2005); Durgac v. Gonzales, 430 F.3d 849 (7th Cir. 2005); Lhanzom v.
Gonzales, 430 F.3d 833 (7th Cir. 2005); Tabaku v. Gonzales, 425 F.3d 417 (7th Cir.
2005); Dawoud v. Gonzales, 424 F.3d 608 (7th Cir. 2005); Ssali v. Gonzales, 424
F.3d 556 (7th Cir. 2005); Tapiero de Orejeula v. Gonzales, 423 F.3d 666 (7th Cir.
2005); Galicia v. Gonzales, 422 F.3d 529 (7th Cir. 2005); Sosnovskaia v. Gonzales,
421 F.3d 589 (7th Cir. 2005); Dong v. Gonzales, 421 F.3d 573 (7th Cir. 2005); Hor
v. Gonzales, 421 F.3d 497 (7th Cir. 2005); Haile v. Gonzales, 421 F.3d 493 (7th Cir.
2005); Nakibuka v. Gonzales, 421 F.3d 473 (7th Cir. 2005); Chen v. Gonzales, 420
F.3d 707 (7th Cir. 2005); Koval v. Gonzales, 418 F.3d 798 (7th Cir. 2005); Sahi v.
Gonzales 416 F.3d 587 (7th Cir. 2005); Mohideen v. Gonzales, 416 F.3d 567 (7th
Cir. 2005); Soumahoro v. Gonzales, 415 F.3d 732 (7th Cir. 2005); Fessehaye v.
Gonzales, 414 F.3d 746 (7th Cir. 2005)
Cases in which the petition was denied: Djouma v. Gonzales, 429 F.3d 685 (7th
Cir. 2005); Hamdan v. Gonzales, 425 F.3d 1051 (7th Cir. 2005); Hussain v.
Gonzales, 424 F.3d 622 (7th Cir. 2005); Firmansjah v. Gonzales, 424 F.3d 598 (7th
Cir. 2005); Vasile v. Gonzales, 417 F.3d 766 (7th Cir. 2005) (petition denied on
jurisdictional grounds); Mitreva v. Gonzales, 417 F.3d 761 (7th Cir. 2005); Singh v.
Gonzales, 417 F.3d 736 (7th Cir. 2005); Hernandez-Baena v. Gonzales, 417 F.3d
720 (7th Cir. 2005); Li v. Gonzales, 416 F.3d 681 (7th Cir. 2005); Hysi v. Gonzales,
411 F.3d 847 (7th Cir. 2005).
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application adjudications and in the context of immigration
adjudication as a whole.
I.
THE ASYLUM ADJUDICATION PROCESS:BACKGROUND AND
PROCEDURE.
A. A Brief Introduction to the Asylum Process.
Asylum is typically thought of as governmental protection and
immunity from extradition or deportation granted to a political refugee
fleeing from a foreign country. The process of applying for asylum in
the United States, although not overly complicated, can be an arduous
and often frustrating experience for those seeking such protection. In
order to adequately address the issues that are currently contributing to
the high rate of reversal amongst administrative asylum decisions, a
brief overview of the asylum procedure is necessary.
There are several means by which an alien may attempt to gain
lawful status within the United States as an asylee. 7 The context in
which an alien applies for asylum differs depending on that particular
alien’s legal status within the U.S, whether present legally or illegally.
Given this status, the alien will apply through either an agency of the
Department of Homeland Security (“DHS”) known as United States
Citizenship and Immigration Services (“USCIS”) or through the
7
“An asylum application can arise in three contexts: (1) an affirmative
application, in which a noncitizen in valid nonimmigrant status applies for asylum
with the . . . USCIS; (2) a defensive application filed with an immigration judge (IJ)
in response to action taken against the noncitizen; and (3) in response to expedited
removal proceedings.” 3-34 CHARLES GORDON, STANLEY MAILMAN & STEPHEN
YALE-LOEHR, IMMIGRATION LAW AND PROCEDURE § 34.02 (2006). If an alien
applies for asylum with the USCIS, an officer of the USCIS shall perform an initial
interview with the alien to determine if the alien has a ‘credible fear’ of persecution.
8 U.S.C. § 1225(b)(1)(A)(ii)-(b)(1)(B)(ii) (1996). Should the USCIS determine that
the alien does have a credible fear of persecution, the alien’s asylum application will
be referred to the DOJ immigration court for a hearing on the matter. 8 U.S.C. §
1225(b)(1)(B). Note also that should the officer determine that there is no ‘credible
fear’ of persecution, an alien is entitled to prompt review by an IJ. 8 U.S.C. §
1225(b)(1)(B)(iii)(III).
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Immigration Court of the Executive Office for Immigration Review,
administered by the Department of Justice (“DOJ”). 8 Regardless of
the manner in which asylum is sought, unless an alien’s asylum
application is granted, that application will at some point be
adjudicated in a hearing in front of an immigration judge or IJ. 9 At
this hearing, an IJ “evaluates an alien’s claim for credibility, assessing
internal consistency, plausibility, and detail,”10 and may require the
alien to provide corroborating evidence in certain circumstances. 11
To qualify for asylum, an alien bears the burden of demonstrating
that he or she is a refugee that is unable or unwilling to return to his or
her home country because of past persecution or a well-founded fear
of future persecution on account of race, religion, nationality,
membership in a particular social group, or political opinion. 12 If an
alien is able to demonstrate past persecution, this gives rise to a
rebuttable presumption of a well-founded fear of future persecution. 13
The IJ will either grant or deny asylum and will render a written
decision addressing the merits of the alien’s claim. If asylum is denied
by the IJ, the alien may appeal the decision to the BIA, which serves
as the appellate entity of the Immigration Court. This appellate Board
is made up of eleven members appointed by the Attorney General, 14
although temporary Board members may be added for periods not to
exceed six months. 15
8
See 3-34 CHARLES GORDON, STANLEY MAILMAN & STEPHEN YALE-LOEHR,
IMMIGRATION LAW AND PROCEDURE § 34.02 (2006).
9
Id.
10
Ssali v. Gonzales, 424 F.3d 556, 562 (7th Cir. 2005) (citing Capric v.
Ashcroft, 355 F.3d 1075, 1085 (7th Cir. 2004)).
11
See Lin v. Ashcroft, 385 F.3d 748, 751 (7th Cir. 2004) (quoting Uwase v.
Ashcroft, 349 F.3d 1039, 1041 (7th Cir. 2003); Georgis v. Ashcroft, 328 F.3d 962,
969 (7th Cir. 2003). See also 8 C.F.R. § 208.13(a) (2000) (stating “[t]he testimony
of the applicant, if credible, may be sufficient to sustain the burden of proof without
corroboration.”)).
12
8 U.S.C. § 1158(b) (2005); 8 U.S.C. § 1101(a)(42)(A) (2006).
13
See 8 C.F.R. § 208.13(b)(1).
14
8 C.F.R. § 1003.1(a)(1) (2005).
15
Id. at § 1003.1(a)(4).
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Under a ‘streamlining’ regulation enacted in 2002 by former
Attorney General John Ashcroft, 16 a single BIA member is authorized
to affirm an IJ’s decision without issuing an opinion if that Board
member determines that the underlying result was correct, that any
errors in the decision were harmless or nonmaterial, and that either (1)
the issues on appeal are squarely controlled by existing Board or
federal court precedent and do not involve the application of precedent
to a novel factual situation, or (2) the factual and legal issues raised on
appeal are not so substantial that the case warrants the issuance of a
written opinion in the case. 17 If the Board member determines that
one of these two conditions is not met, a three-member Board panel
will then review the application. 18 The Board panel may then reverse
the lower decision and issue an opinion of its own, affirm the decision
without issuing an opinion, or affirm the decision with an amended or
new opinion. 19
B. Judicial Review by the Federal Courts of Appeals.
If the BIA affirms an IJ’s decision with its own opinion or amends
the opinion of the IJ, the alien may appeal the BIA’s decision to the
federal court of appeals having jurisdiction over the alien. 20 A federal
circuit court reviews this decision under the deferential “substantial
16
Restructuring and Streamlining Procedures, (Dec. 8, 2004 revised), available at
26, 2006).
17
8 C.F.R. § 1003.1(e)(4)(i). Note also that “[A] decision to streamline does
not mean that the BIA has adopted, or entirely approves of, the IJ’s determinations;
it only means that the BIA deemed any errors by the IJ to be harmless.” Hamdan v.
Gonzales, 425 F.3d 1051, 1058 (7th Cir. 2005) (citing Falcon Carriche v. Ashcroft,
350 F.3d 845, 849 (9th Cir. 2003)).
18
See 8 C.F.R. § 1003.1(e)(6).
19
Id. at § 1003.1(d)-(e).
20
See 8 U.S.C. § 1252 (2005). See also 8-104 CHARLES GORDON, STANLEY
MAILMAN & STEPHEN YALE-LOEHR, IMMIGRATION LAW AND PROCEDURE §§
104.05, 104.13 (2006).
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evidence” standard 21 in which the decision “must be affirmed if it is
supported by reasonable, substantial, and probative evidence on the
record considered as a whole.” 22 Substantial evidence is more than a
“mere scintilla” or “uncorroborated hearsay;” “it means such relevant
evidence as a reasonable mind might accept as adequate to support a
conclusion.” 23 Therefore, a court will grant a petition for review only
if the alien appellant “shows that ‘the evidence not only supports
[reversal of the BIA’s decision], but compels it.’” 24 In addition, an
asylum grant is ultimately a discretionary decision by the Attorney
General. 25
If the BIA affirms an IJ’s ruling without opinion, the court
reviews the decision of the IJ directly, 26 again applying the substantial
evidence test, reversing only if the evidence compels a different
result. 27 The IJ’s opinion must be supported by “specific, cogent
reasons . . . [that] bear a legitimate nexus to the finding.” 28
The Seventh Circuit has stated that under this standard, “outright
reversal is almost never called for. More commonly, petitions for
review will be granted when the court concludes that there is more that
21
5 U.S.C. § 706 (1966).
Liu v. Ashcroft, 380 F.3d 307, 312 (7th Cir. 2004) (quoting INS v. EliasZacarias, 502 U.S. 478, 481 (1992)).
23
Willapoint Oysters, Inc. v. Ewing, 174 F.2d 676, 691 (9th Cir. 1949), cert.
denied, 338 U.S. 860 (1949), reh. denied, 339 U.S. 945 (1950) (citing Consolidated
Edison Co. v. NLRB, 305 U.S. 197, 229-30 (1838)).
24
Liu, 380 F.3d at 312 (quoting Elias-Zacarias, 502 U.S. at 481 n.1).
25
Asylum applications sometimes are denied in the exercise of discretion, even
if the alien has established a well-founded fear of persecution on account of one of
the five statutory grounds. 3-33 CHARLES GORDON, STANLEY MAILMAN & STEPHEN
YALE-LOEHR, IMMIGRATION LAW AND PROCEDURE § 33.05 (2006).
26
Durgac v. Gonzales, 430 F.3d 849, 851 (7th Cir. 2005); see also Soumahoro
v. Gonzales, 415 F.3d 732, 736 (7th Cir. 2005); Lin v. Ashcroft, 385 F.3d 748, 751
(7th Cir. 2004).
27
Durgac, 430 F.3d at 851; see also Mitreva v. Gonzales, 417 F.3d 761, 764
(7th Cir. 2005); Balogun v. Ashcroft, 374 F.3d 492, 498 (7th Cir. 2004).
28
Ahmad v. INS, 163 F.3d 457, 461 (7th Cir. 1999) (quoting Nasseri v.
Moschorak, 34 F.3d 723, 726 (9th Cir. 1994), overruled on other grounds by Fisher
v. INS, 79 F.3d 955 (9th Cir. 1996)).
22
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must be done at the agency level before final conclusion on an asylum
application is possible.” 29 Thus, although an “IJ’s credibility
determination is entitled to great deference,” 30 a court “will not
automatically yield to the IJ’s conclusions when they are drawn from
insufficient or incomplete evidence.” 31 As will be shown,
insufficiently supported adverse credibility determinations represent a
major source of errors identified in asylum decisions reviewed by the
Seventh Circuit.
II. RECENT DEVELOPMENTS IN THE SEVENTH CIRCUIT:
REVERSE, REVERSE, REVERSE.
Given the deferential substantial evidence standard of review
applied by the federal courts, one might speculate that the Seventh
Circuit would rarely grant an alien’s petition for review, and would
outright reverse the decision of the IJ or BIA in even fewer
instances. 32 Surprisingly, this assumption is decidedly off base. As
noted previously, during its last term, the Seventh Circuit granted the
alien’s petition for review in approximately two-thirds of its published
opinions concerning asylum. 33 Even more troubling is the fact that
this alarmingly high rate of reversal applies not only to asylum
decisions, but extends to all immigration decisions rendered by
immigration adjudicators. For example, the Seventh Circuit recently
noted:
29
Durgac, 430 F.3d at 851-852.
Dong v. Gonzales, 421 F.3d 573, 578 (7th Cir. 2005) (citing see Uwase v.
31
Dong, 421 F.3d at 578 (citing Georgis v. Ashcroft, 328 F.3d 962, 968 (7th
Cir. 2003)).
32
The Seventh Circuit has noted that under the substantial deference standard,
credibility determinations “should only be overturned under extraordinary
circumstances.” Ahmad v. INS, 163 F.3d 457, 461 (7th Cir. 1999) (citing Nasir v.
INS, 122 F.3d 484, 486 (7th Cir. 1997)).
33 See supra note 6.
30
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In the year ending [September 23, 2005], different
panels of this court reversed the [BIA] in whole or part
in a staggering 40 percent of the 136 petitions to review
the Board that were resolved on the merits. The
corresponding figure, for the 82 civil cases during this
period in which the United States was the appellee, was
18 percent. 34
However, the high reversal rate alone does not complete the story.
Accompanying these reversals has been scathing critique of the
analyses, methods employed, and conclusions formed by the
underlying immigration adjudicators. A sampling of a recent Seventh
Circuit decision provides but a small snippet of the varying critiques
leveled upon the IJ or BIA:
[o]ur criticisms of the Board and of the immigration
judges have frequently been severe . . . “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
conclusion is “totally unsupported by the record” . . .
the immigration judge’s unexplained conclusion is
“hard to take seriously” . . . “there is a gaping hole in
the reasoning of the board and the immigration judge” .
. . “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.” 35
34
35
Benslimane v. Gonzales, 430 F.3d 828, 829 (7th Cir. 2005).
Id. (citations omitted).
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This type of biting criticism has continued beyond those decisions
of the Seventh Circuit’s past term, thus indicating that the problem is
persistent and fundamentally ingrained in the system. 36 Nor is the
Seventh Circuit alone in rendering harsh criticism upon IJs and the
BIA. In Benslimane v. Gonzales the Court cites language from the
Second, Third, and Ninth Circuits:
[o]ther circuits have been as critical . . . “the tone, the
tenor, the disparagement, and the sarcasm of the
[immigration judge] seem more appropriate to a court
television show than a federal court proceeding” . . . the
immigration judge’s finding is “grounded solely on
speculation and conjecture” . . . the immigration judge’s
“hostile” and “extraordinarily abusive” conduct toward
petitioner “by itself would require a rejection of his
credibility finding” . . . “the [immigration judge’s]
assessment of Petitioner’s credibility was skewed by
prejudgment, personal speculation, bias, and
conjecture” . . . “it is the [immigration judge’s]
conclusion, not [the petitioner’s] testimony, that ‘strains
credulity’”. 37
Obviously the system is flawed and the Seventh Circuit has
chosen to voice its rising indignation on this matter in a manner that
has received growing publicity of late. 38 The criticism seems
36
For example, in Cecaj v. Gonzales the court stated:
The immigration judge’s analysis of the evidence was
radically deficient. He failed to consider the evidence as a whole,
as he was required to do by the elementary principles of
administrative law. [citations omitted] Instead he broke it into
fragments. Suppose you saw someone holding a jar, and you said,
“That’s a nice jar,” and he smashed it to smithereens and said,
“No, it’s not a jar.” That is what the immigration judge did.
440 F.3d 897, 899 (7th Cir. 2006).
37
Benslimane, 430 F.3d at 829.
38
Adam Liptak, Courts Criticize Judges’ Handling of Asylum Cases, N.Y.
TIMES, Dec. 26, 2005, at A1.
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warranted as well. An adjudicative body that is reversed in nearly
two-thirds of its appeals represents an affront to the rights of those
seeking protection in its courts. This is particularly true given that the
high rate of reversals in the Seventh Circuit has taken place under the
application of the deferential substantial evidence standard of review.
But what is the root cause for this judicial breakdown? And is the
system really as flawed as the Seventh Circuit claims it to be?
III. COMMON ERRORS IN IJ AND BIA ANALYSES.
Despite the sometimes scathing and often pointed critiques by the
Seventh Circuit, the majority of the asylum reversals issued by the
Court in its last term can be attributed to one or both of two issues that
form the crux of nearly every asylum claim analysis; (1) a credibility
assessment of the alien’s testimony as well as any accompanying
evidence presented and, (2) the imposition of a corroborating evidence
requirement on an otherwise credible alien. The immigration
adjudicator must support decisions regarding these issues with
substantial evidence gleaned from the record as a whole. 39 Yet, as
identified by the Seventh Circuit, this is often not the case.
A. Is the Asylum Claim Credible?
During an asylum hearing an immigration judge will assess the
credibility of the alien applicant, as well as the credibility of any
accompanying witnesses, experts, and other evidence. DHS counsel
will cross-examine the applicant, and the IJ may also question the
alien. An interpreter, whether provided by the alien or by the DOJ,
will almost always be present. An IJ will then, based on all the
available evidence, determine whether the alien’s claim of persecution
is credible or incredible. 40 Credibility determinations “must be
39
Millar v. FCC, 707 F.2d 1530, 1540 (D.C.Cir. 1983) (stating that an
agency’s conclusions must be based on record as a whole).
40
See 8 U.S.C. § 1158 (2005).
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supported by specific, cogent reasons.” 41 In addition, any reason cited
by an immigration judge must “bear a legitimate nexus to the
finding.” 42 Credibility determinations in asylum claims are often
dispositive, and are primarily based upon subjective analysis. 43 As
such, these determinations are particularly prone to abuse and
erroneous conclusions.
1.
Grasping at Minor Inconsistencies.
Assessing the credibility of an alien claiming past or future
persecution in a foreign country requires an astute judge of character.
In a majority of cases, an alien has little or no supporting
documentation due to the circumstances under which the alien left his
or her respective country. Much of an IJ’s analysis will thus be
predicated upon the testimony of an alien and accompanying
witnesses, if any. To add to the difficulty of this process, it is
inevitable that an IJ will be presented with fraudulent claims of
persecution on a somewhat regular basis given the benefits a grant of
asylum bestows. Yet, as an adjudicator, it is the responsibility of an IJ
to sift through the testimony and discern that which is truthful and that
which is false. The Seventh Circuit understands the gravity of this
task, but insists that far too often immigration judges and the BIA
cling to minor inconsistencies that have no bearing on the overall
validity of the asylum claim. 44
For example, in Lhanzom v. Gonzales the Seventh Circuit recently
chastised the analysis of an IJ’s adverse credibility determination as
fraught with findings of inconsistent testimony from the alien that in
41
Ahmad v. INS, 163 F.3d 457, 461 (7th Cir. 1999).
Lhanzom v. Gonzales, 430 F.3d 833, 843 (7th Cir. 2005).
43
See 8 U.S.C. § 1158(b) (2005).
44
Lhanzom, 430 F.3d at 848 (citing Korniejew v. Ashcroft, 371 F.3d 377, 38687 (7th Cir. 2004) to criticize the increasing reliance by the BIA and IJs upon
perceived inconsistencies in testimony as the basis for adverse credibility
determinations, even in cases where the alleged discrepancies are minor or easily
explained).
42
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fact did not exist. 45 Here, an alien who sought asylum supplemented
her claim through the testimony of her father, a seventy-nine-year-old
Tibetan man. 46 Throughout the father’s lengthy examination by the
immigration judge there appears in the record many instances of
miscommunication between the witness and the IJ;
miscommunications which the IJ deemed to represent
inconsistencies. 47 The Court noted that the immigration judge
responded with “unusual defensiveness” when the alien’s attorney
attempted to correct those misunderstandings. 48 The alien’s father
acknowledged that much of his testimony was based upon matters for
which he had little personal knowledge and he was simply relaying
what he had heard, yet the IJ based much of his incredibility decision
on internal inconsistencies between the testimony of the alien’s father
and the account of the alien herself. 49 In fact, the Seventh Circuit
noted that “the IJ did not comment on [the alien’s] demeanor as a
witness but relied entirely on these alleged inconsistencies in finding
her not credible.” 50 The Court further stated that “in reviewing the
transcript of [the alien’s father’s] testimony, again, the only thing that
is clear is the level of confusion during his testimony as the IJ
continued to question him about matters for which he had no personal
knowledge.” 51 In granting the petition for review, the Seventh Circuit
concluded that the “IJ’s conclusion is based on an assumption and
assumption cannot form the basis of impeachment.” 52
45
See Lhanzom, 430 F.3d 833.
Id. at 837-39.
47
Id.
48
Id. at 837.
49
Id. at 844-45.
50
Id. at 843.
51
Id. at 845. Moreover, the Court lamented the “frequent insensitivity in
immigration hearings to the possibilities of misunderstandings caused by the use of
translators of difficult languages such as Chinese. Id. (citing Zen Li Iao v. Gonzales,
400 F.3d 530, 534 (7th Cir. 2005)).
52
Lhanzom, 430 F.3d at 846 (citing Korniejew v. Ashcroft, 371 F.3d 377, 383
(7th Cir. 2004)).
46
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This case represents a mounting concern of the Seventh Circuit
that IJs and the BIA have increasingly grasped onto “perceived
inconsistencies” in testimony as the basis for incredibility
determinations, even where such inconsistencies are immaterial and
could be readily explained. 53 In an overzealous effort to weed out
fraudulent claims from those with merit, or perhaps responding to
internal pressure from the executive branch of the government,
immigration adjudicators have scrutinized the record looking for gaps
and latent ambiguities instead of looking at the overall plausibility of
an alien’s claim. 54 This type of error was prevalent in the asylum
decisions reviewed by the Seventh Circuit during its last term. 55
This problem has been created by the DHS and the DOJ
themselves. As the number of immigration appeals rises,56
immigration adjudicators presumably need to cut corners at an
53
Lhanzom, 430 F.3d at 848 (citing Korniejew, 371 F.3d at 386-87).
Since 9/11, the rate at which asylum has been granted by the United States
has dropped. In 2000, about forty-four percent of asylum cases were granted, in
2003 only twenty-nine percent of asylum cases were granted. Eleanor Acer, Refuge
in an Insecure Time: Seeking Asylum in the Post-9/11 United States, 28 FORDHAM
INT’L L.J. 1361, 1384 (2005); see also Karen C. Tumlin, Suspect First: How
Terrorism Policy is Reshaping Immigration Policy, 92 CAL. L. REV. 1173, 1190
(2004) (discussing Mar. 18, 2003 press conference of Secretary of Department of
Homeland Security Tom Ridge introducing Operation Liberty Shield, a transcript of
which is available at http://www.dhs.gov/dhspublic/display?content=525 (last visited
Apr. 26, 2006)). From the context of this briefing, there seems to be a government
presumption against the validity of asylum claims.
55
See, e.g., Tabaku v. Gonzales, 425 F.3d 417 (7th Cir. 2005); Ssali v.
Gonzales, 424 F.3d 556 (7th Cir. 2005); Galicia v. Gonzales, 422 F.3d 529 (7th Cir.
2005); Sosnovskaia v. Gonzales, 421 F.3d 589 (7th Cir. 2005); Dong v. Gonzales,
421 F.3d 573 (7th Cir. 2005); Hor v. Gonzales, 421 F.3d 497 (7th Cir. 2005);
Nakibuka v. Gonzales, 421 F.3d 473 (7th Cir. 2005).
56
“The expanded streamlining procedures have allowed the BIA to allocate its
limited resources to adjudicate more than 40,000 new appeals and other matters filed
annually, and to steadily reduce its pending caseload from 56,000 in August 2002 to
approximately 33,000 by October 2004.” U.S. Department of Justice: Executive
Office for Immigration Review, BIA Restructuring and Streamlining Procedures,
(Dec. 8, 2004 revised), available at
26, 2006).
54
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increased rate. With the enactment of the streamlining policy,
discussed in more depth below, the number of cases reviewed by a
BIA panel has sharply dropped. 57 The result is less scrutiny given to
adverse credibility determinations based on perceived inconsistencies;
culminating in a breakdown or at least a dilution of the appellate
process. A procedural change in the immigration adjudication process
is necessary to combat this problem unless the level of analysis
provided by IJs begins to increase across the board. However, the
proposition of an increased quality of analysis provided by IJs is
unlikely to come to fruition without a major increase in training and
resources, particularly since immigration adjudication error stems
from a variety of sources.
2.
Do Cultural Bias, Indifference, or Unjust Skepticism
Factor Into Asylum Adjudications?
An alternative problem in credibility assessments is the lack of
cultural awareness exhibited by many IJs and the BIA. The Seventh
Circuit recently noted that the “lack of familiarity with relevant
foreign cultures” evidenced in immigration cases was “disturbing.” 58
This problem is almost exclusively isolated to the arena of asylum
adjudication. Each decision in an asylum case has the distinction of
being generally unique from all other asylum cases. An alien’s
application is based on the particular circumstances surrounding that
alien’s life as seen through his or her own eyes. Though many aspects
of asylum cases may be similar, particularly when aliens are seeking
asylum from the same country, the factors incumbent to an alien’s
claim for asylum, such as his or her ethnicity, religion, political or
social beliefs, and the varying degrees of persecution that a particular
alien has been subjected to, are highly individualized and ensure that
no two stories will be exactly the same. Moreover, conditions in
countries from which aliens seek asylum continually change as
governments rise and fall and popular opinions sway. This state of
57
58
Id.
Zen Li Iao v. Gonzales, 400 F.3d 530, 533 (7th Cir. 2005).
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perpetual flux poses difficulties for an immigration judge in assessing
the validity of an asylum claim. For instance, stare decisis will rarely
be invoked unless an asylum application and country conditions
essentially mirror that of a prior opinion. In addition, an IJ must
attempt to accurately determine the state of the conditions in the
country the alien is fleeing both at the time of alleged past persecution
and at a future time should the alien be returned to that country. 59
Despite all of these issues, an immigration judge and the BIA are
still representatives of the judiciary and must behave accordingly to
preserve our notions of justice and judicial impartiality. Therefore, it
is incumbent upon each immigration adjudicator to approach each
asylum case without preconceived notions of proper behavior or
mannerisms without sufficient and reliable knowledge of an
applicant’s culture, ethnicity, and religion among other factors, and the
geopolitical state of affairs in the country from which that alien is
fleeing. This must be done in order to correctly assess the inherent
plausibility of that applicant’s asylum claim. Although it may seem
natural to believe that IJs and the BIA are continually mindful of these
factors in processing asylum claims, recent opinions of the Seventh
Circuit prove otherwise.
In Tabaku v. Gonzales, a Christian church driver did not report a
rape and murder he had witnessed after his life had been threatened in
the same incident. One of the grounds relied upon by the immigration
judge in a finding of adverse credibility was the conclusion that a
Christian had a moral and legal obligation to report the incidents, and
that some sort of record would thus have been formed. 60 Since the
alien was unable to provide documentation to support this story, this
became a factor in the IJ’s finding of adverse credibility. The Seventh
Circuit admonished the IJ for substituting the IJ’s own concept of what
it means to be a Christian, an impermissible error, and also noted that
crimes continually go unreported when a witness’ slife is endangered
even in the United States. 61
59
8 U.S.C. § 1158(b) (2005); 8 U.S.C. § 1101(a)(42)(A) (2006).
Tabaku v. Gonzales, 425 F.3d 417, 422 (7th Cir. 2005).
61
Id.
60
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This type of error calls into question the level of influence
subjective determinations made by immigration judges should warrant
in credibility assessments. As shown by the high rate of reversals, the
substitution of cultural contexts often leads to conclusions
inappropriate under the circumstances the alien faced. This
consequently deprives aliens of fair and impartial analyses of their
applications. 62 Yet, aside from advising the judge to leave behind any
preconceived notions of cultural decorum, the options to remedy this
problem are few. Each case may represent an entirely different
cultural context than the last and it can hardly be expected of an IJ or
the BIA to become a veritable expert in every culture that comes
before their court. Nor can it realistically be expected of any
adjudicator to approach a case with an entirely blank slate. 63 What the
Seventh Circuit seems to be advocating however, is that an IJ or the
BIA take sufficient time to acquaint themselves with the relevant
culture, discern the societal differences from United States’ culture
inherent to that culture, and make an unbiased and good faith
credibility assessment applying those principles. However, without
any further stimulus from the DHS and the DOJ, agencies not
particularly responsive to lobbying on behalf of aliens, the Seventh
Circuit may have to suffice for wishful thinking and the generation of
recurring criticism in its opinions.
In addition to cultural bias, skepticism, although a healthy
moderator of truth at certain times, has also become prevalent in
asylum adjudication, at times unjustly. Perhaps there is a rational
basis for this given that there are certainly a multitude of fabricated
stories thrust upon IJs on a routine basis. Or perhaps it has more to do
with political ideologies that disfavor immigrants and asylum seekers
62
“Fact-finders in the United States, blinded by their particular world-views,
often expect other cultures to operate by familiar rules and reject information that
does not conform to those expectations. This type of expectation colors the way
fact-finders receive and evaluate asylum seekers’ testimony.” Carla Pike, The
Human Condition and Universality in Credibility Determinations: How Cultural
Assumptions Skew Asylum Decisions, 10-10 BENDER’S IMMIGR. BULL. 2 (2005).
63
Id. (suggesting that immigration judges should receive training on their own
cultural biases and how these biases effect their assessment of asylum claims).
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following 9/11. 64 Regardless of its origin, the Seventh Circuit has
held that unwarranted skepticism is not sufficient for an adverse
credibility determination and that the record must substantiate any
skepticism at all. 65
In Dong v. Gonzales, a Chinese alien testified that four village
officials came to her house upon learning she was pregnant, and
coerced her into going to the hospital. 66 Upon arriving at the hospital
the alien was subject to an abortion despite her pleas that she wanted
to keep her child. 67 The immigration judge doubted whether four
government officials would actually have traveled to the alien’s
house. 68 In granting the alien’s petition for review, the Seventh Circuit
responded that “[t]here is nothing in the record that affirmatively
supports the IJ’s assumption that village officials would not act as [the
alien] described. The IJ’s skepticism alone, in light of [the alien’s]
consistent testimony, does not support a negative credibility
determination.” 69
Regardless of the underlying reason behind such skepticism, the
fact remains that there are many honest applicants who have suffered
horrific atrocities and who should not be subjected to warrantless
skepticism. The Seventh Circuit has made it clear that immigration
judges must be mindful of their appointments as adjudicators and that
by allowing any cynical dismissal of an alien’s claim to enter into their
judgment they consequently ignore the responsibilities incumbent to
that role. 70 As such, skepticism, though perhaps warranted in a
number of cases, must be amply supported and tempered with an open
mind.
64
See Tumlin, supra note 54, at 1190.
Dong v. Gonzales, 421 F.3d 573, 578 (7th Cir. 2005).
66
Id. at 575.
67
Id.
68
Id. at 578.
69
Id. (citations omitted).
70
See Dong, 421 F.3d 573; see also Shtaro v. Gonzales, 435 F.3d 711, 715 (7th
Cir. 2006) (“[T]he IJ points to no evidence to support [the IJ’s] assumptions about
the motivations of [the alien’s] alleged persecutors, and [the alien’s] story is not so
inherently improbable that we can uphold the IJ’s decision without such evidence.”).
65
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It is difficult to discern precisely whether the tendency to be
overly skeptical stems solely from the cultural backgrounds of IJs, or
if it is also a product of governmental policy. It is no secret that the
government has recently sought to curb high levels of immigration,
particularly since 9/11. 71 Regardless of the root, the DOJ and DHS are
the sole entities that can force immigration adjudicators to give a bit
more credence to alien testimony.
3.
Congress Creates New Standards for Credibility Assessments.
Congress recently enacted legislation that revised the standards by
which immigration judges reach credibility determinations in asylum
adjudications. 72 Perhaps this was an effort to remedy the large number
of erroneous or unfounded immigration judge credibility assessments.
However, under the newly enacted provisions, a grant of asylum may
be much more difficult to obtain. The REAL ID Act of 2005 provides
the following basis upon which credibility should be determined:
(iii) Credibility determination. -- Considering the
totality of the circumstances, and all relevant factors, a
trier of fact may base a credibility determination on the
demeanor, candor, or responsiveness of the applicant or
witness, the inherent plausibility of the applicant’s or
witness’s account, the consistency between the
applicant’s or witness’s written and oral statements
(whenever made and whether or not under oath, and
considering the circumstances under which the
statements were made), the internal consistency of each
such statement, the consistency of such statements with
other evidence of record (including the reports of the
Department of State on country conditions), and any
inaccuracies or falsehoods in such statements, without
71
See supra note 54.
REAL ID Act of 2005, Pub. L. No. 109-13, 119 Stat. 231
§ 101 (2005).
72
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regard to whether an inconsistency, inaccuracy, or
falsehood goes to the heart of the applicant’s claim, or
any other relevant factor. There is no presumption of
credibility, however, if no adverse credibility
determination is explicitly made, the applicant or
witness shall have a rebuttable presumption of
credibility on appeal. 73
However, this particular amendment of the Act took effect on May 11,
2005 and applies solely to applications for asylum made on or after
that date. 74
It may be possible that a more clearly delineated credibility
assessment standard may help reduce the number of asylum reversals
granted by the federal courts. However, the standard promulgated
under the REAL ID Act greatly enlarges the authority of an IJ to rule
adversely on the credibility of an alien, under conditions the Seventh
Circuit has disapproved of in its recent opinions. 75 Moreover, the
REAL ID Act did not expressly address the standard of review
applicable to credibility determinations. 76 Therefore, the Seventh
Circuit and other circuit courts will continue to review credibility
determinations assessed under the new standards by application of the
substantial evidence standard requiring support by reasonable,
substantial, and probative evidence on the record considered as a
73
Id. (codified as 8 U.S.C. § 1158(b)(1)(B) (2005)).
REAL ID Act of 2005, Pub. L. No. 109-13, 119 Stat. 231 § 101(h)(2). See
also Ssali v. Gonzales, 424 F.3d 556, 562 (7th Cir. 2005). The opinions of the
Seventh Circuit issued within the applicable time period this Comment addresses do
not apply this new standard; the adjudication, and accompanying review, of asylum
applications often may take several years before a final administrative order is
reached.
75
See REAL ID Act of 2005, Pub. L. No. 109-13, 119 Stat. 231 § 101 (2005).
See also Lhanzom v. Gonzales, 430 F.3d 833 (7th Cir. 2005); Korniejew v. Ashcroft,
371 F.3d 377 (7th Cir. 2004).
76
REAL ID Act of 2005, Pub. L. No. 109-13, 119 Stat. 231 § 101 (2005).
74
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whole. 77 Indeed, the passage of this new standard may produce
unanticipated problems further complicating the credibility
determination process and resulting in little progress towards the
reduction of circuit court reversals.
4.
Will the REAL ID Act of 2005 Benefit or Impair
Credibility Assessments?
There has been, and continues to be, a substantial amount of
opposition to the enactment of the REAL ID Act of 2005 from a large
variety of sources, particularly the provisions concerning asylum
applicants. 78 Initially, the language concerning credibility
determinations performed by IJs has drawn serious ire from
opponents. 79 The most troublesome language under the Act will allow
an immigration judge to base an asylum credibility determination on
the demeanor, candor, or responsiveness of the applicant or witness. 80
Although normally beneficial in the general civil or criminal hearing
context, using these criteria is problematic in the asylum arena.
Demeanor is a highly cultural phenomenon and is a highly
subjective determination. An evaluation of demeanor may be no more
than an exercise in contrasting cultures. It essentially pits the cultural
background of the IJ, established as the norm, against the background
of the alien. This propensity to transpose may be based on the
ingrained human tendency to perceive things based on our own
experiences and point of view. 81 One can hardly fault immigration
judges for being human. But the responsibilities of an IJ, like almost
77
Id. See also Liu v. Ashcroft, 380 F.3d 307, 312 (7th Cir. 2004) (quoting INS
v. Elias-Zacarias, 502 U.S. 478, 481 (1992)).
78
REAL ID Act of 2005, Pub. L. No. 109-13, 119 Stat. 231 § 101 (2005). See
also Human Rights First, http://www.humanrightsfirst.org/asylum/realid/pdf/signon-letter-042105.pdf (last visited Apr. 26, 2006) (Apr. 21, 2005 letter to Congress
signed by over 80 organizations and 80 individuals opposing Section 101 of the
REAL ID Act of 2005).
79
Id.
80
8 U.S.C. § 1158(b)(1)(B) (2005).
81
Pike, supra note 62, at 2.
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no other legal profession, require a worldly perspective on cultural
differences. What may seem to be irrational behavior based on U.S.
standards may be entirely appropriate given the circumstances and
conditions concurrent in the country from which an alien is fleeing.
To then gauge an alien’s credibility based on his or her demeanor in
such a context unfairly creates bias against that alien. For example,
refraining from making eye contact may represent a sign of respect
and submission to authority in some cultures, wherein the U.S. an
immigration judge may perceive an avoidance of eye contact as an
indication that an alien is being untruthful. 82
In addition, emotions can often play a large factor in credibility
assessments performed by IJs, yet they may often be misleading. In
asylum claims, an alien may often be forced to discuss horrible
traumas perpetrated upon themselves and their families. It is not
uncommon, and in most cases the norm, to encounter stories of
beatings, rape, and murder. One might expect highly emotional
testimony exhibited by an alien when discussing such incidents, yet
this is not always the case. “Torture victims often have what mental
health professionals call a ‘blank affect’ when recounting their
experiences, a demeanor that an adjudicator might misinterpret as
demonstrating lack of credibility.” 83 Even in the presence of a judge,
aliens, and humans in general, deal with emotional issues in different
ways; some may break down in sorrow at a hearing while others may
contain their emotions inside as a coping mechanism. An IJ that is
indifferent, aloof, skeptical, or perhaps even biased against these
differences can have a profound effect on an alien’s ability to freely
discuss the events surrounding that alien’s asylum claim. This, in turn,
can unfairly result in an adverse credibility determination due to the
alien’s demeanor, candor, or responsiveness under the new credibility
82
Human Rights First, REAL ID Endangers People Fleeing Persecution,
http://www.humanrightsfirst.org/asylum/asylum_10_sensenbr.asp (last visited Apr.
26, 2006).
