district of connecticut bench-bar conference

District of Connecticut Bench-Bar Conference

October 26, 2018

8:30 a.m. – 4:30 p.m.

St. Clements Castle

Portland, CT

CT Bar Institute Inc.

CT: 4.75 CLE Credits (3.25 General; 1.5 Ethics) NY: 5.0 CLE Credits (3.5 AOP; 1.5 Ethics)

No representation or warranty is made as to the accuracy of these materials. Readers should check primary sources where appropriate and use the traditional legal research techniques to make sure that the information has not been affected or changed by recent developments.

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Lawyers’ Principles of Professionalism As a lawyer I must strive to make our system of justice work fairly and efficiently. In order to carry out that responsibility, not only will I comply with the letter and spirit of the disciplinary standards applicable to all lawyers, but I will also conduct myself in accordance with the following Principles of Professionalism when dealing with my client, opposing parties, their counsel, the courts and the general public.

Civility and courtesy are the hallmarks of professionalism and should not be equated with weakness; I will endeavor to be courteous and civil, both in oral and in written communications;

I will not knowingly make statements of fact or of law that are untrue;

I will agree to reasonable requests for extensions of time or for waiver of procedural formalities when the legitimate interests of my client will not be adversely affected;

I will refrain from causing unreasonable delays;

I will endeavor to consult with opposing counsel before scheduling depositions and meetings and before rescheduling hearings, and I will cooperate with opposing counsel when scheduling changes are requested;

When scheduled hearings or depositions have to be canceled, I will notify opposing counsel, and if appropriate, the court (or other tribunal) as early as possible;

Before dates for hearings or trials are set, or if that is not feasible, immediately after such dates have been set, I will attempt to verify the availability of key participants and witnesses so that I can promptly notify the court (or other tribunal) and opposing counsel of any likely problem in that regard;

I will refrain from utilizing litigation or any other course of conduct to harass the opposing party;

I will refrain from engaging in excessive and abusive discovery, and I will comply with all reasonable discovery requests;

In depositions and other proceedings, and in negotiations, I will conduct myself with dignity, avoid making groundless objections and refrain from engaging I acts of rudeness or disrespect;

I will not serve motions and pleadings on the other party or counsel at such time or in such manner as will unfairly limit the other party’s opportunity to respond;

In business transactions I will not quarrel over matters of form or style, but will concentrate on matters of substance and content;

I will be a vigorous and zealous advocate on behalf of my client, while recognizing, as an officer of the court, that excessive zeal may be detrimental to my client’s interests as well as to the proper functioning of our system of justice;

While I must consider my client’s decision concerning the objectives of the representation, I nevertheless will counsel my client that a willingness to initiate or engage in settlement discussions is consistent with zealous and effective representation;

Where consistent with my client's interests, I will communicate with opposing counsel in an effort to avoid litigation and to resolve litigation that has actually commenced;

I will withdraw voluntarily claims or defense when it becomes apparent that they do not have merit or are superfluous;

I will not file frivolous motions;

I will make every effort to agree with other counsel, as early as possible, on a voluntary exchange of information and on a plan for discovery;

I will attempt to resolve, by agreement, my objections to matters contained in my opponent's pleadings and discovery requests;

In civil matters, I will stipulate to facts as to which there is no genuine dispute;

I will endeavor to be punctual in attending court hearings, conferences, meetings and depositions;

I will at all times be candid with the court and its personnel;

I will remember that, in addition to commitment to my client's cause, my responsibilities as a lawyer include a devotion to the public good;

I will endeavor to keep myself current in the areas in which I practice and when necessary, will associate with, or refer my client to, counsel knowledgeable in another field of practice;

I will be mindful of the fact that, as a member of a self-regulating profession, it is incumbent on me to report violations by fellow lawyers as required by the Rules of Professional Conduct;

I will be mindful of the need to protect the image of the legal profession in the eyes of the public and will be so guided when considering methods and content of advertising;

I will be mindful that the law is a learned profession and that among its desirable goals are devotion to public service, improvement of administration of justice, and the contribution of uncompensated time and civic influence on behalf of those persons who cannot afford adequate legal assistance;

I will endeavor to ensure that all persons, regardless of race, age, gender, disability, national origin, religion, sexual orientation, color, or creed receive fair and equal treatment under the law, and will always conduct myself in such a way as to promote equality and justice for all.

It is understood that nothing in these Principles shall be deemed to supersede, supplement or in any way amend the Rules of Professional Conduct, alter existing standards of conduct against which lawyer conduct might be judged or become a basis for the imposition of civil liability of any kind.

--Adopted by the Connecticut Bar Association House of Delegates on June 6, 1994

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Table of Contents Agenda ................................................................................................................................................................................... 4

Faculty Biographies .............................................................................................................................................................. 5

Highlights of the Upcoming Supreme Court Term

Archer and White Sales, Inc. v. Henry Schein, Inc. .......................................................................................................... 13

United States of America v. Terance Martez Gamble ....................................................................................................... 22

In re Google Referrer Header Privacy Litigation ............................................................................................................. 24

Dominic Oliveira v. New Prime Inc. ................................................................................................................................. 38

State of Indiana v. Tyson Timbs ........................................................................................................................................ 59

Frank Varela v. Lamp Plus, Inc. ....................................................................................................................................... 66

Financial and Ethical Aspects of Litigation Funding

Miller UK Ltd. V. Caterpillar, Inc. ................................................................................................................................... 69

Immigrant Family Separation Cases: What Were They About and What is the Next Wave of Litigation?

Ms. L. v. U.S. Immigration and Customs Enforcement ..................................................................................................... 97

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District of Connecticut Bench-Bar Conference

October 26, 2018

St. Clements Castle, Portland, Connecticut

AGENDA

8:00 – 8:45 Continental Breakfast and Registration

8:45 – 9:00 Welcome and Introduction – Honorable Victor A. Bolden, Chair of the Conference, and Robert M. Frost and Kristen L. Zaehringer, Federal Practice Section Co-Chairs

9:00 – 9:15 Honorable Stefan R. Underhill, Chief Judge of the United States District Court for the District of Connecticut, speaking on the state of the district

9:15 – 10:45 Panel Discussion – The Supreme Court and Its Docket, Circa 2018-19

A Survey of Cases Scheduled for the 2018-19 Term and Discussion of Recent Confirmations Panelists:

Beth S. Brinkmann, Partner, Covington & Burling LLP, Washington Judith Resnik, Arthur Liman Professor of Law, Yale Law School, New Haven

10:45 – 11:00 Coffee Break

11:00 – 12:30 Panel Discussion – Financial and Ethical Aspects of Litigation Funding Moderator:

Adam S. Mocciolo, Partner, Pullman & Comley LLC, Bridgeport

Panelists: Ken Epstein, Investment Manager & Legal Counsel, Bentham IMF, New York Hon. Allan L. Gropper (Ret.), Adjunct Professor of Law, Fordham University, New York Nicholas F. Kajon, Partner, Stevens & Lee, New York Edward Reilly, Principal, Themis Legal Capital, New York

12:30 – 2:00 Lunch Presentation by the Judges of the District Court of awards for pro bono work and court service Recognition of the Honorable Janet C. Hall for her dedication and service as Chief Judge for the

District of Connecticut (2013-2018)

2:00 – 3:30 Panel Discussion – Immigrant Family Separation Cases: What Were They About and What Is the Next Wave of Litigation?

Moderator: Erin O’Neil-Baker, Principal, Hartford Legal Group

Panelists: Anand Balakrishnan, Staff Attorney, American Civil Liberties Union Immigrants’ Rights Project,

New York Anthony Enriquez, Director, Catholic Charities’ Unaccompanied Minors Program Michael J. Wishnie, William O. Douglas Clinical Professor of Law, Yale Law School, New Haven

3:30 – 4:30 Reception (appetizers and cash bar)

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Faculty Biographies

Anand Balakrishnan is a staff attorney with the New York City office of the American Civil Liberties Union Foundation Immigrants’ Rights Project, where he litigates nationally-visible policy cases on behalf of immigrant clients. He is part of the team representing the plaintiffs in the Ms. L. v. U.S. Immigration and Customs Enforcement matter in the United States District Court for the District of Southern California challenging a federal policy of separating immigrant children from their families at national borders. Mr. Balakrishnan is an alumnus of the Yale Law School, where he previously worked on immigration matters in the university’s Worker and Immigrant Rights Advocacy Clinic. Beth S. Brinkmann is an experienced appellate and Supreme Court litigator who has served in high-level positions in the Department of Justice, most recently as Deputy Assistant Attorney General in the Civil Division. She has argued 24 cases before the Supreme Court of the United States. Ms. Brinkmann also has argued in numerous federal and state appellate courts across the country. As the Civil Division’s top appellate lawyer, she was responsible for supervising much of the federal government’s civil litigation in appellate courts, including constitutional challenges, administrative law issues, intellectual property matters, and national security cases. During her tenure at the DOJ, Ms. Brinkmann presented oral argument in several high-profile court of appeals cases, including the successful defense of the constitutionality of the Affordable Care Act and the government’s victory in federal immigration preemption litigation. She also regularly consulted with trial lawyers for the government on legal arguments and strategy at early phases of litigation, made recommendations on appellate matters to the U.S. Solicitor General, and advised senior leadership of cabinet-level departments and at regulatory agencies regarding litigation risk, legislative proposals, and rulemaking matters. From 1993 to 2001, Ms. Brinkmann served as an Assistant to the Solicitor General in the Department of Justice. In this role, she briefed and argued cases to the Supreme Court on behalf of the United States and also provided advice and analysis on whether to authorize appeals, petitions for certiorari, and petitions for rehearing en banc. Ms. Brinkmann served two years as an Assistant Federal Public Defender, where she represented indigent criminal defendants in federal district court, including approximately a dozen felony jury trials. She also previously handled both trial and appellate litigation in state and federal court at a small boutique litigation firm. Anthony Enriquez is the Director of the Unaccompanied Minors Program at Catholic Charities Community Services in New York City, where each year he oversees and ensures the provision and quality of legal services to thousands of immigrant children who lack the care of a parent or guardian and have been detained by the federal government. In the summer of 2018, he led a team of non-profit organizations and attorneys in the family reunification of hundreds of separated immigrant children who had been placed in New York shelters as a result of the federal government’s zero tolerance policy toward asylum seeking families. In his current role, Anthony also oversees the legal arm of Terra Firma, the nation’s first legal-medical partnership focused on the wellbeing of unaccompanied immigrant youth, a collaboration between Catholic Charities and Montefiore Hospital in the South Bronx. Anthony is a co-creator of the Immigrant Children Advocates Relief Effort

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(ICARE), a coalition of New York City legal service providers that provides free lawyers for young people in New York City facing deportation. In addition to his work with immigrant youth, Anthony clerked for a federal judge and has litigated unlawful immigration detention practices before the federal courts. Prior to his career as a lawyer, Anthony worked in translation, film, and in United Nations advocacy related to peacekeeping missions. Anthony received his JD from New York University School of Law. Ken Epstein is an investment manager and legal counsel at Bentham IMF, responsible for leading the company’s investments in bankruptcy and insolvency-related matters. He serves as a resource for debtors, creditors (including hedge funds, private equity funds and alternative asset managers), bankruptcy estate representatives and other stakeholders seeking to maximize the value of litigation claims. Ken has extensive experience advising and managing debtors-in-possession, individual creditors and creditor groups (ad hoc and OCUC's) and financial institutions in insolvency and bankruptcy-related litigation matters nationally and internationally. He began his career as a lawyer in the financial restructuring group of Cadwalader, Wickersham & Taft. Prior to joining Bentham IMF, he was managing director in the restructuring and remediation group at MBIA, a publicly listed financial institution. Ken taught bankruptcy law as an adjunct professor at Cardozo Law School and has served as a panelist and author on bankruptcy-related topics. He has testified on several occasions before the Michigan House of Representatives, Financial Liability Reform Committee and is certified as an insolvency and restructuring advisor by the AIRA. Ken earned his J.D. from Brooklyn Law School in 2000, where he graduated cum laude after serving on the Journal of Law and Public Policy. He currently serves on the board of Friends of the Children NY, a NY nonprofit, and has other for-profit and non-profit board experience. Allan L. Gropper was appointed as a United States Bankruptcy Judge for the Southern District of New York on October 4, 2000, and retired on January 9, 2015.

Prior thereto he was a member of the law firm of White & Case, initially as a litigator and later as head of the Bankruptcy and Reorganization group. In the latter capacity he represented clients in connection with some of the nation’s largest Chapter 11 cases, including Manville Corporation, Texaco, LTV Corporation, Federated Department Stores/Allied Stores Corp,, Thatcher Glass Corporation, Maxwell Communications Corp., MGM, and United States Lines. He was also active in international and cross-border restructurings and was located in the White & Case Hong Kong office during the year 1999-2000.

Judge Gropper presently serves as a consultant and expert witness in litigated matters and as an arbitrator and mediator. He is an adjunct professor of law at Fordham Law School, a member of the National Bankruptcy Conference and a Fellow of the American College of Bankruptcy. He is a member of the United States delegation to Working Group V (Insolvency Law) of the United Nations Commission on International Trade Law (UNCITRAL). He is also a member of the American Arbitration Association Roster of Neutrals and the INSOL International College of Mediation. He is a graduate of Yale College and Harvard Law School.

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Hon. Janet C. Hall was sworn in as a United States District Judge for the District of Connecticut on October 14, 1997. She received an A.B. degree, magna cum laude, from Mount Holyoke College in 1970 and a Juris Doctor from New York University School of Law in 1973 where she was a Root-Tilden Scholar. In 2007, she received a Doctor of Laws (Hon. Caus.) from Quinnipiac University. From 1980 until her appointment in 1997, Judge Hall was first an Associate, and then named Partner (1982), in the Law Firm of Robinson & Cole in its Hartford office, where she concentrated her practice in Civil Litigation. Prior to 1980, she served in the United States Department of Justice Antitrust Division from 1975-80, except for a period in 1979 as a Special Assistant United States Attorney in the Eastern District of Virginia. After graduation from law school, she was associated with the firm of Hale & Dorr in Boston from 1973-75. Judge Hall served as Chief Judge for the District of Connecticut from September 9, 2013 through August 31, 2018. She also served on the Federal-State Jurisdiction Committee of the Judicial Conference of the United States from 2004 to 2011, including serving 4 years (2007-2011) as Chair. Active in both the Federal Bar Council and the Connecticut Bar Association, Judge Hall served as Chair of the Federal Bar Council from 1995-97. She has also served as Trustee of Mount Holyoke College, and as President of the Alumnae Association of Mount Holyoke College. Judge Hall currently serves as a Director of the Connecticut Bar Foundation. Nicholas F. Kajon is Co-Chair of Stevens & Lee's Bankruptcy and Financial Restructuring Department, Co-Chair of the Litigation Finance and Alternative Funding Group and a Member of the Litigation Group. He has over 30 years of experience advising clients on financial restructuring, corporate governance and commercial litigation matters. Nick primarily represents debtors, hedge funds and trustees. He also regularly represents lenders, buyers of distressed assets, investors, suppliers, directors and executives. His clients have included companies in industries such as retail, apparel, transportation, energy, manufacturing, technology, telecommunications, hospitality and services. Nick also has significant experience representing plaintiffs and defendants in insolvency related litigation including claims involving preferences, fraudulent transfers, breach of fiduciary duty, wrongful redemption, declaration of illegal dividends, equitable subordination, recharacterization and veil-piercing. Nick has negotiated a number of multi-million dollar agreements with litigation funders pertaining to both insolvency and other commercial litigation claims, and has extensive contacts in the litigation finance industry. As a result, he and the lawyers in the Litigation Finance and Alternative Funding team can provide an end-to-end solution for clients seeking to assert litigation claims without committing their own capital. In September 2016, Nick closed a $26.2 million sale to Gerchen Keller Capital, LLC, n/k/a Burford Capital LLC, the largest capital provider in the litigation finance industry, of the right to receive a portion of net recoveries on account of a bankruptcy trustee’s $213 million judgment against The Renco Group, Inc. and Ira L. Rennert, while the judgment was on appeal to the Court of Appeals for the Second Circuit. Nick and his team overcame objections filed by the judgment debtors and certain of the Debtors’ noteholders to both the bidding procedures and the sale itself. Thereafter, Nick and his team were successful in opposing the noteholders’ motion for a stay pending their appeal of the sale order in the District Court for the Southern District of New York. On March 8, 2017, the judgment was affirmed in all respects. In December 2017, the Financial Times recognized this unique transaction with its Innovative Lawyer Award for North America.

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Nick is currently representing various offshore hedge funds in audit malpractice litigation against RSM as successor in interest to McGladrey for claims arising from its failure to detect the Petters Ponzi scheme while serving as auditor to a Petters feeder fund. He is currently defending Legacy Capital Ltd., a Madoff feeder fund, in a fraudulent conveyance case brought by the Madoff trustee. On March 14, 2016, Judge Bernstein issued an opinion granting Nick’s motion to dismiss over $120 million in claims against our client. On behalf of his BVI hedge fund clients, in 2014, Nick brought an action against ABM AMRO Bank as successor in interest to Fortis for negligent misrepresentation in connection with the Madoff Ponzi scheme, and obtained a favorable settlement thereof within three months. Nick led the team that represented shipping company B+H Ocean Carriers Ltd. and its subsidiaries in their Chapter 11 case in the Southern District of New York. Nick negotiated a consensual plan with two banks holding mortgages on the company’s ships and the unsecured creditors’ committee, thereby maximizing value for holders of approximately $50 million in debt. Nick led the team that represented a group of investors (who collectively invested over $90 million through U.S. and Cayman feeder funds) in the Chapter 11 case of the New Stream hedge fund group in Delaware, where a consensual plan was confirmed in April 2012 that provided significant recoveries for the firm’s clients. Nick led the team that represented retailers Friedman’s Inc. and Crescent Jewelers in their Chapter 11 case in Delaware, and oversaw an orderly liquidation of assets that resulted in full payment of secured claims and over $20 million paid on account of unsecured claims. Nick represented bond holders and swap counterparties in the Lehman Brothers case. Nick represented the trustees of Alliance Bancorp (prosecuting claims against lenders to Alt-A mortgage banker) and Magnesium Corporation of America (manufacturer that defaulted on $150 million in bonds). Nick represented Community National Bank in the Chapter 11 case of Creative Group Acquisition Co. in Delaware. Debtor representations have included EAL (Delaware) Inc., an aircraft leasing company with over $500 million in secured debt; Cellular Information Systems, Inc., a public company with over $100 million in bank debt; govWorks, Inc., an e-government dot com company with $60 million in debt that was acquired by First Data Corp.; North American Energy Conservation, Inc., an energy trading company with $70 million in debt; Nathan’s Equity Group, L.P., which controlled Nathan’s Famous, Inc., a restaurant company; and apparel companies such as Biscayne Apparel, Inc. and Masterwear Corporation. His other debtor representations have included companies in the shipping, retail, real estate, service and mining industries. Nick is currently representing senior lender RB International Finance (USA) LLC (“RBI”) in the Chapter 11 case of Ryckman Creek Resources LLC. Nick represented RBI or its affiliates in the Chapter 11 cases of Lehman Brothers, Lyondell, SemCrude, Lenox Group, Bethlehem Steel and Harnischfeger. He has represented parties to license agreements and other executory contracts such as Ford Motor Company in Livent (U.S.) Inc., NFL Films, Inc. in Vestron, Inc. and Compuware Corporation in AG Systems, Inc. Nick also represented creditors in the Dana, Refco and Enron cases. Nick's committee representations have included companies in the technology, biotech, manufacturing and financial services industries. His other creditor representations have included companies in the technology, apparel, retail, manufacturing, transportation, energy, hospitality, financial services and media industries. Nick was a law clerk to the Honorable Tina L. Brozman, Southern District of New York. In law school, he was Articles Editor for the New York Law School Law Review. Nick has served as a lecturer on bankruptcy-related topics for the Association for Corporate Growth and the Practicing Law Institute. He regularly writes on issues affecting bankruptcy practice. His articles have been published by the Commercial Law League of America, Bankruptcy Law360, Mondaq and others. He is a past Chair of the Editorial Advisory Board of the Turnaround Management Association's Journal of Corporate Renewal. Nick has been recognized as a New York Metro Super Lawyer in 2011 and 2013 through 2018 by being selected by his peers as among the top 5 percent of lawyers in the New York City metro area.

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Adam S. Mocciolo provides “business-first” counseling and advocacy to clients in sophisticated, multinational employment matters including advice on hiring, termination, compliance, and human resources policies; litigation in multiple federal- and state-court jurisdictions; internal investigations; business immigration; and cross-border employment law issues. He also works in related cross-disciplinary legal matters with employment-law and HR implications, including intellectual property, data privacy, and corporate transactions. Adam represents clients in financial services, technology, e-commerce, telecommunications, medical and biotechnology, manufacturing, and professional services industries, among others. He has served in leadership capacities in national, state, and local bar association, has been named a “New Leader in the Law” by the Connecticut Law Tribune and a “Connecticut Super Lawyer in employment law, and he holds the highest peer-review rating – “AV Preeminent” – from Martindale Hubbell. Prior to entering the practice of law, Adam served on the professional staff of the United States Senate. Attorney Erin O’Neil-Baker is the founder and partner of Hartford Legal Group, LLC, a law firm in Hartford, Connecticut, established in 2005, that focuses primarily on representing individuals with their immigration and naturalization needs. Her representation extends to representing clients in Immigration Court proceedings, U.S.C.I.S. adjudications, U.S. District Court actions, Fifth and Second Circuit Appeals and Board of Immigration Appeals proceedings. She has defended and challenged the deportation of high-profile clients and has been a invited speaker and clinic and forum participant for immigrant rights and community groups such as the Women and Girl Fund, Unidad Latina, CT For Dreamers, Middlesex Immigrant Rights Alliance, ACLU People Power-New Britain, Wethersfield Women for Progress, Hartford Deportation Defense, and local Hartford, Meriden, Norwich, Newington, Manchester, Wethersfield and Willimantic area churches and public schools. She is also the President of her town library’s Board of Directors. Attorney O’Neil-Baker was admitted to the Connecticut Bar in 2000, to the U.S. District Court, District of Connecticut, in 2001, to the U.S. Court of Appeals for the Second Circuit in 2010 and Fifth Circuit in 2014. She is a member of the Connecticut Bar Association, American Immigration Law Association, Connecticut Chapter of American Immigration Law Association, Women in Law Section of the CBA, media liaison and co-chair of the Rapid Raid Response team for CT AILA. Before co-founding Themis Legal Capital, Edward A. Reilly, Jr. was a corporate partner with several international law firms, including Goodwin Procter; Morgan Lewis & Bokius and LeBoeuf, Lamb, Greene & McRae. Over the course of his career, he represented corporations and financial sponsors including prominent venture capital, mezzanine, private equity and hedge funds for more than 30 years.

Ed routinely acted as his clients’ de facto general counsel and advised them on a broad spectrum of issues ranging from the prosecution, defense and resolution of litigation and pre-litigation disputes to the structuring and closing of innovative financial transactions. During his tenure in private practice, Ed enjoyed leadership roles including rotations as a managing partner of a growing regional office, a member of a firm-wide administrative committee and the head of a firm’s international private equity initiative.

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Since 2012 Ed has immersed himself in the Claim Based Funding business developing a sourcing network, collaborating on case evaluation and transaction structuring with established and emerging fund managers and contributing to academic efforts to promote best practices in the field.

Ed is admitted to the bar in New York, Connecticut and the District of Columbia. He is a graduate of the University of Notre Dame and the Columbia University School of Law.

Judith Resnik is the Arthur Liman Professor of Law at Yale Law School, where she teaches about federalism, procedure, courts, prisons, equality, and citizenship. Her scholarship focuses on the impact of democracy on government services, from courts and prisons to post offices, on the relationships of states to citizens and non-citizens, on the forms and norms of federalism, and on equality and gender.

Professor Resnik's books include Representing Justice: Invention, Controversy, and Rights in City-States and Democratic Courtrooms (with Dennis Curtis, Yale University Press, 2011); Federal Courts Stories (co-edited with Vicki C. Jackson, Foundation Press, 2010); and Migrations and Mobilities: Citizenship, Borders, and Gender (co-edited with Seyla Benhabib, NYU, 2009). In 2014, Resnik was the co-editor (with Linda Greenhouse) of the Daedalus volume, The Invention of Courts. Recent book chapters and articles include Accommodations, Discounts, and Displacement: The Variability of Rights as a Norm of Federalism(s) (Jus Politicum, 2017); Bordering by Law: The Migration of Law, Crimes, Sovereignty, and the Mail, in Nomos LVII: Immigration, Emigration, and Migration (2017); Revising Our “Common Intellectual Heritage” (Notre Dame Law Review, 2016); Constructing the “Foreign:” American Law’s Relationship to Non-Domestic Sources, in Courts and Comparative Law (2015); and Diffusing Disputes: The Public in the Private of Arbitration, the Private in Courts, and the Erasure of Rights (Yale Law Journal, 2015).

Professor Resnik now chairs Yale Law School’s Global Constitutional Law Seminar, a part of the Gruber Program on Global Justice andWomen’s Rights. She is the editor of the volumes, published as e-books, from 2012 forward, including Reconstituting Constitutional Orders (2017), and The Reach of Rights (2015).

Professor Resnik is the founding director of Yale's Arthur Liman Center for Public Interest Law, supporting fellowships for law graduates and summer fellowships for students at Barnard, Brown, Bryn Mawr, Harvard, Princeton, Spelman, Stanford, and Yale. The Liman Center sponsors colloquia and seminars on the civil and criminal justice systems. From its inception in 1997 through 2018, 133 graduates of the Yale Law School have held Liman Fellowships.

During the past few years, the Liman Center has worked on projects related to incarceration and the challenges of the justice system for individuals with limited resources. The Liman Center has joined with the Association of State Correctional Administrators (ASCA) to do a series of reports on solitary confinement, in which prisoners are held for 22 hours or more in their cells, for 15 days or longer. In 2013, ASCA and Liman documented the rules governing isolation and showed how easy it was to be sent to segregation. In 2015, ASCA and the Liman Center co-authored Time-in-Cell: The ASCA-Liman 2014 National Survey of Administrative Segregation in Prison. The report was the first to provide updated information, as of the fall of 2014, on both the numbers of people (80,000 to 100,000) and the conditions in solitary confinement nationwide. In 2016, Liman and ASCA coauthored Aiming to Reduce Time-In-Cell: Reports from Correctional Systems on the Numbers of Prisoners in Restricted Housing and on the Potential of Policy Changes to Bring About Reforms. Like the prior report, this monograph provides the only current, comprehensive data on the use of isolation—on the 66,000 or more in segregation, some 6,000 people were held under such conditions for more than three years. The report also documents efforts across the country to reduce the number of people so confined and to reform the conditions, so as to limit the degree of deprivation and to improve safety for prisoners, staff, and

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communities at large. A 2018 report, Reforming Restrictive Housing, will be available in the fall of 2018. The Liman Center has also produced a volume, Who Pays? Fines, Fees, Bail, and the Cost of Courts, which examines the economic challenges that courts and their users experience, the constitutional law framing obligations to provide access to justice, the litigation challenging “court debt,” and the efforts of judiciaries to change their use of fees and fines.

Professor Resnik has chaired the Sections on Procedure, on Federal Courts, and on Women in Legal Education of the American Association of Law Schools. She is a Managerial Trustee of the International Association of Women Judges. Professor Resnik served as a founder and, for more than a decade, as a co-chair of Yale University’s Women Faculty Forum, begun in 2001.

Professor Resnik is also an occasional litigator; she argued Mohawk Industries, Inc. v. Carpenter, decided in 2009 by the United States Supreme Court; and the decision, decades earlier, about admission of women to the Rotary Club, and she also has provided amici filings to the Court in areas related to her expertise. Professor Resnik has testified before Congress, before rulemaking committees of the federal judiciary, and before the House of Commons of Canada.

From 2014 to 2016, Professor Resnik was a Phi Beta Kappa Visiting Scholar, travelling to various liberal arts colleges in the United States. In 2015, she was a visiting professor at Université Panthéon-Assas Paris II. In 2018, she received an honorary doctorate from the University College London. She also received an Andrew Carnegie Fellowship, a two-year award to enable her to complete her research and write her book, The Impermissible in Punishment.

In 1998, Professor Resnik was the recipient of the Margaret Brent Women Lawyers of Achievement Award from the Commission on Women of the American Bar Association. In 2001, she was elected a fellow of the American Academy of Arts and Sciences, and in 2002, a member of the American Philosophical Society, where she delivered the Henry LaBarre Jayne Lecture in 2005. In 2008, Professor Resnik received the Outstanding Scholar of the Year Award from the Fellows of the American Bar Foundation. In 2010, she was named a recipient of the Elizabeth Hurlock Beckman Prize, awarded to outstanding faculty in higher education in the fields of psychology or law. That year, Professor Resnik also had a cameo role in the Doug Liman film, Fair Game. In 2013, Professor Resnik was given the Arabella Babb Mansfield Award, the highest honor presented by the National Association of Women Lawyers. In 2017, she was honored by former Liman fellows with the establishment of the Resnik-Curtis Fellowship in Public Interest Law. Hon. Stefan R. Underhill was appointed United States District Judge for the District of Connecticut on July 7, 1999 and was sworn in on September 1, 1999. He has served as Chief Judge of the District since September 1, 2018. Judge Underhill graduated from the University of Virginia in 1978 with a Bachelor of Arts in Interdisciplinary Studies. In 1981, he received a second Bachelor of Arts in Philosophy, Politics and Economics from Oxford University, which he attended on a Rhodes Scholarship. In 1984, he received his law degree from Yale Law School. At Yale, Judge Underhill served as Articles and Book Reviews Editor of the Yale Law Journal. Following his graduation from law school, Judge Underhill clerked for Judge Jon O. Newman of the Second Circuit Court of Appeals. Thereafter, he joined Day, Berry & Howard LLP as an associate, resident in the firm’s Stamford, Connecticut office. In 1991, Judge Underhill became a partner of that firm, where he spent the remainder of his career as a lawyer. In private practice, Judge Underhill handled a wide variety of Commercial Litigation, concentrating in Insurance Coverage, Intellectual Property, and Appellate Practice.

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Judge Underhill has long been active in the Federal Bar Council and the Federal Practice Section of the Connecticut Bar Association. He served for several years on the Board of Directors of Connecticut Legal Services. Judge Underhill presently serves on the Board of Directors of the Federal Judges Association. Michael J. Wishnie is William O. Douglas Clinical Professor of Law and Counselor to the Dean at Yale Law School. Professor Wishnie’s teaching, scholarship, and law practice have focused on immigration, labor and employment, habeas corpus, civil rights, government transparency, and veterans law. For years, Professor Wishnie and his students have represented low-wage workers, immigrants, and veterans in federal, state, and administrative litigation. He and his students have also represented unions, churches, veterans’ groups, and grassroots organizations in a range of legislative, media, and community education matters. Professor Wishnie's recent publications include “A Boy Gets Into Trouble”: Service Members, Civil Rights, and Veterans’ Law Exceptionalism, 97 B.U. L. Rev. ___ (forthcoming 2017); Asking for Directions: The Case for Federal Courts To Use Certification Across Borders, 125 Yale L.J. F. 156 (2015) (with Oona A. Hathaway); Forty Years of First-Year Students Representing Clients at Yale, in E. Capulong, M. Millemann, S. Rankin & N. Ruan, eds., THE NEW1L: FIRST-YEAR LAWYERING WITH CLIENTS (Carolina Press: 2015); and Immigration Law and the Proportionality Requirement, 2 U.C. IRV. L. REV. 415 (2012). From 1998-2006, Professor Wishnie taught at New York University School of Law. Previously, he worked at the American Civil Liberties Union Immigrants’ Rights Project as a Skadden Fellow; in the Brooklyn Neighborhood Office of The Legal Aid Society; as a law clerk to Judge H. Lee Sarokin of the District Court of New Jersey and U.S. Court of Appeals for the Third Circuit; and as a clerk for Justice Harry A. Blackmun, retired, working in the chambers of Associate Justice Stephen G. Breyer of the Supreme Court of the United States. Before earning his J.D. from Yale Law School in 1993, Professor Wishnie spent two years teaching in the People’s Republic of China.

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878 F.3d 488 (5th Cir. 2017), 16-41674, Archer and White Sales, Inc. v. Henry Schein, Inc. /**/

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878 F.3d 488 (5th Cir. 2017)

ARCHER AND WHITE SALES, INC., Plaintiff-Appellee

v.

HENRY SCHEIN, INC., Danaher Corporation, Instrumentarium Dental Inc., Dental Equipment

LLC, Kavo Dental Technologies LLC, and Dental Imaging Technologies Corporation,

Defendants-Appellants

No. 16-41674

United States Court of Appeals, Fifth Circuit

December 21, 2017

Page 489

[Copyrighted Material Omitted]

Page 490

Appeals from the United States District Court for the Eastern District of Texas

Lewis T. LeClair, McKool Smith, P.C., Dallas, TX, for Plaintiff-Appellee.

Christopher E. Ondeck, Esq., Stephen R. Chuk, Adrian Fontecilla, Proskauer, Washington,

DC, Paul Featherstone Schuster, Esq., Cynthia Keely Timms, Esq., Locke Lord, L.L.P., Dallas,

TX, for Defendant-Appellant Henry Schein, Inc.

Jonathan Bradley Pitt, Esq., Liam James Montgomery, Williams & Connolly, L.L.P.,

Washington, DC, Brett Christopher Govett, Esq., Layne E. Kruse, Norton Rose Fulbright US,

L.L.P., Dallas, TX, Paul Featherstone Schuster, Esq., Cynthia Keely Timms, Esq., Locke Lord,

L.L.P., Dallas, TX, for Defendants-Appellants Danaher Corporation, Instrumentarium Dental Inc.,

Dental Equipment LLC, Kavo Dental Technologies LLC and Dental Imaging Technologies

Corporation.

Before HIGGINBOTHAM, GRAVES, and HIGGINSON, Circuit Judges.

OPINION

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Sued by a competitor for antitrust violations, Defendants-Appellants sought to enforce an

arbitration agreement. The magistrate judge granted the motion to compel arbitration, holding that

the gateway question of the arbitrability of the claims belonged to an arbitrator. The district court

reversed, holding it had the authority to rule on the question of arbitrability and

Page 491

the claims at issue were not arbitrable. We now affirm.

I.

Five years ago, Plaintiff-Appellee Archer and White Sales, Inc. (" Archer" ), a distributor,

seller, and servicer for multiple dental equipment manufacturers, brought this suit against

Defendant-Appellants Henry Schein, Inc. and Danaher Corporation, allegedly the largest

distributor and manufacturer of dental equipment in the United States, and certain wholly-owned

subsidiaries of Danaher.

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The suit alleges violations of Section 1 of the Sherman Antitrust Act and the Texas Free

Enterprise and Antitrust Act, contending that the Defendants' activities occurred over the

preceding four years and are " continuing" violations, and seeking both damages (" estimated to

be in the tens of millions of dollars" ) and injunctive relief.[1] The district court referred the case to

a United States Magistrate Judge.

Defendants moved to compel arbitration pursuant to a clause in a contract between Archer

and Pelton & Crane, allegedly a Defendant's predecessor-in-interest (the " Dealer Agreement" ).

The arbitration clause reads as follows:

Disputes. This Agreement shall be governed by the laws of the State of North Carolina. Any

dispute arising under or related to this Agreement (except for actions seeking injunctive relief and

disputes related to trademarks, trade secrets, or other intellectual property of Pelton & Crane),

shall be resolved by binding arbitration in accordance with the arbitration rules of the American

Arbitration Association [ (AAA) ]. The place of arbitration shall be in Charlotte, North Carolina.

Following a hearing, the magistrate judge issued a Memorandum Order holding that: (1) the

incorporation of the AAA Rules in the arbitration clause clearly evinced an intent to have the

arbitrator decide questions of arbitrability; (2) there is a reasonable construction of the arbitration

clause that would call for arbitration in this dispute; and (3) the Grigson equitable estoppel test,

which both sides agree is controlling in their dispute, required arbitration against both signatories

and non-signatories to the Dealer Agreement.[2]

The district court vacated the magistrate judge's order and held that the court could decide

the question of arbitrability, and that the dispute was not arbitrable because the plain language of

the arbitration clause expressly excluded suits that involved requests for injunctive relief. The court

declined to reach the question of equitable estoppel.[3]

Defendants appealed.[4]

Page 492

II.

We review a ruling on a motion to compel arbitration de novo .[5] " Enforcement of an

arbitration agreement involves two analytical steps." [6] First, a court must decide " whether the

parties entered into any arbitration agreement at all ." [7] This inquiry is one of pure contract

formation, and it looks only at whether the parties " form[ed] a valid agreement to arbitrate some

set of claims." [8] The next step is to determine " whether [the dispute at issue] is covered by the

arbitration agreement." [9] Before this step, however, the court must answer a third question: " [w ]

ho should have the primary power to decide ' whether the claim is arbitrable." [10] This question

turns on " whether the agreement contains a valid delegation clause— ‘ that is, if it evinces an

intent to have the arbitrator decide whether a given claim must be arbitrated.' " [11]

This determination begins the two-step inquiry adopted in Douglas v. Regions Bank .[12]

First, whether the parties " clearly and unmistakably" intended to delegate the question of

arbitrability to an arbitrator.[13] If so, " the motion to compel arbitration should be granted in almost

all cases." [14] But not " [i]f the argument that the claim at hand is within the scope of the

arbitration agreement is ‘ wholly groundless.' " [15] So Douglas ‘ s second step asks whether there

is a plausible argument for the arbitrability of the dispute. Where there is no such plausible

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argument, " the district court may decide the ‘ gateway' issue of arbitrability despite a valid

delegation clause.' " [16]

The parties agree that the Dealer Agreement contained an arbitration provision, though not

whether the arbitration provision applies here.[17] Specifically, they disagree on whether the court

or an arbitrator should decide the gateway question

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of arbitrability— and relatedly, whether the underlying dispute is arbitrable at all. We turn to the

two-step Douglas test.

A.

We first ask if the parties " clearly and unmistakably" delegated the issue of arbitrability.[18]

Absent a delegation, " the question of whether the parties agreed to arbitrate is to be decided by

the court, not the arbitrator." [19] " Just as the arbitrability of the merits of a dispute depends upon

whether the parties agreed to arbitrate that dispute, so the question ‘ who has the primary power

to decide arbitrability' turns upon what the parties agreed about that matter.' " [20]

A contract need not contain an express delegation clause to meet this standard. An

arbitration agreement that expressly incorporates the AAA Rules " presents clear and

unmistakable evidence that the parties agreed to arbitrate arbitrability." [21] Under AAA Rule 7(a),

" the arbitrator shall have the power to rule on his or her own jurisdiction, including any objections

with respect to the existence, scope or validity of the arbitration agreement." [22]

By the Dealer Agreement, " [a]ny dispute arising under or related to this Agreement (except

for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other

intellectual property of [the predecessor] ), shall be resolved by binding arbitration in accordance

with the arbitration rules of the American Arbitration Association ." The parties dispute the

relationship between the carve-out clause— " except for actions seeking injunctive relief and

[intellectual property] disputes" — and the incorporation of the AAA Rules.

