source: Caselaw Access Project

author: KAREN NELSON MOORE, Circuit Judge.

license: Public Domain

text:
    The State of OHIO et al., Plaintiffs-Appellants, v. UNITED STATES of America et al., Defendants-Appellees.
    No. 16-3093
    United States Court of Appeals, Sixth Circuit.
    Argued: September 27, 2016
    Decided and Filed: February 17, 2017

      ARGUED: Frederick D. Nelson, OFFICE OF THE OHIO ATTORNEY GENERAL, Columbus, Ohio, for Appellants. Alisa B. Klein, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellees. ON BRIEF: Freder-. ick D. Nelson, Eric E. Murphy, Peter T. Reed, OFFICE OF THE OHIO ATTORNEY GENERAL, Columbus, Ohio, David P. Fornshell, WARREN COUNTY PROSECUTOR, Lebanon, Ohio, Stuart Kyle Duncan, SCHAERR %CO DUNCAN LLP, Washington, D.C., for Appellants. Alisa B. Klein, Mark B. Stern, Samantha L. Chaifetz, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellees. Jeffrey A. Chanay, OFFICE OF THE KANSAS ATTORNEY GENERAL, Topeka, Kansas, for Amicus Curiae.
    Before: COLE, Chief Judge; DAUGHTREY and MOORE, Circuit Judges.
   OPINION

KAREN NELSON MOORE, Circuit Judge.

This case involves a novel challenge to the Patient Protection and Affordable Care Act (“Affordable Care Act” or “ACA”), and presents us with the question of whether one of the ACA’s tax provisions applies to state government employers with the same force that it applies to private employers. Plaintiffs-Appellants the State of Ohio and several of its political subdivisions and public universities (“Ohio” or the “State”) filed suit against, inter alia, the United States Department of Health and Human Services (“HHS”), alleging that the Federal Government illegally collected certain monies from the State in order to supplement the Affordable Care Act’s Transitional Reinsurance Program (“Program”). Arguing that the Program’s mandatory payment scheme applies only to private employers and not to state and local government employers, Ohio sought a refund of all payments made on its behalf and a declaration that the Program would not apply to the State in the future. Ohio also argued that application of the . Program against the State violated the Tenth Amendment to the United States Constitution and principles of intergovernmental tax immunity. The district court, in a thorough and reasoned opinion, granted a motion to dismiss filed by the United States, and denied a motion for summary judgment filed by Ohio. The district court concluded that the Program applies to state and local government employers just as it applies to private employers, and that the Program as applied to Ohio does not violate the Tenth Amendment. For the reasons stated below, we AFFIRM.

I. BACKGROUND

Congress enacted the Affordable Care Act in 2010 to address concerns regarding nationwide access to affordable, quality healthcare. King v. Burwell, — U.S. —, 135 S.Ct. 2480, 2485-86, 192 L.Ed.2d 483 (2015) (“The Patient Protection and Affordable Care Act adopts a series of interlocking reforms designed to expand coverage in the individual health insurance market.”). Among the ACA’s provisions are (1) a tax credit to help individuals purchase health insurance through public healthcare Exchanges; (2) a ban on insurers considering an individual’s health when deciding whether to provide insurance or in setting the premium; and (3) a requirement that each individual maintain insurance coverage or remit payment to the Internal Revenue Service. Id. at 2486-87. While many of the ACA’s requirements have been the subject.of widespread litigation and controversy, this case revolves around a lesser-known provision, .the Transitional Reinsurance Program. See 42 U.S.C. § 18061. The Program is a premium-stabilization arrangement that aims to combat volatility in the individual market by collecting payments from “health insurance issuers” and “group health plans” and distributing those payments over a three-year period to health insurance issuers that cover high-risk individuals in the individual market. See Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2014 (Final Rule), 78 Fed. Reg. 15,410, 15,411 (Mar. 11, 2013) (“The Affordable Care Act establishes ... a transitional reinsurance program ... to provide payments to health insurance issuers that cover higher-risk populations and to more evenly spread the financial risk borne by issuers.”). Specifically, the ACA mandates that:

(1) In general
In establishing the Federal standards under section 18041(a) of this title, the Secretary, in consultation with the National Association of Insurance Commissioners (the “NAIC”), shall include provisions that enable States to establish and maintain a program under which—
(A) health insurance issuers, and third party administrators on behalf of group health plans, are required to make payments to an applicable reinsurance entity for any plan year beginning in the 3-year period beginning January 1, 2014 (as specified in paragraph (3)[) ], and
(B) the applicable reinsurance entity collects payments under subparagraph (A) and uses amounts so collected to make reinsurance payments to health insurance issuers described in subpar-agraph (A) that cover high risk individuals in the individual market (excluding grandfathered health plans) for any plan year beginning in such 3-year period.

42 U.S'.C. § 18061(b)(1) (footnote omitted); see also id. § 18041(a)(1)(C), (c)(1) (providing that HHS may establish reinsurance programs for states that decline to do so). Ohio’s reinsurance program is operated by HHS.

The State of Ohio and several of its political subdivisions have paid contributions (totaling approximately $5.4 million for benefit year 2014) to the Program under protest. Additionally, four state universities that have joined Ohio in this suit (University of Akron, Shawnee State University, Bowling Green State University, and Youngstown State University) have paid nearly $765,000 to the Program. R. 13 (Am. Compl. at 9-13) (Page ID #67-71).

Of the approximately $25 billion in revenue that is expected to be generated from the Program, $20 billion is paid to certain health insurance providers to supplement those providers covering high-risk individuals. 42 U.S.C. § 18061(b)(3)(B)(ii). The remaining five billion dollars are “deposited into the general fund of the Treasury of the United States and may not be used” for the Program. Id. §§ 18061(b)(3)(B)(iii), (iv), and (b)(4).

The term “health insurance issuer” as it applies to the transitional reinsurance program,

means an insurance company, insurance service, or insurance organization (including a health maintenance organization, as defined in paragraph (3)) which is licensed to engage in the business of insurance in a State and which is subject to State law which regulates insurance (within the meaning of section 514(b)(2) of the Employee Retirement Income Security Act of .1974 [29 U.S.C.A. § 1144(b)(2) ]. Such term does not include a group health plan.

42 U.S.C.A. § 300gg-91(b)(2). The term “group health plan,”

means an employee welfare benefit plan (as defined in section 3(1) of the Employee Retirement Income Security Act of 1974 [29 U.S.C.A. § 1002(1) ]) to the extent that the plan provides medical care (as defined in paragraph (2)) and including items and services paid for as medical care) to employees or their dependents (as defined under the terms of the plan) directly or through insurance, reimbursement, or otherwise.

42 U.S.C.A. § 300gg-91(a)(1). The amount owed by each health insurance issuer and group health plan is determined by multiplying enrollment count (as self-reported by each required entity) by.,a previously determined contribution rate for each applicable benefit year. 45 C.F.R. § 153.405(a).

On January 26, 2015, Plaintiffs (State of Ohio; Warren County, Ohio; The Ohio Department of Administrative Services; University of Akron; Shawnee State University; Bowling Green State University; and Youngstown State University) filed this action against the United States, HHS, and the Secretary of HHS in her official capacity. R. 1 (Compl.) (Page ID #1). On February 13, 2015, Plaintiffs filed an Amended Complaint adding Plaintiff Ohio Turnpike and Infrastructure Commission. R. 13. (Am. Compl.) (Page ID #58). The Amended Complaint alleges that:

1. The United States illegally or erroneously assessed or collected tax revenue from Plaintiffs;
2. The Secretary’s interpretation of group health plans is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law; and
3.Defendants collected tax revenues in violation of the Tenth Amendment to the United States Constitution, anti-commandeering principles, and the Intergovernmental Tax Immunity Doctrine.

R. 13 (Am. Compl. at 14-18) (Page ID #72-76). On March 25, 2015, the United States District Court for the Southern District of Ohio issued a scheduling' order memorializing the parties’ agreement to forgo discovery and submit the case on motions. É. 16 (Sched. Order) (Page ID #85). Defendants filed a motion to dismiss for failure to state a claim on April 10, 2015. R. 17 (Mot. to Dismiss) (Page ID #86). Plaintiffs filed a motion for summary judgment and a memorandum in opposition to Defendants’ motion to dismiss on May 15, 2015. R. 18 (Mot. for S. J. and Opp. to Mot. to Dismiss) (Page ID #114). Defendants filed a response in opposition to the motion for summary judgment and in reply in support of their motion to dismiss on July 2, 2015. R. 21 (Def. Resp. in Opp. to Mot. for S. J. and Reply in Support of Mot. to Dismiss) (Page ID #189). Plaintiffs filed a reply in support of their motion for summary judgment and a memorandum in opposition to Defendants’ motion to dismiss on August 4, 2015. R. 22 (Plaintiffs’ Reply in Support of Mot. for S. J. and in Opp. to Mot. to Dismiss) (Page ID #223). The district court held a hearing on the motions on December 22, 2015.

On January 5, 2016, the district court granted Defendants’ motion to dismiss for failure to state a claim and denied Plaintiffs’ motion for summary judgment. The district court found that: (1) Pursuant to the Administrative Procedure Act, the court had jurisdiction to review the determination of HHS that the Transitional Reinsurance Program applies to health plans provided on behalf of Ohio to its employees; (2) the Program applies to state and local government employers; and (3) application of the Program to the States does not violate the Tenth Amendment or the intergovernmental tax immunity doctrine. Ohio v. United States, 154 F.Supp.3d 621 (S.D. Ohio 2016). Plaintiffs appealed. R. 26 (Notice of Appeal) (Page ID #331).

Ohio is not alone in claiming that the Program does not apply to the States. The States of Kansas, Arizona, Indiana, Louisiana, Montana, Nevada, Oklahoma, South Carolina, South Dakota, Utah, West Virginia, Wisconsin, and Wyoming have submitted an amicus brief in support of Ohio. Amici argue, as does Ohio, that the ACA does not apply the Program to the States under the ERISA definition of welfare benefit program or the clear statement rule; that state tax immunity extends beyond discriminatory laws; and that the Program interferes with state sovereignty and does not represent a traditional source of federal revenue.

II. DISCUSSION

A. Standard of Review

‘We review de novo a district court’s dismissal of a suit” for failure to state a claim. United States ex rel. Sheldon v. Kettering Health Network, 816 F.3d 399, 407 (6th Cir. 2016). “A motion to dismiss under Fed. R. Civ. P. 12(b)(6) is designed to test the sufficiency of the complaint. ‘The district court must construe the complaint in a light most favorable to the plaintiff, accept all of the factual allegations as true, and determine whether the plaintiff undoubtedly can prove no set of facts in support of his claims that would entitle him to relief.’ ” Riverview Health Institute LLC v. Medical Mutual of Ohio, 601 F.3d 505, 512 (6th Cir. 2010) (quoting Columbia Natural Res., Inc. v. Tatum, 58 F.3d 1101, 1109 (6th Cir. 1995)).