83
Amnesty International U.S.A., The REAL ID Act of 2005 and Its Negative
Impact on Asylum Seekers, Mar. 2005,
http://www.amnestyusa.org/uspolicy/pdf/realid_0305.pdf (last visited Apr. 26,
2006).
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standards. This may produce erroneous conclusions as to the
credibility of an alien or his or her witnesses. When reviewing
decisions using these standards in the future, the Seventh Circuit may
use some skepticism of its own.
The REAL ID Act may also increase the prevalence of
immigration adjudication error concerning adverse credibility
determinations based on minor inconsistencies. 84 The amended
language allows immigration judges and the BIA to base an adverse
credibility determination on any inconsistencies, regardless of whether
they go to “the heart of the applicant’s claim.” 85 Consider this new
standard in the context of Lhanzom. 86 The inconsistencies between
the father’s testimony and that of the alien, which arose primarily from
the father’s confusion and miscommunication with the IJ, would be a
suitable basis for an adverse credibility finding under the REAL ID
Act language. 87 This conclusion seems to be a particularly harsh
result and may clash with the Seventh Circuit’s notion of fairness in
asylum adjudications. 88
Cultural bias and erroneously subjective analyses of immigration
judges in credibility assessments already has become a veritable,
recurring cornerstone of immigration reversals, rearing their heads in
decisions such as Dong, Tabaku, and Lhanzom. 89 Therefore,
84
Id. (codified as 8 U.S.C. § 1158(b)(1)(B) (2005)).
86
Lhanzom v. Gonzales, 430 F.3d 833, 837-39 (7th Cir. 2005).
87
See Lhanzom, 430 F.3d at 837-39. REAL ID Act of 2005, Pub. L. No. 10913, 119 Stat. 231 § 101 (2005).
88
The Seventh Circuit has also reversed cased concerning material
inconsistencies upon discovering that the inconsistencies are not inconsistencies at
all. See Ssali v. Gonzales, 424 F.3d 556, 563 (7th Cir. 2005) (In which both an IJ
and the BIA mistakenly thought that an alien was from an entirely different part of
his respective country, a location in which membership in the alien’s political group
would be unlikely and would pose no danger. Yet, the alien actually hailed from the
opposite side of the country, which supported his claim. The Court noted that this
represented a “very significant mistake” which “suggests the Board was not aware of
the most basic facts of [the alien’s] case.”).
89
Dong v. Gonzales, 421 F.3d 573 (7th Cir. 2005); Tabaku v. Gonzales, 425
F.3d 417 (7th Cir. 2005); Lhanzom v. Gonzales, 430 F.3d 833 (7th Cir. 2005).
85
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application of new standards under the REAL ID Act will serve only
to exacerbate the current credibility assessment problems the Seventh
Circuit is forced to address through its reversals. 90 Thus, it stands to
reason that the Court’s high reversal rate in asylum petitions will
continue until the government addresses the problem from within.
The problems recently noted by the Seventh Circuit, reliance on
minor inconsistencies, cultural bias or indifference, and unjust
skepticism among others, can only be addressed organically by the
DHS and DOJ. The Seventh Circuit can reverse and not so subtly hint
at what can be done to remedy these problems, but Congress and the
agencies themselves are ultimately responsible for changing
procedures and policies. Perhaps this was the goal when the new
credibility standards were recently enacted. Yet, the new language
includes highly subjective terms and may actually result in asylum
adjudications becoming more susceptible to the problems addressed.
Although the agencies may have meant to alleviate error in credibility
assessments, substantially increased subjective leeway given to asylum
adjudicators is not the answer the Seventh Circuit had in mind. In
order to comport with the Seventh Circuit’s decisions, asylum
adjudicators should be given less subjective sway in asylum decisions.
B. When May an Immigration Adjudicator Require an Alien to
Provide Corroborating Evidence?
1. Is an Alien’s Credible Testimony Alone
Sufficient for an Asylum Grant?
90
“[T]he natural tendency of the asylum provisions of the REAL ID Act will
likely be to provide statutory cover for shoddy decision-making.” Acer, supra note
54 at 1393.
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As noted previously, credibility determinations play a vital role in
the success of an asylum application. 91 Yet, intertwined with
credibility is the concept of corroboration. In certain circumstances an
immigration judge or the BIA may require an alien to produce
evidence in addition to his or her own testimony which corroborates
the alien’s claim of past persecution or a well-founded fear of future
persecution. 92
The Seventh Circuit has often held that a credible asylum
applicant need not provide corroborating evidence in order to meet his
or her burden of proof. 93 Indeed, the plain language of 8 C.F.R. §
208.13(a) provides that “the testimony of the applicant, if credible,
may be sufficient to sustain the burden of proof without
corroboration.” 94 However, the BIA has not been quite as lenient in its
interpretation. The BIA has interpreted the regulatory language above
as permitting an immigration judge to require corroboration from an
alien deemed credible in situations “where it is reasonable to expect
corroborating evidence for certain alleged facts pertaining to the
specifics of an applicant’s claim.” 95 The Seventh Circuit, however,
has been uncomfortable with an imposed requirement of corroborating
evidence when an alien is otherwise credible, even when such
imposition is discretionary, and has reversed IJ decisions that have
denied a credible alien’s asylum claim solely because that alien could
not provide corroborating documents. 96
Choosing to invest more credence in the testimony of alien
applicants, the Seventh Circuit has held that “corroborating evidence is
essential to bolster an otherwise unconvincing case, but when an
91
See supra Part III.A.
Dawoud v. Gonzales, 424 F.3d 608, 612 (7th Cir. 2005).
93
Id.
94
8 C.F.R. § 208.13(a) (2000).
95
Dawoud, 424 F.3d at 612 (citing In re S-M-J, 21 I. & N. Dec. 722, 725
(B.I.A. 1997)).
96
Id. (citing see Zheng v. Gonzales, 409 F.3d 804, 810 (7th Cir. 2005); Lin v.
Ashcroft, 385 F.3d 748, 756 (7th Cir. 2004); Diallo v. Ashcroft, 381 F.3d 687, 695
(7th Cir. 2004); Ememe v. Ashcroft, 358 F.3d 446, 453 (7th Cir. 2004); Uwase v.
92
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asylum applicant does testify credibly, 97 it is not necessary for [the
alien] to submit corroborating evidence in order to sustain [the alien’s]
burden of proof.” 98 In order to deny asylum relief for lack of
corroborating evidence, an immigration judge must: (1) make an
explicit credibility finding; (2) explain why additional corroboration is
reasonable; and, (3) explain why the alien’s explanation for not
producing the requested corroboration is inadequate. 99
The Seventh Circuit has also taken notice that the federal circuit
courts have split on their application of corroboration requirements;
the Ninth Circuit dispensing of any corroboration requirement once
credible testimony has been established and the Second, Third, Sixth,
and Eight Circuits essentially deferring to the BIA’s position that an
alien may be required to submit corroborating evidence even after a
favorable credibility determination has been made. 100 Yet, while the
Seventh Circuit’s interpretation of 8 C.F.R. § 208.13(a) is applicable to
its decisions reviewed for this Comment, this split has become moot as
applied to future asylum adjudications given the enactment of the
REAL ID Act. 101
2.
Congress Creates New Standards for the Requirement of
Corroborating Evidence.
97
Credible testimony defined as testimony that is “specific, detailed, and
convincing.” Dawoud v. Gonzales, 424 F.3d 608, 612 (7th Cir. 2005).
98
Lin v. Ashcroft, 385 F.3d 748, 751 (7th Cir. 2004) (quoting Uwase, 349 F.3d
at 1041). “The testimony of the applicant, if credible, may be sufficient to sustain
the burden of proof without corroboration.” 8 C.F.R. § 208.13(a) (2000).
99
Dong v. Gonzales, 421 F.3d 573, 579 (7th Cir. 2005) (citing Gontcharova v.
Ashcroft, 384 F.3d 873, 877 (7th Cir. 2004); see also Huang v. Gonzales, 403 F.3d
945, 951 (7th Cir. 2005)).
100
Dawoud, 424 F.3d at 613 (citing Ladha v. INS, 215 F.3d 889, 899 (9th Cir.
2000); see also Dorosh v. Ashcroft, 398 F.3d 379, 382-83 (6th Cir. 2004); El-Sheikh
v. Ashcroft, 388 F.3d 643, 647 (8th Cir. 2004); Abdulai v. Ashcroft, 239 F.3d 542,
551 (3d. Cir. 2001); Diallo v. INS, 232 F.3d 279, 285-86 (2d Cir. 2000)).
101
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Congress addressed situations in which an immigration
adjudicator may require an alien to provide corroborating evidence
through the enactment of the REAL ID Act of 2005. 102 Specifically,
the Act provides that a requirement of corroboration necessary to
supplement testimony is to be assessed as follows:
(ii) Sustaining burden. -- The testimony of the
applicant may be sufficient to sustain the applicant’s
burden without corroboration, but only if the applicant
satisfies the trier of fact that the applicant’s testimony is
credible, is persuasive, and refers to specific facts
sufficient to demonstrate that the applicant is a refugee.
In determining whether the applicant has met the
applicant’s burden, the trier of fact may weigh the
credible testimony along with other evidence of record.
Where the trier of fact determines that the applicant
should provide evidence that corroborates otherwise
credible testimony, such evidence must be provided
unless the applicant does not have the evidence and
cannot reasonably obtain the evidence. 103
However, similar to the amendments to credibility assessments
addressed above in Part III.A.3, the amendments addressing
corroboration requirements applies solely to asylum applications made
on or after May 11, 2005. 104
The amended language which allows an adjudicator to impose a
requirement of corroborating evidence on a credible alien, albeit when
evidence is reasonably available, is incongruent with the Seventh
Circuit’s previous standard that an otherwise credible alien may not be
102
Id.
Id.; 8 U.S.C. § 1158 (2005).
104
REAL ID Act of 2005, Pub. L. No. 109-13, 119 Stat. 231 § 101(h)(2)
(2005). Therefore, recent opinions of the Seventh Circuit have not reviewed
decisions subject to the new standards.
103
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forced to provide corroborating evidence. 105 Thus, although utilizing
the new burden of proof test for corroborating evidence may lead to a
reduction in the number of reversals issued by the Seventh Circuit
concerning corroboration, this will simply be because the Seventh
Circuit must acquiesce to the statutory language, not because it agrees
with the imposition of a corroborating evidence requirement on an
otherwise credible alien. The new standard of sustaining burden
mirrors the aforementioned position of the BIA, 106 and prior decisions
of the Seventh Circuit have demonstrated its disapproval of the BIA’s
position and the subsequent outcomes rendered in the application of
this position. 107
An alternative provision of the REAL ID Act amends the standard
of review to be applied by federal circuit courts when assessing an
imposed requirement of corroborating evidence.108 In contrast to the
provision above, the language amending the standard of review
became immediately applicable to all asylum adjudications in which a
final administrative order has been issued. 109 The amended section
provides that “[n]o court shall reverse a determination made by a trier
of fact with respect to the availability of corroborating evidence . . .
unless the court finds . . . that a reasonable trier of fact is compelled to
conclude that such corroborating evidence is unavailable.” 110
105
Dawoud, 424 F.3d at 612 (holding that a credible asylum applicant need not
provide corroborating evidence in order to meet his or her burden of proof).
106
Id.,(citing In re S-M-J, 21 I. & N. Dec. 722, 725 (BIA 1997); see also In re
M-D-, 21 I. & N. Dec. 1180, 1183-84 (B.I.A. 1998)).
107
Dawoud, 424 F.3d at 612 (citing Zheng v. Gonzales, 409 F.3d 804, 810 (7th
Cir. 2005); Lin v. Ashcroft, 385 F.3d 748, 756 (7th Cir. 2004); Diallo v. Ashcroft,
381 F.3d 687, 695 (7th Cir. 2004); Ememe v. Ashcroft¸ 358 F.3d 446, 453 (7th Cir.
2004); Uwase v. Ashcroft, 349 F.3d 1039, 1045 (7th Cir. 2003)).
108
REAL ID Act of 2005, Pub. L. No. 109-13, 119 Stat. 231 § 101(e) (2005)
(codified as 8 U.S.C. § 1252(b)(4) (2005)).
109
REAL ID Act of 2005, Pub. L. No. 109-13, 119 Stat. 231 § 101(h)(3)
(2005).
110
Id. at § 101(e) (codified as 8 U.S.C. § 1252(b)(4)). This section of the Act
applies “to all cases in which the final administrative removal order is or was issued
before, on, or after [May 11, 2005],” thus providing for express retroactive
application of the Act. Id.
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This language does not significantly differ from the substantial
evidence standard normally employed by the circuit courts and should
not significantly alter the level of scrutiny applied. 111 However, the
new standard of review does provide the Seventh Circuit and other
circuit courts with some ability to limit impositions of corroborating
evidence requirements on credible aliens, albeit only to the extent that
the reviewing court finds that such corroborating evidence would be
unavailable. 112 Pity the credible alien who leaves behind available
evidence.
3.
Will the REAL ID Act of 2005 Allow Fair Application of
Corroboration Requirements?
As noted, the new language concerning an alien’s burden stands in
contrast to the Seventh Circuit’s prior tenet that credible aliens need
not supply corroborating evidence. 113 The Seventh Circuit’s position
may stem from the logical premise that if an alien has provided
testimony that an adjudicator deems credible, it is unnecessary and
perhaps unfair to require more from that alien. 114 In addition, recent
opinions of the Seventh Circuit have identified many of the same types
of subjectivity problems in corroboration requirements as those found
111
Substantial evidence “means such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion.” Willapoint Oysters, Inc. v.
Ewing, 174 F.2d 676, 691 (9th Cir. 1949) cert. denied, 338 U.S. 860 (1949), reh.
denied, 339 U.S. 945 (1950) (citing Consolidated Edison Co. v. Nat’l Labor
Relations Bd., 305 U.S. 197, 229-230 (1838)).
112
REAL ID Act of 2005, Pub. L. No. 109-13, 119 Stat. 231 § 101(e) (2005)
(codified as 8 U.S.C. § 1252(b)(4) (2005)).
113
Dawoud v. Gonzales, 424 F.3d 608, 612 (7th Cir. 2005) (holding that a
credible asylum applicant need not provide corroborating evidence in order to meet
his or her burden of proof).
114
“The BIA’s rule unfairly casts the asylum applicant as ‘guilty until proven
innocent’ in her efforts to establish a claim for which she has already provided
credible, unrefuted, direct, and specific testimony.” 3-34 CHARLES GORDON,
STANLEY MAILMAN & STEPHEN YALE-LOEHR, IMMIGRATION LAW AND PROCEDURE
§ 34.02 (2006).
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in credibility assessments. 115 Both the standard of review and burden
of proof tests are premised on the interpretation of what is reasonable
and when evidence is obtainable or available.116 These are subjective
tests that remain susceptible to the same criticisms of bias,
indifference, or ignorance applicable to credibility determinations.
Although the amended standard of review language may enable the
Seventh Circuit and other reviewing courts to remedy some of these
issues, several recent Seventh Circuit decisions exemplify the
problems inherent in applying the new standards.
In Hor v. Gonzales, the Seventh Circuit’s concern with cultural
bias is noticeably pronounced. 117 Here, an alien sought to escape an
Islamic guerrilla movement engaged in civil war against the Algerian
government. 118 The alien was nearly executed by the guerillas,
escaping only after police shot and killed two of the assailants. 119 The
IJ, in holding that corroborating evidence was available and could
have been obtained, criticized the alien’s failure to provide newspaper
articles or affidavits from his co-workers and his inability to
corroborate the story of a roadblock and ensuing gun battle with any
paperwork. 120 The Seventh Circuit noted that the IJ failed to take into
account that Algeria was a military dictatorship with a state run
media. 121 Nor did the IJ take into account the probability that the
acquaintances of the alien still located within Algeria would not want
to go on public record describing the actions of the guerillas; 122 to
make this assumption implies the IJ did not view the availability of the
115
See Galicia v. Gonzales, 422 F.3d 529 (7th Cir. 2005); Hor v. Gonzales,
421 F.3d 497 (7th Cir. 2005); Soumahoro v. Gonzales, 415 F.3d 732 (7th Cir. 2005).
116
117
Hor, 421 F.3d 497.
118
Id. at 498-500.
119
Id. at 499.
120
Id. at 499-501.
121
Id. at 500-501.
122
See Matter of S-M-J-, 21 I. & N. Dec. 722 (B.I.A. 1997) (Rosenberg, Board
Member, concurring).
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evidence from the perspective of the alien. In granting the petition for
review, the Court stated:
[t]he notion that documentation is as regular,
multicopied, and ubiquitous in disordered nations as in
the United States, a notion that crops up frequently in
decisions by immigration judges . . . is unrealistic
concerning conditions actually prevailing in the Third
World. To be entitled to deference, a determination of
availability must rest on more than implausible
assertion backed up by no facts. 123
In another example exemplifying the dangers of subjectivity and
bias inherent in the corroboration requirement, the alien in Soumahoro
v. Gonzales sought to provide the IJ with corroborating documents
such as a birth certificate, national identification card, newspaper
articles, and official letters that had been airmailed to the United States
by a friend of the alien still located within the alien’s former country
of Côte d’Ivoire (Ivory Coast). 124 The outbreak of war delayed the
shipment and the package was originally shipped to the wrong address
(the alien provided a copy of the incorrect mailing airbill). 125 The IJ
came to the puzzling conclusion that the alien had arranged for an
empty box to be sent to himself in order to delay his proceedings. 126
The immigration judge denied a request by the alien’s attorney for a
continuance until the documents could arrive and subsequently held a
hearing in which asylum was denied (the package containing the
documents arrived two days later). 127 This clearly represented a
situation in which it was unreasonable for the IJ to require the
123
Hor, 421 F.3d at 501 (citing Zen Li Iao v. Gonzales, 400 F.3d 530, 534 (7th
Cir. 2005); Gontcharova v. Ashcroft, 384 F.3d 873, 877-78 (7th Cir. 2003); Muhur
v. Ashcroft, 355 F.3d 958, 959-60 (7th Cir. 2004); Mulanga v. Ashcroft, 349 F.3d
123, 134 (3d Cir. 2003); Qiu v. Ashcroft, 329 F.3d 140, 153 (2d Cir. 2003)).
124
Soumahoro v. Gonzales, 415 F.3d 732, 736-37 (7th Cir. 2005).
125
Id.
126
Id. at 735.
127
Id.
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corroborating documents at the time of the original hearing,
particularly when the alien’s reason for not producing the documents
on time was much more plausible than that provided by the IJ. 128
In yet another recent opinion, both cultural differences and
immigration judge bias factor into an erroneous denial due to an
alien’s failure to provide sufficient corroborating evidence. 129 In
Galicia v. Gonzales, an alien asserted that the Guatemalan government
had persecuted her and that her husband was a dissident who had been
murdered. 130 In an effort to corroborate her claim, she attempted to
enter into the record the testimony of two experts, only to have the
immigration judge deny such testimony citing time constraints. 131 In
addition, the IJ also held that the alien’s lack of evidence corroborating
the registration of a car allegedly owned by the alien found near her
husband’s body adversely affected her credibility. 132
The Seventh Circuit disagreed with this analysis, holding that the
refusal of the court to hear the expert testimony represented a denial of
due process, that the experts could have provided corroborating
testimony, and that the IJ’s reliance on the lack of evidence
corroborating the car registration failed because it was irrelevant to the
issues the alien presented. 133 Echoing the language of the amended
standard of review, the Court held that “a reasonable trier of fact
[would be] compelled to conclude that such corroborating evidence
was unavailable.” 134 Moreover, the Seventh Circuit has previously
held that “corroboration should be required only as to ‘material
facts’.” 135 Thus, the registration of a car located near the alien’s
recently murdered husband did not constitute a material fact, was
128
Id. at 737.
See Galicia v. Gonzales, 422 F.3d 529 (7th Cir. 2005).
130
Id.
131
Id. at 533.
132
Id. at 537.
133
Id. at 537-39.
134
Id. at 538.
135
Balogun v. Ashcroft, 374 F.3d 492, 502 (7th Cir. 2004).
129
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irrelevant to the issues, and would have provided little corroboration
towards the relevant issues. 136
This case demonstrates the dangers inherent in allowing the
applications of otherwise credible aliens to be denied based solely on
the subjective test of when corroborating evidence is available and
when it is reasonable to require such evidence. The IJ may substitute
his or her own notions concerning the availability of paperwork and
other evidence in countries across the world that the IJ may know little
or nothing about. Further, and even more grievous, an immigration
judge may show simple bias in the application of “subjective” tests,
such as the exclusion of the alien’s corroborating experts do to “time
constraints” as witnessed in Galicia. 137
Similar to problems identified in credibility determinations, the
Seventh Circuit seems to believe errors commonly arise when
adjudicators substitute their own experiences, or perhaps expectations,
for that of the alien. 138 In other words, the IJ doesnot consider the
circumstances under which a particular alien has been forced to depart
his or her country. An IJ, or any individual living in the U.S., has an
expectation that should someone be injured, harassed, or killed,
records will be readily accessible and available. Such a person expects
almost every type of record to be available, whether it be birth
certificates, death certificates, arrest records, hospital records, or
anything of the like. Yet, as the Seventh Circuit has noted:
[m]any asylum applicants flee their home countries
under circumstances of great urgency. Some are
literally running for their lives and have to abandon
their families, friends, jobs, and material possessions
without a word of explanation. They often have
nothing but the shirts on their backs when they arrive in
136
See Galicia, 422 F.3d at 537.
Id. at 533. In addition, the immigration judge in this proceeding imposed a
strict time limit concerning the testimony of the alien herself, which prevented her
from introducing the testimony of her expert witnesses. Id. at 539.
138
Dawoud v. Gonzales, 424 F.3d 608, 612-13 (7th Cir. 2005).
137
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the country. To expect these individuals to stop and
collect dossiers of paperwork before fleeing is both
unrealistic and strikingly insensitive to the harrowing
conditions they face. 139
Under the prevailing standards, it is entirely possible for an
otherwise credible alien, one who has provided specific, detailed, and
persuasive testimony, to be denied asylum if that alien is unable to
provide corroborating evidence if an IJ deems that such evidence is
available. 140 The Seventh Circuit has consistently disapproved of the
BIA position congruent with the prevailing standard. 141 The
imposition of such a requirement has been likened to a request for a
note of persecution from an alien’s persecutors. 142 However, a safety
valve of sorts lies in the newly promulgated standard of review that
allows a court to overturn erroneous corroboration requirements if “a
reasonable trier of fact is compelled to conclude that such
corroborating evidence is unavailable.” 143 Yet, this “safety valve”
does little to benefit a credible alien that has failed to obtain
presumably available evidence.
Ultimately, the decision to amend the corroborating evidence
language and allow the imposition of a corroboration requirement
despite credible testimony represents the resolution of the federal
government to provide immigration adjudicators greater latitude in
which to deny asylum applicants. The new language under which both
corroboration and credibility are assessed provides adjudicators
increased authority to deny asylum applications under a wider variety
of factors. Yet, the Seventh Circuit has recently called immigration
adjudicators to task for their subpar analysis on both credibility
139
Id. (citing see Balogun v. Ashcroft, 374 F.3d 492, 502 (7th Cir. 2004)).
See 8 U.S.C. § 1158(b)(1)(B) (2005).
141
Dawoud, 424 F.3d at 612 (citing see Zheng v. Gonzales, 409 F.3d 804, 810
(7th Cir. 2005); Lin v. Ashcroft, 385 F.3d 748, 756 (7th Cir. 2004); Diallo v.
Ashcroft, 381 F.3d 687, 695 (7th Cir. 2004); Ememe v. Ashcroft, 358 F.3d 446, 453
(7th Cir. 2004); Uwase v. Ashcroft, 349 F.3d 1039, 1045 (7th Cir. 2003)).
142
See Ladha v. INS, 215 F.3d 889, 900 (9th Cir. 2000).
143
REAL ID Act of 2005, Pub. L. No. 109-13, 119 Stat. 231 § 101(e) (2005).
140
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assessments and corroboration requirements. 144 This misalignment
certainly will not solve the problem of high immigration petition
reversal. Given the Seventh Circuit’s disapproval of a hard and fast
corroboration requirement that may be imposed regardless of
credibility, and the seemingly cavalier application of the corroboration
requirement by IJs and the BIA as evidenced in recent Seventh Circuit
opinions, it is likely that the Seventh Circuit will attempt to make full
use of the amended standard of review requiring that corroborating
evidence be “available” in order to protect asylum applicants against
erroneous and unsound asylum denials.
C. Are State Department Reports Being Used as a Crutch?
Each year, the United States Department of State issues a report
for every country that assesses and critiques the human rights situation
in that country during the prior year.145 These reports often provide an
extensive reference guide to human rights abuses, frequently citing
specific and often graphic examples. 146 Thus, these reports seem to
provide a solid basis upon which immigration judges may begin to
familiarize themselves in order to fairly adjudicate asylum claims from
a particular country. However, it seems that IJs have often ended their
research at this stage as they have been reprimanded by the Seventh
Circuit and other circuit courts of appeals for their continued overreliance on State Department country reports. 147 Yet, the lack of
otherwise verifiable information concerning conditions inside many of
the oppressive countries from which alien applicants are fleeing makes
144
See Tabaku v. Gonzales, 425 F.3d 417 (7th Cir. 2005); Lhanzom v.
Gonzales, 430 F.3d 833 (7th Cir. 2005); Hor v. Gonzales, 421 F.3d 497 (7th Cir.
2005); Soumahoro v. Gonzales, 415 F.3d 732 (7th Cir. 2005).
145
See U.S. Department of State, Country Reports on Human Rights Practices,
March 8, 2006, available at http://www.state.gov/g/drl/rls/hrrpt/2005/61551.htm
(last visited Apr. 26, 2006).
146
Id.
147
See, e.g., Koval v. Gonzales, 418 F.3d 798, 807-08 (7th Cir. 2005); Shah v.
INS, 220 F.3d 1062, 1069 (9th Cir. 2000); El Moraghy v. Ashcroft, 331 F.3d 195,
204 (1st Cir. 2003).
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it almost certain that these country reports become the yardstick
against which the credibility of an alien’s claim is measured. In
addition, IJs may feel that they are entitled to rely on such documents
given that federal regulations permit such reliance, although
information from other agencies and sources may be submitted as
well. 148
Yet, as noted, the Seventh Circuit seems to believe that
immigration adjudicators defer too often and too quickly to the
information provided in these reports, thus using the reports as a
veritable crutch upon which the support of the adjudicator’s decision
relies. 149 The problem is that an alien may often disagree with some
or many of the findings asserted in the anonymously compiled country
reports, and he or she is left with little or no recourse to challenge
those findings. 150 The Seventh Circuit recently voiced its concern
with an over reliance on country reports in Koval v. Gonzales, noting:
State Department country reports are anonymous in
their authorship.
Decision-makers in the asylum
determination process do not know the identity of the
author, the credentials of the individuals who assemble
the reports, or the trustworthiness of the evidence upon
which the assessments contained in these reports are
based . . . As we have noted previously, the country
reports are prepared in general terms and offer more of
a statement on the relationship of the United States
Government to that country than an account of
individual circumstances. 151
148
An “asylum officer may rely on material provided by the Department of
State.” 8 C.F.R. § 208.12(a) (2000).
149
See Koval, 418 F.3d at 807-08.
150
“Nothing in this part shall be construed to entitle the applicant to conduct
discovery directed toward the records, officers, agents, or employees of the Service,
the Department of Justice, or the Department of State.” 8 C.F.R. § 208.12(b).
151
Koval, 418 F.3d at 807 (citing Galina v. INS, 213 F.3d 955, 959 (7th Cir.
2000) (noting that country reports are “brief and general, and may fail to identify
specific, perhaps local, dangers to particular, perhaps obscure, individuals”); see also
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In Koval, an alien sought asylum from Ukraine due to her
membership in the Mormon Church. 152 The alien attempted to
provide expert testimony from several sources, including a former
KGB agent whom had been based in Ukraine and had been assigned to
a department that monitored the daily activities of the churches in the
Soviet Union. 153 The former agent stated that, although he had not
returned to Ukraine in 12 years, he had maintained his contacts with
sources developed in the KGB and that at the time of the hearing he
currently worked for the United States Government on security issues
relating to Russia and Ukraine. 154 The immigration judge excluded
the testimony of the former KGB agent, asserting that he was not a
qualified expert regarding the treatment of Mormons in Ukraine,
particularly since he had not traveled to Ukraine in 12 years. 155 In
denying the asylum application, the IJ based his conclusion
substantially on the State Department country reports that, in his view,
did not indicate severe mistreatment of Mormons in Ukraine. 156 In
reversing the decision, the Seventh Circuit noted:
[the former KGB agent’s] testimony, had it been
considered, would have placed [an excerpt from the
country report] in a very different light than the one in
which it was placed by the IJ . . . The exclusion of his
testimony was improper; it prevented the petitioners
from showing that the broad assertions of the country
report were indeed subject to qualification – a
El Moraghy v. Ashcroft, 331 F.3d 195, 204 (1st Cir. 2003) (noting that country
reports should be used for purposes of providing “context and generalized credibility
assessment”)).
152
Koval, 418 F.3d at 800-03.
153
Id. at 802.
154
Id. at 802-03.
155
Id. at 803.
156
Id. at 807.
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qualification that might well have made a difference in
this case. 157
In order to prevent this type of bias in the utilization of these reports,
the Seventh Circuit recommended that immigration adjudicators take
into account both the “practical limitations of these reports and the
practical limitations on asylum applicants to present other expert
testimony and other evidence to rebut the ipse dixit assertions of the
reports.” 158
The prevention of such bias and over reliance is critical in
situations such as this in which an alien is forced to challenge or
contest the assertions of a government-sponsored report in front of a
government-sponsored adjudicatory body. The cards are often not
stacked in the alien’s favor. The Seventh Circuit recognizes the
dangers in this type of reliance and its opinions have clashed with the
regulation allowing such reliance, 159 often simply pointing out the
plausibility of the alien’s claim in spite of, and in the context of, the
country reports. Yet it seems that the Seventh Circuit is swimming
upstream in its criticism of such reliance; the new credibility standards
enacted under the REAL ID Act of 2005 expressly allow an
immigration judge to base credibility determinations upon the
consistency of statements with other evidence of record “including the
reports of the Department of State on country conditions.” 160 Here
again, as with credibility and corroboration, a common error in
adjudicative procedure noted by the Seventh Circuit has been codified
as acceptable in contravention of the Court’s notion of fair and
impartial adjudication. However, it seems doubtful that the Seventh
Circuit will simply acquiesce to asylum denials relying solely or
irrationally upon Department of State country reports. To that end, the
Court may restrain the use of these reports by holding that the
157
Id. at 808.
Id.
159
See 8 C.F.R. § 208.12(a) (2000). See also Koval, 418 F.3d at 807.
160
REAL ID Act of 2005, Pub. L. No. 109-13, 119 Stat. 231 § 101(e) (2005).
158
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conjecture often contained in such reports is not a substitute for
substantial evidence. 161
IV. SHOULD BLAME LIE WITH THE DEPARTMENT OF JUSTICE?
A. Immigration Judges are Given Little Guidance.
Notwithstanding the problems identified above, it may be unfair
to assume that all fault lies squarely on immigration judges or the BIA.
There are a host of other factors that may play roles responsible for the
high level of reversals issued by the circuit courts of appeals. Despite
all of its criticism, the Seventh Circuit is not entirely without empathy
for the plight of IJs. In the recent decision Djouma v. Gonzales, the
Seventh Circuit opined that the DHS and the DOJ have failed to
provide IJs with systematic guidance as to resolving credibility issues,
and indeed have done little to address problems in these
assessments; 162 problems which leave the Seventh Circuit with little
recourse short of reversals and the granting of petitions for review. 163
161
“We will not permit the BIA to use either its own or the State Department’s
conjecture to deem a person not credible. ‘Because conjecture is not a substitute for
substantial evidence, we cannot uphold this finding.’” Shah v. INS, 220 F.3d 1062,
1069 (9th Cir. 2000) (citing Lopez-Reyes v. INS, 79 F.3d 908, 912 (9th Cir. 1996)).
162
“The Attorney General shall establish a procedure for the consideration of
asylum applications filed under subsection (a).” 8 U.S.C. § 1158(d)(1) (2005).
163
In Djouma v. Gonzales the Seventh Circuit noted:
We understand the dilemma facing immigration judges in asylum
cases. The applicant for asylum normally bases his claim almost
entirely on his own testimony, and it is extremely difficult for the
judge to determine whether the testimony is accurate. Often it is
given through a translator, and even if the applicant testifies in
English, as a foreigner his demeanor will be difficult for the
immigration judge to “read” as an aid to determining the
applicant’s credibility. Unfortunately, the [DHS] and the [DOJ],
which share responsibility for processing asylum claims, have, so
far as appears, failed to provide the immigration judges and the
members of the [BIA] with any systematic guidance on the
resolution of credibility issues in these cases. The departments
have not conducted studies of patterns of true and false
254
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The lack of a clearly defined protocol thus leads to uncertainty in the
adjudicative process for prospective alien applicants, 164 which in turn
may force an alien to file for as many forms of relief as possible given
that he or she may be unable to determine the merits of a particular
claim of relief. This adds additional adjudications to already
overcrowded immigration court dockets, thus compounding and
contributing to the problems already exposed within the system. In an
effort to relieve the burden of overcrowded immigration dockets, the
DOJ recently undertook a major procedure renovation addressed
below. However, the DOJ and DHS have to date failed to incorporate
Seventh Circuit recommendations on improving the asylum
adjudication system such as those outlined in Djouma, in which the
Court suggested the need for a more clearly delineated protocol to be
utilized in investigating cultural phenomena and characteristics
representations made by such applicants, of sources of
corroboration and refutation, or of the actual consequences to
asylum applicants who are denied asylum and removed to the
country that they claim will persecute them. Without such
systematic evidence (which the State Department’s country reports
on human rights violations, though useful, do not provide),
immigration judges are likely to continue grasping at straws-minor contradictions that prove nothing, absence of documents that
may in fact be unavailable in the applicant’s country or to an
asylum applicant, and patterns of behavior that would indeed be
anomalous in the conditions prevailing in the United States but
may not be in Third World countries--in an effort to avoid giving
all asylum applicants a free pass. The departments seem
committed to case by case adjudication in circumstances in which
a lack of background knowledge denies the adjudicators the
cultural competence required to make reliable determinations of
credibility.
429 F.3d 685, 687-88 (7th Cir. 2005).
164
“There are significant variations in the rate at which immigration judges
grant asylum - from court to court, and from judge to judge within the same court requiring better quality assurance and administrative review.” Human Rights First,
New Report From U.S. Religious Freedom Commission Exposes Barriers Facing
Refugees (February 8, 2005),
http://www.humanrightsfirst.org/media/2005_alerts/asy_0208_relig.htm (last visited
Apr. 26, 2006).
255
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pertinent to asylum applicant countries as well as the need for followup assessments on the actual consequences of asylum applicants who
have been returned to their respective countries subsequent to asylum
denials. 165
B. The Fateful Decision to Streamline
In 2002, then acting Attorney General John Ashcroft finalized the
implementation of a ‘streamlining’ procedure into BIA protocol. 166
According to the DOJ, the regulations promulgated under the
streamlining amendments were “designed to address extensive
backlogs and lengthy delays . . . [t]he new procedures enabled the BIA
to reduce delays in the administrative review process, eliminate the
existing backlog of cases, and focus more attention and resources on
those cases presenting significant issues for resolution.” 167
Under the modified procedures a single member of the BIA will
initially review an appealed IJ asylum decision in order to determine if
a three-member panel should review the decision.168 If review is
warranted, a panel shall review the decision and may then reverse the
IJ decision, affirm the decision without opinion, or the panel may
affirm the decision with an amended or new opinion. 169 The single
Board member who initially reviews the IJ decision may also affirm
the lower opinion without review if that Board member believes it was
correctly decided, although the regulations make clear that this “does
not necessarily imply approval of all of the reasoning of that decision,
but does signify the Board’s conclusion that any errors in the decision
of the immigration judge or the Service were harmless or
165
See Djouma, 429 F.3d at 687-88.
See U.S. Department of Justice: Executive Office for Immigration Review,
BIA Restructuring and Streamlining Procedures, (Dec. 8, 2004 revised), available at
26, 2006).
167
Id.
168
See 8 C.F.R. § 1003.1(e)(4) (2005).
169
See 8 U.S.C. § 1158 (2005); 8 C.F.R. § 1003.1 (2005).
166
256
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nonmaterial.” 170 In addition, the streamlining regulation decreased the
number of Board members from 23 to 11 in number. 171
Critics quickly responded to the new regulations by challenging
their constitutionality concerning due process of law in federal courts,
although each federal circuit court has held that the restructuring
regulation is valid and does not violate due process standards. 172
Despite these setbacks, opponents of the new regulations have
continued to voice their concerns and much of their criticism possesses
validity which may yet force the DOJ to critically analyze the merits
of the new streamlining procedure. 173
Initially, the decision to reduce the number of BIA members has
been criticized as political in nature. Several critics believe that the
Attorney General simply removed the Board members most likely to
disagree with his position on immigration issues and that this, in turn,
undermined the independence of the remaining Board members. 174
170
8 C.F.R. § 1003.1(e)(4)(ii) (2005).
Id. at § 1003.1(a).
172
26, 2006) (noting that federal circuit courts have denied challenges to the
streamlining regulation). The Seventh Circuit has passed on the issue of whether
streamlining is constitutional, that is, whether due process is denied to an alien when
a single Board member affirms a denial as opposed to a BIA panel. See Hamdan v.
Gonzales, 425 F.3d 1051, 1057-58 (7th Cir. 2005). It was unnecessary to determine
this issue since an affirmance without opinion of an IJ’s decision issued by a single
Board member becomes the final decision of the BIA, and the Court reviews all final
BIA asylum decisions under the same standard of review. Id. at 1058.
173
See John R.B. Palmer, Stephen W. Yale-Loehr & Elizabeth Cronin, Why
Are So Many People Challenging Board of Immigration Appeals Decisions in
Federal Court? An Empirical Analysis of the Recent Surge in Petitions for Review,
20 GEO. IMMIGR. L.J. 1, 29-30 (2005) (noting “[a]part from legal challenges,
however, criticism of the procedural changes continues to be voiced loudly by
lawyers, scholars, members of Congress, and even by IJs and a former Board
member.”).
174
John R. B. Palmer, The Immigration Surge in the Federal Courts of
Appeals, 11-2 BENDER’S IMMIGR. BULL. 2 (2006) (citing see Stephen H. Legomsky,
Deportation and the War on Independence, 91 CORNELL L. REV. 369 (2006); Peter J.