The magistrate judge saw three separate parts to the arbitration provision: (1) a general rule

compelling arbitration for any dispute related to the agreement, (2) an exemption from arbitration

for actions seeking injunctive relief, and (3) a clause incorporating the AAA Rules.[23] On this

reading, the AAA Rules would apply to all disputes arising under the contract, including those

eventually found to fall within the Dealer Agreement's carve-out. The district court disagreed,

holding that the carve-out clause removed the disputes from the ambit of both arbitration and the

AAA Rules. The district court distinguished Petrofac, where the agreement at issue " did not

contain any exclusions[; ] [r]ather, it was a standard broad arbitration clause." [24]

Defendants argue that Petrofac controls; that, by holding otherwise, the district court

conflated the issue of whether the dispute is arbitrable with the issue of who

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decides arbitrability; and that, under the plain language of the clause, disputes about arbitrability

do not fall within the carve-out and thus belong to the arbitrator. This court has previously applied

Petrofac to arbitration provisions containing carve-out provisions. In Crawford, we examined an

agreement that incorporated the AAA Rules and preserved the parties' ability to seek injunctive

relief in the courts.[25] We held— without directly addressing the relevance of its carve-out

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provision— that the Crawford agreement's incorporation of the AAA Rules constituted " clear and

unmistakable evidence that the parties to the [ ] Agreement agreed to arbitrate arbitrability, and so

... whether the Plaintiffs' claims are subject to arbitration must be decided in the first instance by

the arbitrator, not a court." [26]

Archer responds that the agreement in Petrofac did not include a carve-out provision, and

the Crawford agreement is distinguishable because it contained separate clauses incorporating

the AAA Rules and creating a carve-out excluding claims for injunctive relief— specifically, the

agreement stated that the AAA Rules would apply to " [a]ny and all disputes in connection with or

arising out of the Provider Agreement," and contained a carve-out in a subsequent sentence

stating that nothing in the agreement would prevent a suit seeking injunctive relief in a court of law.[27]

Archer argues that, in contrast, the structure of the specific carve-out at issue here leads to

the natural reading that the AAA Rules only apply to the category of cases that are subject to

binding arbitration under the Dealer Agreement— namely, those outside of the contract's express

carve-out. Archer further notes that Defendants' predecessor-in-interest drafted the Dealer

Agreement, and that North Carolina law requires that " [p]ursuant to well [ ]settled contract law

principles, the language of [an] arbitration clause should be strictly construed against the drafter of

the clause." [28]

There is a strong argument that the Dealer Agreement's invocation of the AAA Rules does

not apply to cases that fall within the carve-out. It is not the case that any mention in the parties'

contract of the AAA Rules trumps all other contract language. Here, the interaction between the

AAA Rules and the carve-out is at best

Page 495

ambiguous. On one reading, the Rules apply to " [a]ny dispute arising under or related to [the]

Agreement." On another, the provision expressly exempts certain disputes and the Rules apply

only to the remaining disputes. We need not decide which reading to adopt here because Douglas

provides us with another avenue to resolve this issue: the " wholly groundless" inquiry.

B.

Regardless of whether an agreement clearly and unmistakably delegates the question of

arbitrability, the second step in Douglas provides a narrow escape valve. If an " assertion of

arbitrability [is] wholly groundless," the court need not submit the issue of arbitrability to the

arbitrator.[29]

We have cautioned that the " wholly groundless" exception is a narrow one and that it " is

not a license for the court to prejudge arbitrability disputes more properly left to the arbitrator

pursuant to a valid delegation clause." [30] " An assertion of arbitrability is not ‘ wholly groundless'

if ‘ there is a legitimate argument that th[e] arbitration clause covers the present dispute, and, on

the other hand, that it does not.' " [31] If a court can find " a ‘ plausible' argument that the

arbitration agreement requires the merits of the claim to be arbitrated," the wholly groundless

exception will not apply.[32]

The magistrate judge issued his order before Douglas, and therefore he did not address the

" wholly groundless" exception directly. Instead, he found that while " [o]n the most superficial

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level, this lawsuit is clearly an action seeking injunctive relief since it does seek that relief," there

was also " a plausible construction [of the Dealer Agreement] calling for arbitration." [33] Thus, he

concluded that " the question of whether the exception for actions seeking injunctive relief should

be limited to actions for an injunction in aid of arbitration or to enforce an arbitrator's award should

properly be left for the arbitrator to decide." [34]

The district court, now with Douglas at hand, found the Defendants' arguments for

arbitrability wholly groundless. The court first stated that the wholly groundless inquiry "

necessarily requires the courts to examine and, to a limited extent, construe the underlying

agreement." [35] It then noted that the Dealer Agreement's carve-out language " differs from the

standard arbitration clause suggested by [AAA]," [36] and found that " the phrase ‘ except actions

seeking injunctive relief' is clear on its

Page 496

face— any action seeking injunctive relief is excluded from mandatory arbitration." [37] Thus, the

provision's plain language includes all actions seeking injunctive relief, not a more limited category

of cases. The court declined to " re-write the terms of the Parties' agreement to accommodate a

party— notably the party that drafted the agreement— that could have negotiated for more precise

language," [38] and held that the arguments for arbitrability were " wholly without merit based on

the plain language of the arbitration clause itself" and fell squarely within the Douglas exception.[39]

Defendants suggest a limited reading of the " wholly groundless" exception that would only

apply when the contract containing the arbitration provision has " nothing to do with" the dispute

before the court.[40] In Douglas, the plaintiff had signed an agreement with an arbitration provision

when she opened a checking account with Regions Bank that closed less than one year later.

Years later, the plaintiff was involved in an automobile accident, and she received a $500,000

settlement in subsequent litigation. She then alleged that her attorney, who banked with Regions,

had embezzled that money, and she brought suit against the bank for negligence and conversion

on the theory that the bank had notice of the embezzlement and failed to report it. Regions moved

to compel arbitration pursuant to the agreement that the plaintiff signed when she opened the

now-closed checking account. This court held that " [t]he mere existence of a delegation provision

in the checking account's arbitration agreement ... cannot possibly bind [the plaintiff] to arbitrate

gateway questions of arbitrability in all future disputes with the other party, no matter their origin."[41]

Defendants argue that applying the " wholly groundless" exception here would allow the

court to construe the bounds of an arbitration clause before an arbitrator can do so— effectively

obviating the entire purpose of delegating the gateway question to the arbitrator in the first place;

that their arbitrability arguments are not wholly groundless, pointing to the magistrate judge's

finding of plausible readings of the arbitration clause that would not exclude the suit from

arbitration; and that doubts about the arbitrability of a claim should be resolved in favor of

arbitration, pursuant to settled federal law.

Defendants urge that " [t]he correct reading of this arbitration clause is that the parties may

come to court seeking injunctive relief at any time ... but still must arbitrate any claim for

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damages." Defendants further urge the court should send the damages clause to arbitration, even

if it results in " piecemeal litigation." In their view, " [t]he correct reading of this arbitration clause is

that the parties may come to court seeking injunctive relief at

Page 497

any time ... but still must arbitrate any claim for damages."

Archer counters that the plain language of the clause makes clear that the parties did not

agree to arbitrate actions that involve a request for injunctive relief, and that any argument to the

contrary is wholly groundless. Archer emphasizes that arbitration agreements are " as enforceable

as other contracts, but not more so," [42] and states that under North Carolina law, " when the

terms of a contract are plain and unambiguous, there is no room for construction. The contract is

to be interpreted as written and enforced as the parties have made it." [43] Archer says the Dealer

Agreement clearly contemplates two categories of disputes— those involving " actions seeking

injunctive relief" and certain intellectual property disputes, and all other disputes— and that only

the latter category must be subject to arbitration. Archer contends that the clause's incorporation

of " action" prohibits any piecemeal litigation because " action," as distinct from " claim," pertains

to all of the claims in a given case.[44]

While Douglas is a recent case, with contours of the " wholly groundless" exception not yet

fully developed, if the doctrine is to have any teeth, it must apply where, as here, an arbitration

clause expressly excludes certain types of disputes. The arbitration clause creates a carve-out for

" actions seeking injunctive relief." It does not limit the exclusion to " actions seeking only

injunctive relief," nor " actions for injunction in aid of an arbitrator's award." Nor does it limit itself to

only claims for injunctive relief. Such readings find no footing within the four corners of the

contract. " When the language of a contract is clear and unambiguous, effect must be given to its

terms, and the court, under the guise of construction, cannot reject what the parties inserted or

insert what the parties elected to omit." [45] We see no plausible argument that the arbitration

clause applies here to an " action seeking injunctive relief." The mere fact that the arbitration

clause allows Archer to avoid arbitration by adding a claim for injunctive relief does not change the

clause's plain meaning. " While ambiguities in the language of the agreement should be resolved

in favor of arbitration, we do not override the clear intent of the parties, or reach a result

inconsistent with the plain text of the contract, simply because the policy favoring arbitration is

implicated." [46]

III.

Defendants argue in the alternative that, even if the district court was correct to decide the

issue of arbitrability, it erred in determining that the complaint was not subject to the arbitration

clause. Because we find that Defendants' arguments for arbitrability are wholly groundless, we

affirm the district court's holding that the claims are not arbitrable. Having concluded that this

action is not subject to mandatory arbitration, we need not reach the

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question of whether the third parties to the arbitration clause in this case can enforce such an

arbitration clause.

We affirm the district court's order denying the motions to compel arbitration.

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Notes: [1] Archer alleges that Defendants conspired " to fix prices and refuse to compete with each other"

and to " force their common supplier Danaher and its various subsidiaries to terminate and/or

reduce the distribution territory of their price-cutting distributor Archer Dental." It also alleges that

the Defendants " carried out their conspiracy through a series of unlawful activities, including, but

not limited to agreements not to compete, agreements to fix prices, and boycotts." [2] Archer & White Sales, Inc. v. Henry Schein, Inc., No. 2:12-cv-572-JRG-RSP, 2013 WL

12155243 (E.D. Tex. May 28, 2013), vacated, 2016 WL 7157421 (E.D. Tex. Dec. 7, 2016). [3] Archer & White Sales, Inc. v. Henry Schein, Inc., No. 2:12-cv-572-JRG, 2016 WL 7157421, at

*9 (E.D. Tex. Dec. 7, 2016). [4] Defendants filed an interlocutory appeal pursuant to 9 U.S.C. § 16(a)(1)(C). See Al Rushaid v.

Nat'l Oilwell Varco, Inc., 757 F.3d 416, 419 (5th Cir. 2014) (" Title 9 U.S.C. section 16(a)(1)(C)

provides that a party may seek interlocutory review of an order ... denying an application ... to

compel arbitration." ) (internal quotation marks omitted). [5] Kubala v. Supreme Prod. Servs., Inc., 830 F.3d 199, 201 (5th Cir. 2016) (citing Carey v. 24

Hour Fitness, USA, Inc., 669 F.3d 202, 205 (5th Cir. 2012)). [6] Kubala, 830 F.3d at 201 (5th Cir. 2016). [7] Id. [8] IQ Prods. Co. v. WD-40 Co., 871 F.3d 344, 348 (5th Cir. 2017). [9] Kubala, 830 F.3d at 201. [10] Id. at 202 (quoting First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 942, 115 S.Ct. 1920,

131 L.Ed.2d 985 (1995)). [11] IQ Prods., 871 F.3d at 348 (quoting Kubala, 830 F.3d at 202). [12] 757 F.3d 460, 464 (5th Cir. 2014). [13] " [C]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘

clea[r] and unmistakabl[e]' evidence that they did so." First Options, 514 U.S. at 944, 115 S.Ct.

1920 (citing AT&T Technologies, Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649, 106 S.Ct.

1415, 89 L.Ed.2d 648 (1986)). [14] Kubala, 830 F.3d at 202. [15] Douglas, 757 F.3d at 464. [16] IQ Prods., 871 F.3d at 349. [17] Archer states that, because the Dealer Agreement " unambiguously divides disputes into two

categories" — those within the carve-out and all other disputes— there is no valid agreement to

arbitrate. This argument misconstrues the very first analytical step in enforcement of an arbitration

agreement, which asks " whether the parties entered into any arbitration agreement at all ." Archer

does not appear to argue that there was no arbitration agreement regarding claims outside the

scope of the carve-out. Instead, Archer contends that the Dealer Agreement is " best construed to

express the parties' intent not to arbitrate this action seeking injunctive relief." Thus, we treat

Archer's arguments to this effect as going to whether the parties agreed to arbitrate this particular

dispute.

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[18] AT&T, 475 U.S. at 649, 106 S.Ct. 1415. [19] Id. [20] First Options, 514 U.S. at 943, 115 S.Ct. 1920 (internal citations omitted). See also Rent-A-

Center, W., Inc. v. Jackson, 561 U.S. 63, 68-69, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010) (holding

that parties may delegate arbitrability through an express delegation clause). [21] Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671, 675 (5th Cir. 2012). [22] This version of Rule 7(a) was in effect when the parties signed their agreement. AM.

ARBITRATION ASS'N, COMMERCIAL ARBITRATION RULES AND MEDIATION PROCEDURES

(2007), https://www.adr.org/sites/default/files/Commercial% 20Arbitration% 20Rules% 20and%

20Mediation% 20Procedures% 20Sept.% 201% 2C% 202007.pdf. [23] Archer, 2013 WL 12155243 at *1. [24] Archer, 2016 WL 7157421, at *7. [25] Crawford Prof'l Drugs, Inc. v. CVS Caremark Corp., 748 F.3d 249, 256 (5th Cir. 2014). In that

case, the Provider Agreement read, in relevant part:

Any and all disputes in connection with or arising out of the Provider Agreement by the parties will

be exclusively settled by arbitration before a single arbitrator in accordance with the Rules of the

American Arbitration Association. The arbitrator must follow the rule of Law, and may only award

remedies provided for in the Provider Agreement.... Arbitration shall be the exclusive and final

remedy for any dispute between the parties in connection with or arising out of the Provider

Agreement; provided, however, that nothing in this provision shall prevent either party from

seeking injunctive relief for breach of this Provider Agreement in any state or federal court of law

....

Id. [26] Id. at 263. Defendants also point to Oracle, where the Ninth Circuit addressed an arbitration

clause that adopted the UNCITRAL Rules (which also delegate arbitrability issues to the arbitrator)

and a carve-out for certain types of claims. The court rejected the argument that the carve-out

provision bore on the question of arbitrability, stating that such an argument " conflates the scope

of the arbitration clause ... with the question of who decides arbitrability." Oracle Am., Inc. v.

Myriad Group A.G., 724 F.3d 1069, 1072-76 (9th Cir. 2013). [27] Crawford, 748 F.3d at 256. [28] T.M.C.S., Inc. v. Marco Contractors, Inc., __ N.C.App. __, 780 S.E.2d 588, 597 (2015). [29] Douglas, 757 F.3d at 463 (quoting Agere Systems, Inc. v. Samsung Elecs. Co., 560 F.3d 337,

340 (5th Cir. 2009)). [30] Kubala, 830 F.3d at 202 n.1. [31] IQ Prods., 871 F.3d at 350 (quoting Douglas, 757 F.3d at 463). [32] Kubala, 830 F.3d at 202 n.1. [33] Archer, 2013 WL 12155243, at *1-2. [34] Id. at *2. [35] Archer, 2016 WL 7157421, at *8 (quoting Douglas, 757 F.3d at 463) (internal quotation marks

omitted). This limited inquiry allows the parties to avoid jumping through hoops to begin arbitration

only to be sent directly back to the courthouse. See Douglas, 757 F.3d at 464 (" When [plaintiff]

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signed the arbitration agreement containing a delegation provision, did she intend to go through

the rigmaroles of arbitration just so the arbitrator can tell her in the first instance that her claim has

nothing whatsoever to do with her arbitration agreement, and she should now feel free to file in

federal court? Obviously not." ). [36] The district court claimed that " [s]uch an intentional drafting effort" deserves notice. Archer,

2016 WL 7157421, at *5. [37] Id. [38] Id. at *6. [39] Archer, 2016 WL 7157421, at *9. The district court also rejected arguments from Defendants

that Archer failed to " plead" a claim for injunctive relief based on the fact that Archer had not

made any showing on the factors articulated by the Supreme Court in eBay Inc. v. MercExchange,

L.L.C., 547 U.S. 388, 394, 126 S.Ct. 1837, 164 L.Ed.2d 641 (2006). The court held first that the

eBay factors are not pleading requirements, and that in any event, the proper vehicle to argue the

plaintiff is not entitled to relief would be a motion to dismiss under Rule 12. We do not address the

underlying merits of Archer's claim here because, as Defendants concede, " the issue here is not

whether Archer's injunctive relief claim fails on the merits." [40] Douglas, 757 F.3d at 461. [41] Id. at 462, 464. [42] See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12, 87 S.Ct. 1801, 18

L.Ed.2d 1270 (1967). [43] State v. Philip Morris USA Inc., 363 N.C. 623, 685 S.E.2d 85, 91 (2009) (internal quotation

marks omitted) (internal citations omitted). [44] An action is " [a] civil or criminal judicial proceeding," which is " nearly if not quite

synonymous" with suit. BLACK'S LAW DICTIONARY 28-29 (7th ed. 1999). [45] Procar II, Inc. v. Dennis, 218 N.C.App. 600, 721 S.E.2d 369, 371 (2012). [46] E.E.O.C. v. Waffle House, 534 U.S. 279, 294, 122 S.Ct. 754, 151 L.Ed.2d 755 (2002)

(emphasis added).

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694 Fed.Appx. 750 (11th Cir. 2017), 16-16760, United States v. Gamble /**/ div.c1 {text-align:

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Page 750

694 Fed.Appx. 750 (11th Cir. 2017)

UNITED STATES OF AMERICA, Plaintiff-Appellee,

v.

TERANCE MARTEZ GAMBLE, Defendant-Appellant

No. 16-16760

United States Court of Appeals, Eleventh Circuit

July 28, 2017

Petition for certiorari filed at, 10/24/2017

Editorial Note:

DO NOT PUBLISH. (See Federal Rule of Appellate Procedure Rule 32.1)

Appeal from the United States District Court for the Southern District of Alabama. D.C.

Docket No. 1:16-cr-00090-KD-B-1.

United States v. Gamble, (S.D. Ala., June 20, 2016)

For UNITED STATES OF AMERICA, Plaintiff - Appellee: Christopher B. Brinson, Adam W.

Overstreet, Kenyen Ray Brown, Michele Carstens O'Brien, U.S. Attorney's Office, MOBILE, AL.

For TERANCE MARTEZ GAMBLE, Defendant - Appellant: Barre Clark Dumas, Dumas &

McPhail, LLC, MOBILE, AL.

Before HULL, WILSON, and ANDERSON, Circuit Judges.

OPINION

PER CURIAM:

Terance Martez Gamble appeals his conviction for possession of a firearm by a convicted

felon, in violation of 18 U.S.C. § 922(g)(1). Gamble argues that the district court erred by

determining that double jeopardy did not prohibit the federal government from prosecuting Gamble

for the same conduct for which he had been prosecuted and sentenced for by the State of

Alabama.

We review de novo, as a pure question of law, any possible violation of the Double Jeopardy

Clause. United States v. McIntosh, 580 F.3d 1222, 1226 (11th Cir. 2009).

The Supreme Court has determined that prosecution in federal and state court for the same

conduct does not violate the Double Jeopardy Clause because the state and federal governments

are separate sovereigns. Abbate v. United States, 359 U.S. 187, 195, 79 S.Ct. 666, 3 L.Ed.2d 729

(1959). We have followed the precedent set by Abbate in Hayes, stating that unless and until the

Supreme Court overturns

Page 751

Abbate, the double jeopardy claim must fail based on the dual sovereignty doctrine. United States

v. Hayes, 589 F.2d 811, 817-18 (5th Cir. 1979). We have, more recently, stated that " [t]he Double

Jeopardy Clause does not prevent different sovereigns (i.e., a state government and the federal

government) from punishing a defendant for the same criminal conduct." United States v. Bidwell,

393 F.3d 1206, 1209 (11th Cir. 2004).

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In Sanchez-Valle, the Supreme Court stated that the states were separate sovereigns from

the federal government because the States rely on authority originally belonging to them before

admission to the Union and preserved to them by the Tenth Amendment. Puerto Rico v. Sánchez

Valle, 579 U.S. __, __, 136 S.Ct. 1863, 1871, 195 L.Ed.2d 179 (2016). It explained that prior to

forming the Union, the States possessed separate and independent sources of power and

authority, which they continue to draw upon in enacting and enforcing criminal laws. Id. State

prosecutions therefore have their most ancient roots in an " inherent sovereignty" unconnected to,

and indeed pre-existing, the U.S. Congress. Id. The Supreme Court differentiated Puerto Rico

from the States, stating that it was not a sovereign distinct from the United States because it had

derived its authority from the U.S. Congress. Id. at 1873-74. It concluded that the Double Jeopardy

Clause bars both Puerto Rico and the United States from prosecuting a single person for the same

conduct under equivalent criminal laws. Id. at 1876.

The district court did not err by determining that double jeopardy did not prohibit the federal

government from prosecuting Gamble for the same conduct for which he had been prosecuted

and sentenced for by the State of Alabama, because based on Supreme Court precedent, dual

sovereignty allows a state government and the federal government to prosecute an individual for

the same crime, when the States rely on authority originally belonging to them before admission to

the Union and preserved to them by the Tenth Amendment. Accordingly, we affirm.

AFFIRMED.

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869 F.3d 737 (9th Cir. 2017), 15-15858, In re Google Referrer Header Privacy Litigation /**/ div.c1

{text-align: center} /**/

Page 737

869 F.3d 737 (9th Cir. 2017)

IN RE GOOGLE REFERRER HEADER PRIVACY LITIGATION, PALOMA GAOS; ANTHONY

ITALIANO; GABRIEL PRIYEV, individually and on behalf of all others similarly situated,

Plaintiffs-Appellees,

v.

MELISSA ANN HOLYOAK; THEODORE H. FRANK, Objectors-Appellants,

v.

GOOGLE, INC., a Delaware corporation, Defendant-Appellee

No. 15-15858

United States Court of Appeals, Ninth Circuit

August 22, 2017

Argued and Submitted, San Francisco, California March 13, 2017.

Page 738

Appeal from the United States District Court for the Northern District of California. D.C. No.

5:10-cv-04809-EJD. Edward J. Davila, District Judge, Presiding.

In re Google Referrer Header Privacy Litig., 87 F.Supp.3d 1122, (N.D. Cal., Mar. 31, 2015)

SUMMARY[*]

Stored Communications Act / Settlement

The panel affirmed the district court's order approving the cy pres -only settlement of a class

action brought under the Stored Communications Act and state law by Google Search users,

alleging that Google violated their privacy by disclosing their Internet search terms to owners of

third-party websites.

The panel held that the district court did not abuse its discretion in approving the settlement,

which provided that Google would pay a total of $8.5 million and provide information on its website

disclosing how users' search terms are shared with third parties, in exchange for a release of the

claims of the approximately 129 million people who used Google Search in the United States

between October 25, 2006 and April 25, 2014. Of the $8.5 million settlement fund, approximately

$3.2 million was set aside for attorneys' fees, administration costs, and incentive payments to the

named plaintiffs, and the remaining $5.3 million or so was allocated to six cy pres recipients.

The panel held that the cy pres -only settlement, reached prior to class certification, was

appropriate because the settlement fund was non-distributable. In addition, the fact that the

settlement fund was non-distributable did not mean that a class action could not be the superior

means of adjudicating the controversy under Fed.R.Civ.P. 23(b)(3). The panel held that approval

of the settlement was not an abuse of discretion due to claimed relationships between counsel or

the parties and some of the cy pres recipients. The panel held that a prior relationship or

connection, without more, is not an absolute disqualifier. Rather, a number of factors, such as the

nature of the relationship, the timing and recency of the relationship, the significance of dealings

between the recipient and the party or counsel, the circumstances of the selection process, and

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the merits of the recipient play into the analysis. The panel also held that the district court did not

abuse its discretion by approving the attorneys' fees and costs.

Concurring in part and dissenting in part, Judge Wallace agreed that a cy pre -only

settlement was appropriate and that the district court did not abuse its discretion in calculating

class counsel's fees. Dissenting from Section II of the majority opinion, Judge Wallace wrote that

the fact alone that 47% of the settlement was being donated to the alma maters of class counsel

raised an issue which, in fairness, the district court should have pursued further. Judge Wallace

would vacate the district court's approval of the class settlement and remand with instructions to

hold an evidentiary hearing, examine class counsel under oath, and determine whether class

counsel's prior affiliation with the cy pres recipients played any role in their selection as

beneficiaries.

Theodore H. Frank (argued), Melissa A. Holyoak, and Adam Ezra Schulman, Competitive

Enterprise Institute, Center for Class Action Fairness, Washington, D.C., for Objectors-Appellants.

Kassra P. Nassiri (argued) and John J. Manier, Nassiri & Jung LLP, San Francisco,

California, for Plaintiffs-Appellees.

Donald M. Falk (argued) and Edward D. Johnson, Mayer Brown LLP, Palo Alto, California;

Daniel E. Jones, Mayer Brown LLP, Washington, D.C.; Randall W. Edwards, O'Melveny & Myers

LLP, San Francisco, California; for Defendant-Appellee.

Before: J. Clifford Wallace, M. Margaret McKeown, and Jay S. Bybee, Circuit Judges.

Opinion by Judge McKeown; Partial Concurrence and Partial Dissent by Judge Wallace.

OPINION

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M. Margaret McKeown, Circuit Judge:

Google's free Internet search engine (" Google Search" ) processes more than one billion

user-generated search requests every day. This case arises from class action claims that Google

violated users' privacy by disclosing their Internet search terms to owners of third-party websites.

We consider whether the district court abused its discretion in approving the $8.5 million cy pres -

only settlement and conclude that it did not.

Background

In these consolidated class actions, three Google Search users--Paloma Gaos, Anthony

Italiano, and Gabriel Priyev (collectively " plaintiffs" )--asserted claims for violation of the Stored

Communications Act, 18 U.S.C. § 2701 et seq. ;

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breach of contract; breach of the covenant of good faith and fair dealing; breach of implied

contract; and unjust enrichment. The plaintiffs sought statutory and punitive damages and

declaratory and injunctive relief for the alleged privacy violations.

The claimed privacy violations are the consequence of the browser architecture. Once users

submit search terms to Google Search, it returns a list of relevant websites in a new webpage, the

" search results page." Users can then visit any website listed in the search results page by

clicking on the provided link.

When a user visits a website via Google Search, that website is allegedly privy to the search

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terms the user originally submitted to Google Search. This occurs because, for each search

results page, Google Search generates a unique " Uniform Resource Locator" (" URL" ) that

includes the user's search terms. In turn, every major desktop and mobile web browser (including

Internet Explorer, Firefox, Chrome, and Safari) by default reports the URL of the last webpage that

the user viewed before clicking on the link to the current page as part of " referrer header"

information. See In re Zynga Privacy Litig., 750 F.3d 1098, 1102 (9th Cir. 2014) (explaining how "

referrer headers" operate).[1]

The genesis of the plaintiffs' complaints is the application of the search protocol, coupled

with Google's " Web History" service, which tracks and stores account holders' browsing activity

on Google's servers. Following mediation, the parties reached a settlement, which they submitted

to the district court for preliminary approval in July 2013. The settlement provided that Google

would pay a total of $8.5 million and provide information on its website disclosing how users'

search terms are shared with third parties, in exchange for a release of the claims of the

approximately 129 million people who used Google Search in the United States between October

25, 2006 and April 25, 2014 (the date the class was given notice of the settlement).

Of the $8.5 million settlement fund, approximately $3.2 million was set aside for attorneys'

fees, administration costs, and incentive payments to the named plaintiffs. The remaining $5.3

million or so was allocated to six cy pres recipients, each of which would receive anywhere from

15 to 21% of the money, provided that they agreed " to devote the funds to promote public

awareness and education, and/or to support research, development, and initiatives, related to

protecting privacy on the Internet." The six recipients were AARP, Inc.; the Berkman Center for

Internet and Society at Harvard University; Carnegie Mellon University; the Illinois Institute of

Technology Chicago-Kent College of Law Center for Information, Society and Policy; the Stanford

Center for Internet and Society; and the World Privacy Forum. Each of the recipients submitted a

detailed proposal for how the funds would be used to promote Internet privacy.

After a hearing, the district court certified the class for settlement purposes and preliminarily

approved the settlement. Notice was given to the class on April 25, 2014, via a website, toll-free

telephone number, paid banner ads, and press articles. Thirteen class members opted out of the

settlement, and five class members, including Melissa Ann Holyoak and Theodore H. Frank

(collectively " Objectors" ), filed objections.

Page 741

Following a final settlement approval hearing at which the district court heard from both the

parties and Objectors, the district court granted final approval of the settlement on March 31, 2015.

With respect to the objections, the district court found that: (1) a cy pres -only settlement was

appropriate because the settlement fund was non-distributable; (2) whether or not the settlement

was cy pres -only had no bearing on whether Rule 23(b)(3)'s superiority requirement was met; (3)

the cy pres recipients had a substantial nexus to the interests of the class members, and there

was no evidence that the parties' preexisting relationships with the recipients factored into the

selection process; and (4) the attorneys' fees were commensurate with the benefit to the class.

The district court awarded $2.125 million in fees to class counsel and $15,000 in incentive awards

to the three named plaintiffs. Objectors appealed.

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Analysis

The settlement at issue involves a cy pres --only distribution of the $5.3 million or so that

remains in the settlement fund after attorneys' fees, administration costs, and incentive awards for

the named plaintiffs are accounted for. Cy pres, which takes its name from the Norman French

expression cy pres comme possible (or " as near as possible" ), is an equitable doctrine that

originated in trusts and estates law as a way to effectuate the testator's intent in making charitable

gifts. Nachshin v. AOL, LLC, 663 F.3d 1034, 1038 (9th Cir. 2011). In the class action settlement

context, the cy pres doctrine permits a court to distribute unclaimed or non-distributable portions of

a class action settlement fund to the " next best" class of beneficiaries for the indirect benefit of the

class. Id.

Here, the cy pres recipients were six organizations that have pledged to use the settlement

funds to promote the protection of Internet privacy. We review for abuse of discretion the district

court's approval of the proposed class action settlement. Id. In addition, because the settlement

took place before formal class certification, settlement approval requires a " higher standard of

fairness." Lane v. Facebook, Inc., 696 F.3d 811, 819 (9th Cir. 2012) (quoting Hanlon v. Chrysler

Corp., 150 F.3d 1011, 1026 (9th Cir. 1998)), cert. denied sub nom. Marek v. Lane, 134 S.Ct. 8,

187 L.Ed.2d 392 (2013). Recognizing that, at this early stage of litigation, the district court cannot

as effectively monitor for collusion and other abuses, we scrutinize the proceedings to discern

whether the court sufficiently " account[ed] for the possibility that class representatives and their

counsel have sacrificed the interests of absent class members for their own benefit." Id.

I. Appropriateness of the Cy Pres-Only Settlement

As an initial matter, we quickly dispose of the argument that the district court erred by

approving a cy pres -only settlement. Notably, Objectors do not contest the value of the settlement

nor do they plead monetary injury. To be sure, cy pres -only settlements are considered the

exception, not the rule. See Klier v. Elf Atochem N. Am., Inc., 658 F.3d 468, 474 (5th Cir. 2011)

(explaining that direct distributions to class members are preferable because " [t]he settlement-

fund proceeds, having been generated by the value of the class members' claims," are " the

property of the class" ); accord William B. Rubenstein, Newberg on Class Actions § 12:26 (5th ed.

2017). However, they are appropriate where the settlement fund is " non-distributable" because "

the proof of individual claims would be burdensome or distribution of damages costly."

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Lane, 696 F.3d at 819 (quoting Nachshin, 663 F.3d at 1038). We have never imposed a

categorical ban on a settlement that does not include direct payments to class members.

The district court's finding that the settlement fund was non-distributable accords with our

precedent. In Lane, we deemed direct monetary payments " infeasible" where each class

member's individual recovery would have been " de minimis " because the remaining settlement

fund was approximately $6.5 million and there were over 3.6 million class members. Id. at 817-18,

820-21. The gap between the fund and a miniscule award is even more dramatic here. The

remaining settlement fund was approximately $5.3 million, but there were an estimated 129 million

class members, so each class member was entitled to a paltry 4 cents in recovery--a de minimis

amount if ever there was one. The district court found that the cost of verifying and " sending out

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very small payments to millions of class members would exceed the total monetary benefit

obtained by the class."

To begin, the district court found that the amount of the fund was appropriate given the

shakiness of the plaintiffs' claims. Objectors do not contend that it would have been feasible to

make a 4-cent distribution to every class member. Instead, they ask us to impose a mechanism

that would permit a miniscule portion of the class to receive direct payments, eschewing a class

settlement that benefits members through programs on privacy and data protection instituted by

the cy pres recipients. Objectors suggest, for example, that " it is possible to compensate an

oversized class with a small settlement fund by random lottery distribution," or by offering " $5 to

$10 per claimant" on the assumption that few class members will make claims. Our review of the

district court's settlement approval is not predicated simply on whether there may be " possible"

alternatives; rather, we benchmark whether the district court discharged its obligation to assure

that the settlement is " fair, adequate, and free from collusion." Lane, 696 F.3d at 819 (quoting

Hanlon, 150 F.3d at 1027). If we took their objections at face value, Objectors would have us

jettison the teachings of Lane. Objectors would also have us ignore our prior endorsement of cy

pres awards that go to uses consistent with the nature of the underlying action. Nachshin, 663

F.3d at 1039-40.[2]

Likewise, we easily reject Objectors' argument that if the settlement fund was non-

distributable, then a class action cannot be the superior means of adjudicating this controversy

under Rule 23(b)(3). " [T]he purpose of the superiority requirement is to assure that the class

action is the most efficient and effective means of resolving the controversy." Wolin v. Jaguar Land

Rover N. Am., LLC, 617 F.3d 1168, 1175 (9th Cir. 2010) (alteration in original) (quoting 7AA

Charles Alan Wright et al., Federal Practice and Procedure § 1779 (3d ed. 2005)). Not

surprisingly, there is a relationship between the superiority requirement and the appropriateness of

a cy pres -only settlement. The two concepts are not mutually exclusive, since " [w]here recovery

on an individual

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basis would be dwarfed by the cost of litigating on an individual basis, this factor weighs in favor of

class certification." Id. The district court did not abuse its discretion in finding the superiority

requirement was met because the litigation would otherwise be economically infeasible. This

finding dovetails with the rationale for the cy pres -only settlement.[3]

II. The Cy Pres Recipients

We now turn to the crux of this appeal: whether approval of the settlement was an abuse of

discretion due to claimed relationships between counsel or the parties and some of the cy pres

recipients. We have long recognized that the cy pres doctrine, when " unbridled by a driving nexus

between the plaintiff class and the cy pres beneficiaries[,] poses many nascent dangers to the

fairness of the distribution process," because the selection process may then " answer to the

whims and self interests of the parties, their counsel, or the court." Nachshin, 663 F.3d at 1038-39;

see also Dennis v. Kellogg Co., 697 F.3d 858, 865 (9th Cir. 2012); Six (6) Mexican Workers v.

Arizona Citrus Growers, 904 F.2d 1301, 1308-09 (9th Cir. 1990). Due to these dangers, we require

cy pres awards to meet a " nexus" requirement by being tethered to the objectives of the

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underlying statute and the interests of the silent class members. Nachshin, 663 F.3d at 1039.

Objectors suggest that the district court rubber-stamped the settlement, by " simply h[olding]

that the Ninth Circuit and district courts have approved other all- cy--pres settlements and class

members effectively had no right to complain about the parties' choice of compromise." That

characterization is unfair and untrue. And oddly, despite this claim, Objectors do not dispute that

the nexus requirement is satisfied here.

The district court found that the six cy pres recipients are " established organizations," that

they were selected because they are " independent," have a nationwide reach and " a record of

promoting privacy protection on the Internet," and " are capable of using the funds to educate the

class about online privacy risks." Although the district court expressed some disappointment that

the recipients were the " usual suspects," it recognized that " failure to diversify the list of

distributees is not a basis to reject the settlement . . . when the proposed recipients otherwise

qualify under the applicable standard." Accordingly, the district court appropriately found that the

cy pres distribution addressed the objectives of the Stored Communications Act and furthered the

interests of the class members. Previous cy pres distributions rest on this same understanding of

the nexus requirement. See, e.g., Dennis, 697 F.3d at 866-67 (no nexus between false advertising

claims relating to the nutritional value of Frosted Mini-Wheats® and charities providing food for the

indigent); Lane, 696 F.3d at 817, 820-22 (nexus between Facebook privacy claims and charity

giving grants promoting online privacy and security); Nachshin, 663 F.3d at 1039-41 (no nexus

between breach of privacy, unjust

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enrichment, and breach of contract claims relating to AOL's provision of commercial e-mail

services and the Legal Aid Foundation of Los Angeles, the Boys and Girls Clubs of Santa Monica

and Los Angeles, and the Federal Judicial Center Foundation); Six (6) Mexican Workers, 904 F.2d

at 1307-09 (no nexus between Farm Labor Contractor Registration Act claims and foundation

operating human assistance projects in areas where plaintiffs resided).

Nonetheless, Objectors take issue with the choice of cy pres recipients because Google has

in the past donated to at least some of the cy pres recipients, three of the cy pres recipients

previously received Google settlement funds, and three of the cy pres recipients are organizations

housed at class counsel's alma maters. See In re Google Buzz Privacy Litig., No. C 10-00672 JW,

2011 WL 7460099, at *3 (N.D. Cal. Jun. 2, 2011). The Objectors point to a comment from the

American Law Institute's (" ALI" ) Principles of the Law of Aggregate Litigation which suggests that

" [a] cy pres remedy should not be ordered if the court or any party has any significant prior

affiliation with the intended recipient that would raise substantial questions about whether the

selection of the recipient was made on the merits." Principles of the Law of Aggregate Litig. § 3.07

cmt. b (Am. Law Inst. 2010) (emphasis added).[4]

The benchmark for " significant prior affiliation" is left undefined. Id. Of course it makes

sense that the district court should examine any claimed relationship between the cy pres recipient

and the parties or their counsel. But a prior relationship or connection between the two, without

more, is not an absolute disqualifier. Rather, a number of factors, such as the nature of the

relationship, the timing and recency of the relationship, the significance of dealings between the

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recipient and the party or counsel, the circumstances of the selection process, and the merits of

the recipient play into the analysis. The district court explicitly or implicitly addressed this range of

considerations.

We do not need to explore the contours of the " significant prior affiliation" comment because

in the context of this settlement, the claimed relationships do not " raise substantial questions

about whether the selection of the recipient was made on the merits." See id. § 3.07 cmt. b.[5] As

a starting premise, Google's role as a party in reviewing the cy pres recipients does not cast doubt

on the settlement. In Lane, we approved a cy pres -only settlement in which the distributor of the

settlement fund was a newly-created entity run by a three-member board of directors, one of

whom was defendant Facebook's Director of Public Policy. 696 F.3d at 817. We rejected the claim

that this structure created an " unacceptable conflict of interest," explaining that " [w]e do not

require . . . that settling parties select a cy pres recipient that the court or class members would

find ideal" since " such an intrusion into the private parties' negotiations would be improper and

disruptive to the settlement process." Id. at 820-21. Instead, we

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recognized that, as the " 'offspring of compromise,'" settlement agreements " necessarily reflect

the interests of both parties to the settlement." Id. at 821 (quoting Hanlon, 150 F.3d at 1027).

Thus, we concluded that Facebook's ability to have " its say" in the distribution of cy pres funds

was " the unremarkable result of the parties' give-and-take negotiations" and acceptable so long

as the nexus requirement was satisfied. Id. at 821-22.

Given the burgeoning importance of Internet privacy, it is no surprise that Google has

chosen to support the programs and research of recognized academic institutes and nonprofit

organizations. Google has donated to hundreds of third-party organizations whose work implicates

technology and Internet policy issues, including university research centers, think tanks, advocacy

groups, and trade organizations.[6] These earlier donations do not undermine the selection

process employed to vet the cy pres recipients in this litigation. The district court conducted a "

careful[] review" of the recipient's " detailed proposals" and found a " substantial nexus" between

the recipients and the interests of the class members. Notably, some of the recipient organizations

have challenged Google's Internet privacy policies in the past.[7] Most importantly, there was

transparency in this process, with the proposed recipients disclosing donations received from

Google. Each recipient's cy pres proposal identified the scope of Google's previous contributions

to that organization, and, unlike in Lane, explained how the cy pres funds were distinct from

Google's general donations. See Dennis, 697 F.3d at 867-68 (casting doubt on the value of cy

pres funds that a defendant " has already obligated itself to donate" ). Citing Lane, the district court

found that " [t]he chosen recipients and their respective proposals are sufficiently related so as to

warrant approval; they do not have to be the recipients that objectors or the court consider ideal."