We note at the outset that the district court’s opinion in this case was thoughtful, evenhanded, and well-reasoned. After having conducted our own thorough and de novo review, for the reasons stated below, we affirm the district court’s judgment in its entirety.

B. Group Health Plans and the Transitional Reinsurance Program

The State of Ohio challenges the district court’s determination that “Congress intended the Transitional Reinsurance Program to apply to state and local government employers in the same manner that the program applies to private-sector employers. The text, structure, and purpose of the Affordable Care Act and related statutes compel this result.” Ohio, 154 F.Supp.3d at 633. Ohio’s objections to the application of the Transitional Reinsurance Program to the States are both statutory and constitutional. Ohio first argues that the Program cannot apply to the States pursuant to both the “plain statement rule” and- the ERISA statute. Appellants Br. at 14. Second, Ohio suggests that application of the Program to the States is unconstitutional under both the anti-commandeering doctrine and the intergovernmental tax immunity doctrine. Id. at 15. The United States counters that, “Plaintiffs’ reliance on clear statement principles does not advance their position because the relevant statutory provisions clearly encompass their plans,” Appellees Br. at 10, and “[tjheir intergovernmental tax immunity claim fails because that immunity applies to taxes that discriminate against state or local governments ... and the transitional reinsurance program is nondiscriminatory,” id. (internal citation omitted).

1. The Term “group health plan” Applies to State-Provided Health Insurance Plans

Ohio first argues that the Transitional Reinsurance Program does not apply to the States because the statute’s definition of “group health plans” does not encompass plans offered to state employees. Appellants Br. at 16. Ohio is correct that Transitional Reinsurance Program statute does not explicitly define group health plans to include states nor does it list states as being required to remit payment under the ACA. The United States responds that “the Act expressly adopts the Public Health Service Act’s definition of ‘group health plan’... [which] clearly includes plans offered by state and local government employers.... ” Appellees Br. at 11.

The relevant statute, 42 U.S.C. § 18061(b)(1)(A), requires that “health insurance issuers, and third party administrators on behalf of group health plans, are required to make payments to an applicable reinsurance entity for any plan year beginning in the 3-year period beginning January 1, 2014.... ” This section of the ACA does not explicitly define the term “group health plans.” Instead, the statutory framework adopts a series of cross-references to both the Public Health Service Act (“PHSA”) and the Employee Retirement Income Security Act of 1974 (“ERISA”). First, the ACA adopts expressly the PHSA’s definition of “group health plan” as defined by 42 U.S.C. § 300gg-91(a). 42 U.S.C. § 18021(b)(3) (“The term ‘group health plan’ has the meaning given such . term by section 300gg-91(a) of this title.”). As stated in 42 U.S.C. § 300gg-91, a “group health plan” is “an employee welfare benefit plan (as defined in section 3(1) of the Employee Retirement Income Security Act of 1974 [29 U.S.C.A. § 1002(1) ]) to the extent that the plan provides medical care ... to employees or their dependents ... directly or through insurance, reimbursement, or otherwise.” ERISA defines “employee welfare benefit plan” in turn as “any plan ... established or maintained by an employer or by an employee organization, or by both ... for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits....” 29 U.S.C. § 1002(1).

The Public Health Service Act explicitly contemplates that plans like Ohio’s are covered under the definition of “group health plan.” Under a section titled “Limitation on application of provisions relating to group health plans,” the PHSA specifically provides that certain “non-Federal governmental plans” may elect to be excluded from certain provisions of the PHSA. 42 U.S.C. § 300gg-21(a)(2). Congress must have therefore intended that a subset of group health plans include certain non-Federal governmental plans. The PHSA’s enforcement mechanism further supports the Federal Government’s argument that non-Federal governmental plans are indeed a subset of group health plans under the PHSA. Generally, the PHSA grants enforcement authority over health insurance issuers to the States. 42 U.S.C. § 300gg-22(a). However, the Federal Government exercises enforcement authority over “group health plans that are non-Federal governmental plans'.” Id. § 300gg-22(b)(1)(B).

Provisions in ERISA further support that Congress intended the term “group health plans” to include plans offered by state and local government employers. ERISA defines both “employee welfare benefit plan” and “governmental plan.” 29 U.S.C. §§ 1002(1), (32). An “employee welfare benefit plan” is “any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer....” Id. § 1002(1). A “governmental plan” is “a plan established or maintained for its employees by the Government of the United States, by' the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing.” Id. § 1002(32). Similar to the PHSA, ERISA contemplates that a governmental plan is a type of employee welfare benefit plan. See id. § 1003(b)(1) (“The provisions of this subchapter shall not apply to any employee benefit plan if ... such plan is a governmental plan (as defined in section 1002(32) of this title).” That Congress provided an exclusion for governmental plans from certain provisions of ERISA that apply to employee welfare benefit plans confirms, under the ERISA definition that applies to the ACA, that governmental plans are employee welfare benefit plans. To conclude otherwise “violates the interpretive canon that cautions against construing statutory language in a way that renders any of it superfluous.” U.S. v. Llanez-Garcia, 735 F.3d 483, 498 (6th Cir. 2013).

Ohio contends that reliance on ERISA is misplaced because ERISA’s definition of the term “employee benefit plan” uses the word “employer” which is defined elsewhere in the statute using, inter alia, the word “person.” Appellants Br. at 19. We need not reach this issue because the definitions in the PHSA and ERISA are clear that the term “group health plans” under the ACA encompasses employee welfare benefit plans, which include governmental plans. We have previously rejected an argument similar to Ohio’s. See Cunningham v. Gibson Cty., Nos. 95-6665, 95-6667, 1997 WL 123750, at *2 (6th Cir. Mar. 18, 1997) (“[I]f defendants’ argument that local governments are not persons within the meaning of [the Fair Labor Standards Act] is accepted, the result is exemption of local governments from even FLSA’s most fundamental provisions. As this cannot be understood to have been the intent of Congress, the defendants’ argument must fail.”). Similarly, adopting Ohio’s argument that ERISA’s use of the term “person” evinces Congress’s intent not to cover states requires that the statute’s explicit indications to the contrary be ignored. We will not do so. Congress has demonstrated an ability explicitly to exempt state and local governments from certain requirements in the past, and it chose not to do so with respect to the Program. We therefore conclude that Congress intended the Transitional Reinsurance Program to apply to the States with the same , force that it applies to private employers.

2. Ohio’s Michigan v. United States and “Plain Statement Rule” Arguments Fail

Ohio next argues that the health plans it offers to its employees and those plans offered to the employees of its subdivisions do not qualify as group health plans under the Act because Congress has never made a plain statement of its intent. The United States responds that “[e]lear statement principles do not advance [Ohio’s] position, because the relevant statutory text clearly encompasses [Ohio’s] plans.” Appellees Br. at 24. Ohio relies heavily on Michigan v. United States for the proposition that Congress must make a plain statement regarding any tax that it wishes to impose directly against a state. Mich. v. U.S., 40 F.3d 817, 824 (6th Cir. 1994). In Michigan, we held both that the Michigan Educational Trust, which was established to assist parents in financing their children’s college educations, was a public agency not subject to federal income taxation in the absence of a plain statement from Congress, and that the plain statement rule applies in the tax field. 40 F.3d at 818. Ohio is correct that in Michigan we reiterated that “before a federal tax can be applied to activities carried on directly by the States ... the intention of Congress to tax them should be stated expressly and not drawn merely from general wording of the statute applicable ordinarily to private sources of revenue.” Id. at 823 (internal quotation marks omitted).

Ohio, however, asks too much of the ACA. The Supreme Court has “never required that Congress make its clear statement in a single section or in statutory provisions enacted at the same time.” Kimel v. Florida Bd. of Regents, 528 U.S. 62, 76, 120 S.Ct. 631, 145 L.Ed.2d 522 (2000). Thus, we conclude that the ACA’s cross-reference definitional scheme is perfectly appropriate. See also Sebelius v. Auburn Reg’l Med. Ctr., — U.S. —, 133 S.Ct. 817, 824, 184 L.Ed.2d 627 (2013) (holding that Congress need not “incant magic words in order to speak clearly,” and requiring that the Court “consider ‘context, including this Court’s interpretations of similar provisions in many years past.’ ’’(citation omitted)). When considering the Transitional Reinsurance Program in the context of the ACA (including the relevant definitions provided by the PHSA and ERISA) and our interpretations of similar provisions in cases past, we conclude that it is evident that Congress intended the term “group health plans” to encompass Ohio’s plan.

Ohio’s reliance on Michigan is misplaced for another important reason: Michigan dealt with a statutory scheme that was directed specifically toward corporations. The United States in Michigan failed to provide any evidence that Congress intended to tax state trusts, and even conceded that the statute had never been interpreted as so doing. Michigan, 40 F.3d at 823. By contrast, there is no question that the ACA, at least in part, applies to the States. The only issue before us is whether the term “group health plan” is meant to encompass health plans offered by state employers to their employees. A close and careful reading of the ACA and its cross-references compels an answer in the affirmative. Congress’s plain statement that the Program applies to the States can be found in the series of cross-references discussed supra. We therefore conclude that Ohio’s statutory challenge fails, and the Transitional Reinsurance Program applies to the State of Ohio.

C. Ohio’s Constitutional Claims

Ohio next argues that applying the Transitional Reinsurance Program to the States violates the Tenth Amendment to the United States Constitution. Specifically, Ohio objects to application of the Program under both the anti-commandeeririg and intergovernmental tax immunity doctrines. Ohio is concerned that the Program “requires an extraordinarily expansive, un-cabined theory of federal power ... under which federal politicians would be free to try to accrue political support through any type of corporate welfare scheme imaginable and then shirk accountability for total costs by ordering the States to collect money from their own citizens.... ” Appellants Br. at 53. Further, Ohio argues, instead of aiding Ohio or its employees in connection with the State’s money, the program “transfers money to private companies (that by definition do not insure the State employees) and [ ] takes for the federal general fund dollars that by law cannot be used for the purposes of the federal program under which the tax arises.” Id. We find Ohio’s alarmist posturing unpersuasive because the Program does not commandeer Ohio’s legislative authority nor does it violate any remaining vestiges of the intergovernmental tax immunity doctrine.

1. Ohio’s Anti-commandeering Claim is Foreclosed by Garcia v. San Antonio Metropolitan Transportation Authority.

Ohio first argues that payments to Transitional Reinsurance Program violate the Tenth Amendment because the Program commandeers Ohio’s regulatory apparatus. The Supreme Court in Garcia v. San Antonio Metropolitan Transit Authority faced the question of whether there existed a Tenth Amendment violation where a state governmental employer was required to meet the overtime and minimum-wage requirements of the Fan-Labor Standards Act (FLSA). 469 U.S. 528, 530, 105 S.Ct. 1005, 83 L.Ed.2d 1016 (1985). The Court found no violation because “Congress’ action in affording SAM-TA employees the protections of the wage and hour provisions of the FLSA contravened no affirmative limit on Congress’ power under the Commerce Clause.” Id. at 555-56, 105 S.Ct. 1005. The Garcia Court held that the Tenth Amendment did not prohibit Congress from regulating state employers in the same manner that it regulates private-sector employers. We have similarly held that Congress may enact “generally applicable laws that regulate state activities in the same manner as private conduct” and not violate the Tenth Amendment. See EEOC v. Ky. Ret. Sys., 16 Fed.Appx. 443, 452 (6th Cir. 2001).