171
257
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This position is supported by DOJ supplemental language
accompanying the regulation which purports that uniformity in
decisions was a goal of the new regulation. 175 It stands to reason that
this uniformity does not favor the positions brought by alien asylum
applicants. 176 Yet, the unintended, or perhaps implicitly intended,
effect of the streamlining procedure has been a stark increase in the
number of BIA decisions appealed to the federal courts. 177 While the
dockets of the BIA have decreased under the new regulations, 178 the
number of petitions filed with the federal courts has sharply
increased. 179 “The rate of new petitions – the number of BIA
decisions appealed to the Federal courts compared to the total number
of BIA decisions – has increased from an [sic] historical 5 percent
(before 2002) to a current [December 8, 2004] level of approximately
25 percent.” 180 The result of the streamlining procedure has simply
Levinson, The Facade of Quasi-Judicial Independence in Immigration Appellate
Adjudications, 9 BENDER’S IMMIGR. BULL. 1154 (2004)).
175
John R. B. Palmer, The Immigration Surge in the Federal Courts of
Appeals, 11-2 BENDER’S IMMIGR. BULL. 2 (2006) (citing Board of Immigration
Appeals: Procedural Reforms to Improve Case Management, 67 Fed. Reg. 54,878,
54,894 (Aug. 26, 2002)).
176
“In endorsing the removal of [the 12 Board members removed under the
regulations], the Executive Director of the Center for Immigration Studies, which
advocates significant restrictions on immigration, observed that ‘Board members
should clearly represent the attorney general’s views, since they are carrying out his
responsibility.’” Andrew I. Schoenholtz, Refugee Protection in the United States
Post-September 11, 36 COLUM. HUM. RTS. L. REV. 323, 357 (2005) (citing Ricardo
Alonso-Zaldivar & Jonathan Peterson, 5 on Immigration Board Asked to Leave;
Critics Call It a ‘Purge’, L.A. TIMES, Mar. 12, 2003, at A16.).
177
26, 2006).
178
Id. (noting “[t]he expanded streamlining procedures have allowed the BIA
to allocate its limited resources to adjudicate more than 40,000 new appeals and
other matters filed annually, and to steadily reduce its pending caseload from 56,000
in August 2002 to approximately 33,000 by October 2004.”).
179
Id.
180
Id.
258
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been the transfer of meaningful appeals on the merits from the BIA to
the federal courts.
It seems the streamlining procedure allows the BIA to probe less
thoroughly into the merits of an asylum case and the corresponding IJ
opinion. Indeed, the streamlining regulations have largely eliminated
the BIA’s de novo review of factual issues “by establishing ‘the
primacy of the immigration judges as factfinders’ and requiring the
Board to defer to the Immigration Judge unless a decision is ‘clearly
erroneous.’” 181 Further, the affirmance without opinion portion of the
regulations allows a single Board member to affirm even if there are
harmless or nonmaterial errors within that opinion. 182 Given the large
number of appeals filed with the BIA, there may be an inherent
temptation to characterize flaws in the analysis of an immigration
judge as harmless in an effort to reduce the number of docketed cases
at both the IJ and BIA level. In addition, the removal of immigration
judges who represent a broader ideological and cultural base may strip
the BIA of the benefits of more rigorous judicial debate. Thus, the
reduction of the number of BIA members, coupled with the
streamlining system, may seriously hamper the “filtering process”
which the BIA as an appellate entity represents. 183 Therefore,
erroneous IJ decisions that would normally have been reversed and
remedied by the BIA now slip through to the Seventh Circuit and other
federal courts where these opinions garner heavy criticism. 184
181
Schoenholtz, supra note 176, at 355 (citing Board of Immigration Appeals:
Procedural Reforms to Improve Case Management, 67 Fed. Reg. 54,878, 54,881
(Aug. 26, 2002)).
182
8 C.F.R. § 1003.1(e)(4)(ii) (2005).
183
Although, as the Seventh Circuit has noted, this may not ultimately
prejudice an asylum applicant since meaningful review will be provided on some
level. See Hamdan v. Gonzales, 425 F.3d 1051, 1058 (7th Cir. 2005) (citing Georgis
v. Ashcroft, 328 F.3d 962, 967 (7th Cir. 2003). Yet, asylum applicants (1) must pay
additional court filing fees if forced to appeal to federal circuit courts, (2) must wait
additional time periods for resolution of their claims in the federal circuit courts, and
(3) undoubtedly would benefit from the full application of DOJ-sponsored BIA
review prior to entering the federal circuit court arena.
184
See Benslimane v. Gonzales, 430 F.3d 828, 829 (7th Cir. 2005).
259
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The DOJ disagrees with these conclusions, instead attributing the
rise in the number of federal court appeals to an increased processing
time for appeals and motions within the BIA, which then prompts an
alien to appeal an adverse decision in order to stave off deportation as
long as possible. 185 However, this seems a rather simplistic and illsupported explanation, as aliens have long resorted to appeals as a
means of delaying an inevitable deportation and there would thus be
no reason for a sustained spike in the number of federal appeals.
Rather, more plausible explanations would be a drop in the quality of
IJ analysis, a less probing BIA, and a decrease in the physical number
and ideological diversity of BIA members. These explanations are
supported by the high rate of reversal in immigration appeals noted by
the Seventh Circuit. 186
It is evident that the problem here is the procedural design
implemented by the DOJ. What then can be done to remedy the
effects of the streamlining process? The most obvious answer would
be to restore or increase the number of BIA members reviewing
immigration appeals. This would allow the BIA to again provide
meaningful review of IJ decisions and thus alleviate the burdens
placed on the federal courts. Since aliens are often required to exhaust
their administrative options before proceeding to federal court, those
options should at least have some teeth in their review. 187 In addition,
restoring meaningful BIA review would spare the DHS and the DOJ
from the national exposure and embarrassment that accompany those
IJ opinions that draw public ire and the wrath of the federal courts.
Alternatively, the elimination of the affirmance without opinion
provision may force the BIA to delve more thoroughly into the merits
of the decision it reviews. By forcing the BIA to address the analysis
of IJ decisions, the BIA may think twice about the rationality of the
conclusions contained therein.
185
26, 2006).
186
See Benslimane, 430 F.3d at 829.
187
See 8 U.S.C. § 1252(d)(1) (2005).
260
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Although the Seventh Circuit has acknowledged the
constitutionality of the streamlining procedures, 188 the high rate of
reversals issued in the Court’s last term indicate that the Seventh
Circuit is forced to suffer the adverse effects of these procedures. The
Seventh Circuit often provides the first meaningful substantive review
of asylum denials and is therefore forced to confront problems
concerning credibility and corroboration, those rampant in the Court’s
recent opinions, head on. The streamlining procedures thus
compound, and possibly create, several of the prime errors upon which
many of the Seventh Circuit’s reversals are based. To this end,
eliminating the streamlining procedures will aid in alleviating the high
rate of asylum adjudication reversals issued by the Seventh Circuit.
C. Is the Immigration Judiciary Too Homogeneous?
Another problem inherent in the immigration system could be a
lack of diversity amongst immigration judges. Does the court lack
enough diversity to properly address cultural diversity? Or is that just
a red herring? Attorneys and legal scholars have attributed some of
the inappropriate decisions and behavior exhibited by IJs to racial or
ethnic bias and a lack of cultural sensitivity. 189 A recent Los Angeles
Times article, citing government records, noted that “of the 224
immigration judges in the U.S., 166 are white, 26 African American,
22 Latino, nine Asian and one Native American.” 190
It would be thoroughly discouraging to imply that a lack of racial
or ethnic diversity as an explanation for subpar immigration judge
analysis warrants merit, as these individuals are fully licensed legal
practitioners and adjudicators charged with interpreting and applying
the laws of the U.S. 191 If it were to be assumed that the racial or
ethnic biases of our immigration judges were impeding a fair
188
See Georgis v. Ashcroft, 328 F.3d 962, 966-67 (7th Cir. 2003).
Ann M. Simmons, Some Immigrants Meet Harsh Face of Justice, L.A.
TIMES, Feb. 12, 2006, at A18.
190
Id.
191
8 C.F.R. § 1.1(l) (2003).
189
261
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application of our immigration laws, the entire legacy of the open arms
of the U.S. would be lost. Yet, it still remains a distinct possibility for
error and one that would be extremely difficult to verify or
substantiate.
Furthermore, an expansion of races and ethnicities in the
immigration courts and BIA would not necessarily translate to an
expanded cultural base. Several of the problems discussed in this
Comment stem from American cultural context as a whole, which is
comprised on nearly every ethnic background. 192 Thus, adding more
ethnicities pulled from a generalized (at least in theory) American
cultural existence would not necessarily provide a much more diverse
cultural context, thus not providing a more evenhanded and acute
application of our immigration laws.
Moreover, it is highly doubtful that the DOJ would be able to
recruit or obtain a meaningful number of United States citizen
attorneys haling natively from foreign countries in order to represent a
broader cultural base within our immigration judiciary. Nor could we
assume that an immigration judge born, raised, or culturally steeped in
a foreign country would not then simply apply that judge’s own
cultural context, thus favoring or disfavoring certain aliens depending
upon that foreign country’s cultural tendencies.
This does give rise to an interesting possibility though. Should
the government attempt to regionalize the geographic or cultural areas
in which certain IJs practice? That is to say, should immigration
judges be charged with adjudicating asylum applications for a limited
and prescribed number of countries? Presumably, an IJ charged solely
with adjudicating asylum claims (without reference to the adjudication
of non-asylum claims) from a geographic region such as the South
Pacific would be able to familiarize himself of herself more
thoroughly with the current political and social conditions, the cultural
backgrounds of people native to the countries in that area, and perhaps
even the languages to some extent. This would likely have a profound
effect on the accuracy of credibility determinations and demeanor
interpretations, and may offer valuable insight to immigration
192
See supra Parts III.A.1-2.
262
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adjudicators on when and where they should reasonably expect
corroborating documentation.
Yet there are problems in this scenario as well. Governments rise
and fall and wars come and go. At any one point in history,
disproportionate numbers of refugees seek asylum from different
corners of the world. 193 Conflicts today may generate a large number
of refugees from a certain country that might stabilize and produce no
refugees in the near future. If the United States Government were to
focus asylum adjudications by region with correspondingly specialized
IJs, it is plausible that at certain periods many IJs will have no asylum
applications on their dockets while others are overwhelmed with an
influx of applications from one geographic area. Moreover, venue
would pose a problem in this scenario too. Often refugees and asylum
applicants have little or no money upon entering the United States. It
would be impracticable and unreasonable to require an applicant to
travel across the country in order to have his or her application
adjudicated by a specialized IJ. Yet, this problem could possibly be
remedied by simply creating specialized immigration judges within
each DOJ Immigration Court. 194 Therefore, despite the procedural
difficulties inherent with the implementation of geographically
regionalized immigration judges, the benefits afforded by this concept
may be worth contemplating its realization in the future.
Although the racial and ethnic constituency of the immigration
court is not a beacon of diversity, it is not entirely homogeneous
193
See Department of State - Department of Homeland Security - Department
of Health and Human Services, Report to Congress: Proposed Refugee Admissions
for Fiscal Year 2005, available at
http://www.state.gov/documents/organization/36228.pdf (last visited Apr. 26, 2006).
194
As of April, 2006, there were 51 U.S. DOJ Immigration Courts located
throughout the following States: Arizona, California, Colorado, Connecticut,
Florida, Georgia, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, Michigan,
Minnesota, Nevada, New Jersey, New York, Oregon, Pennsylvania, Puerto Rico,
Tennessee, Texas, Utah, Virginia, and Washington. United States Department of
Justice, Executive Office for Immigration Review, available at
http://www.usdoj.gov/eoir/sibpages/ICadr.htm (last visited Apr. 26, 2006).
263
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either. 195 Broad racial divisions such as white, black, and Asian may
encompass literally hundreds of different ethnicities and cultures.
However, increased diversity is always a goal to strive towards. Yet a
system in which immigration adjudicators remain mindful of the
myriad variety of cultural and ethnic backgrounds in the claims before
them is a system that can be successful in an evenhanded and fair
application of our immigration laws.
The problematic areas of streamlining, guidance to immigration
judges, and diversity amongst immigration adjudicators all represent
procedural policies, both explicit and implicit, of the DOJ. 196
However, all of these problems could be remedied without a serious
restructuring of the existing adjudicatory process. The recent
streamlining regulations can be repealed, thus reforming a larger and
more diverse BIA, which reviews all IJ decisions by panel with an
accompanying opinion. More comprehensive guides and regulations
concerning credibility determinations and other subjective analysis can
be enacted and a concerted effort can be made to broaden the racial
and ethnic composition of the immigration judge pool. Although the
Seventh Circuit has not specifically addressed these procedural policy
issues, the role of the judiciary is not to critique the policy reasons that
may form the basis for common immigration adjudication errors, 197
but simply to correct those errors that come before the courts. Yet, the
Seventh Circuit may ultimately prompt the DOJ to take the Court’s
considerations into account through the use of systematic, but valid,
reversals. 198
V. IS THE PROBLEM REALLY AS BAD AS IT SEEMS?
195
Ann M. Simmons, Some Immigrants Meet Harsh Face of Justice, L.A.
TIMES, Feb. 12, 2006, at A18.
196
See 8 C.F.R. § 1003.1 (2005) (concerning streamlining procedure and the
appointment of BIA Board Members by the Attorney General); 8 U.S.C. §
1158(d)(1) (2005) (concerning adjudication procedures set down by the Attorney
General).
197
Although it seems the Seventh Circuit has taken certain liberties with this
principle. See Benslimane v. Gonzales, 430 F.3d 828, 829-30 (7th Cir. 2005).
198
Id.
264
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Many of the problems identified by the Seventh Circuit during its
last term are acknowledged by federal circuit courts across the
nation. 199 The Seventh Circuit’s opinions provide examples of how
these problems, those such as cultural bias and skepticism, manifest
themselves in asylum cases. 200 At the same time the Court’s opinions
are often indicative of the manner in which it believes these problems
should be remedied. 201 A majority of the problems discussed in this
Comment are touched upon, whether expressly or implicitly, by recent
Seventh Circuit decisions and thus are problems that play a large part
in the asylum adjudication process. 202 Yet, the Seventh Circuit as a
court of law is bound by the application of the appropriate standards of
review and reverses cases only when the law dictates they must.
However, the Court can attempt to shift the policies of immigration
adjudication through persistent reversal and biting language; at least to
the extent that proper application of the law allows. But to what extent
can the Seventh Circuit actually begin to change immigration policy?
Certainly the Court has the ability to interpret the meaning of statutes
and regulations that Congress, the DHS, and the DOJ promulgate. 203
But can the Seventh Circuit provide the impetus for a policy shift?
As noted, between June 15, 2005 and December 15, 2005, the
Seventh Circuit granted a petition to review or reversed the decision of
the BIA in nearly two-thirds of its published decisions. 204 This high
rate of reversal is certainly discomforting and has obtained the
attention of the government and the general public as will be discussed
below. Yet, could this simply be a strategy contrived by the Seventh
Circuit and other federal circuit courts designed to provide change?
199
See id. at 829.
See, e.g., Tabaku v. Gonzales, 425 F.3d 417 (7th Cir. 2005); Dong v.
Gonzales, 421 F.3d 573 (7th Cir. 2005).
201
See generally Tabaku, 425 F.3d 417; Dong, 421 F.3d 573.
202
See, e.g., Lhanzom v. Gonzales, 430 F.3d 833 (7th Cir. 2005); Zen Li Iao v.
Gonzales, 400 F.3d 530, 533 (7th Cir. 2005).
203
See 5 U.S.C. § 706 (1966).
204
See supra note 6.
200
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There exists a school of thought on “selective publishing” in which
courts choose to publish only those opinions that further preordained
goals. 205 Judges exercise considerable discretion, even under a court’s
publication guidelines, in deciding which opinions should be prepared
or published, and thus, which decisions become laws. 206 Although it
may take a concerted effort from several judges, it is entirely plausible
that this strategy could be utilized to draw attention to, and instigate
reform in, certain problematic areas of law.
For example, note the high rate of reversal in recent asylum
opinions published by the Seventh Circuit. 207 However, during the
contemporaneous period in unpublished decisions the Seventh Circuit
denied petitions for review in 22 out of 24 appeals; results nearly polar
opposite those of the published opinions. 208 This represents an
astounding contrast.
205
See Martha J. Dragich, Will the Federal Courts of Appeals Perish if They
Publish? Or Does the Declining Use of Opinions to Explain and Justify Judicial
Decisions Pose a Greater Threat?, 44 AM. U.L. REV. 757, 785-90 (1995).
206
See id at 790.
207
See supra note 6.
208
Cases in which the petition was granted: Kiggundu v. Gonzales, 151 Fed.
App’x 481 (7th Cir. 2005); Huang v. Gonzales, 139 Fed. App’x 753 (7th Cir. 2005).
Cases in which the petition was denied: Miron v. Gonzales, 159 Fed. App’x
731 (7th Cir. 2005); Siqeca v. Gonzales, 157 Fed. App’x 912 (7th Cir. 2005);
Zagorcani v. Gonzales, 145 Fed. App’x 184 (7th Cir. 2005); Feto v. Gonzales, 148
Fed. App’x 559 (7th Cir. 2005); Zheng v. Gonzales, 155 Fed. App’x 913 (7th Cir.
2005); Weng v. Gonzales, 155 Fed. App’x 927 (7th Cir. 2005); Ponomareva v.
Gonzales, 156 Fed. App’x 845 (7th Cir. 2005); Zheng v. Gonzales, 156 Fed. App’x
830 (7th Cir. 2005); Zhang v. Gonzales, 154 Fed. App’x 520 (7th Cir. 2005); Chen
v. Gonzales, 152 Fed. App’x 528 (7th Cir. 2005); Tchoukreeva v. Gonzales, 150
Fed. App’x 570 (7th Cir. 2005); Agraja v. Gonzales, 152 Fed. App’x 524 (7th Cir.
2005); Bah v. Gonzales, 143 Fed. App’x 709 (7th Cir. 2005); Caushi v. Gonzales,
147 Fed. App’x 603 (7th Cir. 2005); Loli v. Gonzales, 147 Fed. App’x 598 (7th Cir.
2005); Lin v. Gonzales, 140 Fed. App’x 621 (7th Cir. 2005); Malik v. Gonzales, 137
Fed. App’x 916 (7th Cir. 2005); Li v. Gonzales, 135 Fed. App’x 881 (7th Cir. 2005);
Zhang v. Gonzales, 136 Fed. App’x 930 (7th Cir. 2005); Ni v. Gonzales, 134 Fed.
App’x 977 (7th Cir. 2005); Stermolli v. Gonzales, 134 Fed. App’x 970 (7th Cir.
2005); Kebe v. Gonzales, 134 Fed. App’x 966 (7th Cir. 2005).
266
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Perhaps the Seventh Circuit became tired of wading through
irrational immigration decisions. Perhaps the Court responded to the
transplantation of the BIA’s docket to its own. 209 Or perhaps this is
solely coincidence and there is no agenda or implicit meaning behind
the numbers. It is true that the period reviewed for this Comment
represents only a six-month window of Seventh Circuit decisions. Yet,
the striking disparity between the reversal rates in published versus
unpublished opinions, coupled with the Seventh Circuit’s biting
criticism in the published opinions seems to convey a stern message to
the DHS and the DOJ that this system needs to be remedied. To that
end, it appears that the message has been received.
VI. CHANGE IS IN THE AIR
In recent opinions the Seventh Circuit and the federal circuit
courts of appeals have demonstrated a rising impatience with
immigration judges and the BIA’s pattern of serious misapplication of
elementary adjudication principles in asylum cases. 210 It appears that
these opinions have not fallen on deaf ears. A front-page column on
the New York Times’ December 26, 2005 issue bore the headline
“Courts Criticize Judges’ Handling of Asylum Cases.” 211 The article
addresses the sharp criticism levied on immigration judges from
federal circuit courts across the nation while quoting language from
the recent Seventh Circuit decision Zen Li Iao v. Gonzales. 212 The
209
26, 2006).
210
See, e.g., Benslimane v. Gonzales, 430 F.3d 828, 829 (7th Cir. 2005).
211
TIMES, Dec. 26, 2005, at A1.
212
Id. (quoting Zen Li Iao v. Gonzales, 400 F.3d 530, 533-35 (7th Cir. 2005),
immigration judges’ “lack of familiarity with relevant foreign cultures” was
“disturbing,” and the BIA often affirmed “either with no opinion or with a very
short, unhelpful, boilerplate opinion even when” the immigration judge had
committed “manifest errors of fact and logic.”).
267
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article notes that the gravity of these statements is amplified by their
issuance from courts known for their “temperate language.”213 It
further cites to recent immigration opinions issued by several circuit
court judges which address the inadequacy of the current situation and
suggest that more thorough review be reinstated at the BIA level. 214
DOJ officials respond and caution against drawing conclusions,
denying that a serious problem exists. They note that nearly 300,000
matters are handled by IJs yearly and the negative opinions cited
represent a small minority of decisions issued. 215 Yet, despite the
disparity in positions between these entities it appears the United
States Government has taken stock.
On January 9, 2006, Attorney General Alberto Gonzales issued a
Memorandum to Immigration Judges and a Memorandum to the Board
of Immigration Appeals that appear to have been prompted by recent
federal circuit court decisions and the accompanying public outcry.216
In both memoranda Gonzales stated that he “has watched with concern
the reports of immigration judges who fail to treat aliens appearing
before them with appropriate respect and consideration and who fail to
produce the quality of work that I expect from employees of the
Department of Justice.” 217 According to these memoranda the Deputy
Attorney General and Associate Attorney General have been instructed
to develop a comprehensive review of the immigration courts,
including the quality of work and procedural manners of both
immigration judges and the BIA. 218 Gonzales concluded the
213
TIMES, Dec. 26, 2005, at A1.
214
Id.
215
See id.
216
Human Rights First, Attorney General Alberto Gonzales: Memorandum to
Immigration Judges (Jan. 9, 2006), http://www.humanrightsfirst.info/pdf/06202-asyag-memo-ijs.pdf (last visited Apr. 26, 2006); Human Rights First, Attorney General
Alberto Gonzales: Memorandum to Members of the Board of Immigration Appeals
(Jan. 9, 2006), available at http://www.humanrightsfirst.info/pdf/06202-asy-agmemo-bia.pdf (last visited Apr. 26, 2006).
217
See supra note 216.
218
Id.
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memoranda by noting that while not all aliens will be entitled to the
relief they seek, they are entitled to courtesy and respect from “the
face of American justice.” 219
The Seventh Circuit and the federal circuit courts of appeals
should view the issuance of these memoranda as a success. The
Seventh Circuit stood its ground in a rising tide of immigration
adjudication incompetence through the use of both a high, yet
validated, level of reversals and harsh criticism designed to underscore
the prevalent problems hindering proper adjudication. 220 These
problems appear to be based in part on erroneous subjective analyses
performed by immigration judges and the BIA. 221 Yet, under the
newly enacted provisions of the REAL ID Act of 2005, it appears
these problems may only become amplified and endorsed by the DOJ
and the DHS. 222 Therefore, in order for the critiques of the Seventh
Circuit to truly remedy the problems identified, the DOJ must
scrutinize the possible ramifications these new provisions may bring
when applied by the current immigration adjudicatory bodies.
CONCLUSION
It is evident that the asylum adjudicatory process administered by
the immigration courts and the BIA remains flawed. Recurring and
widespread errors manifest themselves throughout the asylum
application process, often resulting in unjust asylum denials. The
Seventh Circuit has consistently demonstrated its concern with the
quality of adjudicatory analysis conducted by the DHS and the
DOJ, 223 noting, “the adjudication of these cases at the administrative
219
Id.
See, e.g., Benslimane v. Gonzales, 430 F.3d 828, 829 (7th Cir. 2005); See
generally Tabaku v. Gonzales, 425 F.3d 417 (7th Cir. 2005); Soumahoro v.
Gonzales, 415 F.3d 732 (7th Cir. 2005); Koval v. Gonzales, 418 F.3d 798 (7th Cir.
2005).
221
See supra Parts III.A.4, III.B.3.
222
223
See Benslimane, 430 F.3d at 829.
220
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level has fallen below the minimum standards of legal justice.” 224
Although the identification of recurring errors is a step in the right
direction, it may be difficult to remedy the system given that these
errors represent both procedural flaws such as streamlining and a lack
of proper DOJ guidance, as well as flaws inherent to immigration
adjudicators themselves such as cultural indifference, bias, and
impartial subjective claim analysis. 225
However, in its recognition of fundamental flaws within the
immigration adjudication context, the Seventh Circuit has made clear
which entities it believes can begin remedying this situation:
[w]hether [the unacceptable quality of adjudication] is
due to resource constraints or to other circumstances
beyond the Board’s and the Immigration Court’s
control, we do not know, though we note that the
problem is not of recent origin . . . [a]ll that is clear is
that it cannot be in the interest of the immigration
authorities, the taxpayer, the federal judiciary, or
citizens concerned with the effective enforcement of the
nation’s immigration laws for removal orders to be
routinely nullified by the courts, and that the power of
correction lies in the [DHS], which prosecutes removal
cases, and the [DOJ], which adjudicates them in its
Immigration Court and [BIA]. 226
The Seventh Circuit correctly recognized the existence of
fundamental problems in the current status of asylum adjudications,
and immigration adjudications as a whole. The Court has also
correctly taken a firm stance concerning the problems identified,
reversing immigration judge and BIA decisions at a disproportionately
224
Id. at 829-30 (citing Niam v. Ashcroft, 354 F.3d 652, 654 (7th Cir. 2004)).
See supra Part III.A.2.
226
Benslimane, 430 F.3d at 830 (citing, Galina v. INS, 213 F.3d 955, 958 (7th
Cir. 2000)).
225
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high rate. 227 The number of reversals and the harsh criticisms leveled
on immigration adjudicators within these reversals appears designed to
bring these issues to the attention of those capable of addressing them;
to wit: the Department of Homeland Security and the Department of
Justice.
In addition, the Seventh Circuit has provided express and implicit
remedies for many of the problems identified throughout its opinions,
although the Court is limited in its ability to dole out unsolicited
advice as an impartial judiciary. However, it initially appears the
Seventh Circuit’s suggestions were not given due credence as recent
legislative enactments such as the REAL ID Act of 2005 may serve to
actually exacerbate many of the common problems recognized by the
Court as opposed to remedying them. 228 Nevertheless, the Seventh
Circuit may yet induce positive changes within the immigration
adjudication system given Attorney General Alberto Gonzales’ recent
announcement of a comprehensive review concerning the consistent
failings and incompetence of immigration adjudicators. 229 Perhaps
this review may ultimately result in the application of principles the
Seventh Circuit has long espoused through its opinions, although only
time will tell. However, until the DHS and the DOJ actually take
proactive and concrete steps to address the problems identified by the
Seventh Circuit, the Court may be forced to continue reversing poorly
adjudicated administrative asylum decisions at a disproportionately
high rate.
227
Benslimane, 430 F.3d at 829.
229
See supra note 216.
228
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MEDICAL DEVICE PREEMPTION:
A REASONABLE AVENUE OF TORT REFORM?
JACOB M. ECKBURG*
Cite as: Jacob M. Eckburg, Medical Device Preemption: A Reasonable Avenue of
Tort Reform?, 1 SEVENTH CIRCUIT REV. 272 (2006), at
http://www.kentlaw.edu/7cr/v1-1/eckburg.pdf.
INTRODUCTION
In recent years, tort reform has been a topic of debate between
lawyers, politicians, and scholars. In the most recent Presidential
campaign, George W. Bush focused on tort reform as one issue that
our nation should address. 1 Proponents of tort reform focus on rising
medical costs and exorbitant insurance premiums doctors must pay to
argue for reform through avenues such as placing a cap on tort
damages. 2 Much of the mainstream tort reform debate centers around
malpractice claims against doctors; however, often left out of the
discussion is devising measures to protect medical device and drug
manufacturers from liability. One means of protection for these
manufacturers is the affirmative defense of preemption. 3 Congress
* J.D. candidate, May 2006, Chicago-Kent College of Law, Illinois Institute of
Technology.
1
Dan Zegart, Tort Reform Advocates Play Fast and Loose With the Facts,
MONTANA LAWYER, February 2005, at 30.
2
See e.g. Geoff Boehm, Debunking Medical Malpractice Myths: Unraveling
The False Premises Behind “Tort Reform,” 5 YALE J. HEALTH POL’Y L. & ETHICS
357 (2005) (Arguing against placing caps on victim’s damages award and instead
focus on regulating the insurance industry).
3
See DAVID G. OWEN, PRODUCTS LIABILITY LAW § 14.4 (2005) (“When
enacting product safety legislation, Congress normally vests regulatory authority
over the matter in a federal administrative agency, often specifying, in a preemption
clause, that state law may not interfere with safety standards or “requirements” in the
statute itself or, more typically, as promulgated by the federal agency”).
272
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has drafted preemption provisions into many of its regulatory schemes,
which serve to limit common law tort claims and effectuate tort reform
“through the back door.” 4
Within the realm of medical devices, the Supreme Court has
refused to allow the preemption defense for devices receiving
certification under the 510(k) process. 5 While a vast majority of Class
III medical devices are marketed using the 510(k) process, the Court
has yet to speak on the issue of preemption with regard to medical
devices approved under the pre-market approval process (“PMA”).
When and if the Court hears the issue, it should agree with 7th Circuit
analysis, and hold that completing the PMA process shields medical
device manufacturers from common law tort liability through the
affirmative defense of preemption. Doing so will provide a reasonable
avenue of tort reform, while also balancing the competing concerns of
developing innovative medical devices with protecting the public from
injuries resulting from medical devices.
Part I of this article will provide a historical background to the
issue of preemption in medical device cases. Preemption arguments
have been reborn following the Supreme Court’s decision in Cipollone
v. Liggett Group, Inc. 6 Part II will review the case of McMullen v.
Medtronic, Inc., 421 F.3d 482, 484-85 (7th Cir. 2005) and its
predecessor, Mitchell v. Collagen Corp., 126 F.3d 902 (7th Cir. 1997) .
These cases firmly established the rule that common law tort claims
against PMA devices are preempted. Part III will discuss the broad
procedural and policy implications of the 7th Circuit’s rationale. By
balancing competing policy interests, the 7th Circuit has adopted the
proper rule. Part IV will analyze the arguments against the
4
See e.g. 7 U.S.C. § 136v(b) (2006) (Preemption provision of the Federal
Insecticide, Fungicide and Rodenticide Act); 49 U.S.C. § 30103(b)(1) (2006)
(Preemption provision of the National Traffic and Motor Vehicle Safety Act); 21
U.S.C. 360(k) (2006) (Preemption provision of the Medical Device Amendments to
the Food Drug and Cosmetic Act); 49 U.S.C. § 4306 (2006) (Preemption provision
of the Federal Boat Safety Act); 15 U.S.C. § 2075(a) (2006) (Preemption provision
of the Consumer Product Safety Act).
5
Medtronic v. Lohr, 518 U.S. 470 (1996).
6
505 U.S. 504 (1992).
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7th Circuit’s reasoning, and discuss specific problems with various
courts’ analysis. Part V will analyze whether the Supreme Court is
likely to adopt the 7th Circuit’s reasoning, especially in light of the
changes to the Court since its last relevant decision in 1996. The
addition of Chief Justice John Roberts and Justice Samuel Alito, will
have an impact on the future of preemption analysis within the
medical device contest. Examining their histories with medical device
preemption may shed some light on how they will decide the issue.
I. BACKGROUND
“No issue in modern products liability law is more important, or
more inscrutable, than the doctrine of federal preemption.” 7 Until the
Supreme Court’s 1992 decision in Cipollone v. Liggett Group, Inc.,
offering the affirmative defense of express federal preemption was not,
in most cases, a successful venture. 8 Since Cipollone, express federal
preemption has been a hotly contested issue in cases involving the
regulation of pesticides and insecticides, motor vehicles, air bags,
recreational boats, consumer products, workplace products, drugs, and,
as discussed below, medical devices. 9
A. History of the Medical Device Amendments
7
Owen, supra note 3 at 895.
Id. at 901.
9
Owen, supra note 3 (citing numerous cases involving preemption within
these contexts); See e.g. Williams v. Dow Chemical Co., 255 F. Supp. 2d 219
(S.D.N.Y. 2003) (preemption analysis of federal regulation of pesticides and
insecticides); Freightliner Corp. v. Myrick, 514 U.S. 280 (1995) (preemption
analysis of federal regulation of motor vehicles); Geier v. American Honda Motor
Co., 529 U.S. 861 (2000) (preemption analysis of federal regulation of air bags);
Sprietsma v. Mercury Marine, 537 U.S. 51 (2002) (preemption analysis of federal
regulation of recreational boats); Cortez v. MTD Prod., Inc., 927 F. Supp. 386 (N.D.
Cal. 1996) (preemption analysis of federal regulation of consumer products);
Pedraza v. Shell Oil Co., 942 F.2d 48 (1st Cir. 1991) (preemption analysis of federal
regulation of workplace products); Bell v. Lollar, 791 N.E.2d 849 (Ind. Ct. App.
2003) (preemption analysis of federal regulation of drugs); Medtronic, Inc. v. Lohr,
518 U.S. 470 (1996) (preemption analysis of federal regulation of medical devices).
8
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In 1976, Congress enacted the Medical Device Amendments
(“MDA”) to the Food Drug and Cosmetic Act (“FDCA”), in which the
Food and Drug Administration (“FDA”) was appointed to regulate the
safety and effectiveness of medical devices. 10 Some medical devices,
originally touted as safe and effective, were posing severe health risks
to consumers, including death. 11 Responding to its grant of authority
and the growing concern for consumer safety, the FDA created three
different categories of medical devices, organized according to their
potential safety risks. Class I devices, such as tongue depressors,
receive a minimal level of regulation because they pose minimal risk
to the public. 12 Class II devices, such as tampons or hearing aids, are
subjected to “special controls” because of the potentially more harmful
results of their use. 13 Class III devices, such as pacemakers or
artificial hearts, are regulated subject to the most exacting controls,
because these devices pose a “potential unreasonable risk of illness or
injury.” 14 To market a Class III device, a manufacturer must present
enough evidence to instill in the FDA a “reasonable assurance” that
the device is safe and effective for consumers. 15
The FDA requires all Class III medical devices to receive “premarket approval.” 16 To obtain approval under the PMA process, a
manufacturer must submit many documents to the FDA: “a
bibliography of all reports concerning the device’s safety and
effectiveness, an outline of the device’s components and properties, a
10
See 21 U.S.C. § 360 (2006).
Medtronic, Inc. v. Lohr, 518 U.S. 470, 476 (1996) (examining various
hearings before Congress in 1973, during which Congress examined devices such as
the Dalkon Shield, a intrauterine conceptive device, that was declared to be safe and
effective, but led to a high percentage of inadvertent pregnancies, serious infections
and even death. Other devices Congress examined that potentially posed safety
concerns included catheters, artificial heart valves, defibrillators and pacemakers).
12
Owen, supra note 3 at 910.
13
Id.
14
21 U.S.C. § 360c(1)(C) (2006).
15
21 U.S.C. § 360e(d)(2) (2006).
16
21 U.S.C. § 360e (2006).
11
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description of the manufacturing process, safety data, samples of the
device, copies of all proposed labeling,” along with any other FDA
required material. 17 Once this information is received, the FDA then
spends an average of 1,200 hours reviewing the device, requesting
further testing and information, and imposing other conditions that
must be met before the device reaches the market. 18 Often, the FDA
will require changes be made to the device or its warnings before it
can receive full approval. For example, in Brooks v. Howmedica, Inc.,
the Eighth Circuit examined the regulations and requirements placed
on Simplex bone cement during the approval process. 19 The court
noted that the FDA had required specific warning language both
during and after the approval process. 20 When the FDA does not alter
a PMA application, it has determined that the manufacturer-drafted
warnings, labeling, design, etc. are sufficient and in need of no
revision.
While the PMA process is generally required before Class III
devices can be placed in the market, the rule has two significant
exceptions. “These exceptions have developed a propensity for
17
Martin v. Telectronics Pacing Sys., Inc., 105 F.3d 1090, 1095 (6th Cir.
1997); See also 21 C.F.R. § 814.20 (2006).
18
Medtronic, Inc. v. Lohr, 518 U.S. 470, 478-79 (1996).
19
273 F.3d 785 (8th Cir. 2001).
20
Id.; See also Horn v. Thoratec Corp., 376 F.3d 1363 (3d Cir. 2004)
(examining the PMA process for the HeartMate ventricular assist device. From
1975-1985 the manufacturer conducted studies on live animals and human cadavers.
In 1985, the HeartMate was granted and investigational device exemption from the
FDA to begin clinical trials. For seven years clinical trials were conducted at
hospitals. During this period the manufacturer submitted extensive information to
the FDA, and the FDA responded with numerous inquiries into the safety and
effectiveness of the device. The FDA, after review, also approved design changes
that were made to prevent leaks from the HeartMate’s screw ring. In 1992, the
manufacturer submitted its PMA application to the FDA. For two years, the
manufacturer submitted a substantial amount of amendments to the device and
responded to numerous FDA questions. In 1994, after extensive review, the
HeartMate received final approval under the PMA process, in the form specified in
the final application).
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swallowing the rule.” 21 First, devices on the market prior to May 28,
1976 are grandfathered in from this requirement, until the FDA
completes the PMA process for such devices. 22 Second,
manufacturers may be able to enter a limited form of review called
“premarket notification.” 23 This type of FDA review, also known as
“the § 510(k) process,” is available to manufacturers when their device
is “substantially equivalent” to other devices on the market prior to the
MDA in 1976. 24 On average, the FDA spends only twenty hours of
review to determine whether a device may be initially marketed under
the § 510(k) process. 25
When Congress enacted the MDA, it included an express
preemption provision, as it does with many other regulatory statutes. 26
Because of the different avenues of review a device can take before
entering the market, courts have struggled with when to apply the
preemption provision. The language of the preemption provision
states the following:
(a) General rule
Except as provided in subsection (b)
of this section, no State or political
subdivision of a State may establish or
continue in effect with respect to a
device intended for human use any
requirement—
(1) which is different from, or in
addition to, any requirement applicable
under this chapter to the device, and
21
Mitchell v. Collagen Corp., 126 F.3d 902, 905 (7th Cir. 1997); See also
Horn, 376 F.3d at 1367 (noting that in 2003, only 54 of 9,872 medical device
applications to the FDA were requesting PMA review. In 2002 only 49 of 10,323
medical device applications requested PMA review).
22
Mitchell, 126 F.3d at 905.
23
Lohr, 518 U.S. at 478.
24
Id.
25
Id.
26
See statutes cited supra note 4.
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(2) which relates to the safety or
effectiveness of the device or to any
other matter included in a requirement
applicable to the device under this
chapter. 27
Thus, should a state seek to impose a “requirement” on a device
that differs from a requirement already placed on the device during the
device review process, such a requirement would be preempted. This
provision has required courts to struggle with two major questions: 1)
what constitutes a state requirement, and 2) what, if any, federal
requirements exist during device review?