The objection that three of the cy pres recipients had previously received cy pres funds from

Google does not impugn the settlement without something more, such as fraud or collusion. See

Rodriguez v. W. Publ'g Corp., 563 F.3d 948, 965 (9th Cir. 2009). That " something more" is

missing here. Indeed, the proposition that cy pres funds should not be awarded to previous

recipients would be in some tension with our nexus requirements. As we have recognized, it is

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often beneficial for a cy pres recipient to have a " 'substantial record of service,'" because such a

record inspires

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confidence that the recipient will use the funds to the benefit of class members. See Dennis, 697

F.3d at 865 (quoting Six (6) Mexican Workers, 904 F.2d at 1308); Lane, 696 F.3d at 822. But in

emerging areas such as Internet and data privacy, expertise in the subject matter may limit the

universe of qualified organizations that can meet the strong nexus requirements we impose upon

cy pres recipients. Given that, over time, major players such as Google may be involved in more

than one cy pres settlement, it is not an abuse of discretion for a court to bless a strong nexus

between the cy pres recipient and the interests of the class over a desire to diversify the pick via

novel beneficiaries that are less relevant or less qualified. See Nachshin, 663 F.3d at 1040

(considering whether the cy pres distribution " provide[s] reasonable certainty that any member will

be benefitted" ).

Finally, we reject the proposition that the link between the cy pres recipients and class

counsel's alma maters raises a significant question about whether the recipients were selected on

the merits. There may be occasions where the nature of the alumni connections between the

parties and the recipients could cast doubt on the propriety of the selection process. But here, we

have nothing more than a barebones allegation that class counsel graduated from schools that

house the Internet research centers that will receive funds.

The claim that counsel's receipt of a degree from one of these schools taints the settlement

can't be entertained with a straight face. Each of these schools graduates thousands of students

each year. Objectors have never disputed that class counsel have no ongoing or recent

relationships with their alma maters and have no affiliations with the specific research centers. Nor

did the district court simply accept this concession or put the burden on the Objectors. The district

court appropriately considered the substance of the objections and explained why those

challenges did not undermine the overall fairness of the settlement. See In re Pac. Enters. Sec.

Litig., 47 F.3d 373, 377 (9th Cir. 1995). The court affirmatively analyzed the issue and was

cognizant of the claim of a potential conflict. All class counsel swore that they have no affiliations

with the specific research centers. Class counsel repeated that attestation at the final settlement

approval hearing and added that they sit on no boards for any of the proposed recipients. As one

class counsel put it, " I simply got my law degree [at Harvard], and that's simply the end of it." [8]

The recipients are well-recognized centers focusing on the Internet and data privacy, and the

district court conducted a " careful[] review" of the recipients'" detailed proposals" and found a "

substantial nexus" between the recipients and the interests of the class members.[9] No one

suggested that any of the centers

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acted with any impropriety, and the Objectors provided no alternative suggestions for other law

schools with more qualified centers or institutes. The district court found " no indication that

counsel's allegiance to a particular alma mater factored into the selection process," particularly

since the identity of the recipients " was a negotiated term included in the Settlement Agreement

and therefore not chosen solely by . . . alumni." Thus, the district court gave a " sufficient[ly]

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reasoned" response to the objections as to the claimed preexisting relationships. In re Pac.

Enters. Sec. Litig., 47 F.3d at 377. We can hardly say that the alumni connections cloud the

fairness of the settlement.

As an overarching matter, nothing in this record " raise[s] substantial questions about

whether the selection of the recipient was made on the merits." See Principles of the Law of

Aggregate Litig. § 3.07 cmt. b. We do not suggest, however, that a party's prior relationship with a

cy pres recipient could not be a stumbling block to approval of a settlement. Cf. Marek, 134 S.Ct.

at 9 (mem.) (statement of Roberts, C.J., respecting the denial of certiorari) (recognizing that given

the " fundamental concerns surrounding" cy pres awards and their increasing prevalence, the

Court " may need to clarify the limits on the use of such remedies" in the future). We hold merely

that, under the circumstances here, the district court did not abuse its discretion in approving the

cy pres recipients.

III. Attorneys' Fees

Turning to the issue of attorneys' fees, the district court did not abuse its discretion by

approving $2.125 million in fees and $21,643.16 in costs. As an initial matter, there is no support

for Objectors' view that the settlement should have been valued at a lower amount for the

purposes of calculating attorneys' fees simply because it was cy pres -only. See generally Lane,

696 F.3d at 818 (acknowledging a 25% fee award that also involved a cy pres -only settlement).

Rather, the question is whether the amount of attorneys' fees was reasonable. In re Bluetooth

Headset Prods. Liab. Litig., 654 F.3d 935, 941 (9th Cir. 2011).

In a settlement that produces a common fund for the benefit of the entire class, a court has

discretion to employ either the " percentage-of-recovery" method or the " lodestar" method to

calculate appropriate attorneys' fees, so long as its discretion is exercised so as to achieve a

reasonable result. See id. at 942. Here, the district court found that the requested fees were

appropriate under either metric.

Under the percentage-of-recovery method, the requested fee was equal to 25% of the

settlement fund. According to the district court, this percentage was commensurate with the risk

posed by the action and the time and skill required to secure a successful result for the class,

given that class counsel faced three motions to dismiss and participated in extensive settlement

negotiations. The district court also found that this percentage hewed closely to that awarded in

similar

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Internet privacy actions. See, e.g., In re Netflix Privacy Litig., No. 5:11-CV-00379 EJD, 2013 WL

1120801, at *9-10 (N.D. Cal. Mar. 18, 2013); see also In re Bluetooth, 654 F.3d at 942 (noting that

25% is our " benchmark" for a reasonable fee award).

Although not required to do so, the district court took an extra step, cross-checking this result

by using the lodestar method. See In re Bluetooth, 654 F.3d at 941-44 (checking the district court's

percentage-of-recovery fees calculation against the lodestar method, which is " calculated by

multiplying the number of hours the prevailing party reasonably expended on the litigation . . . by a

reasonable hourly rate for the region and the experience of the lawyer" ). The district court found

that class counsel provided sufficient support for its lodestar calculation that fees totaled

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$2,126,517.25.

AFFIRMED.

CONCUR

J. Clifford Wallace (In Part)

DISSENT

WALLACE, Circuit Judge, concurring in part and dissenting in part:

I concur in Sections I and III of the majority opinion. I agree that a cy pres -only settlement

was appropriate in this case and do not contend that the district court abused its discretion in

calculating class counsel's fees.

I dissent, however, from Section II of the opinion, in which the majority blesses the district

court's approval of the settlement, despite the preexisting relationships between class counsel and

the cy pres recipients. To me, the fact alone that 47% of the settlement fund is being donated to

the alma maters of class counsel raises an issue which, in fairness, the district court should have

pursued further in a case such as this. The district court made no serious inquiry to alleviate that

concern. Accordingly, I would vacate the district court's approval of the class settlement, and

remand with instructions to hold an evidentiary hearing, examine class counsel under oath, and

determine whether class counsel's prior affiliation with the cy pres recipients played any role in

their selection as beneficiaries.

I.

As the majority opinion outlines, plaintiffs in this case alleged that Google violated class

members' privacy rights by disclosing personal information (such as search terms) to unauthorized

third parties. Google's practice allegedly violated the federal Stored Communications Act, along

with various state laws. After several rounds at the motion to dismiss stage, the parties agreed to a

class-wide settlement (before formal class certification by the district court). The parties estimated

the size of the class to be 129 million people.

The settlement contained the following key terms: (1) Google agreed to pay $8.5 million into

a settlement fund; (2) Google would provide notice of the settlement on its website; (3) each class

representative would receive $5,000, claims administration costs would be $1 million, and

attorney's fees would be $2.125 million (25% of the settlement fund); and (4) the remainder of the

settlement fund (about $5 million) would go to six cy pres recipients. The six cy pres recipients

were to be Carnegie Mellon University (21% of the remainder), the World Privacy Forum (17%),

Chicago-Kent College of Law Center for Information, Society and Policy (16%), the Stanford

Center for Internet and Society (16%), the Berkman Center for Internet and Society at Harvard

University (15%), and that the AARP Foundation (15%).

II.

We review a district court's approval of a class action settlement for an abuse of

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discretion. Rodriguez v. W. Publ'g Corp., 563 F.3d 948, 963 (9th Cir. 2009). Here, however, the

parties reached the settlement before the class certification stage. " Prior to formal class

certification, there is an even greater potential for a breach of fiduciary duty owed the class during

settlement. Accordingly, such agreements must withstand an even higher level of scrutiny for

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evidence of collusion or other conflicts of interest than is ordinarily required." In re Bluetooth

Headset Prods. Liab. Litig., 654 F.3d 935, 946 (9th Cir. 2011).

As stated above, three of the cy pres distribution payments in our case are to Chicago-Kent

College of Law (16%), Stanford (16%), and Harvard (15%). Attorneys for the class attended all

three of these institutions. We, along with other courts and observers, have pointed out the

unseemly occurrence of cy pres funds being doled out to interested parties' alma maters. See,

e.g., Nachshin v. AOL, LLC, 663 F.3d 1034, 1039 (9th Cir. 2011); Securities & Exchange Comm'n

v. Bear, Stearns & Co., Inc., 626 F.Supp.2d 402, 414-16 (S.D.N.Y. 2009); Adam Liptak, Doling out

Other People's Money, N.Y. Times, Nov. 26, 2007 (" Lawyers and judges have grown used to

controlling these pots of money, and they enjoy distributing them to favored charities, alma maters

and the like" ).

In response to this all-too-common development, the American Law Institute has set forth, in

its Principles of the Law of Aggregate Litigation, that " [a] cy pres remedy should not be ordered if

the court or any party has any significant prior affiliation with the intended recipient that would

raise substantial questions about whether the selection of the recipient was made on the merits."

American Law Institute (ALI), Principles of the Law of Aggregate Litigation § 3.07 comment b

(2010) (emphasis added). Although the majority tells us correctly that no circuit has adopted the

specific " prior affiliation" language, circuits have endorsed § 3.07's guidance regarding

scrutinizing cy pres disbursements. See, e.g., In re BankAmerica Corp. Sec. Litig., 775 F.3d 1060,

1064-65 (8th Cir. 2015) (vacating a cy pres settlement because " class counsel and the district

court entirely ignored this now-published ALI authority" ); In re Baby Prods. Antitrust Litig., 708

F.3d 163, 172 (3d Cir. 2013) (quoting ALI § 3.07, comment a (2010)); In re Lupron Marketing and

Sales Practices Litig., 677 F.3d 21, 33 (1st Cir. 2012) (citing to ALI § 3.07 and asserting that "

[c]ourts have generally agreed with the ALI Principles" ).

I conclude that our circuit should adopt the ALI's guidance as set forth in § 3.07. District

courts should be required to scrutinize cy pres settlements when the proffered recipients of the

funds have a " prior affiliation" with counsel, a party, or even the judge, especially when one of

those players is a loyal alumni of a cy pres recipient. I do not mean to suggest that class counsel's

alma mater can never be a cy pres beneficiary. Rather, I propose that the burden should be on

class counsel to show through sworn testimony, in an on-the-record hearing, that the prior

affiliation played no role in the negotiations, that other institutions were sincerely considered, and

that the participant's alma mater is the proper cy pres recipient.

The majority responds to this line of argument by asserting that " here, we have nothing

more than a barebones allegation that class counsel graduated from schools that house the

Internet research centers that will receive funds." The majority then salutes the district court's

conclusion that there is " no indication that counsel's allegiance to a particular alma mater factored

into the selection process," and stresses that the cy pres recipients were a negotiated term, not

chosen solely by alumni. In

Page 750

essence, the majority holds that despite the nascent dangers posed by apportioning cy pres funds

to the distributing parties' alma maters, the burden is entirely on the objectors to show that the

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settlement might be tainted.

I disagree fundamentally with this analysis. Our precedent requires that district courts " must

be particularly vigilant not only for explicit collusion, but also for more subtle signs that class

counsel have allowed pursuit of their own self-interests and that of certain class members to infect

the negotiations." In re Bluetooth, 654 F.3d at 947. In our case, we have a cy pres -only

settlement. That alone raises a yellow flag. Furthermore, we have a class settlement before formal

class certification. That raises another yellow flag. Lastly, we have almost half of the settlement

fund, several million dollars, being given to class counsel's alma maters. To me, that raises a red

flag. I am especially dubious of the inclusion of the Center for Information, Society and Policy at

Chicago-Kent Law School (a law school attended by class counsel), which center appears to have

inaugurated only a year before the parties herein agreed to their settlement. Even with these red

and yellow flags, under the majority's holding, the burden is still on the objectors to prove more,

despite the objectors' lack of access to virtually any relevant evidence that would do so.

I would hold that the combination of a cy pres -only award, a pre-certification settlement, and

the fact that almost half the cy pres fund is going to class counsel's alma maters, is sufficient to

shift the burden to the proponents of the settlement to show, on a sworn record, that nothing in the

acknowledged relationship was a factor in the ultimate choice. Here, the only sworn-to items in the

record on this issue are boiler plate, one-line declarations from class counsel stating " I have no

affiliation" with the subject institutions. While the majority asserts that the district court conducted a

" careful review," these terse declarations are the only shred of sworn-to evidence in the record.

There was essentially nothing for the district court to review--carefully or not. Although there was

some discussion between counsel and the district court during the hearings on the settlement, this

was nothing more than unsworn lawyer talk during an oral argument.[1]

I still have many questions surrounding how these universities were chosen, such as: What

other institutions were considered? Why were the non-alma mater institutions rejected? What

relationship have counsel had with these universities? Have counsel donated funds to their alma

maters in the past? Do counsel serve on any alma mater committees or boards? Do counsel's

family members? How often do counsel visit their alma maters? There are many questions still

lingering that have not been answered under oath. Here, as we have directed before, " the district

court should have pressed the parties to substantiate their bald assertions with corroborating

evidence." Id. at 948.

Although I would vacate the parties' settlement, I express no opinion on the definitive

fairness of the parties' agreement. It is not the province of appellate judges to " substitute our

notions of fairness for those of the district judge." Officers for

Page 751

Justice v. Civ. Serv. Commission of the City and County of San Francisco, 688 F.2d 615, 626 (9th

Cir. 1982) (internal citations omitted). Instead, I would remand the case to the district court for

further fact finding in accordance with the concerns I have expressed.

---------

Notes: [*] This summary constitutes no part of the opinion of the court. It has been prepared by court staff

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for the convenience of the reader. [1]For instance, if a user enters " 2016 presidential election" into Google Search and clicks on a

link to www.cnn.com/election on the search results page, the " referrer header" would tell CNN

that the user found her way there via "

http://www.google.com/search?q=2016+presidential+election ." [2]It bears noting, of course, that district courts are not precluded from approving other distribution

methods that might benefit the class more directly under certain circumstances. However, the fact

that there are other conceivable methods of distribution does not mean that the district court

abused its discretion by declining to adopt them. See Kode v. Carlson, 596 F.3d 608, 612 (9th Cir.

2010) (per curiam) (holding that " [t]he abuse of discretion standard requires us to uphold a district

court determination that falls within a broad range of permissible conclusions" ). [3]Objectors point to In re Hotel Tel. Charges, 500 F.2d 86, 91 (9th Cir. 1974), as an example of a

case where we found the superiority requirement not met because " the principal, if not the only,

beneficiaries to the class action are to be the attorneys for the plaintiffs and not the individual class

members." But In re Hotel did not involve a cy pres distribution or even a settlement. See id.

Instead, we held that a class action was not the superior means of resolving the controversy

because the class members' antitrust claims involved a " great variety" of individualized

determinations. Id. at 90-91; see also Six (6) Mexican Workers v. Ariz. Citrus Growers, 904 F.2d

1301, 1305-06 (9th Cir. 1990) (distinguishing In re Hotel on the basis that the case raised

concerns regarding " individual proof of damages" ). [4]This statement is found in a comment that is unsupported by any illustration, case law, or other

authority. Id. § 3.07 cmt. b. [5]Other circuits have endorsed § 3.07's preference for direct distribution to class members over

the use of cy pres awards where practicable. See In re BankAmerica Corp. Sec. Litig., 775 F.3d

1060, 1064-65 (8th Cir. 2015); Klier, 658 F.3d at 475 n.16. And though we have not adopted §

3.07, we too have expressed a similar preference. See Nachshin, 663 F.3d at 1036. However, no

circuit has yet adopted § 3.07 comment b's " significant prior affiliation" reference. [6] See Transparency -- U.S. Public Policy -- Google, Google.com,

https://www.google.com/publicpolicy/transparency.html (last visited July 21, 2017) (listing third-

party organizations Google has supported in the past). [7]At least one of the recipients, World Privacy Forum, has publicly criticized Google's lack of

transparency regarding its privacy policies. See Joseph Menn, Privacy Advocates Target Google,

L.A. Times (June 4, 2008), http://articles.latimes.com/2008/jun/04/business/fi-google4 . And a

complaint filed by the World Privacy Forum and a Stanford Center for Internet and Society study

played a key role in the $17 million fine Google paid to the Federal Trade Commission for

circumventing user's privacy choices in Apple's Safari Internet browser. See Kukil Bora, FTC

Appears Ready to Fine Google Millions Over Apple Safari Privacy Breach, Int'l Bus. Times (May 5,

2012), http://www.ibtimes.com/ftc-appears-ready-fine-google-millions-over-apple-safari-privacy-

breach-report-696537 ; Claire Cain Miller, Google to Pay $17 Million to Settle Privacy Case, N.Y.

Times (Nov. 18, 2013), http://www.nytimes.com/2013/11/19/technology/google-to-pay-17-million-

to-settle-privacy-case.html ; Elinor Mills, Privacy Brouhaha Reveals Google's Split Personality,

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CNET (Feb. 17, 2012), http://www.cnet.com/news/privacy-brouhaha-reveals-googles-split-

personality/ . Both organizations are cy pres recipients here. [8]The dissent's suggestion that what is needed is a hearing with sworn testimony seems

superfluous in view of the extensive hearing held by the district court, the specific queries to

counsel about the cy pres recipients, and the submission of sworn declarations. [9]The dissent challenges the inclusion of the Chicago-Kent College of Law Center for Information,

Society and Policy (" CISP" ) as a recipient, noting that the center was only inaugurated in 2012.

See Chicago-Kent Mag., Summer 2012, at 8, available at

https://issuu.com/chicagokentlaw/docs/chicago-kent-magazine-2012 . This judicial second-

guessing does not bear scrutiny, particularly in a field that is developing quickly and where the

record reveals a different story. CISP's cy pres proposal, which outlines a " privacy preparedness"

project that would develop interactive materials to educate the public about ways to protect their

Internet and data privacy, notes that the five faculty involved in the proposed project are respected

leaders in the field of Internet and privacy law, that CISP has received other cy pres awards and

grants, and that CISP has hosted five conferences on Internet and data privacy issues that have

attracted hundreds of attendees and trained over a hundred journalists on data privacy. In

addition, CISP conducts research in such areas as data aggregation, social networks and health

information, and children and internet privacy; engages in policy advocacy, community outreach,

and public education; and holds seminars on Internet and data privacy issues for law students.

See Center for Information, Society and Policy, Kentlaw.iit.edu,

https://www.kentlaw.iit.edu/institutes-centers/center-for-information-society-and-policy (last visited

July 24, 2017). [1]I disagree with the majority's assertion that " sworn testimony seems superfluous" because

counsel submitted one-line boilerplate declarations and the district court heard some unsworn

argument from the lawyers. My experience as a trial judge taught me to be skeptical of unsworn

statements from lawyers, especially when it comes to conflict of interest issues. To me, there is a

significant difference between sworn and unsworn testimony.

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857 F.3d 7 (1st Cir. 2017), 15-2364, Oliveira v. New Prime, Inc. /**/ div.c1 {text-align: center} /**/

Page 7

857 F.3d 7 (1st Cir. 2017)

DOMINIC OLIVEIRA, on his behalf and on behalf of all others similarly situated, Plaintiff,

Appellee,

v.

NEW PRIME, INC., Defendant, Appellant

No. 15-2364

United States Court of Appeals, First Circuit

May 12, 2017

Page 8

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF

MASSACHUSETTS. Hon. Patti B. Saris, U.S. District Judge.

Theodore J. Boutrous, Jr., with whom Joshua S. Lipshutz, Jason C. Schwartz, Thomas M.

Johnson, Jr., Lindsay S. See, Gibson, Dunn & Crutcher LLP, William E. Quirk, James C. Sullivan,

Robert J. Hingula, Polsinelli PC, Judith A. Leggett, and Leggett Law Firm, P.C. were on brief, for

appellant.

Jennifer D. Bennett, with whom Public Justice, P.C., Hillary Schwab, Fair Work, P.C.,

Andrew Schmidt, and Andrew Schmidt Law, PLLC were on brief, for appellee.

Richard Frankel on brief for amicus curiae in support of appellee.

Before Thompson and Kayatta, Circuit Judges, and Barbadoro,[*] District Judge.

OPINION

Page 9

THOMPSON, Circuit Judge.

This case raises two questions of first impression in this circuit. First, when a federal district

court is confronted with a motion to compel arbitration under the Federal Arbitration Act (FAA or

Act), 9 U.S.C. § § 1-16, in a case where the parties have delegated questions of arbitrability to the

arbitrator, must the court first determine whether the FAA applies or must it grant the motion and

let the arbitrator determine the applicability of the Act? We hold that the applicability of the FAA is

a threshold question for the court to determine before compelling arbitration under the Act.

Second, we must decide whether a provision of the FAA that exempts contracts of employment of

transportation workers from the Act's coverage, see id. § 1 (the § 1 exemption), applies to a

transportation-worker agreement that establishes or purports to establish an independent-

contractor relationship. We answer this question in the affirmative. Accordingly, we affirm the

district court's order denying the motion to compel arbitration and dismiss this appeal for lack of

appellate jurisdiction.

Background [1]

The defendant, New Prime, Inc. (Prime), operates an interstate trucking company. Under its

Student Truck Driver Program (apprenticeship program), Prime recruits and trains new drivers.

Prime touts its program as offering " [p]aid [a]pprenticeship [Commercial Driver's License (CDL)]

[t]raining." After attending a four-day orientation, student drivers hit the road with a Prime truck

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driver, who acts as an on-the-job instructor. In this phase of the apprenticeship program, student

drivers must log 10,000 miles as a driver or passenger, and, apart from an advance of $200 per

week for food (which eventually must be repaid), the apprentices are not paid.[2] After completing

the supervised-driving period, the student driver takes the examination for a CDL and then must

drive 30,000 more miles as a B2 company driver trainee (B2 trainee). Prime pays its B2 trainees

fourteen cents per mile. At the conclusion of the B2 trainee portion of the apprenticeship program,

the apprentices attend additional orientation classes for approximately one week. Apprentices are

not paid for time spent in this orientation.

The plaintiff, Dominic Oliveira, is an alum of Prime's apprenticeship program. He was not

paid for the time he spent in orientation and was paid on a per-mile

Page 10

basis while driving as a B2 trainee, although Prime docked his pay during this period to recoup the

$200 advances that it paid him during the supervised-driving period.

Drivers are relieved of paying tuition for the apprenticeship program as long as they remain

with Prime for one year as either company drivers or independent contractors. After completing

the program, drivers choose between the two options, and Prime offers a $100 bonus to those

who elect independent-contractor status. When Oliveira finished the apprenticeship program,

Prime representatives informed him that he would make more money as an independent

contractor than a company driver. Prime directed Oliveira to Abacus Accounting (Abacus) -- a

company with offices on the second floor of Prime's building -- to assist him in forming a limited

liability company (LLC). After Oliveira filled out a form provided by Abacus and listed his preferred

LLC names, Abacus created Hallmark Trucking LLC (Hallmark) on Oliveira's behalf.

Prime then directed Oliveira to the offices of Success Leasing (Success) -- located on the

first floor of the same building -- for help in securing a truck. After selecting a truck, Oliveira was

informed that his first load of freight was ready to be trucked for Prime, and he was instructed to

sign the highlighted portions of several documents before hitting the road. He hastily did so, and

Prime then steered him towards its company store, where he purchased -- on credit -- $5,000

worth of truck equipment and fuel.

Among the documents Oliveira signed was an Independent Contractor Operating Agreement

(the contract) between Prime and Hallmark.[3] The contract specified that the relationship between

the parties was that " of carrier and independent contractor and not an employer/employee

relationship" and that " [Oliveira is] and shall be deemed for all purposes to be an independent

contractor, not an employee of Prime." [4] Additionally, under the contract, Oliveira retained the

rights to provide transportation services to companies besides Prime,[5] refuse to haul any load

offered by Prime, and determine his own driving times and delivery routes. The contract also

obligated Oliveira to pay all operating and maintenance expenses, including taxes, incurred in

connection with his use of the truck leased from Success. Finally, the contract contained an

arbitration clause under which the parties agreed to arbitrate " any disputes arising under, arising

out of or relating to [the contract], . . . including the arbitrability of disputes between the parties." [6]

Page 11

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Oliveira alleges that, during his Hallmark days, Prime exercised significant control over his

work. According to Oliveira, Prime required him to transport Prime shipments, mandated that he

complete Prime training courses and abide by its procedures, and controlled his schedule.

Because of Prime's pervasive involvement in his trucking operation, Oliveira was unable to work

for any other trucking or shipping companies.

Prime consistently shortchanged Oliveira during his time as an independent contractor.

Eventually, Oliveira -- frustrated and, he alleges, unlawfully underpaid -- stopped driving for Prime.

It was a short-lived separation, however; Prime rehired Oliveira a month later, this time as a

company driver. Oliveira alleges that his job responsibilities as a company driver were "

substantially identical" to those he had as an independent contractor. Job responsibilities were not

the only constant; Oliveira's pay as a company driver was as paltry as ever.

Oliveira filed this class action against Prime, alleging that Prime violated the Fair Labor

Standards Act (FLSA), 29 U.S.C. § § 201-219, as well as the Missouri minimum-wage statute, by

failing to pay its truck drivers minimum wage. Oliveira also asserted a class claim for breach of

contract or unjust enrichment and an individual claim for violation of Maine labor statutes. Prime

moved to compel arbitration under the FAA and stay the proceedings or, alternatively, to dismiss

the complaint for improper venue and the breach of contract/unjust enrichment count for failure to

state a claim upon which relief may be granted.[7] In its motion, Prime asserted that " Oliveira . . .

entered into an Independent Contractor Operating Agreement with . . . Prime . . . to work as an

owner-operator truck driver." (Emphasis added.)

In response, Oliveira argued that, because he was not a party to the contract between Prime

and Hallmark, he could not be personally bound by any of its provisions, including the arbitration

clause. He further contended that the motion to compel arbitration should be denied because,

among other reasons, the contract is exempted from the FAA under § 1. He also argued that the

question of the applicability of the § 1 exemption was one for the court, and not an arbitrator, to

decide.

Prime disputed Oliveira's argument that he could not be personally bound by the contract

between Prime and Hallmark, stating that " Oliveira and Hallmark Trucking are factually one and

the same." Prime also took issue with both of Oliveira's other arguments, contending that the § 1

exemption does not include independent-contractor agreements and, in any event, the question of

whether the § 1 exemption applies is a question of arbitrability that the parties had delegated to

the arbitrator. [8]

The district court proceeded straight to the FAA issues and concluded that the question of

the applicability of the § 1 exemption was for the court, and not an arbitrator, to decide. And it

determined

Page 12

that it could not yet answer that question because (1) the " contracts of employment" language of

the § 1 exemption does not extend to independent contractors; and (2) discovery was needed on

the issue of whether Oliveira was a Prime employee or an independent contractor before the court

could decide whether the contract was a contract of employment under the § 1 exemption.[9] The

district court therefore denied Prime's motion to compel arbitration without prejudice and permitted

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the parties to conduct discovery on Oliveira's employment status. Prime timely appealed.[10]

Analysis

The FAA lies at the center of the two questions raised by this appeal. Thus, before tackling

those questions, we first briefly outline the statutory framework.

To combat deep-rooted judicial hostility towards arbitration agreements, Congress enacted

the FAA in 1925. See Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 111, 121 S.Ct. 1302, 149

L.Ed.2d 234 (2001). Section 2 of the FAA enshrines the " liberal federal policy favoring arbitration

agreements," Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct.

927, 74 L.Ed.2d 765 (1983), by declaring that an arbitration agreement in " a contract evidencing a

transaction involving commerce . . . shall be valid, irrevocable, and enforceable, save upon such

grounds as exist at law or in equity for the revocation of any contract," 9 U.S.C. § 2.

And the FAA does not simply talk the talk. Instead, two separate provisions provide the bite

to back up § 2's bark. See Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 70, 130 S.Ct. 2772,

177 L.Ed.2d 403 (2010). First, under § 3, a party may obtain a stay of federal-court litigation

pending arbitration. See 9 U.S.C. § 3. Second, § 4 authorizes district courts to grant motions to

compel arbitration. See id. § 4.

The scope of the FAA, however, is not unbounded. Section 1 of the FAA provides that the

Act shall not apply " to contracts of employment of seamen, railroad employees, or any other class

of workers engaged in foreign or interstate commerce." Id. § 1. The Supreme Court has

interpreted this section to " exempt[] from the FAA . . . contracts of employment of transportation

workers." Circuit City, 532 U.S. at 119.

This case presents us with two questions pertaining to the § 1 exemption. We address each

question in turn.

A. Who Decides Whether the § 1 Exemption Applies?

The question of whether the district court or the arbitrator decides the applicability of the § 1

exemption is one of first impression in this circuit. The parties champion dueling out-of-circuit

precedent in support of their respective positions on this issue. Relying on the Eighth Circuit's

decision in Green v. SuperShuttle International, Inc., 653 F.3d 766 (8th Cir. 2011), Prime argues

that the question of whether the § 1 exemption applies is a question of arbitrability that must be

decided by the arbitrator where, as here, the parties have delegated such questions to the

arbitrator.

Page 13

In Green, the plaintiffs, a class of shuttle-bus drivers, alleged that the defendant, a shuttle-

bus company, misclassified the drivers as franchisees instead of classifying them as employees.

653 F.3d at 767-68. When the defendant moved under the FAA to compel arbitration pursuant to

the arbitration clause contained in the parties' contracts, the plaintiffs countered that their contract

was outside the scope of the FAA by virtue of the § 1 exemption. Id. at 768. The Eighth Circuit

upheld the district court's grant of the defendant's motion, concluding that " [a]pplication of the

FAA's transportation worker exemption is a threshold question of arbitrability" in the parties'

dispute. Id. at 769. Because the parties' agreements incorporated the AAA rules, which provide

that the arbitrator has the power to determine his or her own jurisdiction, the court concluded that

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the parties agreed to allow the arbitrator to determine threshold questions of arbitrability, including

the applicability of the § 1 exemption. Id.

With Green as its guide, Prime offers several reasons why the question of § 1's applicability

is one for the arbitrator to determine, but each of these arguments flows from the Green court's

characterization of this issue as a question of arbitrability. The case on which Oliveira relies -- the

Ninth Circuit's decision in In re Van Dusen, 654 F.3d 838 (9th Cir. 2011) -- considered this

characterization to be a flawed starting premise.

Van Dusen arose on facts strikingly similar to those in this case; the plaintiffs, interstate truck

drivers, alleged that one of the defendants, a trucking company, misclassified its truck drivers as

independent contractors to circumvent the requirements of the FLSA and parallel state laws. See

id. at 840; see also Van Dusen v. Swift Transp. Co., 830 F.3d 893, 895 (9th Cir. 2016) (later

appeal in same case). The defendant moved to compel arbitration under the FAA, and the

plaintiffs opposed that motion, asserting that the § 1 exemption applied to their contracts. Van

Dusen, 654 F.3d at 840. The district court ordered arbitration, concluding that the question of

whether the § 1 exemption applied was one for the arbitrator to decide in the first instance. Id.

After the district court refused the plaintiffs' request for certification of an interlocutory appeal, the

plaintiffs sought mandamus relief before the Ninth Circuit. Id.

The Ninth Circuit ultimately declined to issue the extraordinary remedy of mandamus relief

because the district court's conclusion was not clearly erroneous in light of the dearth of federal

appellate authority addressing the issue and the general federal policy in favor of arbitration. Id. at

845-46. The court nonetheless outlined why " the best reading of the law requires the district court

to assess whether [the § ] 1 exemption applies before ordering arbitration" under the FAA. Id. at

846. The court explained that, because a district court's authority to compel arbitration under the

FAA exists only where the Act applies, " a district court has no authority to compel arbitration

under Section 4 [of the FAA] where Section 1 exempts the underlying contract from the FAA's

provisions." Id. at 843. The court elaborated:

In essence, [the d]efendants and the [d]istrict [c]ourt have adopted the position that contracting

parties may invoke the authority of the FAA to decide the question of whether the parties can

invoke the authority of the FAA. This position puts the cart before the horse: Section 4 has simply

no applicability where Section 1 exempts a contract from the FAA, and private contracting parties

cannot, through the insertion of a delegation clause, confer authority upon a

Page 14

district court that Congress chose to withhold.

Id. at 844. The court also concluded that the question of whether the § 1 exemption applies " does

not fit within th[e] definition" of " questions of arbitrability." Id.

After careful consideration of these competing cases, we are persuaded that the Ninth

Circuit hit the nail on the head, and we therefore hold that the issue of whether the § 1 exemption

applies presents a question of " whether the FAA confers authority on the district court to compel

arbitration" and not a question of arbitrability. Id.

" The Supreme Court defines 'questions of arbitrability' as questions of 'whether the parties

have submitted a particular dispute to arbitration.'" Id. (quoting Howsam v. Dean Witter Reynolds,

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Inc., 537 U.S. 79, 83, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002)); see also Rent-A-Center, 561 U.S.

at 68-69 (" [P]arties can agree to arbitrate 'gateway' questions of 'arbitrability,' such as whether the

parties have agreed to arbitrate or whether their agreement covers a particular controversy." );

Arbitrability, Black's Law Dictionary (10th ed. 2014) (defining arbitrability as " [t]he status, under

applicable law, of a dispute's being or not being resolvable by arbitrators because of the subject

matter" ). In this case, determining whether the § 1 exemption applies to the contract does not

entail any consideration of whether Prime and Oliveira have agreed to submit a dispute to

arbitration; instead, it raises the " distinct inquiry" of whether the district court has the authority to

act under the FAA -- specifically, the authority under § 4 to compel the parties to engage in

arbitration. Van Dusen, 654 F.3d at 844.

Therefore, as the Ninth Circuit explained in Van Dusen, the question of the court's authority

to act under the FAA is an " antecedent determination" for the district court to make before it can

compel arbitration under the Act. Id. at 843. Prime's argument to the contrary " puts the cart before

the horse" and makes no sense. Id. at 844. The following scenario readily demonstrates why this

is so: First, assume that two parties enter into a contract containing an arbitration clause with

language identical to that contained in the contract in this case, including a provision delegating

questions of arbitrability to the arbitrator. Second, assume that, unlike in this case, the parties are

in agreement that the contract involved is clearly a contract of employment of a transportation

worker. Third, assume that, as in this case, one of the parties, relying solely on the FAA, moves to

compel arbitration. Taking Prime's position to its logical conclusion, the district court would be

obligated to grant the motion because the parties have agreed to allow the arbitrator to decide

questions of arbitrability, including whether the § 1 exemption applies. See Green, 653 F.3d at

769. This would be so even though the § 1 exemption indisputably applies to the contract, such

that the district court had no authority to act under the FAA in the first place. See Van Dusen, 654

F.3d at 843 (" [A] district court has no authority to compel arbitration under Section 4 where

Section 1 exempts the underlying contract from the FAA's provisions." ).[11]

Page 15

This position cannot be correct. When the only basis for seeking arbitration in federal court

is the FAA, the district court can grant the requested relief only if it has authority to act under the

FAA. See id. at 843. If the FAA does not apply, " private contracting parties cannot, through the

insertion of a delegation clause, confer authority upon a district court [i.e., to compel arbitration

under the FAA] that Congress chose to withhold." Id. at 844. Therefore, " the district court must

make an antecedent determination that a contract is arbitrable under Section 1 of the FAA before

ordering arbitration pursuant to Section 4." Id. at 843.

Because we reject Green's starting premise -- that the issue of § 1's applicability is a

question of arbitrability -- we are unpersuaded by Green's reliance on a contract's incorporation of

the AAA rules, which allow an arbitrator to determine his or her own jurisdiction. Where, as here,

the parties dispute whether the district court has the authority to compel arbitration under the FAA,

the extent of the arbitrator's jurisdiction is of no concern. Instead, we are concerned only with the

question of whether the district court has authority to act under a federal statute. Nothing in the

AAA rules -- including the power to determine the arbitrator's jurisdiction -- purports to allow the

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arbitrator to decide whether a federal district court has the authority to act under a federal statute.[12]

For all these reasons, we join our colleagues on the Ninth Circuit and hold that the question

of whether the § 1 exemption applies is an antecedent determination that must be made by the

district court before arbitration can be compelled under the FAA. But we can't stop there.

B. Independent Contractors and the § 1 Exemption

After concluding that it must decide for itself whether the § 1 exemption applies, the district

court in this case ordered the parties to conduct factual discovery to determine whether Oliveira

was truly an independent

Page 16

contractor or instead was in reality a Prime employee during the time that the contract was in

place. Discovery on that issue was necessary, in the court's view, because " courts generally

agree that the § 1 exemption does not extend to independent contractors."

On appeal, both parties challenge this aspect of the district court's order. Prime agrees that §

1 does not extend to independent contractors, but it argues that discovery on the relationship

between the parties is inappropriate because Oliveira's status as a Prime employee or

independent contractor should be decided by the arbitrator. See AT& T Technologies, Inc. v.

Communications Workers of America, 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986)

(" [I]n deciding whether the parties have agreed to submit a particular grievance to arbitration, a

court is not to rule on the potential merits of the underlying claims." ). Alternatively, Prime argues

that if the district court must determine whether the § 1 exemption applies, it should consider only

whether the face of the contract demonstrates an intent to make Oliveira an independent

contractor. Oliveira, on the other hand, argues that the § 1 exemption covers the employment

contracts of " all transportation workers, including independent contractors." If we agree with

Oliveira, discovery is not needed.

Thus, the question presented is whether the § 1 exemption extends to transportation-worker

agreements that establish or purport to establish independent-contractor relationships, and we

review this issue of statutory interpretation de novo.[13] See United States v. Maldonado-Burgos,

844 F.3d 339, 340 (1st Cir. 2016). As always, the statutory text is our starting point. See id. The §

1 exemption provides that nothing contained in the FAA " shall apply to contracts of employment

of seamen, railroad employees, or any other class of workers engaged in foreign or interstate

commerce." 9 U.S.C. § 1 (emphasis added). The Supreme Court has declared that " [§ ] 1

exempts from the FAA only contracts of employment of transportation workers." Circuit City, 532

U.S. at 119.

Page 17

Before embarking on our analysis, we first identify two issues that we need not decide. First,

Prime does not dispute that Oliveira, whose work for Prime included driving a truck across state

lines, is a " transportation worker" within the meaning of the § 1 exemption, as interpreted by

Circuit City.[14] Thus, we have no need to definitively decide that issue. Second, we note that,

although the parties to the contract are Prime and Hallmark, Prime has, both below and on appeal,

treated the contract as one between Oliveira and Prime.[15] We do the same. Therefore, because

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the parties do not dispute that Oliveira is a transportation worker under § 1, we need not address

whether an LLC or other corporate entity can itself qualify as a transportation worker. We also

need not address the scope of the word " worker" in the residual clause of the § 1 exemption.