Ohio’s principal argument that the Program commandeers the State’s regulatory apparatus relies almost exclusively on Printz v. United States, 521 U.S. 898, 930, 117 S.Ct. 2365, 138 L.Ed.2d 914 (1997), and New York v. United States, 505 U.S. 144, 169, 112 S.Ct. 2408, 120 L.Ed.2d 120 (1992). In Printz, a federal firearms law required that the chief law-enforcement officer in each local jurisdiction conduct certain checks to ensure compliance with the statute until a national background-check system was operative. Printz, 521 U.S. at 902, 117 S.Ct. 2365. In the 1992 New York case, the Federal Government mandated that the States provide for disposal of certain low-level radioactive waste, and in some instances take title to and become liable for all damages caused by a state’s failure promptly to take possession of said waste. New York, 505 U.S. at 150-51, 112 S.Ct. 2408. The Supreme Court struck down both laws on the grounds that Congress impermissibly commandeered the legislative process of the States.

Neither Printz nor New York is applicable in this case. The congressional action in both cases required that certain state actors engage in specific conduct in order to comply with the statute. As we have previously held, there exists an important distinction in the Supreme Court’s anti-commandeering cases between “generally applicable laws that regulate state activities in the same manner as private conduct,” which have been held constitutional, and laws “that seek to control or influence the manner in which the States regulate private conduct,” which are unconstitutional. See Ky. Ret. Sys., 16 Fed.Appx. at. 452. See also South Carolina v. Baker, 485 U.S. 505, 514, 108 S.Ct. 1355, 99 L.Ed.2d 592 (1988) (holding that a federal tax law was constitutional where it “regulates state activities” and does not “seek to control or influence the manner in which States regulate private parties”); Reno v. Condon, 528 U.S. 141, 151, 120 S.Ct. 666, 145 L.Ed.2d 587 (2000) (upholding a federal law because it “does not require the States in their sovereign capacity to regulate then-own citizens.”). We cannot conclude that the Program seeks to control or influence the manner in which a state regulates private parties. Instead, it regulates the States directly by requiring participation in the Program in the exact same manner that it requires participation by private employers. This is a classic case of congressional action that is constitutionally permissible under the Tenth Amendment, and we therefore find Ohio’s anti-commandeering arguments unpersuasive.

As the district court so aptly noted, “[t]he Affordable Care Act requires Ohio and its instrumentalities and political subdivisions to comply with a federal regulatory program, not to implement one.” Ohio, 154 F.Supp.3d at 659. We therefore conclude that the Federal Government has not commandeered the States by requiring participation in the Transitional Reinsurance Program in the same manner that it requires participation by private employers.

2. The Program Does Not Violate the Intergovernmental Tax Immunity Doctrine

Ohio’s final argument is that the Transitional Reinsurance Program is a violation of the intergovernmental tax immunity doctrine, the concept that the federal and state governments should not tax each other. See New York v. United States, 326 U.S. 572, 576, 66 S.Ct. 310, 90 L.Ed. 326 (1946) (“[T]he fear that one government may cripple or obstruct the operations of the other early led to the assumption that there was a reciprocal immunity of the instrumentalities of each from taxation by the other”). The district court concluded that the Program does not run afoul of the intergovernmental tax immunity doctrine because that doctrine “now protects only against discriminatory taxes levied directly on the states,” and that “the Transitional Reinsurance Program imposes reinsurance contributions on private-sector employers and state and local government employers equally — i.e., non-discriminatorily.” Ohio, 154 F.Supp.3d at 659. We agree.

In the 1946 New York v. United States case, the Supreme Court upheld a federal tax imposed on the State of New York’s bottling and sale of mineral water. New York, 326 U.S. at 573-74, 66 S.Ct. 310. Under the law at the time, public instru-mentalities of the States were immune from taxation provided they were performing a “governmental function” and not a business or proprietary function. Id. at 579-80, 66 S.Ct. 310. The New York Court abandoned that rigid distinction, though no majority of the justices could agree upon a single rationale, with two justices agreeing that any non-discriminatory tax imposed upon a state was constitutional and four justices finding that a non-discriminatory tax could be unconstitutional if it “interfere[s] unduly with the State’s performance of its sovereign functions of government.” Id. at 587-89, 66 S.Ct. 310. The Supreme Court has only occasionally subsequently addressed the intergovernmental tax immunity doctrine.

A tax against the States will withstand a Tenth Amendment challenge if it: (1) does not discriminate against the States; and (2) can be remedied through the political process. See Massachusetts v. U.S., 435 U.S. 444, 456, 98 S.Ct. 1153, 55 L.Ed.2d 403 (1978) (“the political process is uniquely adapted to accommodating the competing demands ‘for national revenue, on the one hand, and for reasonable scope for the independence of state action on the other.’ ’’(citation omitted)); Baker, 485 U.S. at 526 n.15, 108 S.Ct. 1355 (“the threat of destroying another government can be realized only if the taxing government is willing to impose taxes that will also destroy itself or its constituents.”). See also W. Lynn Creamery, Inc. v. Nealy, 512 U.S. 186, 200 n.17, 114 S.Ct. 2205, 129 L.Ed.2d 157 (1994) (noting that “in the field of intergovernmental taxation ... nondiscrimination ... plays a central role in setting the boundary between the permissible and the impermissible.”).

Ohio concedes that “the immunity doctrine has been narrowed over the years, and it is no longer understood to forbid indirect taxes oh items such as state employee salaries or income from state con-, tracts.” Appellants Br. at 56 (citing Baker, 485 U.S. at 520-23, 108 S.Ct. 1355). Ohio urges us to examine closely the plurality opinion delivered in Massachusetts v. United States, which recognized “the limitation the existence of the States constitutionally imposes on the national taxing power.” 435 U.S. at 459, 98 S.Ct. 1153. However, we conclude that reliance on Massachusetts is misplaced, as that Court had “no occasion to decide either the present vitality of the doctrine of state tax immunity or the conditions under which it might be invoked.” Id. at 454, 98 S.Ct. 1153. Indeed, the Massachusetts Court upheld a federal fee that was applied to state-owned property. Id. at 446, 98 S.Ct. 1153. Michigan v. United States, the very case upon which Ohio so heavily relies for its statutory argument, speaks directly to the question of immunity. See Mich. v. U.S., 40 F.3d at 822 (“The broad constitutional immunity from federal taxation once thought to be enjoyed by states ... has been severely eroded ... and several years ago the Supreme Court suggested that it is now an open question whether there is ‘any’ extent ‘to which States are currently immune from direct non-discriminatory federal taxation.’ ” (quoting Baker, 485 U.S. at 518 n.11, 108 S.Ct. 1355)). As this court noted in Michigan, “today’s Supreme Court would say that Congress is. free to impose a nondiscriminatory tax” on a state government. Id. at 823.

At least one of our sister circuits agrees with the district court’s conclusion that any intergovernmental immunity analysis requires examination of discriminatory application. The Seventh Circuit in Travis v. Reno, 163 F.3d 1000 (7th Cir. 1998), upheld a federal statute that levied upon the States certain fines for their failure to comply with its strictures. In upholding the statute, the court noted that:

Gradually intergovernmental immunity turned into a rule of nondiscrimination, under which the governmental body’s protection is vicarious: one government may tax (or regulate) another’s trading partners only to the extent it imposes equivalent burdens on those who do business with private citizens. Neutrality between governmental and private spheres is a principal ground on which the Supreme Court has held that states may be subjected to regulation when they participate in the economic marketplace — for example, by hiring workers covered by the Fair Labor Standards Act. So long as public market participants are treated the same as private ones, they enjoy the protection the latter have been able to secure from the legislature; and as Congress is not about to destroy private industry (think what that would do to the tax base!) it can not hobble the states either.

163 F.3d at 1002-03 (citations omitted). While the Seventh Circuit was not directly confronted with a challenge to the intergovernmental tax immunity doctrine, we find its logic persuasive, and in line with our conclusion in Michigan. Whether the intergovernmental tax immunity doctrine is one which the Supreme Court would acknowledge as having any force today is an open question. We thus agree with the district court that “even under the State’s erroneous view of the continued validity of the intergovernmental tax immunity doctrine, the Transitional Reinsurance Program remains constitutional.” Ohio, 154 F.Supp.3d at 665.

We conclude that the tax imposed under the Transitional Reinsurance Program is a nondiscriminatory tax applied evenly to public and private group health plans. Application of the Program to the State of Ohio does not violate the intergovernmental tax immunity doctrine.

III. CONCLUSION

Because the Transitional Reinsurance Program was intended to apply to the State of Ohio, and because its application does not run afoul of the important principles of federalism or the Tenth Amendment to the United States Constitution, we AFFIRM the grant of the United States’s motion to dismiss and the denial of Ohio’s motion for summary judgment.


author: ROGERS, Circuit Judge.

text:
    IBEW LOCAL NO. 58 ANNUITY FUND; Electrical Workers Pension Trust Fund of IBEW Local No. 58, Detroit, Michigan; IBEW Local No. 58, Plaintiffs-Appellants, v. EVERYWARE GLOBAL, INC., et al., Defendants, John K. Sheppard; Bernard F. Peters; Daniel Collin; Stephen W. Presser; Monomoy Capital Partners, LLC; Monomoy Executive Co-Investment Fund, L.P.; Monomoy Capital Partners II, L.P.; MCP Supplemental Fund II, L.P.; Monomoy General Partner, L.P.; Monomoy General Partner II, L.P.; Monomoy Ultimate GP, LLC; Oppenheimer & Co. Inc.; CJS Securities, Inc.; Telsey Advisory Group, LLC; Imperial Capital, LLC; BTIG, LLC; Thomas J. Baldwin; Michael Jurbala; Barry L. Kasoff; Ronald D. McCray; William J. Krueger; Joseph A. De Perio; Ron Wainshal; Monomoy Capital Partners, L.P.; MCP Supplemental Fund, L.P., Defendants-Appellees.
    No. 16-3445
    United States Court of Appeals, Sixth Circuit.
    Argued: February 1, 2017
    Decided and Filed: February 21, 2017

      ARGUED: Thomas Livezey Laughlin, IV, SCOTT+SCOTT, New York, New York, for Appellants. David F. Graham, SIDLEY AUSTIN LLP, Chicago, Illinois, for Appellee Sheppard. C. Thomas Brown, ROPES & GRAY LLP, New York, New York, for Monomoy Appellees. ON BRIEF: Thomas Livezey Laughlin, IV, SCOTT + SCOTT, New York, New York, for Appellants. David F. Graham, Rachel B. Niewoehner, SIDLEY AUSTIN LLP, Chicago, Illinois, for Appellee Sheppard. C. Thomas Brown, John N.- McClain, III, ROPES & GRAY LLP, New York, New York, Christopher G. Green, ROPES & GRAY LLP, Boston, Massachusetts, for Monomoy Appellees. Steven J. Rosenberg, STEVEN J. ROSENBERG, P.C., Chicago, Illinois, for Appellee Peters. Jay K. Musoff, Jacobus J. Schutte, LOEB & LOEB, LLP, New York, New York, for Appellee Jurbala. Roger P. Sugarman, KEGLER, BROWN, HILL + RITTER CO., L.P.A., Columbus, Ohio, Susan F. DiCicco, MORGAN, LEWIS & BOCKIUS LLP, New York, New York, for Underwriter Appellees. Michael E. Swartz, Christopher H. Giampapa, SCHULTE ROTH & ZABEL.LLP, New York, New York, for Appellees Baldwin, Kasoff, McCray, Krueger, De Perio, and Wainshal.
    Before: GIBBONS, ROGERS, and McKEAGUE, Circuit Judges.
   OPINION

ROGERS, Circuit Judge.