B. Scope of Preemption – Medtronic v. Lohr
The Supreme Court first analyzed the scope of the MDA
preemption provision in Medtronic, Inc. v. Lohr. 28 Lora Lohr
depended on a pacemaker to properly regulate her heart. 29 In 1987,
she had a Medtronic pacemaker implanted to serve this function. 30
However, the pacemaker failed in 1990, requiring immediate
surgery. 31 Lohr’s physician stated that the type of lead in the
pacemaker was the likely cause of failure. 32 Medtronic had received
clearance from the FDA under the 510(k) process to market the
device. 33 Lohr and her husband brought a common law tort claim
against Medtronic alleging negligence and strict liability 34 A divided
court held that the 510(k) process of device review did not create any
federal requirements on the pacemaker and thus Lohr’s common-law
27
28
29
30
31
32
33
34
21 U.S.C. § 360(k) (2006).
518 U.S. 470.
Id. at 480.
Id.
Id. at 481.
Id.
Id. at 480.
Id. at 481.
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tort claims could not be preempted. 35 Accordingly, preemption
arguments under 510(k) review have ended. Nevertheless, the Court
has yet to answer the question of preemption under the more rigorous
PMA avenue of device review. The three opinions in Lohr help shed
some light on arguments made for both sides.
1.
Justice Stevens’ Opinion
Justice Stevens, joined by Justices Kennedy, Souter and Ginsburg,
wrote for a majority of the Court in parts I, II, III, V, and VII of his
opinion. 36 At the outset, Justice Stevens examined the differences
between the 510(k) process exemption and the PMA process. “The
510(k) process is by no means comparable to the PMA process; in
contrast to the 1,200 hours necessary to complete a PMA review, the
510(k) review is completed in an average of 20 hours.” 37 Discussing
the various causes of action, a unanimous Court held that the defective
design claims were not preempted because the 510(k) process was
only focused on equivalence. In fact, Medtronic only had to comply
with “general standards—the lowest level of protection [to
manufacturers]—applicable to all medical devices.” 38 The Court
found that the 510(k) process thus could not constitute a federal
requirement “specific to a device.” 39
Later, the Court stated that even if 510(k) did impose
requirements, and state common law claims could be considered
requirements, the claims that Medtronic violated specific FDA
regulations could be maintained. 40 For example, the Court held that
the manufacturing and labeling claims were not preempted, because
35
Id. at 492-503.
Justice Breyer concurred with the opinion except for parts IV or VI.
37
Lohr, 518 U.S. at 478-479 (referring to the PMA process and “rigorous” and
noting that “in 1990, 80% of the Class III devices were being introduced through the
510(k) process and without PMA review”).
38
Id. at 493-94.
39
Id.
40
Id. at 495.
36
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the FDA-maintained device regulations—both in the manufacturing
and labeling areas—were requirements of general applicability and
could not be said to be specific to the device in question. 41
Writing for a plurality of the Court in Parts IV and VI of his
opinion, Justice Stevens disagreed with Medtronic’s argument that
Congress intended to preclude all common law causes of actions:
If Congress intended to preclude all
common-law causes of action, it chose a
singularly odd word with which to do it.
The statute would have achieved an
identical result, for instance, if it had
precluded any “remedy” under state law
relating
to
medical
devices.
‘Requirement’ appears to presume that
the State is imposing a specific duty on
the manufacturer. 42
The plurality argued that the MDA would rarely preempt common
law causes of action, because the word requirement “is linked with
language suggesting that its focus is device-specific enactments of
positive law by legislative or administrative bodies, not the application
of general rules of common law by judges and juries.” 43
2.
Justice O’Connor’s Dissenting Opinion
Justice O’Connor, joined by Chief Justice Rehnquist and Justices
Scalia and Thomas, argued that a common law duty was a requirement
because a common law action “operate[s] to require manufacturers to
41
Id. at 497-98 (examining general labeling regulations found in 21 CFR §§
801.109 (b) and (c). Furthermore, the Court noted that “manufacturers are required
to comply with ‘Good Manufacturing Practices,’…which are set fort in 32
sections…in the Code of Federal Regulations”).
42
Lohr, 518 U.S. at 487 (plurality) (Stevens, J.).
43
Id. at 489 (emphasis added).
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comply with common law duties.” 44 Thus, claims will be preempted
“where such requirements [imposed by common law actions] would
differ from those imposed by the FDCA.” 45 Justice O’Connor agreed
with the Court with regards to the Lohr’s defective design claims and
stated that the claim “[I]s not preempted by the [] 510(k) ‘substantial
equivalency’ process,” because this process only focuses on whether
devices are equivalent. 46
Justice O’Connor wrote separately from the majority with regards
to the manufacturing and labeling claims. 47 She argued that the FDA’s
Good Manufacturing Process (GMP) regulations, 48 and extensive
labeling regulations, 49 impose federal requirements on medical
devices. Because Lohr was arguing that different or additional
manufacturing and labeling requirements were needed, her claims
were preempted. 50 Thus, O’Connor and the other dissenting Justices
took a broader view of the role of preemption in MDA cases.
3.
Justice Breyer’s Opinion
Justice Breyer wrote a separate opinion concurring in part and
concurring in the judgment. 51 He formed a majority of the Court
when opining that State common law tort actions would impose
requirements specific to medical devices. 52 To determine whether the
510(k) process imposed specific federal requirements, Breyer first
44
Lohr, 518 U.S. at 510 (O’Connor, J., concurring in part and dissenting in
part).
45
46
47
48
49
50
Id. at 509.
Id.
Id. at 513-514.
See e.g. 21 C.F.R. § 820.20 (2006).
See e.g. 21 C.F.R. § 801.109 (2006).
Lohr, 518 U.S. at 514. (O’Connor, J., concurring in part and dissenting in
part).
51
Lohr, 518 U.S. at 503-08 (Breyer, J., concurring in part and concurring in
the judgment).
52
Id. at 504-05 (agreeing with the opinion written by Justice O’Connor).
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looked to the language of the preemption provision. 53 Finding that the
wording was highly ambiguous, Justice Breyer looked elsewhere to
determine which federal requirements preempted state requirements.
Noting that the FDA has a special understanding of “whether state
requirements may interfere with federal objectives,” Breyer argued
that the FDA’s interpretation should be given some level of respect. 54
Breyer noted that the FDA could communicate its intentions through
“statements in ‘regulations, preambles, interpretive statements, and
responses to comments.’” 55 With respect to the FDA’s own current
regulation regarding preemption, there must be a “specific [federal]
requirement applicable to a particular device.” 56 Because the FDA did
not impose any requirements specific to the pacemaker—that is, only
general requirements—preemption did not apply. 57
C. Post Medtronic v. Lohr Litigation
While the Court’s judgment in Medtronic, Inc. v. Lohr cut-off
preemption arguments in 510(k) approved devices, a whole realm of
litigation regarding medical devices receiving approval under the PMA
process developed. A majority of U.S. Circuit Court’s have concluded
that the PMA process does impose specific federal requirements on
medical devices and therefore warrants preemption of common law
claims. 58 Other Circuit’s, and various other courts, argue that either
the PMA process does not rise to the level of a device-specific
requirement, or state common law tort actions are not within the
purview of the MDA preemption provision. 59
53
Id.
Id. at 506.
55
Id; See also supra note 146.
56
Lohr, 518 U.S. at 506 (Breyer, J., concurring in part and concurring in the
judgment); See CFR § 808.1(d) (2006).
57
judgment).
58
See cases cited infra note 106.
59
See cases cited infra note 107.
54
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II. THE SEVENTH CIRCUIT APPROACH TO PREEMPTION AND PMA
Following Medtronic, Inc. v. Lohr, the 7th Circuit held that
specific requirements are placed on medical devices during the PMA
process. 60 Furthermore, common law tort claims, which would
impose requirements different from or in addition to those already
imposed during the PMA process, would be preempted. 61 Recently,
the 7th Circuit re-affirmed this precedent in McMullen v. Medtronic,
Inc., and analyzed whether two FDA regulations preempted common
law tort claims. 62
A. Mitchell v. Collagen – PMA Preempts Most Common Law Claims.
In 1988, Barbara Mitchell received several injections of Zyderm,
a collagen-based product used to fill in tissue under the skin when the
tissue is lost due to injury, age, infection or other diseases. 63 Zyderm
had received original PMA approval in 1981 and additional PMA
approval when the FDA conducted a re-review from 1991-1992.
Sometime after the injections, Mitchell developed serious medical
complications. 64 She brought a complaint against Collagen, alleging
that Collagen was liable for her complications under theories of strict
liability, negligence, fraud, mislabeling, misbranding, adulteration and
breach of warranty. 65 During the 7th Circuit’s first review of the case
in 1995, it held that the MDA allowed for at least some state common
law tort claims to be preempted. 66 Furthermore, because specific
requirements were placed on medical devices during the PMA process,
60
61
62
63
64
65
66
Mitchell v. Collagen Corp., 126 F.3d 902 (7th Cir. 1997).
Id.
421 F.3d 482 (7th Cir. 2005).
Mitchell v. Collagen Corp., 67 F.3d 1268 (7th Cir. 1995).
Mitchell, 67 F.3d 1268.
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the Court held that most of Mitchell’s claims would be preempted. 67
The Mitchell’s appealed to the Supreme Court, which granted
certiorari and then remanded the case to the Seventh Circuit to
reconsider the Mitchell’s claims in light of the intervening Medtronic
v. Lohr decision.
Upon re-review, the 7th Circuit stood by its initial decision. After
analyzing the various opinions in Lohr, the court noted that the
Supreme Court’s decision was not without its own ambiguities. 68 The
court began sifting through these ambiguities to reach its ultimate
decision. First, the court noted that a majority of the Supreme Court—
Justice O’Connor and those joining her opinion, as well as Justice
Breyer in his concurring opinion—held that the MDA preempted at
least some state common law claims. 69
Second, the court noted that the PMA process is substantially
different than the 510(k) process involved in Medtronic, Inc. v. Lohr. 70
Because of the rigors of the PMA process, the court held that the
process imposes specific federal regulation or requirements on the
medical devices. 71 The court found that with respect to the PMA
process “the federal government…has ‘weighed the competing
interests relevant to the particular requirement in question, reached an
unambiguous conclusion about how those competing considerations
should be resolved in a particular case or set of cases, and
implemented that conclusion via a specific mandate on manufacturers
or producers.’” 72
67
Id. (holding that one fraud claim and a breach of express warranty claim
would not be preempted, since they did not add any requirement different from or in
addition to requirements already imposed by the FDA).
68
Mitchell, 126 F.3d at 910 (“[T]he holding in Medtronic contains several
ambiguities that impair our ability to perceive with absolute clarity the path that the
Court has chosen for us to follow.”).
69
Id.
70
Id. at 911.
71
Id. (discussing Fry v. Allergan Medical Optics 695 A.2d 511 (R.I. 1997)).
72
Mitchell, 126 F.3d at 910 (quoting from Medtronic v. Lohr, 518 U.S. 470,
501 (1996)).
284
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Third, the court discussed which types of common law claims
would be preempted by the PMA process. The court stated that “[I]t is
necessary to examine the state law cause of action at a sufficiently
precise level of generality to determine whether the final judgment of
the state court would impose on the manufacturer a burden
incompatible with the requirements imposed by the FDA.” 73 In other
words, so long as the plaintiff’s claim alleged a departure from FDAimposed standards, the claim would not be preempted; however, if the
claim alleged that the manufacturer failed to make adjustments or
corrections to the device not required by the FDA, the claim would be
preempted insofar as it would impose a requirement different from or
in addition to those already required by the FDA. 74
When the court examined the Mitchell’s claims, it determined that
the strict liability, negligence, mislabeling, misbranding, adulteration,
fraud and implied warranty claims were all preempted. Each of these
claims, if successful, would impose requirements on Zyderm that were
different from or in addition to those already placed on Zyderm during
the PMA process. 75 While most avenues of recovery were closed by
preemption, the court did state that had there been an express
warranty, Mitchell could recover against Collagen for breach of any
express warranty. 76
B. McMullen v. Medtronic – Reaffirming Mitchell’s Reasoning.
Recently, the 7th Circuit had the opportunity to revisit its decision
from Mitchell v. Collagen Corp. 77 In McMullen v. Medtronic, Inc. the
73
Mitchell, 126 F.3d at 912 (relying on the reasoning of Judge Rovner from
Chambers v. Osteonics Corp. 109 F.3d 1243 (7th Cir. 1997), a case dealing with the
preemptive effect of the MDA under the investigational device exemption (IDE) for
Class III medical devices).
74
Mitchell, 126 F.3d at 912-915.
75
Id.
76
Id. (noting that the Mitchell’s had failed to specify they were relying on such
a claim, and that the Mitchell’s had never stated that Collagen had given them an
express warranty of the product.)
77
126 F.3d 902.
285
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court examined the case of Jack and Barbara McMullen, who had
brought suit against Medtronic claiming that Medtronic had breached
its post sale duty to warn. 78 In May 2000, Jack McMullen opted to
have two of Medtronic’s Activas implanted into his brain. 79 He had
been suffering from Parkinson’s Disease since 1985, and the
Medtronic Activa was being successfully used in the suppression of
tremors for those diagnosed with Parkinson’s Disease. The Activa is a
class III medical device that received full PMA approval in 1997. 80
During the PMA process, the FDA issued at least two
requirements on the Activa. First, Medtronic was required to track the
name and contact information of patients implanted with Activa. 81
Second, the FDA required Medtronic to issue specific warnings
regarding the terms “electrocautery” and “diathermy” in its manuals. 82
The warnings the FDA required were as follows:
Tell your dentist where your IPG is
implanted, so he or she can take
precautions with dental drills and
ultrasonic probes used to clean your
teeth. These devices should not be used
directly over the implant site.
Therapeutic ultrasound, electrolysis,
radiation therapy, and electrocautery also
should not be used directly over the
implant site…Diathermy treatments that
are sometimes used for muscle
relaxation
may
affect
the
78
421 F.3d 482, 484-85 (7th Cir. 2005).
Id. at 485.
80
Id. at 484-85.
81
Id.
82
Id. (defining “electrocautery” as the burning or searing of tissue by means
of an electrically heated instrument, and defining “diathermy” as therapeutic local
heating by means of passing electric currents through tissue).
79
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neurostimulator output and/or damage its
electronics. 83
Following implantation, Jack Mullen “experienced an excellent
remediation of his Parkinson’s symptoms.” 84 However, in March of
2001, McMullen visited his dentist and underwent a procedure that
may have involved diathermy or electrocautery.85 Following the
procedure, he experienced a reduction in the ability of the Activa to
sufficiently control his tremors. 86 After undergoing more surgeries to
replace various components of the Activas, McMullen still did not
receive the same beneficial effects he had before the dentist visit.87
McMullen argued that the procedure at the dentist office led to
damaged brain tissue surrounding the devices. 88
The basis for McMullen’s argument stemmed from a report
Medtronic learned of in January of 2001. The report detailed a 70 year
old individual with Parkinson’s Disease that had been implanted with
one of Medtronic’s Activa devices. The individual received diathermy
treatment from his dentist following oral surgery, and subsequently
went into a coma during the treatment. Furthermore, the report listed
the possible cause of the coma as damaged brain tissue around the
wires to the device. 89 In May 2001, following further investigation of
the report, Medtronic sent letters to both physicians and patients
warning them that individuals implanted with an Activa “cannot” have
any diathermy performed anywhere on their body, because the “energy
from diathermy [could] be transferred through [their] system, [could]
cause tissue damage and [could] result in severe injury or death.” 90
83
84
85
86
87
88
89
90
Id. at 485.
Id.
Id.
Id.
Id.
Id.
Id. at 485-86.
Id.
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McMullen argued that Medtronic breached its post sale duty to
warn, namely because the warning sent out by Medtronic was not
received before he had gone to the dentist in March of 2001. 91 Using
two FDA regulations—21 C.F.R §§ 821.1 and 814.39—McMullen
argued that his claim could not be preempted because it would not
impose requirements on Medtronic that were different or additional to
those regulations it was already obligated to follow. 92
Turning to the language of the regulations, the court found that
McMullen’s claims would still be preempted. First, the court noted
that 21 C.F.R. § 821.1 did not impose a requirement on the
manufacturer “to make warning or recall decisions unilaterally, nor
does it authorize the manufacturer to do so.” 93 Second, the court
noted that 21 C.F.R. § 814.39 “permits a manufacturer to temporarily
amend a warning pending FDA approval of the proposed changes.” 94
Thus, it does not require a manufacturer to temporarily amend its
warning. Therefore, Medtronic did not depart from FDA guidelines.
The court reaffirmed its decision from Mitchell v. Collagen and
held: 1) the PMA device approval process imposes specific federal
requirements on manufacturers; 2) McMullen’s state law tort claim, if
successful, would have imposed on Medtronic a duty to provide an
additional warning between January 2001 and March 2001; and 3)
because the regulations submitted by McMullen do not require a
manufacturer to issue a temporary warning, McMullen’s claim would
be imposing an additional requirement on Medtronic that was not
found in the FDA regulation. Thus, the court held the claim was
preempted. 95
91
Id. at 486.
Id. at 489.
93
Id. (finding that pursuant to 21 U.S.C. §§ 360h(a) and (e) the Secretary of
Health and Human Services has the discretion to issue or withhold warnings
concerning medical devices based on the Secretary’s assessment of the risks); 21
C.F.R. § 821.1 (2006).
94
McMullen, 421 F.3d at 489; 21 C.F.R. § 814.39 (2006).
95
McMullen, 421F.3d at 490.
92
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III. WHY THE SEVENTH CIRCUIT IS CORRECT
A common sense approach to what occurs during the PMA
process should lead one to conclude that the FDA imposes
requirements on a device during PMA. 96 Furthermore, since specific
requirements already exist for PMA medical devices, allowing state
tort claims against the manufacturers of these devices will circumvent
congressional intent. 97 Manufacturers would have to spend exorbitant
amounts of money in litigation and in trying to comply with each
state’s own interpretation of what is or is not necessary for the device.
Looking beyond mere common sense analysis of the general twopart test for preemption, there are several broader policy and
procedural concerns that favor adopting the 7th Circuit’s rationale.
One procedural benefit the 7th Circuit’s rationale provides is a bright
line rule, which are favored by courts for judicial efficiency. A rule
requiring case by case determinations would clog judicial dockets with
costly litigation, not only for the parties involved, but for society at
large. The push for bright line rules can be seen in the Supreme
Court’s Medtronic v. Lohr decision--any manufacturer that markets its
device through the 510(k) process will not be afforded the protections
of a preemption defense. 98 Nevertheless, because each Justice in
Medtronic felt that “Congress intended the MDA to pre-empt at least
some state law,” one can speculate that the Court may have been
implicitly talking about the PMA process. 99
96
See e.g. Brooks v. Howmedica, Inc. 273 F.3d 785 (8th Cir. 2001)
(examining how the FDA required specific warning language to be added to the
product); McMullen, 421 F.3d at 484-85 (examining at least two requirements the
FDA required the device to follow before allowing it to be marketed).
97
See H.R. REP. NO. 94-853, at 45-46 (1976) (“[I]f a substantial number of
differing requirements applicable to a medical device are imposed by jurisdictions
other than the Federal government, interstate commerce would be unduly
burdened”).
98
Medtronic, Inc. v. Lohr, 518 U.S. 470 (1996).
99
Id. at 484 (Stevens, J.); Id. at 503 (Breyer, J., concurring in part and
concurring in the judgment) (“[T]he MDA will sometimes pre-empt a state law tort
suit. I basically agree with Justice O’Connor’s discussion of this point.”); Id. at 509
(O’Connor, J., concurring in part and dissenting in part) (“I conclude that state
289
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While many bright line rules sweep too broadly, the 7th Circuit’s
PMA preemption rule actually balances the competing policy goals of
the MDA: 1) guaranteeing medical device innovation in the future
through uniform device regulation, and 2) protecting the public by not
allowing medical devices to be marketed until they are safe and
effective. 100 As discussed, the Supreme Court has already forbid
preemption analysis when devices are marketed using the 510(k)
process. 101 Furthermore, a vast majority of all Class III medical
devices currently on the market receive approval through this
process. 102 Thus, only in an extremely small percentage of cases
would a consumer’s claim against a medical device manufacturer be
foreclosed through preemption. Since most PMA medical devices are
truly innovative, that is not substantial equivalents, their device
manufacturers should be afforded a significant level of protection to
ensure future innovative growth.
Assuming that the Supreme Court agreed with the 7th Circuit
bright line rule, medical device manufacturers would be given an
incentive to complete the PMA process—the defense of preemption
should their device become subject to litigation. Such an incentive
would not only benefit the manufacturers of the device, but it would
common-law damages actions do impose ‘requirements’ and are therefore preempted where such requirements would differ from those imposed by the FDCA”).
100
See generally Brief for The Center for Patient Advocacy and the California
Health Care Institute as Amici Curiae Supporting Petitioner/Cross-Respondent,
Medtronic v. Lohr, 518 U.S. 470 (1996) (Nos. 95-754, 95-886) (examining the
Senate and House of Representatives Reports to show Congress’ intent to adequately
balance these goals. Also mentioning numerous statements made during
Congressional debates and hearings on the MDA in 1990).
101
Lohr, 518 U.S. 470.
102
Id. at 479 (“In 1983, for instance, a House Report concluded that nearly
1,000 of approximately 1,100 Class III devices that had been introduced to the
market since 1976 were admitted without any PMA review . . . [T]he House reported
in 1990 that 80% of new Class III devices were being introduced . . . without PMA
review”); Horn v. Thoratec Corp., 376 F.3d 1363 (3d Cir. 2004) (noting that in 2003,
only 54 of 9,872 medical device applications to the FDA were requesting PMA
review. In 2002 only 49 of 10,323 medical device applications requested PMA
review).
290
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also benefit the public. To illustrate, because more manufacturers may
opt to complete the more rigorous PMA process, more devices would
then receive heightened review from the FDA before entering the
market. The logical end would be that instead of having to litigate for
injuries sustained using 510(k) devices, consumers may not become
injured in the first place due to the extensive PMA review.
Insulating this small percentage of medical device manufacturers
from tort liability provides a reasonable measure of tort reform in our
litigious society. Without the protection of a preemption defense,
manufacturers of PMA devices will have to make tough decisions
regarding the future of their respective companies. For instance, some
medical device manufacturers may be forced to declare bankruptcy. 103
Others will be forced to pull their devices from the market without
authoritative proof that the device is harmful. 104 Liability concerns
may cause some companies to forego research or marketing of
potential breakthroughs in medical technology. 105 Each of these
103
Brief Supporting Petitioner/Cross Respondent, supra note 100, at 15-16
(noting that breast implant litigation forced Dow Corning into Chapter 11
bankruptcy even though the company made less than one percent of its revenue from
breast implant sales, and numerous studies had shown that the silicone breast
implants were not the cause of plaintiffs’ afflictions (citing, e.g. Charles H.
Hennekens et al., Self-Reported Breast Implants and Connective-Tissue Diseases in
Female Health Professionals: A Retrospective Cohort Study, 275 J. AM. MED.
ASS’N 616, 621 (1996))).
104
(noting that Merrell Dow was forced to take its popular drug Bendectin off the
market because of liability concerns, even though there was no proof that Bendectin
was harmful to patients (citing, e.g. Daubert v. Merrell Dow Pharm., 43 F.3d 1311,
1314 (9th Cir. 1995))); See also Joan E. Shreffler, Comment, Bad Medicine: GoodFaith FDA Approval as a Recommended Bar to Punitive Damages in
Pharmaceutical Products Liability Cases, 84 N.C. L. REV. 737 (2006) (examining
the current litigation against pharmaceutical giant Merck and its impact upon
punitive damage awards).
105
(noting that liability concerns may cause some manufacturers to cease developing
important medical advancements (citing, e.g. Peter W. Huber, Safety and the Second
Best: The Hazards of Public Risk Management in the Courts, 85 COLUM. L. REV.
277, 286-88 & n.49 (1985))).
291
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scenarios stifles medical device or drug innovation. While there will
undoubtedly be costs associated with allowing preemption of PMA
devices, whether physical, economical, social or emotional, the end
benefits to society – creating a better healthcare system and saving
more lives – outweigh these concerns.
IV. ARGUMENTS AGAINST THE COURT’S REASONING
The 7th Circuit’s decision in Mitchell v. Collagen, Corp. and
McMullen v. Medtronic, Inc. constitute the “majority rule” amongst
U.S. Circuit courts that have decided this issue. 106 However, there are
many courts that have held that the PMA process does not preempt
state common law tort claims. 107 Throughout these decisions there are
several recurring arguments. Upon review, each of these arguments
are faulty and are easily countered.
Currently, the Eleventh Circuit United States Court of Appeals is
the highest court that disagrees with 7th Circuit PMA analysis. 108 In
Goodlin v. Medtronic, Inc., the 11th Circuit held that the PMA process
does not preempt common law tort claims. 109 Much like the
Medtronic, Inc. v. Lohr case, Lisa Goodlin brought a claim against
Medtronic alleging that a pacemaker she had used was negligently
106
See Horn v. Thoratec Corp., 376 F.3d 163 (3d Cir. 2004); Brooks v.
Howmedica, Inc., 273 F.3d 785 (8th Cir. 2001) (en banc, 7-2 decision); Kemp v.
Medtronic, Inc., 231 F.3d 216 (6th Cir. 2000); Mitchell v. Collagen Corp., 126 F.3d
902 (7th Cir. 1997); Martin v. Medtronic, Inc., 254 F.3d 573 (5th Cir. 2001); King v.
Collagen Corp, 983 F.2d 1130 (1st Cir. 1993).
107
See Goodlin v. Medtronic, Inc. 167 F.3d 1367 (11th Cir. 1999); Woods v.
Gliatech, Inc. 218 F. Supp. 2d 802, 808 (W.D. Va. 2002); Fiore v. Collagen Corp.,
930 P.2d 477, 482 (Ariz. 1996); Lakie v. Smith-Kline Beecham 965 F. Supp. 49, 54
(D.D.C. 1997); Walker v. Johnson & Johnson Vision Prods., 552 N.W. 2d 679, 684685 (Mich. Ct. App. 1996); Connelly v. Iolab Corp., 927 S.W. 2d 848, 854 (Mo.
1996); Green v. Dolsky, 685 A.2d 110, 116 (Pa. 1996); Wutzke v. Schwaegler, 940
P.2d 1386, 1391-92 (Wash. Ct. App. 1997); Weiland v. Teletronics Pacing Sys., Inc.,
721 N.E.2d 1149 (Ill. 1999); Haidak v. Collagen Corp., 67 F. Supp. 2d 21 (D. Mass.
1999).
108
Goodlin v. Medtronic, Inc., 167 F.3d 1367 (11th Cir. 1999).
109
Id.
292
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designed. 110 The only difference in Goodlin’s case was that the
alleged defect in the pacemaker stemmed from a type of lead wire that
had been approved under PMA, rather than through the 510(k)
process. 111 During the “extensive” PMA review, Medtronic conducted
numerous trials of the lead wire in the pacemaker and submitted the
results to the FDA. 112 In turn, the FDA asked for further information
about the lead wire and requested further testing before issuing a final
PMA. 113 More than three years after submitting the lead wire to the
FDA, Medtronic received final PMA. 114
The main contention made by the Goodlin Court was that “[T]o
prevail . . . Medtronic must identify a specific federal requirement
imposed on its particular device that would preempt any conflicting or
additional state requirement inherent in a jury verdict in Goodlin’s
favor.” 115 The court examined the behavior of the FDA during the
PMA process, and noted that to be considered a requirement, the FDA
“[M]ust [impose] some ascertainable condition.” 116 Because the FDA
only asked for information and testing to be completed, and
“[I]ssue[d] no regulation, order or any other statement of its
substantive benchmark,” the court argued no requirement was
imposed. 117
The 11th Circuit appears to argue then, that had the FDA required
certain language be added to warnings or other labeling, or had the
FDA made a design change to the pacemaker, the claim would then be
preempted because a substantive requirement was issued. However,
110
Id. at 1369.
Id. at 1368.
112
Id. at 1369.
113
Id. at 1370.
114
Id.
115
Id. at 1372.
116
Id. at 1374.
117
Id. at 1375; See also Michael P. DiNatale, Patients Beware: Preemption of
Common Law Claims Under the Medical Device Amendments, 39 J. MARSHALL L.
REV. 75 (arguing that the 11th Circuit’s decision was correct, yet failing to examine
the numerous cases where the FDA has required specific warnings, labeling or
design changes to devices during the PMA process).
111
293
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this line of reasoning is disingenuous for two reasons. First, the FDA
does issue substantive changes to many products that undergo PMA
review. 118 Second, if the FDA is required to issue substantive
requirements on a device’s warnings, labeling or design to constitute a
requirement, a manufacturer is given an incentive to draft poor
warnings or labels, or poorly design a minor aspect of the device. In
turn, the FDA will then require certain changes to substantive elements
of the device’s warnings, labeling or design, triggering preemption of
common law tort claims.
Certainly, Congress did not intend to reward manufacturers with
the affirmative defense of preemption if, for example, the
manufacturer submitted poorly drafted warnings to the FDA, knowing
that they would be changed. A better rationale to this 11th Circuit
misstep is that the FDA’s silence with regard to substantive elements
of a device’s warnings, labels or design, means that the FDA has found
the existing substantive elements of the device to be beyond reproach.
In other words, the FDA’s silence alone creates requirements on a
device, as the manufacturer must comply with the approved warnings,
labels or design submitted to the FDA.
Other lower courts have attempted different arguments in
attacking the 7th Circuit rationale. One line of argument focuses on
Part IV of Justice Stevens plurality opinion in Medtronic for guidance,
misinterpreting this portion of the opinion for the holding of the court.
For example, in Lakie v. Smith-Kline Beecham, the District of
Columbia District Court gave great weight to the plurality opinion in
Part IV of Medtronic, Inc. v. Lohr, and held that the PMA does not
preempt common law claims because the Supreme Court had “held
that Congress did not intend to bar state common law causes of action
for injuries resulting from defective medical devices.” 119 The court,
citing Part IV of Justice Stevens opinion in Medtronic v. Lohr, noted
that Congress was primarily concerned with preempting conflicting
state statutes or regulations. 120
118
119
120
See e.g. cases cited supra note 96.
965 F. Supp. 49, 54 (D.D.C. 1997).
Medtronic, Inc. v. Lohr, 518 U.S. 470, 489 (1996) (plurality) (Stevens, J.).
294
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Such an interpretation fails to consider that a majority of the Court
in Medtronic v. Lohr held that state common law causes of action do
impose requirements when the manufacturer has complied with all
requirements and regulations during the PMA process and yet liability
is still alleged. 121 Moreover, this interpretation fails to examine the
language of the FDA’s own preemption provision. This provision
mentions that States cannot continue with respect to “specific
counterpart regulations” or “specific requirements” applicable to a
device. 122 To argue that the FDA did not intend to preempt state
common law tort actions would render the phrase “specific counterpart
regulations” in the preemption provision mere surplusage.
A second type of argument made by some lower courts, relying on
Part V of Justice Stevens opinion, is that common law tort claims
impose laws of general applicability. In other words, such laws apply
to all products, not just to a specific medical device in question, and
thus do not impose additional or different requirements. For example,
in Mears v. Marshall, an Oregon Appellate Court argued that while the
PMA process imposed specific federal requirements, common law
causes of action only pose a general duty and would thus not constitute
a specific state requirement. 123 The Mears Court looked to the
language of the Court in Part V of Medtronic:
Similarly, the general state common-law
requirements in this case were not
specifically developed 'with respect to'
medical devices. Accordingly, they are
not the kinds of requirements that
Congress and the FDA feared would
impede the ability of federal regulators
to implement and enforce specific
federal requirements . . . These general
obligations are no more a threat to
121
See supra notes 44 & 52.
21 C.F.R. § 808.1(d) (2006).
123
Mears v. Marshall, 944 P.2d 984, 994 (Or. Ct. App. 1997).
122
295
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federal requirements that would be a
state-law duty to comply with local fire
prevention regulations and zoning codes,
or to use due care in the training and
supervision of a workforce. These state
requirements therefore escape preemption, not because the source of the
duty is a judge-made common-law rule,
but rather because their generality leaves
them
outside
the
category
of
requirements that § 360k envisioned to
be 'with respect to' specific devices such
as pacemakers. 124
While the Mears Court was technically correct in noting that Part
V of Medtronic was a majority opinion, the court failed to understand
that Justice Breyer had written separately to distinguish himself from
the majority on this point. Breyer argued that the MDA preempts a
“requirement that takes the form of a standard of care or behavior
imposed by a state law tort action.” 125 The downfall of Medtronic’s
argument, according to Justice Breyer, was that the 510(k) process did
not impose specific federal requirements. 126
V. SUPREME COURT ANALYSIS 10 YEARS AFTER MEDTRONIC V. LOHR –
THE LIKELIHOOD OF PREEMPTION IN PMA CASES
Within the past few months, our nation has witnessed the rise of
two new Justices to the Supreme Court, Chief Justice John Roberts
and Justice Samuel Alito. Within the focus of preemption under the
MDA, the vote of these two justices will prove to be vital. Both
124
Id. at 990 (quoting from Medtronic v. Lohr, 518 U.S. 470, 500 (1996)); See
also Oja v. Howmedica, Inc., 111 F.3d 782, 789 (10th Cir. 1997) (making a similar
argument in the investigational device exemption arena).
125
Lohr, 518 U.S. at 504-505 (Breyer, J. concurring in part and concurring in
the judgment).
126
Id.
296
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former Chief Justice William Rehnquist and retired Justice Sandra Day
O’Connor were votes in Medtronic that favored somewhat broad
preemption. 127 In Justice O’Connor’s opinion from Medtronic, she
noted that the 510(k) process merely evaluated whether the device
could be deemed “substantially equivalent” to a device already on the
market, and thus placed no requirements on the device. 128 However,
Justice O’Connor argued that the generally applicable manufacturing
and labeling regulations imposed by the FDA are stringent enough to
create specific requirements on a device, thus preempting any tort
claims. 129 In turn, one can fairly assume that Justices subscribing to
such an opinion would find preemption under the even more rigorous
PMA process.
A. A New Court Rises? – The Impact of Chief Justice Roberts and
Justice Alito
Both Chief Justice Roberts and Justice Alito have been exposed to
the debate over whether the PMA process preempts state common law
claims.
1. English v. Mentor Corp. – Alito’s Alignment
Prior to the Supreme Court’s decision in Medtronic, Justice Alito
took part in English v. Mentor Corp., a decision regarding the
preemptive effect of the 510(k) process under the MDA. 130 In
English, the plaintiff had brought a claim for damages against the
127
Lohr, 518 U.S. at 513-514 (O’Connor, J., concurring in part and dissenting
in part) (noting that in Justice O’Connor’s opinion she felt that some, if not all, of the
Lohrs’ common law claims regarding labeling and manufacturing were preempted
because of the requirements imposed by the FDA through such regulations as the
Good Manufacturing Practices and federal labeling requirements).
128
Id.
129
Id.
130
English v. Mentor Corp., 67 F.3d 477 (3d Cir. 1995) (per curiam) (oral
arguments heard by Judge Alito, Judge Nygaard and Judge Cowen).
297
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manufacturer of an inflatable penile prosthesis. 131 The device had
been cleared for marketing under the 510(k) exemption to the PMA
requirement. 132 The Court held that the 510(k) process did place
specific requirements on the inflatable penile prosthesis and therefore
English’s claims were preempted. 133 While this decision would later
be indirectly overturned by the Supreme Court’s decision in
Medtronic, one can infer that if Alito did not dissent from the per
curiam opinion, he likely decide that the more rigorous PMA process
also preempts common law claims.
2. Friend of the Court - Chief Justice John Roberts
Chief Justice John Roberts authored an amicus brief filed with the
Supreme Court in the Medtronic case, and argued that the 510(k)
process imposes specific federal requirements on a device and should
therefore preempt all of Lora Lohr’s claims. 134 The brief is dedicated
to the argument that Congress purposely wanted to preempt common
law tort claims against medical device manufacturers. 135 Doing so,
Chief Justice Roberts argues, will allow manufacturers to continue
developing potentially life-saving devices that will further patient care
and allow those in our society to lead fuller lives. 136 Chief Justice
Roberts stated:
The divergent patchwork of state
products liability laws in this country
imposes a ‘liability tax’ that is passed on
to all of us in the form of increased
product costs and insurance premiums.
In the case of medical products,
131
132
133
134
135
136
Id. at 478.
Id. at 480.
Id. at 483-84.
Brief Supporting Petitioner/Cross Respondent, supra note 100.
Id.
Id. at 4.
298
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however, products liability laws exact an
additional, far greater societal toll: they
stunt the development of new and
improved medical products and drive
existing products from the marketplace.
Thus, many potentially life-saving
medical products are not developed by
manufacturers today because of liability
concerns, and existing, FDA-cleared
products are pulled from the market by
manufacturers facing massive liability in
suits brought by users, even though in
many cases there is no scientifically
credible evidence that these products are
harmful. The quality of patient care in
this country suffers as a result. 137
As this was Chief Justice Roberts’ only exposure to the
preemption realm of the MDA, it may prove decisive once he has a
vote to cast in an actual Supreme Court decision. If Chief Justice
Roberts thought the 510(k) process should preempt common law tort
claims, the logical conclusion is that he would also vote for
preemption in PMA medical device cases.
B. Justice Scalia & Justice Thomas – The Rocks of Preemption
In Bates v. Dow Agrosciences, the Supreme Court examined
whether the Federal Insecticide, Fungicide and Rodenticide Act
(FIFRA) preempts state-law claims for damages. 138 FIFRA contains
an express preemption provision similar to the one found in the
137
138
Id.
125 S. Ct. 1788 (2005).
299
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MDA. 139 The Court ultimately remanded the case to the lower court
to determine whether particular common law duties were equivalent to
FIFRA’s misbranding standards. 140 If equivalent, the claims would
survive preemption analysis.
Justice Thomas, joined by Justice Scalia, wrote separately to
stress that the majority had left out a step in its reasoning with regard
to a few of the claims: “
A state law cause of action, even if not
specific to labeling, nevertheless
imposes a labeling requirement “in
addition to or different from” FIFRA’s
when it attaches liability to statements
on the label that do not produce liability
under FIFRA. The state-law cause of
action then adds some supplemental
requirement of truthfulness to FIFRA’s
requirement that labeling statements not
be “false or misleading.” 141
The same reasoning applies to state law causes of action against
medical devices that have received approval under the PMA process.