Accordingly, we limit our focus to the issue of whether an agreement between a trucking company

and an individual transportation worker cannot be a " contract of employment" within the meaning

of § 1 if the agreement establishes or purports to establish an independent-contractor relationship.

Prime points out that the weight of district-court authority to consider the issue has

concluded that the § 1 exemption does not extend to contracts that establish or purport to

establish an independent-contractor relationship.[16] Several of these

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decisions simply assume, explicitly or implicitly, that independent-contractor agreements are not

contracts of employment under § 1. See, e.g., Aviles, 2015 WL 5601824, at *6; Doe, 2015 WL

274092, at *3; Villalpando, 17 F.Supp.3d at 982; Bell, 2009 WL 4730564, at *4-6; Davis, 2008 WL

4755835, at *4; Kayser, 1999 WL 817724, at *4 n.4; see also Johnson, 608 N.E.2d at 540.[17]

Other courts have " simply go[ne] along with the developing group consensus," In re Atlas IT Exp.

Corp., 761 F.3d 177, 183 (1st Cir. 2014), without adding any independent analysis. See, e.g.,

Alvarado, 2014 WL 3888184, at *4-5; Carney, 10 F.Supp.3d at 853; All Saints, 757 F.Supp.2d at

472; see also Aleman, 194 Cal.Rptr.3d at 536-37. The few district-court decisions that offer

independent analysis to support the conclusion that the § 1 exemption does not cover

independent-contractor agreements have, viewed collectively, offered two reasons for that

conclusion: first, that this interpretation is consistent with the " strong and liberal federal policy

favoring arbitral dispute resolution," Swift Transp., 288 F.Supp.2d at 1035-36; see also Morning

Star, 2015 WL 2408477, at *5; United Van Lines, 2006 WL 5003366, at *3; and, second, that such

a rule is justified by the narrow construction that the Supreme Court has instructed courts to give

the § 1 exemption, see United Van Lines, 2006 WL 5003366, at *3.

Prime urges us to add our voice to this " judicial chorus," but we are unwilling

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to do so. Interpreting a federal statute is not simply a numbers game. See In re Atlas IT Exp.

Corp., 761 F.3d at 182-83 (" The numbers favoring a rule do not necessarily mean that the rule is

the best one. Indeed, there is an observable phenomenon in our courts of appeal and elsewhere --

sometimes called 'herding' or 'cascading' -- where decisionmakers who first encounter a particular

issue (i.e., the first court to consider a question) are more likely to rely on the record presented to

them and their own reasoning, while later courts are increasingly more likely to simply go along

with the developing group consensus." ). Instead of simply tallying the score, " it is always

incumbent on us to decide afresh any issue of first impression in our circuit." Id. at 183. After

conducting that fresh look in this case, we are distinctly unpersuaded by the district courts'

treatment of this issue.

The fatal flaw in the district-court authority on which Prime relies is a failure to closely

examine the statutory text -- the critical first step in any statutory-interpretation inquiry. See

Maldonado-Burgos, 844 F.3d at 340. Because Congress did not provide a definition for the phrase

" contracts of employment" in the FAA, we " give it its ordinary meaning." United States v.

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Stefanik, 674 F.3d 71, 77 (1st Cir. 2012) (quoting United States v. Santos, 553 U.S. 507, 511, 128

S.Ct. 2020, 170 L.Ed.2d 912 (2008)). And we discern the ordinary meaning of the phrase at the

time Congress enacted the FAA in 1925. See Perrin v. United States, 444 U.S. 37, 42, 100 S.Ct.

311, 62 L.Ed.2d 199 (1979) (" A fundamental canon of statutory construction is that, unless

otherwise defined, words will be interpreted as taking their ordinary, contemporary, common

meaning. Therefore, we look to the ordinary meaning of the term . . . at the time Congress enacted

the statute . . . ." (citation omitted)); see also Sandifer v. U.S. Steel Corp., 134 S.Ct. 870, 876, 187

L.Ed.2d 729 (2014) (consulting " [d]ictionaries from the era of [statutory provision's] enactment" to

espy ordinary meaning of undefined term); Carcieri v. Salazar, 555 U.S. 379, 388, 129 S.Ct. 1058,

172 L.Ed.2d 791 (2009) (" We begin with the ordinary meaning of the word 'now,' as understood

when the [statute] was enacted." ).[18] We now turn to that task.

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1. Ordinary Meaning of Statutory Text

Oliveira argues that the phrase " contracts of employment" contained in § 1 means simply "

agreements to do work." We agree. This interpretation is consistent with the ordinary meaning of

the phrase at the time Congress enacted the FAA.

Dictionaries from the era of the FAA's enactment confirm that the ordinary meaning of "

contracts of employment" in 1925 was agreements to perform work. See Webster's New

International Dictionary of the English Language 488 (W.T. Harris & F. Sturges Allen eds., 1923)

(defining " contract" when used as noun as " [a]n agreement between two or more persons to do

or forbear something" ); id. at 718 (defining " employment" as " [a]ct of employing, or state of being

employed" and listing " work" as synonym for " employment" ); id. (defining " employ" as " [t]o

make use of the services of; to have or keep at work; to give employment to" ); see also Webster's

Collegiate Dictionary 329 (3d ed. 1925) (providing similar definition of " employment" and similarly

listing " work" as synonym for " employment" ); id. (defining " employ" as " [t]o make use of; use"

and " [t]o give employment or work to" and explaining " [e]mploy is specifically used to emphasize

the idea of service to be rendered" ). In other words, these contemporary dictionaries do not

suggest that " contracts of employment" distinguishes employees from independent contractors.[19]

Additionally, this ordinary meaning of " contracts of employment" is further supported by

other authorities from the era of the FAA's enactment, which suggest that the phrase can

encompass agreements of independent contractors to perform work. See, e.g., Annotation,

Teamster as Independent Contractor Under Workmen's Compensation Acts, 42 A.L.R. 607, 617

(1926) (" When the contract of employment is such that the teamster is bound to discharge the

work himself, the employment is usually one of service, whereas, if, under the contract, the

teamster is not obligated to discharge the work personally, but may employ others to that end and

respond to the employer only for the faithful performance of the contract, the employment is

generally an independent one." (emphasis added)); Theophilus J. Moll, A Treatise on the Law of

Independent Contractors & Employers' Liability 47-48 (1910) (" It has been laid down that the

relation of master and servant will not be inferred in a case where it appears that the power of

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discharge was not an incident of the contract

Page 21

of employment." (emphasis added)); id. at 334 (" The [independent] contractor . . . is especially

liable for his own acts when he assumes this liability in his contract of employment." (emphasis

added)).[20]

Prime seeks to downplay the significance of these other authorities, noting that they do not

deal with the FAA. True enough, but the phrase " contracts of employment" must have some

meaning, and Prime does not attempt to explain how its proposed interpretation is consistent with

the ordinary meaning of the words used in the statute. And the lack of a textual anchor

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is not the only flaw in Prime's interpretation. In Circuit City, the Supreme Court noted "

Congress'[s] demonstrated concern with transportation workers and their necessary role in the

free flow of goods" at the time when it enacted the FAA. 532 U.S. at 121. Given that concern, the

distinction that Prime advocates based on the precise employment status of the transportation

worker would have been a strange one for Congress to draw: Both individuals who are

independent contractors performing transportation work and employees performing that same

work play the same necessary role in the free flow of goods.

In sum, the combination of the ordinary meaning of the phrase " contracts of employment"

and Prime's concession that Oliveira is a transportation worker compels the conclusion that the

contract in this case is excluded from the FAA's reach. Because the contract is an agreement to

perform work of a transportation worker, it is exempt from the FAA. We therefore decline to follow

the lead of those courts that have simply assumed that contracts that establish or purport to

establish independent-contractor relationships are not " contracts of employment" within the

meaning of § 1.

2. Narrow Construction and Policy Favoring Arbitration

We also are unpersuaded by the two justifications that some district-court decisions put

forward to support the conclusion that the § 1 exemption does not apply to contracts that establish

or purport to establish independent-contractor relationships -- that such an interpretation is

consistent with the need to narrowly construe § 1 and the liberal federal policy favoring arbitration.

In our view, neither consideration warrants retreat from the ordinary meaning of the statutory text.

To be sure, the Supreme Court has cautioned that the § 1 exemption must " be afforded a

narrow construction." Circuit City, 532 U.S. at 118. Prime seizes on this pronouncement and

insists that it forecloses our conclusion that the § 1 exemption applies to transportation-worker

agreements that establish or purport to establish independent-contractor relationships. We

disagree.

In Circuit City, the contract at issue was between Circuit City, a national retailer of consumer

electronics, and Adams, a store sales counselor. 532 U.S. at 109-10. The Ninth Circuit had

interpreted the § 1 exemption to exclude all contracts of employment from the FAA's reach. Id. at

112. In defense of this interpretation, Adams argued that the phrase " engaged in . . . commerce"

in § 1 exempted from the FAA all employment contracts falling within Congress's commerce

power. Id. at 114. The Supreme Court rejected this broad interpretation in favor of a narrower one

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that was compelled by the text and structure of § 1: " Section 1 exempts from the FAA only

contracts of employment of transportation workers." Id. at 119; see id. at 114-15. Because the

phrase " any other class of workers engaged in . . . commerce" appeared in the residual clause of

§ 1, id. at 114, the Court reasoned that " the residual clause should be read to give effect to the

terms 'seamen' and 'railroad employees,' and should itself be controlled and defined by reference

to the enumerated categories of workers which are recited just before it," id. at 115.

This context is critical. The Court announced the need for a narrow construction of the § 1

exemption in the course of " rejecting the contention that the meaning of the phrase 'engaged in

commerce' in § 1 of the FAA

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should be given a broader construction than justified by its evident language." Id. at 118

(emphasis added). As the Court explained, this broader construction was doomed by the text

itself; " the text of the FAA foreclose[d] the [broader] construction of § 1," id. at 119, and "

undermine[d] any attempt to give the provision a sweeping, open-ended construction," id. at 118.

The Court's narrower interpretation, by contrast, was based on " the precise reading" of that

provision. Id. at 119.

It is one thing to say that statutory text compels adoption of a narrow construction over " an

expansive construction . . . that goes beyond the meaning of the words Congress used." Id.

Prime's argument is very different: It snatches up Circuit City's narrow-construction

pronouncement, wholly ignores the context in which that pronouncement was made, and attempts

to use it as an escape hatch to avoid the plain meaning of the § 1 exemption's text. But nothing in

Circuit City suggests that the need for a narrow construction can override the plain meaning of the

statutory language in this fashion, and we reject Prime's attempt to artificially restrict the plain

meaning of the text.

Moreover, Oliveira is nothing like the sales counselor in Circuit City. Instead, the truck-driving

work that he performs directly impacts " the free flow of goods." Id. at 121. Therefore, Circuit City's

adoption of a narrow construction to cover only transportation workers and not sales counselors is

no basis for this court to accept a constricted interpretation of the phrase " contracts of

employment" that is inconsistent with both the ordinary meaning of the language used in § 1 and "

Congress's demonstrated concern with transportation workers and their necessary role in the free

flow of goods." Id. For these reasons, we do not view Circuit City or the narrow-construction

principle as supporting Prime's interpretation that the § 1 exemption does not extend to

independent contractors.

We are similarly unpersuaded by invocation of the federal policy in favor of arbitration. That

policy cannot override the plain text of a statute. See EEOC v. Waffle House, Inc., 534 U.S. 279,

295, 122 S.Ct. 754, 151 L.Ed.2d 755 (2002) (rejecting notion that " the federal policy favoring

arbitration trumps the plain language of Title VII and the contract" ); cf. id. at 294 (explaining that, "

[w]hile ambiguities in the language of the agreement should be resolved in favor of arbitration, we

do not override the clear intent of the parties, or reach a result inconsistent with the plain text of

the contract, simply because the policy favoring arbitration is implicated" and concluding that " the

proarbitration policy goals of the FAA do not require the [EEOC] to relinquish its statutory authority

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if it has not agreed to do so" (citation omitted)); Paul Revere, 226 F.3d at 25 (rejecting " attempts

to invoke the federal policy favoring arbitration" because " [t]hat policy simply cannot be used to

paper over a deficiency in Article III standing" ); Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 116

n.13, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996) (Souter, J., dissenting) (" [P]lain text is the Man of

Steel in a confrontation with background principle[s] and postulates which limit and control."

(internal citation and quotation marks omitted)). As we have explained, a careful examination of

the ordinary meaning of the phrase " contracts of employment" -- an effort eschewed by the

district-court authority cited by Prime -- supports our conclusion that the phrase means

agreements to perform work and includes independent-contractor agreements. The federal policy

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favoring arbitration cannot erase this plain meaning.

3. Final Words

For these reasons, we hold that a transportation-worker agreement that establishes or

purports to establish an independent-contractor relationship is a contract of employment under §

1. We emphasize that our holding is limited: It applies only when arbitration is sought under the

FAA, and it has no impact on other avenues (such as state law) by which a party may compel

arbitration.[21]

Conclusion

To recap, we hold that, when confronted with a motion to compel arbitration under § 4 of the

FAA, the district court, and not the arbitrator, must decide whether the § 1 exemption applies.

Additionally, we hold that transportation-worker agreements that establish or purport to establish

independent-contractor relationships are " contracts of employment" within the meaning of the § 1

exemption.[22] Because the contract in this case is within the § 1 exemption, the FAA does not

apply, and we consequently lack jurisdiction under 9 U.S.C. § 16(a)(1)(B) -- the only conceivable

basis for our jurisdiction over this interlocutory appeal. See Int'l Bhd. of Teamsters Local Union No.

50 v. Kienstra Precast, LLC, 702 F.3d 954, 957-58 (7th Cir. 2012). Accordingly, we affirm the

district court's denial of Prime's motion to compel arbitration, and dismiss the appeal for lack of

appellate jurisdiction.

DISSENT

BARBADORO, District Judge, concurring in part and dissenting in part.

I agree with the majority that the applicability of the § 1 exemption is a threshold matter for

the district court to decide. Where we part company is at the point where the majority decides to

take on the difficult issue as to whether transportation-worker agreements that purport to create

independent-contractor relationships are exempt from the Federal Arbitration Act. That, in my

view, is an issue we need not decide now. Instead, if it ultimately proves necessary to determine

whether the § 1 exemption covers all such independent-contractor agreements, the district court

should do so in the first instance with the benefit of more in-depth briefing and a fully developed

factual record.

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The scope of the § 1 exemption comes before us on what amounts to an interlocutory

appeal. See Omni Tech Corp. v. MPC Sols. Sales, LLC, 432 F.3d 797, 800 (7th Cir. 2005). The

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district court did not reach any final judgment as to the exemption, instead dismissing New Prime's

motion to compel arbitration without prejudice and allowing for discovery on Oliveira's employment

status. Oliveira v. New Prime, Inc., 141 F.Supp.3d 125, 135 (D. Mass. 2015). As there has been

no final judgment in the district court, I hesitate to resolve an issue that is not necessary to the

disposition of this appeal. See Doe v. Cape Elizabeth Sch. Dist., 832 F.3d 69, 86 (1st Cir. 2016)

(declining to address unnecessary issue and deeming it prudent to allow district court to make

determination in the first instance). And it is indeed unnecessary to determine the scope of the

exemption at this time. If the case were remanded to the district court for discovery, the court

might well rule that the nominally independent-contractor agreements between Oliveira and New

Prime actually created an employer-employee relationship. In that circumstance, neither we nor

the district court would have any occasion to categorically decide whether all transportation-worker

agreements purporting to create independent-contractor relationships qualify for the § 1

exemption.

I am particularly reluctant to unnecessarily resolve an issue on an interlocutory appeal when,

as is the case here, a number of factors counsel against doing so. Most fundamentally, deciding

whether " contracts of employment" includes all transportation-worker agreements presents a

challenging question of statutory interpretation. The statute itself provides little guidance. Further,

as the majority notes, most courts that have considered independent-contractor agreements in the

§ 1 context have concluded that the exemption does not apply, and no other court has engaged in

the kind of detailed analysis of ordinary meaning that characterizes the majority's opinion. We

therefore have neither an example to guide and corroborate our analysis nor a contrary opinion to

provide counterbalance.

Moreover, applying § 1 in this case requires venturing into the fact-bound, and notoriously

precarious, field of employment-status determinations. Although the majority's categorical rule

would eliminate the need for fact-finding on status, it could also lead to the over-and under-

inclusiveness concerns typical of such rules. As Justice Rutledge observed in N.L.R.B. v. Hearst

Publications, 322 U.S. 111, 64 S.Ct. 851, 88 L.Ed. 1170 (1944): " Few problems in the law have

given greater variety of application and conflict in results than the cases arising in the borderland

between what is clearly an employer-employee relationship and what is clearly one of independent

entrepreneurial dealing." Id. at 121 (subsequent history omitted). The doctrinal line separating

employee from independent contractor is difficult to discern in the context of vicarious liability. See

id. " It becomes more [difficult] when the field is expanded to include all of the possible

applications of the distinction." Id. We find ourselves confronted by one of those " possible

applications," making the issue before us all the more challenging. See Mandel v. Boston Phoenix,

Inc., 456 F.3d 198, 206-07 (1st Cir. 2006) (vacating and remanding summary judgment order

where, inter alia, there was little on-point federal or state case law and pertinent determination was

fact-intensive).

Not only do we face a hard question -- given that the contemporary meaning of § 1's

language may differ from its meaning when adopted -- but we do so without the aid of a well-

developed district court record. Before the district court, the parties provided little briefing on the

ordinary meaning of " contracts of employment" as

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of 1925. Oliveira initially argued that he was an employee of New Prime. He first briefed an

ordinary-meaning argument in a short supplemental surreply submitted to the district court after a

hearing on the motion to compel arbitration. Oliveira cited just two sources from the time of

adoption. In a subsequent supplemental surreply, New Prime declined to address the ordinary-

meaning issue head-on, instead only reiterating that the matter was for the arbitrator. The district

court's order reflects this dearth of briefing. Rather than directly addressing the less-than-robust

argument Oliveira raised in his supplemental brief, the court noted the extensive contrary case law

and permitted discovery to resolve the case. See Oliveira, 141 F.Supp.3d at 130-31, 135. When

the ordinary-meaning issue reached this court, the record accordingly provided little guidance. See

United States v. Clark, 445 U.S. 23, 38, 100 S.Ct. 895, 63 L.Ed.2d 171 (1980) (Rehnquist, J.,

dissenting) (recognizing usefulness of lower court opinions); Cape Elizabeth Sch. Dist., 832 F.3d

at 84-85 (choosing not to decide unnecessary question where parties gave " scant attention" to

issue in lower court).

The briefing before this court was also less than ideal. Although Oliveira devoted significant

effort to arguing that the ordinary meaning of " contracts of employment" in 1925 included

contracts with independent contractors, New Prime barely addressed the matter. It did not mention

the ordinary-meaning argument in its opening brief, and spent only a page on the topic in its reply

brief. At oral argument, New Prime merely insisted that ordinary-meaning analysis is inappropriate

in the § 1 context. Where a court has the discretion to decide an issue, it should be wary of acting

without the benefit of fully developed arguments on both sides. That is especially the case when

we rule against the party with the less-developed argument.

Just as we have been presented with a one-sided view of the ordinary meaning of "

contracts of employment," we have received a one-sided view of the facts. This appeal was taken

early in the litigation between the parties, prior to any discovery that would have shed greater light

on the facts underlying the dispute. The current factual record contains only Oliveira's unanswered

complaint and some documents attached to the parties' motions. While the court is entitled to base

its analysis on allegations in the complaint, Gove v. Career Sys. Dev. Corp., 689 F.3d 1, 2 (1st Cir.

2012), we should exercise added caution in denying affirmative relief to a defendant when our

view of the facts is informed largely by the plaintiff's untested allegations.

Under these circumstances, our best option is to remand the § 1 exemption question to the

district court so that discovery may proceed and the court may reach a final decision. If either party

were to appeal any subsequent final decision of the district court, we would have the benefit of a

better-developed factual record, more-focused briefing from both parties, and additional district

court analysis. See Denmark v. Liberty Life Assur. Co. of Boston, 566 F.3d 1, 12 (1st Cir. 2009)

(Lipez, J., concurring) (expressing concern over dicta in majority opinion " fashioned without the

benefit of district court analysis or briefing by the parties" ).

The majority has done an impressive job of marshalling the arguments in support of its

interpretation of § 1. I dissent not to take issue with the court's reasoning but merely to express my

view that we would be better served in following a more cautious path.

---------

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Notes: [*]Of the District of New Hampshire, sitting by designation. [1]Because the motion to compel arbitration was made in connection with a motion to dismiss or

stay, we glean the relevant facts from the operative complaint and the documents submitted to the

district court in support of the motion. See Gove v. Career Sys. Dev. Corp., 689 F.3d 1, 2 (1st Cir.

2012). [2]This arrangement allows Prime to transport its shipments in a more economical and efficient

manner. Under United States Department of Transportation regulations, a truck driver's " [o]n-duty

time" includes " [a]ll driving time" as well as a host of other non-driving tasks, including time spent

supervising a student driver who is behind the wheel. 49 C.F.R. § 395.2. In any fourteen-hour

period of on-duty time, a truck driver has only eleven hours of driving time. Id. § 395.3(a)(2)-(3)(i).

After a Prime instructor driver has maxed out his or her eleven hours of driving time, the instructor

driver still has three more hours of on-duty time remaining. Thus, once an instructor driver has

exhausted his or her own driving time, a student driver can drive the truck toward its ultimate

destination for up to three more hours, and Prime does not pay the student driver for this bonus

driving time. [3]Around ten months later, Hallmark and Prime executed another Independent Contractor

Operating Agreement. Because the pertinent language of the two agreements is identical, we refer

to them collectively as " the contract." When quoting the contract in this opinion, we omit any

unnecessary capitalization. [4]Although the contract was between Prime and Hallmark, Prime has -- with one small exception

discussed below, see note 15, infra -- treated the contract as one between Prime and Oliveira. We

similarly treat Oliveira and Hallmark interchangeably. [5]Before he could drive for another carrier, however, Oliveira was contractually obligated to give

Prime five days' advance notice and to " remove all identification devices, licenses and base

plates from the [truck] and return [them] to Prime." [6]The arbitration provision also specified that " arbitration between the parties will be governed by

the Commercial Arbitration Rules of the American Arbitration Association [(AAA)]." [7]Because the district court never addressed the alternative arguments for dismissal and Prime

has not pressed them on appeal, we focus only on the motion to compel arbitration. [8]The parties also squabbled over whether Oliveira's claims arising from periods of time in which

the contract was not in effect -- during Oliveira's pre-contract time in the apprenticeship program

and his post-contract stint as a company driver -- were arbitrable under the arbitration clause of

the contract. The district court did not resolve the issue, electing instead to focus on the question

of whether the § 1 exemption applied. [9]The district court noted that the parties did not dispute that Oliveira, as a truck driver, was a

transportation worker under the § 1 exemption. [10]Although interlocutory orders are ordinarily not immediately appealable, the FAA permits

immediate appeal from an order denying a motion to compel arbitration. See 9 U.S.C. §

16(a)(1)(B); Gove, 689 F.3d at 3-4 n.1. We review the denial of a motion to compel arbitration de

novo. Gove, 689 F.3d at 4.

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[11]When confronted with the logical extreme of its position at oral argument, Prime sought to

qualify it to some degree. Prime insisted that, so long as the party seeking to compel arbitration

had a good-faith basis for asserting that the § 1 exemption did not apply, the question of the

applicability of the § 1 exemption would need to be arbitrated under the delegation clause of the

arbitration agreement. But, even with this minor qualification, Prime's position still boils down to

the conclusion that the district court can compel arbitration under the FAA before determining

whether it has authority to act under the FAA, even in a case where it might not have such

authority. We do not accept this position. [12]We are likewise unmoved by each of Prime's subsidiary arguments, all of which are grounded

on the question-of-arbitrability premise that we reject. For example, Prime's invocation of the

liberal federal policy in favor of arbitration and its corollary, the principle that any doubts about the

scope of arbitrable issues should be resolved in favor of arbitration, goes nowhere because we are

not confronted with a scope question. See Paul Revere Variable Annuity Ins. Co. v. Kirschhofer,

226 F.3d 15, 25-26 (1st Cir. 2000). Similarly, Prime's argument that, so long as the court is "

satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in

issue," 9 U.S.C. § 4, the court must compel arbitration overlooks that one does not even approach

the § 4 inquiry until one first determines that the § 1 exemption does not apply. See Van Dusen,

654 F.3d at 843-44. Finally, Prime's effort to compare the question of the applicability of the § 1

exemption to questions concerning the validity of an agreement or whether it can be enforced by

the party seeking to compel arbitration -- questions that can be referred to the arbitrator -- is

unavailing. Issues concerning alleged flaws with an agreement's validity or enforceability are

fundamentally different than the issue of the district court's authority to act under the FAA in the

first place. See id. at 844 (" [P]rivate contracting parties cannot, through the insertion of a

delegation clause, confer authority upon a district court that Congress chose to withhold." ).

Additionally, it is not unusual for a court to first decide a specific challenge to the validity or

enforceability of the arbitration clause that a party is seeking to enforce. See Rent-A-Center, 561

U.S. at 71; Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04, 87 S.Ct. 1801,

18 L.Ed.2d 1270 (1967). [13]We have considered the possibility, proposed by our dissenting colleague, of remanding

without deciding this question of statutory interpretation. The benefit of this approach, according to

the dissent, would be avoiding this difficult legal question now on the chance that the discovery

contemplated by the district court might lead to a conclusion that Oliveira is not an independent

contractor -- a conclusion that would moot, for this case, the question whether independent

contractors are within the exemption. But we do not view this approach as a viable option because

the district court ordered discovery based on its legal conclusion that " the § 1 exemption does not

extend to independent contractors." If that legal conclusion is incorrect -- an issue that Oliveira

sufficiently raised below and both parties have briefed on appeal -- there is no need for discovery

in the first place. Therefore, we will not adopt an approach that assumes away one of the live

issues on appeal simply because the issue is a difficult one. Cf. Citizens United v. FEC, 558 U.S.

310, 375, 130 S.Ct. 876, 175 L.Ed.2d 753 (2010) (Roberts, C.J., concurring) (" It should go without

saying . . . that we cannot embrace a narrow ground of decision simply because it is narrow; it

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must also be right. Thus while it is true that '[i]f it is not necessary to decide more, it is necessary

not to decide more,' . . . sometimes it is necessary to decide more. There is a difference between

judicial restraint and judicial abdication." ). Finally, we note that we are not convinced that the

dissent's approach in fact provides a narrower ground of decision; such an approach would

require us to address Prime's contention (which the dissent implicitly rejects) that discovery on the

parties' relationship would render the contractual right to arbitration a nullity. Addressing that

contention would present its own set of challenges, but, given the manner in which we decide the

statutory-interpretation question, that issue is the one that need not be decided in this appeal. [14]The district court's decision indicated that the parties did not dispute this issue. Similarly,

Prime did not argue in its opening brief that Oliveira is not a transportation worker. In a single

sentence in its reply brief, Prime asserts that this court " has never extended the [§ ] 1 [e]xemption

to truck drivers, as opposed to rail workers and seamen (the core workers of concern when

Congress enacted the exemption)." To the extent that Prime intended this lone sentence to

resurrect the transportation-worker issue in this case, we will not allow it. Any such " argument" is

wholly undeveloped, see United States v. Sevilla-Oyola, 770 F.3d 1, 13 (1st Cir. 2014) ("

Arguments raised in only a perfunctory and undeveloped manner are deemed waived on appeal."

), and, moreover, an argument that makes its debut in a reply brief will not receive a warm ovation

from us, see United States v. Arroyo-Blas, 783 F.3d 361, 366 n.5 (1st Cir. 2015) (" [A] legal

argument made for the first time in an appellant's reply brief comes too late and need not be

addressed." (quoting United States v. Brennan, 994 F.2d 918, 922 n.7 (1st Cir. 1993))). Finally, we

note in passing that Prime's position has not been accepted elsewhere. See, e.g., Lenz v. Yellow

Transp., Inc., 431 F.3d 348, 351 (8th Cir. 2005) (" Indisputably, if Lenz were a truck driver, he

would be considered a transportation worker under § 1 of the FAA." ); Harden v. Roadway

Package Sys., Inc., 249 F.3d 1137, 1140 (9th Cir. 2001) (" As a delivery driver for RPS, Harden

contracted to deliver packages 'throughout the United States, with connecting international

service.' Thus, he engaged in interstate commerce that is exempt from the FAA." ). [15]Before the district court, Prime opposed Oliveira's argument that he could not be personally

bound by the terms of the contract between Prime and Hallmark by arguing that " Oliveira and

Hallmark Trucking are factually one and the same." Along similar lines, Prime stated in its opening

brief that " Oliveira entered into an Independent Contractor Operating Agreement . . . with Prime"

(emphasis added), and its brief proceeded on the assumption that Oliveira and Hallmark were

interchangeable. In its reply brief, for the first time in this case, Prime relies on the fact that the

contract was between Prime and Hallmark in arguing that the contract established an

independent-contractor relationship. We need not decide whether Prime is judicially estopped from

taking this position at this late juncture; it suffices that a reply brief is not the appropriate place to

switch gears and offer new arguments. See Arroyo-Blas, 783 F.3d at 366 n.5. [16]See, e.g., Aviles v. Quik Pick Express, LLC, No. CV-15-5214-MWF (AGR), 2015 WL 5601824,

at *6 (C.D. Cal. Sept. 23, 2015); Morning Star Assocs., Inc. v. Unishippers Glob. Logistics, LLC,

No. CV-115-033, 2015 WL 2408477, at *5-7 (S.D. Ga. May 20, 2015); Doe v. Swift Transp. Co.,

No. 2:10-cv-00899 JWS, 2015 WL 274092, at *3 (D. Ariz. Jan. 22, 2015); Alvarado v. P. Motor

Trucking Co., No. EDCV 14-0504-DOC(DTBx), 2014 WL 3888184, at *4-5 (C.D. Cal. Aug. 7,

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2014); Villalpando v. Transguard Ins. Co. of Am., 17 F.Supp.3d 969, 982 (N.D. Cal. 2014);

Carney v. JNJ Express, Inc., 10 F.Supp.3d 848, 852 (W.D. Tenn. 2014); Port Drivers Fed'n 18,

Inc. v. All Saints, 757 F.Supp.2d 463, 472 (D.N.J. 2011); Davis v. Larson Moving & Storage Co.,

Civ. No. 08-1408 (JNE/JJG), 2008 WL 4755835, at *4 (D. Minn. Oct. 27, 2008); Owner-Operator

Indep. Drivers Ass'n v. United Van Lines, LLC, No. 4:06CV219 JCH, 2006 WL 5003366, at *3

(E.D. Mo. Nov. 15, 2006); Owner-Operator Indep. Drivers Ass'n v. Swift Transp. Co., 288

F.Supp.2d 1033, 1035-36 (D. Ariz. 2003); Roadway Package Sys., Inc. v. Kayser, No. CIV. A. 99-

MC-111, 1999 WL 817724, at *4 n.4 (E.D. Pa. Oct. 13, 1999); see also Performance Team Freight

Sys., Inc. v. Aleman, 241 Cal.App.4th 1233, 194 Cal.Rptr.3d 530, 536-37 (Cal.Ct.App. 2015);

Johnson v. Noble, 240 Ill.App.3d 731, 608 N.E.2d 537, 540, 181 Ill.Dec. 464 (Ill.App.Ct. 1992); cf.

Bell v. A. Trucking Co., No. 3:09-cv-406-J-32MCR, 2009 WL 4730564, at *4-6 (M.D. Fla. Dec. 7,

2009) (conducting analysis on applicability of § 1 exemption on assumption it does not apply to

independent contractors). [17]This assumption was implicit in Judge Ikuta's dissenting opinion in In re Swift Transportation

Co., 830 F.3d 913 (9th Cir. 2016). The majority in Swift determined that mandamus relief was not

warranted because the district court's proposed course of action -- " resolv[ing] the § 1 question

through discovery and a trial" -- was not clearly erroneous; the district court's decision was not

contrary to any Supreme Court or Ninth Circuit precedent, and " there [did] not appear to be any

decisions from [the other] circuits on the question of whether the FAA compels a certain

procedural choice in a district court's § 1 determination." Id. at 917. Judge Ikuta dissented,

expressing her belief that the § 1 determination should be made solely from an examination of the

contract's terms. Id. at 920-21 (Ikuta, J., dissenting). Implicit in Judge Ikuta's dissent is the

assumption that independent-contractor agreements are not contracts of employment under the

FAA. But there was good reason for that assumption in the circumstances of that case: Unlike in

this case, none of the litigants argued that independent-contractor agreements of transportation

workers are contracts of employment. And the district court in that case simply assumed -- with no

analysis or citation to authority -- that the § 1 exemption covered only contracts between

employers and employees. See Doe, 2015 WL 274092, at *3 (" Whether the parties formed an

employment contract -- that is whether plaintiffs were hired as employees -- necessarily involves a

factual inquiry apart from the contract itself." ). [18]At oral argument, Prime insisted that the Supreme Court in Circuit City rejected this approach

for discerning the plain meaning of the FAA's text. But the Court did no such thing. In that case,

the Court was confronted with an argument that, " because the FAA was enacted when

congressional authority to regulate under the commerce power was to a large extent confined by

[Supreme Court] decisions," the phrase " engaged in commerce" in § 1 should be interpreted as "

expressing the outer limits of Congress'[s] power as then understood." Circuit City, 532 U.S. at

116. The Court rejected this argument, which it characterized as " [a] variable standard"

depending on " shifts in the Court's Commerce Clause cases" that would require courts to " take

into account the scope of the Commerce Clause, as then elaborated by the Court, at the date of

the FAA's enactment in order to interpret what the statute means now." Id. at 116-17. The Court

reasoned that " [i]t would be unwieldy for Congress, for the Court, and for litigants to be required to

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deconstruct statutory Commerce Clause phrases depending upon the year of a particular statutory

enactment." Id. at 118. In this case, by contrast, our attempt to discern the ordinary meaning of the

phrase " contracts of employment" does not require us to sort through paradigm shifts in Supreme

Court precedent but simply to apply the " fundamental canon of statutory construction" that

undefined statutory terms should be given their ordinary meaning at the time of the statute's

enactment, Sandifer, 134 S.Ct. at 876 (quoting Perrin, 444 U.S. at 42) -- a canon that has been

applied in FAA cases since Circuit City. See, e.g., Conrad v. Phone Directories Co., 585 F.3d

1376, 1381-82 & n.1 (10th Cir. 2009) (in interpreting undefined term in § 16 of FAA, consulting

dictionary from era of § 16's enactment). [19]Although not referenced by either party, we note that the current edition of Black's Law

Dictionary indicates that the earliest known use of the phrase " employment contract" was 1927 --

two years after the FAA's enactment. See Employment Contract, Black's Law Dictionary (10th ed.

2014); id. at xxxi (explaining that " [t]he parenthetical dates preceding many of the definitions show

the earliest known use of the word or phrase in English" ). The current edition also indicates that "

contract of employment" is a synonym for " employment contract," and it defines " employment

contract" in a manner that arguably excludes independent contractors: " [a] contract between an

employer and employee in which the terms and conditions of employment are stated."

Employment Contract, Black's Law Dictionary (10th ed. 2014). It is unclear whether the unknown

source from 1927 provided the basis for the current definition of " employment contract" or,

instead, whether that source has merely been identified as the first known use of the phrase. We

need not, however, dwell on this point because, as explained below, several sources from the era

of the FAA's enactment use the phrase " contract of employment" to refer to independent

contractors. Additionally, we note that the two editions of Black's Law Dictionary that bookend the

FAA's enactment, see Black's Law Dictionary (3d ed. 1933); Black's Law Dictionary (2d ed. 1910),

provide no definition for the phrases " contract of employment" or " employment contract." [20]See also Luckie v. Diamond Coal Co., 41 Cal.App. 468, 183 P. 178, 182 (Cal. Dist. Ct.App.

1919) (" We think that the nature of Foulk's relation to defendant at the time of the accident,

whether that of an independent contractor or servant, must be determined not alone from the

terms of the written contract of employment, but from the subsequent conduct of each, known to

and acquiesced in by the other." (emphasis added)); Hamill v. Territilli, 195 Ill.App. 174, 175

(1915) (" [T]he only question in the case was whether or not, under the contract of employment,

the relationship existing between Territilli and Scully and the appellant was that of independent

contractor or that of master and servant . . . ." (emphasis added)); Eckert's Case, 233 Mass. 577,

124 N.E. 421, 421 (Mass. 1919) (" It was provided by his contract of employment that he should

furnish the team, feed, take care of and drive the horses for a fixed daily remuneration. The entire

management and mode of transportation were under his control . . . . It is plain as matter of law . .

. that when injured he was not an employé of the town but an independent contractor." (emphasis

added) (citations omitted)); Lindsay v. McCaslin, 123 Me. 197, 122 A. 412, 413 (Me. 1923) ("

When the contract of employment has been reduced to writing, the question whether the person

employed was an independent contractor or merely a servant is determined by the court as a

matter of law." (emphasis added)); Allen v. Bear Creek Coal Co., 43 Mont. 269, 115 P. 673, 679

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(Mont. 1911) (" The relation of the parties under a contract of employment is determined by an

answer to the question, Does the employé in doing the work submit himself to the direction of the

employer, both as to the details of it and the means by which it is accomplished? If he does, he is

a servant, and not an independent contractor. If, on the other hand, the employé has contracted to

do a piece of work, furnishing his own means and executing it according to his own ideas, in

pursuance of a plan previously given him by the employer, without being subject to the orders of

the latter as to detail, he is an independent contractor." (emphasis added)); Tankersley v.

Webster, 1925 OK 520, 116 Okla. 208, 243 P. 745, 747 (Okla. 1925) (" [T]he contract of

employment between Tankersley and Casey was admitted in evidence without objections, and we

think conclusively shows that Casey was an independent contractor." (emphasis added)); Kelley v.

Del., L. & W. R. Co., 270 Pa. 426, 113 A. 419, 419 (Pa. 1921) (" The question for determination is

whether deceased was an employee of defendant or an independent contractor . . . . To decide, it

is necessary to construe the written contract of employment . . . ." (emphasis added)); United

States Fidelity & Guaranty Co. v. Lowry, 231 S.W. 818, 822 (Tex.Civ.App. 1921) (stating that, in

determining whether person " was an employé and not an independent contractor," " '[n]o single

fact is more conclusive as to the effect of the contract of employment, perhaps, than the

unrestricted right of the employer to end the particular service whenever he chooses, without

regard to the final result of the work itself'" (emphasis added) (quoting Cockran v. Rice, 26 S.D.

393, 128 N.W. 583, 585 (S.D. 1910))); Annotation, General Discussion of the Nature of the

Relationship of Employer and Independent Contractor, 19 A.L.R. 226, 250 (1922) (discussing " the

question whether a contract of employment is one of an independent quality" ).

Along similar lines, legal dictionaries from the era of the FAA's enactment used the term "

employment" as part of the definition of " independent contractor." See, e.g., Independent

Contractor, Ballentine's Law Dictionary (1930) (defining independent contractor as " [o]ne who,

exercising an independent employment, contracts to do a piece of work according to his own

methods and without being subject to the control of his employer except as to the result of the

work" ); Independent Contractor, Black's Law Dictionary (3d ed. 1933) (same); Independent

Contractor, Black's Law Dictionary (2d ed. 1910) (same); 2 Francis Rawle, Bouvier's Law

Dictionary & Concise Encyclopedia 1533 (3d rev. 1914) (same). [21]Prime insists that, even if the district court is powerless to compel arbitration under the FAA

because the § 1 exemption applies, it still can request the district court to " compel arbitration on

other grounds, such as state law, or use other tools at its disposal to enforce the parties' explicit

agreement to arbitrate -- such as dismissing or staying the case." For his part, Oliveira appears to

suggest that this ship has sailed because Prime's motion to compel was based solely on the FAA.

