Articles Posted in US Court of Appeals for the Sixth Circuit

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Fulson owned Nicole Gas, which entered bankruptcy proceedings, and became dissatisfied with the Trustee’s handling of claims that Nicole Gas held against its competitors. With the help of attorneys Sanders and Lowe, Fulson sought relief in state court under the Ohio Corrupt Practices Act (Ohio civil RICO) against the competitors that allegedly put his business into bankruptcy. The Trustee alleged that he had appropriated claims and filed a claim, alleging that Fulson, Sanders, and Lowe violated the automatic stay. The Bankruptcy Court agreed, held the three in contempt, and entered a judgment for roughly $91,000. The Bankruptcy Appellate Panel and the Sixth Circuit affirmed. The court explored the principles of the derivative suit in corporate law, the function of the automatic stay in bankruptcy, and the extent and construction of a specific state’s RICO laws to conclude that the Ohio RICO statute does not give the sole shareholder of a bankrupt corporation standing to circumvent the automatic stay and individually sue a competitor. Fulson and his attorneys should have sought either the trustee’s cooperation or relief from the automatic stay in order to file the complaint. View "In re Nicole Gas Production, Ltd." on Justia Law

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Innovation sold 5-Hour Energy. In 2004, it contracted with CN to manufacture and package 5-Hour. Jones, CN's President and CEO, had previously manufactured an energy shot. When the business relationship ended, CN had extra ingredients and packaging, which Jones used to continue manufacturing 5-Hour, allegedly as mitigation of damages. The companies sued one another, asserting breach of contract, stolen trade secrets or intellectual property, and torts, then entered into the Settlement, which contains an admission that CN and Jones “wrongfully manufactured” 5-Hour products and forbids CN from manufacturing any new “Energy Liquid” that “contain[s] anything in the Choline Family.” CN received $1.85 million. CN was sold to a new corporation, NSL. Under the Purchase Agreement, NSL acquired CN's assets but is not “responsible for any liabilities ... obligations, or encumbrances” of CN except for bank debt. The Agreement includes one reference to the Settlement. NSL, with Jones representing himself as its President, took on CN’s orders and customers, selling energy shots containing substances listed in the Choline Family definition. Innovation sued. Innovation was awarded nominal damages for breach of contract. The Sixth Circuit affirmed the rejection of defendants’ antitrust counterclaim, that NSL is bound by the Settlement, and that reasonable royalty and disgorgement of profits are not appropriate measures of damages. Jones is not personally bound by the Agreement. Upon remand, Innovation may introduce testimony that uses market share to quantify its lost profits. The rule of reason provides the proper standard for evaluating the restrictive covenants; Defendants have the burden of showing an unreasonable restraint on trade. View "Innovation Ventures, LLC v. Nutrition Science Laboratories, LLC" on Justia Law

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Connecticut imposed liability for breaches of contract when attended by deception. Unhappy with flanges purchased under a contract with PM Engineered Solutions, Inc. (“Powdered Metal”), Bosal Industries-Georgia, Inc. (“Bosal”) decided to switch suppliers and terminate the contract. After a five-day bench trial, the district court found that the termination was not only wrongful in breach of the contract, but that it was deceptive in violation of the Connecticut Unfair Trade Practices Act. Because Connecticut law applied and the district court’s findings rested on a permissible view of the evidence, the Sixth Circuit affirmed except as to the calculation of postjudgment interest on damages. View "Premium Freight Mgmt. v. PM Engineered Solutions" on Justia Law

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Auburn bought Chrysler parts for resale to Cypros, which then sold those parts to customers in the Middle East. The FBI raided Cypros’ warehouse and charged its president, Kilani, with trafficking in counterfeit goods. Unbeknownst to Auburn, Kilani had been obtaining counterfeit parts, mixing them with the legitimate Chrysler parts received from Auburn, and selling the commingled parts to customers. When Chrysler learned of the scheme, it terminated its relationship with Auburn. Auburn brought tortious interference claims and a breach of contract claim against Cypros that the district court dismissed, stating that Cypros did not specifically intend to interfere with Auburn’s relationship with Chrysler and that Cypros and Auburn did not have a written contract. The Sixth Circuit affirmed, holding that Michigan tortious interference law requires the specific intent to interfere with a business relationship and that the Michigan statute of frauds applied. View "Auburn Sales, Inc. v. Cypros Trading & Shipping, Inc." on Justia Law

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Hartman and Ott co-founded Spectrum Tool & Design and divided management responsibilities. Ott was supposed to handle the company’s payroll taxes, which required him to withhold federal taxes from employees’ wages and send the money to the IRS. When Spectrum encountered financial difficulties, however, Ott failed to pay the taxes several times in 2004 and 2005. Hartman continued to rely on Ott to pay the taxes even after discovering the delinquency. After Spectrum went bankrupt, the government sued Hartman to recover the unpaid taxes. The district court granted the government summary judgment. The Sixth Circuit affirmed, noting that Hartman “willfully” failed to pay Spectrum’s taxes. The government imposes personal liability for outstanding payroll taxes on anyone who was “required to” pay these taxes and “willfully” failed to pay the funds to the IRS, 26 U.S.C. 6672(a). Hartman acted willfully by repeatedly claiming to believe that Ott paid the taxes when he no longer had any plausible basis for thinking that was so. He knew of Ott’s past failures and had ample means to identify and remedy Ott’s misconduct. View "United States v. Hartman" on Justia Law