During PMA, the FDA extensively reviews the device’s design,
labeling, warnings, safety and effectiveness. As mentioned, the FDA
often tells manufacturers what to specifically include in its
warnings. 142 Should no specific instruction need to be given, the FDA
has determined that there is a reasonable assurance of safety and
effectiveness. Thus, due to these stringent requirements, imposing
liability on a manufacturer of a PMA device when liability would not
139
See 7 U.S.C. § 136v(b) (2006) (“Such State shall not impose or continue in
effect any requirements for labeling or packaging in addition to or those required
under this subchapter”).
140
Bates, 125 S. Ct. at 1803.
141
Bates, 125 S. Ct. at 1805 (Thomas, J., concurring in the judgment in part
and dissenting in part).
142
See e.g. cases cited supra note 96.
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attach under the FDCA creates a requirement different from or in
addition to those already required by the FDA, and preemption
therefore applies.
C. Justice Breyer – The Swing Vote
As mentioned, Justice Breyer’s opinion in Medtronic focused on
two main reasons why preemption was not valid. First, as Breyer was
unable to determine what Congress intended as the scope of
preemption under the MDA, he argued that “courts may infer that the
relevant administrative agency possesses a degree of leeway to
determine which rules, regulations or other administrative actions will
have preemptive effect.” 143 This statement even comports with Justice
Stevens’ opinion that “the [FDA] is uniquely qualified to determine
whether a particular form of the state law ‘stands as an obstacle to the
accomplishment and execution of the full purposes and objectives of
Congress.” 144 Breyer went on to argue that one can determine
whether the FDA intends for rules or regulations to have preemptive
effect by looking to “statements in ‘regulations, preambles,
interpretive statements, and responses to comments,’ as well as
through the exercise of [the FDA’s] explicitly designated power to
exempt state requirements from preemption.” 145
After years of silence regarding the preemptive scope of its
preemption regulation, as it pertains to the 510(k) process and the
PMA process, the FDA recently issued an interpretive statement of
what it feels is preempted. In Horn v. Thoratec Corp., the Third
Circuit received an amicus curiae brief from the FDA prior to issuing a
decision regarding preemption analysis for PMA medical devices. In
the brief, the FDA notes the substantial difference between the PMA
process and the 510(k) process:
143
Medtronic v. Lohr, 518 U.S. 470, 505 (1996) (Breyer, J., concurring in part
and concurring in the judgment).
144
Id. at 496 (plurality) (Stevens, J.).
145
Id. at 506 (Breyer, J., concurring in part and concurring in the judgment).
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A manufacturer can obtain an FDA
finding of ‘substantial equivalence’ by
submitting a pre-market notification to
the agency in accordance with section
510(k) of the [Act]. A device found to
be ‘substantially equivalent’ to a
predicate device is said to be ‘cleared’
by FDA (as opposed to ‘approved’ by
the agency under a PMA). A pre-market
notification . . . is thus entirely different
from a PMA, which must include date
sufficient to demonstrate to FDA that the
device is safe and effective. The number
of medical devices that receive PMA
review each year is dwarfed by the
number of those that are marketed
pursuant to cleared Section 510(k). In
fiscal year 2003, for example, original
PMA’s represented only 54 of 9,872
major submissions received.
The
previous fiscal year, original PMA’s
accounted for 49 of 10,323 total
submissions. 146
It appears then, that the FDA considers these two processes to be
completely different: the 510(k) process is really similar to a licensing
process, while the PMA process actually results in FDA approval of
the device for safety and effectiveness concerns. Justice Breyer, and
even other members of the Court that joined Justice Stevens’ opinion,
may find this FDA interpretation to be convincing, if not dispositive of
the issue.
The second reason Justice Breyer did not find preemption in
Medtronic was because even if one could argue that FDA imposes
requirements on 510(k) devices, none of those requirements are
146
Horn v. Thoratec Corp., 376 F.3d 163, 167 (3d Cir. 2004).
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actually specific to the device. 147 Given the aforementioned
difference between the 510(k) process and the PMA process, and the
fact that during the PMA process the FDA often does draft or require
specific warnings or device designs, Justice Breyer will be hard
pressed to argue that the FDA does not make specific requirements of
devices during the PMA process.
Thus, it appears that at least five Justices are likely to adopt a
similar rule to that put forward by the 7th Circuit. While by no means
is this analysis conclusive evidence of how the Supreme Court may
eventually decide the issue, it does provide educated speculation as to
whether a clear majority exists. Time will only tell whether such
speculation has been fruitful.
CONCLUSION
“[M]edical devices—like all man-made devices—malfunction.
No federal regulatory or state tort law regime can prevent that.” 148
However, to ensure that medical device innovation continues
throughout the 21st century, reasonable protections must be afforded to
medical device manufacturers. The 7th Circuit’s rule regarding
preemption for PMA medical devices is one reasonable avenue of
protecting a small percentage of medical device manufacturers, while
balancing the competing goals of medical device innovation and
protection of the public.
147
judgment).
148
Brief Supporting Petitioner/Cross Respondent, supra note 100, at 27.
303
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DISMISSING HOW THE PURCHASER-SELLER
RULE AFFECTS SLUSA
STACY A. MANNING∗
Cite as: Stacy A. Manning, Dismissing How the Purchaser-Seller Rule Affects
SLUSA, 1 SEVENTH CIRCUIT REV. 304 (2006), at http://www.kentlaw.edu/7cr/v11/manning.pdf.
INTRODUCTION
In April, 2005, the Seventh Circuit decided the case of Kircher v.
Putnam Funds Trust and Putnam Investment Management, L.L.C.1
The result of this case limits the viability of state court securities
actions by expanding the standing requirements for federal securities
actions and by declaring that certain actions will either be preempted,
compelled to be brought as derivative actions, or committed to public
prosecutors.2
In Kircher, the plaintiff class, defining itself as entirely non-sellers
and non-purchasers, brought suit in state court alleging securities
fraud.3 The issue on appeal was whether their state law claims were
preempted by the Securities Litigation Uniform Standards Act
(“SLUSA”).4 The Seventh Circuit held that the purchaser-seller rule
announced in the Supreme Court case Blue Chip Stamps v. Manor
Drug Stores5 did not affect SLUSA’s coverage, and therefore a
plaintiff class that only held securities, as opposed to one that
∗
J.D. candidate 2006, Chicago-Kent College of Law; B.S., Psychology,
University of Illinois Champaign-Urbana 2001.
1
403 F.3d 478 (7th Cir. 2005).
2
Id.
3
Id. at 480, 482.
4
15 U.S.C. § 77p (2000).
5
421 U.S. 723 (1975).
304
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purchased or sold securities, would nevertheless have their claims
preempted by SLUSA.6 In addition, the Seventh Circuit held, in
contradiction to its sister circuits, that the recourse for a non-trading
class was to file a derivative action or commit the case to public
prosecutors as opposed to relegating the case to state court.7
Part I of this note outlines the relevant federal securities laws at
issue, including the Private Securities Litigation Reform Act of 1995
(“PSLRA”),8 § 10(b) of the Securities Exchange Act of 1934,9 and
Rule 10b-5.10 Part II describes in detail the recent Seventh Circuit
opinion in Kircher. Part III contrasts the Kircher decision with the
1975 Supreme Court case of Blue Chip Stamps, wherein the court held
that plaintiffs who did not purchase or sell securities during the class
period did not have standing to pursue a private damages action under
Rule 10b-5. Part IV of this note compares the Kircher decision with
how other circuits have interpreted the scope of SLUSA. Part V
concludes that the Seventh Circuit was incorrect in concluding that
SLUSA is not affected by the purchaser-seller rule in Blue Chip
Stamps and that the proper recourse for a plaintiff class consisting of
non-purchasers and non-sellers is to commit the case to public
prosecutors or pursue a derivative action as opposed to litigating the
claim in state court.
I. SLUSA
In 1995, Congress enacted the Private Securities Litigation
Reform Act of 1995 (“PSLRA”)11 to “curb abuses of federal securities
fraud litigation” arising under the Securities Act of 1933 and the
6
Kircher, 403 F.3d at 483-84.
Id. at 484.
8
Pub. L. No. 104-67, 109 Stat. 737 (codified in part at 15 U.S.C. §§ 77z-1,
78u-4 (2000)).
9
15 U.S.C. § 78j(b) (2000).
10
17 C.F.R. 240.10b-5 (2005).
11
Private Securities Litigation Reform Act, Pub. L. No. 104-67, 109 Stat. 737
(1995) (codified in part at 15 U.S.C. §§ 77z-1, 78u-4).
7
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Securities and Exchange Act of 1934.12 Pursuant to Rule 10b-5, which
is based on § 10(b) of the 193413 Act:
It shall be unlawful for any person, directly or
indirectly, by the use of any means or instrumentality of
interstate commerce, or of the mails or of any facility of
any national securities exchange,
(a) To employ any device, scheme, or artifice to
defraud,
(b) To make any untrue statement of a material fact
or to omit to state a material fact necessary in order to
make the statements made, in light of the circumstances
under which they were made, not misleading, or
(c) To engage in any act, practice, or course of
business which operates or would operate as a fraud or
deceit upon any person, in connection with the
purchase or sale of any security.14
Heightened pleading standards for class action plaintiffs were one
of the reforms that the PSLRA imposed.15 However, a loophole was
created, allowing plaintiffs to avoid the PSLRA’s pleading
12
Dabit v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 395 F.3d 25, 31 (2d
Cir. 2005) (citing 15 U.S.C. § 77a et seq. (2000); 15 U.S.C. § 78a et seq. (2000)).
For example, the PSLRA sought to deter strike suits in which private plaintiffs filed
federal securities fraud claims of questionable merit in order to obtain large
settlements. See Novak v. Kasaks, 216 F.3d 300, 306 (2d Cir. 2000).
13
15 U.S.C. § 78j(b).
14
17 C.F.R. § 240.10b-5 (emphasis added).
15
Dabit, 395 F.3d at 32 (citing 15 U.S.C. §78u-4(b)). For example, a
complaint under the PSLRA must allege that the defendant made an “untrue
statement of a material fact or omitted to state a material fact necessary in order to
make the statements made, in the light of the circumstances under which they were
made, not misleading.” In addition, “the complaint shall specify each statement
alleged to have been misleading, the reason or reasons why the statement is
misleading, and, if an allegation regarding the statement or omission is made on
information and belief, the complaint shall state with particularity all facts on which
that belief is formed.” 15 U.S.C. § 78u-4(b).
306
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requirements by filing suits in state courts under state statutory or
common law.16 As a result, the PSLRA failed to achieve its goal of
curtailing meritless class actions, and in response Congress enacted the
Securities Litigation Uniform Standards Act (“SLUSA”) in 1998.17
Congress enacted SLUSA in order to “prevent certain State private
securities class action lawsuits alleging fraud from being used to
frustrate the objectives” of the PSLRA.18 Too many securities class
action lawsuits had shifted from federal to state courts, thereby making
it difficult to hold securities class action plaintiffs to the stringent
standards of the PSLRA.19 Under SLUSA, Congress intended to close
the loophole “by making federal court the exclusive venue for class
actions alleging fraud in the sale of certain covered securities and by
mandating that such class actions be governed exclusively by federal
law.”20 SLUSA provides parallel provisions to the Securities Act of
1933 and the Securities Exchange Act of 1934 in order to limit certain
class actions under state law.21 The relevant portion reads:
No covered class action22 based upon the statutory
or common law of any State or subdivision thereof may
16
Dabit, 395 F.3d at 32.
15 U.S.C. § 77p (2000).
18
Securities Litigation Uniform Standards Act, Pub. L. No. 105-353, § 2, 112
Stat. 3227 (1998).
19
Id.
20
Dabit, 395 F.3d at 33 (quoting Lander v. Hartford Life & Annuity Ins. Co.,
251 F.3d 101, 108 (2d. Cir. 2001)).
21
Kircher v. Putnam Funds Trust and Putnam Inv. Mgmt., L.L.C., 403 F.3d
478, 481 (7th Cir. 2005). The Court limits its attention to § 16 of the 1933 Act, 15
U.S.C. § 77p, because the additions to the 1934 Act are functionally identical.
22
15 U.S.C. § 77p(f)(2). The term “covered class action” means: “(i) any
lawsuit in which – (I) damages are sought on behalf of more than 50 persons or
prospective class members, and questions of law or fact common to those persons or
members of the prospective class, without reference to issues of individualized
reliance on an alleged misstatement or omission, predominate over any questions
affecting only individual persons or members; or (II) one or more named parties seek
to recover damages on a representative basis on behalf of themselves and other
unnamed parties similarly situated, and questions of law or fact common to those
17
307
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be maintained in any State or Federal court by any
private party alleging:
(1) an untrue statement or omission of a material
fact in connection with the purchase or sale of a
covered security; or
(2) that the defendant used or employed any
manipulative or deceptive device or contrivance in
connection with the purchase or sale of a covered
security.23
In addition, SLUSA renders any covered class action brought in
state court removable to federal court.24 According to the Second
Circuit in Dabit, four requirements must be met in order for SLUSA to
apply: “(1) the underlying suit must be a ‘covered class action’; (2) the
action must be based on state or local law; (3) the action must concern
a ‘covered security’; and (4) the defendant must have misrepresented
or omitted a material fact or employed a manipulative or deceptive
device or contrivance ‘in connection with the purchase or sale of’ that
security.”25 The courts were mindful that plaintiffs might seek to
avoid federal jurisdiction by creatively framing their complaints in
such a way as to allege that the misrepresentations were not “in
connection with” the sale or purchase of stock. In response to this
type of strategy, the Eighth Circuit held that under SLUSA, a plaintiff
“may not avoid federal question jurisdiction and the preemption of
persons or members of the prospective class predominate over any questions
affecting only individual persons or members; or (ii) any group of lawsuits filed in or
pending in the same court and involving common questions of law or fact, in which
(I) damages are sought on behalf of more than 50 persons; and (II) the lawsuits are
joined, consolidated, or otherwise proceed as a single action for any purpose.”
23
15 U.S.C. § 77p(b) (emphasis added).
24
Id. § 77p(c).
25
Dabit, 395 F.3d at 33 (citing Riley v. Merrill Lynch, Pierce, Fenner, &
Smith, Inc. 292 F.3d 1334, 1342 (11th Cir. 2002)).
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state law claims by artfully concealing the federal question in an
otherwise well-pleaded complaint under state law.”26
II. THE SEVENTH CIRCUIT’S DECISION IN KIRCHER V. PUTNAM FUNDS
TRUST AND PUTNAM INVESTMENT MANAGEMENT, L.L.C.
In Kircher v. Putnam Funds Trust and Putnam Investment
Management, L.L.C., the Seventh Circuit was confronted with whether
SLUSA preempted litigation in state court.27 The Kircher plaintiffs
filed claims in state court alleging that the defendant mutual funds had
set their prices in such a way that left them vulnerable to arbitrageur
exploitation.28 Mutual funds are required to set prices at which they
sell and redeem their own shares once each day.29 Each of the
defendant mutual fund sets the price at which they sell and redeem
their own shares at 4 p.m. Eastern time each day, shortly after the New
York Stock Exchange closes.30 Any order that is placed before 4 p.m.
is executed at that price.31 The mutual funds value securities at the
closing price of the principal exchange or market in which the
securities are traded.32 Whereas this yields a current price for
domestic securities, it may produce a price that is as much as fifteen
hours old for securities of foreign issuers.33 For example, Asian
markets close twelve to fifteen hours before New York, and European
markets close five or six hours ahead of New York. Many securities
trade on multiple markets or over the counter.34 If, for example, stock
in Japan moves predominantly up during the interval between the
26
Id. at 34 (quoting Dudek v. Prudential Sec., Inc., 295 F.3d 875, 879 (8th Cir.
2002)).
27
403 F.3d 478, 480 (7th Cir. 2005).
Id.
29
Id.
30
Id.
31
Id.
32
Id.
33
Id.
34
Id.
28
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closing of the Asian market and the closing of the New York market,
the mutual fund would carry a 4 p.m. price below what would be
justified by the latest available information.35 Arbitrageurs could take
advantage of this discrepancy by purchasing the shares of the foreign
stock before 4 p.m. and then selling that stock for profit the following
day.36
The Kircher plaintiffs framed their complaints to avoid any
allegations of purchase or sale.37 All but one of the classes were
defined as investors who held shares of a given mutual fund during the
class period.38 The plaintiffs alleged that the mutual funds acted
recklessly in failing to prevent arbitrageurs from reaping the profits
described above.39 The plaintiffs argued that the mutual funds could
have taken such precautions by levying fees on short-swing
transactions,40 adopting to a front-end-load charge,41 reducing the
number of trades any investor can execute (or deferring each trade by
one day), or valuing the securities of foreign issuers at the most
current price in any competitive market, and not just the closing price
on the issuers’ home stock exchanges.42
The defendant mutual funds removed the suits to federal court and
moved the court to dismiss the claims under SLUSA.43 Instead of
dismissing the claims, the district court remanded each of the lawsuits,
and the mutual funds appealed.44 Despite the plaintiffs’ claims that
they only held shares during the relevant class period, the Seventh
35
Id.
Id.
37
Id. at 482.
38
Id.
39
Id. at 481.
40
Fees imposed on a corporate insider for a purchase or sale of company stock
within a six-month period. BLACK’S LAW DICTIONARY 1413 (8th ed. 2004).
41
Mutual fund that charges a commission when shares are purchased. BLACK’S
LAW DICTIONARY 1043 (8th ed. 2004).
42
Kircher, 403 F.3d at 481.
43
Id.; 15 U.S.C. § 77p (2000).
44
36
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Circuit found that allegations of purchases and sales were implicit in
the complaint and that the plaintiffs were merely trying to evade
SLUSA.45 In deciding whether SLUSA blocked litigation in state
court, the Seventh Circuit held that the “in connection with” language
of SLUSA was as broad as the parallel language in § 10(b) of the
Securities Exchange Act of 1934 and its corresponding regulation,
Rule 10b-5.46 Therefore, because the plaintiffs’ claims satisfied
SLUSA, they were preempted from litigating their claims in state
court.47 The court further held that the purchaser-seller rule
announced in the Supreme Court case Blue Chip Stamps did not
restrict the coverage of SLUSA.48 As a result, the plaintiffs’ claims
did not fall outside the ambit of the federal securities laws, and
therefore, their claims were to be left to public enforcement or litigated
as derivative actions instead.49 The problem with this outcome is that
an action brought by public prosecutors or as a derivative action would
grant no financial relief to the plaintiffs individually. Rather, any
relief granted would be diverted to the government or a corporation.
III. THE HEART OF THE ISSUE: HOW BLUE CHIP STAMPS V. MANOR DRUG
STORES IMPACTS THE SCOPE OF SLUSA
45
Id. at 482 (finding that some plaintiffs must have purchased or increased
their interest during the class period and that others “undoubtedly” sold some or all
of their shares during the class period).
46
Id. at 483-84 (citing 15 U.S.C. § 77p; 15 U.S.C. § 78j (2000); 17 C.F.R. §
240.10b-5 (2005)). The pertinent part of § 10(b) states: “It shall be unlawful for any
person . . . to use or employ, in connection with the purchase or sale of any security .
. . any manipulative or deceptive device or contrivance in contravention of such rules
and regulations as the Commission may prescribe as necessary or appropriate in the
public interest or for the protection of investors.” 15 U.S.C. § 78j. The pertinent
part of Rule 10b-5 states: “It shall be unlawful for any person . . . to engage in any
act, practice, or course of business which operates or would operate as a fraud or
deceit upon any person, in connection with the purchase or sale of any security.” 17
C.F.R. § 240.10b-5.
47
Id. at 484.
48
Id. at 482-83 (citing Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723
(1975)).
49
Id. at 484.
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Well before the PSLRA or SLUSA were enacted, the Supreme
Court in Blue Chip Stamps v. Manor Drug Stores decided the question
of whether a plaintiff may maintain a private cause of action under
Rule 10b-5 of the Securities and Exchange Commission, despite the
fact that they had neither purchased nor sold any securities.50 In that
case, the plaintiffs, comprising a company that provided stamps to
retailers and nine retailers who owned 90% of its shares, alleged that
the defendant Blue Chip Stamp Co. had prepared and distributed a
prospectus containing a “materially misleading and overly
pessimistic” appraisal of the company.51 The plaintiffs claimed that
this prospectus was issued in order to discourage plaintiffs from
buying Blue Chip shares so that the defendant could later sell the
shares to the public at a higher price.52 The Court held that the
plaintiffs did not have standing to bring this cause of action under Rule
10b-5 because such actions were limited by the purchaser-seller rule:
only actual sellers and purchasers of securities may bring a private
damages action under federal securities law.53
Because of the purchaser-seller rule articulated in Blue Chip
Stamps, plaintiffs have tried to circumvent SLUSA—and thus avoid
federal court—by framing their complaints to avoid allegations that
they purchased or sold securities as a result of the defendant’s
fraudulent conduct.54 For example, in Pacific Life Insurance Co. v.
Spurgeon, the plaintiffs defined the class as those investors who held
the defendant’s securities during the class period but who did not
purchase or sell shares during that period.55 Under the purchaserseller rule of Blue Chip Stamps, the plaintiffs would not be able to
50
Blue Chip Stamps, 421 U.S. at 725.
Id. at 725-26.
52
Id. at 26.
53
Id. at 730-31 (citing Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d.
Cir. 1952)).
54
See Kircher, 403 F.3d at 482.
55
Id. at 483.
51
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maintain this as a Rule 10b-5 action.56 The defendants removed the
case to federal court, but the district court remanded the case to state
court.57
As a result of these proceedings, the Kircher plaintiffs argued that
once a private action is untenable under Blue Chip Stamps for failing
to meet the standing requirements, that action is accordingly
unaffected by SLUSA.58 The Kircher plaintiffs’ argument makes
sense. Because the Spurgeon class defined itself as those who neither
sold nor purchased shares, it failed to meet the standing requirement
announced in Blue Chip Stamps.59 Likewise, because the class
members neither sold nor purchased shares, it failed the “in connection
with the purchase or sale” requirement of SLUSA.60 Therefore,
SLUSA should not apply to cases in which plaintiffs, such as the
Kircher class, merely held their securities.61
Instead of following this reasoning, the Seventh Circuit explored
the actual meaning of SLUSA’s “in connection with” language.62 It
compared the parallel language in §10(b) and Rule 10b-5 and held that
because all three statutes use the same language, SLUSA has the same
scope as §10(b) and Rule 10b-5.63 That said, the court looked to the
meaning of “in connection with the purchase or sale” under the federal
securities laws to determine its meaning under SLUSA.64 It concluded
that the invocation of §10(b) “does not depend on proof that the
agency or United States purchased or sold securities; instead the ‘in
56
Id.
Id. (citing Pac. Life Ins. Co. v. Spurgeon, 319 F. Supp. 2d 1116, 1126 n. 5
(C.D. Cal. 2004). In Spurgeon, the district court held that jurisdiction was lacking
over Pacific Life’s declaratory action claiming non-liability under federal securities
laws because such a federal claim only arose as a defense to a state-created action of
breach of fiduciary duty.
58
Id.
59
Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 730-31 (1975).
60
61
Id.
62
Id.
63
Id.
64
Id.
57
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connection with’ language ensures that the fraud occurs in securities
transactions rather than some other activity.”65
This reasoning allowed the Seventh Circuit to dismiss the import
of Blue Chip Stamps. It rejected the argument that Blue Chip Stamps
limited federal securities actions to situations in which the plaintiff
traded securities.66 Rather, the Blue Chip Stamps purchaser-seller rule
did not restrict coverage of SLUSA.67 It therefore held that
“limitations on private rights of action to enforce § 10(b) and Rule
10b-5 do not open the door to litigation about securities transactions
under state law.”68
In addition to disregarding the application of the purchaser-seller
rule of Blue Chip Stamps to SLUSA, the court also disregarded the
Supreme Court’s holding as to the proper recourse for a plaintiff who
has merely held securities during the class period. Under Blue Chip
Stamps, a case in which the plaintiff fails to buy or sell securities
during the class period is not one that falls within the ambit of the
PSLRA, and therefore it is not one that should be brought in federal
court under federal question jurisdiction.69 Rather, such plaintiffs
should instead seek a remedy in state courts.70 Without looking at the
legislative history or congressional intent behind SLUSA, the Kircher
court decided that instead of being relegated to state court, such
plaintiffs would have to litigate the action as a derivative action or
commit the claim to the SEC.71 This result undermines the purpose of
65
Id.
Id. “Blue Chip Stamps came out as it did not because § 10(b) and Rule 10b-5
are limited to situations in which the plaintiff itself traded securities, but because a
private right of action to enforce these provisions is a judicial creation and the Court
wanted to confine these actions to situations where litigation is apt to do more good
than harm” (emphasis added).
67
Id.
68
Id. at 484.
69
Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 754 (1975).
70
Id. at 738 n.9
71
66
314
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SLUSA, which was to target “only those claims that were meant to be
brought in federal court subject to the PSLRA’s restrictions.”72
In Kircher, the Seventh Circuit alluded that it was agreeing with
its sister circuits who were confronted with similar claims by stating
that it, too, found that the scope of SLUSA’s coverage tracked that of
§10(b) and Rule 10b-5.73 However, the court failed to note that its
sister circuits did find that the purchaser-seller rule of Blue Chip
Stamps limited SLUSA and that in cases where the plaintiffs failed the
Blue Chip Stamps standing requirement, the case should be brought in
state court.74 By bypassing the significance of Blue Chip Stamps, the
Seventh Circuit concluded that the purchaser-seller rule did not affect
SLUSA and that even in situations where the plaintiff did not buy or
sell securities, the case still could not be brought in state court. 75
Rather, the case must be brought as a derivative action or committed to
public prosecutors.76
IV. COMPARING KIRCHER WITH ITS SISTER CIRCUITS
The first circuit to compare the scope of SLUSA with §10(b) of
the Securities Exchange Act of 1934 and Rule 10b-5 was the Eighth
Circuit in Green v. Ameritrade, Inc. in February, 2002.77 In Green, the
plaintiff filed its original complaint in state court alleging that
subscribers to the defendant’s Real-Time program made investment
decisions to purchase or sell options based on information that the
defendant provided.78 The defendant removed the action to federal
72
Dabit v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 395 F.3d 25, 42 (2d
Cir. 2005).
73
Kircher, 403 F.3d at 483-84.
74
See e.g., Dabit, 395 F.3d at 40; Green v. Ameritrade, Inc., 279 F.3d 590,
598-99 (8th Cir. 2002).
75
76
Id. at 484.
77
279 F.3d at 597-98.
78
Id. at 593-94. The Real Time service provided subscribers with real time
stock price information with one click of a button.
315
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court and moved to dismiss the action as preempted by SLUSA.79
Instead of dismissing the action, the court gave the plaintiff 35 days to
amend his complaint.80 In his amended complaint, the plaintiff
avoided any reference to a purchase or sale and alleged that the
defendant breached its contract when it failed to provide a certain kind
of price information.81 The district court held that SLUSA did not
preempt the plaintiff’s claim, and the defendant appealed.82 On
appeal, the Second Circuit decided whether the complaint gave rise to
a federal question under the federal securities laws as opposed to a
state law breach of contract claim.83 In order to show preemption
under SLUSA, the claim must satisfy four requirements: “(1) the
action is a ‘covered class action’ under SLUSA, (2) the action purports
to be based on state law, (3) the defendant is alleged to have
misrepresented or omitted a material fact (or to have used or employed
any manipulative or deceptive device or contrivance), and (4) the
defendant is alleged to have engaged in conduct described by criterion
‘in connection with’ the purchase or sale of a ‘covered security.’”84
The Eighth Circuit relied on the rule announced in Blue Chip
Stamps that a cause of action under Rule 10b-5 required that the
plaintiff either purchased or sold the securities at issue.85 The court
was not persuaded by the defendant’s argument that the language “in
connection with” should be interpreted with flexibility, stating that
Congress had “specifically rejected suggestions to broaden the scope
of the statute to include mere attempts to purchase or sell a security.”86
In reconciling Blue Chip Stamps with SLUSA, the court held that non-
79
Id. at 594.
Id.
81
Id.
82
Id.
83
Id. at 596.
84
Id. The district court only found that defendant failed to meet the third
requirement. Id. at n.5.
85
Id. at 597.
86
Id.
80
316
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sellers and non-purchasers were not preempted by SLUSA.87 Despite
having knowledge that the plaintiff’s original complaint alleged fraud
in connection with the sale or purchase of securities, the court did not
conclude that sales or purchases were implied in the plaintiff’s
amended complaint, which avoided any reference to purchases or sales
of securities.88 It seems as though the court knew that the plaintiff was
attempting to evade SLUSA and that the district court, in granting an
extension to file an amended complaint, actually encouraged an artful
crafting of the complaint in order to remain in state court.
On the other hand, the Seventh Circuit in Kircher found that the
sale and purchase of securities were implied in the plaintiffs’
allegations, despite having any evidence of the sort that the Green
court did.89 Another contrast between Kircher and Green is how they
interpreted the effect of SLUSA preemption. Whereas the Kircher
court held that the claims of plaintiffs who did not trade would be left
to public enforcement, the Green court held such claims should be
remanded to state court.90
Shortly after Green was decided, in June 2002, the Eleventh
Circuit addressed the scope of SLUSA in Riley v. Merrill Lynch,
Pierce, Fenner, & Smith, Inc.91 In Riley, the trustees of the
Performance Toyota, Inc. Profit Sharing Plan (“Performance Plan”)
and the trustee of the Master Packaging, Inc. 401(k) plan (“Master
Packaging”) filed a class action in federal court against the defendant
alleging securities fraud in connection with the purchase and retention
of shares under Florida law.92 The Performance Plan plaintiffs then
moved to dismiss itself from the federal court action and re-filed its
case in state court.93 Pursuant to SLUSA, the defendant removed
87
Id. at 598.
Id. at 593-93, 598.
89
478, 402 (7th Cir. 2005).
90
Id. at 484; Green, 279 F.3d at 599.
91
292 F.3d 1334 (11th Cir. 2002).
92
Id. at 1336.
93
Id.
88
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these plaintiffs back to federal court, and the plaintiffs subsequently
moved to remand the action to state court.94 The district court denied
the plaintiffs’ motion and dismissed both the Performance Plan and
Master Packaging complaints under SLUSA and for lack of diversity
jurisdiction.95 The plaintiffs appealed.96
With respect to the Performance Plan plaintiffs, the Eleventh
Circuit had to determine whether SLUSA applied to their claims.97
The court first assessed the scope of the “in connection with” language
of SLUSA as it compares to the parallel language of § 10(b) and Rule
10b-5.98 The court analogized SLUSA to the latter federal securities
laws because SLUSA was enacted as an amendment to the 1933 and
1934 Acts.99 In essence, when enacting SLUSA, “Congress was not
writing on a blank slate; instead, it was legislating in an area that had
engendered tremendous amounts of litigation and received substantial
judicial attention.”100 In addition to relying on Blue Chip Stamps for
the rule that SLUSA does not govern claims based solely on the
retention of securities, the Eleventh Circuit cited a more recent case,
Gutierrez v. Deloitte & Touche, L.L.P.101 The court in Gutierrez held
that SLUSA did not cover the plaintiffs’ claim that the defendant’s acts
caused them to hold securities that they otherwise would have sold.102
With respect to the Performance Plan plaintiffs, however, SLUSA did
apply because the plaintiffs had alleged not only that the defendant’s
misrepresentations caused them to retain their shares, but to purchase
them, as well.103 The Eleventh Circuit agreed with the Gutierrez court
94
Id.
Id.
96
Id.
97
Id. at 1340.
98
Id. at 1342.
99
Id.
100
Id.
101
Id. at 1343. (citing Gutierrez v. Deloitte & Touche, L.L.P., 147 F. Supp. 2d
584, 592 (W.D. Tex. 2001)).
102
Id. at 1344 (citing Gutierrez, 147 F. Supp. 2d at 592).
103
Id. at 1345 (citing Gutierrez, 147 F. Supp. 2d at 592).
95
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that plaintiffs with retention claims were entitled to bring their claims
in state court.104
By contrast, the Seventh Circuit did not permit the Kircher
plaintiffs to pursue their retention claim in state court. 105 Rather,
according to the Seventh Circuit, the anti-fraud securities laws do not
require proof of purchase or sale, and therefore the court may imply
such in a plaintiff’s retention claim.106 Even if the court chose to
believe that the Kircher class contained only non-purchasers and nonsellers, state court would not be a viable alternative.107
A few months later, in October 2002, the Ninth Circuit addressed
the same issue as to whether state law fraud claims were preempted by
SLUSA in Falkowski v. Imation Corp.108 In Falkowski, the plaintiffs
filed suit in state court alleging breach of contract and fraud in
connection with their employee stock options.109 Specifically, the
defendant company and its executives had granted stock options to the
plaintiffs, and the plaintiffs alleged that the defendants induced them
to remain with the company by misrepresenting the value of the stock
and options.110 The defendants removed the case to federal court, and
the district court held that removal was proper because the plaintiffs’
claims were preempted by SLUSA.111 The plaintiffs appealed.112
After concluding that the company’s stock qualified as a “covered
security” under SLUSA, the Ninth Circuit analyzed whether the
alleged misrepresentations were “in connection with the purchase or
sale” of the defendants’ stock.113 Citing to Blue Chip Stamps, the court
104
Id. at 1345.
Kircher v. Putnam Funds Trust and Putnam Inv. Mgmt., LLC, et al., 403
F.3d 478, 483-84 (7th Cir. 2005).
106
Id. at 483.
107
Id. at 483-84.
108
309 F.3d 1123 (9th Cir. 2002).
109
Id. at 1127.
110
Id.
111
Id.
112
Id.
113
Id. at 1129.
105
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held that the mere grant of an employee stock option was in and of
itself a “sale” of that covered security, and therefore the plaintiffs’
claims satisfied SLUSA.114
The Seventh Circuit in Kircher could have followed the reasoning
of the Falkowski court to show that even non-traders of stock, by
virtue of the fact that they held stock, constitute “purchasers” and
“sellers” of securities for purposes of Rule 10b-5.115 The Falkowski
court cited Blue Chip Stamps for the argument that under the 1933 and
1934 Acts,
[T]he holders of puts, calls, options, and other
contractual rights or duties to purchase or sell securities
have been recognized as “purchasers” or “sellers” of
securities for purposes of Rule 10b-5, not because of a
judicial conclusion that they were similarly situated to
“purchasers” or “sellers,” but because the definitional
provisions of the 1934 Act themselves grant such
status.116
Therefore, it is sufficient that a person merely contracts to sell a
security, even if the sale is never actually consummated, for the
conduct to fall within the ambit of the 1933 and 1934 Acts.117 The
court squarely held that when a company grants an employee stock
option, that is a “sale” of that covered security, regardless of whether
or not the employee chooses to exercise the option.118
Accordingly, the Seventh Circuit in Kircher could have made the
more compelling argument that SLUSA nevertheless pre-empted the
plaintiffs’ claims despite the fact that the class members never actually
114
Id. at 1129-30.
Id. at 1129.
116
Id.
117
Id. The Falkowski court refers to this as the “aborted purchaser-seller
doctrine.” Id.
118
Id. at 1129-30. The court did, however, place some limitation on the scope
of this language, such that there must be “more than some tangential relation”
between the fraud and stock sale. Id. at 1131.
115
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traded. Instead, the court assumed that some investors must have
purchased their interest during the class period and some members
who owned stock at the beginning of the period must have sold some
or all of their stock during the period.119 Therefore, the Seventh
Circuit concluded that many class members had engaged in the
purchase and/or sale of their stock.120
The last Circuit to address this issue was the Second Circuit in the
case Dabit v. Merrill Lynch, Pierce, Fenner & Smith, Inc.121 In Dabit,
the plaintiff filed a class action lawsuit suit in district court on
diversity grounds alleging that the defendant issued biased research
and investment recommendations in order to obtain investment
banking business, a violation of state law.122 The district court
dismissed the case under Federal Rule of Civil Procedure 12(b)(6), as
the case was preempted by SLUSA.123 Like the plaintiffs in Kircher,
the plaintiff in Dabit argued that SLUSA did not preempt his actions
because the allegations did not involve misrepresentations or
omissions of material fact “in connection with the purchase or sale of .
. . covered securit[ies].”124 Rather, the Dabit plaintiff sought damages
incurred when the defendant fraudulently induced him to hold certain
securities and for lost commissions as a result of recommending
securities based on the defendant’s false research reports.125
Following the Eleventh Circuit’s reasoning in Riley,126 the Second
Circuit held that meaning of “in connection with” under SLUSA had
119
478, 482 (7th Cir. 2005).
120
Id.
121
395 F.3d 25 (2d Cir. 2005).
122
Id. at 28-30. The plaintiffs filed this class action in the United States
District Court for the Western District of Oklahoma, and the Judicial Panel for
Multidistrict Litigation subsequently transferred the case to the Southern District of
New York.
123
Id. at 28.
124
Id.
125
Id.
126
Riley v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 292 F.3d 1334, 1342
(11th Cir. 2002).
321
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the same scope as the similar language of § 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5.127 In addition, there was
nothing in the statute’s text or legislative history to overcome the
presumption that when Congress adopted SLUSA, which incorporated
the language of § 10b and Rule 10b-5, it simultaneously adopted the
judicial interpretation of that language in § 10(b) and Rule 10b-5.128
The Dabit court dismissed the defendant and SEC’s argument that the
purchaser-seller rule announced in Blue Chip Stamps was irrelevant to
whether a claim was preempted by SLUSA.129 For, although Blue
Chip Stamps provides a federal remedy only to purchasers and sellers
of stock, non-purchasers and non-sellers could still seek a remedy
under state law.130 Therefore, the Second Circuit conceded that the
purchaser-seller rule limits SLUSA’s “in connection with”
requirement, and thus it does not preempt claims in which the
plaintiffs deny having purchased or sold securities during the relevant
class period.131 However, the court held that Dabit’s claim
nevertheless satisfied SLUSA because it implicitly alleged purchases
made by plaintiff and putative class members.132 Significantly, the
court remanded the case with instructions to dismiss the claims
without prejudice, in order to allow the plaintiff to plead a claim under
state law.133
127
Dabit, 395 F.3d at 28.
Id. at 36.
129
Id. at 39.
130
Id. at 40 (citing Blue Chip Stamps et al. v. Manor Drug Stores, 421 U.S.
723, 738 n.9 (1917).
131
Id. “There is no clear support in the legislative history for the conclusion
that Congress intended SLUSA to preempt claims that do not satisfy the Blue Chip
rule.” Id. at 41. “[W]e hold that in enacting SLUSA Congress sought only to ensure
that class actions brought by plaintiffs who satisfy the Blue Chip purchaser-seller
rule are subject to federal securities laws.” Id. at 43.
132
Id. at 40, 46 (finding that the entire claim should be dismissed because the
class included members who relied on misleading or fraudulent “buy
recommendations,” therefore satisfying the “in connection with” requirement for
SLUSA preemption.).
133
Id. at 47.