Prime counters that, to the extent Oliveira is under the impression that Prime has waived the right

to compel arbitration on grounds other than the FAA, he is mistaken because no prejudice has

been shown. We do not wade into this dispute. The fleeting references in both parties' briefs are

hardly the stuff of developed argumentation, and this waiver issue was not addressed by the

district court. If the parties desire to continue this fight in the district court, they are free to do so.

Along similar lines, although Prime argues in its opening brief that the arbitration provision covers

disputes between the parties that arose before and after the time period in which the contract was

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in effect, it takes a different tack in its reply brief, imploring us to refrain from deciding this issue

because the district court did not definitively rule on it below. We accept Prime's invitation and

leave the issue for the district court to address in the first instance. [22]In light of this conclusion, we need not address the parties' arguments about the necessity and

permissibility of discovery in the event that the § 1 exemption does not apply to independent-

contractor agreements.

---------

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62 N.E.3d 472 (Ind.App. 2016), 27A04-1511-MI-1976, State v. Timbs /**/ div.c1 {text-align: center}

/**/

Page 472

62 N.E.3d 472 (Ind.App. 2016)

State of Indiana, Appellant-Plaintiff,

v.

Tyson Timbs and a 2012 Land Rover LR2, Appellees-Defendants

Court of Appeals No. 27A04-1511-MI-1976

Court of Appeals of Indiana

October 20, 2016

As Corrected October 20, 2016.

Appeal from the Grant Superior Court 1. The Honorable Jeffrey D. Todd, Judge. Trial Court

Cause No. 27D01-1308-MI-92.

ATTORNEYS FOR APPELLANT: Gregory F. Zoeller, Attorney General of Indiana; Aaron T.

Craft, Justin F. Roebel, Deputy Attorney General, Indianapolis, Indiana.

ATTORNEYS FOR APPELLEE: David W. Stone IV, Stone Law Office & Legal Research,

Anderson, Indiana.

Mathias, Judge. Vaidik, C.J., concurs. Barnes, J., dissents with opinion.

OPINION

Page 473

Mathias, Judge.

[¶1] The State of Indiana filed a complaint for forfeiture in Grant Superior Court seeking to obtain a

2012 Land Rover LR2 owned by Tyson Timbs (" Timbs" ). The trial court ruled in favor of Timbs,

and the State appeals, presenting one issue, which we restate as whether the trial court erred in

concluding that forfeiture of Timbs's vehicle would constitute a constitutionally excessive fine.

[¶2] We affirm.

Facts and Procedural History

[¶3] In January 2013, Timbs purchased a Land Rover LR2 (" Land Rover" ) for the sum of

$42,058.30 from a dealer in Indianapolis. Timbs paid for the Land Rover with life insurance policy

proceeds that he received following the death of his father. Thereafter, Timbs began to use this

vehicle to drive from Marion, Indiana to Richmond, Indiana for the purposes of purchasing heroin.

Timbs also used the Land Rover to transport the heroin back to Richmond.

[¶4] In May 2013, a confidential informant (" CI" ) told a member of the Joint Effort Against

Narcotics (" JEAN" ) team[1] that he could purchase heroin from Timbs. The police then set up a

controlled buy, and on May 6, 2013, an undercover detective and the CI met Timbs at an

apartment.[2] The detective gave the CI the purchase money, and the CI went inside the

apartment with Timbs and returned with two grams of heroin that he had purchased for the

previously agreed-to price of $275.

[¶5] The police set up another controlled buy on May 22, 2013, to take place at a local gas station.

This time, the undercover

Page 474

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detective purchased two grams of heroin from Timbs for a price of $260. After this transaction, the

detective spoke with Timbs about arranging yet another purchase of heroin. However, on the day

this controlled buy was set to take place, the police instead apprehended Timbs during a traffic

stop.

[¶6] On June 5, 2013, the State charged Timbs with two counts of Class B felony dealing in a

controlled substance and one count of Class D felony conspiracy to commit theft. On August 5,

2013, the State filed a complaint for forfeiture, seeking to obtain Timbs's Land Rover.

[¶7] On April 12, 2015, Timbs entered into a plea agreement with the State whereby he agreed to

plead guilty to one count of Class B felony dealing in a controlled substance and Class D felony

theft in exchange for the State dismissing the remaining charges. The following day, the trial court

accepted the plea and sentenced Timbs pursuant to the agreement to six years, with one year

executed in community corrections and five years suspended to probation. Pursuant to the plea

agreement, Timbs also agreed to reimburse the JEAN team $385 for the cost of the investigation

and pay a drug abuse, prosecution, and interdiction fee of $200; court costs of $168; a bond fee of

$50; and a $400 certified court program fee after undergoing a drug and alcohol assessment with

the probation department. The complaint for forfeiture remained pending.

[¶8] On July 15, 2015, the trial court held a hearing on the forfeiture complaint. At the hearing,

Timbs argued that forfeiture of his Land Rover, which he claimed was worth over $40,000,

constituted an excessive fine, given that he had only dealt drugs twice, that he was only convicted

for one count of dealing, and that the maximum statutory fine for his crime was $10,000. The trial

court took the matter under advisement and, on August 28, 2015, entered an order in favor of

Timbs, which provided in relevant part:

7. The State now seeks a judgment against the Defendant for forfeiture of the Land Rover; a

vehicle that just five (5) months before it was seized had a fair market value of almost four (4)

times the maximum monetary fine of $10,000. 8. The Court finds that the judgment of forfeiture

sought by the State violates the Excessive Fines Clause of the Eighth Amendment of the United

States Constitution. The amount of the forfeiture sought is excessive and is grossly disproportional

to the gravity of the Defendant's offense. 9. While the negative impact on our society of trafficking

in illegal drugs is substantial, a forfeiture of approximately four (4) times the maximum monetary

fine is disproportional to the Defendant's illegal conduct. Judgment is entered in favor of the

Defendant and against the State. The Land Rover LR2, at issue, is ordered released to the

Defendant immediately.

Appellant's App. pp. 15-16. The State filed a motion to correct error on September 14, 2015,

claiming for the first time that the trial court should have ordered a sale of the Land Rover from

which a non-excessive fine could be deducted.[3] The trial court held a hearing on the State's

motion to correct error on October 14, 2015, and entered an order denying the State's motion on

October 21, 2015. The State now appeals.

Page 475

Standard of Review

[¶9] At trial, the State bore the burden of establishing the requirements of forfeiture. See Ind. Code

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§ 34-24-1-4(a). Thus, the State is appealing from a negative judgment. See Merrillville 2548, Inc.

v. BMO Harris Bank N.A., 39 N.E.3d 382, 390-91 (Ind.Ct.App. 2015), reh'g denied, trans. denied.

On appeal, we will not reverse a negative judgment unless it is contrary to law. Id. Here, the State

argues that the trial court erred in determining that the forfeiture of the Land Rover constituted an

excessive fine. This court has held that forfeitures are subject to the Excessive Fines Clause of the

Eighth Amendment to the United States Constitution. $ 100 and a Black Cadillac v. State, 822

N.E.2d 1001, 1011 (Ind.Ct.App. 2005), trans. denied (citing Austin v. United States, 509 U.S. 602,

609-10, 113 S.Ct. 2801, 125 L.Ed.2d 488 (1993)).[4] We review the trial court's conclusion

regarding the excessiveness of a fine de novo. United States v. Bajakajian, 524 U.S. 321, 336,

118 S.Ct. 2028, 141 L.Ed.2d 314 (1998).

Discussion and Decision

In rem forfeiture is an ancient concept under which courts obtained jurisdiction over property when

it was virtually impossible to seek justice against property owners guilty of violating maritime law

because they were overseas. Civil forfeiture traces to ancient Roman and medieval English law;

both made objects used to violate the law subject to forfeiture to the sovereign. Civil forfeiture is no

longer tethered to difficulties in obtaining personal jurisdiction over an individual. It now serves as

one of the most potent weapons in the judicial armamentarium[.] Civil forfeiture is a leading

method for imposing economic sanctions against narcotics traffickers. Today, all states have

statutory provisions for some form of asset forfeiture, and there are more than four hundred

federal forfeiture statutes relating to various federal crimes. An important feature of many of these

statutes is characterization of the process as civil forfeiture under which (by contrast to criminal

forfeiture) a property owner need not be found guilty of a crime--or even charged--to lose

permanently their cash, car, home or other property. The relative ease of effecting such forfeiture

and the disposition of the assets have become a matter of public note.

Serrano v. State, 946 N.E.2d 1139, 1141 (Ind. 2011) (citations omitted).

[¶10] The Eighth Amendment provides, " Excessive bail shall not be required, nor excessive fines

imposed, nor cruel and unusual punishments inflicted." U.S. Const. amend. VIII. At the time the

Constitution was adopted, " the word 'fine' was understood to mean a payment to a sovereign as

punishment for some offense." $ 100 and a Black Cadillac,

Page 476

822 N.E.2d at 1011 (quoting Bajakajian, 524 U.S. at 327). Accordingly, the Excessive Fines clause

of the Eighth Amendment " limits the government's power to extract payments, whether in cash or

in kind, as punishment for some offense." Id. (quoting Bajakajian, 524 U.S. at 328) (emphasis

added) (internal quotation marks omitted). As noted above, this court has already held that

forfeitures in Indiana are subject to the Excessive Fines Clause. Id. (citing Austin, 509 U.S. at

622).

[¶11] To determine whether a fine or forfeiture is " excessive," for purposes of the Excessive Fines

Clause, we consider whether the amount of the forfeiture bears " some relationship to the gravity

of the offense that it is designed to punish." Id. (quoting Bajakajian, 524 U.S. at 334). A punitive

forfeiture violates the Excessive Fines Clause " if it is grossly disproportional to the gravity of a

defendant's offense." Id. (quoting Bajakajian, 524 U.S. at 334).[5]

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[¶12] Here, there is no question that the nature of Timbs's offense was serious. He committed a

Class B felony. However, our General Assembly has determined that a Class B felony should be

punishable by a maximum fine of $10,000. Here, the evidence before the trial court was that

Timbs's vehicle was worth approximately four times the amount of the maximum fine. Although we

do not suggest that forfeiture of any asset valued over the maximum fine is automatically a

violation of the Excessive Fines Clause, it is instructive to our analysis that the value of the asset

sought by the State is well in excess of the maximum fine. Moreover, it is undisputed that the Land

Rover was not purchased with the proceeds of any criminal behavior; it was purchased with life

insurance proceeds.

[¶13] The State notes that an asset may be forfeited even if the State does not convict the owner

of the criminal charge. See Katner v. State, 655 N.E.2d 345, 348 (Ind. 1995) (noting that a

conviction on the underlying criminal activity is not a prerequisite for forfeiture). Thus, the State

argues, it could have sought forfeiture of the Land Rover even if Timbs had not been convicted.

However, this does not negate the fact that our General Assembly has set the maximum fine for

the crime for which Timbs was convicted at $10,000, whereas the value of the Land Rover was

upwards of $40,000.

[¶14] We also note that financial burdens had already been imposed on Timbs when he pleaded

guilty. Pursuant to his plea agreement, Timbs agreed to reimburse the JEAN team $385 for the

cost of the investigation and pay a drug abuse, prosecution, and interdiction fee of $200; court

costs of $168; a bond fee of $50; and a $400 certified court program fee. Notably, the trial court

imposing the sentence found no need to impose any fine, much less the maximum fine of $10,000.

[¶15] The State also argues that the evidence before the trial court was that Timbs committed

criminal acts other than the one for which he was convicted. This may be true. However, the

complaint for forfeiture referred only to May 31, 2013.[6]

Page 477

If the State wished to seek forfeiture of the Land Rover based on Timbs's other criminal acts, it

should have done so more clearly in its forfeiture complaint. Moreover, even considering these

other acts, we note that the only evidence before the trial court was that Timbs sold heroin twice,

both times as a result of controlled buys. The remaining times he transported heroin, it was

apparently for his own use. The trial court was free to consider these circumstances in making its

determination.

[¶16] We also find the State's citation to United States v. Aleff, 772 F.3d 508 (8th Cir. 2014), to be

unpersuasive. In Aleff, the defendants were convicted of conspiracy to defraud the federal

government and ordered to pay almost $304,000 in restitution. Thereafter, the federal government

brought suit against the defendants under the False Claims Act, and the District Court awarded

the government treble damages and statutory penalties of over $1,300,000. On appeal, the Eighth

Circuit Court of Appeals held that this was not grossly disproportionate under the Excessive Fines

Clause. Aleff, 772 F.3d at 512-13. In so holding, the court noted that the defendants' scheme to

defraud the government was extensive and took more than six years. Id. at 513. The defendants "

received $303,890 from the public fisc to which they were not entitled," and the government "

suffered damage to the integrity of one of its programs." Id. More importantly, the damages

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recovered by the government were within the limits of damages allowed by the False Claims Act.

Id.

[¶17] The present case is readily distinguishable from Aleff. Timbs did not engage in a years-long

scheme to defraud the State, nor did the State here seek to recover treble damages under a false

claims statute. It instead sought to forfeit a vehicle that was not purchased with the proceeds of

Timbs's crimes. Here, the value of the asset subject to potential forfeiture was well over the

statutory maximum fine, whereas in Aleff, the damages were more than the actual damages but

still within the statutory maximum allowed under the False Claims Act.[7]

Conclusion

[¶18] Forfeiture of the Land Rover, which was worth approximately four times the maximum

permissible statutory fine, was grossly disproportionate to the gravity of Timbs's offense. We

therefore affirm the trial court's conclusion that forfeiture of the Land Rover violated the Excessive

Fines Clause of the Eighth Amendment.

[¶19] Affirmed.

Page 478

Vaidik, C.J., concurs.

Barnes, J., dissents with opinion.

DISSENT

Barnes, Judge, dissenting.

[¶20] I respectfully dissent. I realize that my colleagues point to the allegedly " disproportionate"

nature of the forfeiture sought by the State here. I understand their concern. I would simply say as

follows:

[¶21] Forfeitures are constitutional and, although some have been found to be excessive, are a

useful law enforcement tool. See U.S. v. Ursery, 518 U.S. 267, 290, 116 S.Ct. 2135, 2148, 135

L.Ed.2d 549 (1996).

[¶22] We have ruled that, in limited situations, the Excessive Fines Clause of the Eighth

Amendment may come into play in a forfeiture case. See $ 100 and a Black Cadillac, 822 N.E.2d

at 1011-12.

[¶23] However, it is clear and without conflict in the evidence that the vehicle here was Timbs's

and was used to facilitate crime, i.e., to transport Timbs to the place of an arranged heroin buy.

The vehicle did not have only a tangential relationship to the crime or to the defendant. It should

not matter that Timbs committed the crime using an expensive new Land Rover rather than an old,

inexpensive " beater."

[¶24] The majority correctly points out that the record reflects Timbs " only" sold heroin twice. I

simply posit that Timbs was arrested before the third buy could take place, and we are left to

wonder how much heroin he had access to.

[¶25] I am keenly aware of the overreach some law enforcement agencies have exercised in

some of these cases. Entire family farms are sometimes forfeited based on one family member's

conduct, or exorbitant amounts of money are seized. However, it seems to me that one who deals

heroin, and there is no doubt from the record we are talking about a dealer, must and should suffer

the legal consequences to which he exposes himself.

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[¶26] Timbs dealt heroin and got caught. I vote to reverse the trial court's denial of the State's

forfeiture request.

---------

Notes: [1]The JEAN team is composed of members from the Grant County Sheriff's Department, the

Grant County Prosecutor's Office, and the Marion Police Department. [2]This apartment was apparently not Timbs's residence. See Tr. pp. 27-28. [3]The State does not reiterate this claim on appeal, and even if it did, it is well settled that an

issue may not be presented for the first time in a motion to correct error. Van Winkle v. Nash, 761

N.E.2d 856, 859 (Ind.Ct.App. 2002). [4]The State claims that there is a question as to whether the Excessive Fines Clause of the

Eighth Amendment is applicable to the states via the Fourteenth Amendment. The United States

Supreme Court has yet to hold that the Excessive Fines Clause is applicable to the States. See

Browning-Ferris Indus., Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 276, 109 S.Ct. 2909, 106

L.Ed.2d 219 (1989) (" We shall not decide whether the Eighth Amendment's prohibition on

excessive fines applies to the several States through the Fourteenth Amendment." ). But this court

held in $ 100 and a Black Cadillac that the Excessive Fines Clause did apply to Indiana's forfeiture

statutes. 822 N.E.2d at 1011. We see no reason to disagree with our prior opinion. We also note

that the Indiana Constitution contains its own provision against excessive fines. See Ind. Const.

art. 1, sec. 16 (" Excessive fines shall not be imposed). Because neither side addresses the

Indiana Constitution, we base our opinion on the federal Excessive Fines Clause. [5]The State claims that the Supreme Court in Bajakajian " allow[ed] a forfeiture three times the

applicable fine" of $5,000. This is incorrect. The Supreme Court was abundantly clear that the only

question before it was whether forfeiture of the entire amount of cash at issue, $357,144, was

proper. See Bajakajian, 524 U.S. at 339 n.11. [6]The complaint set forth in relevant part:

1. On or about May 31, 2013, officers of the Plaintiff, J.E.A.N. Team Drug Task Force, seized from

the Defendant, TYSON TIMBS, One (1) 2012 Land Rover LR2 . . . in Grant County, Indiana.

2. On said date and at said place, the Defendant, TYSON TIMBS, had in his possession, the

above described vehicle, said vehicle had been furnished or intended to be furnished by

Defendant, TYSON TIMBS, in exchange for an act that is in violation of a criminal statute, or used

to facilitate any violation of a criminal statute or is traceable as proceeds of the violation of a

criminal statute under Indiana Law, as provided in I.C. 34-24-1-1.

3. The Defendant, TYSON TIMBS, is the owner of the vehicle.

WHEREFORE, the Plaintiffs demand judgment against the Defendant for forfeiture of vehicle, for

the delivery of said vehicle upon forfeiture as provided for in I.C. 34-24-1-1, for reimbursement of

law enforcement costs as provided by statute, and for all other relief just and proper in the

premises.

Appellant's App. p. 14. [7]The same holds true for the State's citation to United States v. Mackby, 339 F.3d 1013 (9th Cir.

2003), which was also brought under the False Claims Act. The total damages awarded in that

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case were within the statutory limits and the government was directly defrauded. Id. at 1018.

Although the amount awarded, $729,455, was much greater than the $58,151 sought by the

government, the defendants had filed fraudulent Medicare claims for which they received payment

of $331,078. Id.

---------

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Varela v. Lamps Plus, Inc., 080317 FED9, 16-56085 /**/ div.c1 {text-align: center} /**/

FRANK VARELA, on behalf of himself and all other similarly situated, Plaintiff-Appellee,

v.

LAMPS PLUS, INC.; et al., Defendants-Appellants.

No. 16-56085

United States Court of Appeals, Ninth Circuit

August 3, 2017

NOT FOR PUBLICATION

Argued and Submitted July 12, 2017 Pasadena, California

Appeal from the United States District Court for the Central District of California D.C. No.

5:16-cv-00577-DMG-KS Dolly M. Gee, District Judge, Presiding

Before: REINHARDT, FERNANDEZ, and WARDLAW, Circuit Judges.

MEMORANDUM [*]

Lamps Plus appeals an order permitting class arbitration of claims related to a data breach

of personal identifying information of its employees. After Lamps Plus released his personal

information in response to a phishing scam, Frank Varela filed a class action complaint alleging

negligence, breach of contract, invasion of privacy, and other claims. Lamps Plus moved to

compel bilateral arbitration pursuant to an arbitration agreement ("the Agreement") it drafted and

required Varela to sign as a condition of his employment. The district court found that the

Agreement is a contract of adhesion and ambiguous as to class arbitration. It construed the

ambiguity against the drafter, Lamps Plus, and compelled arbitration of all claims, allowing class-

wide arbitration to proceed.

On appeal, Lamps Plus argues that the parties did not agree to class arbitration. We

disagree, and affirm the district court.

"[A] party may not be compelled under the [Federal Arbitration Act] to submit to class

arbitration unless there is a contractual basis for concluding that the party agreed to do so." Stolt-

Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 684 (2010). The parties agree that the

Agreement includes no express mention of class proceedings. However, as the Supreme Court

stated, "silence" in its Stolt-Nielsen analysis constituted more than the mere absence of language

explicitly referring to class arbitration; instead, it meant the absence of agreement. 559 U.S. at 687

("[W]e see the question as being whether the parties agreed to authorize class arbitration."); see

also Oxford Health Plans LLC v. Sutter, 133 S.Ct. 2064, 2069-70 (2013). There, the Supreme

Court accepted the parties' stipulation that silence meant "there's been no agreement that has

been reached . . . ." 559 U.S. at 668-69. That the Agreement does not expressly refer to class

arbitration is not the "silence" contemplated in Stolt-Nielsen.

We apply state law contract principles in order to interpret the Agreement. First Options of

Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). In California, a contract is ambiguous "when it

is capable of two or more constructions, both of which are reasonable." Powerine Oil Co. v. Super.

Ct., 118 P.3d 589, 571 (Cal. 2005). Contracts may be ambiguous as a whole despite terms and

phrases that are not themselves inherently ambiguous. See Dore v. Arnold Worldwide, Inc., 139

P.3d 56, 60 (Cal. 2006). Ambiguity is construed against the drafter, a rule that "applies with

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peculiar force in the case of a contract of adhesion." Sandquist v. Lebo Auto., Inc., 376 P.3d 506,

514 (Cal. 2016).

At its outset, the Agreement contains a paragraph outlining Varela's understanding of the

terms in three sweeping phrases. First, it states Varela's assent to waiver of "any right I may have

to file a lawsuit or other civil action or proceeding relating to my employment with the Company."

Second, it includes an additional waiver by Varela of "any right I may have to resolve employment

disputes through trial by judge or jury." Third, "arbitration shall be in lieu of any and all lawsuits or

other civil legal proceedings relating to my employment." A reasonable - and perhaps the most

reasonable - interpretation of this expansive language is that it authorizes class arbitration. It

requires no act of interpretive acrobatics to include class proceedings as part of a "lawsuit or other

civil legal proceeding[]." Class actions are certainly one of the means to resolve employment

disputes in court. That arbitration will be "in lieu of" a set of actions that includes class actions can

be reasonably read to allow for class arbitration.

This construction is supported by the paragraph below these broad statements, captioned

"Claims Covered by the Arbitration Provision." The first sentence contemplates "claims or

controversies" the parties may have against each other, which Lamps Plus argues supports purely

binary claims. Yet Varela's claims against the company include those that could be brought as part

of a class. The Agreement then specifies that arbitrable claims are those that "would have been

available to the parties by law, " which obviously include claims as part of a class proceeding. The

paragraph lists a non-limiting, vast array of claims covered by the arbitration provisions, including

many types of claims for discrimination or harassment ("race, sex, sexual orientation . . .") that are

frequently resolved through class proceedings. See, e.g., E. Tex. Motor Freight Sys. Inc. v.

Rodriguez, 431 U.S. 395, 405 (1977) ("[S]uits alleging racial or ethnic discrimination are often by

their very nature class suits, involving classwide wrongs."); Griggs v. Duke Power Co., 401 U.S.

424 (1971). The paragraph concludes by excluding from the Agreement two types of claims, but

not any class or collective proceedings.

Moreover, a class action is "a procedural device for resolving the claims of absent parties on

a representative basis" rather than a separate or distinct "claim." Sakkab v. Luxottica Retail N.

Am., Inc., 803 F.3d 425, 435 (9th Cir. 2015). The broad language of the Agreement is not limited

to claims. Varela surrendered his right to bring all "lawsuit[s] or other civil action[s] or proceeding[s

]." (emphasis added). Additionally, the Agreement authorizes the Arbitrator to "award any remedy

allowed by applicable law." Those remedies include class-wide relief.

Because the Agreement is capable of two reasonable constructions, the district court

correctly found ambiguity. State contract principles require construction against Lamps Plus, the

drafter of the adhesive Agreement. By accepting the construction posited by Varela - that the

ambiguous Agreement permits class arbitration - the district court properly found the necessary

"contractual basis" for agreement to class arbitration. Stolt-Nielsen, 559 U.S. at 684.

We AFFIRM and VACATE the stay of arbitration.

FERNANDEZ, Circuit Judge, dissenting:

I respectfully dissent because, as I see it, the Agreement was not ambiguous. We should not

allow Varela to enlist us in this palpable evasion of Stolt-Nielsen S.A. v. Animal Feeds Int'l Corp.,

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559 U.S. 662, 684-85, 130 S.Ct. 1758, 1775, 176 L.Ed.2d 605 (2010).

---------

Notes: [*] This disposition is not appropriate for publication and is not precedent except as provided by

Ninth Circuit Rule 36-3.

---------

of 112

17 F.Supp.3d 711 (N.D.Ill. 2014), 10 C 3770, Miller UK Ltd. v. Caterpillar, Inc. /**/ div.c1 {text-

align: center} /**/

Page 711

17 F.Supp.3d 711 (N.D.Ill. 2014)

MILLER UK LTD. and MILLER INTERNATIONAL LTD., Plaintiffs,

v.

CATERPILLAR, INC., Defendant

No. 10 C 3770

United States District Court, N.D. Illinois, Eastern Division

January 6, 2014

Page 712


Page 713


Page 714


Page 715


Page 716

For Miller UK Ltd., a United Kingdom private limited company, Miller International Ltd., a

Gibraltar private limited company, Plaintiffs: Eric Lansing White, Inbal Hasbani, Justin A Barker,

Reed S. Oslan, Stephen Charles Hackney, William Edward Arnault, Iv, Kirkland & Ellis LLP,

Chicago, IL.

For Caterpillar, Inc., a Delaware coporation, Defendant: Bridget S. Merritt, Carey S Busen,

Terry L Sullivan, PRO HAC VICE, Gregory L Baker, Robert G Abrams, Baker & Hostetler LLP,

Washington, DC; Edward H. Williams, John Michael Touhy, Baker & Hostetler LLP, Chicago, IL;

Kurt J. Keller, PRO HAC VICE, Kurt J. Keller, Caterpillar Inc., Peoria, IL.

For Caterpillar, Inc., a Delaware coporation, Counter Claimant: Bridget S. Merritt, Carey S

Busen, PRO HAC VICE, Gregory L Baker, Baker & Hostetler LLP, Washington, DC; Edward H.

Williams, John Michael Touhy, Baker & Hostetler LLP, Chicago, IL; Kurt J. Keller, PRO HAC VICE,

Kurt J. Keller, Caterpillar Inc., Peoria, IL.

For Miller International Ltd., a Gibraltar private limited company, Miller UK Ltd., a United

Kingdom private limited company, Counter Defendants: Justin A Barker, Reed S. Oslan, William

Edward Arnault, Iv, Kirkland & Ellis LLP, Chicago, IL.


Busen, Terry L Sullivan, PRO HAC VICE, Gregory L Baker, Robert G Abrams, Baker & Hostetler

LLP, Washington, DC; Kurt J. Keller, PRO HAC VICE, Caterpillar Inc., Peoria, IL.


Busen, Terry L Sullivan, PRO HAC VICE, Gregory L Baker, Robert G Abrams, Baker & Hostetler

LLP, Washington, DC; Edward H. Williams, John Michael Touhy, Baker & Hostetler LLP, Chicago,

IL; Kurt J. Keller, PRO HAC VICE, Caterpillar Inc., Peoria, IL.

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MEMORANDUM OPINION

Jeffrey Cole, UNITED STATES MAGISTRATE JUDGE. Judge Sara Ellis.

INTRODUCTION

Caterpillar and Miller had a decades-long, mutually beneficial business relationship, during

which Miller shared confidential information and trade secrets with Caterpillar. In 2008, Caterpillar

suddenly severed that relationship and began manufacturing a product that previously had utilized

and allegedly depended on the confidential information supplied by Miller. Miller sued, claiming

that Caterpillar misappropriated its trade secrets. Caterpillar has fiercely denied the charges, and

the case has been bitterly contested at every turn. The overwhelming majority of the disputes have

been over discovery, " the bane of modern litigation." Rossetto v. Pabst Brewing Co., 217 F.3d

539, 542 (7th Cir. 2000).

Page 718

Protracted discovery is expensive and is a drain on the parties' resources. Where a

defendant enjoys substantial economic superiority, it can, if it chooses, embark on a scorched

earth policy and overwhelm its opponent. See Liesa L. Richter, Making Horses Drink, 81 Fordham

L. Rev. 1669, 1695 (2013); Matthew Jarvey, Boilerplate Discovery Objections: How They Are

Used, Why They Are Wrong, And What We Can Do About Them, 61 Drake L. Rev. 913, 915-916

(2013); William Griesbach, The Joy Of Law, 92 Marq. L. Rev. 889, 907 (Summer 2009). That is

what Miller insists has occurred here, ( Miller Memorandum at 2) -- a charge denied by Caterpillar.

But even where a case is not conducted with an ulterior purpose, the costs inherent in major

litigation can be crippling, and a plaintiff, lacking the resources to sustain a long fight, may be

forced to abandon the case or settle on distinctly disadvantageous terms.

Creative businessmen, ever alert to new opportunities for profit, perceived in this economic

inequality a chance to make money and devised what has come to be known as third party

litigation funding, where money is advanced to a plaintiff, and the funder takes an agreed upon cut

of the winnings. If the plaintiff loses the case, the funder may get nothing. Third party litigation

funding is a relatively new phenomenon in the United States. The business model has generated a

good deal of commentary about and controversy over its intrinsic value to society (or lack thereof

depending on one's perspective) and the discoverability of the actual funding contract and

information turned over to prospective funders by a party's lawyer during negotiations to secure

financing.[1]

Page 719

In the instant case, apparently faced with financial difficulties, Miller sought financing from

several third-party litigation funding sources. Miller was ultimately successful and entered into a

contract with a third-party funder. Caterpillar has cried foul, invoking the hoary doctrines of

maintenance and champerty and arguing that Miller's agreement with its funding source is illegal

under the Illinois statute criminalizing " maintenance." See infra at 11. Caterpillar is seeking to

discover the actual contract with Miller's funder and those documents provided by Miller to it and

any other third party lender from which Miller sought funding for this case. The ostensible basis for

this discovery is to enable Caterpillar to raise the supposed illegality of the funding contract as a

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defense to Miller's tort and breach of contract claims. Caterpillar also says those documents are

relevant to the question of who is the real party in interest under Rule 17(a), Federal Rules of Civil

Procedure.

Although it says it has produced any all documents that contain admissions or statements

regarding the merits of the claims or defenses in the case ( Miller Memorandum at 2), Miller has

resisted any further production on the grounds that the actual funding contract (and related

documents) are irrelevant, and that whatever information about the case it provided to any funder

in connection with any funding request is privileged under the attorney-client and work-product

privileges, and that those privileges were not waived by disclosure to the potential funders.

Caterpillar has a divergent view, denying the documents are privileged and that any privileges that

might have existed were waived by disclosure of the documents to prospective funders.[2]

ANALYSIS

Caterpillar claims it learned from one of the third party funders that Miller had contacted it to

obtain funding for the case, but that it had rejected the overture. Caterpillar has not disclosed who

tattled or when. ( Defendant's Memorandum In Support Of Its Motion To Compel, at 13)(Dkt. #

365)(" Defendant's Memorandum " ).

Page 720

Caterpillar served document requests seeking:

1. All documents created by Miller, Miller's counsel, or any third party entity for the purpose of

considering, investigating, pursuing, arranging, or obtaining litigation funding. 2. All documents

transmitted, shared, or discussed between Miller and Miller's counsel, between Miller's counsel

and any third party entity, or between Miller and any third party entity for the purpose of

considering, investigating, pursuing, arranging, or obtaining litigation funding. 3. All

communications between Miller and Miller's counsel, between Miller's counsel and any third party

entity, or between Miller and any third party entity relating to litigation funding.

Miller produced a number of documents responsive to Caterpillar's requests, including:

-- a draft letter to third party funders summarizing the case, acknowledging that plaintiffs thought a

cause of action might exist in 2003, and stating that plaintiffs made substantial investments to

expand their operations even though it " felt compromised by the situation" ; -- an email exchange

discussing between plaintiffs and a public relations firm strategy to sell their story by portraying a "

David and Goliath scenario" in an attempt to " influence potential funders," a plan to lobby

defendant's board of directors by sending materials to board members, assess the legal status of

the case " [t]o see what can be done to stall matters whilst funding is being sought," and asking to

see " ASAP" plaintiffs' lawyer's written evaluation of the case; -- email from plaintiffs to the public

relations firm warning " you might not like what Jodi [Rosen Wine] said!" ; email from public

relations firm asking plaintiffs to get " constructive advice" from Nixon Peabody for inclusion in a

letter distributed to third party funders; -- email exchange between plaintiffs and third party funders

reflecting Nixon Peabody attorney's " thoughts on the claim" and concerns from the funder that the

case is more complicated than originally believed and asking for correspondence between

plaintiffs and their attorneys.

( Defendant's Memorandum, Exs. B, C, D).

of 112

Miller withheld documents showing the structure and terms of its financing deal on the

grounds of relevance. Also withheld were agreements Miller has with Kirkland and Ellis, an English

bank, and agreements with Dig Ventures LLC, the managing member of which is Arena

Consulting.[3] Miller redacted portions of its production on the basis of attorney-client

1

privilege, attorney work product, and the " common interest" doctrine. For example, on an

application for funding form, Miller redacted its response to a question that asked Miller to provide

an estimate of the prospect of success of its lawsuit, and to give the amount of its attorneys fees. (

Defendant's Memorandum, Ex. D). Miller also withheld a number of documents on these same

bases that had been identified in its privilege log.

There are two broad categories of documents at issue. One is referred to as the " deal

documents" and encompasses documents evidencing the structure and terms of the funding

transaction. Caterpillar contends that the funding agreement and related documents are

discoverable as they obviously relate to the case, and in one sense that is true. But the inquiry

under Rule 26 is whether the funding contract (and related documents) relate to the claims or

defenses, and that requires a more exacting analysis than Caterpillar has made.

The second category of documents is comprised of those submitted to potential third party

funders that Miller had contacted. Miller concedes that some of these documents are relevant, and

has produced almost 300. But, it argues that, that the balance of the documents are not

discoverable, not because they are not relevant, but because they are privileged, and the

applicable privileges have not been waived.

I.

The Relevance of the " Deal Documents"

The terms of Miller's actual funding agreement would seem to have no apparent relevance to

the claims or defenses in this case, as required by Rule 26 as a precondition to discovery.

Caterpillar's argument that the " deal documents" are relevant is largely based on the oft-repeated,

and indisputable proposition, that discovery under Rule 26 is " broad." See Tellabs Operations Inc.

v. Fujitsu, 283 F.R.D. 374, 390 (N.D. Ill. 2012). But, " general propositions do not decide concrete

cases." Lochner v. New York, 198 U.S. 45, 76, 25 S.Ct. 539, 49 L.Ed. 937 (1905)(Holmes, J.,

dissenting).

While the discovery rules were designed to end what Wigmore and others called " the

sporting theory of justice" that once prevailed throughout the Nation, cf., In re Barnett 124 F.2d

1005, 1010 -1011 (2d Cir.1941)(Frank, J.), they were never intended to be an excursion ticket to

an unlimited exploration of every conceivable matter that captures an attorney's interest. "

[D]iscovery... has ultimate and necessary boundaries" and limitations, " one of which comes into

existence when inquiry touches upon the irrelevant...." Hickman v. Taylor, 329 U.S. 495 507-08,

67 S.Ct. 385, 91 L.Ed. 451 (1947). Discovery of matter not " reasonably calculated to lead to the

discovery of admissible evidence" is not within the scope of Rule 26(b)(1)." Oppenheimer Fund,

Inc. v. Sanders 437 U.S. 340, 352, 98 S.Ct. 2380, 57 L.Ed.2d 253 (1978).

The Supreme Court has cautioned that the requirement of Rule 26(b)(1) that the material

sought in discovery be " relevant" should be firmly applied, and the district courts should not

Page 72 of 112

neglect their power to restrict discovery where necessary. Herbert v. Lando, 441 U.S. 153, 99

S.Ct. 1635, 60 L.Ed.2d 115 (1979). See also, Balderston v. Fairbanks Morse Engine Div. of Coltec

Indus., 328 F.3d 309, 320 (7th Cir 2003). Failure to exercise control results in enormous costs to

the litigants and to the due administration of justice. Cf. Bell Atlantic Corp. v. Twombly, 550 U.S.

544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); Swanson v. Citibank, N.A.,

Page 722

614 F.3d 400, 411-412 (7th Cir. 2010); Continental Insurance. Co. v. Chase Manhattan Mortgage

Corp., 59 F.App'x 830, 840 (7th Cir.2003); Frank Easterbrook, Discovery as Abuse, 69 B.U.L.Rev.

635 (1989).

The cases Caterpillar cites to support its argument that funding documents are relevant

require more analysis than its Memorandum has given them. It must not be forgotten that

relevance for discovery purposes does not exist in the air. It is a function of the claims and

defenses in the case. Rule 26(b)(1).[4] " Relevance is not inherent in any item of evidence, but

exists only as a relation between an item of evidence and the matter properly provable in the

case." See January 2, 2014, 2 Weinstein's Federal Evidence, § 401 App. 01 (Joseph M.

McLaughlin ed., 2d ed. 2007). Thus, the fact that a particular case found a funding agreement

relevant and discoverable is the beginning and not the end of analysis. Since what might make a

species of documents relevant in one case does not necessarily make it relevant in all others, it is

" inappropriate for courts to be guided by past judicial evaluations of the relevance of seemingly

similar evidence." 1A Wigmore on Evidence, § 37.3 at 1040 (Tillers Rev. 1983). See also, 1 C.

Mueller and L. Kirkpatrick, Federal Evidence, 4:3 at 568 (3d ed. 2003)(decisions on relevancy are

made on a case-by-case basis, and each is dependent on surrounding facts, circumstances, and

issues in the case).

The Seventh Circuit has been critical of the approach to the reading of cases exemplified by

Caterpillar's Memorandum -- an approach that ignores the critical factual setting of the case. To

look solely to the result in a case " can be misleading if [the holding is] carelessly lifted from the

case-specific contexts in which they were originally uttered." All-Tech Telecom, Inc. v. Amway

Corp.,174 F.3d 862, 866 (7th Cir.1999). See also Penry v. Lynaugh, 492 U.S. 302, 358, 109 S.Ct.

2934, 106 L.Ed.2d 256 (1989)(Scalia, J., concurring and dissenting in part)(" One must read

cases, however, not in a vacuum, but in light of their facts" ); Stern v. U.S. Gypsum, Inc., 547 F.2d

1329, 1342, n.20 (7th Cir.1977).

It is Caterpillar's failure to recognize these basic principles that led it to rely on Abu-Ghazaleh

v. Chaul, 36 So.3d 691 (Fla.App.3rd Dist. 2009). Contrary to Caterpillar's assertion that the court

held the financing agreement was relevant to the issues in the case-in-chief, there was not so

much as an insinuation that it was. 36 So.3d at 693. Nor did the opinion have anything to do with

pretrial discovery of a funding agreement; it involved an appeal of the trial court's denial of the

plaintiff's post-trial motion for attorney's fees and costs against William A. Van Diepen and CSI

Financial Investments Company, Inc., who funded and controlled the plaintiff's case. Id. at 693.