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The IRS issued two “John Doe” summonses to Chase Bank without first obtaining approval in a federal district court as required by Internal Revenue Code section 7609(f), to obtain financial records relating to two limited liability companies. Those LLCs alleged that the IRS’s use of the John Doe summonses to obtain their financial records violated the Right to Financial Privacy Act, 12 U.S.C. 3401-3422. The district court dismissed for lack of subject matter jurisdiction after determining that sovereign immunity barred the LLC’s claims. The Sixth Circuit affirmed, first holding that Congress intended to provide a remedy for violations in the collection of tax, but not in the assessment and determination of tax, so the LLCs do not have a monetary remedy under the Internal Revenue Code. An LLC does not fall under the Privacy Act’s waiver of sovereign immunity and the district court correctly held that it lacked jurisdiction over the claims. View "Hohman v. Eadie" on Justia Law

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Based on allegedly deceptive pictures on pet food packaging, Wysong alleged false advertising under the Lanham Act, requiring proof that the Defendants made false or misleading statements of fact about their products, which actually deceived or had a tendency to deceive a substantial portion of the intended audience, and likely influenced the deceived consumers’ purchasing decisions, 15 U.S.C. 1125(a). The Sixth Circuit affirmed the complaint's dismissal. If a plaintiff shows that the defendant’s advertising communicated a “literally false” message to consumers, courts presume that consumers were actually deceived. Wysong claimed the Defendants’ messaging was literally false because the photographs on their packages tell consumers their kibble is made from premium cuts of meat—when it is actually made from the trimmings. A reasonable consumer could understand the Defendants’ packaging as indicating the type of animal from which the food was made but not the precise cut used so that Wysong’s literal-falsity argument fails. A plaintiff can, alternatively, show that the defendant’s messaging was “misleading,” by proving that a “significant portion” of reasonable consumers were actually deceived by the defendant’s messaging, usually by using consumer surveys. Wysong’s complaints do not support a plausible inference that the Defendants’ packaging caused a significant number of reasonable consumers to believe their pet food was made from premium lamb chops, T-bone steaks, and the like. Reasonable consumers know that marketing involves some level of exaggeration. View "Wysong Corp. v. Wal-Mart Stores, Inc." on Justia Law

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A jeweler and a coin dealer brought facial and as-applied Fourth Amendment challenges to warrantless search provisions in Ohio’s Precious Metals Dealers Act (PMDA). Section 4728.05(A) allows the state to “investigate the business” of licensees and non-licensees with “free access to the books and papers thereof and other sources of information with regard to the[ir] business[es].” Section 4728.06 requires licensees to maintain records, at the licensed premises in a state-approve form, open to inspection by the head of the local police department and, “upon demand,” to show authorities any precious metal within their possession that is listed in these records. Section 4728.07 requires licensees to keep separate records, available to local police “every business day.” Ohio Administrative Code 1301:8-6-03(D), allows the state to inspect “at all times” all sources of information "with regard to the business of the licensee” and requires that licensees maintain their records and inventory at the licensed location. The Sixth Circuit held that the warrantless searches authorized by O.R.C. 4728.05(A) are facially unconstitutional, as not necessary to furthering the state’s interest in recovering stolen jewelry and coins; nor do they serve as adequate warrant substitutes because they are overly broad. The Sixth Circuit upheld sections 4728.06 and 4728.07 as facially constitutional. The state has a substantial interest in regulating precious metals; the provisions are narrowly tailored to address the state’s proffered need to curb the market in stolen precious metals. The court dismissed as-applied challenges to sections 4728.06 and 4728.07 as not ripe. View "Liberty Coins, LLC v. Goodman" on Justia Law

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Hall and Thompson built a significant client base as brokers of equipment rental insurance. They brought some of their clients to a specialty division they formed at Hylant. USI paid a substantial sum for Hylant’s assets and to keep Hall and Thompson on as employees to continue building their client base; Hall and Thompson gave up any ownership interest in their clients and promised that if they were terminated, they would refrain from soliciting those clients for two years. They agreed that USI could assign their employment contracts to a subsequent purchaser. Edgewood bought out USI’s entire equipment rental insurance business. Hall and Thompson could not work out an arrangement with Edgewood, so USI terminated them. They began contacting their old clients and sought a declaratory judgment permitting them to do so. Edgewood obtained a preliminary injunction barring Hall and Thompson from breaching their non-solicitation agreements. The Sixth Circuit remanded for factual findings as to which of Thompson’s clients he recruited and developed solely on his own accord, and which clients Hylant and USI expended their resources in recruiting and developing, with respect to which Edgewood is likely to succeed on the merits. Edgewood has no legitimate interest in barring Thompson from soliciting clients who came to Hylant and USI solely to avail themselves of Thompson’s services and only as a result of his own independent recruitment efforts. View "Hall v. Edgewood Partners Insurance Center, Inc." on Justia Law

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General Motors provides sales incentives to dealers who sell cars to GM employees, retirees, and their family members at a discounted rate. The dealer must collect a signed agreement from the purchaser that establishes his eligibility for the program. In 2014, GM audited one of its Ohio dealers, Sims, and discovered transactions in which Sims had failed to collect the agreement from purchasers within the timeline set by GM in a 2012 dealership bulletin. GM debited Sims’ account $47,493.28 for improper incentive payments. Sims is located near a large GM plant in Lordstown, and the Purchase Program accounts for 80% to 90% of its sales. Sims filed suit alleging breach of contract and violations of the Ohio Dealer Act. The district court granted GM summary judgment. The Sixth Circuit affirmed. The parties’ dealership arrangement permitted the debit and a timely filed Consumer Dealer Agreement constitutes “material documentation” under Section 4517.59(A)(20)(a) of the Ohio Dealer Act. View "Sims Buick-GMC Truck, Inc. v. General Motors, LLC" on Justia Law