128
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By contrast, the Seventh Circuit in Kircher reasoned that the
standing requirement in Blue Chip Stamps did not mean that the claims
of non-purchasers and non-sellers fell outside of § 10(b) and Rule 10b5 and into state court but rather that such claims were to be left to
public enforcement.134 While both the Kircher and Dabit courts
ultimately concluded that purchases and sales were implicit in the
plaintiffs’ allegations, had they not reached this conclusion, the Dabit
court would have found that SLUSA did not preempt the plaintiff’s
claims, and therefore the case must be decided under state law.135
Alternatively, the Kircher court would have required the plaintiffs to
litigate their claim as either a derivative action in federal court or to
commit the case to public prosecutors.136
The Second Circuit in Dabit squarely held that the Blue Chip
Stamps’ purchaser-seller rule applied to the construction of the “in
connection with” language under SLUSA whereas the Seventh Circuit
in Kircher held that Blue Chip Stamps did not restrict coverage of
SLUSA.137 Dabit declares that while the purpose of SLUSA may be
to prevent plaintiffs from seeking to evade federal law by filing in
state court, this would only preempt claims “that could have been
brought in federal court to begin with.”138 Under Blue Chip Stamps, a
plaintiff’s claim of fraud that is not in connection with the purchase or
sale of a security is not one which could be brought in federal court.139
Therefore, although the language “in connection with” tracks the
similar language in § 10b and Rule 10b-5, a federal court must first
determine whether the putative class includes purchasers or sellers
before deciding whether the claim is preempted by SLUSA.140
134
478, 484 (7th Cir. 2005).
135
Id. at 482; Dabit, 395 F.3d at 40.
136
137
Id. at 483; Dabit, 359 F.3d at 50-51.
138
Dabit, 395 F.3d at 41-42 (emphasis added).
139
Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 730-31 (1917).
140
Dabit, 395 F.3d at 42-43.
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V. CONCLUSION
In 1975, the Supreme Court decided Blue Chip Stamps, holding
that a plaintiff must have purchased or sold securities in order to have
standing for a Rule 10b-5 claim.141 In the alternative, a plaintiff who
claimed that he merely held securities sand thus lacked standing must
file a state-law securities fraud claim in state court.142 Thirty years
later in Kircher, the Seventh Circuit concluded that the purchaser-seller
rule announced in Blue Chip Stamps did not affect the impact of
SLUSA, which limits certain class actions under state law where the
plaintiff alleges securities fraud “in connection with the purchase or
sale of a covered security.”143 Rather, the Seventh Circuit, fearful that
plaintiffs were trying to evade SLUSA and thus federal court
jurisdiction, read beyond the complaint to imply that the plaintiffs
must have purchased or sold securities during the class period.144
Furthermore, the court held that even had the class consisted of nonpurchasers and non-sellers, the proper recourse would be to commit
the case to public prosecutors or file a derivative action as opposed to
litigating the claim in state court.145
The Seventh Circuit alluded that it was following the reasoning of
its sister circuits by deciding that SLUSA’s coverage was as broad as
the scope of private damages under Rule 10b-5.146 However, the court
departed from decisions by the Eighth, Eleventh, and Second Circuits
in concluding that even non-purchasers and non-sellers were
preempted by SLUSA and that the proper recourse was not to file in
141
Blue Chip Stamps, 421 U.S. at 730-31.
Id. at 738 n.9.
143
15 U.S.C. § 77p(b) (2000); Kircher v. Putnam Funds Trust and Putnam Inv.
Mgmt. L.L.C., 403 F.3d 478, 483 (7th Cir. 2005).
144
145
Id. at 484.
146
Id. at 483-84.
142
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state court but rather to leave the case to public prosecutors or file a
derivative action. 147
Perhaps the Seventh Circuit was so harsh on the Kircher plaintiffs
by refusing to lend credence to the Blue Chip Stamps purchaser-seller
rule because it was frustrated by what it thought was the plaintiffs’
attempt to evade federal court. The court stated:
[P]laintiffs’ claims depend on statements made or
omitted in connection with their own purchases of the
funds’ securities . . . Indeed, most of the approximately
200 suits filed against mutual funds in the last two
years alleging that the home-exchange-valuation rule
can be exploited by arbitrageurs have been filed in
federal court under Rule 10b-5. Our plaintiffs’ effort to
define non-purchaser-non-seller classes is designed to
evade PSLRA in order to litigate a securities class
action in state court in the hope that a local judge or
jury may produce an idiosyncratic award. It is the very
sort of maneuver that SLUSA is designed to prevent.148
The Seventh Circuit’s decision in Kircher impacts the use
of the federal court’s jurisdictional powers. By allowing
SLUSA to preempt securities actions in which the plaintiff
merely held as opposed to purchased or sold securities, the
Seventh Circuit has expanded federal jurisdiction and limited
state court jurisdiction. Perhaps this decision was the Seventh
Circuit’s way of curbing abuses of federal securities fraud
litigation by preventing plaintiffs from evading federal court
and avoiding the heightened standards imposed by the PSLRA.
While having suspicions about potentially meritless securities
class actions is justified, the Kircher opinion may have gone
too far. For, the Seventh Circuit’s decision effectively limits
147
Id. at 484 (stating that, “[b]y depicting their classes as containing entirely
non-traders, plaintiffs do not take their claims outside § 10(b) and Rule 10b-5”).
148
Id.
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plaintiffs’ remedies. If their case is preempted by SLUSA,
despite the fact that they did not purchase or sell securities,
they are required to hand over their case to the SEC or pursue
their claim as a derivative action. As a result, plaintiffs are
unable to obtain monetary relief for themselves, individually.
326
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THE SCIENCE OF SCIENTER:
THE PRIVATE SECURITIES LITIGATION REFORM
ACT’S EFFECT AND THE LONG-AWAITED
DECISION OF MAKOR ISSUES & RIGHTS, LTD. V.
TELLABS, INC.
JULIE ANN SULLIVAN∗
Cite as: Julie Ann Sullivan, The Science of Scienter: The Private Securities
Litigation Reform Act’s Effect and the Long-Awaited Decision of Makor Issues &
Rights, Ltd. v. Tellabs, Inc., 1 SEVENTH CIRCUIT REV. 327 (2006), at
http://www.kentlaw.edu/7cr/v1-1/sullivan.pdf.
INTRODUCTION
In 1995, Congress passed the Private Securities Litigation Reform
Act (PSLRA)1 and changed the way securities fraud cases are
litigated. Among its most notable alterations, the PSLRA heightened
the pleading requirements for a securities fraud action under Section
10(b) of the Securities Exchange Act of 1934,2 and Securities
Exchange Commission Rule 10b-5.3 Under the PSLRA’s new
standards, plaintiffs are required to show a “strong inference” of the
Technology; University of Wisconsin-Madison, B.A., May 2002. Julie Ann Sullivan
is a member of the Chicago-Kent Law Review. She would like to thank her parents
and sister for their unconditional love and support. She would also like to thank
Judge John W. Darrah, Jim Dvorak, Hal Morris, and John G. New for their
confidence and guidance in her legal writing. She dedicates this article to them, as
well as in loving memory of Capt. Joe Fenton Lusk, Madison, and Jazz.
1
See Pub. L. No. 104-67, 109 Stat. 737 (1995) (codified in sections of 15
U.S.C. §§ 77, 78) (2000)).
2
See 15 U.S.C. § 78u-4(b) (2000).
3
See 17 C.F.R. § 240.10b-5 (2005).
327
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required state of mind, known in securities law as scienter.4 Prior to
the enactment of the PSLRA, the Second Circuit Court of Appeals
required plaintiffs to show a “strong inference” of scienter, while its
sister circuits applied more lenient standards for pleading scienter.5
Under the Second Circuit’s pre-PSLRA standard, scienter could be
satisfied by “intentional conduct or recklessness,” and a “strong
inference” of scienter could be established by adequately pleading that
the defendant had a motive and opportunity to defraud the plaintiff.6
Significantly, Congress incorporated the “strong inference” of scienter
language into the PSLRA pleading requirements. It remains hotly
debated, however, whether Congress intended to adopt the Second
Circuit’s pre-PSLRA approach, including its motive and opportunity
test, or if it merely borrowed the language of that standard.7 This note
explores those two issues: (1) whether the substantive standard of
scienter changed with the enactment of the PSLRA, and (2) whether
pleading motive and opportunity to defraud is sufficient to adequately
allege scienter for securities fraud actions.
Section I of this note provides background information on the
laws governing securities regulation and the effect of the PSLRA on
securities fraud actions. Section II analyzes the recent Seventh Circuit
decision, Makor Issues & Rights, Ltd. v. Tellabs, Inc.,8 which
presented the first opportunity for the Seventh Circuit to address the
heightened pleading requirements of the PSLRA. Section III provides
an overview of the current circuit split on the two major scienter
issues: (1) the whether the PSLRA altered the substantive standard of
scienter, specifically, whether recklessness is still a sufficient state of
mind; and (2) whether pleading motive and opportunity to defraud
4
15 U.S.C. § 78u-4(b)(2).
Compare In re Time Warner, Inc. Sec. Litig., 9 F.3d 259 (2d Cir. 1993)
superceded by statute on other grounds as stated in Marksman Partners, L.P. v.
Chantal Pharm. Corp., 927 F. Supp. 1297 (C.D. Cal. 1996) (plaintiff must
demonstrate “strong inference” of scienter)); with In re GlenFed, Inc. Sec. Litig., 42
F.3d 1541 (9th Cir. 1994) (plaintiff need only allege that scienter existed).
6
See In re Time Warner, 9 F.3d at 269.
7
Compare Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000); with In re Silicon
Graphics Inc. Sec. Litig., 183 F.3d 970 (9th Cir. 1999).
8
437 F.3d 588 (7th Cir. 2006).
5
328
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constitutes the requisite “strong inference” under the PSLRA’s scienter
requirement. Section IV analyzes how the Seventh Circuit’s decision
affects the current state of the law, namely, how the Seventh Circuit
fits into the current circuit split. This section also discusses how
Makor overhauls the standards for securities fraud actions within the
Seventh Circuit and its district courts. Section V discusses why the
Makor decision is correct in holding that recklessness remains
adequate under the substantive standard of scienter after the PSLRA,
and why the “middle of the road” approach to the motive and
opportunity test is likewise the wisest route to take. Section VI
concludes that the Seventh Circuit adopted the proper substantive
standard of scienter, as well as the proper interpretation of the requisite
“strong inference.” Finally, this article concludes that achieving
uniformity amongst the circuits is vital and will require a grant of
certiorari or Congressional action for clarification.
I. BACKGROUND ON THE PSLRA
Reacting to the stock market crash of 1929 and the Great
Depression, Congress designed modern securities laws to “substitute a
philosophy of full disclosure for the philosophy of caveat emptor and
thus to achieve a high standard of business ethics in the securities
industry.”9 Congress sought to establish honest markets with honest
publicity and to minimize mystery and secrecy in the marketplace.10
To this end, Congress passed the Securities Exchange Act of 1934,11
including section 10(b) which prohibited securities fraud and created
an investor cause of action when violated.12
9
Id. at 595 (quoting SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180,
186 (1963)).
10
Basic Inc. v. Levinson, 485 U.S. 224, 230 (1988) (citing H.R. REP. No. 731383, at 11 (1934)); see also Makor, 437 F.3d at 595.
11
15 U.S.C. §§ 78a-78mm. Section 10(b) of the Securities Exchange Act of
1934 codified in 15 U.S.C. § 78u-4(b), and Securities Exchange Commission Rule
10b-5, 17 C.F.R. § 240.10b-5; see also Makor, 437 F.3d at 594.
12
See 15 U.S.C. § 78t. Subsequent to section 10(b), the Securities Exchange
Commission (SEC) passed Rule 10b-5, which mirrored section 10(b) of the
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A. Pre-PSLRA Pleading Requirements
Before Congress passed the PSLRA, the Circuit Courts of
Appeals agreed that recklessness was a sufficient substantive standard
of scienter for securities fraud actions.13 The courts understood
recklessness to be the standard articulated by the Seventh Circuit in
Sundstrand Corp. v. Sun Chemical Corp.,14 which defined recklessness
as:
[H]ighly unreasonable omission, involving
not merely simple, or even excusable
negligence, but an extreme departure from
the standards of ordinary care, and which
presents a danger of misleading buyers or
sellers that is either known to the defendant
or is so obvious that the actor must have
been aware of it.15
At this stage, the substantive standard of scienter was undisputed.
Prior to the PSLRA’s enactment, securities fraud lawsuits such as
section 10(b) claims were governed by the pleading standards for
fraud set forth in Rule 9(b) of the Federal Rules of Civil Procedure.16
Under Rule 9(b), the plaintiff is required to state “the circumstances
constituting fraud or mistake . . . with particularity.”17 Even under the
Rule 9(b) pleading regime, the circuit courts applied varying
Securities Exchange Act. See 17 C.F.R. § 240.10b-5. Congress also passed the
Securities Act of 1933 in attempts to reach its goals. See 15 U.S.C. §§ 77a-77aa.
13
See, e.g., Rolf v. Blyth, Eastman Dillon & Co., Inc., 570 F.2d 38, 47 (2d. Cir.
1978); Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1568-69 (9th Cir. 1990) (en
banc).
14
553 F.2d 1033 (7th Cir.), cert. denied, 434 U.S. 875 (1977).
15
Sundstrand, 553 F.2d at 1044-45; see Hollinger, 914 F.2d at 1569 (quoting
Sundstrand); Rolf, 570 F.2d at 47 (quoting Sanders v. John Nuveen & Co., 554 F.2d
790, 793 (7th Cir. 1977), but adopting the language of Sundstrand).
16
Fed. R. Civ. P. 9(b); see In re Comshare, Inc. Sec. Litig., 183 F.3d 542, 548
(6th Cir. 1999).
17
Fed. R. Civ. P. 9(b); In re Comshare, 183 F.3d at 548.
330
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standards.18 The spectrum widened as the Second and Ninth Circuits
adopted significantly different pleading requirements: the Second
Circuit required the plaintiff to present facts sufficient to create a
“strong inference” of scienter,19 while the Ninth Circuit adopted a very
relaxed standard that did not require a plaintiff to allege any specific
facts to support scienter.20
While Rule 9(b) already required a higher pleading standard for
fraud claims than required for ordinary federal notice pleading, the
Supreme Court noted that “litigation under [Securities Exchange
Commission] Rule 10b-5 presents a danger of vexatiousness different
in degree and in kind from that which accompanies litigation in
general,”21 and members of both political parties in Congress agreed
that meritless securities fraud actions and strike suits22 continued to
plague the courts and financially bind market players.23 Congress
concluded that Rule 9(b) failed to prevent the abuse of the securities
laws by private litigants and that a more stringent standard was still
needed.24 On December 22, 1995, overriding President Clinton’s veto,
Congress amended the Securities Exchange Act with the PSLRA in
18
See S. Rep. No. 104-98, at 15 (1995), reprinted in 1995 U.S.C.C.A.N. 679,
693.
19
See In re Time Warner, Inc. Sec. Litig., 9 F.3d 259 (2d Cir. 1993); see also
Rick M. Simmons, Comment, Reconciling Pleading Standards Under Pirraglia: The
Private Securities Litigation Reform Act v. Federal Rule of Civil Procedure 12(b)(6),
81 DENV. U. L. REV. 665, 667 (2004).
20
See generally In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541 (9th Cir. 1994). If
a plaintiff simply stated that “scienter existed,” this was sufficient under the Ninth
Circuit’s pleading requirements. Id. at 1547.
21
Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 739 (1975).
22
A “strike suit” is defined as a suit often based on no valid claim, brought
either for nuisance value or as leverage to obtain a favorable or inflated settlement.
BLACK’S LAW DICTIONARY 1448 (7th ed. 1999). Such a suit is often brought by
small shareholders of a corporation with the intention to force a settlement instead of
expending money on costly discovery and defense of the suit. See GILBERT’S LAW
DICTIONARY 318 (pocket size ed. 1997).
23
See H.R. REP. No. 104-369, at 41 (1995) (Conf. Rep.), reprinted in 1995
U.S.C.C.A.N. 730, 739.
24
Id.; see In re Comshare, Inc. Sec. Litig., 183 F.3d 542, 548 (6th Cir. 1999).
331
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Spring 2006
hopes of eliminating meritless claims beyond the motion to dismiss
phase.25
B. The Passage of the PSLRA:
A New Pleading Standard or Codification of a Previous Standard?
The PSLRA was designed to curb “abusive class action securities
fraud litigation” while still protecting investors and promoting
confidence in the financial marketplace by heightening the pleading
standards for securities fraud actions beyond the requirements of
Federal Rule of Civil Procedure 9(b).26 Specifically, Congress sought
to eliminate the unnecessary increase in costs of raising capital caused
by corporate fears of disclosing bad news since this news may be
perceived as fraud.27 Legislators acknowledged that strike suits were
frequently being used to gain large settlement recoveries by misusing
discovery and making it more economical for the victimized party to
settle.28
Pursuant to the PSLRA, a claim under Section 10(b) or Rule 10b5 must state with particularity that (1) the defendant made a false
statement or omission (2) of material fact (3) with scienter (4) in
connection with the purchase or sale of securities (5) upon which the
plaintiff justifiably relied and (6) the false statement or omission
25
In re Comshare, 183 F.3d at 548 (citing the Private Securities Litigation
Reform Act of 1995, Pub. L. No. 104-67, 109 Stat. 737); see 15 U.S.C. § 78u4(b)(3)(A) (failure to meet pleading requirements will result in dismissal of the
complaint).
26
Jeffrey A. Berens, Pleading Scienter Under the Private Securities Litigation
Reform Act of 1995, 31-FEB COLO. LAW. 39, 40 (2002).
27
Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 759-60 (1975)
(discussing concerns of frivolous securities lawsuits’ negative effect on the
marketplace); see also In re Advanta Corp. Sec. Litig., 180 F.3d 525, 531 (3d Cir.
1999).
28
See H.R. REP. No. 104-369, at 31 (1995) (Conf. Rep.); Novak v. Kasaks, 216
F.3d 300, 306 (2d Cir. 2000).
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proximately caused the plaintiff’s damages.29 Specifically, the
PSLRA’s pleading standard for scienter required the following:
In any private action arising under this
chapter in which the plaintiff may recover
money damages only on proof that the
defendant acted with a particular state of
mind, the complaint shall, with respect to
each act or omission alleged to violate this
chapter, state with particularity facts giving
rise to a strong inference that the defendant
acted with the required state of mind.30
If the plaintiff fails to meet this requirement of a “strong
inference” of scienter, a court should dismiss the complaint on
motion.31 But did the substantive standard of scienter change? Is
recklessness as defined by Sundstrand still enough? And what
constitutes a “strong inference” of scienter? It appears from the
legislative history of the PSLRA that even Congress was uncertain.32
Because the PSLRA adopted the “strong inference” language
from the Second Circuit’s pre-PSLRA standard, it appeared that
Congress adopted the Second Circuit case law on the issue. However,
the Second Circuit’s “strong inference” pre-PSLRA standard could be
demonstrated in different ways: (1) by showing actual knowledge; (2)
by demonstrating that the defendant had “the motive to commit fraud
and an opportunity to do so” (referred to as the motive and opportunity
test); or (3) by pleading facts of “circumstantial evidence of either
29
,Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588, 595 (7th Cir.
2006); see also 15 U.S.C. § 78u-4(b)(2); 17 C.F.R. § 240.10b-5.
30
15 U.S.C. § 78u-4(b)(2).
31
15 U.S.C. § 78u-4(b)(3).
32
See In re Advanta, 180 F.3d at 531-33 (detailing the Congressional debate
over what “strong inference” of scienter within the PSLRA means); see also Erin M.
O’Gara, Note, Comfort With the Majority: The Eighth Circuit Weighs in on the
Proper Pleading Test for a Securities Fraud Claim in Florida State Board of
Administration v. Green Tree Financial Corporation, 270 F.3d 645 (8th Cir. 2001),
82 NEB. L. REV. 1276, 1282-83 (2004).
333
Volume 1, Issue 1
Spring 2006
reckless or conscious behavior.”33 So the question remained: Were all
three of the Second Circuit’s pre-PSLRA approaches sufficient under
the PSLRA? Although the Senate Committee stated that it did not
intend to codify the Second Circuit’s pre-PSLRA standard for scienter,
it did note that “courts might find this body of law instructive” and
that the PSLRA’s pleading standard was not “a new and untested
pleading standard that would generate additional litigation.”34
Subsequently, the Senate did adopt an amendment that codified the
Second Circuit’s standard almost verbatim, including its motive and
opportunity test,35 but the Joint Conference Committee36 declined to
adopt it.37 Despite President Clinton’s endorsement of the Second
Circuit’s pleading standard, the Joint Conference Committee stated
that it intended “to strengthen existing pleading requirements,” and
therefore opted to exclude “certain language relating to motive,
opportunity, or recklessness.”38
II. MAKOR ISSUES & RIGHTS, LTD. V. TELLABS, INC.:
THE SEVENTH CIRCUIT WEIGHS IN
Investors, litigators, executives, and courts were all surprised to
see the Seventh Circuit, one of the main securities litigation circuits in
the country, avoid the PSLRA pleading requirements issue for nearly a
decade. But in January of 2006, the Seventh Circuit issued its longawaited decision addressing the PSLRA’s heightened pleading
33
In re Time Warner, Inc. Sec. Litig., 9 F.3d 259, 268-69 (2d Cir. 1993).
S. Rep. No. 104-98, at 15 (1995). Needless to say, and as this article
demonstrates, Congress was wrong in its prediction that the PSLRA pleading
standard would not create additional litigation.
35
See 141 Cong. Rec. S9150-01, at S9170 (daily ed. June 27, 1995).
36
The Joint Conference Committee was responsible for reconciling the
differences between the House and Senate Bills. The Committee was made up of
House and Senate managers; In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970,
978 (9th Cir. 1999).
37
See generally 141 Cong. Rec. H13691-08, at H13702 (daily ed. Nov. 28,
1995) (Joint Explanatory Statement of the Committee of Conference).
38
Id.
34
334
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Spring 2006
standards.39 In Makor Issues & Rights, Ltd. v. Tellabs, Inc., the
plaintiffs accused Tellabs, a manufacturer of specialized equipment
used in fiber optic cable networks, and Tellabs’ executive officers, of
engaging in a scheme to deceive the investing public about the true
value of Tellabs’ stock.40 The plaintiffs’ complaint alleged three
statutory violations: (1) corporate securities fraud, in violation of
section 10(b) of the Securities Exchange Act of 1934;41 (2) “control
person” liability for the securities fraud against two Tellabs executives,
pursuant to section 20(a) of the Securities Exchange Act;42 and (3)
illegal insider trading in violation of section 20A of the Securities
Exchange Act against one Tellabs executive.43 After the district court
granted Tellabs’ motion to dismiss for failure to adequately plead,
Makor appealed to the Seventh Circuit Court of Appeals.44
A. Facts of the Case
The plaintiffs in Makor, a putative class of Tellabs stockholders,
alleged fraudulent corporate conduct by Tellabs that spanned an
eighteen-month period.45 Beginning in December of 2000, Tellabs
announced the release and immediate availability of its newest
product, the TITAN 6500 system.46 In addition to this announcement,
Tellabs’ Chief Executive Officer (CEO) predicted that the TITAN
6500’s predecessor, the TITAN 5500, would continue growing as
39
See generally Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588,
595 (7th Cir. 2006); see also Here At Last, http://www.the10b5daily.com/archives/00670.html (Jan. 27, 2006, 16:45 EST).
40
See generally Makor, 437 F.3d 588.
41
Section 10(b) of the Securities Exchange Act of 1934 is codified at 15 U.S.C.
§ 78u-4(b).
42
Section 20(a) of the Security Exchange Act is codified at 15 U.S.C. § 78t.
43
Section 20A of the Act is codified at 15 U.S.C. § 78t-1; see Makor, 437 F.3d
at 594.
44
Makor, 437 F.3d at 594. The case was originally filed in the Northern
District of Illinois. See also Johnson v. Tellabs, Inc., 303 F. Supp. 2d 941 (N.D. Ill.
2004) (the District Court appoint Makor Issues & Rights, Ltd. as Lead Plaintiff
shortly after the filing of the Complaint).
45
Makor, 437 F.3d at 588.
46
Id. at 592.
335
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well.47 Over the next few months, Tellabs executives continued to
release press statements claiming that “customers are buying more and
more Tellabs equipment” and that “demand for [the TITAN 6500] is
exceeding [Tellabs’] expectations.”48 Around this time, Tellabs stock
was valued at $67 per share.49 Until March of 2001, Tellabs publicly
reported that business was thriving, and subsequently, stock prices
were rising.50
In March of 2001, in its first public suggestion that business was
not quite as booming as it had portrayed, Tellabs reduced its first
quarter sales projections from an $890 million to $865 million range to
an $830 million to $865 million range.51 Despite this decrease, Tellabs
executives continued to state that TITAN 5500 and 6500 sales
thrived.52 Yet in April of 2001, Tellabs again reduced its first quarter
sales projections to $772 million.53 When investors questioned this
projection and asked if it was due to a lower than expected demand for
the TITAN 6500, Tellabs’ CEO said that “the only reason for the
downward projections was that Tellabs’s customers were pushing
orders back from the first to the second quarter of 2001.”54 Two weeks
later, Tellabs announced that its first quarter sales were $772 million.55
Things continued to appear rosy for Tellabs through the second
quarter until Tellabs again substantially reduced its quarterly sales
projections.56 On June 19, 2001, Tellabs announced that its second
quarter revenues were only $500 million, significantly less than the
47
Id.
Id.
49
See id. at 593.
50
See id. at 592-93.
51
Id. at 592. Tellabs attributed this decrease to “lower-than-expected growth in
Tellabs’ CABLESPAN® business, a product unrelated to this action.” Id.
52
Id. at 592-93. For example, on a conference call with analysts, Tellabs’ CEO
said that Tellabs’ core products, such as the TITAN 6100 and 6500 continue to
grow. Similarly, Tellabs’ CEO reported that Tellabs was still seeing the TITAN
5500 maintain its growth rate after an investor questioned the TITAN 5500’s
strength and demand. Id.
53
Id. at 593.
54
Id.
55
Id.
56
See id. at 592-93.
48
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Spring 2006
projected estimate of $800 million.57 Tellabs’ CEO told investors that
the reduction was “almost entirely because of an enormous reduction
in TITAN 5500 sales.”58 On June 20, 2001, Tellabs’ stock price
dropped to $15.87 per share.59
B. Issues Presented on Appeal
The Seventh Circuit faced multiple issues of first impression in
Makor.60 First, the court had to determine whether the substantive
standard of scienter had changed under the PSLRA.61 On this issue,
the court considered the two existing standards used by the other
circuit courts of appeals: (1) that “recklessness” was sufficient; and (2)
that “severe recklessness” or “deliberate recklessness” was required.62
Next, the court was asked what facts would suffice to create the
requisite “strong inference” of scienter.63 In this determination, the
court reviewed the three-way split amongst its sister circuits regarding
that standard.64 The Seventh Circuit was finally ready to address the
PSLRA head-on regarding these unsettled issues of law.65
57
Id. Tellabs had originally projected a range of $780 million to $820 million
for its second quarter sales. Id.
58
Id. at 593.
59
Id.
60
See generally id. For the purposes of this article, discussion is restricted to
the two main issues of scienter: (1) the substantive standard of recklessness; and (2)
the motive and opportunity test.
61
See id. at 600-01.
62
Id. at 600 (citing In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 979
(Ninth Ciruit)); see also Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1284 (11th
Cir. 1999) (applying a “deliberate recklessness” scienter standard).
63
Makor, 437 F.3d at 601.
64
Id. at 601-02.
65
The court also determined, as an issue of first impression, whether
confidential sources must be identified. Id. at 596. Agreeing with all its sister
circuits, the court held that confidential sources need not be explicitly identified, but
that sufficient facts supporting the sources knowledge be pled. Id. While some of the
circuits, including the Makor court, interpret the Ninth Circuit to hold that
confidential sources must be explicitly named and identified, a close reading of In re
Silicon Graphics seems to put the Ninth Circuit in the same category as the rest of
the circuits in that In re Silicon Graphics does not require the identities to be
337
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1. The Substantive Standard of Scienter
The court first evaluated the standard of recklessness under the
PSLRA. Acknowledging the pre-PSLRA scienter standard and
Congress’ choice to use the same “required state of mind” language
without redefining such, the Seventh Circuit concluded that Congress
did not make the substantive scienter standard of recklessness more
stringent through the PSLRA.66 Instead, the Seventh Circuit adhered to
the same definition of recklessness that it and the other circuits had for
years: that recklessness is “an extreme departure from the standards of
ordinary care . . . which presents a danger of misleading buyers or
sellers that is either known to the defendant or is so obvious that the
actor must be aware of it.”67 In short, the Seventh Circuit joined the
First,68 Second,69 Third,70 Fourth,71 Fifth,72 Sixth,73 Eighth,74 and
Tenth75 Circuits in holding that the substantive scienter requirement
disclosed, but does require specifics details regarding the sources’ information and
facts indicative of their reliability. See In re Silicon, 183 F.3d at 985 (9th Cir. 1999).
As another issue of first impression, the court held that scienter allegations made
against one defendant cannot be imputed to the other defendants in the action.
Makor, 437 F.3d at 602-03 (rejecting the “group pleading presumption”).
66
Makor, 437 F.3d at 601. All of the other circuits except for the Ninth Circuit,
and arguably the Eleventh Circuit, have likewise held that the recklessness standard
did not change with the passage of the PSLRA. See id. at 600-01 (concluding that all
circuit courts of appeals, except for the Ninth Circuit, have held that the substantive
standard of recklessness remains unchanged after the PSLRA).
67
Id. at 600 (citing Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033,
1045 (7th Cir.) (quotation removed) (applying the standard to omissions)); see also
SEC v. Jakubowski, 150 F.3d 675, 681-82 (7th Cir. 1998) (applying the Sundstrand
scienter standard in a case decided after the passage of the PSLRA).
68
Greebel v. FTP Software, Inc., 194 F.3d 185 (1st Cir. 1999).
69
Novak v. Kasaks, 216 F.3d 300, 309 (2d Cir. 2000).
70
See also In re Advanta Corp. Sec. Litig., 180 F.3d 525, 536 (3d Cir. 1999).
71
Ottman v. Hanger Orthopedic Group, Inc., 353 F.3d 338, 346 (4th Cir. 2003).
72
Nathenson v. Zonagen Inc., 267 F.3d 400, 408 (5th Cir. 2001).
73
Helwig v. Vencor, Inc., 251 F.3d 540, 550 (6th Cir. 2001) (en banc).
74
Fla. State Bd. of Admin. v. Green Tree Fin. Corp., 270 F.3d 645, 659 (8th
Cir. 2001).
75
Philadelphia v. Fleming Cos., Inc., 264 F.3d 1245, 1260 (10th Cir. 2001).
338
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Spring 2006
remained the same after the PSLRA and required a showing of
“reckless” conduct: nothing more, nothing less.
2. “Strong Inference” of Scienter
The court next addressed whether the Second Circuit’s motive and
opportunity test survived the PSLRA.76 In determining the issue, the
Seventh Circuit carefully examined the opinions written by the other
circuits.77 Taking note of the broad range of disagreement amongst its
fellow circuit courts, the Seventh Circuit adopted the “middle of the
road” approach taken by the majority of the other circuits, which
allows the courts to decide whether allegations of motive and
opportunity to defraud are sufficient to create a strong inference of
scienter on a case-by-case basis.78 In doing so, the Seventh Circuit
rejected the notion of a bright-line rule for adequate scienter pleadings
involving allegations of motive and opportunity to defraud.
After briefly evaluating the legislative history of the PSLRA’s
heightened pleading requirements, the court pointed out that the
“scope [of legislation] is not limited by the cerebrations of those who
voted for or signed it into law.”79 Absent a detailed instruction of what
pleadings are sufficient to create a “strong inference” of scienter, the
court should consider all of the circumstances of the case collectively
to determine if they create the requisite inference.80 Under this
standard, the Seventh Circuit held that motive and opportunity may be
useful indicators, but because the PSLRA does not require or reject
76
Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588, 601-02 (7th Cir.
2006).
77
Id.
Id. at 601; accord Greebel v. FTP Software, Inc., 194 F.3d 185, 195-97 (1st
Cir. 1999); Ottman v. Hanger Orthopedic Group, Inc., 353 F.3d 338, 345 (4th Cir.
2003); Nathenson v. Zonagen Inc., 267 F.3d 400, 411-12 (5th Cir. 2001); Helwig,
251 F.3d at 550-52 (Sixth Circuit); Florida State Board of Administration v. Green
Tree Financial Corporation, 270 F.3d 645, 659-60 (8th Cir. 2001); and Fleming Cos,
264 F.3d at 1261-63 (Tenth Circuit).
79
Makor, 437 F.3d at 601 (quoting United States v. Mitra, 405 F.3d 492, 495
(7th Cir. 2005)).
80
Id.
78
339
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Spring 2006
such for sufficiency, the decision is essentially left to the discretion of
the court, but is limited by the traditional factfinder’s role.81 In short,
“[i]f a reasonable person could not draw a [strong inference of
scienter] from the alleged facts, the defendants are entitled to dismissal
[because] the complaint would fail as a matter of law to meet the
requirements of § 78u-4(b)(2).”82 In short, the Seventh Circuit neither
accepted nor rejected the notion that allegations of motive and
opportunity to defraud will always be sufficient or insufficient to
create a strong inference of scienter in securities fraud actions. Instead,
the court held that allegations of motive and opportunity can be
sufficient to plead a strong inference of scienter, but that it will be
determined by the totality of circumstances contained in the
complaint.83
III. DISSENT THROUGHOUT THE CIRCUITS:
THE SUBSTANTIVE STANDARD OF SCIENTER AND THE INTERPRETATION
OF “STRONG INFERENCE”
Contrary to Congress’ prediction that the PSLRA’s pleading
requirements would not generate additional litigation, the circuit
courts of appeals disagree as to what the substantive standard of
scienter is and what Congress meant by “strong inference that the
defendant acted with the required state of mind.”84 As a result, two
different substantive standards of scienter and three different standards
81
See id. at 601-02. While the Sixth Circuit’s similar approach has been
criticized as a violation of the plaintiff’s Seventh Amendment right to a jury trial on
factual issues, the Seventh Circuit stopped just short of the Sixth Circuit approach by
limiting the court’s discretion to the traditional standard of “a reasonable person
could infer that the defendant acted with the required intent.” Id. at 602; see Fidel v.
Farley, 392 F.3d 220, 227 (6th Cir. 2004) (quoting Helwig, 251 F.3d at 553); see
also Monroe Employees Retirement Sys. v. Bridgestone Corp., 399 F.3d 651, 683
n.25 (6th Cir. 2005).
82
Makor, 437 F.3d at 602 (citing Adams v. Kinder-Morgan, Inc., 340 F.3d
1083, 1105 (10th Cir. 2003)).
83
Cf.. Makor, 437 F.3d at 601-02.
84
See 15 U.S.C. § 78u-4(b)(2); see also Makor, 437 F.3d at 600-02 (describing
the differing interpretations of the circuits courts of appeals).
340
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Spring 2006
of “strong inference” are being implemented across the country,
defeating the PSLRA’s purpose of uniformity in securities fraud
actions pleading requirements.85
A. The Second and Third Circuits’ Interpretation
1. Substantive Standard of Scienter Remains “Recklessness”
The Second Circuit in Novak v. Kasaks86 and the Third Circuit in In re
Advanta Corp. Securities Litigation87 maintain the view that Congress
codified the standard set forth by the Second Circuit prior to the
PSLRA, which required plaintiffs to “state with particularity facts
giving rise to a strong inference that the defendant acted with the
required state of mind.”88 The Second Circuit’s substantive standard of
scienter prior to the enactment of the PSLRA could be met by pleading
“recklessness,” defined as conduct which is “highly unreasonable,”
and which represents “an extreme departure from the standards of
ordinary care . . . to the extent that the danger was either known to the
defendant or so obvious that the defendant must have been aware of
it.”89 Because Congress explicitly used the Second Circuit’s language
of “strong inference” and “required state of mind,” the Second and
Third Circuits reasoned that Congress did not intend to change the
substantive scienter standard.90
85
See generally 15 U.S.C. § 78u-4.
216 F.3d 300 (2d Cir. 2000). While Novak is not the first case within the
Second Circuit to determine the scienter pleading standard, it is regarded as the
Second Circuit’s leading authority because the court’s prior decisions failed to
adequately explain its decision to adopt the pre-PSLRA motive and opportunity test.
E.g., Press v. Chem. Inv. Servs. Corp., 166 F.3d 529 (2d Cir. 1999).
87
180 F.3d 525 (3d Cir. 1999).
88
See Novak v. Kasaks, 216 F.3d 300, 308-10 (2d Cir. 2000); see also Press,
166 F.3d at 537-38; In re Advanta, 180 F.3d at 534.
89
Novak, 216 F.3d at 308 (quoting Rolf v. Blyth, Eastman Dillon & Co., Inc.,
570 F.2d 38, 47 (2d. Cir. 1978) (quoting Sanders v. John Nuveen & Co., 554 F.2d
790, 793 (7th Cir. 1977) (defining recklessness))).
90
Cf. Novak, 216 F.3d at 308-310; see also Press, 166 F.3d at 537-38; In re
Advanta, 180 F.3d at 534.
86
341
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2. “Motive and Opportunity” Alone Always Suffices to Create a
Strong Inference of Scienter under the PSLRA
After determining that the substantive standard of recklessness
was adequate to allege scienter, the Second and Third Circuits went on
to adopt the Second Circuit’s pre-PSLRA approach to the “strong
inference” issue, which allowed a plaintiff to sufficiently plead a
securities fraud action by alleging that the defendant had a motive and
opportunity to defraud.91 The Second and Third Circuits reasoned that
Congress’ use of the substantially same language of “strong inference”
as the Second Circuit’s pre-PSLRA scienter standard “‘bespeaks an
intention to import’ judicial interpretations of that language into the
new statute.”92 Next, these courts reasoned that because the statutory
text is unambiguous, resort to the legislative history or the purposes of
the PSLRA is not required.93 Even if the courts did consider the
legislative history of the PSLRA, it contains conflicting expressions of
intent and would not change their interpretation.94 All the legislative
history provides is that Congress intended to make securities fraud
pleading standards more stringent, and it did just that by incorporating
the Second Circuit’s “strong inference” standard.95 Although Congress
91
See Press, 166 F.3d at 538 (to reject that the motive and opportunity test can
sufficiently plead scienter takes this issue of fact away from the factfinder); Novak,
216 F.3d at 309-10 (reasoning that although the court need not wed itself to terms
like motive and opportunity, allegations that adequately prove motive and
opportunity are sufficient to plead a securities fraud claim); In re Advanta, 180 F.3d
at 530-35 (same).