If the lender's agreement provided (as it did) that Van Diepen had to approve the filing of the

lawsuit, controlled virtually every aspect of the case from the selection of the plaintiff's attorneys

and approval of their bills to whether to settle, the lender was, the court held, a " party" under

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Florida law -- and on the hook for attorney's fees for the baseless suit it authorized and ran. In that

setting, the financing agreement was obviously relevant to the plaintiff's claim for attorney's fees.

Unfortunately, the critical and outcome-determinate factual setting of the case is ignored by

Caterpillar's brief. Cf., Beam v. IPCO Corp., 838 F.2d 242, 249 (7th

Page 723

Cir.1988)(" This excerpt [in the brief] from a minority opinion neglects to mention that the majority

had rejected the " second guideline." ... [W]e take an extremely dim view of this futile attempt to

mislead the court" )(emphasis in original). " 'A litigant who fails to press a point by supporting it

with pertinent authority, or by showing why it is a good point despite a lack of supporting authority

or in the face of contrary authority, forfeits the point.'" Windy City Metal Fabricators & Supply, Inc.

v. CIT Technology Financing Services, Inc., 536 F.3d 663, 668 (7th Cir. 2008).

Then there is Berger v. Seyfarth Shaw LLP, 2008 WL 4681834, 2 (N.D. Cal. 2008), where

the court held that Branton, a non-party to the action, was required to turn over to the defendant

documents " pertinent to his financial assistance to the plaintiffs...." [WL] at 1. The issue -- which

Berger and Seyfarth agreed was a legitimate one in the case -- was whether, given the dispute

between the parties about the percentage of any recovery in the case that had been assigned to

Branton by Berger, the documents were " relevant to the above issue and discoverable." [WL] at 3.

The court quite rightly held they were given the parties' agreement about what issues were in the

case. Additionally, since Branton had a direct financial stake in the case's outcome, the court

properly held that the documents were relevant to his " potential bias as a witness in that case."

[WL] at 1. Financial interest in a case is always relevant to the question of bias, either of a judge or

a witness. Tumey v. Ohio, 273 U.S. 510, 47 S.Ct. 437, 71 L.Ed. 749, 5 Ohio Law Abs. 159, 5 Ohio

Law Abs. 185, 25 Ohio L. Rep. 236 (1927); Balsley v. LFP, Inc., 691 F.3d 747, 762 (6th Cir.2012).

Miller's funder will not be a witness in the case, and the amount the funder will get if Miller wins is

not an issue here as it was in Berger. In short, Berger is not susceptible to the expansive reading

given it by Caterpillar.

Leader Technologies, Inc. v. Facebook, Inc., 719 F.Supp.2d 373, 376-77 (D.Del. 2010), on

which Caterpillar also relies, does not even discuss the issue of the relevance of funding

agreements. The only question presented was whether the documents sought in discovery were

privileged. To say that the court " ruled that deal documents are relevant" ( Defendant's

Memorandum, at 6) is inaccurate. While it can be argued that the court must have assumed the

agreement was relevant or it would never have reached the privilege issue, ( Caterpillar Reply at

4), that would not advance Caterpillar's argument, for sub-silentio or assumptive resolution of an

issue is not enough to establish a holding. Brecht v. Abrahamson, 507 U.S. 619, 631, 113 S.Ct.

1710, 123 L.Ed.2d 353 (1993)(if a decision does not " squarely addres[s] [an] issue," the court

remains " free to address [it] on the merits" at a later date." ); City of Kenosha v. Bruno, 412 U.S.

507, 512--13, 93 S.Ct. 2222, 37 L.Ed.2d 109 (1973); United States v. Acox, 595 F.3d 729, 731

(7th Cir.2010).

That leaves Abrams v. First Tennessee Bank Nat. Ass'n, 2007 WL 320966, 1 (E.D.Tenn.

2007), which did hold that financing documents were discoverable. But, like Leader Technologies,

Inc., it did so without explanation or analysis, and thus is not under Seventh Circuit precedent

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persuasive. Szmaj v. AT& T, 291 F.3d 955, 956 (7th Cir.2002)(Posner, J.)(a conclusory opinion

without analysis or discussion is " weak authority." ). See also Benson v. McMahon, 127 U.S. 457,

468-469, 8 S.Ct. 1240, 32 L.Ed. 234 (1888)(" the views of counsel...are unsupported by any well-

considered judicial decision" ); Sandifer v. U.S. Steel Corp., 678 F.3d 590, 598 (7th Cir. 2012)("

the Franklin opinion offers only a conclusion, not reasons" ); Bogan

Page 724

v. City of Chicago, 644 F.3d 563, 570 (7th Cir. 2011)(rejecting four appellate decisions because

the point was made " without discussion" ); Henry M. Hart, Jr., Foreword: The Time Chart Of The

Justices, 73 Harv.L.Rev. 84, 98-99 (1959)(" ipse dixits are futile as instruments for the exercise of

'the judicial Power of the United States.'" ).

Caterpillar's claim of relevance for the " deal documents" ultimately rests on the theory that

they relate to the unpled defense that Miller has violated the Illinois maintenance statute, and that

Miller's funder is or may be the real party in interest under Rule 17(a). ( Defendant's Memorandum

at 7). Neither argument has any cogency.

A.

Champerty and Maintenance

Caterpillar's claim that the " deal documents" are relevant rests on its largely unexplained

assertion that the Miller's funding agreement offends the Illinois statute prohibiting champerty and

maintenance and its utterly unsupported and unexplained conclusion that that a violation of the

statute by Miller is a defense to Miller's claims against it. ( Defendant's Memorandum at 14).

Indeed, we are told unequivocally that " litigation funding agreements are unlawful in Illinois and

support a new Caterpillar defense." ( Id. at 7, incorporating the discussion in the Rule 37.2 report).[5] Even the most casual reading of Puckett v. Empire Stove Co. 183 Ill.App.3d 181 539 N.E.2d

420, 132 Ill.Dec. 110 (5th Dist.1989), on which Caterpillar relies, reveals the unsupportability of

this assertion. Here is what the court said in a case involving an assignment of a claim to a third

party:

ITT argues that the assignment of Ghibaudys' right of action for contribution against ITT is void as

against public policy because it encourages litigation which otherwise would not be brought. To

allow the assignment in this case, ITT argues, would constitute approval of what was known at

common law as champerty or maintenance. We disagree. Black's Law Dictionary defines

champerty as " [a] bargain by a stranger with a party to a suit, by which such third person

undertakes to carry on the litigation at his own cost and risk, in consideration of receiving, if

successful, a part of the proceeds or subject sought to be recovered." Maintenance is defined as "

maintaining, supporting, or promoting the litigation of another." Champerty and maintenance have

been disapproved by the courts as against public policy because a litigious person could harass

and annoy others if allowed to purchase claims for pain and suffering and pursue the claims in

court as an assignee. However, plaintiff in the instant case is no stranger to the action between

third-party plaintiffs Ghibaudys and third-party defendant ITT. Nor is plaintiff promoting the

litigation of another which otherwise might not be maintained. Instead, plaintiff has a direct and

immediate interest in Ghibaudys' right of action for contribution against ITT. Allowing Ghibaudys to

assign that cause of action to plaintiff is not violative of any public policy of which we are aware.

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Puckett, 183 Ill.App.3d at 191-192 (emphasis supplied)(citations omitted).

The situation in Puckett is not remotely comparable to that in the instant case.

In Illinois, the common-law offense of maintenance was abolished long ago by statute,

Brush v. City of Carbondale, 229 Ill. 144, 151, 82 N.E. 252, 254 (1907), which has remained

virtually unchanged for over a century. 720 ILCS 5/32-12 provides that " if a person officiously

intermeddles in an action that in no way belongs to or concerns that person, by maintaining or

assisting either party, with money or otherwise, to prosecute or defend the action, with a view to

promoting litigation, he or she is guilty of maintenance and upon conviction shall be fined and

punished as in cases of common barratry." (Emphasis supplied). Being a criminal statute, it must

be strictly construed. People v. Sedelsky, 2013 IL App. (2d) 111042, 997 N.E.2d 664, 375 Ill.Dec.

353, 2013 WL 5370287, 3 (2nd Dist. 2013).

In construing penal statutes, the goal is to ascertain and give effect to the intent of the

legislature. People v. Davis, 199 Ill.2d 130, 135, 766 N.E.2d 641, 262 Ill.Dec. 721 (2002). " The

most reliable indicator of legislative intent is the language of the statute, which, if plain and

unambiguous, must be read without exception, limitation, or other condition." Id. " Moreover, in

construing criminal statutes, " nothing should be taken by intendment or implication beyond the

obvious or literal meaning of the statute." Id. [6] Caterpillar's argument puts to one side the

maintenance statute's limited purpose and its explicit requirement that there be " officious

intermeddling." And it assumes -- without any explanation or analysis -- that a violation of the

statute by Miller's funding agreement would provide Caterpillar with a viable defense to Miller's

trade secret action. Being unamplified and unsupported, that argument could be deemed waived.

Cadenhead v. Astrue 410 F.App'x 982, 984, 2011 WL 549785, 2 (7th Cir.2011). But we prefer to

consider it, since it implicates the public policy of this state.

Officiousness is synonymous with meddlesomeness and can be described as volunteering

one's services where they are neither asked for nor needed. Matter of Estate of Milborn, 122

Ill.App.3d 688, 691, 461 N.E.2d 1075, 1078, 78 Ill.Dec. 241 (3rd Dist.1984). Here, there was no

intermeddling by the funder in the sense contemplated by the statute. Quite the contrary. The

funder was sought out by a cash-strapped litigant embroiled in bitterly contested litigation. There is

no suggestion let alone proof that any of the funders with which Miller conferred " wickedly and

willfully" tried to stir up a suit between Caterpillar and Miller, Wyman-Gordon Co. v. Lynch Area

Fire Protection Dist., 51 Ill.App.3d 451, 454-455, 366 N.E.2d 1055, 9 Ill.Dec. 544 (4th Dist. 1977),

or foment " useless" litigation for the sake of harassment, In re Marriage of Malec, 205 Ill.App.3d

273, 289, 562 N.E.2d 1010, 1021, 150 Ill.Dec. 207 (1st Dist. 1990), or promote or cause "

meritless litigation." Medallion Prods., Inc. v. H.C.T.V., Inc., 2007 WL 1022010, 4 (N.D.Ill.2007).

See also, Galinski, 134 Ill.App.3d at 604, 480 N.E.2d at 1176. The funders were sought out by

Miller to enable it to continue with the litigation that Miller had initiated in 2010 without prompting

from any funder.

Page 726

Therefore, " [i]n this case there is no semblance of a violation of [the Illinois statute]. [Neither

Miller nor its funder] has ... engaged in exciting or stirring up any suit or quarrel between the

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people of this state with a view to promote strife or contention." Davis, 199 Ill.2d at 135. Cf.,

National Ass'n for Advancement of Colored People v. Button, 371 U.S. 415, 440-441, 83 S.Ct.

328, 9 L.Ed.2d 405 (1963). Caterpillar cannot explain how, given Illinois's exacting and rigorous

standards for champerty and maintenance, the statute has been violated. All we have is

Caterpillar's ipse dixit that it has been. ( Defendant's Memorandum at 15). But " saying so doesn't

make it so...." United States v. 5443 Suffield Terrace, Skokie, Ill., 607 F.3d 504, 510 (7th

Cir.2010). Significantly, the same kind of exacting standards in champerty statutes in other states

have been found to be a barrier to the proscription of litigation funding contracts. See e.g., Odell v.

Legal Bucks, LLC, 192 N.C.App. 298, 310, 665 S.E.2d 767, 775 (2008)((refusing to find the

agreement champertous under North Carolina statute).

Finally, Caterpillar's claim that the deal documents are relevant because they will show

whether it can raise the " new" defense of champerty and maintenance ( Defendant's

Memorandum at 7) overlooks the fact that neither would be a viable defense by Caterpillar to

Miller's claims, which have nothing to do with the conduct forbidden by the Illinois maintenance

statute. Compare Oil, Inc. v. Martin, 381 Ill. 11, 44 N.E.2d 596, 600 (1942)(claim that contract is

champertous " may only be invoked by the parties to the agreement [and] ... the defense of

champerty can only be interposed in an action between the parties to the champertous contract,

and does not furnish any reason for refusing relief in the proceeding to which the champertous

agreement relates." ); Acorn Bankshares, Inc. v. Suburban Bancorp, Inc., 1985 WL 2671, 7

(N.D.Ill. 1985)(same). Even the broader rule that illegality of contract is a defense has application

only to an action seeking enforcement of the illegal contract and only between the immediate

parties to it. Stolz-Wicks, Inc. v. Commercial Television Service Co., 271 F.2d 586, 589 (7th Cir.

1959); Gamboa v. Alvarado, 407 Ill.App.3d 70, 75, 941 N.E.2d 1012, 1017, 347 Ill.Dec. 143 (1st

Dist. 2011); Del Webb Communities v. Partington, 652 F.3d 1145 (9th Cir.2011).[7]

Not surprisingly, the few state courts that have held funding agreements champertous under

their state statutes have only done so in the context of a suit by the parties to the contract seeking

its enforcement. See Rancman v. Interim Settlement Funding Corp., 99 Ohio St.3d 121, 125, 2003

Ohio 2721, 789 N.E.2d 217 (2003); Johnson v. Wright, 682 N.W.2d 671, 681 (Minn.App. 2004).

That is obviously not the situation here.

Ultimately, Caterpillar's argument, although not phrased as such, is a kind of unclean hands

argument. Beyond begging the question of the applicability of the Illinois maintenance statute to

this case, such an argument would be misapplied here, as Judge Posner's panel opinion in

Schlueter v. Latek, 683 F.3d 350, 355-356 (7th Cir. 2012) shows:

When as in such cases the plaintiff is asking for equitable relief, the in pari delicto defense is

referred to as the unclean-hands defense. But the label doesn't matter, and the defenses were

equated in McKennon v. Nashville Banner Publishing Co., 513 U.S. 352, 360-61, 115 S.Ct. 879,

130 L.Ed.2d 852

Page 727

(1995). .... The second ground is the one on which the defense was rejected in Bateman Eichler,

Hill Richards, Inc. v. Berner, 472 U.S. 299, 312--14, 105 S.Ct. 2622, 86 L.Ed.2d 215 (1985), and

Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 137--39, 88 S.Ct. 1981, 20

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L.Ed.2d 982 (1968) (plurality), the latter a case in which the plaintiff challenged, as a violation of

antitrust law, restrictions on its competitive freedom, to which it had agreed in contracts with the

defendant. The defendant pleaded in pari delicto as a defense to the plaintiff's suit for damages.

The Court rejected the defense, holding that antitrust law, which would be disserved by enforcing

the contracts, trumps contract law. The law could easily do without an unclean-hands doctrine and

an in pari delicto doctrine, since they reduce to the principle that a court will not entertain a claim

or defense that would create a greater legal wrong than vindicating the claim or defense would

avert. (Emphasis supplied).

To sustain a maintenance/champerty defense in this case would create a greater legal

wrong than vindicating the defense would avert. It would effectively endorse the alleged

misappropriation of trade secrets (if, in fact, that occurred) and would encourage future

commercial dishonesty -- a wrong of manifestly greater significance than whatever wrong could be

averted by recognizing the defense at the insistence of the alleged tortfeasor, who is a stranger to

the contract claimed to be champertous. " The maintenance of standards of commercial ethics and

the encouragement of invention are the broadly stated policies behind trade secret law. 'The

necessity of good faith and honest, fair dealing, is the very life and spirit of the commercial world.'"

Kewanee Oil v. Bicron Corp., 416 U.S. 470, 481-82, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974). See

also Waner v. Ford Motor Co., 331 F.3d 851, 859 (Fed. Cir.2003)(" An industrial society can

remain healthy only with rigorous enforcement of business ethics; and indeed this is the

foundation of the common law of commerce." ).

By contrast, over the centuries, maintenance and champerty have been narrowed to a

filament. Indeed, they " ha[ve] been so pruned away and exceptions so grafted upon [them], that

there is nothing of substance left of [them] in this State, and [they] ha[ve] been wholly abandoned

in others." Dunne v. Herrick, 37 Ill.App. 180, 182 (1st Dist. 1890). " The consistent trend across the

country is toward limiting, not expanding, champerty's reach." Del Webb Communities, Inc., 652

F.3d at 1156. Illinois has been in the vanguard of that trend, and the Illinois criminal maintenance

statute should not be given a new life by judges in a setting like the one in this case to which the

Illinois Legislature never intended it be applied.

The ABA Commission on Ethics 20/20's white paper of February, 2012 concluded that "

shifts away from older legal doctrines such as champerty, and society's embracing of credit as a

financial tool have paved the way for a litigation financing industry that appears poised to continue

to grow...." Jennifer Anglim Kreder, Benjamin A. Bauer, Litigation Finance Ethics: Paying Interest,

2013 Prof. Law. 1, 21 (2013). The Massachusetts and South Carolina Supreme Courts have

recognized that the champerty doctrine is no longer needed to protect against the evils once

feared, such as speculation in lawsuits, the bringing of frivolous lawsuits, or financial overreaching

by a party of superior bargaining position because there are now other devices that more

effectively accomplish these ends. See, Saladini v. Righellis, 426 Mass. 231, 687 N.E.2d 1224,

1226-27 (1997); Osprey, Inc. v. Cabana Ltd.

Page 728

P'ship, 340 S.C. 367, 532 S.E.2d 269, 277 (2000). See also, Toste Farm Corp. v. Hadbury, Inc.,

798 A.2d 901, 905 (R.I.2002)(collecting cases).

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In sum, for the same reason that it is proper to deny discovery that is relevant only to claims

or defenses that have been stricken, Oppenheimer Fund, Inc., 437 U.S. at 352, it is proper to deny

discovery regarding a matter that is not and cannot be a defense. Since the funding agreement in

this case cannot support a defense of champerty or maintenance, the " deal documents" are

irrelevant under Rule 26(b)(1) insofar as Caterpillar's claim of relevance is bottomed on the

unpled, " new" defense of champerty and maintenance. ( Defendant's Memorandum at 7). And

since there has been no crime, Caterpillar's claim that the crime-fraud exception to the attorney-

client privilege applies is stillborn.

The cases Caterpillar relies on do not begin to support its argument. In Todd v. Franklin

Collection Service, Inc., 694 F.3d 849, 851 (7th Cir. 2012), the court determined that an

assignment of an action was void because the assignee was using it to engage in the

unauthorized practice of law. And in Birner v. General Motors Corp., 2007 WL 269847, 3 (C.D.Ill.

2007), a third party who purchased a cause of action and then sued defendant was found to have

no standing to pursue that claim. " Enough said." Foufas v. Dru, 319 F.3d 284, 287 (7th Cir.2003).

B.

The " Real Party in Interest" Contention

Attempting to liken third party litigation funding to subrogation in an insurance context,

Caterpillar argues that the funding agreement (and related transactional documents) are therefore

relevant to the issue of who the real party in interest is -- Miller or the funder. What Judge Posner

said in Adams v. Raintree Vacation Exchange, LLC, 702 F.3d 436 (7th Cir.2012) applies perfectly

to Caterpillar's unsupported analogy: " But the analogy is imprecise (as argument by analogy so

often is), as well as labored.." Id. at 441 (Parenthesis in original). We begin with the basics.

Rule 17(a)(1) provides that " an action must be prosecuted in the name of the real party in

interest." Rule 17(a) " is a procedural rule requiring that the complaint be brought in the name of

the party to whom that claim 'belongs or the party who, according to the governing substantive

law, is entitled to enforce the right." Rawoof v. Texor Petroleum Co., 521 F.3d 750, 756 (7th Cir.

2008). The purpose of the Rule is to protect the defendant against a subsequent action by the

party actually entitled to recover. RK Co. v. See, 622 F.3d 846, 850 (7th Cir. 2010). An action may

not be dismissed for failure to prosecute in the name of the real party in interest until, after an

objection, a reasonable time has been allowed for the real party in interest to ratify, join, or be

substituted into the action. Rule 17(a)(3).

While Rule 17 does not define " real party in interest," the generally accepted definition of the

term is " the person holding the substantive right sought to be enforced, and not necessarily the

person who will ultimately benefit from the recovery." Farrell Constr. Co. v. Jefferson Parish, La.,

896 F.2d 136, 140 (5th Cir. 1990). The Federal Rules do not set out a specific procedure for

raising a Rule 17(a) objection, but it is generally agreed that it should be made in a timely manner,

such as in an answer or responsive pleading. See, e.g., In re Signal Int'l, LLC, 579 F.3d 478, 487

(5th Cir. 2009); 6A Charles Alan Wright, Arthur R. Miller & Mary Kay

Page 729

Kane, Federal Practice and Procedure § 1554 (2d ed.1990). This requirement ensures that the

correct party may, if necessary, assume the role of the plaintiff. Forza Technologies, LLC v.

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Premier Research Labs, LP, 2013 WL 6355383, 2 (N.D.Ill. 2013). Although this case is now

several years old, no " real party in interest" defense has been raised, and no motion to dismiss

filed by Caterpillar -- not even on information and belief.

Subrogation is the " 'substitution of one person in the place of another with reference to a

lawful claim...so that he who is substituted succeeds to the rights of the other in relation to the

...claim, and its rights, remedies, or securities.'" Employers Insurance. of Wausau v. James

McHugh Constr. Co., 144 F.3d 1097, 1105 (7th Cir.1998)(ellipsis in original). Under Illinois law, the

party claiming a right of subrogation must establish that he paid a claim or debt for which a third

party is primarily liable, that he did so not as a volunteer, but instead was under legal compulsion

to satisfy the debt, and that he seeks to enforce a right against that third party possessed by the

subrogor. Gearing v. Check Brokerage Corp., 233 F.3d 469, 471-472 (7th Cir. 2000); American

Nat. Bank and Trust Co. of Chicago, 692 F.2d 455, 460 (7th Cir. 1982).

Applicable state law determines who has the substantive right for purposes of subrogation.

Id. at 460, n.10; 3A Moore's Federal Practice, ¶ 17.07 (2nd Ed. 1996). For the reasons discussed

in American Nat. Bank and Trust Co. of Chicago, that should be the law of Illinois.[8] Under Illinois

law, an action by a subrogee/insurance company is one of indemnification, and thus the insurance

company as subrogee is limited to reimbursement for what it paid its insured and no more.

American Nat. Fire Insurance. Co. ex rel. Tabacalera Contreras Cigar Co. v. Yellow Freight

Systems, Inc., 325 F.3d 924, 936-937 (7th Cir.2003).

I have reviewed in camera the agreement between Miller and its funder, and there is nothing

in those agreements that remotely supports Caterpillar's attempt to equate Miller's funding

agreement to the relationship between an insured and its insurer. Unlike an insurer, the funder in

this case has not paid nor will ever pay Miller for any losses caused by Caterpillar's claimed

misappropriation of trade secrets and breach of contract; it will never be a plaintiff seeking

indemnification from Caterpillar. American Nat. Fire Insurance. Co. ex rel. Tabacalera Contreras

Cigar Co., supra. Nor is it an assignee of Miller.[9] Rather, it is contractually obligated to provide

Miller with an agreed amount of funds to assist Miller in defraying expenses incurred in suing

Catepillar to recover for its claimed losses. If Miller loses, that is the end of the matter.

Abraham Lincoln once was asked how many legs a donkey has if you call its tail a leg. His

answer was four: calling a tail a leg does not make it one. Blue Cross Blue Shield of

Massachusetts, Inc. v. BCS Insurance.

Page 730

Co., 671 F.3d 635 (7th Cir. 2011). Just so here. Calling Miller's funder a subrogee does not make

it one.

II.

Discoverability Of The Non-Deal Documents Claimed To Be Privileged Under The Attorney-

Client And Work Product Privileges

The second category of documents Miller has refused to turn over are documents that were

provided to the actual and any potential funders by Miller and its counsel. For purposes of a

relevancy analysis, there is nothing unique about documents submitted to an entity from which

litigation funding is sought. Clearly, they may well include information relating to Miller's claims

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against Caterpillar, and thus could themselves be admissible or otherwise could reasonably lead

to the discovery of admissible evidence. The relevance of these documents is not really contested.

Miller's essential objection is that they are privileged under the attorney-client and/or work-product

privileges.

Caterpillar argues that there is no attorney-client privilege in documents that are prepared "

primarily for a business transaction, rather than for securing legal advice." ( Defendant's

Memorandum at 8). Although documents prepared " for business purposes or for the purpose of

obtaining advice on 'political, strategic, or policy issues' " do not receive protection, " legal advice

relating to business matters clearly does." Sullivan v. Alcatel-Lucent USA, Inc., 2013 WL 2637936,

2 (N.D.Ill.2013). See also Sandra T.E. v. South Berwyn School Dist. 100 600 F.3d 612, 620 (7th

Cir.2010); Radiant Burners, Inc. v. American Gas Ass'n, 320 F.2d 314, 324 (7th Cir. 1963).

Documents prepared for use in connection with funding that were intended to be given and/or

were given to funders also would be governed by cases like United States v. Lawless, 709 F.2d

485, 487 (7th Cir. 1983) and United States v. Schussel, 291 F.App'x 336, 347 (1st Cir. 2008),

which hold that when information is transmitted to an attorney with the intent that the information

will be transmitted to a third party, who is not itself a protected party, such information is not

confidential and the attorney-client privilege does not obtain.[10]

Caterpillar's contention about the proposed uses of the funding documents is borne out by

Miller, itself. For example, Miller repeatedly argues that the case is its own, and there was nothing

beyond a funding relationship. (Dkt. #402, at 5-6; Dkt. #362, at 21-23). In fact, Miller's written

Mutual Non-Disclosure Agreement with Juris Capital explicitly states that the parties contemplated

" business discussions" involving " business matters,"

Page 731

with a view to entering into " business transactions." The parties recognized that confidential

information would be shared to allow " business decisions" to be made. ( Defendant's

Memorandum, Ex. H).[11] Miller's Memorandum in Opposition to Caterpillar's Motion to Compel

further confirms the business nature of the relationship between a litigant and a funder. The

Memorandum says that Miller and the litigation funders it consulted shared a common interest "

regarding investing in the case." ( Id. at 10). And a number of the " deal documents" use the term "

financier" to refer to Miller's counterpart in the overall funding arrangement. Thus, by Miller's own

classification, the contemplated funding transaction was merely commercial or financial, and it

documents conveyed to funders was not protected by the attorney-client privilege.

Although Caterpillar has the better of the argument, we shall assume, arguendo, that Miller

has sustained its burden of showing that the materials it provided to its lawyers for further

submission to prospective funders were protected by the attorney-client privilege and proceed to

the question of waiver.

A.

" Evidentiary privileges in litigation are not favored." Herbert, 441 U.S. at 175. " Whatever

their origins, these exceptions to the demand for every man's evidence are not lightly created nor

expansively construed for they are in derogation of the search for the truth." United States v. Nixon

, 418 U.S. 683, 710, 94 S.Ct. 3090, 41 L.Ed.2d 1039 (1974). See also Pierce County, Wash. v.

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Guillen, 537 U.S. 129, 144-145, 123 S.Ct. 720, 154 L.Ed.2d 610 (2003); University of

Pennsylvania v. EEOC, 493 U.S. 182, 189, 110 S.Ct. 577, 107 L.Ed.2d 571 (1990). This, of

course, applies to claims of work product. See Ross v. City of Memphis, 423 F.3d 596, 600 (6th

Cir.2005); Holmes v. Pension Plan of Bethlehem Steel Corp., 213 F.3d 124, 138 (3d Cir.2001);

Hawkins v. Stables, 148 F.3d 379, 383 (4th Cir.1998). And just as constitutional privileges may be

waived, so too may the attorney-client and work product privileges. United States v. Nobles 422

U.S. 225, 239, 95 S.Ct. 2160, 45 L.Ed.2d 141 (1975); United States v. Brock, 724 F.3d 817, 821

(7th Cir.2013).

Since the purpose behind the attorney-client privilege is to encourage full disclosure to one's

lawyer by assuring confidentiality, disclosure to a third party that eliminates that confidentiality

constitutes a waiver of the privilege. United States v. Hamilton, 19 F.3d 350, 353 (7th Cir. 1994);

Powers v. Chicago Transit Authority, 890 F.2d 1355, 1359 (7th Cir. 1989); Pampered Chef v.

Alexanian, 737 F.Supp.2d 958 (N.D.Ill.2010). To avoid waiver and shield from discovery

information it provided prospective funders, Miller seeks to invoke the " common interest" doctrine,

claiming claimed to be privileged that it shared with the funding sources a " common interest in the

successful outcome of the litigation." The " common interest" doctrine is not a separate privilege,

in and of itself. It is a rule of non-waiver. That is, it is an exception to the general principle that

disclosure to a non-privileged party of communications protected by the attorney-client privilege

waives the privilege. It allows communications that are already privileged to be shared between

parties having a " common legal interest" without a resultant waiver.[12]

Page 732

Unless the party asserting the " common interest" establishes that the withheld documents were

otherwise privileged, the " common interest" doctrine does not come into play. See In re Pacific

Pictures Corp., 679 F.3d at 1128-1131; Pampered Chef, 737 F.Supp.2d at 968; Dexia Credit Local

v. Rogan, 231 F.R.D. 268, 273-274 (N.D.Ill.2004); Gulf Islands Leasing, Inc. v. Bombardier

Capital, Inc., 215 F.R.D. 466, 470 (S.D.N.Y. 2003); Metro Waste Water Reclamation District v.

Cont'l Cas. Co., 142 F.R.D. 471, 478 (D.Colo. 1992).

In this, as in most Circuits, the " common interest" doctrine will only apply " where the parties

undertake a joint effort with respect to a common legal interest, and the doctrine is limited strictly

to those communications made to further an ongoing enterprise." BDO Seidman, 492 F.3d at 815-

16 (emphasis supplied). See also Leader Technologies, Inc., 719 F.Supp.2d at 376; Berger v.

Seyfarth Shaw LLP, 2008 WL 4681834, 2 (N.D. Cal. 2008).[13] A shared rooting interest in the "

successful outcome of a case" -- and that is what Miller explicitly alleges here -- is not a common

legal interest. See In re Pacific Pictures Corp., 679 F.3d at 1129-1130; [14] Continental Oil Co. v.

United States, 330 F.2d 347, 350 (9th Cir.1964); Islands Leasing, Inc, 215 F.R.D. at 473; Baby

Neal v. Casey, 1990 WL 163194, 2 (E.D.Pa. 1990). See also, Grochocinski v. Mayer Brown Rowe

& Maw LLP, 251 F.R.D. 316, 327 (N.D.Ill. 2008)(funding agreement giving third party percentage

of proceeds from award if plaintiff prevails does not create a common legal interest).

The rationale underlying the " common interest" doctrine accounts for the Seventh Circuit's

insistence that the parties claiming protection must share a common legal interest. The " common

interest" doctrine is designed to encourage " parties with a shared legal interest to seek legal

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'assistance in order to meet legal requirements and to plan their conduct' accordingly." BDO

Seidman, 492 F.3d at 815; Pampered Chef, 737 F.Supp.2d at 964. That planning serves the

public interest by advancing compliance with the law, " facilitating the administration of justice" and

averting litigation. BDO Seidman, 492 F.3d at 816.

Here, there was no legal planning with third party funders to insure compliance with the law,[15]litigation was not to be

Page 733

averted, as it was well underway, and. Miller was looking for money from prospective funders, not

legal advice or litigation strategies. The funders, for their part, were interested in profit. Legal

strategies and subtleties were exclusively for Kirkland & Ellis and for its predecessor in the case,

Nixon Peabody. In short, the funders and Miller did not share a common legal interest, and

materials shared with any actual or prospective funders lost whatever attorney-client privilege they

might otherwise have enjoyed.

Miller relies exclusively on Devon IT, Inc. v.IBM Corp., 2012 WL 4748160 (E.D. Pa. 2012),

which determined, in a footnote to its single-sentence order, that the " common interest" doctrine

applied because the plaintiff and the outside consultant assessing its case for funding purposes

had a common interest in the successful outcome of the litigation. However, the court did not

discuss whether it thought that interest was legal or commercial or whether under Third Circuit

precedent the distinction mattered. And contrary to Miller's contention that that the court's holding

was made with full awareness and after consideration of " the host of case law that provides" that

the shared interest must be legal ( Miller Memorandum at 10), the court cited and discussed only

one case, Thompson, Jr. v. Glenmede Trust Co., 1995 WL 752443, 4 (E.D.Pa. 1995).

Thompson involved an obvious, shared, legal interest among family members to whom

privileged information was circulated to determine if they wanted to join the plaintiffs in their

lawsuit. And Third Circuit precedent seems to support the requirement that the shared interest be

legal not commercial. See In re Teleglobe Communications Corp., 493 F.3d 345, 363-366 (3d

Cir.2007).[16] Moreover, like the decision in Abrams, supra, the abbreviated discussion in Devon

IT, if it was intended to hold that any interest in the successful outcome of a case shared by two

people suffices under the " common interest" doctrine, would be viewed by the Seventh Circuit as

" weak authority." Szmaj, 291 F.3d at 956. See also Sottoriva v. Claps, 617 F.3d 971, 976 (7th

Cir.2010)(district judges must give " an explanation--that is, a rendering of reasons in support of a

judgment--rather than a mere conclusory statement." ). And, since it appears the issue of the

necessity that there be a shared legal interest as opposed to a shared commercial or other interest

before the " common interest" doctrine comes into play was not raised by the parties, the case

does not establish a holding. Harper v.

Page 734

Virginia Dept. of Taxation, 509 U.S. 86, 118-119, 113 S.Ct. 2510, 125 L.Ed.2d 74 (1993); United

States. v. Acox, 595 F.3d 729, 731 (7th Cir. 2010).

And finally, and most importantly, whatever Devon IT was intended to hold, it cannot trump

the Seventh Circuit's decision in BDO Seidman, see United States v. Watson, 87 F.3d 927, 930

n.2 (7th Cir. 1996), or the admitted " host of case law that provides" that the shared interest must

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be legal. ( Miller Memorandum at 10).

In conclusion, any documents otherwise protected by the attorney-client privilege that Miller

shared with any prospective funder lost their protection under the attorney-client privilege when

shared with third party funders.

B.

That leaves the attorney work product privilege. For purposes of a privilege analysis, there is

nothing unique about cases involving third party litigation funding. The principles that govern other

cases apply equally where privilege claims are asserted.

The attorney work product privilege establishes a zone of privacy in which lawyers can

analyze and prepare their client's case free from scrutiny or interference by an adversary. It

protects documents prepared by attorneys in anticipation of litigation for the purpose of analyzing

and preparing a client's case. Sandra T.E, 600 F.3d at 618; Hobley v. Burge, 433 F.3d 946, 949

(7th Cir. 2006). The core of attorney work product consists of " the mental impressions,

conclusions, opinions, or legal theories of a party's attorney or other representative concerning the

litigation." Fed.R.Civ.P. 26(b)(3)(B). Material containing this information " are out of bounds.... "

Mattenson v. Baxter Healthcare Corp. 438 F.3d 763, 768 (7th Cir.2006).

Underlying the privilege is the deeply felt notion that the opposing party " shouldn't be

allowed to take a free ride on the other party's research, or get the inside dope on that party's

strategy, or...invite the [trier of fact] to treat candid internal assessments of a party's legal

vulnerabilities as admissions of guilt." Menasha Corp. v. U.S. Dept. of Justice, 707 F.3d 846, 847

(7th Cir.2013). Justice Jackson has perhaps said it best: opposing counsel should not be

permitted " to perform [their] functions...on wits borrowed from their adversary." Hickman v. Taylor

, 329 U.S. 495, 516, 67 S.Ct. 385, 91 L.Ed. 451, (1947)(Jackson, J., concurring).

Miller argues that documents turned over to potential funders containing counsel's mental

impressions and theories were created " because of" this litigation and thus are protected as core

work product. ( Miller Memorandum at 9). Some cases contain language that the burden is on the

party claiming protection to show that anticipated litigation was the " driving force behind the

preparation of each requested document." In re Professionals Direct Insurance. Co., 578 F.3d

432, 439 (6th Cir. 2009). The majority in United States v. Adlman, 134 F.3d 1194 (2d Cir.1998), on

which Miller relies, rejected the " primarily to assist in litigation test, " in favor of the " because of"

test, explaining that " [i]n addition to the plain language of the Rule, the policies underlying the

work-product doctrine suggest strongly that work-product protection should not be denied to a

document that analyzes expected litigation merely because it is prepared to assist in a business

decision."

The majority held that framing the inquiry as whether the primary or exclusive purpose of the

document was to assist in litigation " threatens to deny protection to

Page 735

documents that implicate key concerns underlying the work-product doctrine." Id. at 1199. The

majority looked to the test in the Wright & Miller treatise: whether, in light of the nature of the

document and the factual situation in the particular case, the document can fairly be said to have

been prepared or obtained " because of" the prospect of litigation. Any other test, the majority

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held, could unreasonably deny the protection to " dual purpose" documents generated in making

the decision whether to enter into a transaction based upon tax litigation concerns, even though

such documents could reveal an attorney's litigating strategies and assessment of legal

vulnerabilities--" precisely the type of discovery that the Supreme Court refused to permit in

Hickman. " Id. at 1199.

The majority concluded: " as most other courts have held, this court finds that the 'because

of' test [in Wright & Miller] is the proper way to determine whether a document was prepared 'in

anticipation of litigation' and thus is eligible for protection under [Rule] 26(b)(3)." This is the

formulation employed by the Seventh Circuit in Binks Mfg. Co. v. National Presto Industries, Inc.

709 F.2d 1109, 1119 (7th Cir.1983), which held that " 'the test should be whether, in light of the

nature of the document and the factual situation in the particular case, the document can fairly be

said to have been prepared or obtained because of the prospect of litigation.'" (emphasis in

original).[17] See also Logan v. Commercial Union Insurance. Co., 96 F.3d 971, 977 (7th

Cir.1996).

Any documents containing Miller's lawyers' mental impressions, theories and strategies

about Caterpillar's claimed misappropriation of trade secrets that were given to prospective

funders were only prepared " because of" the litigation. Adlman, supra. And a review of the

documents reveals quite clearly that a number of them were prepared to aid Miller's counsel in the

preparation of the case. Materials that contain counsel's theories and mental impressions created

to analyze Miller's case do not necessarily cease to be protected because they may also have

been prepared or used to help Miller obtain financing. See Mississippi Public Employees'

Retirement System v. Boston Scientific Corp., 649 F.3d 5, 31 (1st Cir. 2011); United States v.

Deloitte LLP, 610 F.3d 129, 138, 391 U.S. App. D.C. 318, 327 (D.C. Cir. 2010); In re Professionals

Direct Insurance Co., 578 F.3d 432, 439 (6th Cir.2009); Evergreen Trading, LLC ex rel. Nussdorf,

80 Fed.Cl. 122, 133, n.16 (Fed.Cl. 2007)(collecting cases).

Even the dissent in Adlman does not support a different result. Judge Kearse disagreed with

what he called the majority's " expansion of the work-product privilege to afford protection to

documents not prepared in anticipation of litigation but instead prepared in order to permit the

client to determine whether to undertake a business transaction, where there will be no

anticipation of litigation unless the transaction is undertaken." Id. at 1205. That concern does not

apply here since litigation antedated the business transaction -- i.e. the funding. The question then

is whether the work product privilege was waived by the turnover of protected documents to

funders.

While disclosure of a document to a third party waives attorney-client privilege unless the

disclosure is necessary to further the goal of enabling the client to seek informed legal assistance,

the same is not necessarily true of documents protected

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by the work product doctrine. This disparity in treatment flows from the very different goals the

privileges are designed to effectuate. The attorney-client privilege promotes the attorney-client

relationship, and, indirectly, the functioning of our legal system, by protecting the confidentiality of

communications between clients and their attorneys. Upjohn Co. v. United States 449 U.S. 383,

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101 S.Ct. 677, 66 L.Ed.2d 584 (1981). In contrast, the work-product doctrine promotes the

adversary system directly by protecting the confidentiality of papers prepared by or on behalf of

attorneys in anticipation of litigation. Appleton Papers, Inc. v. E.P.A., 702 F.3d 1018, 1022 (7th Cir.

