author: GREGG COSTA, Circuit Judge:

text:
    Monica REYES, as next friend of E.M., Plaintiffs-Appellants v. MANOR INDEPENDENT SCHOOL DISTRICT, Defendant-Appellee
    No. 16-50542
    United States Court of Appeals, Fifth Circuit.
    FILED March 7, 2017

      Yvonnilda Garza Muniz, Attorney, Austin, TX, for Plaintiffs-Appellants.
    Todd Aaron Clark, Bridget Ranee Robinson, Attorney, Walsh Gallegos Trevino Russo & Kyle, P.C., Austin, TX, for Defendant-Appellee.
    Before DAVIS, CLEMENT, and ' COSTA, Circuit Judges.
   GREGG COSTA, Circuit Judge:

The mother of E.M. brought this suit alleging that the Manor Independent School District violated E.M.’s rights under the Individuals with Disabilities Education Improvement Act (IDEA) and section 504 of the Rehabilitation Act. 20 U.S.C. §§ 1400 et seq.; 29 U.S.C. § 794. The district court held that the majority of E.M.’s IDEA claims are barred by the one-year statute of limitations period and that E.M. failed to administratively exhaust his Rehabilitation Act 504 claims. We agree and therefore AFFIRM.

I.

The IDEA was enacted to ensure that children with disabilities receive a “free appropriate public education that 'emphasizes special education and related services designed to meet their unique needs.” 20 U.S.C. § 1400(d)(1)(A). To that end, a child’s education “must be tailored to each disabled child’s needs through an ‘individualized education program’.” El Paso Indep. Sch. Dist. v. Richard R., 567 F.Supp.2d 918, 925 (W.D. Tex. 2008). Parents are given the authority to enforce their child’s IDEA rights, but that authority transfers to the child when he turns 18. Tex. Educ. Code. § 29.017(a); 34 C.F.R. § 300.520(a)(1)(h).

Although a child’s rights flow from the federal statute, states are given authority to set up the enforcement procedures for achieving the IDEA’S goals. 20 U.S.C. § 1415(a). That includes the ability to set the statute of limitations for IDEA claims. Id. § 1415(b)(6)(B). In Texas, a child’s parent — or the child if he is over 18 — may initiate a due process hearing if the parent believes the child’s rights under the IDEA are being violated. 19 Tex. Admin. Code § 89.1151(a). That hearing must be brought within one year of the event that serves as the basis for the complaint. Id. § 89.1151(c). That time limit may be tolled if the parent can show that the delay was caused by: “(1) specific misrepresentations by the public education agency that it had resolved the problem forming the basis of the due process complaint; or (2) the public education agency’s withholding of information from the parent that was required by [federal regulations] to be provided to the parent.” Id. § 89.1151(d).

II.

E.M. was a student at Manor Independent School District, which he started attending about a week before he turned 18 on August 18, 2010. E.M. has severe intellectual disabilities and autism, with psychiatric evaluations placing his developmental age at around three years old. This made him eligible for special education under federal law, 20 U.S.C. §§ 1400 et seq., and he was placed in a special education program in the District.

While attending school in the District, E.M. was aggressive towards staff and harmed himself. In response, the District repeatedly met with E.M.’s parents to collaborate on ways to help E.M. improve. Following the last of these meetings in May 2012, however, E.M.’s parents notified the District that E.M. would be transferring to a specialized school for severely impaired students.

In February 2013, E.M.’s mother requested a due process hearing. See 20 U.S.C. § 1415(b)(6). The District challenged her authority to bring the due process complaint, pointing out that she did not have the capacity to file suit on behalf of her son who-had turned 18 in 2010. As with other legal claims, rights under the IDEA must be asserted by the individual possessing those rights once the person has reached the age of majority unless another party has been appointed to legally assert those rights. Tex. Educ. Code. § 29.017(a); 20 U.S.C. § 1415(m)(2). E.M.’s parents corrected this defect by April 2013, when they obtained a state court order finding E.M. incompetent and appointing them to be his guardian.

That allowed the hearing to proceed. The administrative complaint alleged a number of IDEA violations against the District, including physical abuse by the staff and failure to provide E.M. with appropriate education services. Although that complaint initially included claims under section 504 of the Rehabilitation Act, the prehearing request for relief did not mention those claims. 29 U.S.C. § 794. In her decision, the Special Education hearing officer thus did not discuss the Rehabilitation Act claims. As to the IDEA claims, the hearing officer found that most of them were barred by the one-year statute of limitations for seeking due process hearings. 19 Tex. Admin. Code § 89.1151(c). But in a ruling favorable to E.M., she considered the operative date of the hearing request to be the February 2013 date on which his mother filed the complaint even though she was not appointed as his guardian until two months later. Even with that determination allowing the claim to reach back to February 2012, the complaint covered only three months when E.M. was a student at the District. Limiting her review to that time period, the hearing officer found that the District did not violate E.M.’s IDEA rights.