92
Novak, 216 F.3d at 310 (citing United States v. Johnson, 14 F.3d 766, 770
(2d Cir. 1994)); see In re Advanta, 180 F.3d at 533-34 (Congress’ use of the Second
Circuit’s language compels the conclusion that it adopted an equally stringent
pleading standard).
93
Novak, 216 F.3d at 310; In re Advanta, 180 F.3d at 533-34.
94
Novak, 216 F.3d at 310-11; see In re Advanta, 180 F.3d at 531 (“The Reform
Act’s legislative history on this point is ambiguous and even contradictory”).
95
See Novak, 216 F.3d at 310; In re Advanta, 180 F.3d at 533-34. The courts
explained that the Second Circuit’s “strong inference” standard was the most
stringent in the nation prior to the PSLRA’s enactment, so it is reasonable that the
PSLRA sought to strengthen the pleading requirements by adopting the Second
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opted not to use words such as “motive” or “opportunity,” its reference
to the Second Circuit’s pre-PSLRA case law for guidance on what
constitutes a strong inference supports the position that the Second
Circuit’s motive and opportunity test is still a valid way of establishing
a strong inference of scienter.96
B. The Ninth and Eleventh Circuits’ Interpretation
1. Substantive Standard of Scienter is “Super-Recklessness”
In its scienter analysis, the Ninth Circuit adopted a “superrecklessness” standard, which requires a plaintiff to show a “strong
inference of deliberate or conscious recklessness” to satisfy the
PSLRA’s scienter requirement.97 This is in contrast to the pre-PSLRA’s
form of recklessness, adopted by all of the other circuits, which only
require more than mere negligence.98 Although the Eleventh Circuit in
Bryant v. Avado Brands, Inc.,99 categorized itself as adopting the
majority of circuits’ “middle of the road” approach, it repeatedly stated
Circuit’s requirements. Novak, 216 F.3d at 307-11; In re Advanta, 180 F.3d at 53334.
96
Novak, 216 F.3d at 311; In re Advanta, 180 F.3d at 534-35. These courts did
restrict the motive and opportunity test slightly by saying that motives commonly
held by corporate insiders such as a desire for high corporate credit ratings or high
stock prices that would yield higher compensation and benefits for the officers are
insufficient. Novak, 216 F.3d at 307.
97
In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 975 (Ninth Ciruit).
98
Compare Id. (standard is “deliberate or conscious recklessness” or a “degree
of recklessness that strongly suggests actual intent”); with Bryant v. Avado Brands,
Inc., 187 F.3d 1271, 1284 n.21 (11th Cir. 1999) (rejecting Ninth Circuit’s “superrecklessness” standard and adhering to that of the Sixth Circuit in In re Comshare,
183 F.3d at 550). This difference in scienter analysis accounts for the varying
categorization of the Bryant opinion through the case law and secondary materials.
Cf. Greebel v. FTP Software, Inc., 194 F.3d 185, 197 (1st Cir. 1999) (categorizing
Eleventh Circuit with the majority of circuits adopting the “middle of the road”
approach); with Ottman v. Hanger Orthopedic Group, Inc., 353 F.3d 338, 345 (4th
Cir. 2003) (noting the Eleventh Circuit’s disagreement with the middle of the road
approach).
99
187 F.3d 1271 (11th Cir. 1999).
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that that the Eleventh Circuit’s standard was “severe recklessness.”100
Both the Ninth and Eleventh Circuits cited the Congressional record to
support their positions: that Congress sought to make the pleading
requirements for securities fraud actions more stringent.101 These
circuits also noted that the Supreme Court suggested “scienter” meant
“intent to deceive, manipulate, or defraud.”102 Based on these sources,
the Ninth Circuit concluded that Congress could not have intended to
keep the scienter standard at recklessness: instead, it intended to
strengthen that standard by requiring allegations beyond basic
recklessness.103 Although the Eleventh Circuit continued to use the
term “severe recklessness” to describe the substantive standard of
scienter, it concluded that the plain language of PSLRA “makes it
clear that recklessness was not eliminated as a basis for liability
under” the PSLRA.104 While the Eleventh Circuit considered itself in
agreement with the majority of circuits that held that the substantive
standard did not change, by consistently requiring a showing of
“severe” recklessness, the Eleventh Circuit imposed a higher standard
and raised the substantive standard of scienter for securities fraud
actions.105
100
Bryant, 187 F.3d at 1285-87. Within these three pages of the opinion, the
court reiterated six times that “severe recklessness” is the standard of scienter in the
Eleventh Circuit.
101
See In re Silicon Graphics, 183 F.3d at 974-76 (providing basis for court’s
determination that new standard is “deliberate or conscious recklessness”); see, e.g.,
Bryant, 187 F.3d at 1281-84 (explaining “severe recklessness” standard).
102
In re Silicon Graphics, 183 F.3d at 975 (quoting Ernst & Ernst v.
Hochfelder, 425 U.S. 185, 193-94 n.12 (1976)); Bryant, 187 F.3d at 1281-82.
103
E.g., In re Silicon Graphics, 183 F.3d at 977 (recognizing departure from
pre-PSLRA requirement of recklessness); Bryant, 187 F.3d at 1281-84
(acknowledging that the PSLRA did not change the substantive standard of scienter,
but that “severe” recklessness is standard in Eleventh Circuit).
104
Bryant, 187 F.3d at 1284 n.21 (rejecting In re Silicon Graphics’ more
stringent standard of recklessness).
105
Compare. Greebel v. FTP Software, Inc., 194 F.3d 185, 197 (1st Cir. 1999)
(categorizing Eleventh Circuit with the majority of circuits adopting the “middle of
the road” approach); with Ottman v. Hanger Orthopedic Group, Inc., 353 F.3d 338,
345 (4th Cir. 2003) (noting the Eleventh Circuit’s disagreement with the middle of
the road approach).
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2. “Motive and Opportunity” Alone Never Suffices to Establish a
In considering the Second Circuits’ pre-PSLRA motive and
opportunity test, both the Ninth and Eleventh Circuits found that the
motive and opportunity test contradicts the goal of the PSLRA to curb
abusive securities actions because it lowers the requisite state of mind
from a substantive standard of “severe recklessness” to an evidentiary
standard of inferences of recklessness or willfulness.106 Similarly, the
Bryant court believed that the motive and opportunity test was not
well-rooted enough to assume that the PSLRA codified it sub silentio
based on its use of the phrase “strong inference.”107 The In re Silicon
Graphics Inc. Securities Litigation108 court also believed that Congress
implicitly rejected the motive and opportunity test by rejecting the
Senate’s amendment codifying the Second Circuit approach.109 Under
the Ninth and Eleventh Circuits, facts showing a motive and
opportunity to defraud might provide evidence to support a finding of
the required scienter, but a mere showing of motive and opportunity is
insufficient to plead scienter, both under the Ninth Circuit’s “deliberate
recklessness” and the Eleventh Circuit’s “severe recklessness”
standards.110
106
Bryant, 187 F.3d at 1286; see In re Silicon Graphics, 183 F.3d at 977-78
(this approach is the best conclusion considering Congress’ intent to adopt a more
stringent pleading standard than that which existed, even in the Second Circuit, prior
to the PSLRA’s passage).
107
Bryant, 187 F.3d at 1286 (Eleventh Circuit).
108
183 F.3d at 970.
109
Id. at 978 (citing Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 200
(1974) (“holding that where the conference committee has expressly declined to
adopt proposed statutory language, its action strongly militates against a judgment
that Congress intended [the] result that it expressly declined to enact”) (internal
quotations omitted)).
110
Id. at 974, 977 (deliberate recklessness); Bryant, 198 F.3d at 1286-87
(severe recklessness). Other authors have declared that the Ninth Circuit was
unwilling to consider evidence of motive and opportunity to create an inference of
“deliberate recklessness,” e.g., Simmons, supra Note 19, at 668-69 (the majority of
circuits took a middle of the road approach which allows motive and opportunity to
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B. The First, Fourth, Fifth, Sixth, Eighth, and Tenth Circuits’
Interpretation
1. Substantive Standard of Scienter Remains “Recklessness”
Except for the District of Columbia Circuit, the remaining circuits
have concluded that the PSLRA did not alter the substantive standard
of scienter.111 This majority found that the standard of recklessness
required by the pre-PSLRA standards remained sufficient after the
enactment of the PSLRA.112 Therefore, like the Second and Third
Circuits, the First,113 Fourth,114 Fifth,115 Sixth,116 Eighth,117 and
provide some evidence of scienter, but the Ninth Circuit is in contrast to that),
although this is inaccurate. The Ninth Circuit explicitly noted that “[t]he plain text of
the PSLRA leaves it open for us to consider circumstantial evidence of recklessness
and motive and opportunity as evidence of deliberate recklessness.” In re Silicon
Graphics, 183 F.3d at 977.
111
See Florida State Board of Administration v. Green Tree Financial
Corporation, 270 F.3d 645, 653-54 n.7 (8th Cir. 2001) (noting that there is
“substantial agreement among the Circuits that have considered the question that 15
U.S.C. § 78u-4(b)(2) was not intended to alter the substantive standard for scienter”)
(citing Nathenson v. Zonagen Inc., 267 F.3d 400, 409 (5th Cir. 2001); Philadelphia
v. Fleming Cos., Inc., 264 F.3d 1245, 1258-60 (10th Cir. 2001); Greebel v. FTP
Software, Inc., 194 F.3d 185, 198-201 (1st Cir. 1999); Phillips v. LCI Int’l, Inc., 190
F.3d 609, 620 (4th Cir. 1999); Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1283844 (11th Cir. 1999); In re Comshare, Inc. Sec. Litig., 183 F.3d 542, 548-49 (6th Cir.
1999); In re Advanta Corp. Sec. Litig., 180 F.3d 525, 534 (3d Cir. 1999); Press v.
Chem. Inv. Servs. Corp., 166 F.3d 529 537-38 (2d Cir. 1999)).
112
Greebel, 194 F.3d at 200 (First Circuit); Novak v. Kasaks, 216 F.3d 300,
309 (2d Cir. 2000); In re Advanta, 180 F.3d at 534 (Third Circuit); Ottman, 353 F.3d
at 343, n.3 (Fourth Circuit); Nathenson, 267 F.3d at 408-09 (Fifth Circuit); In re
Comshare, 183 F.3d at 548-49 (Sixth Circuit); In re AMDOCS Ltd. Sec. Litig., 390
F.3d 542, 550 (8th Cir. 2004); Adams v. Kinder-Morgan, Inc., 340 F.3d 1083, 1105
(10th Cir. 2003); see also Bryant, 187 F.3d at 1283-84 (Eleventh Circuit) (holding
that the substantive standard is “recklessness,” but applying a “severe recklessness”
standard in its analysis).
113
See Greebel, 194 F.3d at 195-96.
114
See Ottman, 353 F.3d at 345.
115
See Nathensen, 267 F.3d at 411-12.
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Tenth118 Circuits allow a showing of recklessness to suffice for
scienter.
2. “Motive and Opportunity” Alone Sometimes Suffices to Establish a
These circuits, like the Seventh Circuit, hesitated in joining the
extremes presented by the other circuits on the issue of “motive and
opportunity” pleading, and instead, opted for the “middle of the road,”
flexible standard.119 This “middle of the road” approach allows for
case-specific analyses for scienter pleadings.120 Instead of holding that
the Second Circuit’s motive and opportunity test absolutely survived
or ceased after the PSLRA’s passage, these “middle of the road-ers”
held that while facts showing motive and opportunity to defraud may
adequately allege scienter, whether those facts create a strong
inference of scienter should be determined on a case-by-case basis
determined by the facts alleged in the complaint.121 Under certain
circumstances, facts providing evidence of a motive and opportunity to
116
See Helwig v. Vencor, Inc., 251 F.3d 540, 550-52 (6th Cir. 2001) (en banc).
See Florida State Board of Administration v. Green Tree Financial
Corporation, 270 F.3d 645, 659-60 (8th Cir. 2001).
118
See Philadelphia v. Fleming Cos., Inc., 264 F.3d 1245, 1258 (10th Cir.
2001).
119
See generally Greebel v. FTP Software, Inc., 194 F.3d 185, 195-96 (1st Cir.
1999); Ottman, 353 F.3d at 345 (Fourth Circuit); Nathensen, 267 F.3d at 411-12
(Fifth Circuit); Helwig, 251 F.3d at 550-52 (Sixth Circuit); Makor Issues & Rights,
Ltd. v. Tellabs, Inc., 437 F.3d 588, 601-02 (7th Cir. 2006); Green Tree, 270 F.3d at
659-60 (Eighth Circuit);Fleming Cos, 264 F.3d at 1261-63 (Tenth Circuit).
120
See generally Greebel, 194 F.3d at 195-96 (First Circuit); Ottman v. Hanger
Orthopedic Group, Inc., 353 F.3d 338, 345 (4th Cir. 2003); Nathensen, 267 F.3d at
411-12 (Fifth Circuit); Helwig, 251 F.3d at 550-52 (Sixth Circuit); Makor, 437 F.3d
at 601-02 (Seventh Circuit); Green Tree, 270 F.3d at 659-60 (Eighth Circuit);
Fleming Cos, 264 F.3d at 1261-63 (Tenth Circuit).
121
See Greebel, 194 F.3d at 197 (First Circuit); Ottman, 353 F.3d at 348
(Fourth Circuit); Nathensen, 267 F.3d at 411-12 (Fifth Circuit); In re Comshare, Inc.
Sec. Litig., 183 F.3d 542, 551 (6th Cir. 1999); Makor, 437 F.3d at 601-02 (Seventh
Circuit); Green Tree, 270 F.3d at 659-60 (Eighth Circuit);Fleming Cos, 264 F.3d at
1261-63 (Tenth Circuit).
117
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defraud could rise to the level sufficient to constitute a strong
inference of scienter, although merely pleading that motive and
opportunity exist fails to establish a strong inference of scienter.122 In
these decisions, the First, Fourth, Fifth, Sixth, Eighth, and Tenth
Circuits rejected the contention that facts showing motive and
opportunity can never be enough to create a “strong inference” of
scienter, but also did not adopt the position that facts showing motive
and opportunity are always sufficient.123 Instead of forming a steadfast
rule as to the motive and opportunity test, these courts weigh the facts
indicative of motive and opportunity based on the circumstances of the
case.124
IV. MAKOR DECISION’S EFFECT ON THE CURRENT STATE OF THE LAW:
NEW STANDARD AT THE TRIAL LEVEL, BUT STAGNANCY AT THE
APPELLATE LEVEL
At the national appellate level, the Seventh Circuit did not present
any new substantive standard of scienter or any new formulaic
approach to the “strong inference” requirement that might gain the
issues additional attention. In Makor, the Seventh Circuit jumped on
the “middle of the road” bandwagon with the majority of the circuits
courts of appeals, finding that the substantive standard of scienter did
not change after the PSLRA’s enactment.125 The Seventh Circuit also
122
Greebel, 194 F.3d at 197 (First Circuit); In re Comshare, 183 F.3d at 551
(Sixth Circuit); accord Bryant, 187 F.3d at 1282-83 (Eleventh Circuit) (although
holding that motive and opportunity without facts showing severe recklessness is
never sufficient to plead scienter).
123
See Greebel, 194 F.3d at 197 (First Circuit); Ottman, 353 F.3d at 348
(Fourth Circuit); Nathensen, 267 F.3d at 411-12 (Fifth Circuit); In re Comshare, 183
F.3d at 551 (Sixth Circuit); Makor, 437 F.3d at 601-02 (Seventh Circuit); Green
Tree, 270 F.3d at 659-60 (Eighth Circuit); Fleming Cos, 264 F.3d at 1261-63 (Tenth
Circuit).
124
See, e.g., Ottman, 353 F.3d at 345-46.
125
See Makor, 437 F.3d at 601-02; see also Greebel, 194 F.3d at 200 (First
Circuit); Novak, 216 F.3d at 308-09 (Second Circuit); In re Advanta Corp. Sec.
Litig., 180 F.3d 525, 534 (3d Cir. 1999); Ottman, 353 F.3d at 343 n.3 (Fourth
Circuit); Nathenson, 267 F.3d at 408-09 (Fifth Circuit); In re Comshare, 183 F.3d at
548-49 (Sixth Circuit); In re AMDOCS Ltd. Sec. Litig., 390 F.3d 542, 550 (8th Cir.
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joined the majority in that it more or less admitted that it did not know
if or when “motive and opportunity” would be sufficient to plead
scienter under the PSLRA.126 This admission by seven of the circuit
courts of appeals ought to be enough for the Supreme Court to take the
initiative and clarify the issue, or alternatively, for Congress to revisit
the PSLRA and clarify the scienter requirements. Except for the
District of Columbia Circuit, all circuit courts of appeals have now
addressed the two issues presented in Makor: (1) whether the PSLRA
changed the substantive standard of scienter; and (2) whether facts
showing a motive and opportunity to defraud can sufficiently allege a
strong inference of scienter. These issues could hardly get any riper for
certiorari than they are right now.
The Makor decision had a far bigger impact within the Seventh
Circuit’s district courts. Significantly, the Seventh Circuit Court of
Appeals contradicted its district courts’ prior decisions on the issue of
pleading scienter by alleging a motive and opportunity to defraud.127
2004); Adams v. Kinder-Morgan, Inc., 340 F.3d 1083, 1105 (10th Cir. 2003); see
also Bryant, 187 F.3d at 1283-84 (Eleventh Circuit) (holding that the substantive
standard is “recklessness,” but applying a “severe recklessness” standard in its
analysis).
126
See Makor, 437 F.3d at 600-02; Greebel, 194 F.3d at 195-97 (First Circuit);
Ottman, 353 F.3d at 348 (Fourth Circuit); Nathenson, 267 F.3d at 411-12 (Fifth
Circuit); Helwig, 251 F.3d at 550-52 (Sixth Circuit); Green Tree, 270 F.3d at 659-60
(Eighth Circuit);Fleming Cos, 264 F.3d at 1261-63 (Tenth Circuit).
127
E.g., Selbst v. McDonald’s Corp., No. 04 C 2422, 04 C 3635, 04 C 3661,
2005 WL 2319936, at *22 (N.D. Ill. Sept. 21, 2005); Ray v. Citigroup Global
Markets, Inc., No. 03 C 3157, 2003 WL 22757761, at *4 (N.D. Ill. Nov. 20, 2003);
In re Sears, Roebuck and Co. Sec. Litig., No. 02 C 7527, 291 F. Supp. 2d 722, 726
(N.D. Ill. Oct. 24, 2003); Schaps v. McCoy, No. 00 C 5180, 2002 WL 126523, at *3
(N.D. Ill. Jan. 31, 2002); In re Sys. Software Assocs., No. 97 C 177, 2000 WL
283099, at *13 (N.D. Ill. March 8, 2000); Zoghlin v. Renaissance Worldwide, Inc.,
No. 99 C 1965, 1999 WL 1004624, at *5 n.3 (N.D. Ill. Nov. 4, 1999) (noting that
Northern District of Illinois Courts have adopted the Second Circuit’s pre-PSLRA
standard allowing motive and opportunity pleadings to be sufficient); Rhem v. Eagle
Fin. Corp., 954 F. Supp. 1246, 1251-53 (N.D. Ill. 1997); but see In re Shopko Sec.
Litig., No. 01-C-1034, 2002 WL 32003318, at *6 n.2 (E.D. Wisc. Nov. 5, 2002)
(acknowledging but not deciding that the middle of the road approach allows a caseby-case analysis); Great Neck Capital Appreciation Inv. P’ship v.
Pricewaterhousecoopers, L.P., 137 F. Supp. 2d 1114, 1120 (E.D. Wisc. 2001)
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Whereas most of the district courts within the Seventh Circuit had
followed the Second Circuit’s standard that pleadings of motive and
opportunity sufficiently alleged a strong inference of scienter,128 the
Seventh Circuit in Makor adopted the approach less popular amongst
its district courts: the “middle of the road” approach.129 In doing so,
the Makor court made no reference to its district courts’ contrary
decisions. Thus, within district courts of the Seventh Circuit, the law
regarding pleading scienter has substantially changed by the Seventh
Circuit’s rejection of the Second Circuit’s standard that adequate
allegations of motive and opportunity create a strong inference of
scienter. In this respect, Makor rewrote the pleading requirements of
scienter for securities fraud actions brought in district courts within the
Seventh Circuit Court of Appeals’ jurisdiction.
V. DID THE SEVENTH CIRCUIT MAKE THE RIGHT DECISION IN MAKOR?
In a word, yes. The two important decisions made by the Makor
court were that: (1) “recklessness” remained a sufficient the
substantive standard of scienter after the enactment of the PSLRA; and
(2) that pleadings showing a motive and opportunity to defraud may
state a claim under § 10(b) and Rule 10b-5, but it may not always do
so.130
(following the Sixth Circuit’s “middle of the road” approach, allowing pleadings of
motive and opportunity to suffice in some cases, but not all); Chu v. Sabratek Corp.,
100 F. Supp. 2d 815, 823 (N.D. Ill. 2000) (Chu I) (same); Chu v. Sabratek Corp.,
100 F. Supp. 2d 827, 841 (N.D. Ill. 2000) (Chu II) (same); Danis v. USN Commc’ns,
Inc., 73 F. Supp. 2d 923, 937-38 (N.D. Ill. 1999) (same).
128
See, e.g., Selbst, No. 04 C 2422, 04 C 3635, 04 C 3661, 2005 WL 2319936
at *22; Ray, No. 03 C 3157, 2003 WL 22757761 at *4; In re Sears, Roebuck and
Co., No. 02 C 7527, 291 F. Supp. 2d at 726; Schaps, No. 00 C 5180, 2002 WL
126523 at *3; In re Sys. Software Assocs., No. 97 C 177, 2000 WL 283099 at *13;
Zoghlin, No. 99 C 1965, 1999 WL 1004624 at *5 n.3; Rhem, 954 F. Supp. at 125153.
129
See Makor, 437 F.3d 588; see, e.g., In re Shopko, No. 01-C-1034, 2002 WL
32003318 at *6 n.2; Great Neck Capital Appreciation Inv. P’ship, 137 F. Supp. 2d at
1120; Chu I, 100 F. Supp. 2d at 823; Chu II, 100 F. Supp. 2d at 841; Danis, 73 F.
Supp. 2d at 937-38.
130
See generally Makor, 437 F.3d 588.
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A. The Substantive Standard of Scienter
The Seventh Circuit’s decision to maintain the same scienter
standard is most compatible with the PSLRA’s language and
legislative history. First, the language of the PSLRA states that the
plaintiff is required to allege “with particularity facts giving rise to a
strong inference that the defendant acted with the required state of
mind.”131 Congress did not alter the required state of mind. Instead,
Congress altered the extent to which the plaintiff must prove the
required state of mind to adequately plead a securities fraud claim.132
While the Ninth and Eleventh Circuits added stringency to the
substantive scienter standard by requiring “deliberate”133 or
“severe”134 recklessness, this anti-plaintiff exercise of judicial
authority has no legitimate basis. Furthermore, the meaning of “state
of mind” was undisputed prior to the PSLRA’s enactment.135 All of the
circuits to address the issue, including the Ninth and Eleventh Circuits,
had held that a “showing of recklessness was sufficient to allege
scienter.”136 As the Seventh Circuit reasoned, “it seems more likely . . .
that Congress did not object to the substance of the state of mind
standard found in the law before the passage of the Act.”137 Just as
Congress changed the extent to which scienter must be shown by
adding the phrase “strong inference,” it could just the same have
modified the “required state of mind” had it so intended.138 However,
Congress did not address the state of mind required, which leaves only
131
15 U.S.C. § 78u-4(b)(2).
See id.
133
See generally In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970 (Ninth
Ciruit).
134
See generally Bryant v. Avado Brands, Inc., 187 F.3d 1271 (11th Cir. 1999).
135
See Makor, 437 F.3d at 600.
136
Id. (citing Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1569-70 (9th
Cir. 1990) (en banc) (Ninth Circuit); McDonald v. Alan Bush Brokerage Co., 863
F.2d 809, 814-15 (11th Cir. 1989)).
137
See Makor, 437 F.3d at 600
138
Id.
132
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the reasonable interpretation that it had no intention of changing the
previously-established standard of scienter.139
While the Ninth Circuit claims to adopt the standard of
recklessness articulated by the Seventh Circuit in Sundstrand, the
standard previously noted and widely accepted through the circuits, it
alters it by adding “deliberate” to its description of recklessness.140
The Ninth Circuit tried to explain why it used the term “deliberate,”
reasoning that it is suggested by the Sundstrand definition of
“recklessness” by the terms “known” and “must have been aware.”141
However, this causes the Ninth Circuit’s standard to be redundant
because those terms are implicitly a part of the meaning of
“recklessness.” Assuming the Ninth Circuit would not design
redundant standards of law, the only other interpretation is that the
Ninth Circuit created a higher level of recklessness than the
Sundstrand definition. Similarly, the words “deliberate” and
“conscious” do not appear in the Sundstrand definition of reckless.142
The only descriptive terms provided by the Sundstrand definition that
suggest what type of conduct is required to plead scienter are “highly
unreasonable,” “not merely simple, or even inexcusable negligence,”
and “extreme departure from the standards of ordinary care.”143 The
Ninth Circuit’s dependence on the terms “known” and “must have
been aware” describe the latter part of the recklessness definition,
which describes “the danger of misleading buyers or sellers.”144
139
Id.
See In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 979 (Ninth Ciruit);
Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033, 1045 (7th Cir.).
141
See In re Silicon Graphics, 183 F.3d at 976. Sundstrand states that:
[R]eckless conduct may be defined as a highly unreasonable
omission, involving not merely simple, or even inexcusable
negligence, but an extreme departure from the standards of
ordinary care, and which presents a danger of misleading buyers or
sellers that is either known to the defendant or is so obvious that
the actor must have been aware of it.
Sundstrand, 553 F.2d at 1045.
142
See In re Silicon Graphics, 183 F.3d at 976.
143
See Sundstrand, 553 F.2d at 1045; In re Silicon Graphics, 183 F.3d at 976.
144
See Sundstrand, 553 F.2d at 1044-45.
140
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Accordingly, the defendant need not “know” or have “been aware”
that his conduct was reckless: he must only have “known” or “been
aware” that their reckless conduct could have misled buyers or
sellers.145 Thus, the Ninth Circuit’s heightening of the type of
recklessness required to adequate plead scienter is misguided.
Although the Eleventh Circuit also claims to have adopted the
Sundstrand definition of recklessness and to have joined the majority
of the circuits holding that the substantive standard of scienter did not
change with the enactment of the PSLRA,146 it consistently reiterated
that the standard for scienter in the Eleventh Circuit is “severe
recklessness.”147 Just as the Ninth Circuit has done, the Eleventh
Circuit has changed the scienter requirement by adding this verbiage.
The only difference is that the Eleventh Circuit tried to slip it under
the rug by claiming “basic agreement” with the majority of circuits
instead of acknowledging its use of a more stringent standard.148
The legislative history also fails to suggest any Congressional
intent to change the substantive standard for scienter. Significantly,
neither the Ninth nor the Eleventh Circuit decisions analyzed the
legislative history of the PSRLA in reaching their decisions to
heighten the substantive standard of scienter.149 In fact, the meaning of
recklessness was hotly debated in the House of Representatives.150 The
definition finalized and passed by the House mirrored that of the
Sundstrand definition.151 Although this definition was not explicitly
145
See id.
See Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1283 (11th Cir. 1999).
147
See Bryant, 187 F.3d at 1283-1287 (citing McDonald v. Alan Bush
Brokerage Co., 863 F.2d 809, 814 (11th Cir. 1989) (consistently reiterating that the
standard is “severe recklessness”)).
148
Cf. Bryant, 187 F.3d at 1284 (agreeing with the Sixth Circuit’s decision of
In re Comshare, Inc. Sec. Litig., 183 F.3d 542, 551 (6th Cir. 1999), but applying a
“severe recklessness” standard).
149
See In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 976-77 (Ninth
Ciruit); Bryant, 187 F.3d at 1283-84.
150
See H.R. REP. No. 104-369, at 41 (Conf. Rep); ); In re Advanta Corp. Sec.
Litig., 180 F.3d 525, 531 n.6 (3d Cir. 1999).
151
See 141 Cong. Rec. H2863-64 (daily ed. Mar. 8, 1995). This bill, known as
House Bill 1058 defined recklessness as “highly unreasonable conduct that (A)
involves not merely simple or even gross negligence, but an extreme departure from
146
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incorporated into the final PSLRA, the circuit courts agree that this
was the definitive scienter standard pre-PSLRA.152 The Joint
Conference Committee explicitly said that “[it] does not adopt a new
and untested pleading standard that would generate additional
litigation.”153 It is safe to assume that Congress was well-aware of the
“contemporary legal context” surrounding the holdings by every
circuit that recklessness was sufficient to allege scienter.154
Accordingly, by not disturbing this well-settled legal principle of
“recklessness” as defined in Sundstrand, courts should presume that
Congress intended to codify that legal principle when it enacted the
PSLRA.155 Because Congress used the exact language, “required state
of mind” from the pre-PSLRA law, it brought with it its well-settled
legal meaning of recklessness as sufficient for scienter.156
B. “Strong Inference” of Scienter
the standards of care, and (B) presents a danger of misleading buyers or sellers that
was either known to the defendant or so obvious that the defendant must have been
consciously aware of it.” See also In re Advanta, 180 F.3d at 531 n.6.
152
Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588, 600 (7th Cir.
2006) (citing Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1569-70 (9th Cir.
1990) (en banc)); In re Phillips Petroleum Sec. Litig., 881 F.2d 1236, 1244 (3d Cir.
1989); Van Dyke v. Coburn Enter., Inc., 873 F.2d 1094, 1100 (8th Cir. 1989);
McDonald, 863 F.2d at 814-15 (Eleventh Circuit); Hackbart v. Holmes, 675 F.2d
1114, 1117-18 (10th Cir. 1982); Broad v. Rockwell Int’l Corp., 642 F.2d 929, 96162 (5th Cir. 1981) (en banc); Mansbach v. Prescott, Ball & Turben, 598 F.2d 1017,
1023-25 (6th Cir. 1979); Cook v. Avien, Inc., 573 F.2d 685, 692 (1st Cir. 1978)
(assuming without deciding that recklessness was sufficient); Rolf v. Blyth, Eastman
Dillon & Co., Inc., 570 F.2d 38, 44-47 (2d. Cir. 1978); Sundstrand Corp. v. Sun
Chemical Corp., 553 F.2d 1033, 10454 (7th Cir.)).
153
S. Rep. No. 104-98, at 15; In re Advanta Corp. Sec. Litig., 180 F.3d 525,
531-32 (3d Cir. 1999).
154
See Cottage Savings Ass’n v. Comm’r, 499 U.S. 554, 561-62 (1991); see
also cases cited supra note 152 (listing pre-PSLRA cases holding that recklessness
was sufficient to allege scienter).
155
See Cottage Savings Ass’n, 499 U.S. at 561-62 (when Congress enacts
legislation directly on-point with well-settled case law, it should use exact language
from the case law only where it intends to codify it).
156
E.g., id.
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Next, the Seventh Circuit’s decision to adopt the “middle of the
road” approach towards the motive and opportunity test also seems to
be the most practical approach. Because the legislative history seems
contradictory and ambiguous, the best route to take is an “I know it
when I see it” approach to scienter. Although this allows for a drift in
the jurisprudence of the various circuits, this flexibility is appropriate
in the securities context. Rather than holding that pleading facts to
support motive and opportunity to defraud is rigidly sufficient or
insufficient, the Seventh Circuit’s holding allows for a holistic
approach.157 This approach allows the court to determine whether the
requisite strong inference of scienter has been demonstrated based on
the totality of the circumstances.158 Congress was very aware of the
confusion that arose within its two chambers during the legislative
processes of the PSLRA: the Senate’s version of the PSLRA explicitly
codified the Second Circuit’s motive and opportunity test, but the Joint
Conference Committee expressly denied codifying the motive and
opportunity test.159 Congress clearly knew that the inclusion of the
motive and opportunity test in the PSLRA was debated, and yet,
Congress opted not to choose a side. Instead, Congress used
ambiguous language eluding to both the codification, and at the same
time, the rejection, of the Second Circuit’s motive and opportunity
test.160 Because Congress neither accepted nor rejected the Second
157
See Here at Last, supra note 39.
Cf. Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588, 601 (7th Cir.
2006); accord Greebel v. FTP Software, Inc., 194 F.3d 185, 197 (1st Cir. 1999);
Nathenson v. Zonagen Inc., 267 F.3d 400, 409-11 (5th Cir. 2001); Helwig v. Vencor,
Inc., 251 F.3d 540, 551 (6th Cir. 2001) (en banc); Florida State Board of
Administration v. Green Tree Financial Corporation, 270 F.3d 645, 659 (8th Cir.
2001); Philadelphia v. Fleming Cos., Inc., 264 F.3d 1245, 1261-63 (10th Cir. 2001).
159
Compare 141 Cong. Rec. S9150-01, at S9170 (daily ed. June 27, 1995)
(Senate’s version codifies Second Circuit’s pre-PSLRA approach); with 141 Cong.
Rec. H13691-08, at H13702 (daily ed. Nov. 28, 1995) (Joint Committee does not
intend to codify the Second Circuit’s pre-PSLRA case law, which includes the
motive and opportunity test).
160
See S. Rep. No. 104-98, at 15 (1995)(Congress notes that although it does
not intend to codify the Second Circuit’s pre-PSLRA standard, courts might find this
body of law instructive).
158
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Circuit’s motive and opportunity test in the PSLRA,161 it seems
reasonable for the courts to adopt the same perspective. In other
words, the most logical approach is to determine, based on the facts of
the case before the court, whether the plaintiff has established a strong
inference of scienter.
CONCLUSION
While the Seventh Circuit provided no new substance to the
nationwide confusion regarding the substantive standard of scienter or
the motive and opportunity test to establish a strong inference of
scienter, it might at least refocus attention on the pleading
requirements’ inconsistencies. In sum, the Seventh Circuit’s method
keeps the pre-PSLRA substantive standard of scienter of recklessness
and allows pleadings of a motive and opportunity to defraud to suffice
in some cases, but not others. This approach presents the most
practical approach and ought to be adopted. Now that all circuits
except for the District of Columbia have decided the issues, it is time
for the Supreme Court or Congress to address the incongruence and
clarify the issues: in essence, to reveal the proper science of scienter.
Amongst all the confusion, “all that can be said with confidence
on the issue[s] is that Congress agreed on the need to curb abuses.”162
Simply put, this is not good enough. Makor could be the prime case to
receive certiorari and curb the inconsistencies caused by Congress’
lack of clarity, or alternatively, to initiate Congressional action to unify
the circuit court’s pleading requirements for securities fraud actions
nationwide.
161
162
See H.R. REP. No. 104-369, at 41 (1995) (Conf. Rep).
Greebel v. FTP Software, Inc., 194 F.3d 185, 192 (1st Cir. 1999).
356
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BETWEEN EMPATHY AND ECONOMY:
THE STRUGGLE OVER THE SUBSTANTIAL
EVIDENCE STANDARD IN SOCIAL SECURITY
DISABILITY DETERMINATIONS
ELAINE WYDER-HARSHMAN∗
Cite as: Elaine Wyder-Harshman, Between Empathy and Economy: The Struggle
Over the Substantial Evidence Standard in Social Security Disability
Determinations, 1 SEVENTH CIRCUIT REV. 357 (2006), at
http://www.kentlaw.edu/7cr/v1-1/wyderharshman.pdf.
I. INTRODUCTION
A denial of Social Security Disability Insurance Benefits (DIB)
will be upheld if it the decision of the Administrative Law Judge (ALJ)
is supported by "substantial evidence." In practice, the application of
the substantial evidence standard has varied as the Seventh Circuit has
struggled over the degree of deference that should be accorded to the
ALJ's findings. This is particularly true in cases that require the
administrative law judge to evaluate impairments with highly
subjective effects, as well impairments that must be considered in
combination to determine disability.1 The Seventh Circuit's recent
decision in Gentle v. Barnhart advances a vision of the substantial
evidence standard informed by the broad objectives of the Social
Security's disability program, an approach that emphasizes the
Technology. I would like to thank Professor Hal Morris, John G. New, Devin
McComb, and Stacy Manning for their assistance with this note.
1
See e.g., Carradine v. Barnhart, 360 F.3d 751 (7th Cir. 2004) (subjective
experience of pain); Sims v. Barnhart, 309 F.3d 424 (7th Cir. 2002) (combined effect
of multiple impairments, none of which rise individually to the level of disability).
357
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investigatory burden on the ALJ over deference to the ALJ in her
adjudicatory role.2
First this note will provide an overview of how the Social Security
Administration evaluates disability claims and how claimants can
appeal an adverse decision. Next this note will survey the debate
within the Seventh Circuit over the application of the substantial
evidence standard in social security disability law and the level of
deference accorded to factual findings by the ALJ.3 This will be
followed by a discussion of how the Seventh Circuit's most recent
decision in Gentle v. Barnhart extends the line of reasoning that more
vigorously questions whether an adverse decision is supported by
substantial evidence. In this decision, the Seventh Circuit placed a
heavy emphasis on the investigatory responsibilities of the
administrative law judge. This approach gives slightly less deference
to factual findings by the ALJ where coming to those conclusions
requires a subjective evaluation, for example, evaluating the credibility
of the witness. Finally, this note will conclude that although this
approach slightly weakens deference to the adjudicatory role of the
ALJ in favor of a somewhat heavier burden the ALJs in her
investigatory role, this approach is consistent with the language and
the goals of the Social Security Act.
II. BACKGROUND
Applying for Social Security Disability benefits can be a complex
process, particularly if the applicant's claim is rejected initially. A
person insured by Social Security who becomes disabled may apply
for disability insurance benefits (DIB) after a waiting period of five
months following the onset of the disability.4 The prospective
applicant then has a one year window in which to file a claim with the
2
430 F.3d 865 (7th Cir. 2005).
The cases selected for discussion have been chosen because they illustrate the
debate through the contrasting reasoning offered in the majority and dissenting
opinions. This is not intended as an exhaustive survey of cases in which the Seventh
Circuit has applied the substantial evidence standard.
4
42 U.S.C. § 423(c)(2) (2004).
3
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Social Security Administration (SSA).5 To be considered disabled, a
person must be unable “to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment .
. ."6 The applicant must be unable to continue their "previous work" or
"engage in any other kind of substantial gainful work which exists in
the national economy" where jobs that the claimant can perform exist
in significant numbers in the regional economy.7 The disability must
be "medically determinable."8 It also must be relatively permanent: to
qualify as a disability, it must be expected either to result in death or to
last for a continuous period of at least one year.9
Disability is evaluated using a five-step evaluation process.10 If a
claimant is found to be disabled or not to be disabled at any step, the
analysis ends.11 First, the SSA examiner or ALJ asks whether an
applicant is involved in substantial gainful activity; if so, that person
will not be considered disabled.12 There are exceptions to the rule.