In this private securities litigation, investors in a now-bankrupt company called EveryWare sued EveryWare’s officers, directors, principal shareholders, and underwriters, alleging that some defendants violated the Securities Exchange Act of 1934 by materially misrepresenting Every-Ware’s finances, and that some defendants violated the Securities Act of 1933 by verifying those alleged material misrepresentations to be true, and by failing to disclose other material facts, in' a registration statement and a prospectus that they signed in connection with an offering of EveryWare’s shares. The district court dismissed plaintiffs’ complaint, reasoning that the Exchange Act claims fail because plaintiffs have not alleged particularized facts giving rise to a strong inference that defendants acted with the requisite scien-ter, and that the Securities Act claims fail because plaintiffs have not alleged any well-pleaded material statement or omission in the registration statement or the prospectus. On appeal, plaintiffs repeat the arguments that they made in the district court. Their arguments fail here for reasons set out by the district court in its thorough opinion. Because the district court’s opinion fully responds to plaintiffs’ arguments on appeal, we adopt the reasoning of the district court, as indicated below, with respect to those issues necessary to resolve this appeal.

EveryWare Global, Inc., is an Ohio manufacturer of kitchenware. Plaintiffs purchased EveryWare securities between May 21, 2013, and May 16, 2014. Plaintiffs alleged a “pump and dump” scheme by Ev-eryWare’s principal shareholders and officers to inflate the price of EveryWare shares and then to sell their EveryWare shares before prices plummeted.

The district court opinion details the factual allegations in the complaint. In re EveryWare Global, Inc. Sec. Litig., 175 F.Supp.3d 837, 843-48 (S.D. Ohio 2016). Plaintiffs mainly allege: (1) that CEO John Sheppard, in January 2013, released Every-Ware’s financial projections for 2013, despite actually knowing those financial projections to be false and misleading; (2) that CEO Sheppard and CFO Bernard Peters, in August 2013, told investors, with the intent to deceive, manipulate, or defraud, that EveryWare was on track to meet its financial projections; and (3) that when EveryWare offered a portion of its shares to investors in September 2013, and submitted a registration statement and a prospectus in connection with,that offering, EveryWare’s underwriters and directors signed those documents declaring them to be true, even though those documents incorporated EveryWare’s financial projections and failed to disclose material downward trends in the business.

Plaintiffs failed to plead successfully that EveryWare’s financial projections in January 2013 violated § 10(b) of the Securities Exchange Act of • 1934, or the related SEC Rule 10b-5, for the reasons that the district court fully explained: because those projections were forward-looking statements, and because plaintiffs failed to plead facts that gave rise to a “strong inference” that CEO Sheppard had “actual knowledge” that those projections were false or misleading. We adopt that reasoning of the district court. 175 F.Supp.3d at 851-54.

Plaintiffs similarly failed to plead successfully that CEO Sheppard’s and CFO Peters’s on-track statements in August 2013 violated § 10b or Rule 10b-5, for the reason that the district court ultimately relied on: because plaintiffs failed to plead facts that gave rise to a “strong inference” that defendants acted with “a mental state embracing intent to deceive, manipulate or defraud.” We adopt that reasoning of the district court, also. 175 F.Supp.3d at 856-61.

Because plaintiffs have failed to meet the heightened pleading standards for defendants’ requisite scienter, they have failed to state a violation of § 10(b) or Rule 10b-5 upon which relief can be granted, as the district court properly concluded. Because plaintiffs failed to state substantive violations of the Securities Exchange Act, they have also failed to state secondary liability for those substantive violations under § 20(a) of the Securities Exchange .Act, as the district court also properly concluded. 175 F.Supp.3d at 861.

Plaintiffs also challenge the district court’s dismissal of their claims under the Securities Act of 1933, repeating arguments rejected below that EveryWare’s directors and underwriters signed as true a registration statement and a prospectus that contained material misrepresentations. Plaintiffs have failed to state a violation of § 11 or § 12(a)(2) of the Securities Act because they have not pleaded plausibly that those documents contained material misrepresentations, as the district court correctly reasoned. 175 F.Supp.3d at 869-73. Without a substantive claim of violation of the Securities Act upon which relief can be granted, there can be no claim of secondary liability under § 15 of the Securities Act, either, as the district court also correctly reasoned. 175 F.Supp.3d at 873.

The judgment of the district court is affirmed.

      . We do not'reach the two other reasons that some defendants argue on appeal to be independently sufficient alternative grounds on which to hold that the projections did not violate § 10(b): that the projections were not false or misleading; and that they were made by Sheppard, not by one of the principal shareholders.

      . We need not, and accordingly do not, address the district court's classification of those on-track statements as not forward-looking. See In re EveryWare Global, Inc. Sec. Litig., 175 F.Supp.3d at 854-56. We also do not reach the arguments on appeal that some defendants advance as independently sufficient grounds on which to conclude that the on-track statements did not violate § 10(b): that the on-track statements, like the projections, were forward-looking statements that qualified for the PSLRA’s safe-harbor provision; that the on-track statements were not sufficiently pleaded to be false or misleading under § 10(b); and that, in any event, no questioned statement was made by one of the principal shareholders.

      . We need not, and accordingly do not, address the district court’s discussions of the statute of limitations and standing. 175 F.Supp.3d at 861-69.


author: JANE B. STRANCH, Circuit Judge. RONALD LEE GILMAN, Circuit Judge,

text:
    STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff-Appellee, v. NORCOLD, INC., Defendant-Appellant.
    No. 15-6410
    United States Court of Appeals, Sixth Circuit.
    Argued: October 16, 2016
    Decided and Filed: February 22, 2017

      ARGUED: David T. Schaefer, DINS-MORE & SHOHL LLP, Louisville, Kentucky, for Appellant. Kenneth D. Dunn, BARNETT, PORTER & DUNN, Louisville, Kentucky, for Appellee. ON BRIEF: David T. Schaefer, Ryan A. Morrison, DINSMORE & SHOHL LLP, Louisville, Kentucky, for Appellant. Kenneth D. Dunn, BARNETT, PORTER & DUNN, Louisville, Kentucky, for Appellee.
    Before: GILMAN, GIBBONS, and STRANCH, Circuit Judges.
   STRANCH, J., delivered the opinion of the court in which GIBBONS, J., joined. GILMAN, J. (pp. 335-38), delivered a separate dissenting opinion.

OPINION

JANE B. STRANCH, Circuit Judge.

This diversity case involves claims that straddle the line between tort and contract and requires determination of the scope of Kentucky’s economic loss rule. The damages at issue were incurred when an RV refrigerator manufactured by Norcold overheated and caused a fire that destroyed the RV. The district court held that the economic loss rule as adopted in Kentucky does not prohibit State Farm from bringing a tort claim against Norcold. We affirm.

I. BACKGROUND

This case turns on applicability of the economic loss rule to consumer transactions in Kentucky. The economic loss rule prevents a plaintiff from recovering in tort for damage caused by a defective product when the only damages are to the product itself and consequential damages such as lost profits; it requires any recovery for those types of damages to be sought through contract claims. Norcold stipulated that it was responsible for the damage to the RV if the economic loss rule did not apply, then appealed and moved to certify questions about the doctrine’s scope to the Supreme Court of Kentucky.

A. Factual History

The parties stipulated to the facts in this case. Norcold manufactured the refrigerator in question in 2007. That same year, the refrigerator was installed by manufacturer Tiffin into a 2007 Phaeton model recreational vehicle (RV). The refrigerator came with a three-year express limited warranty. The RV was bought by its original purchaser that same year. In 2010, Norcold issued a recall on this model of refrigerator. The recall notice informed owners that they should immediately stop using their refrigerators and have repairs done to add a temperature-monitoring controller to help prevent overheating that could result in a fire. The recall repairs were performed on this RV by a third-party authorized service center in 2011. The RV was still owned by the original purchaser at the time of the recall notice and repair work.

In 2012, Larry Swerdloff purchased the used RV. Swerdloff had no contact with Norcold when he bought the RV, and the three-year warranty had expired by its terms prior to Swerdloffs purchase. Swerdloff insured the RV through State Farm.

In September 2013 a fire caused by the refrigerator destroyed the RV in Pendle-ton County, Kentucky. The fire did not cause any personal injuries, but the RV and its contents were a total loss. State Farm paid $145,193.20 to Swerdloff under the insurance policy. Norcold has stipulated that it owes State Farm $145,193.20 if the economic loss rule does not apply to the consumer transaction in this case.

B. Procedural History

State Farm filed suit, against Norcold in Kentucky state court in 2014. Norcold removed the case to federal court based on diversity jurisdiction. The district court denied Norcold’s motion for partial summary judgment and held that the Supreme Court of Kentucky would not apply the economic loss doctrine to consumer transactions. State Farm Mut. Auto. Ins. Co. v. Norcold, Inc., 89 F.Supp.3d 922, 928 (E.D. Ky. 2015). Norcold moved for interlocutory appeal of that order. The district court ordered briefing on whether the question should be certified to the Supreme Court of Kentucky. Following briefing, the district court denied the motion for interlocutory appeal and declined to certify the question of law to the Kentucky court.

To expedite a final appealable judgment, Norcold stipulated to conditional liability and the amount of damages while reserving the right to appeal the question of whether the economic loss rule should apply in this action. State Farm moved for summary judgment, which the district court granted. Norcold appealed the final judgment and moved to certify questions of law to the Supreme Court of Kentucky.