2012); Westinghouse Elec. Corp. v. Republic of Philippines, 951 F.2d 1414, 1428 (3rd Cir.1991);

E.E.O.C. v. FAPS, Inc., 2012 WL 1656738, 28 (D.N.J. 2012).

Because the work-product doctrine serves to protect an attorney's work product from falling

into the hands of an adversary, a disclosure to a third party does not automatically waive work-

product protection. Westinghouse Elec. Corp., 951 F.2d at 1428. See also Adkins Energy, LLC v.

Farmland Mut. Insurance. Co., 2009 WL 1259344, 2 (N.D.Ill. 2009); Jumper v. Yellow Corp. et al.,

176 F.R.D. 282, 287 n. 5 (N.D.Ill.1997). A waiver occurs " when the protected communications are

disclosed in a manner that " 'substantially increase[s] the opportunity for potential adversaries to

obtain the information.'" Appleton Papers, Inc., 702 F.3d at 1025.

To avoid the risk of disclosure, Miller took precautions through confidentiality agreements

with at least some prospective funders. Its October 27, 2011 agreement with Juris Capital was

written. ( Defendant's Memorandum, Ex. H).[18] Other protective agreements were oral according

to the Declaration of Miller's Chairman of the Board, Keith Miller. Mr. Miller says that in 2011 he

spoke with two named individuals at CLFL, a potential funder, and that " the parties agreed that

any information shared between them would be kept strictly confidential." Mr. Miller goes on to say

that Miller had " a similar [oral] understanding of confidentiality" with Harbor Litigation. ( Motion,

Ex. I, ¶ ¶ 3-4).

It perhaps could be argued that the assertions that Miller and one or more prospective

funders " agreed" and had an " understanding" regarding confidentiality are merely legal

conclusions, and that therefore the Declaration should not be considered.[19] But this is not an

argument that Caterpillar makes and thus it is waived. United States v. ADT Sec. Services, Inc.,

522 F.App'x 480, 488 (11th Cir. 2013); Catlin v. City of Wheaton, 574 F.3d 361, 364 (7th

Cir.2009).[20]

Page 737

Caterpillar merely says that when pressed for details about the precise terms of the claimed

oral agreements, Miller offered only " vague statements." ( Defendant's Memorandum at 14 ).

Perhaps. But the question is whether the Miller Declaration suffices for the present discovery

motion. Whatever force the vagueness objection might have as to the claim of " similar

understandings," it has far less, if any, as regards the agreement with CLFL of " strict

confidentiality." In the context of the present motion, and given the skeletal and perfunctory

contention of Caterpillar, the Declaration is sufficient -- although perhaps just barely so as to the

claim of " similar understandings." [21]

Ecologix, Inc. v. Fansteel, Inc., 676 F.Supp. 1374 (N.D.Ill.1988), cited by Caterpillar, does

not require a different result. In fact, it provides some support for Miller's position. The court

recognized that an oral proposal " to maintain the confidentiality of whatever information was

exchanged" could constitute a viable offer, and that acceptance could be oral as well. Id. at 1379.

The problem in Ecologix was that the evidence failed to show an acceptance and did show that

the parties acted in a manner inconsistent with the claimed existence and terms of the oral

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contract. The evidence was undisputed that Ecologix's custom and practice was to routinely

require all third parties to whom it would divulge confidential information to sign a non-disclosure

agreement. Ecologix memorialized this policy and incorporated it as a standard pre-printed term

and condition of its written proposals. Id. The claimed oral agreement was thus quite at variance

with the customary way Ecologix did business, and significantly undercut the claim that there was

an oral agreement of confidentiality.

Here, Mr. Miller's statement that there was an oral agreement, in effect, asserts that there

was an offer and an acceptance. Moreover, there is no inconsistency of behavior alleged by

Caterpillar. Quite the contrary. Caterpillar's claim that a funder blew the whistle on Miller's

unsuccessful attempt to secure funding is not a violation of the oral confidentiality agreements

referred to in Mr. Miller's Declaration. The agreements merely required that shared information be

kept confidential. There was no agreement that the fact that Miller had approached the funder for

money would be also be kept confidential. Thus, the claimed disclosure by the unnamed funder is

not inconsistent with the arrangement alleged by Mr. Miller. In fact, the absence of any claim by

Caterpillar that it was provided with confidential information is, at least facially, consistent with Mr.

Miller's description of his confidentiality agreements with funders.

In contrast to the attorney-client privilege, the party asserting work product immunity is not

required to prove non-waiver. The party asserting waiver has the burden to show that a waiver

occurred. Ecuadorian Plaintiffs v. Chevron Corp., 619 F.3d 373, 379 (5th Cir.2010). Caterpillar has

not done so. All we have is Caterpillar's unamplified statement in its briefs as to how it learned

about Miller's funding efforts. Unsupported statements in briefs don't count. United States v.

Stevens, 500 F.3d 625, 628-29 (7th Cir. 2007); Gonzalez v. Houlihan's Restaurants, Inc., 2010 WL

1664931, 2 (N.D.Ill.2010)(collecting cases). So, we cannot on this record determine where or how

Caterpillar actually got its limited information. And if it did not

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come from a prospective funder, it is inconsequential for purposes of determining whether Miller's

disclosures occurred in a manner that substantially increased the opportunity for Caterpillar to

obtain the disclosed information.[22]

In Mondis Technology, Ltd. v. LG Electronics, Inc., 2011 WL 1714304 (E.D.Tex. 2011), the

case Miller exclusively relies on, disclosure to prospective investors of documents reflecting the

plaintiff's litigation strategy and licensing plan did not substantially increase the likelihood that the

adversary would come into possession of the materials because disclosure was pursuant to an

oral confidentiality agreement. See also, Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342

F.3d 714, 725-26 (7th Cir. 2003)(oral arguments sufficient); U.S. Information Systems, Inc. v.

International Broth. of Elec. Workers Local Union Number 3, 2002 WL 31296430, 6

(S.D.N.Y.2002)(divulging work product to the prospective consultant under a confidentiality

agreement does not substantially increase the risk of disclosure to the adversary as the person to

whom disclosure is made has a strong incentive to comply with the agreement since breaching it

would surely result in the inability to attract clients in the future).

Miller has made an adequate showing for purposes of the present motion that it had oral

confidentiality agreements with the prospective funders named in Mr. Miller's Declaration as well

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as a written agreement with Juris Capital. Therefore, Caterpillar has failed to carry its burden to

show that Miller made disclosures to these entities under circumstances that substantially

increased the likelihood that Caterpillar would learn of them.

It is a relevant inquiry in cases like this whether the disclosing party had a reasonable basis

for believing that the recipient would keep the disclosed material confidential. United States v.

Deloitte LLP, 610 F.3d 129, 141, 391 U.S. App. D.C. 318 (D.C. Cir.2010). While a confidentiality

agreement may provide that basis, its absence may not be fatal to a finding of non-waiver.

Phrased differently, a confidentiality agreement may be a sufficient but not a necessary element of

a finding of non-waiver in cases like this. With or without a confidentiality agreement, it could be

argued that a prospective funder would hardly advance his business interests by gratuitously

informing an applicant's adversary in litigation about funding inquiries from that company.[23] To

do so would announce to future litigants looking for funding this was a company not to be trusted.

Cf., International Broth. of Elec. Workers Local Union Number 3, supra. Depending on all the

surrounding circumstances, that perhaps could give rise to a reasonable expectation of

confidentiality on which Miller could have relied. But this is not an argument that Miller makes, and

we need not pursue it further,

However, even if Caterpillar had shown waiver of the work product privilege, not

Page 739

all of the materials Miller has withheld need be produced for the reasons explained in Part III, infra.

III.

The In Camera Review

A.

Caterpillar requested that I conduct an in camera review of the documents Miller has refused

to produce. See Balderston v. Fairbanks Morse Engine Div. of Coltec Industries 328 F.3d 309, 320

(7th Cir.2003); RBS Citizens, N.A. v. Husain, 291 F.R.D. 209, 219 (N.D.Ill.2013); Sullivan v.

Alcatel-Lucent USA, Inc., 2013 WL 2637936, 10 (N.D.Ill.2013). Miller agreed and sent to

chambers five, large, three-ring binders, measuring some 13 inches in height, and containing

5,108 pages. The binders are labeled " Litigation Funding Materials For In Camera Review." [24]

Given their volume, it is perhaps surprising that few of the documents " hav[e] any tendency to

make the existence of any fact that is of consequence to the determination of the action more

probable or less probable than it would be without the evidence." Rule 401, Federal Rules of

Evidence. Nor are they reasonably likely to lead to the discovery of admissible evidence.

There are innumerable unenlightening emails that discuss amounts sought from funders and

the progress of funding efforts, thoughts about meals, budgets, observations about particular

people and entities, comments about all manners of things, blank form agreements and

questionnaires from potential funders, completed applications for funding with information that is

obviously known to Caterpillar and which was public information, documents apparently relating to

prior dealings or relationships Miller had with one or more banks, communications between Miller

and its present and former lawyers, the transactional documents for the funding Miller did obtain,

and various other documents, none of which contains any information that could be utilized by

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either party in proving or disproving Miller's claims or Caterpillar's counterclaim or defenses and

none of which would allow Caterpillar's lawyers " to perform [their] functions...on wits borrowed

from their adversary," Hickman v. Taylor, 329 U.S. 495, 516, 67 S.Ct. 385, 91 L.Ed. 451,

(1947)(Jackson, J., concurring).

A perfect example is an email from Chris Parkin to John Burley, a public relations consultant

in England who was assisting Miller's funding efforts. ( See Defendants' Memorandum, Ex. F). It is

mystifying why this document was redacted. It notes what was public information, namely that a

jury trial has been demanded, that the case has not yet been set for trial, that discovery is

ongoing, and that Caterpillar is mounting a vigorous defense. The document goes on to sat that, "

no one can estimate with certainty how a U.S. jury will decide the case." But that simply expresses

the reality known to first year law students, that juries are inherently unpredictable, In re

Southeastern Milk Antitrust Litigation, 2013 WL 2155379, 4 (E.D.Tenn.2013), and there is no such

thing as a sure winner either in pretrial proceedings or at trial. See Evans v. City of Chicago, 513

F.3d 735, 746 (7th Cir. 2008); Kern v. Levolor Lorentzen, Inc., 899 F.2d 772, 781 (9th Cir.

1990)(Kozinski, J., dissenting). The email goes on to say

Page 740

that it is unlikely that any jury would find for Caterpillar.

The actual transactional documents between Miller and its funder -- the " deal documents" -

reflect the terms of the funding agreement, the amount funded, and the details about how any

recovery is to be divided between Miller and the funder if Miller wins the case and what happens if

it does not. This and related information -- some of which is generally adverted to in emails -- have

nothing to do with the claims or defenses in the case -- contrary to Caterpillar's arguments to the

contrary.

The only arguable relevance of the information about the terms of the Miller funding

agreement goes to the question of whether the funder is the or a real party in interest. The

provisions of a funding agreement that would bear on that question would appear to involve

whether the funder has been accorded some measure of control over the case or its settlement --

it hasn't -- and whether Miller has effectively assigned or transferred some part of its claims

against Caterpillar to the funder -- it hasn't. A review of the funding contract and related

documents shows quite clearly that Miller is the real party in interest, and that the funder is not an

assignee or subrogee.

My review of the documents compels the conclusion that the following items in the revised

privilege log are not relevant and need not be turned over: Nos. 1-3, 5, 8-12, 14, 16, 18-74, 76-84,

86-95, 97-160. Many of these documents are simply copies of each other and deal with funding,

budgets, scheduling, etc. While a number of them make reference to an attorney's opinion

regarding chances of success, I did not see such a document.

B.

There is, however, a category of documents that apparently have not been turned over by

Miller that are relevant, namely damage estimates, summaries, or worksheets created by Miller

and/or its lawyers that were shared with third party funders. By disclosing these documents, Miller

waived whatever protection they might have enjoyed under the attorney-client privilege. The

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question is whether they lost whatever protection they may have enjoyed under attorney work-

product.

In those instances where Miller had an oral or written confidentiality agreement, they remain

protected and are not discoverable. But what about those funders with which Miller had no

agreement? All Miller has said is that the turnovers to funders did not increase the chances that

Caterpillar would get the information. ( Miller Memorandum at 7). But that is nothing more than an

unsupported contention and thus does not preserve the point. United States. v. Dunkel, 927 F.2d

955, 956 (7th Cir.1991). See also Roger Whitmore's Automotive Svcs., Inc. v. Lake County, 424

F.3d 659, 674 (7th Cir. 2005); Hickey v. O'Bannon, 287 F.3d 656, 657 (7th Cir.2002) and cases

cited at 33, n. 21, supra. Had Miller advanced the argument discussed at page 35 supra, perhaps

a different result would obtain. But it didn't, and thus it is waived.

Thus, on the present record, it appears that Miller took protective measure with some but

perhaps not all prospective funders. On the present record and given the absence of any

developed legal argument from Miller, Caterpillar has sufficiently shown that as to the latter group

of funders a turnover of information substantially increased the risk of disclosure to Caterpillar and

resulted in a waiver of the work product privilege. Miller must produce all damage summaries,

damage estimates and spread sheets. These include, but are not necessarily limited to item

Page 741

Nos. 4, 6, 7, 13, and 15 on the revised privilege log.[25]

Additionally, Miller must also produce all documents that it concedes are relevant, but which

it claimed were privileged under either the attorney/client or work-product privilege and which it

shared with any actual or prospective funder, except those with which it had a confidentiality

agreement as discussed in Mr. Miller's declaration, including the written agreement it had with

Juris.

Miller need not turn over any document that in whole or in part deals with budgets for the

case, expected funding requirements, legal fees, expected or actual, or any other document that

discusses funding efforts or actual or prospective funders. Certain of the documents I reviewed

(i.e. No. 75) has been turned over in redacted form. The redactions on No. 75 deal with funding

issues, expected costs and legal fees, discussion of abstract legal questions, etc. These

redactions are proper.

C.

There is a final aspect of the materials I reviewed in camera that warrants separate mention.

Miller has redacted on a funding application a percentage estimate of the chances of success in

the case. The percentage estimate, which it bears repeating is quite high, is unexplained. It is

simply a number. The identical, unexplained, percentage estimate appears in a number of other

documents - many are duplicates -- that Miller has listed on its revised Privilege Log. See, e.g.,

Nos. 5, 12, 16, 43, 44, 47, 50, 61, 66, 67, 68, 71, 72, 85, 99, 101. The question is whether

documents containing this unexplained, percentage assessment should be turned over to

Caterpillar. I think not.

A numerical estimate of the chances of success, even if unexplained, would appear to fall

within that portion of Rule 26(b)(3)(B) that covers materials containing " the mental impressions,

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conclusions, opinions, or legal theories of an attorney or other representative of a party concerning

the litigation." Cf., United States v. Frederick, 182 F.3d 496, 501 (7th Cir.1999); Adlman, 134 F.3d

at 1199.[26] Such an estimate necessarily was made while discovery was in its early stages, and

thus would have been unavoidably imprecise and uninformed.

Miller, quite obviously, could not use its own estimate at trial since it would be irrelevant and

run afoul of the hearsay rule. And given the rosy estimate, Caterpillar would never try to use it as

an admission. But even if it did, it would never be admitted: the lawyers certainly could not testify

about the basis for the estimate. In fact, that would be error essentially for the reasons explained

in Mattenson : " What [Mattenson] should not be allowed to do [on remand] is cross-examine

lawyer Bradley about the company's 'legal vulnerabilities.' That cross-examination, irrelevant and

highly prejudicial, should not have been permitted quite apart from the work-product doctrine.

Fed.R.Evid. 403." 438 F.3d 769. Any attempted explanation by Miller's witnesses about the

educated guess it made early on would deflect attention from the real issues in the case, namely

whether

Page 742

there has been a misappropriation of trade secrets and a breach of contract, and pose an

unacceptable risk of misleading and confusing the jury, and unfairly prejudicing Miller to a degree

that would substantially outweigh any conceivable probative significance the evidence might have.

In sum, even if Caterpillar were foolhardy enough to seek admission of Miller's high estimate

of its chances of success on the theory that the estimate was an admission, it would inevitably be

excluded under Rule 403. See Mattenson, supra; Mister v. Northeast Illinois Commuter R.R. Corp.

, 571 F.3d 696 (7th Cir. 2009)(party admission can be excluded under Rule 403). Hence, any

unexplained, percentage estimate of the chances of success made by Miller to a prospective

funder need not be produced.

CONCLUSION

My in camera review of the withheld documents has revealed that, quite apart from any

questions of privilege and waiver, few of the documents for which Miller has claimed privilege are

relevant: most do not contain analysis or discussion of the facts underlying or implicating the

claims or defenses or counterclaims. They contain no admissions or statements that undercut any

claim or support or undercut any defense or counterclaim in the case. They could not reasonably

lead to the discovery of admissible evidence. Moreover, for the reasons discussed earlier,

Caterpillar is not entitled to discover the amount of money sought or received by Miller, the details

of the agreement it has with its funder, or how much the funder will receive if Miller wins the case.

In the setting of this case, that information is simply irrelevant. It bears repeating that one of the

necessary and ultimate limitations on discovery that comes into play is when " inquiry touches

upon the irrelevant...." Hickman, 329 U.S. at 507-08. Discovery not " reasonably calculated to lead

to the discovery of admissible evidence" is not within the scope of Rule 26(b)(1)." Oppenheimer,

437 U.S. at 352. "

The Seventh Circuit has recognized that district courts are in the best position to decide the

proper scope and pace of discovery. Scott v. Chuhak & Tecson, P.C., 725 F.3d 772, 785 (7th

Cir.2013). There has already been " enough discovery here to choke a horse." Walker v. Sheahan

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, 526 F.3d 973, 978 (7th Cir.2008). Not only is discovery ongoing, but Caterpillar is seeking a six

month extension of the present schedule. Under the circumstances of this case, to require Miller to

produce the documents Caterpillar is seeking in the motion to compel would be a disservice to the

parties and to the due administration of justice. It would, to a not insignificant degree, make the

touchstone for decision whether the production of the information would " harm[]" Miller, (

Defendant's Memorandum at 7), not whether the information is relevant. That is the wrong focus.

A final thought. The literature on litigation funding contains divergent views of its merit. See

e.g., Kenneth L. Jorgensen, Presettlement Funding Agreements: Benefit or Burden, 61 Bench & B.

Minn. 14 (2004); Andrew Hananel & David Staubitz, The Ethics of Law Loans in the post-

Rancman Era, 17 Geo. J. Legal Ethics 795 (2004); Terry Carter, Cash Up Front, 90 A.B.A.J. 34

(2004); Douglas R. Richmond, Other People's Money: The Ethics of Litigation Funding, 56 Mercer

L.Rev. 649 (2005). But questions of societal value are generally for the Legislature, and a judge

ought not " succumb to the temptation to substitute his own 'incandescent conscience' for the will

of the legislature." H. Shanks, The Art and Craft of Judging: The Decisions of Judge Learned

Hand 13

Page 743

(1968). See also, Cardozo, The Nature of the Judicial Process 141 (1921).

Caterpillar's Motion to Compel Litigation Funding Documents [Dkt. # 364] is GRANTED IN

PART AND DENIED IN PART.

---------

Notes: [1] See e.g.,Jasminka Kalajdzic, Peter Cashman, Alana Longmoore, Justice for Profit: A

Comparative Analysis of Australian, Canadian and U.S. Third Party Litigation Funding, 61

Am.J.Comp.L. 93, 111-12 (Winter 2013); Jennifer Anglim Kreder, Benjamin A. Bauer, Litigation

Finance Ethics: Paying Interest, 2013 Prof. Law. 1, 21 (2013); Grace M. Giesel, Alternative

Litigation Finance and the Work-Product Doctrine, 47 Wake Forest L.Rev. 1083, 1085 (Winter

2012); Elizabeth Chamblee Burch, Financiers as Monitors in Aggregate Litigation, 87 N.Y.U.L.Rev

1273, 1326 (Nov. 2012); Maya Steinitz, The Litigation Finance Contract, 54 Wm.& Mary L.Rev.

455, 503 (Nov. 2012); Jonathan T. Molot, Third Party Litigation Funding: Pros, Cons, and How It

Works, ALI-ABA 95 (Nov. 2012); Meriam N. Alrashid, Jane Wessel, John Laird, Impact of Third

Party Funding on Privilege in Litigation and International Arbitration, 6 No. 2 Disp.Resol. Int'l 101

n.36 (Oct. 2012); Aren Goldsmith, Third-Party Funding in International Dispute Resolution, 25-AUT

Int'l L. Practicum 147 (Autumn 2012); Jenna Wims Hashway, Litigation Loansharks: A History of

Litigation Lending and a Proposal to Bring Litigation Advances Within the Protection of Usury

Laws, 17 Roger Williams U.L.Rev. 750 n.64 (Summer 2012); Elisha E. Weiner, Price and Privilege

, 35-APR.L.A. Law 20, 23 (April 2012); Robin Miller, Enforcement and Validity of Litigation Funding

Agreements,72 A.L.R.6th 385 (2012); Stuart L. Pardau, Alternative Litigation Financing: Perils and

Opportunities, 12 U.C. Davis Bus. L.J. 65 n.60 (Fall 2011); Christopher B. Little, Third-Party

Litigation Funding: Understanding the Risks, 40-APR Colo.Law. 69 (April 2011); Kingston White,

A Call for Regulating Third-Party Divorce Litigation Funding, 13 J.L.& Fam.Stud. 395 n.81 (2011);

Nicholas Dietsch, Litigation Financing in the U.S., The U.K., and Australia: How the Industry has

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Evolved in Three Countries, 38 N.Ky.L.Rev. 687, 692 (2011); Jason Lyon, Revolution in Progress:

Third-Party Funding of American Litigation, 58 UCLA L.Rev. 571, 576 (Dec. 2010); James M.

Hosking, Andreas A. Frischknecht, Third-Party Funding Update: New York Court Narrowly Applies

Champerty Law Whyile Florida Court Holds Investors Can Be Liable for Costs, 15 No. 1 IBA Arb.

News 190 n.14 (March 2010); Vince Morabito, Class Actions Instituted Only for the Benefit of the

Clients of the Class Representative's Solicitors, 29 Sydney L.Rev. 5, 38 (March 2007); Mariel

Rodak, It's About Time: A Systems Thinking Analysis of the Litigation Finance Industry and Its

Effect on Settlement, 155 U.Pa.L.Rev. 503, 517 (Dec. 2006); Chris Messervy, Recent Law Review

Articles Concerning the Legal Profession, 30 J. Legal Prof. 195 (2005-2006); L.E.I. 2005 - 02

Legal Funding Plans, 2005-Dec W.Va.Law. 33 n.1 Nov./Dec. 2005); Douglas R. Richmond, Other

People's Money: The Ethics of Litigation Funding, 56 Mercer L.Rev. 649, 675-76 (Winter 2005);

Douglas R. Richmond, Litigation Funding: Investing, Lending, or Loan Sharking?, 2005 Prof.Law.

17, 39 (2005); Douglas R. Richmond, Other People's Money: The Ethics of Litigation Funding, 56

Mercer L.Rev. 649 (2005); Kenneth L. Jorgensen, Presettlement Funding Agreements: Benefit or

Burden, 61 Bench & B. Minn. 14 (2004); Andrew Hananel & David Staubitz, The Ethics of Law

Loans in the post-Rancman Era, 17 Geo. J. Legal Ethics 795 (2004); Terry Carter, Cash Up Front

, 90 A.B.A.J. 34 (2004). See also ABA Commission on Ethics 20/20, Informational Report To The

House of Delegates, 1, notes 1-4 (2012). [2]Before turning to the merits, the manner in which the parties chose to brief the motion warrants

mention. Both parties have violated Local Rule 7.1 by filing briefs that incorporate by reference

their 32 page, Combined Rule 37.2 report, which contain extensive legal arguments. This requires

the court to flip back and forth from document to document to attempt to assess arguments that

are not fully developed in the parties' supporting memoranda, as they should have been. Miller UK

Ltd. v. Caterpillar, Inc., 292 F.R.D. 590, 2013 WL 4494683 (N.D.Ill. 2013) explained why it was

improper to incorporate by reference other documents and arguments: it made the court's job

harder not easier, and it resulted in a substantial violation of the limitation on the permissible

length of briefs imposed by our local rules. The Opinion concluded that arguments that were not

fully developed in the parties' memoranda would be deemed waived. Nonetheless I have

considered the arguments. However, no further briefs will be accepted that incorporate by

reference legal arguments from other documents. [3]Unfortunately, none of the " deal documents" were specifically identified, described, or

discussed in any way in Miller's brief. Nor were they otherwise categorized or indexed in the five

large binders that were provided for my in camera review. It was only after a request to Miller's

counsel during a conference call with the parties that the deal documents were separately

provided to the court. The documents that evidence or pertain to the actual financing agreement

are found at:Binder1,Exhibitnumbers:LITFUNDING 0000168, LITFUNDING0000171,and

LITFUNDING0000329; Binder3 at Exhibit numbers: PURCELP 0067225, PURCELP0067393,

PURCELP0067597, PURCELP0067600; and Binder5at MILLERREV-006939, MILLERREV-

006940, MILLERREV-006941,MILLERREV-006942, MILLERREV-006943, MILLERREV-006944,

MILLERREV-006945, MILLERREV-006946,MILLERREV-006947, MILLERREV-006948,

MILLERREV-006949, MILLERREV-006950,MILLERREV-006951, MILLERREV-006952,

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MILLERREV-006953, MILLERREV-006954, MILLERREV-006955,MILLERREV-006956,

MILLERREV-006957, MILLERREV-006958, MILLERREV-006959. [4]For good cause, the court may order discovery " relevant to the subject matter involved in the

action." Rule 26(b)(1). This provision has not been invoked by Caterpillar. [5]If third party funding agreements were " illegal" in Illinois, one would expect there to be a

defense to that effect raised by Caterpillar. Tellingly, there is none. Cf. Muhammad v. Oliver, 547

F.3d 874, 877 (7th Cir. 2008) (Posner, J)(" [I]f there is an executed standstill agreement, one

would expect an allegation to that effect. There is none. The complaint's silence is deafening." );

Alexander v. City of South Bend, 433 F.3d 550, 556 (7th Cir. 2006). [6]Thus, there is no implied private cause of action for champerty, maintenance or barratry.

Galinski v. Kessler, 134 Ill.App.3d 602, 606, 480 N.E.2d 1176, 1179, 89 Ill.Dec. 433(1st

Dist.1985). [7]None of these cases have been cited by the parties. [8]As in American Nat. Bank and Trust Co. of Chicago, neither party has addressed the question

of the applicable state law. Thus, as in situations where the parties do not raise the issue of which

law should apply, Illinois law will be selected. Faulkenberg v. CB Tax Franchise Systems, LP 637

F.3d 801, 809 (7th Cir.2011). [9]Miller was careful to divorce the funders from any legal interest in this case. It repeatedly argues

that the case was and continues to be its own, and that it has no more than a funding relationship

with the funder. (Dkt. #402, at 5-6; Dkt. #362, at 21-23). A review of the funding agreement

confirms these representations. [10]Caterpillar's Memorandum points to the following items in " Miller's Privilege Log for Funding

Documents," which is attached as Exhibit G to its Memorandum -- as being documents " created

either for Plaintiffs to finalize their claimed business transaction with third party funders or for the

full or partial purpose of third party review" : Entry Nos. 4, 6-7, 9, 11, 16, 18, 21, 24, 26-51, 53-62,

64-81, 84-87, 88-91, 93, 96-97, 101-104, 107, 109-112, 121-154, 158, 160-167, 170, 172-174. (

Caterpillar Memorandum at 9). Caterpillar contends that " the same is true for Privilege Log Entry

Nos. 8, 10, 12-15, 17, 19, 21, 23, 25, 52, 54, 63, 73-76, 78, 83, 88, 94-95, 98-99, 105, 106, 108,

114 and 118, which are spreadsheets and summaries apparently prepared for third party funder

review." ( Caterpillar Memorandum at 9).

At my request, Miller produced in one binder copies of the materials which it has refused to

produce on the ground of attorney/client or work-product privilege, or both. The numbers in the

revised privilege log no longer correspond to those in the original log. I have reviewed in camera

the 160 items in the revised Privilege Log. [11]While the parties' characterization in the agreement is not conclusive, cf., TKO Equipment Co.

v. C & G Coal Co., 863 F.2d 541, 543 (7th Cir. 1988), it is not without value in assessing the

nature of the relationship. [12]The " common interest" exception is closely related to the exception for jointly represented co-

parties, with the difference being that parties may have a " common interest" even if they are not

represented by the same lawyer. See In re Pacific Pictures Corp., 679 F.3d at 1129 -1130 for an

extended discussion and explanation of the matter. The " common interest" doctrine is not limited

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to defendants, to formal parties to litigation, or to litigated matters. United States v. BDO Seidman,

LLP, 492 F.3d 806, 815 (7th Cir. 2007). [13]Miller seems to have tacitly acknowledged the necessity that the interest be legal. In his

Declaration of February 12, 2013, Miller's Chairman of the Board, Keith Miller, states that Miller

and one of the funders it consulted with, " had a common legal interest in obtaining and/or

providing financial assistance that would allow Miller to pursue its legal claims against Caterpillar."

(Motion, Ex. I, ¶ 3). [14]The Court of Appeals cited BDO Seidman in support of this proposition. [15]There is no claim by Miller that it undertook a joint litigation strategy with any funding source.

See United States v. Evans, 113 F.3d 1457, 1467 (7th Cir.1997)(The common interest doctrine "

serves to protect the confidentiality of communications passing from one party to the attorney for

another party where a joint defense effort or strategy has been decided upon and undertaken by

the parties and their respective counsel." ). And a review of the documents provided for my in

camera review shows conclusively that no such action was undertaken or contemplated. [16]The Court of Appeals in In re Teleglobe Communications Corp. cited Duplan Corp. v. Deering

Milliken, Inc., 397 F.Supp. 1146, 1172 (D.S.C.1974):

" 'A community of interest exists among different persons or separate corporations where they

have an identical legal interest with respect to the subject matter of a communication between an

attorney and a client concerning legal advice. The third parties receiving copies of the

communication and claiming a community of interest may be distinct legal entities from the client

receiving the legal advice and may be a non-party to any anticipated or pending litigation. The key

consideration is that the nature of the interest be identical, not similar, and be legal, not solely

commercial. The fact that there may be an overlap of a commercial and a legal interest for a third

party does not negate the effect of the legal interest in establishing a community of interest.'"

(Emphasis supplied).

After noting that the Restatement (Third) of the Law Governing Lawyers, takes a more flexible

approach than Duplan, the Third Circuit said: " For our purposes, it is sufficient to recognize that

members of the community of interest [i.e., those not represented by the same lawyer] must share

at least a substantially similar legal interest." In re Teleglobe Communications Corp., 493 F.3d at

365. (Emphasis supplied). [17]The Seventh Circuit cited Diversified Industries, Inc. v. Meredith, 572 F.2d 596, 604 (8th

Cir.1977), which in turn relied on the " because of" test in the Wright & Miller treatise cited by the

Adlman majority. [18]Miller's Reply Brief has represented that no confidential materials were disclosed to Juris

before October 27. [19] See Nester v. Diamond Match Co., 143 F.72 (7th Cir. 1906); Ocasio-Hernandez v. Fortuño-

Burset, 640 F.3d 1, 8 (1st Cir. 2011); Smith v. McAlister-Smith Funeral Home, Inc., 2012 WL

4378185, 3 (D.S.C.2012; Maldonis v. City of Shell Lake, 2008 WL 4735143, 2 (W.D.Wis.2008);

Shields Enterprises, Inc. v. First Chicago Corp., 1988 WL 142200, 4 (N.D.Ill.1988)(Moran, J.). [20]Caterpillar's Memorandum (at 4) merely notes, without discussion or analysis, that a letter from

Miller's counsel states in " conclusory fashion" that Mr. Miller and Mr. John Burley, a public

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relations expert in England who was advising Miller on funding issues and who was a recipient of

most of the materials listed on the Privilege Log, had an oral confidentiality agreement. But that is

a very different matter than advancing a supported argument regarding the question of whether

Mr. Miller's Declaration is insufficient because it states a legal conclusion. [21]Skeletal and perfunctory arguments are essentially mere assertions and are deemed waived.

Plan Trust Funds v. Royal Intern. Drywall and Decorating, Inc., 493 F.3d 782, 789 (7th Cir. 2007);

United States v. Cusimano, 148 F.3d 824, 828 n.2 (7th Cir. 1998). [22]Contrary to Caterpillar's argument, it does not follow that Caterpillar must have learned of

Miller's attempts to obtain funding from a third-party funder. ( Defendant's Memorandum at 13).

The information could have come from a faithless present or former employee of Miller or could

have been an educated guess by Caterpillar about Miller's financial condition following the

severance of its relationship with Miller and its possible need for money. [23]This rationale would apply to John Burley, who was counseling Miller on funding issues. One

of the withheld documents says he had a confidentiality agreement (Privilege Log No. 78), but

even if he did not, it is obvious a turnover to him did not substantially increase the chances of

Caterpillar learning of the information. [24]To be certain that all of the materials on Miller's privilege log were included in the Litigation

Funding Materials, I requested that they be submitted separately. I have reviewed the 160 items in

that submission that Miller claims are covered by the work-product privilege, the attorney/client

privilege, or both, as well as the five volumes of Litigation Funding Documents. [25]The original privilege log seems to have more entries for this category of documents. See 22,

supra n.10. [26] Frederick holds that numerical information can fall within the attorney-client or work-product

privilege, and Adlman held that an evaluation of the likelihood of success in contemplated litigation

would be protected even though its primary purpose was to inform a business decision of whether

to initiate contemplated litigation.

---------

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310 F.Supp.3d 1133 (S.D.Cal. 2018), : 18cv0428 DMS (MDD), MS. L. v. U.S. Immigration and

Customs Enforcement ("ICE") /**/ div.c1 {text-align: center} /**/

Page 1133

310 F.Supp.3d 1133 (S.D.Cal. 2018)

MS. L.; et al., Petitioners-Plaintiffs,

v.

U.S IMMIGRATION AND CUSTOMS ENFORCEMENT ("ICE"); et al., Respondents-

Defendants.

No. 18cv0428 DMS (MDD)

United States District Court, S.D. California

June 26, 2018

Page 1134


Page 1135

Anand Venkata Balakrishnan, Judy Rabinovitz, Lee Gelernt, ACLU Immigrants Rights

Project, New York, NY, Bardis Vakili, ACLU Foundation of San Diego & Imperial Counties, San

Diego, CA, Stephen B. Kang, American Civil Liberties Union Found. of Northern California,

Spencer E. W. Amdur, ACLU Immigrants’ Rights Project, San Francisco, CA, for Petitioners-

Plaintiffs.

U.S. Attorney CV, Samuel William Bettwy, U.S. Attorneys Office Southern District of

California, San Diego, CA, Sarah B. Fabian, Nicole N. Murley, U.S. Department of Justice Office of

Immigration Litigation, Washington, DC, for Respondents-Defendants.

ORDER GRANTING PLAINTIFFS’ MOTION FOR CLASSWIDE PRELIMINARY

INJUNCTION

Hon. Dana M. Sabraw, United States District Judge

Page 1136

Eleven weeks ago, Plaintiffs leveled the serious accusation that our Government was

engaged in a widespread practice of separating migrant families, and placing minor children who

were separated from their parents in government facilities for "unaccompanied minors." According

to Plaintiffs, the practice was applied indiscriminately, and separated even those families with

small children and infants— many of whom were seeking asylum. Plaintiffs noted reports that the

practice would become national policy. Recent events confirm these allegations. Extraordinary

relief is requested, and is warranted under the circumstances.

On May 7, 2018, the Attorney General of the United States announced a "zero tolerance

policy," under which all adults entering the United States illegally would be subject to criminal

prosecution, and if accompanied by a minor child, the child would be separated from the parent.[1]

Over the ensuing weeks, hundreds of migrant children were separated from their parents, sparking

international condemnation of the practice. Six days ago on June 20, 2018, the President of the

United States signed an Executive Order ("EO") to address the situation and to require

preservation of the "family unit" by keeping migrant families together during criminal and

immigration proceedings to the extent permitted by law, while also maintaining "rigorous[ ]"

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enforcement of immigration laws. See Executive Order, Affording Congress an Opportunity to

Address Family Separation § 1, 2018 WL 3046068 (June 20, 2018). The EO did not address

reunification of the burgeoning population of over 2,000 children separated from their parents.

Public outrage remained at a fever pitch. Three days ago on Saturday, June 23, 2018, the

Department of Homeland Security ("DHS") issued a "Fact Sheet" outlining the government’s

efforts to "ensure that those adults who are subject to removal are reunited with their children for

the purposes of removal."[2]

Plaintiffs assert the EO does not eliminate the need for the requested injunction, and the

Fact Sheet does not address the circumstances of this case. Defendants disagree with those

assertions, but there is no genuine dispute that the Government was not prepared to

accommodate the mass

Page 1137

influx of separated children. Measures were not in place to provide for communication between

governmental agencies responsible for detaining parents and those responsible for housing

children, or to provide for ready communication between separated parents and children. There

was no reunification plan in place, and families have been separated for months. Some parents

were deported at separate times and from different locations than their children. Migrant families

that lawfully entered the United States at a port of entry seeking asylum were separated. And

families that were separated due to entering the United States illegally between ports of entry have

not been reunited following the parent’s completion of criminal proceedings and return to

immigration detention.

This Court previously entered an order finding Plaintiffs had stated a legally cognizable claim

for violation of their substantive due process rights to family integrity under the Fifth Amendment to

the United States Constitution based on their allegations the Government had separated Plaintiffs

from their minor children while Plaintiffs were held in immigration detention and without a showing

that they were unfit parents or otherwise presented a danger to their children. See Ms. L. v. U.S.

Immigration & Customs Enf’t, 302 F.Supp.3d 1149, 1160-67, 2018 WL 2725736, at *7-12 (S.D.

Cal. 2018). A class action has been certified to include similarly situated migrant parents. Plaintiffs

now request classwide injunctive relief to prohibit separation of class members from their children

in the future absent a finding the parent is unfit or presents a danger to the child, and to require

reunification of these families once the parent is returned to immigration custody unless the parent

is determined to be unfit or presents a danger to the child.

Plaintiffs have demonstrated a likelihood of success on the merits, irreparable harm, and

that the balance of equities and the public interest weigh in their favor, thus warranting issuance of

a preliminary injunction. This Order does not implicate the Government’s discretionary authority to

enforce immigration or other criminal laws, including its decisions to release or detain class

members. Rather, the Order addresses only the circumstances under which the Government may

separate class members from their children, as well as the reunification of class members who are

returned to immigration custody upon completion of any criminal proceedings.

I.

BACKGROUND

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This case started with the filing of a Complaint by Ms. L., a Catholic citizen of the Democratic

Republic of the Congo fleeing persecution from her home country because of her religious beliefs.