Make-work provided by an indulgent employer is not considered
gainful activity because such employment is not proof of
employability.13 Neither is employment taken out of desperation.14
The second step is to consider whether any medically
determinable physical or mental impairments, individually or in
combination, meet the duration requirement for severity.15 To be
considered disabled, the disability must be expected to persist for at
5
42 U.S.C. § 423(b) (2004).
42 U.S.C. § 423(d)(1)(A) (2004).
7
42 U.S.C. § 423(d)(2)(A) (2004).
8
42 U.S.C. § 423(d)(1)(A) (2004).
9
42 U.S.C. § 423(d)(1)(A) (2004).
10
20 C.F.R. § 404.1520 (2006) (explaining five-step sequential evaluation
process).
11
20 C.F.R. § 404.1520(a)(4) (2006).
12
20 C.F.R. § 404.1520(a)(4)(i). (2006)
13
Wilder v. Apfel, 153 F.3d 799, 801 (7th Cir. 1998).
14
Id.
15
20 C.F.R. § 404.1520(a)(4)(ii) (2006).
6
359
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least one year.16 Qualitative severity is evaluated in the third step.17 If
any impairment meets or equals the severity of one of the impairments
listed in 20 C.F.R. Pt. 404, Subpt. P, App. 1, the claimant will be
considered disabled.18
If the claimant is not considered disabled at step three, the SSA
will make a determination of the claimant's residual functional
capacity for use in steps four and five.19 Residual functional capacity
is the most work a claimant can do within the claimant's limitations.20
It is determined through an assessment of the claimant's physical
abilities, mental abilities, environmental restrictions and the total
limiting effect of all impairments and symptoms.21 The fourth step
considers whether the claimant can perform her past relevant work
given her residual functional capacity.22 If the claimant can perform
her past relevant work despite her limitations, she will not be
considered disabled.23
Finally, in the fifth step, the examiner or ALJ determines whether
the claimant is able to make an adjustment to other work24 based on
residual functional capacity, age, education, and work experience.25 20
C.F.R. Pt. 404, Subpt. P, App. 1 lists medical-vocational guidelines
("grids") that may be used to assess whether a claimant should be
considered capable of substantial gainful employment for purposes of
social security disability benefits based on physical abilities, age and
education. For example, under Table No. 1, illiteracy, advanced age,
and a work history of unskilled work would together direct a finding
16
20 C.F.R. § 404.1520(a)(4)(ii) (2006) (incorporating by reference duration
requirements in 20 C.F.R. § 404.1509) (2006).
17
20 C.F.R. § 404.1520(a)(4)(iii) (2006).
18
Id.
19
20 C.F.R. § 404.1520(a)(4) (2006).
20
20 C.F.R. § 404.1545(a)(1) (2006).
21
Id.
22
20 C.F.R. § 404.1520(a)(4)(iv) (2006).
23
Id.
24
20 C.F.R. § 404.1520(a)(4)(v) (2006).
25
20 C.F.R. § 404.1520(g)(1) (2006).
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of disability, presuming the claimant's limitations prevent her from
performing her past relevant work.26 Alternatively, or where the grids
do not apply because a mental residual functional capacity must be
considered, a vocational expert may be called to testify to how many
jobs are available in the regional economy that can be performed by
the claimant, taking the claimant's limitations into account.27
A. Review of the Initial Determination
If the Social Security Administration determines that a claimant is
not disabled, the claimant may challenge that determination through an
administrative review process.28 First, the claimant may ask for
reconsideration.29 If the claim is denied upon reconsideration, the
claimant has the right to a hearing before an ALJ.30 The ALJ is
responsible for a unique type of administrative review. The
administrative review hearing is a non-adversarial process.31 Although
the claimant has a right to be represented by counsel,32 the
Commissioner of Social Security is unrepresented at the hearing.33
The ALJ has an investigatory role as well as a quasi-judicial role.
While the claimant has the opportunity to offer evidence of disability
by submitting medical records and testimony,34 the ALJ has a duty to
investigate facts and develop the issues through the course of the
hearing.35 The ALJ has multiple tools for developing the record. The
ALJ reviews records and hears testimony from witnesses, including
26
20 C.F.R. Pt. 404, Subpt. P, App. 1(2006).
69 Am. Jur. Proof of Facts 3d 1 § 66 (2005).
28
20 C.F.R. § 404.900(a) (2006).
29
20 C.F.R. § 404.900(b)(2) (2006).
30
20 C.F.R. § 404.900(b)(3) (2006).
31
20 C.F.R. § 404.900(b) (2006).
32
See 42 U.S.C. § 406(a)(1) (2000).
33
Sims v. Apfel, 530 U.S. 103, 110-11 (2000).
34
20 C.F.R. §§ 404.935, 404.949, 404.950 (2006).
35
Sims, 530 U.S. at 111 (citing Richardson v. Perales, 402 U.S. 389, 400-401
(1971)).
27
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medical experts, friends and family of the claimant, and the claimant
himself.36 The examiner has great latitude to conduct the hearing in a
relatively informal manner, considering even evidence that might be
excluded as hearsay in a more formal judicial proceeding.37 Where
additional evidence is required, the ALJ has the discretion to order
additional medical and psychiatric examinations.38 A medical advisor
may be called upon to review the medical records and offer her
professional opinion.39
If the ALJ denies the applicant's claim, the applicant may appeal
to the Social Security Appeals Council.40 If the claimant is not
satisfied with the Council's decision, the claimant may seek
administrative review in federal court.41
The ALJ's determination of whether a claimant is disabled, and
ultimately the decision of the Commissioner of Social Security, must
be supported by "substantial evidence."42 Reviewing courts are to give
the findings of the Commissioner, and in effect the ALJ, conclusive
weight in questions of fact where those factual findings are supported
by substantial evidence.43 That the record contains enough information
to support an ALJ's decision is not sufficient: the ALJ has an
obligation to write a detailed explanation the decision, one that
"build[s] an accurate and logical bridge from the evidence to [the]
36
See Richardson, 402 U.S. at 400 (quoting 20 C.F.R. § 404.927 ("The hearing
examiner shall inquire fully into the matters at issue and shall receive into evidence
the testimony of witnesses and any documents which are relevant and material to
such matters . . .”)); 20 C.F.R. § 404.944 (2006).
37
Id. (quoting 20 C.F.R. § 404.927 ("The … procedure at the hearing generally
. . . shall be in the discretion of the hearing examiner and of such nature as to afford
the parties a reasonable opportunity for a fair hearing."))
38
20 C.F.R. §§ 404.1519, 404.1519a (2006).
39
Richardson, 402 U.S. at 408.
40
20 C.F.R. § 404.900(4) (2006).
41
20 C.F.R. § 404.900(5) (2006).
42
See 42 U.S.C. § 405(g) (2000).
43
Id. ("The findings of the Commissioner of Social Security as to any fact, if
supported by substantial evidence, shall be conclusive … .") (emphasis added).
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conclusion."44 Courts are authorized "to enter … a judgment affirming,
modifying, or reversing the decision of the Commissioner of Social
Security, with or without remanding the cause for a rehearing."45
However, a reviewing court may award benefits only where "all
factual issues have been resolved and the record supports a finding of
disability."46
B. Construing "Substantial Evidence"
Seventh Circuit Court of Appeals Judge Richard A. Posner has
noted a tension in the interpretation of social security disability law
between empathy and economy, an ideological split between "those
who empathize with the humane objectives of the law and those who
worry about fostering dependence and depleting the federal budget."47
He observes that these perspectives in the field are divided by
fundamental questions of value, questions not easily resolved by
appeals to a neutral observer.48 While Judge Posner noted this in the
context of discussion of the wisdom of reforming the review process
44
Steele v. Barnhart, 290 F.3d 936, 941 (7th Cir. 2002) (quoting Dixon v.
Massanari, 270 F.3d 1171, 1176 (7th Cir. 2001) (rejecting reasons for a decision
supplied by the Commissioner's lawyers rather than by the ALJ in her report).
45
42 U.S.C. § 405(g) (2000).
46
Briscoe v. Barnhart, 425 F.3d 345, 356 (7th Cir. 2005). In Briscoe, The
Seventh Circuit clarified the circumstances under which a reviewing court may
award benefits rather than reversing and remanding for proceedings consistent with
the court's decision. The confusion among the district courts arose from the Seventh
Circuit's decision in Wilder v. Apfel. Briscoe, 425 F.3d at 356 (citing Wilder v.
Apfel, 153 F.3d 799, 801 (7th Cir. 1998)). In Wilder, the Seventh Circuit awarded
benefits where the agency failed to bring forth contradictory medical evidence
despite a second hearing following remand from the district court. The Court of
Appeals "found it necessary to 'bring the charade to an end'" and awarded benefits to
the claimant. Id. However, in Briscoe, the Court of Appeals emphasized that
"obduracy" on the part of the ALJ is not in itself sufficient grounds for an award of
benefits by a reviewing court. Id.
47
RICHARD A. POSNER, THE FEDERAL COURTS: CHALLENGE AND REFORM 253
(1996).
48
Id.
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by establishing specialized courts,49 a similar division comes into play
in the interpretation of the substantial evidence standard. The
following cases illustrate the tension between an ideal of economic
and judicial economy, which tends to afford maximum deference to
the factual findings of ALJs, and an empathetic desire for meaningful
review under the substantial evidence standard.
This tension between economy and empathy in interpreting the
"substantial evidence standard" is not new. It is evident in the Supreme
Court of the United State's 1971 decision in Richardson v. Perales, in
which the Court considered whether medical reports by physicians
who have not been cross-examined, presenting evidence that
contradicts live testimony favorable to the claimant, constitute
substantial evidence supporting a finding adverse to the claimant.50
Richard Perales challenged whether the unsworn, hearsay reports were
constitutionally sufficient evidence.51 He claimed that because he had
not had the opportunity to cross-examine the authors of these medical
reports, these reports should not have been admitted as evidence.52
Mr. Perales' presented evidence of his impairments in the form of
testimony by one of his treating physicians and reports created by two
others physicians who had personally examined him.53 Initially, Mr.
Perales presented somewhat weak medical evidence that he was
disabled due to a back injury.54 Mr. Perales had undergone back
49
For further critiques of the current system of review and a survey of
proposed solutions, see Paul R. Verkuil & Jeffrey S. Lubbers, Alternative
Approaches to Judicial Review of Social Security Disability Cases, 55 ADMIN. L.
REV. 731 (2003).
50
Richardson, 402 at 390.
51
Richardson, 402 U.S. at 395, 398. Initially, Richardson challenged the use of
unsworn reports as a violation of the Confrontation clause. The Court eventually
addressed his claim as a procedural due process issue: "The question, then, is as to
what procedural due process requires with respect to examining physician's reports
in a social security disability claim hearing." Id. at 402.
52
Id. at 395, 398.
53
Id. at 395-96.
54
See id. at 390-92.
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surgery in an attempt to relieve his back pain.55 However, his surgeon,
Dr. Munslow, was not able to definitively identify the source of his
pain at surgery.56 Following the surgery, he diagnosed Perales'
condition a "nerve root compression syndrome, left."57 His final
diagnosis before discharging Perales was "neruitis, lumbar, mild."58
Similarly, Dr. Lampert, a neurologist was unable to identify a
neurological explanation for his pain.59 Following Dr. Lampert's
diagnosis, Dr. Munslow recommended that Perales return to work.60
Perales visited a third physician, a general practitioner named Dr.
Morales.61 Dr. Morales hospitalized Perales for his back pain.62 He
eventually diagnosed Mr. Perales with a moderately severe
lumbosacral back sprain and with a possible ruptured disc.63
After Mr. Perales applied for Social Security disability benefits,
the agency ordered an additional medical examination by an
orthopedic surgeon.64 The results undermined Mr. Perales' claim.65 The
examiner concluded that although Mr. Perales did indeed have a back
sprain, he was exaggerating his symptoms.66 The surgeon suggested
that Mr. Perales had exacerbated his problems by failing to exercise.67
He also suggested that there might be a psychological component to
Mr. Perales' illness.68
55
Id. at 390-91.
Id. at 391.
57
Id.
58
Id.
59
Id.
60
Id.
61
Id.
62
Id.
63
Id. at 392.
64
Id.
65
Id.
66
Id. at 393 n.3.
67
Id. at 392.
68
Id. at 393 n.3.
56
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Mr. Perales' claim was denied and he requested reconsideration.69
Dr. Morales submitted a report stating that Mr. Perales had never fully
recovered from his prior back surgery, and that he was as badly off
physically as he had been before the surgery.70 He believed that Mr.
Perales was not malingering.71 He concluded that the injury was
permanent and that Mr. Perales would not be able to continue working
in his past line of work as a laborer.72 The state agency administering
the DIB program also arranged for a psychiatric evaluation of Mr.
Perales.73 Dr. James Bailey reported personality difficulties, but no
separate psychiatric illness.74 After the agency denied Mr. Perales'
claim a second time, he requesting a hearing before a hearing
examiner.75
Mr. Perales presented direct evidence of disability at his hearing:
Dr. Morales testified as to the seriousness of Mr. Perales' condition,
and Mr. Perales himself testified.76 The ALJ also admitted reports from
Drs. Langton, Bailey, Mattson, Lampert, as well as the hospital
records, over objections from Mr. Perales attorney, who objected to the
hearsay nature of the evidence.77
Dr. Morales' conclusions were contradicted by Dr. Lewis A.
Leavitt, an independent "medical advisor" called by the hearing
examiner.78 Based on his review of the medical reports, Dr. Leavitt
testified that Mr. Perales' back problems were mild and were of
musculo-ligamentous origin rather than the result a disc injury.79 He
also testified that Mr. Perales' problems might in part be only
69
Id.
Id. at 393.
71
Id.
72
Id.
73
Id. at 394.
74
Id.
75
Id.
76
Id. at 395.
77
Id.
78
Id. at 396.
79
Id.
70
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minimally psychological.80 Faced with conflicting evidence, the
hearing examiner accepted the medical advisor's conclusions and
denied Mr. Perales' claim based on that testimony.81
Mr. Perales appealed to the Appeals Council.82 At this time he
submitted an additional medical report which had been prepared to
support a welfare claim.83 Although the examining physician, Dr.
Williams, was unable to definitively identify the source of the pain, he
concluded that Mr. Perales was 15% disabled at that time and could
probably be reconditioned to return to work.84 The Appeals Council
also denied Mr. Perales claim.85 Mr. Perales appealed in federal court,
arguing that he had been denied procedural due process because the
physician's reports on which the medical advisor relied were
uncorroborated hearsay.86 He also argued that he had not had the
opportunity to cross-examine the doctors who wrote the reports.87
A Supreme Court majority upheld the use of medical reports
without cross-examination over the protest of the dissent. These
differing views regarding the constitutional adequacy of disability
hearing procedures illustrate a subtle but persistent rift over what
constitutes a fair determination by an ALJ in a Social Security
disability hearing. The Court acknowledged that an ALJ's decision
must be supported by "substantial evidence."88 The majority was
satisfied with the probative value of the hearsay reports.89 The Court
recognized several indicators reliability. First, the non adversarial
nature of proceedings themselves give rise to a presumption of
80
Id.
Id. at 396-97.
82
Id. at 397.
83
Id.
84
Id.
85
Id.
86
Id. at 397-98.
87
Id. at 398.
88
Id. at 401.
89
Id. at 402.
81
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impartiality.90 The agency is intended to act as an adjudicator of
claims, not as an advocate or an adversary.91 Second, the majority saw
no evidence of bias in the extensive medical reports.92 It believed the
reports to be consistent.93 Further, the Court recognized a general
societal acceptance of the probative nature of physicians' reports.94
Third, with respect to cross-examination, the Court noted that Mr.
Perales had not entirely availed himself of his statutory rights.95 Mr.
Perales had failed to take advantage of a five-day period in which he
could have requested subpoenas of the authors of those medical
reports.96 Finally, the Court addressed an "additional and pragmatic
factor which, although not controlling, deserves mention."97 The Court
concluded that live testimony would be too great a drain on financial
resources of the system, particularly where subpeonas had not been
requested.98 Accordingly, the court held that Mr. Perales had not been
denied the rights of confrontation and cross-examination.99
Taking all considerations into account, the Court was satisfied
with the fundamental fairness of the system.100 The hearing process
was consistent with due process rights for several reasons. First, the
hearing did not concern a termination of benefits.101 Second, the
majority did not believe that reliance on those reports had any adverse
impact on the system's fundamental integrity and fairness because the
90
Id. at 403.
Id.
92
Id. at 404.
93
Id.
94
Id. at 405.
95
See id. at 406-07.
96
Id.
97
Id. at 406.
98
Id.
99
Id. at 407-08.
100
Id. at 410.
101
Id. at 406-07. The court contrasted the application for disability benefits
with the termination of AFDC benefits at issue in Goldberg v. Kelly, 397 U.S. 254,
254 (1970).
91
368
Volume 1, Issue 1
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medical reports had probative value.102 Finally, the Court rejected the
contention that the examiner had a dual role as a judge and an
advocate, despite his obligation to develop the facts.103 According to
the Court, requiring additional examination would harm a complex
system that was working well.104 Despite the Court's assertion that cost
was merely a pragmatic matter, and not controlling, the Court's
concerns over the workability of a large and complex system loom
large in the decision.
The dissenting justices vehemently disputed whether medical
reports as interpreted by a medical advisor should be considered
"substantial evidence" sufficient to contradict live testimony from the
claimant and from an examining physician.105 The dissent noted that
one doctor, the 'medical advisor," had never seen the patient.106
Additionally, doctors in this case had serious conflicts of interest—
some had been hired by the insurance company seeking to defeat Mr.
Perales' workmen's compensation claims.107 The dissent also
questioned whether a "circuit-riding doctor[]" hired by the agency
itself to interpret medical records could be impartial.108 It blasted the
majority decision as an injustice wreaked on an individual by a
powerful bureaucracy.109 It characterized the "cutting of corners" as
contrary to the spirit of the law and beneath the dignity of a great
nation.110 Although the dissent lost on the issue of the admissibility of
unsworn medical reports, this strong empathy for claimants entangled
in administrative procedures survives as a major concern in the
analysis of the substantial evidence standard.
102
Id. at 407-08.
Id. at 410.
104
Id.
105
See id. at 411-12 (Douglas, J. dissenting).
106
Id. at 413.
107
Id.
108
Id.
109
Id. at 414.
110
Id.
103
369
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C. Substantial Evidence in the Seventh Circuit
1. Smith v. Apfel
In the Court of Appeals for the Seventh Circuit the tension
between efficiency and empathy played out in a struggle over the
degree of deference accorded to the ALJ when reviewing adverse
decisions under the substantive evidence standard. In Smith v. Apfel,
Mr. Smith had been receiving Social Security disability payments for
disability due to alcoholism.111 In 1997 the Social Security
Administration changed the rules so that alcoholism was no longer a
disability.112 The SSA informed Mr. Smith that unless he could show
that alcoholism was not a contributing factor to his disability, his
benefits would cease.113 Mr. Smith requested a review, claiming that
he was unable to work because of arthritis, back pain, an ulcer, and
cirrhosis of the liver.114 Records from Mr. Smith's treating physician of
21 years confirmed some degenerative disease in his left knee and
right ankle in X-rays taken in 1987.115 In 1996 a diagnosis of
osteoarthritis was also recorded. Mr. Smith also was taking medication
for hypertension.116
Shortly after requesting review, Mr. Smith was examined by a
consultative physician, Dr. Bharti.117 Dr. Bharti confirmed
degenerative changes in Mr. Smith's right ankle but found no other
problems.118 Although Mr. Smith claimed back pain when lifting
anything over 50 pounds, Dr. Bharti noted that he had a full range of
motion in his back.119 Based on Dr. Bharti's report, state agency
111
231 F.3d 433, 434 (7th Cir. 2000)
Id. at 435.
113
Id.
114
Id.
115
Id.
116
Id.
117
Id.
118
Id.
119
Id.
112
370
Volume 1, Issue 1
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physician Dr. Dow determined that Mr. Smith had mild osteoarthritis
and was probably suffering from degenerative joint disease in the
lumbar area as well.120 She determined that Mr. Smith was able to
work in a job that required lifting or carrying up to 50 pounds
occasionally and 25 pounds frequently.121 A third physician, Dr.
Baraglia, also assessed Mr. Smith's records.122 He concluded that Mr.
Smith could lift no more than 20 pounds occasionally.123 He also
determined that Mr. Smith could not stand or walk for an eight-hour
work day, and could only occasionally climb, balance or stoop because
of arthritis in his knees.124 Two months later, Dr. Baraglia amended his
opinion, stating that Mr. Smith could not walk a block without severe
pain and could lift no more than 10 pounds occasionally.125 He also
stated that Mr. Smith had a limited range of motion in his back.126
At his hearing, Mr. Smith testified to his limited ability to sit in
one place or to stand for long periods of time. 127He also told the
hearing administrator that he suffered from spells of dizziness due to
his hypertension.128 He said that he could regularly lift 25 to 30
pounds but that he had trouble with anything weighing more than 50
pounds.129 In this respect, his testimony corresponded much more
closely with the evaluation done by Dr. Bharti than with the report
from Dr. Baraglia.
Mr. Smith's case presents a combination of impairments with
subjective elements, such as pain, and varying medical testimony. The
ALJ in this case took issue with Mr. Smith's credibility, and
120
Id.
Id.
122
Id.
123
Id.
124
Id.
125
Id. at 436.
126
Id.
127
Id.
128
Id.
129
Id.
121
371
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determined that Mr. Smith did not have pain related to arthritis.130 He
faulted Dr. Bharti for failing to order X-rays that might support his
medical opinion. He also did not consider Mr. Smith's claim of
dizziness due to hypertension.131 After hearing the medical evidence
and testimony from a vocational expert, the ALJ concluded that Mr.
Smith's skills were transferable to the position of forklift operator.132
Mr. Smith appealed the decision as not being based on substantial
evidence.133
In her opinion for the majority, Judge Ilana Diamond Rovner,
joined by Judge Ann Claire Williams, held that the ALJ's decision was
not based on substantial evidence.134 The court concluded that it was
impossible for the ALJ to evaluate Mr. Smith's arthritis without
updated X-rays, despite the vocational expert's information that
operating a forklift required frequent use of the right foot.135 The court
also faulted the ALJ for failing to take Mr. Smith's spells of dizziness
into account when determining that he was capable of operating a fork
lift.136 The court reversed and remanded with instructions,
emphasizing the ALJ's duty to develop a "full and fair record," and
admonishing the ALJ not to simply select and discuss the evidence
favorable to his position.137
In his dissent, Judge Kenneth F. Ripple disagreed with the lack of
deference given to the ALJ's findings, particularly to the ALJ's
credibility determination.138 He emphasized that the ALJ is in the best
position to make a credibility determination and to evaluate various
discrepancies.139 According to the dissent, to overturn the credibility
130
Id. at 437.
Id.
132
Id.
133
Id.
134
Id. at 438.
135
Id. at 437-38.
136
Id. at 438.
137
Id. at 437-38.
138
Id. at 438-45 (Ripple, J. dissenting).
139
Id. at 439.
131
372
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Spring 2006
determination, and all that followed, the claimant would have to show
that the ALJ was "patently wrong" in his credibility determination.140
With respect to the lack of recent X-rays, rather than taking the
omission to indicate that the ALJ had failed to develop the record
fully, the dissenter would have taken the absence of evidence as
probative of the claimant's lack of credibility.141 In short, the dissent
would have placed a higher burden on the claimant and a lesser burden
on the ALJ and deferred almost entirely to the ALJ in credibility
determinations. In a case where the ALJ considered multiple
impairments, including a subjective evaluation of pain, the majority
and the dissent emphasize distinct aspects of the ALJ's role, the
investigative and the adjudicatory, as they massage the burden of the
claimant and the level of deference to the ALJ under the substantial
evidence standard.
2. Sims v. Barnhart
Social Security disability cases are highly fact-intensive, which
can make comparisons difficult. Nevertheless, whether the court
chooses to construe the responsibilities of claimants and administrative
law judge more narrowly or more broadly depends on both the
circumstances of the case and the sympathies of the panel hearing the
appeal. In Sims v. Barnhart, a majority consisting of Judge Daniel A.
Manion and Judge Frank H. Easterbrook held that a denial of benefits
was based on substantial evidence despite the claimant's constellation
of ailments and a vocational expert's opinion based on some highly
questionable assumptions.142 The majority rejected Sims' claims that
the ALJ had not taken into account each condition, considering the
effect in combination, because the ALJ had mentioned each of these
factors in the opinion.143
140
Id.
Id. at 443.
142
309 F.3d 424, 432 (7th Cir. 2002).
143
Id. at 432.
141
373
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The ALJ acknowledged that Ms. Sims had severely impaired renal
function and hypertension.144 She had also been to the emergency
room three times for fainting spells.145 A computed tomography
("CT") scan revealed "generalized atrophy" and "focal areas of
decreased attenuation" consistent with a history of lunar infarcts, small
lesions on the brain caused by a lack of blood flow to the affected
area.146 Ms. Sims also complained of headaches.147 She had a history
of recurrent depression, panic disorder, and agoraphobia.148 Three
Global Assessment of Functioning tests were performed; one showed
that she would have "moderate difficulty in social, occupational, or
school functioning," while two later showed "some difficulty."149 She
also had a borderline IQ score.150 However, she was able to drive to do
errands, care for herself at home and to attend church.151 The ALJ
concluded that none of these impairments alone were of sufficient
severity to meet the listed requirements.152 The ALJ questioned the
credibility of Ms. Sims' allegations concerning the "intensity,
persistence, and limiting effects of her symptoms," finding the
allegations inconsistent with the record as a whole.153 As a result, the
ALJ concluded that the combined effect of her impairments was also
not severe enough to rise to the level of a disability.154 After hearing
the advice of a vocational expert who concluded that sufficient jobs
were available in the economy that she was capable of performing, the
ALJ found her not to be disabled.155
144
Id. at 428.
Id. at 426.
146
Id. at 426 n.1.
147
Id. at 427.
148
Id.
149
Id. at 427 at n.5
150
Id. at 427.
151
Id. at 428.
152
Id.
153
Id. at 431.
154
Id. at 431.
155
Id. at 428.
145
374
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The majority of the Seventh Circuit panel agreed, and held
that Ms. Sims failed to show that the decision was not supported by
substantial evidence.156 The decision hinges on deference. The
majority did not discuss the ALJ's credibility determination except to
note that it would not disturb a credibility finding unless it was
patently wrong.157 Rather than reweighing the combined effect of
Sims' impairments the majority noted that the ALJ had recognized her
various complaints.158 The majority also considered itself persuaded
that the decision was supported by substantial evidence because the
ALJ had ensured that the vocational expert took the impairments into
account when determining whether jobs existed in the economy that
Sims could perform.159 Yet the majority concluded with a statement
that casts doubt on its satisfaction with the ALJ's decision, "urg[ing]
the SSA in the future to carefully examine the issue of disability in
light of a claimant's total impairments."160
In a strong dissent, Judge Richard Posner objected to how the ALJ
had assessed Ms. Sims' various conditions.161 On the basis of her
fainting fits alone, he argued, no employer would dare to hire her.162
He ascribed Ms. Sims' failure to control her blood pressure with
medication to her low intelligence rather than to willful
noncompliance.163 Further, he heavily questioned the vocational
expert's determination in several respects. The ALJ had failed to
mention Ms. Sims' hypertension and fainting fits in his in his
instructions to the vocational expert.164 The ALJ also told the expert to
take into account her high-school education.165 However, Ms. Sims
156
Id. at 431.
Id.
158
Id.
159
Id. at 432.
160
Id.
161
Id. (Posner, J. dissenting).
162
Id.
163
Id. at 433.
164
Id.
165
Id.
157
375
Volume 1, Issue 1
Spring 2006
had left school after the 8th grade and later earned a GED.166 The
record contained no evidence of whether her series of strokes had
impaired her mental abilities since.167 As to her ability to work, the
dissenter considered her employment too sporadic to be considered
substantial gainful employment.168 The resulting opinion from the
vocational expert, Judge Posner argued, "rests on air."169 He concluded
that the claimant was entitled to a competent examination of her
disabilities but that she had not received it.170 Judge Posner scathingly
highlights the injustice resulting from a position of extreme deference
to the adjudicatory role of the ALJ.
3. Carradine v. Barnhart
In Carradine v. Barnhart, Judge Richard Posner, from a position
in the majority, considered whether substantial evidence supported a
denial of a disability claim where the claimant subjectively
experienced severe pain but could offer no objective medical findings
demonstrating the severity of the pain.171 Patty Carradine was injured
in 1994 when she suffered a back injury as a result of a fall.172 The
back injury caused severe pain and numbness in her right hand.173 In
the course of her search for treatment with many doctors, she received
a variety of diagnoses, including "degenerative disk disease, scoliosis,
depression, fibromyalgia, and 'somatization disorder.'"174
"Somatization disorder" refers to physical distress with a
psychological origin.175
166
Id.
Id.
168
Id. at 432.
169
Id. at 433.
170
Id.
171
360 F.3d 751 753 (7th Cir. 2004).
172
Id. at 754.
173
Id.
174
Id.
175
Id.
167
376
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Although Ms. Carradine presented medical evidence of her
underlying physical disorders, she could offer only testimonial
evidence concerning the severity of her pain.176 She testified to pain so
disabling that she could not work, and her husband corroborated her
distress.177 The administrative law judge acknowledged that severe
pain can be totally disabling but declined to find Ms. Carradine
disabled.178 He did not believe that her pain was as severe as she had
testified for several reasons.
Two members of the three-person panel, Judge Posner and Judge
Kenneth Ripple, agreed that the ALJ's decision was not supported by
substantial evidence. This majority was willing to question the ALJ's
credibility determination, ultimately holding that the ALJ's credibility
determination was based on serious errors in reasoning rather than on
Ms. Carradine's demeanor.179 Citing law from the Court of Appeals for
the Fifth Circuit and the Court of Appeals for the Eighth Circuit, Judge
Posner emphasized the difference between genuine pain with a
psychological origin and exaggerated claims of pain.180 Where the
existence of an underlying impairment is supported by objective
medical evidence, an ALJ cannot dismiss claims of pain merely
because the witness testifies to subjective symptoms.181 Pain with a
psychological origin, according to Posner, is no less real because it can
176
Id.
Id.
178
Id.
179
Id. at 753-54.
180
Id. at 754-55 (citing Metz v. Shalala, 49 F.3d 374, 377 (8th Cir. 1995);
Latham v. Shalala, 36 F.3d 482, 484 (5th Cir. 1994); Easter v. Bowen, 867 F.2d
1128, 1129 (8th Cir. 1989)). Indeed, the single Seventh Circuit decision cited by the
majority that considered a somatic pain disorder, Cass v. Shalala, displays reasoning
seemingly contrary to the majority's reasoning in Carradine. See Cass v. Shalala, 8
F.3d 552, 554-55 (7th Cir. 1993). The Cass panel, consisting of Judges Flaum,
Easterbrook and Kanne, unanimously affirmed a denial of benefits based in part on
deference to the ALJ's finding that the applicant's claim of disabling pain was not
credible. See Cass, 8 F.3d at 554-55.
181
Carradine, 360 F.3d at 753.
177
377
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be evaluated only subjectively.182 Judge Posner stated, "If pain is
disabling, the fact that its source is purely psychological does not
disentitle the applicant to benefits."183 Judge Posner carefully
distinguishes between psychosomatic pain and exaggerated or
fabricated claims of pain, the second set of which do not qualify an
applicant for benefits.184 The majority accuses the ALJ of entirely
misunderstanding this distinction.185 Somatoform disorders are indeed
mentioned as disabling disorders in the Social Security regulations.186
However, this appears to be the first time this distinction has been
made in the Seventh Circuit. The majority voted to reverse and remand
for further findings over the strong objections of Judge John Coffey,
who argued in his dissent that the majority had run roughshod over
longstanding principles of deference.187
II. GENTLE V. BARNHART
In Gentle v. Barnhart,188 the Seventh Circuit steers away from the
harsh stance of the majority in Sims and the dissent in Carradine. The
unanimous opinion, authored by Judge Posner, emphasizes the burden
ALJs bear to thoroughly investigate the combined effect of various
conditions which may not individually rise to the level of a disability,
including conditions that can be evaluated only subjectively. Nicole
Gentle suffered from spinal disk disease, but her impairment was
pain.189 The pain was so severe it made it difficult for her to walk, sit,
stand, bend or turn, or to lift more than 20 pounds.190 In addition, she
182
Id. at 754.
Id.
184
Id. at 753.
185
Id. at 754.
186
20 C.F.R. Pt. 404, Subpt. P, App. 1 § 12.07 (2006) (criteria for somatoform
disorders, i.e., "Physical symptoms for which there are no demonstrable organic
findings or known physiological mechanisms.")
187
Carradine, 360 F.3d at 756-58 (Coffey, J. dissenting).
188
430 F.3d 865 (7th Cir. 2005).
189
Id. at 866-67.
190
Id.
183
378
Volume 1, Issue 1
Spring 2006
suffered from a number of other conditions that, while not individually
rising to the level of a disability under Social Security regulations,
combined to aggravate her pain. She suffered from serious allergies.191
She was a "slow learner" who had difficulty concentrating on complex
tasks.192 She also suffered from depression and anxiety.193 Finally, she
was obese, standing 5 feet 11 inches and weighing 275 pounds.194
She had formerly worked as a supermarket delicatessen worker
and a school lunchroom attendant.195 In 2001, she stopped working
upon the birth of her second child.196 At the time of the hearing, she
was a single mother, taking care of her eleven-month child at home
and sending her four-year-old child to preschool.197 Yet the
administrative law judge who heard her case found that she was
capable of substantial gainful employment, in part because she was
able to care for her children.198
The Seventh Circuit Court of Appeals took the ALJ to task for
failing to consider the combined effect of Ms. Gentle's various
conditions, noting that the effects of conditions must be considered
even where the underlying condition is not severe enough to be
considered a disability.199 According to Judge Posner, the social
security disability program is not concerned with health per se, but
with whether a person is capable of working.200 The court stressed that
conditions must not be confused with disabilities, and that any
aggravating health factor must be considered for its incremental effect
on disability.201 According to the court, the ALJ failed to account for
191
Id. at 867.
Id.
193
Id. at 868.
194
Id.
195
Id. at 866.
196
Id.
197
Id.
198
Id. at 867.
199
Id. at 868.
200
Id.
201
Id.
192
379
Volume 1, Issue 1
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how Ms. Gentle's obesity might interact with her spinal disc disease.202
Similarly, the ALJ also failed to account for how her psychiatric
problems could affect her ability to work, particularly in combination
with her disc disease and her obesity.203
The Seventh Circuit also strongly disagreed with how the ALJ had
evaluated Ms. Gentle's work capabilities. The ALJ had overlooked her
uncontroverted testimony that she performed her household tasks with
difficulty.204 The opinion emphasized that the relevant question was
not whether she could care for herself, but whether she could perform
"full-time gainful employment."205 It emphasized that a finding of
disability has more to do with the ability to obtain substantial gainful
employment than with actual health and pointed out the great
differences between the home environment and the labor market.206
Even caring for an infant, a disabled person could find times to sit
down and rest.207 However, a delicatessen worker could not miss a
couple of days a week or take a two hour break every day and remain
employed.208
The court reversed unanimously and remanded for further
proceedings consistent with the opinion.209 Although the court did not
instruct the ALJ to gather additional medical opinions to develop the
record, the lack of information concerning the interaction of Ms.
Gentle's various conditions would seem to mandate further
development, particularly if the ALJ is inclined to deny benefits again
after further consideration.
The decision sends several signals to courts reviewing adverse
decisions in Social Security Disability cases. First, the court is unlikely
to be satisfied that a decision is supported by substantial evidence
202
Id.
Id. at 868-69.
204
Id. at 868.
205
Id.
206
Id.
207
Id. at 867-68.
208
Id. at 867.
209
Id. at 869.
203
380
Volume 1, Issue 1
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simply because an ALJ has listed all the factors she considered when
making her decision, as in Sims v. Barnhart. Merely following the
five-step process and writing up the results will not ensure that a
decision will be upheld. The courts will question more closely whether
the bridge between the evidence and the conclusion is a logical bridge,
making level of deference afforded to the ALJ in Sims less and less
common.
Second, the court will review decisions including an element of
subjective evaluation on the part of the ALJ, such as credibility
determination, or findings on the combined effects of impairments,
against the objective reality of a claimant's likely employability. The
analysis will consider not only whether a person is physically and
mentally capable of performing some low level of work, and whether
there are jobs in the economy fitting that description, but also whether
an employer would be likely to hire a person with the claimant's
specific impairments.
Finally, when an ALJ's otherwise well-supported opinion collides
with the objective reality of employability, courts will continue to ask
the ALJ to investigate further rather than deferring to the ALJ in his
adjudicatory role. The investigation cannot be screened off from
scrutiny by a simple application of procedure.
These trends are a subtle and appropriate adjustment to the
application of the substantial evidence standard. Because disability is
defined by employability rather than health, it is appropriate for
reviewing courts to make these inquiries. The somewhat more
empathetic analysis does not end deference. Extreme deference
undermines the fairness of the system as a whole. Rather, the approach
taken by the Seventh Circuit in Smith, Carradine and Gentle balances
deference to the ALJ in her adjudicatory capacity with the need for
oversight of the investigatory process.
CONCLUSION
Inquiries into whether a determination of non-eligibility for Social
Security Disability Insurance benefits is supported by substantial
evidence are fact-intensive. Because these complex factual patterns
381
Volume 1, Issue 1
Spring 2006
provide ample grounds for distinguishing between cases on the basis
of the facts, they tend to obscure the divide over the interpretation of
the substantial evidence standard in the Seventh Circuit. However, the
contrast in the outcomes in cases such as Sims v. Barnhart and Smith v.
Apfel and the vociferous dissents in both cases illuminate the struggle.
This divide is particularly striking where evaluation of the claim
requires a subjective evaluation of ills suffered by the claimant, or
where physicians have difficulty pinpointing the sources of those
ailments. In these close cases, the degree of deference accorded to the
administrative law judge's decision appears to vary with the guiding
philosophy of the panelists.
In Gentle v. Barnhart, the Seventh Circuit extended the
empathetic strain of interpretation which closely examines the
investigation done by the ALJ, rather than taking a position of extreme
deference toward the ALJ in her adjudicatory role. This is not a radical
departure from existing law, but a shift consistent with the language
and purposes of the Social Security Act. This decision signals that
while the court will not usurp the role of the administrative law judge,
neither will it dilute the substantial evidence standard for the sake of
economy or expediency.
382

Seventh Circuit Review - Chicago-Kent College of Law

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