II. ANALYSIS

A. Standard of Review & Applicable Law

We review grants of summary judgment de novo. V & M Star Steel v. Centimark Corp., 678 F.3d 459, 465 (6th Cir. 2012). “Summary judgment is appropriate only when the evidence, taken in the light most favorable to the nonmoving party, establishes that there is no genuine issue as to any material fact and the mov-ant is entitled to judgment as a matter of law.” Id. (citing Fed. R. Civ. P. 56(c)).

As a federal court exercising diversity jurisdiction, the choice-of-law rules of the forum state, Kentucky, determine what substantive law to apply. NILAC Int’l Mktg. Grp. v. Ameritech Servs., Inc., 362 F.3d 354, 358 (6th Cir. 2004). The parties stipulate that Kentucky law applies. There is a reasonable basis for this stipulation, as the damage in this case occurred with a fire in Kentucky and there is a “provincial tendency in Kentucky choice-of-law rules.” Wallace Hardware Co., Inc. v. Abrams, 223 F.3d 382, 391 (6th Cir. 2000).

B. Economic Loss Rule in Kentucky

In Giddings & Lewis, Inc., the Supreme Court of Kentucky adopted the holding of the U.S. Supreme Court that “a manufacturer in a commercial relationship has no duty under either a negligence or strict products-liability theory to prevent a product from injuring itself.” Giddings & Lewis, Inc. v. Indus. Risk Insurers, 348 S.W.3d 729, 738 (Ky. 2011) (quoting East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 871, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986) (applying admiralty law)). Recognizing that, at the time, “virtually all states applied] the rule in some form,” id. at 736, the Kentucky court adopted the economic loss rule in the commercial context, thus preventing a “purchaser of a product from suing in tort to recover for economic losses arising from the malfunction of the product itself.” Id. at 733. It also concluded “that such damages must be recovered, if at all, pursuant to contract law.” Id.

Giddings & Lewis involved a large machine that consisted of a turning lathe, two machining assemblies, and a material handling system. Id. at 734. The machine had been custom made by Giddings & Lewis for the purchaser, Ingersoll Rand, which had provided detailed specifications. Id. The two parties negotiated a written contract that included an express warranty. Id. Seven years after the system was installed and after the warranty had expired, part of the lathe flew off the machine and caused approximately $2,800,000 in damage to the machine. Id. The insurers of Ingersoll Rand brought tort claims against Giddings & Lewis arguing, as pertinent here, that: 1) Kentucky should not adopt the economic loss rule and 2) if it did, a “calamitous event” exception should be recognized. Id. at 735.

Giddings & Lewis traced the history of the economic loss rule in Kentucky beginning with application of the doctrine in a commercial transaction context by the Kentucky Court of Appeals in Falcon Coal Co. v. Clark Equipment Co., 802 S.W.2d 947 (Ky. App. 1990). The Kentucky Supreme Court declined to review that case but expressed skepticism about the doctrine a few years latér by noting in dicta that the Falcon Coal holding was too broad. Real Estate Marketing, Inc. v. Franz, 885 S.W.2d 921, 926 (Ky. 1994) (saying “[w]e do not go so far as the Court of Appeals ... in Falcon Coal, ... limiting recovery under a products liability theory to damage or destruction of property ‘other’ than the product itself.”). The Sixth Circuit interpreted the dicta in Franz as “probably answering] in the negative the question of whether the economic loss doctrine applies to consumer purchases in Kentucky.” Mt. Lebanon Personal Care Home, Inc. v. Hoover Universal, Inc., 276 F.3d 845, 848-49 (6th Cir. 2002).

Giddings & Lewis acknowledged that the dicta in Franz was “not altogether clear” and suggested either that: 1) there is an exception to the dobtrine for damaging events, or 2) Kentucky would not apply the doctrine to consumer transactions. 348 S.W.3d at 737. The court overruled Franz “[t]o the extent Franz's alluded-to limitation of Falcon Coal can be read to suggest that a commercial purchaser can recover economic losses under a strict liability theory if a destructive event damages the product itself.” Id. at 741. The second possible interpretation — that the economic loss doctrine did not apply to consumer transactions — was not directly addressed by the court. Instead, the court observed in a footnote:

The case sub judice does not require us to consider the effect of the economic loss rule on consumer transactions but, notably, the Restatement (Third) of Torts: Products Liability makes no distinction between products produced for commercial customers and those produced for consumers. See Restatement (Third) of Tort § 19(a) (1998) defining ‘product’ in relevant part as ‘tangible personal property distributed commercially for use or consumption.’

Id. at 737 n.5.

Holding that the economic loss rule applies in the commercial context, the Kentucky Supreme Court then undertook a discussion of the “principles underlying” the rule and its application to the facts presented. Id. at 738.

1. Policies Underlying the Economic Loss Rule

Giddings & Lewis listed the policies supporting the economic loss rule as: 1) maintaining the distinction between tort and contract law; 2) protecting the freedom to contractually allocate economic risk; and 3) encouraging the party best situated to assess the risk of economic loss to insure against that risk. Id. at 739 (quoting Mt. Lebanon Personal Care Home, Inc. v. Hoover Universal, Inc., 276 F.3d 845, 848 (6th Cir. 2002)). We therefore use those policies as the framework for analyzing Norcold’s argument that Kentucky’s economic loss rule extends or should extend to consumer transactions.

a) Preserving the Line Between Tort and Contract Law

The first policy — preserving the line between tort and contract law — can apply in both commercial and consumer settings. Kentucky law, however, has drawn the distinction between tort and contract differently depending on whether a transaction is in a commercial or consumer context. See, e.g., Ky. Rev. Stat. § 367.120 et seq. (Kentucky Consumer Protection Act); Ky. Rev. Stat. § 355.2-102 (exempting statutes regulating sales to consumers from modification by Article II of the UCC).

b) Ability to Allocate Risk via Contract

The second policy — protecting freedom to allocate risk by contract — has different implications in the contexts of commercial and consumer transactions. Parties engaging in commercial transactions are generally sophisticated and have relatively equal bargaining power. Barkley Clark & Christopher Smith, Law of Product Warranties § 1:12 (rev. ed. 2016). Such parties engage in active negotiations that permit meaningful allocation of risk. Consumers, on the other hand, are usually less sophisticated — one cannot specialize in every product one purchases — and bargain with unequal power when negotiations actually do occur. Consumers frequently face adhesion contracts that render the purchase of products a take-it-or-leave-it proposition. In many cases, moreover, consumers are unaware of the risks inherent in a product, let alone the opportunity to allocate that risk by contract.

Manufacturers and sellers select warranty terms, but consumers have little or no opportunity to engage in negotiations over those warranty terms and consumers often have few meaningful alternatives for other products or different contracts. Though some producers provide warranties to instill confidence in particular products and as a selling point over competitors, many producers disclaim all warranties in the fine print of contracts that consumers never read. And while there may be information provided concerning certain risks when a warranty is marketed, those risks otherwise remain unidentified. That dynamic creates its own information asymmetry as producers may strategically select when to make risk information available or understandable to consumers and when to bury it in fine-print adhesion contracts. In the many situations where there is no back-and-forth between the parties, it is difficult to allocate risk in accordance with parties’ preferences. Albert Choi & George Triantis, The Effect of Bargaining Power on Contract Design, 98 Va. L. Rev. 1665, 1701 (2012).

Giddings & Lewis dealt with a more typically commercial transaction that involved active negotiation and a written contract between the parties. 348 S.W.3d at 734. In this case, the consumer had no interactions or contract with the producer. (R. 11, PageID 62) Although contractual privity is not always a requirement of the economic loss doctrine, Mt. Lebanon Personal Care, 276 F.3d at 852, this case exemplifies common features of consumer transactions — the unequal positions of the parties and the lack of opportunity to negotiate. These inherent distinctions support treating consumer transactions differently than commercial transactions. In cases like this where consumers have no contact with the producer, let alone negotiations or a written contract, Norcold’s argument that the freedom to contract will be infringed absent application of an economic loss rule is simply misplaced.

c) Encouraging Best-Situated Party to Insure Against Risk of Loss

The third policy — encouraging the party best situated to assess risk of economic loss to insure against it — also differs between the commercial and consumer contexts. In commercial transactions, purchasers are typically sophisticated parties that are well informed about both the product and its intended use. In that context, the purchaser is usually well situated to assess the risk of economic loss because it knows how it will be using the product and what it expects of the product. Perhaps this is why the Supreme Court of Kentucky described the party best situated to assess the risk of economic loss as “usually the purchaser” when discussing a commercial transaction in Giddings & Lewis. 348 S.W.3d at 739 (quoting Mt. Lebanon, 276 F.3d at 848). Not only can commercial purchasers make an informed decision about how to properly insure the product, they usually have adequate insurance options available. In the consumer context, however, there is often a large information and capacity asymmetry between the seller who specializes in the field and the purchasing consumer who is necessarily a generalist. Although the consumer may best know what she wants to do with the product, the seller usually has substantially better information about what to expect of the product’s performance and what consequences might flow from that performance. Consumers are unlikely to understand the risks inherent in the product’s use and even if they did, they may not have insurance options available to insure against that risk. In this context, the producer is probably in the better position to select proper liability insurance.

2. Other Indications from the Supreme Court of Kentucky

Despite the cases referenced and the policy arguments explicated above, Nor-cold argues that the Supreme Court of Kentucky would extend the economic loss rule to consumer transactions. First, it notes that footnote five in the Giddings & Lewis opinion directs the reader to the relevant section of the Restatement (Third) of Torts that does not distinguish between commercial and consumer transactions. Id. at 737 n.5. Though this dicta explicitly declines to rule on the matter, Nor cold argues it indicates that the court might treat the two contexts similarly. It also argues that Kentucky would extend the economic loss rule to consumer transactions because that it is the majority position among the states. See Frumer & Friedman, Products Liability § 13.07(4) (rev. ed. 2015) (listing fifteen states that apply the doctrine to consumer transactions and two states that explicitly do not). Norcold relies on the fact that the Supreme Court of Kentucky previously looked at sister courts to determine the appropriate scope of the economic loss rule. Giddings & Lewis, 348 S.W.3d at 739 (noting “a majority of our sister courts do not recognize the [calamitous event] exception,” but also disclaiming that “[o]ur position is not a matter of deference to the majority view or the nation’s highest court but rather a matter of logic”).

We draw a different conclusion. First, as explained above, two of the three policies espoused by the Supreme Court of Kentucky as underlying the economic loss rule justify treating commercial and consumer transactions differently. Kentucky’s highest court, moreover, has provided two signals supporting this conclusion. When the Supreme Court of Kentucky announced the economic loss rule in Giddings & Lewis, it could have used broad language that would encompass consumer transactions. The court chose not to do so. Instead, its opinion regularly described the rule as applying to a “commercial purchaser,” 348 S.W.3d at 733, to a “product sold in a commercial transaction,” id. to a “manufacturer in a commercial relationship,” id. at 738, and to “commercial transactions.” Id. Likewise, the court could have disagreed with the Sixth Circuit’s assessment that Kentucky case law justified not extending the rule to consumer transactions, but instead cited the Sixth Circuit opinion with general approval. See id. at 739.