The specific facts of Ms. L.’s case are set out in the Complaint and this Court’s June 6, 2018 Order

on Defendants’ motion to dismiss. See Ms. L., 302 F.Supp.3d at 1153-57, 2018 WL 2725736, at

*1-3. In brief, Ms. L. and her then-six-year-old daughter S.S., lawfully presented themselves at the

San Ysidro Port of Entry seeking asylum based on religious persecution. They were initially

detained together, but after a few days S.S. was "forcibly separated" from her mother. When S.S.

was taken away from her mother, "she was screaming and crying, pleading with guards not to take

her away from her mother." (Am. Compl. ¶ 43.) Immigration officials claimed they had concerns

whether Ms. L. was S.S.’s mother, despite Ms. L.’s protestations to the contrary and S.S.’s

behavior. So Ms. L. was placed in immigration custody and scheduled for expedited removal, thus

rendering S.S. an "unaccompanied minor" under the Trafficking Victims Protection and

Reauthorization Act ("TVPRA"), Pub. L. No. 110-457 (Dec. 23, 2008), and subjecting

Page 1138

her to the "care and custody" of the Office of Refugee Resettlement ("ORR").[3] S.S. was placed

in a facility in Chicago over a thousand miles away from her mother. Immigration officials later

determined Ms. L. had a credible fear of persecution and placed her in removal proceedings,

where she could pursue her asylum claim. During this period, Ms. L. was able to speak with her

daughter only "approximately 6 times by phone, never by video." (Am. Compl. ¶ 45.) Each time

they spoke, S.S. "was crying and scared." (Id. ¶ 43.) Ms. L. was "terrified that she would never see

her daughter again." (Id. ¶ 45.) After the present lawsuit was filed, Ms. L. was released from ICE

detention into the community. The Court ordered the Government to take a DNA saliva sample (or

swab), which confirmed that Ms. L. was the mother of S.S. Four days later, Ms. L. and S.S. were

reunited after being separated for nearly five months.

In an Amended Complaint filed on March 9, 2018, this case was expanded to include

another Plaintiff, Ms. C. She is a citizen of Brazil, and unlike Ms. L., she did not present at a port of

entry. Instead, she and her 14-year-old son J. crossed into the United States "between ports of

entry," after which they were apprehended by U.S. Border Patrol. Ms. C. explained to the agent

that she and her son were seeking asylum, but the Government, as was its right under federal law,

charged Ms. C. with entering the country illegally and placed her in criminal custody. This

rendered J. an "unaccompanied minor" and he, like S.S., was transferred to the custody of ORR,

where he, too, was housed in a facility in Chicago several hundred miles away from his mother.

Ms. C. was thereafter convicted of misdemeanor illegal entry and served 25 days in criminal

custody. After completing that sentence, Ms. C. was transferred to immigration detention for

removal proceedings and consideration of her asylum claim, as she too had passed a credible fear

screening. Despite being returned to immigration custody, Ms. C. was not reunited with J. During

the five months she was detained, Ms. C. did not see her son, and they spoke on the phone only

"a handful of times[.]" (Id. ¶ 58.) Ms. C. was "desperate" to be reunited with her son, worried about

him constantly and did not know when she would be able to see him. (Id. ) J. had a difficult time

emotionally during the period of separation from his mother. (Id. ¶ 59.) Ms. C. was eventually

released from immigration detention on bond, and only recently reunited with J. Their separation

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lasted more than eight months despite the lack of any allegations or evidence that Ms. C. was unfit

or otherwise presented a danger to her son.[4]

Page 1139

Ms. L. and Ms. C. are not the only migrant parents who have been separated from their

children at the border. Hundreds of others, who have both lawfully presented at ports of entry (like

Ms. L.) and unlawfully crossed into the country (like Ms. C.), have also been separated. Because

this practice is affecting large numbers of people, Plaintiffs sought certification of a class

consisting of similarly situated individuals. The Court certified that class with minor modifications,[5] and now turns to the important question of whether Plaintiffs are entitled to a classwide

preliminary injunction that (1) halts the separation of class members from their children absent a

determination that the parent is unfit or presents a danger to the child, and (2) reunites class

members who are returned to immigration custody upon completion of any criminal proceedings

absent a determination that the parent is unfit or presents a danger to the child.

Since the present motion was filed, several important developments occurred, as previously

noted. First, on May 7, 2018, the Government announced its zero tolerance policy for all adult

persons crossing the border illegally, which resulted in the separation of hundreds of children who

had crossed with their parents. This is what happened with Ms. C., though she crossed prior to the

public announcement of the zero tolerance policy. She is not alone. There are hundreds of

similarly situated parents, and there are more than 2,000 children that have now been separated

from their parents.

When a parent is charged with a criminal offense, the law ordinarily requires separation of

the family. This separation generally occurs regardless of whether the parent is charged with a

state or federal offense. The repercussions on the children, however, can vary greatly depending

on status. For citizens, there is an established system of social service agencies ready to provide

for the care and well-being of the children, if necessary, including child protective services and the

foster care system. This is in addition to any family members that may be available to provide

shelter for these minor children. Grandparents and siblings are frequently called upon. Non-

citizens may not have this kind of support system, such as other family members who can provide

shelter for their children in the event the parent is detained at the border. This results in immigrant

children going into the custody of the federal government, which is presently not well equipped to

handle that important task.

For children placed in federal custody, there are two options. One of those options is ORR,

but it was established to address a different problem, namely minor children who were

apprehended at the border without their parents, i.e., true "unaccompanied alien children." It was

not initially designed to address the problem of migrant children detained with their parents at the

border and who were thereafter separated from their parents. The second option is family

detention facilities, but the options there are limited. Indeed, at the time of oral argument on this

motion, Government counsel represented to the Court that the "total capacity in [family] residential

Page 1140

centers" was "less than 2,700." (Rep. Tr. at 9, May 9, 2018, ECF No. 70.) For male heads of

households, i.e., fathers traveling with their children, there was only one facility with "86 beds." (Id.

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at 43.)

The recently issued EO confirms the government is inundated by the influx of children

essentially orphaned as a result of family separation. The EO now directs "[h]eads of executive

departments and agencies" to make available "any facilities ... appropriate" for the housing and

care of alien families. EO § 3(d). The EO also calls upon the military by directing the Secretary of

Defense to make available "any existing" facility and to "construct such facilities[,]" if necessary, id.

§ 3(c), which is an extraordinary measure. Meanwhile, "tent cities" and other make-shift facilities

are springing up. That was the situation into which Plaintiffs, and hundreds of other families that

were separated at the border in the past several months, were placed.

This situation has reached a crisis level. The news media is saturated with stories of

immigrant families being separated at the border. People are protesting. Elected officials are

weighing in. Congress is threatening action. Seventeen states have now filed a complaint against

the Federal Government challenging the family separation practice. See State of Washington v.

United States, Case No. 18cv0939, United States District Court for the Western District of

Washington. And the President has taken action.

Specifically, on June 20, 2018, the President signed the EO referenced above. The EO

states it is the Administration’s policy "to maintain family unity, including by detaining alien families

together where appropriate and consistent with law and available resources." Id. § 1.[6] In

furtherance of that policy, the EO indicates that parents and children who are apprehended

together at the border will be detained together "during the pendency of any criminal improper

entry or immigration proceedings" to the extent permitted by law. Id. § 3. The language of the EO

is not absolute, however, as it states that family unity shall be maintained "where appropriate and

consistent with law and available resources[,]" id. § 1, and "to the extent permitted by law and

subject to the availability of appropriations[.]" Id. § 3. The EO also indicates rigorous enforcement

of illegal border crossers will continue. Id. § 1 ("It is the policy of this Administration to rigorously

enforce our immigration laws."). And finally, although the Order speaks to a policy of "maintain[ing]

family unity," it is silent on the issue of reuniting families that have already been separated or will

be separated in the future." Id.

In light of these recent developments, and in particular the EO, the Court held a telephonic

status conference with counsel on June 22, 2018. During that conference, the Court inquired

about communication between ORR and DHS, and ORR and the Department of Justice ("DOJ"),

including the Bureau of Prisons ("BOP"), as it relates to these separated families. Reunification

procedures were also discussed, specifically whether there was any affirmative reunification

procedure for parents and children after parents were returned to immigration detention following

completion of criminal proceedings. Government counsel explained the communication

procedures that were in place, and represented, consistent with her earlier representation to the

Court, that there was no

Page 1141

procedure in place for the reunification of these families.[7]

The day after the status conference, Saturday, June 23, DHS issued the Fact Sheet

referenced above. This document focuses on several issues addressed during the status

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conference, e.g., processes for enhanced communication between separated parents and

children, but only "for the purposes of removal." It also addresses coordination between and

among three agencies, CBP, ICE, and HHS agency ORR, but again for the purpose of removal.

The Fact Sheet does not address reunification for other purposes, such as immigration or asylum

proceedings, which can take months. It also does not mention other vital agencies frequently

involved during criminal proceedings: DOJ and BOP.

At the conclusion of the recent status conference, the Court requested supplemental briefing

from the parties. Those briefs have now been submitted. After thoroughly considering all of the

parties’ briefs and the record in this case, and after hearing argument from counsel on these

important issues, the Court grants Plaintiffs’ motion for a classwide preliminary injunction.

II.

DISCUSSION

Plaintiffs seek classwide preliminary relief that (1) enjoins Defendants’ practice of separating

class members from their children absent a determination that the parent is unfit or presents a

danger to their child, and (2) orders the government to reunite class members with their children

when the parent is returned to immigration custody after their criminal proceedings conclude,

absent a determination that the parent is unfit or presents a danger to the child. Injunctive relief is

"an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is

entitled to such relief." Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 22, 129 S.Ct. 365,

172 L.Ed.2d 249 (2008). To meet that showing, Plaintiffs must demonstrate " ‘[they are] likely to

succeed on the merits, that [they are] likely to suffer irreparable harm in the absence of preliminary

relief, that the balance of equities tips in [their] favor, and that an injunction is in the public interest.’

" Am. Trucking Ass’ns, Inc. v. City of Los Angeles, 559 F.3d 1046, 1052 (9th Cir. 2009) (quoting

Winter, 555 U.S. at 20, 129 S.Ct. 365).[8]

Page 1142

Before turning to these factors, the Court addresses directly Defendants’ argument that an

injunction is not necessary here in light of the EO and the recently released Fact Sheet. Although

these documents reflect some attempts by the Government to address some of the issues in this

case, neither obviates the need for injunctive relief here. As indicated throughout this Order, the

EO is subject to various qualifications. For instance, Plaintiffs correctly assert the EO allows the

government to separate a migrant parent from his or her child "where there is a concern that

detention of an alien child with the child’s alien parent would pose a risk to the child’s welfare." EO

§ 3(b) (emphasis added). Objective standards are necessary, not subjective ones, particularly in

light of the history of this case. Furthermore, the Fact Sheet focuses on reunification "at time of

removal[,]" U.S. Dep’t of Homeland Sec., supra, note 2, stating that the parent slated for removal

will be matched up with their child at a location in Texas and then removed. It says nothing about

reunification during the intervening time between return from criminal proceedings to ICE detention

or the time in ICE detention prior to actual removal, which can take months. Indeed, it is

undisputed "ICE has no plans or procedures in place to reunify the parent with the child other than

arranging for them to be deported together after the parent’s immigration case is concluded." (Pls.’

Supp. Mem. in Supp. of Classwide Prelim. Inj., Ex. 31 ¶ 11.) Thus, neither of these directives

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eliminates the need for an injunction in this case. With this finding, the Court now turns to the

Winter factors.

A. Likelihood of Success

"The first factor under Winter is the most important— likely success on the merits." Garcia v.

Google, Inc., 786 F.3d 733, 740 (9th Cir. 2015). While Plaintiffs carry the burden of demonstrating

likelihood of success, they are not required to prove their case in full at the preliminary injunction

stage but only such portions that enable them to obtain the injunctive relief they seek. See Univ. of

Texas v. Camenisch, 451 U.S. 390, 395, 101 S.Ct. 1830, 68 L.Ed.2d 175 (1981).

Here, the only claim currently at issue is Plaintiffs’ due process claim.[9] Specifically,

Plaintiffs contend the Government’s practice of separating class members from their children, and

failing to reunite those parents who have been separated, without a determination that the parent

is unfit or presents a danger to the child violates the parents’ substantive due process rights to

family integrity under the Fifth Amendment to the United States Constitution. To prevail on this

claim, Plaintiffs must show that the Government practice "shocks the conscience." In the Order on

Defendants’ motion to dismiss, the Court found Plaintiffs had set forth sufficient facts to support

that claim. Ms. L., 302 F.Supp.3d at 1160-67, 2018 WL 2725736, at *7-12. The evidence

submitted since that time supports that finding, and demonstrates Plaintiffs are likely to succeed

on this claim.

As explained in the Court’s Order on Defendants’ motion to dismiss, the "shocks the

conscience" standard is not subject to a rigid list of established elements. See

Page 1143

County of Sacramento v. Lewis, 523 U.S. 833, 850, 118 S.Ct. 1708, 140 L.Ed.2d 1043 (1998)

(stating "[r]ules of due process are not ... subject to mechanical application in unfamiliar territory.")

On the contrary, "an investigation into substantive due process involves an appraisal of the totality

of the circumstances rather than a formalistic examination of fixed elements[.]" Armstrong v.

Squadrito, 152 F.3d 564, 570 (7th Cir. 1998).

Here, each Plaintiff presents different circumstances, but both were subjected to the same

government practice of family separation without a determination that the parent was unfit or

presented a danger to the child. Ms. L. was separated from her child without a determination she

was unfit or presented a danger to her child, and Ms. C. was not reunited with her child despite the

absence of any finding that she was unfit or presented a danger to her child. Outside of the

context of this case, namely an international border, Plaintiffs would have a high likelihood of

success on a claim premised on such a practice. See D.B. v. Cardall, 826 F.3d 721, 741 (4th Cir.

2016) (citing cases finding due process violation where state action interfered with rights of fit

parents); Heartland Academy Community Church v. Waddle, 595 F.3d 798, 808-811 (8th Cir.

2010) (finding removal of children from religious school absent evidence the students were "at

immediate risk of child abuse or neglect" was violation of clearly established constitutional right);

Brokaw v. Mercer County, 235 F.3d 1000, 1019 (7th Cir. 2000) (citing Croft v. Westmoreland

County Children and Youth Services, 103 F.3d 1123, 1126 (3d Cir. 1997) ("courts have

recognized that a state has no interest in protecting children from their parents unless it has some

definite and articulable evidence giving rise to a reasonable suspicion that a child has been

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abused or is in imminent danger of abuse.")

The context of this case is different. The Executive Branch, which is tasked with

enforcement of the country’s criminal and immigration laws, is acting within its powers to detain

individuals lawfully entering the United States and to apprehend individuals illegally entering the

country. However, as the Court explained in its Order on Defendants’ motion to dismiss, the right

to family integrity still applies here. The context of the family separation practice at issue here,

namely an international border, does not render the practice constitutional, nor does it shield the

practice from judicial review.

On the contrary, the context and circumstances in which this practice of family separation

were being implemented support a finding that Plaintiffs have a likelihood of success on their due

process claim. First, although parents and children may lawfully be separated when the parent is

placed in criminal custody, the same general rule does not apply when a parent and child present

together lawfully at a port of entry seeking asylum. In that situation, the parent has committed no

crime, and absent a finding the parent is unfit or presents a danger to the child, it is unclear why

separation of Ms. L. or similarly situated class members would be necessary. Here, many of the

family separations have been the result of the Executive Branch’s zero tolerance policy, but the

record also reflects that the practice of family separation was occurring before the zero tolerance

policy was announced, and that practice has resulted in the casual, if not deliberate, separation of

families that lawfully present at the port of entry, not just those who cross into the country illegally.

Ms. L. is an example of this family separation practice expanding beyond its lawful reach, and she

is not alone. (See, e.g., Pls.’ Reply Br. in Supp. of Mot. for Class Cert., Exs. 22-23, 25-26)

(declarations from parents

Page 1144

attesting to separation at border after lawfully presenting at port of entry and requesting asylum);

Pls.’ Supp. Mem. in Supp. of Classwide Prelim. Inj., Ex. 32 ¶¶ 9, 10b, 11a (listing parents who

were separated from children after presenting at ports of entry) ).

As set out in the Court’s prior Order, asylum seekers like Ms. L. and many other class

members may be fleeing persecution and are entitled to careful consideration by government

officials. Particularly so if they have a credible fear of persecution. We are a country of laws, and

of compassion. We have plainly stated our intent to treat refugees with an ordered process, and

benevolence, by codifying principles of asylum. See, e.g., The Refugee Act, PL 96-212, 94 Stat.

102 (1980). The Government’s treatment of Ms. L. and other similarly situated class members

does not meet this standard, and it is unlikely to pass constitutional muster.

Second, the practice of separating these families was implemented without any effective

system or procedure for (1) tracking the children after they were separated from their parents, (2)

enabling communication between the parents and their children after separation, and (3) reuniting

the parents and children after the parents are returned to immigration custody following completion

of their criminal sentence. This is a startling reality. The government readily keeps track of

personal property of detainees in criminal and immigration proceedings. Money, important

documents, and automobiles, to name a few, are routinely catalogued, stored, tracked and

produced upon a detainees’ release, at all levels— state and federal, citizen and alien. Yet, the

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government has no system in place to keep track of, provide effective communication with, and

promptly produce alien children. The unfortunate reality is that under the present system migrant

children are not accounted for with the same efficiency and accuracy as property. Certainly, that

cannot satisfy the requirements of due process. See Santosky v. Kramer, 455 U.S. 745, 758-59,

102 S.Ct. 1388, 71 L.Ed.2d 599 (1982) (quoting Lassiter v. Dept. of Soc. Services of Durham

County, N.C., 452 U.S. 18, 101 S.Ct. 2153, 68 L.Ed.2d 640 (1981) ) (stating it is " ‘plain beyond

the need for multiple citation’ that a natural parent’s ‘desire for and right to the companionship,

care, custody, and management of his or her children’ is an interest far more precious than any

property right.") (internal quotation marks omitted).

The lack of effective methods for communication between parents and children who have

been separated has also had a profoundly negative effect on the parents’ criminal and immigration

proceedings, as well as the childrens’ immigration proceedings. See United States v. Dominguez-

Portillo, No:EP- 17-MJ-4409-MAT, 2018 WL 315759, at *1-2 (W.D. Tex. Jan. 5, 2018) (explaining

that criminally charged defendants "had not received any paperwork or information concerning the

whereabouts or well-being of" their children). In effect, these parents have been left "in a vacuum,

without knowledge of the well-being and location of their children, to say nothing of the immigration

proceedings in which those minor children find themselves." Id. at *14. This situation may result in

a number of different scenarios, all of which are negative— some profoundly so. For example, "[i]f

parent and child are asserting or intending to assert an asylum claim, that child may be navigating

those legal waters without the benefit of communication with and assistance from her parent; that

defendant, too, must make a decision on his criminal case with total uncertainty about this issue."

Id. Furthermore, " a defendant facing certain deportation would be unlikely to know whether he

might be deported before, simultaneous

Page 1145

to, or after their child, or whether they would have the opportunity to even discuss their

deportations[.]" Id. Indeed, some parents have already been deported without their children, who

remain in government facilities in the United States.[10]

The absence of established procedures for dealing with families that have been separated

at the border, and the effects of that void on the families involved, is borne out in the cases of

Plaintiffs here. Ms. L. was separated from her child when immigration officials claimed they could

not verify she was S.S.’s mother, and detained her for expedited removal proceedings. That

rendered S.S. "unaccompanied" under the TVPRA and subject to immediate transfer to ORR,

which accepted responsibility for S.S. There was no further communication between the agencies,

ICE and ORR. The filing of the present lawsuit prompted release and reunification of Ms. L. and

her daughter, a process that took close to five months and court involvement. Ms. C. completed

her criminal sentence in 25 days, but it took nearly eight months to be reunited with her son. She,

too, had to file suit to regain custody of her son from ORR.

These situations confirm what the Government has already stated: it is not affirmatively

reuniting parents like Plaintiffs and their fellow class members for purposes other than removal.

Outside of deportation, the onus is on the parents, who, for the most part, are themselves in either

criminal or immigration proceedings, to contact ORR or otherwise search for their children and

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make application for reunification under the TVPRA. However, this reunification procedure was not

designed to deal with the present circumstances. (See Pls.’ Supp. Mem. in Supp. of Classwide

Prelim. Inj., Ex. 33 ¶¶ 6-9.) Rather, "ORR’s reunification process was designed to address the

situation of children who come to the border or are apprehended outside the company of a parent

or legal guardian." (Id. ¶ 6.) Placing the burden on the parents to find and request reunification

with their children under the circumstances presented here is backwards. When children are

separated from their parents under these circumstances, the Government has an affirmative

obligation to track and promptly reunify these family members.

This practice of separating class members from their minor children, and failing to reunify

class members with those children, without any showing the parent is unfit or presents a danger to

the child is sufficient to find Plaintiffs have a likelihood of success on their due process claim.

When combined with the manner in which that practice is being implemented, e.g., the lack of any

effective procedures or protocols for notifying the parents about their childrens’ whereabouts or

ensuring communication between the parents and children, and the use of the children as tools in

the parents’ criminal and immigration proceedings, (see Pls.’ Supp. Mem. in Supp. of Classwide

Prelim. Inj., Ex. 29 ¶¶ 8, 14), a finding of likelihood of success is assured. A practice of this sort

implemented in this way is likely to be "so egregious, so outrageous, that it may fairly be said to

shock the contemporary conscience,"

Page 1146

Lewis, 523 U.S. at 847 n.8, 118 S.Ct. 1708, interferes with rights " ‘implicit in the concept of

ordered liberty[,]’ " Rochin v. Cal., 342 U.S. 165, 169, 72 S.Ct. 205, 96 L.Ed. 183 (1952) (quoting

Palko v. State of Conn., 302 U.S. 319, 325, 58 S.Ct. 149, 82 L.Ed. 288 (1937) ), and is so " ‘brutal’

and ‘offensive’ that it [does] not comport with traditional ideas of fair play and decency."

Breithaupt v. Abram, 352 U.S. 432, 435, 77 S.Ct. 408, 1 L.Ed.2d 448 (1957).

For all of these reasons, the Court finds there is a likelihood of success on Plaintiffs’ due

process claim.

B. Irreparable Injury

Turning to the next factor, Plaintiffs must show they are " ‘likely to suffer irreparable harm in

the absence of preliminary relief.’ " Hernandez v. Sessions, 872 F.3d 976, 994 (9th Cir. 2017)

(quoting Winter, 555 U.S. at 20, 129 S.Ct. 365). " ‘It is well established that the deprivation of

constitutional rights unquestionably constitutes irreparable injury.’ " Id. (quoting Melendres v.

Arpaio, 695 F.3d 990, 1002 (9th Cir. 2012) (internal quotation marks omitted). As explained,

Plaintiffs have demonstrated the likelihood of a deprivation of their constitutional rights, and thus

they have satisfied this factor.

The injury in this case, however, deserves special mention. That injury is the separation of a

parent from his or her child, which the Ninth Circuit has repeatedly found constitutes irreparable

harm. See Leiva-Perez v. Holder, 640 F.3d 962, 969-70 (9th Cir. 2011); Washington v. Trump, 847

F.3d 1151, 1169 (9th Cir. 2017) (identifying "separated families" as an irreparable harm).

Furthermore, the record in this case reflects that the separations at issue have been

agonizing for the parents who have endured them. One of those parents, Mr. U., an asylum seeker

from Kyrgyzstan, submitted a declaration in this case in which he stated that after he was told he

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was going to be separated from his son he "felt as though [he] was having a heart attack." (Reply

in Supp. of Mot. for Class Cert., Ex. 21 ¶ 4.) Another asylum-seeking parent from El Salvador who

was separated from her two sons writes,

The separation from my sons has been incredibly hard, because I have never been away from

them before. I do not want my children to think that I abandoned them. [My children] are so

attached to me. [One of my children] used to sleep in bed with me every night while [my other

child] slept in his own bed in the same room.... It hurts me to think how anxious and distressed

they must be without me.

(Reply in Supp. of Mot. for Class Cert., Ex. 24 ¶ 9.) And another asylum-seeking parent from

Honduras described having to place her crying 18-month old son in a car seat in a government

vehicle, not being able to comfort him, and her crying as the officers "took [her] son away." (Reply

in Supp. of Mot. for Class Cert., Ex. 25 ¶ 7.) There has even been a report that one father

committed suicide in custody after being separated from his wife and three-year-old child. See

Molly Hennessy-Fiske, Honduran Migrant Who Was Separated From Family is Found Dead in

Texas Jail in an Apparent Suicide, L.A. TIMES (June 9, 2018, 5:35 PM),

http://www.latimes.com/nation/la-na-border-patrol-suicide20180609-story.html.

The parents, however, are not the only ones suffering from the separations. One of the

amici in this case, Children’s Defense Fund, states,

there is ample evidence that separating children from their mothers or fathers leads to serious,

negative consequences to children’s health and development. Forced separation disrupts the

parent-child relationship and puts children at

Page 1147

increased risk for both physical and mental illness.... And the psychological distress, anxiety, and

depression associated with separation from a parent would follow the children well after the

immediate period of separation— even after eventual reunification with a parent or other family.

(ECF No. 17-11 at 3.) Other evidence before the Court reflects that "separating children from

parents is a highly destabilizing, traumatic experience that has long term consequences on child

well-being, safety, and development." (ECF No. 17-13 at 2.) That evidence reflects:

Separation from family leaves children more vulnerable to exploitation and abuse, no matter what

the care setting. In addition, traumatic separation from parents creates toxic stress in children and

adolescents that can profoundly impact their development. Strong scientific evidence shows that

toxic stress disrupts the development of brain architecture and other organ systems, and

increases the risk for stress-related disease and cognitive impairment well into adult years.

Studies have shown that children who experience such traumatic events can suffer from

symptoms of anxiety and post-traumatic stress disorder, have poorer behavioral and educational

outcomes, and experience higher rates of poverty and food insecurity.

(ECF No. 17-13 at 2.) And Martin Guggenheim, the Fiorello LaGuardia Professor of Clinical Law at

New York University School of Law and Founding Member of the Center for Family

Representation, states:

Children are at risk of suffering great emotional harm when they are removed from their loved

ones. And children who have traveled from afar and made their way to this country to seek asylum

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are especially at risk of suffering irreversible psychological harm when wrested from the custody of

the parent or caregiver with whom they traveled to the United States.

(Mem. in Supp. of Classwide Prelim. Inj., Ex. 17 ¶ 16.) All of this evidence, combined with the

constitutional violation alleged here, conclusively shows that Plaintiffs and the class members are

likely to suffer irreparable injury if a preliminary injunction does not issue.

C. Balance of Equities

Turning to the next factor, "[t]o obtain a preliminary injunction, a plaintiff must also

demonstrate that ‘the balance of equities tips in his favor.’ " Hernandez, 872 F.3d at 995 (quoting

Winter, 555 U.S. at 20, 129 S.Ct. 365). As with irreparable injury, when a plaintiff establishes "a

likelihood that Defendants’ policy violates the U.S. Constitution, Plaintiffs have also established

that both the public interest and the balance of the equities favor a preliminary injunction." Arizona

Dream Act Coalition v. Brewer, 757 F.3d 1053, 1069 (9th Cir. 2014).

Plaintiffs here assert the balance of equities weighs in favor of an injunction in this case.

Specifically, Plaintiffs argue Defendants would not suffer any hardship if the preliminary injunction

is issued because the Government "cannot suffer harm from an injunction that merely ends an

unlawful practice[.]" Rodriguez v. Robbins, 715 F.3d 1127, 1145 (9th Cir. 2013); see also Arizona

Dream Act Coalition, 757 F.3d at 1069 (quoting Melendres v. Arpaio, 695 F.3d 990, 1002 (9th Cir.

2012) ) (stating balance of equities favors " ‘prevent[ing] the violation of a party’s constitutional

rights.’ "). When the absence of harm to the Government is weighed against the harms to Plaintiffs

set out above, Plaintiffs argue this factor weighs in their favor. The Court agrees.

Page 1148

The primary harm Defendants assert here is the possibility that an injunction would have a

negative impact on their ability to enforce the criminal and immigration laws. However, the

injunction here— preventing the separation of parents from their children and ordering the

reunification of parents and children that have been separated— would do nothing of the sort. The

Government would remain free to enforce its criminal and immigration laws, and to exercise its

discretion in matters of release and detention consistent with law. See EO § § 1, 3(a) & (e)

(discussing Flores v. Sessions, CV 85-4544); see also Comm. of Cent. Am. Refugees v. I.N.S.,

795 F.2d 1434, 1439-40 (9th Cir. 1986) (stating "prudential considerations preclude[ ] interference

with the Attorney General’s [exercise of] discretion" in selecting the detention facilities where

aliens are to be detained). It would just have to do so in a way that preserves the class members’

constitutional rights to family association and integrity. See Rodriguez, 715 F.3d at 1146 ("While

ICE is entitled to carry out its duty to enforce the mandates of Congress, it must do so in a manner

consistent with our constitutional values.") Thus, this factor also weighs in favor of issuing the

injunction.

D. Public Interest

The final factor for consideration is the public interest. See Hernandez, 872 F.3d at 996

(quoting Stormans, Inc. v. Selecky, 586 F.3d 1109, 1139 (9th Cir. 2009) ) ("When, as here, ‘the

impact of an injunction reaches beyond the parties, carrying with it a potential for public

consequences, the public interest will be relevant to whether the district court grants the

preliminary injunction.’ ") To obtain the requested relief, "Plaintiffs must demonstrate that the

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public interest favors granting the injunction ‘in light of [its] likely consequences,’ i.e.,

‘consequences [that are not] too remote, insubstantial, or speculative and [are] supported by

evidence.’ " Id. (quoting Stormans, 586 F.3d at 1139). " ‘Generally, public interest concerns are

implicated when a constitutional right has been violated, because all citizens have a stake in

upholding the Constitution.’ " Id. (quoting Preminger v. Principi, 422 F.3d 815, 826 (9th Cir. 2005)

).

This case involves two important public interests: the interest in enforcing the country’s

criminal and immigration laws and the constitutional liberty interest "of parents in the care,

custody, and control of their children[,]" which "is perhaps the oldest of the fundamental liberty

interests recognized by" the Supreme Court. Troxel v. Granville, 530 U.S. 57, 65, 120 S.Ct. 2054,

147 L.Ed.2d 49 (2000). Both of these interests are valid and important, and both can be served by

the issuance of an injunction in this case.

As stated, the public’s interest in enforcing the criminal and immigration laws of this country

would be unaffected by issuance of the requested injunction. The Executive Branch is free to

prosecute illegal border crossers and institute immigration proceedings against aliens, and would

remain free to do so if an injunction were issued. Plaintiffs do not seek to enjoin the Executive

Branch from carrying out its duties in that regard.

What Plaintiffs do seek by way of the requested injunction is to uphold their rights to family

integrity and association while their immigration proceedings are underway. This right, specifically,

the relationship between parent and child, is "constitutionally protected," Quilloin v. Walcott, 434

U.S. 246, 255, 98 S.Ct. 549, 54 L.Ed.2d 511 (1978), and "well established." Rosenbaum v.

Washoe Cty., 663 F.3d 1071, 1079 (9th Cir. 2011). The public interest in upholding and protecting

that right in the circumstances presented here would be served by issuance of the requested

injunction.

Page 1149

See Arizona Dream Act Coalition, 757 F.3d at 1069 (quoting Valle del Sol Inc. v. Whiting, 732 F.3d

1006, 1029 (9th Cir. 2013) (" ‘[I]t is clear that it would not be equitable or in the public’s interest to

allow the state ... to violate the requirements of federal law, especially when there are no adequate

remedies available.’ ") Accordingly, this factor, too, weighs in favor of issuing the injunction.

III.

CONCLUSION

The unfolding events— the zero tolerance policy, EO and DHS Fact Sheet— serve to

corroborate Plaintiffs’ allegations. The facts set forth before the Court portray reactive

governance— responses to address a chaotic circumstance of the Government’s own making.

They belie measured and ordered governance, which is central to the concept of due process

enshrined in our Constitution. This is particularly so in the treatment of migrants, many of whom

are asylum seekers and small children. The extraordinary remedy of classwide preliminary

injunction is warranted based on the evidence before the Court. For the reasons set out above, the

Court hereby GRANTS Plaintiffs’ motion for classwide preliminary injunction, and finds and orders

as follows:

(1) Defendants, and their officers, agents, servants, employees, attorneys, and all those who are

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in active concert or participation with them, are preliminarily enjoined from detaining Class

Members in DHS custody without and apart from their minor children, absent a determination that

the parent is unfit or presents a danger to the child, unless the parent affirmatively, knowingly, and

voluntarily declines to be reunited with the child in DHS custody.[11] (2) If Defendants choose to

release Class Members from DHS custody, Defendants, and their officers, agents, servants,

employees and attorneys, and all those who are in active concert or participation with them, are

preliminary enjoined from continuing to detain the minor children of the Class Members and must

release the minor child to the custody of the Class Member, unless there is a determination that

the parent is unfit or presents a danger to the child, or the parent affirmatively, knowingly, and

voluntarily declines to be reunited with the child. (3) Unless there is a determination that the parent

is unfit or presents a danger to the child, or the parent affirmatively, knowingly, and voluntarily

declines to be reunited with the child: (a) Defendants must reunify all Class Members with their

minor children who are under the age of five (5) within fourteen (14) days of the entry of this Order;

and (b) Defendants must reunify all Class Members with their minor children age five (5) and over

within thirty (30) days of the entry of this Order. (4) Defendants must immediately take all steps

necessary to facilitate regular communication between Class

Page 1150

Members and their children who remain in ORR custody, ORR foster care, or DHS custody. Within

ten (10) days, Defendants must provide parents telephonic contact with their children if the parent

is not already in contact with his or her child. (5) Defendants must immediately take all steps

necessary to facilitate regular communication between and among all executive agencies

responsible for the custody, detention or shelter of Class Members and the custody and care of

their children, including at least ICE, CBP, BOP, and ORR, regarding the location and well-being

of the Class Members’ children. (6) Defendants, and their officers, agents, servants, employees,

attorneys, and all those who are in active concert or participation with them, are preliminarily

enjoined from removing any Class Members without their child, unless the Class Member

affirmatively, knowingly, and voluntarily declines to be reunited with the child prior to the Class

Member’s deportation, or there is a determination that the parent is unfit or presents a danger to

the child. (7) This Court retains jurisdiction to entertain such further proceedings and to enter such

further orders as may be necessary or appropriate to implement and enforce the provisions of this

Order and Preliminary Injunction.

A status conference will be held on July 6, 2018, at 12:00 noon, to discuss all necessary

matters. A notice of teleconference information sheet will be provided in a separate order.

IT IS SO ORDERED.

---------

Notes: [1] See U.S. Att’y. Gen., Attorney General Sessions Delivers Remarks Discussing the Immigration

Enforcement Actions of the Trump Administration (May 7, 2018),

https://www.justice.gov/opa/speech/attorney-general-sessions-delivers-remarks-discussing-

immigration-enforcement-actions. [2] See U.S. Dep’t of Homeland Sec. , Fact Sheet: Federal Regulations Protecting the

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Confidentiality of Asylum Applicants (June 23, 2018), https://www.dhs.gov/news/2018/06/23/fact-

sheet-zero-tolerance-prosecution-and-family-reunification. [3] The TVPRA provides that "the care and custody of all unaccompanied alien children, including

responsibility for their detention, where appropriate, shall be the responsibility of" HHS and its sub-

agency, ORR. 8 U.S.C. § 1232(b)(1). An "unaccompanied alien child" ("UAC") is a child under 18

years of age with no lawful immigration status in the United States who has neither a parent nor

legal guardian in the United States nor a parent nor legal guardian in the United States "available"

to care for them. 6 U.S.C. § 279(g)(2). According to the TVPRA, a UAC "may not be placed with a

person or entity unless the Secretary of Health and Human Services makes a determination that

the proposed custodian is capable of providing for the child’s physical and mental well-being. Such

determination shall, at a minimum, include verification of the custodian’s identity and relationship

to the child, if any, as well as an independent finding that the individual has not engaged in any

activity that would indicate a potential risk to the child." 8 U.S.C. § 1232(c)(3)(A). [4] As stated in the Court’s Order on Defendants’ motion to dismiss, Plaintiffs do not challenge Ms.

C.’s initial separation from J. as a result of the criminal charge filed against her. Plaintiffs’ only

complaint with regard to Ms. C. concerns the Government’s failure to reunite her with J. after she

was returned to immigration custody. [5] The class is defined to include: "All adult parents who enter the United States at or between

designated ports of entry who (1) have been, are, or will be detained in immigration custody by the

[DHS], and (2) have a minor child who is or will be separated from them by DHS and detained in

ORR custody, ORR foster care, or DHS custody absent a determination that the parent is unfit or

presents a danger to the child." (See Order Granting in Part Mot. for Class Cert. at 17.) The class

does not include parents with criminal history or communicable disease, or those apprehended in

the interior of the country or subject to the EO. (See id. at 4 n.5.) [6] The Order defines "alien family" as "any person not a citizen or national of the United States

who has not been admitted into, or is not authorized to enter or remain in, the United States, who

entered this country with an alien child or alien children at or between designated ports of entry

and who was detained[.]" Id. § 2(a)(i). [7] The Court: "Is there currently any affirmative reunification process that the government has in

place once parent and child are separated? Government counsel: I would say ... when a parent is

released from criminal custody and taken into ICE custody is the practice to reunite them in family

detention[?] And at that [previous hearing] I said no, that that was not the practice. I think my

answer on that narrow question would be the same." (Rep. Tr. at 29-30, June 22, 2018, ECF No.

77.) [8] The Ninth Circuit applies separate standards for injunctions depending on whether they are

prohibitory, i.e., whether they prevent future conduct, or mandatory, i.e., "they go beyond

‘maintaining the status quo[.]’ " Hernandez v. Sessions, 872 F.3d 976, 997 (9th Cir. 2017). The

standard set out above applies to prohibitory injunctions, which is what Plaintiffs seek here. To the

extent Plaintiffs are also requesting mandatory relief, that request is "subject to a higher standard

than prohibitory injunctions," namely that relief will issue only "when ‘extreme or very serious

damage will result’ that is not capable of compensation in damages,’ and the merits of the case

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are not ‘doubtful.’ " Id. at 999 (quoting Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co.,

571 F.3d 873, 879 (9th Cir. 2009) ). The Ninth Circuit recognizes that application of these different

standards "is controversial[,]" and that other Circuits have questioned this approach. Id. at 997-98.

This Court need not, and does not, address that discrepancy here. Suffice it to say that to the

extent some portion of Plaintiffs’ requested relief is subject to a standard higher than the traditional

standard for injunctive relief, Plaintiffs have met their burden for the reasons set out below. [9] In their supplemental brief, Defendants assert Plaintiffs are raising new claims based on events

that transpired after the Complaints were filed, e.g., the announcement of the zero tolerance policy

and the EO. The Court disagrees. Plaintiffs’ claims are not based on these events, but are based

on the practice of separating class members from their children. The subsequent events are

relevant to Plaintiffs’ claim, but they have not changed the claim itself, which remains focused on

the practice of separation. [10] See, e.g., Pls.’ Supp. Mem. in Supp. of Classwide Prelim. Inj., Ex. 32 ¶ 16k, Ex. 36 ¶ 7a;

Nelson Renteria, El Salvador demands U.S. return child taken from deported father, REUTERS

(June 21, 2018, 4:03 PM), https://www.reuters.com/article/us-usa-immigration-el-salvador/el-

salvador-demands-us-return-child-taken-from-deported-father-idUSKBN1JH3ER; Miriam Jordan,

‘I Can’t Go Without My Son’: A Deported Mother’s Plea, N.Y. TIMES (June 17, 2018),

https://www.nytimes.com/2018/06/17/us/immigration-deported-parents.html. [11] "Fitness" is an important factor in determining whether to separate parent from child. In the

context of this case, and enforcement of criminal and immigration laws at the border, "fitness"

could include a class member’s mental health, or potential criminal involvement in matters other

than "improper entry" under 8 U.S.C. § 1325(a), (see EO § 1), among other matters. Fitness

factors ordinarily would be objective and clinical, and would allow for the proper exercise of

discretion by government officials.

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