A second indication that the Supreme Court of Kentucky would not extend the economic loss rule to consumer actions is its general skepticism of .the rule. The rule was not announced in Kentucky until 2011, twenty-five years after the foundational case on the matter from the U.S. Supreme Court. See id. at 733 (citing East River Steamship, 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986)). At that point, Kentucky was joining “virtually all states” in recognizing the doctrine. See id. at 736. In an area of law where the Kentucky courts are generally skeptical, we are wary of expanding the scope of the rule based on unclear dicta in a single footnote, particularly in light of Kentucky’s other jurisprudence on the issue.

We conclude that the Supreme Court of Kentucky would not extend the economic loss rule to consumer transactions.

C. Applicability of Doctrine to Recalls

State Farm claims that even if the economic loss rule applies to consumer transactions, Norcold can be held liable for post-sale negligence by failing to conduct an effective recall. In light of our holding that the economic loss rule does not apply to consumer transactions, we do not decide whether the rule applies to recalls and claims for post-sale negligence.

D. Motion to Certify Questions to the Supreme Court of Kentucky

Norcold has moved to certify two questions to the Supreme Court of Kentucky: 1) whether the economic loss rule applies to consumer transactions; and 2) whether the rule extends to claims arising from product recall programs. Because we perceive adequate indications that the Supreme Court of Kentucky would not extend the economic loss rule to consumer transactions, we find it unnecessary to certify the questions.

CONCLUSION

Based on the jurisprudence on this issue in Kentucky and because the policies underlying the economic loss rule justify treating commercial and consumer transactions differently, we hold that the economic loss rule does not extend to consumer transactions. We therefore affirm the judgment of the district court. Norcold’s motion to certify questions to the Supreme Court of Kentucky is denied.

DISSENT

RONALD LEE GILMAN, Circuit Judge,

dissenting.

Unlike my panel colleagues, I believe that the Kentucky Supreme Court is more likely than not to extend the' economic-loss rule to consumer transactions. I draw this conclusion based on footnote five in Giddings & Lewis, the policy considerations behind the económic-loss rule, the opinions rendered by the overwhelming majority of other state courts that have ruled on the issue, and the facts of the case before us. At the very least, this case cries out for certification of the issue to the Kentucky Supreme Court. I would therefore reverse the judgment of the district court and grant Norcold’s motion to certify. Accordingly, I respectfully dissent.

I would first observe that the majority opinion presupposes its own conclusion by stating that “the status quo in Kentucky is that the economic loss rule does not extend to consumer transactions.” (Maj. Op. 332-33 n.1) To the contrary, the rule’s application to consumer transactions is very much up in the air, which is precisely why we have been tasked with making an “Erie prediction” in this case. And the best evidence before us concerning what the Kentucky Supreme Court would likely do about the issue before us is found in footnote five of Giddings & Lewis, Inc. v. Industrial Risk Insurers, 348 S.W.3d 729 (Ky. 2011). Without deciding the question, the Kentucky Supreme Court in that footnote dropped a conspicuous hint as to which direction it would lean: “notably,” the Court wrote, “the Restatement (Third) of Torts ... makes no distinction between products produced for commercial consumers and those produced for consumers.” Id. at 737 n.5. A natural reading of the text of the footnote — which, although not binding, is nonetheless rather clear — strongly suggests that the Kentucky Supreme Court is amenable to applying the economic-loss rule to consumer transactions, and would probably do so if given the opportunity.

The majority opinion denigrates the persuasive force of footnote five by stating that “[w]hen the Supreme Court of Kentucky announced the economic loss rule in Giddings & Lewis, it could have used broad language that would encompass consumer transactions.” (Maj. Op. 335) To the contrary, the Kentucky Supreme Court is constrained to decide only those issues that are before it and could not rule on the question of the economic-loss rule’s application in the consumer context in Giddings & Lewis — a commercial-transaction case — because it is “prohibited from producing mere advisory opinions.” See Med. Vision Grp., P.S.C. v. Philpot, 261 S.W.3d 485, 491 (Ky. 2008).

That the Kentucky Supreme Court would go out of its way to say anything about the economic-loss rule in the consumer context in a decision concerning commercial transactions makes footnote five stronger, not weaker, evidence that the Court would extend the rule to the consumer context. This conclusion is further bolstered by the fact that as many as fifteen states have recognized the rule’s applicability to consumer transactions and only two explicitly have not — a trend that we have no reason to suppose the Kentucky Supreme Court would buck. See Frumer & Friedman, Products Liability § 13.07(4) (rev. ed. 2015).

Nor do the three policies identified in Giddings & Lewis as justifying the economic-loss rule support the distinction between commercial and consumer transactions as claimed by the majority. First, distinguishing between commercial and consumer transactions blurs the line between tort and contract, an outcome that flies in the face of the Kentucky Supreme Court’s admonition that the economic-loss rule is designed to “maintain[ ] the historical distinction between tort and contract law.” Giddings & Lewis, 348 S.W.3d at 739 (quoting Mt. Lebanon Pers. Care Home, Inc. v. Hoover Universal, Inc., 276 F.3d 845, 848 (6th Cir. 2002)). This point was aptly noted by the Wisconsin Supreme Court: “[W]hether a consumer or commercial plaintiff, if tort law were allowed to provide tort relief for purely economic loss, contract law would drown in a sea of tort.” State Farm Mut. Auto. Ins. Co. v. Ford Motor Co. (Wisconsin Ford Motor Case), 225 Wis.2d 305, 592 N.W.2d 201, 209-10 (1999). See also Clarys v. Ford Motor Co., 592 N.W.2d 573, 575 (N.D. 1999) (“The separate and distinct functions served by tort and contract law, upon which the economic loss doctrine is based, apply equally to consumer and business purchasers of defective products.”); State Farm Mut. Auto. Ins. Co. v. Ford Motor Co., 572 N.W.2d 321, 324-25 (Minn. 1997) (concluding that the economic-loss rule applies to consumer transactions and collecting cases from other jurisdictions). My panel colleagues concede that this particular policy goal is furthered by the economic-loss rule’s application to both types of transactions (Maj. Op. 332), but they fail to account for the deleterious effect their decision will have on maintaining the tort-contract distinction.

Second, I fail to see how not applying the economic-loss rule to consumer transactions furthers the rule’s goal of protecting “parties’ freedom to allocate economic risk by contract.” See Giddings & Lewis, 348 S.W.3d at 739 (quoting Mt. Lebanon, 276 F.3d at 848). My panel colleagues opine that ordinary consumers, whom they characterize as “less sophisticated” than commercial entities, “frequently face adhesion contracts that render the purchase of products a take-it-or-leave-it proposition. In many cases,” they contend, “consumers are unaware of the risks inherent in a product, let alone the opportunity to allocate that risk by contract.” (Maj. Op. 333)

But the experience of today’s consumer is at variance with this picture. Manufacturers and sellers regularly encourage extended warranties on durable products. Insurance is also available, as the case before us illustrates. And, as the Wisconsin Supreme Court has observed, permitting tort recovery for pure economic loss to a consumer would ensure that the consumer “would essentially receive full warranty protections against economic risk without ever having to negotiate or pay for such warranty.” Wisconsin Ford Motor Case, 592 N.W.2d at 211; see also Clarys, 592 N.W.2d at 576 (“Allowing a consumer exception to the economic loss doctrine would undermine warranty agreements that are part of any product sale.”). Such an outcome deprives the manufacturer or seller of the ability to allocate economic risk by contract — a result precisely the opposite of what the economic-loss rule sets out to achieve.

Third, the Kentucky Supreme Court has explained that the economic-loss rule is meant to “encourage! ] the party best situated to assess the risk of economic loss, usually the purchaser, to assume, allocate, or insure against that risk.” Giddings & Lewis, 348 S.W.3d at 739 (emphasis added) (quoting Mt. Lebanon, 276 F.3d at 848). The facts of this case illustrate the emphasized clause’s importance. The majority opinion asserts that ordinary consumers are too “generalist” (Maj. Op. 333-34) to be best situated to assess the risk of loss and insure' themselves accordingly. I respectfully disagree. Although ordinary consumers are often “generalists” in a broad sense, they are nonetheless specialists in their own needs and are fully capable of protecting their investments to the degree that they desire to do so.

This case is a perfect example. Larry Swerdloff, presumably an unsophisticated “generalist” consumer, bought the KV containing the defective refrigerator and — as my panel colleagues observe — “insured the RV through State Farm.” (Maj. Op. 330) The majority’s concern that consumers are unable to accurately assess the value of a product and the importance of insuring against the risk of the loss of its economic value is thus belied by the facts of the very case before us. See Wisconsin Ford Motor Case, 592 N.W.2d at 212 (“Because the consumer can allocate his or her economic risk by contract, the policy of protecting parties’ freedom to allocate risk through contract applies equally to consumers as to commercial parties.”).

I would offer the final observation that this case is not about an ordinary consumer and his ill-fated transaction. Swerdloff was paid $145,193.20 per his State Farm insurance policy for the loss of the RV. So what we have before us is the ease of a commercial insurance company suing a commercial manufacturer in tort for a pure economic loss. That fact alone places this case squarely within the three policy rationales justifying the application of the economic-loss rule. Giddings & Lewis, 348 S.W.3d at 739 (quoting Mt. Lebanon, 276 F.3d at 848).

The majority’s decision, in fact, has the effect of allowing State Farm to “have its cake and eat it too.” State Farm collected insurance premiums from Swerdloff for the risk it assumed and is now being allowed to “double dip” by getting reimbursed from Norcold after making good on Swerdloffs loss. Such an outcome is at odds with the policies behind the economic-loss rule.

In my opinion, the factors supporting the prediction that the Kentucky Supreme Court would extend the economic-loss rule to consumer transactions outweigh the factors against such a prediction. I would therefore reverse the judgment of the district court and grant Norcold’s motion to certify the two questions that it has proposed to the Kentucky Supreme Court.

      . The dissenting opinion warns of "contract law ... drownfing] in a sea of tort” if tort relief is available for purely economic losses. (Dissenting Op. 336) (quoting State Farm Mut. Auto. Ins. Co. v. Ford Motor Co., 225 Wis.2d 305, 592 N.W.2d 201, 209-10 (1999)). But the status quo in Kentucky is that the economic loss rule does not extend to consumer transactions. It is under this circumstance, which maintains both tort and contract areas of law, that insurers and purchasers have negotiated insurance contracts, including the one between Swerdloff and State Farm at issue in this case.

      . Manufacturers and third parties do sometimes offer for purchase extended warranties on durable consumer products, though such policies themselves are opaque or unavailable for review.

      . The dissenting opinion points out that Swerdloff was able to adequately insure his RV through State Farm. (Dissenting Op. 337) This is most likely a result of the circumstances in this case; the product in question— a refrigerator — was installed as a component part of a larger durable product — an RV — that was insured. Extending the economic loss rule to all consumer transactions sweeps up many circumstances involving everyday products and smaller durable products — including stand-alone refrigerators' — that are less likely to involve adequate insurance options for consumers.


author: COOK, Circuit Judge.

text:
    Scott Andrew WITZKE, Petitioner-Appellant, v. Shawn BREWER, Warden, Respondent-Appellee.
    No. 15-2437
    United States Court of Appeals, Sixth Circuit.
    Argued: February 2, 2017
    Decided and Filed: February 22, 2017

      ARGUED: Sam Scaritt-Selman, UNIVERSITY OF MICHIGAN LAW SCHOOL FEDERAL APPELLATE LITIGATION CLINIC, Ann Arbor, Michigan, for Appellant. Raina I. Korbakis, OFFICE OF THE MICHIGAN ATTORNEY GENERAL, Lansing, Michigan, for Appellee. ON BRIEF: Sam Scaritt-Selman, Melissa M. Salinas, UNIVERSITY' OF MICHI-GAN LAW SCHOOL FEDERAL APPELLATE LITIGATION CLINIC, Ann Arbor, Michigan, for Appellant. Raina I. Korbakis, OFFICE OF THE MICHIGAN ATTORNEY GENERAL, Lansing, Michi-gan, for Appellee.
    Before: GIBBONS, COOK, and KETHLEDGE, Circuit Judges.
   OPINION

COOK, Circuit Judge.

Petitioner Scott Witzke seeks habeas relief under 28 U.S.C. § 2254, asserting that a Michigan order revoking his parole violated his due process rights. The district court dismissed his petition for failure to exhaust state remedies, and a panel of this court later issued a certificate of appeala-bility on that issue. After Witzke appealed, however, the Michigan Parole Board released him on parole. Because there is no longer any remediable injury, we DISMISS the appeal as MOOT.

I.

Witzke is currently serving four sentences in the Michigan Department of Corrections (MDOC) for “uttering and publishing,” that is, using forged financial instruments. See Mich. Comp. Laws § 750.249. In May 2013, the Parole Board released Witzke on parole for a 15-month term. But a year later, authorities arrested him for eight alleged parole violations, including a new criminal conviction for using a fake check at a guitar store. Following his arrest, Witzke appeared before an MDOC agent, who found probable cause for all eight counts. Witzke pled guilty to two of them. At a second hearing in August 2014, another MDOC officer dismissed all remaining counts except the fraudulent check violation. Finding Witzke guilty of that violation, the officer recommended that the Parole Board revoke Witzke’s parole. In September, the Parole Board adopted the recommendation.

Without seeking relief in Michigan courts, Witzke filed a pro se habeas petition under 28 U.S.C. § 2254 in the Eastern District of Michigan, challenging the September 2014 parole revocation as a violation of his due process rights and requesting a new hearing before the Parole Board. He claimed entitlement to “relief ... [due to] the failure of the Michigan Parole Board to provide [him] with an in-person hearing before the decision maker on the question of whether parole should be revoked.” The district court summarily dismissed his petition without prejudice for failure to exhaust state remedies.

Following the district court’s decision, Witzke filed a motion for a certificate of appealability in this court. In May 2016, the court granted his motion, concluding that reasonable jurists could disagree on whether Witzke must exhaust state remedies, citing the limited availability of habeas relief in Michigan. Witzke v. Brewer, No. 15-2437 (6th Cir. May 10, 2016) (order). Around this time, however, the Parole Board re-released Witzke on parole. He will finish serving his sentence for his underlying criminal conviction in May 2017.

II.

The State argues that Witzke’s re-release on parole deprives this court of jurisdiction over his appeal challenging the 2014 parole revocation. We agree.

Federal courts may review only actual cases or controversies, U.S. Const. art. III, § 2, cl. 1, and thus “have no power to adjudicate disputes which are moot,” McPherson v. Mich. High Sch. Athletic Ass’n, Inc., 119 F.3d 453, 458 (6th Cir. 1997) (en banc) (quoting Crane v. Ind. High Sch. Athletic Ass’n, 975 F.2d 1315, 1318 (7th Cir. 1992)). “[A]n actual controversy must be extant at all stages of review, not merely at the time the complaint is filed.” Arizonans for Official English v. Arizona, 520 U.S. 43, 67, 117 S.Ct. 1055, 137 L.Ed.2d 170 (1997) (quoting Preiser v. Newkirk, 422 U.S. 395, 401, 95 S.Ct. 2330, 45 L.Ed.2d 272 (1975)). Accordingly, if a case becomes moot during an appeal, the reviewing court must dismiss it. Rosales-Garcia v. Holland, 322 F.3d 386, 394 (6th Cir. 2003) (en banc).

In Spencer v. Kemna, 523 U.S. 1, 118 S.Ct. 978, 140 L.Ed.2d 43 (1998), the Supreme Court addressed mootness in the context of a habeas petition challenging a parole-revocation proceeding. Id. at 3, 118 S.Ct. 978. In that case, petitioner Spencer asserted a due process challenge to a Missouri order revoking his parole. Id. at 5, 118 S.Ct. 978. But before the district court ruled on the petition, Spencer “was re-released on parole, and, two months after that ... the term of his imprisonment expired.” Id. at 6, 118 S.Ct. 978. The Court concluded that these developments mooted his habeas petition. Id. at 18, 118 S.Ct. 978. As it explained, “[o]nce the convict’s sentence has expired ... some concrete and continuing injury other than the now-ended incarceration or parole — some ‘collateral consequence’ of the conviction — must exist if the suit is to be maintained.” Id. at 7, 118 S.Ct. 978 (citing Carafas v. LaVallee, 391 U.S. 234, 237-38, 88 S.Ct. 1556, 20 L.Ed.2d 554 (1968)). Although a court may presume such collateral consequences when a released petitioner contests his underlying criminal conviction, this presumption does not extend to parole-revocation challenges. Id. at 12-14, 118 S.Ct. 978. Accordingly, a petitioner who disputes a parole revocation, but has already completed his term of reincarceration, must demonstrate collateral consequences stemming from the revocation or else face dismissal of his claims. Id. at 14, 118 S.Ct. 978. Since Spencer failed to make this showing, the Court dismissed his case as moot. Id. at 14-18, 118 S.Ct. 978.

Witzke’s habeas petition, like Spencer’s, challenges his parole revocation on due process grounds and requests a new hearing before the Parole Board. But Witzke has already served the period of'reincar-ceration imposed upon the revocation. This reincarceration “cannot be undone.” Spencer, 523 U.S. at 8, 118 S.Ct. 978. And since he contests only his parole revocation (and not his underlying criminal conviction or current parole status), we cannot presume Witzke suffers other collateral consequences from the 2014 Parole Board decision. See id. at 12, 118 S.Ct. 978. In light of these facts, it appears that no continuing injury remains for this court to redress.

Witzke nevertheless makes two arguments in an attempt to salvage his petition. Both fail to persuade us.

'First, Witzke argues that SpenceF s collateral-consequences rule does not apply to him. He claims Spencer is distinguishable because the petitioner in that case served the entire term of his sentence and was no longer in custody; Witzke, on the other hand, will be a parolee until May 2017. Witzke reasons that, since parolees are still “in custody” as required to bring a § 2254 petition, see United States v. Williams, 15 F.3d 1356, 1359 (6th Cir. 1994), his challenge to the 2014 parole revocation remains a live controversy.

But satisfying § 2254’s “in custody” requirement does not necessarily establish a case or controversy when a petitioner seeks habeas relief. See Spencer, 523 U.S. at 7, 118 S.Ct. 978; Rosales-Garcia, 322 F.3d at 395 n.6. For Witzke, all that the “in custody” provision mandates is his incarceration by reason of the parole revocation at the time of filing his petition. See Spencer, 523 U.S. at 7, 118 S.Ct. 978 (citations omitted). Article Ill’s case or controversy clause demands something more: the continued existence of a remediable injury at all stages of review. See id.; Arizonans, 520 U.S. at 67, 117 S.Ct. 1055. Here, no one disputes that Witzke satisfies § 2254’s “in custody” condition. The relevant issue, rather, is whether Witzke suffers any harm from the allegedly unconstitutional parole-revocation hearing now that the Parole Board has already re-released him on parole. Since “[t]he reincarceration that he incurred as a result of that [revocation] is now over,” Spencer, 523 U.S. at 8, 118 S.Ct. 978 (emphasis added), Spencer’s collateral consequences rule still applies, his current custody status notwithstanding, id. at 14, 118 S.Ct. 978.

Second, Witzke contends that, even if Spencer does apply, he can show a collateral consequence to defeat mootness. As he posits, “[i]t is highly probable that the revocation of [his] parole could be used against him in a future parole proceeding.”

The Supreme Court, however, rejected a similar argument in Spencer. There, the petitioner asserted “that the [challenged] revocation could be used to his detriment in a future parole proceeding,” but the Court concluded this harm was too speculative — “a possibility rather than a certainty or even a probability” — to keep his controversy alive. 523 U.S. at 14, 118 S.Ct. 978. Witzke attempts to distinguish Spencer, claiming that the potential for his revocation to be used against him in a future parole proceeding is more concrete than it was in Spencer. Specifically, he argues that the discretion of the Michigan Parole Board is “more constrained” than that of the Missouri counterpart at issue in that case. He points to guidelines requiring the Michigan Parole Board to take into consideration prior criminal conduct, including parole failures, when deciding whether to release a prisoner. See Mich. Admin. Code R. 791.7716(3)(b). He reasons that the Michigan Parole Board’s limited discretion makes the potential future harm from his revocation more probable than Spencer’s asserted injury-in-fact.

Despite his attempts to distinguish Michigan’s and Missouri’s parole procedures, Witzke’s purported collateral consequence is still too speculative to satisfy Article Ill’s case or controversy requirement. Although Witzke suggests that the Michigan Parole Board’s decision-making process is “constrained,” the state’s parole guidelines direct the Board to evaluate many factors in addition to a past revocation when determining whether to modify a prisoner’s status. See Mich. Admin. Code R. 791.7716. His 2014 parole revocation would thus constitute “simply one factor, among many” that would be “considered by the [Parole Board] in determining whether there is a substantial risk that [he] will not conform to reasonable conditions of parole.” Spencer, 528 U.S. at 14, 118 S.Ct. 978 (quoting Lane v. Williams, 455 U.S. 624, 632 n.13, 102 S.Ct. 1322, 71 L.Ed.2d 508 (1982)). Moreover, Michigan’s guidelines afford the Board discretion to release a prisoner on parole who may not otherwise qualify. See Mich. Admin. Code R. 791.7716(5). The conjectural nature of Witzke’s alleged future harm means that “there is nothing for [this court] to remedy.” Spencer, 523 U.S. at 18, 118 S.Ct. 978.

III.

We DISMISS this appeal as MOOT.


author: MANION, Circuit Judge.

text:
    Brian ROAKE, Plaintiff-Appellant, v. FOREST PRESERVE DISTRICT OF COOK COUNTY, et al., Defendants-Appellees.
    No. 16-2976
    United States Court of Appeals, Seventh Circuit.
    Argued January 5, 2017
    Decided February 17, 2017

      Jonathan Lubin, Attorney, Evanston, IL, for Plaintiff-Appellant.
    Hubert 0. Thompson, Attorney, Brothers & Thompson, Chicago, IL, for Defendants-Appellees.
    Before WOOD, Chief Judge, and MANION and WILLIAMS, Circuit Judges.
   MANION, Circuit Judge.

Brian Roake, a former police officer for the Forest Preserve District of Cook County, was ostensibly disciplined for drinking alcohol at work. He responded with this lawsuit under 42 U.S.C. § 1983, alleging unlawful retaliation under the First Amendment. He also asserted a Fourteenth Amendment due process claim based on reputational harm. The district court dismissed Roake’s action under Rule 12(b)(6) for failure to state a plausible claim to relief. We affirm.

I. BACKGROUND

Plaintiff Brian Roake was a police officer for the Forest Preserve District of Cook County, Illinois. His troubles began on December 31, 2013, when he brought some champagne to a Forest Preserve police station to celebrate the New Year. Roake says that he was off duty at the time and that he got permission from a sergeant (who was present at the- celebration) to bring the champagne. Roake and others drank the champagne at the station.

In January 2014, the department initiated disciplinary proceedings against Roake for his participation in the New Year’s Eve gathering. When Roake was interviewed about the incident, the interviewing officer assured him that he would not lose his job but “might be suspended for one or two days at the most.” On February 7, 2014, the disciplinary proceedings culminated in what Roake calls a “pre-disciplinary/pre-termination hearing.” Roake alleges that the hearing officers “upheld the charges” against him, though he does not say what the charges were. At that point, Roake says he saw the “handwriting on the wall” and so resigned his job. He also states, with no supporting facts, that he “would have been terminated’’ if he had not resigned.

Roake claims that his employer used his involvement in the New Year’s Eve party as a mere pretext for disciplining him. The real reason he was disciplined, according to Roake, was because he had previously reported to his employer two instances of official misconduct within the police department. First, in October 2013, he reported that a fellow officer had engaged in racial profiling. Roake mentioned the matter again during his disciplinary proceedings in January 2014, when he complained that it wasn’t fair that he was being investigated while the officer who engaged in racial profiling was not.

Roake’s second report, made around February 6, 2014, involved a fellow officer whom Roake believed had been unjustly disciplined. Earlier that month, the officer had contacted Roake about a woman and children who were in the Forest Preserves after hours in below-freezing weather. Roake responded that the officers were “mandated reporters” to the Department of Children and Family Services (DCFS), so the officer called DCFS to report the situation. The officer was later written up in connection with the incident, and Roake complained to his employer that the writeup was unlawful.

After resigning in February 2014, Roake applied for jobs in other police departments. He alleges that officials of the Forest Preserve department told certain prospective employers that he had consumed alcohol while on duty and was not welcome to reapply there. Roake claims that this damaged his professional reputation and made it more difficult for him to find work.

In October 2015, Roake filed this § 1983 action against the Forest Preserve District of Cook County and several officers who were involved in the disciplinary proceedings against him. He claims that the defendants violated the First Amendment by disciplining him in retaliation for reporting police misconduct. He also claims that the defendants violated his Fourteenth Amendment due process rights by tarnishing his reputation among prospective employers. The district court concluded that Roake failed to state a plausible claim for relief and granted the defendants’ motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). Roake appeals.

II. DISCUSSION

We review the grant of a motion to dismiss de novo, construing all well-pleaded facts in the light most favorable to the nonmoving party. Huri v. Office of the Chief Judge of the Circuit Ct. of Cook Cty., 804 F.3d 826, 829 (7th Cir. 2015). To survive a motion to dismiss, the complaint must “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

A. First Amendment Retaliation Claim

To prevail on a First Amendment retaliation claim, a plaintiff must show that the government took an adverse action against him because he engaged in constitutionally protected speech. George v. Walker, 535 F.3d 535, 538 (7th Cir. 2008). A public employee’s speech is constitutionally protected only when he speaks “as a citizen” on matters of public concern. Garcetti v. Ceballos, 547 U.S. 410, 417, 126 S.Ct. 1951, 164 L.Ed.2d 689 (2006). A public employee does not speak “as a citizen” when he speaks “pursuant to [his] official duties.” Id. at 421, 126 S.Ct. 1951. Thus, public employees have no cause of action under the First Amendment when they are disciplined for speaking pursuant to their official duties, even if the speech is on a matter of public concern. Spiegla v. Hull, 481 F.3d 961, 965 (7th Cir. 2007) (“Garcetti made clear that public employees speaking ‘pursuant to their official duties’ are speaking as employees, not citizens, and thus are not protected by the First Amendment regardless of the content of their speech.”). The “determination of whether speech is constitutionally protected is a question of law.” Kubiak v. City of Chic., 810 F.3d 476, 481 (7th Cir. 2016).

Roake alleges that the defendants retaliated against him for complaining about racial profiling and unlawful disciplinary action within the police force. But Roake has not plausibly alleged that he made these complaints as a citizen rather than as a public employee speaking pursuant to his official duties. On the contrary, Roake shared the complaints only with his employer, and the complaints focused exclusively on official misconduct by his fellow officers. As we have previously recognized, a police officer’s duty to report official police misconduct is a basic part of the job. See, e.g., id. at 481-82 (rejecting an “overly narrow” description of police job duties, and concluding that officer’s reports of police misconduct were closely connected with the broad professional duty to protect the public from harm); Vose v. Kliment, 506 F.3d 565, 571 (7th Cir. 2007) (police officer was “merely doing his job,” and thus not engaged in protected speech, when he reported suspected misconduct by his fellow officers); see also Houskins v. Sheahan, 549 F.3d 480, 491 (7th Cir. 2008) (public employee’s “internal complaint” about official misconduct was “an obvious form of speech made pursuant to official duties under the Garcetti standard”); Spiegla, 481 F.3d at 967 (no protected speech where correctional officer internally reported official misconduct but “did not make a public statement, discuss politics with a coworker, write a letter to newspapers or legislators, or otherwise speak as a citizen”). Cf. Kristofek v. Vill. of Orland Hills, 832 F.3d 785 (7th Cir. 2016) (finding protected speech where part-time officer reported official misconduct both to his fellow officers and to an outside agency, and where the reported misconduct extended beyond the police department and included higher-level political corruption in the mayor’s office).

As a police officer, Roake had a duty to protect the public from harm, including harm resulting from illegal activity by law enforcement. So when Roake internally reported that his fellow officers were abusing the public trust by acting illegally on the job, he was speaking as a public employee pursuant to his official responsibilities, and not “as a citizen contributing to the civic discourse.” Spiegla, 481 F.3d at 967 (internal marks omitted). Consequently, even assuming Roake was disciplined in retaliation for his speech, he has failed to state a plausible claim under the First Amendment because he has not shown that his speech was constitutionally protected. The district court properly dismissed Roake’s First Amendment retaliation claim under Rule 12(b)(6).

B. Fourteenth Amendment Due Process Claim

To prevail on a procedural due process claim under the Fourteenth Amendment, a plaintiff must show that the government “ ‘deprived him of a constitutionally protected liberty or property interest without due process of law.’ ” Hinkle v. White, 793 F.3d 764, 767 (7th Cir. 2015). Mere injury to reputation, even if it seriously impairs one’s future employment prospects, is not a constitutionally protected liberty or property interest under the due process clause. Id.; Willan v. Columbia Cty., 280 F.3d 1160, 1163 (7th Cir. 2002). Instead, to state a due process claim based on reputational harm, a plaintiff must show that the government distinctly altered his legal status in addition to tarnishing his good name. Hinkle, 793 F.3d at 768; Santana v. Cook Cty. Bd. of Review, 679 F.3d 614, 621 (7th Cir. 2012) (explaining that defamatory statements are actionable under the Fourteenth Amendment only if they “ ‘alter or extinguish a right or status previously recognized by state law'"). Hence, we conduct a “ ‘stigma-plus’ analysis to determine whether there was an ‘injury to reputation along with a change in legal status.’ ” Hinkle, 793 F.3d at 768.

Roake alleges that the defendants sullied his reputation among prospective employers by reporting that he drank on the job and was not eligible for rehire. In addition to alleging injury to his reputation, however, Roake has not plausibly alleged that the defendants did anything to alter his legal status. Roake counters that the defendants did change his legal status by effectively removing him from the police force. Specifically, he argues that he was constructively terminated when certain “charges” were upheld at his disciplinary hearing in February 2014.

Roake’s pleadings do not support this argument. Roake plainly states that he resigned his position, and he alleges- no facts suggesting that the defendants constructively terminated his employment or otherwise changed his legal rights or status in any way. See Lifton v. Bd. of Educ. of City of Chic., 416 F.3d 571, 578 (7th Cir. 2005) (explaining that constructive discharge for due process purposes is “limited to egregious cases” and “occurs when an employee resigns because working conditions are so intolerable that a reasonable employee would feel compelled to quit”); see also Witte v. Wis. Dep’t of Corr., 434 F.3d 1031, 1035-36 (7th Cir. 2006), partially overruled on other grounds by Hill v. Tangherlini, 724 F.3d 965 (7th Cir. 2013) (“Working conditions for constructive discharge must be even more egregious than those that would support a finding of a hostile work environment.”).

In short, even assuming the defendants spoke about Roake in a way that impaired his future employment prospects, Roake has not plausibly alleged a due process violation because he has not shown that he was deprived of a liberty or property interest requiring the protections of due process. The district court properly dismissed Roake’s Fourteenth Amendment due process claim under Rule 12(b)(6).

III. CONCLUSION

Roake failed to state a plausible claim to relief under the First and Fourteenth Amendments. He did not show that he was disciplined for engaging in constitutionally protected speech, or that he was deprived of a constitutionally protected liberty or property interest without due process. The district court properly dismissed Roake’s action, and we AFFIRM.

      . This is consistent with Roake’s allegation that the other employees involved in the New Year's celebration generally received only a written reprimand or a one-day suspension. Only one employee — apparently the sergeant who gave Roake permission to bring the alcohol — was terminated.

      . Roake alternately alleges that the officer was disciplined for reporting to DCFS and “for contacting Roake.”

      . Roake also brought a state-law claim under the Illinois Whistle-blower Act, but that claim is not before us on appeal.

      . Roake’s conclusory and hypothetical assertion that he "would have been terminated” had he not resigned is pure conjecture; it is not a well-pleaded factual allegation entitled to a presumption of truth on a motion to dismiss. See Iqbal, 556 U.S. at 680-81, 129 S.Ct. 1937; McCauley v. City of Chic., 671 F.3d 611, 616 (7th Cir. 2011).