E.M.’s mother then filed this suit on his behalf. The complaint alleges • a number of procedural and substantive causes of action under the IDEA and Rehabilitation Act. 20 U.S.C. § 1415(i)(2). The District filed a motion for judgment on the administrative record, which the district court granted. E.M. appeals, arguing: 1) that the district court erred in holding that the majority of his claims were barred by the statute of limitations, and 2) that the district court erred in holding that his Rehabilitation Act claims were not exhausted. We review de novo these questions of law. S.H. ex rel. A.H. v. Plano Indep. Sch. Dist., 487 Fed.Appx. 850, 862 (5th Cir. 2012); Atkins v. Kempthorne, 353 Fed.Appx. 934, 936 (5th Cir. 2009).

III.

In arguing that the hearing officer should have considered allegations reaching back further in time, E.M. cites the following provision in the IDEA:

If, under State law, a child with a disability who has reached the age of majority under State law, who has not been determined to be incompetent, but who is determined not to have the ability to provide informed consent with respect to the educational program of the child, the State shall establish procedures for appointing the parent of the child, or if the parent is not available, another appropriate individual, to represent the educational interests of the child throughout the period of eligibility of the child under this subchapter.

20 U.S.C. § 1415(m)(2); 34 C.F.R. § 300.520(b).

For a number of reasons, this statute does not help E.M. avoid the hearing officer’s limitations ruling. First, although the federal statute requires states to set up this procedure, Texas has not done so. Whatever recourse exists to have Texas comply with the federal obligation, there is no authority allowing E.M. the benefit of this statute when there was no procedural mechanism through which he could seek a determination that he did not “have the ability to provide informed consent with respect to the educational program.” 20 U.S.C. § 1415(m)(2). Second, the failure of Texas to establish this procedure did not prevent E.M.’s parent from earlier obtaining a determination of incompetency from Texas courts, which, as their subsequent efforts showed, would have allowed them to seek an IDEA due process hearing on his behalf. Indeed, section 1415(m)(2) seems aimed at persons who are not incompetent but possess a lesser degree of diminished capacity that still prevents them from' providing informed consent with respect to their education. Id. For those like E.M. who are incompetent, states have longstanding procedures for appointing guardians. Third, the hearing officer essentially excused the mother’s lack of capacity to request a due process hearing as of the time of filing by using that filing date as the operative date once she later was appointed E.M.’s guardian. So the mother’s lack of capacity, the problem section 1415(m)(2) seeks to address, did not prejudice E.M.

In another attempt to have his claim reach further back in time, E.M. urges us to apply a Texas provision that tolls the limitations period for filing a lawsuit when a person is “of unsound mind.” Tex. Civ. Prac. & Rem. Code § 16.001(a)-(b). But the district court was correct in holding that we cannot borrow a limitations provision from a different state statute when the legislature of Texas set up a specific limitations scheme for IDEA due process hearings. 19 Tex. Admin. Code § 89.1151; RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639, 132 S.Ct. 2065, 2071, 182 L.Ed.2d 967 (2012) (“It is a commonplace of statutory construction that the specific governs the general.”) (alteration omitted). Indeed, the IDEA allows a state to alter the limitations period governing the federal claim only when the state delineates an “explicit time limitation for presenting such a complaint.” 20 U.S.C. § 1415(b)(6)(B) (emphasis added). And the IDEA subjects any state limitations period to the two federal tolling provisions involving the school making misrepresentations or withholding information. Id. § 1415(f)(3)(D). There is nothing in the IDEA that incorporates general state tolling provisions like section 16.001(a).

Even if the IDEA did allow recourse to the general state tolling provision for persons suffering from legal disabilities, it does not appear to apply to a case like this one brought by a legal representative of the disabled person. The state statute tolls the limitations period during an earlier period of disability in a suit brought by the formerly disabled person once that legal incapacity has been removed (a minor who has reached majority status or a formerly incompetent person who was been rendered competent). Ruiz v. Conoco, Inc., 868 S.W.2d 752, 755 (Tex. 1993) (citing Johnson v. McLean, 630 S.W.2d 790, 793 (Tex. App. — Houston [1st. Dist. 1982], no writ)). We have found no cases allowing this provision to toll the limitations period in suits brought by legal representatives for whom the disability is not a bar to bringing suit.

The district court was therefore correct in holding that most of the IDEA claims fell outside the one-year window. And E.M. does not appeal the district court’s determination that the allegations that are timely fail to establish IDEA violations.

IV.

É.M. asserts that the district court erred in holding that his Rehabilitation Act claims were not exhausted. The IDEA requires administrative exhaustion not just of claims arising under it, but also of Rehabilitation Act claims that overlap with the IDEA. See 20 U.S.C. § 1415(0- In the district court, E.M. argued only that he exhausted his administrative claims under the Rehabilitation Act by pleading those claims before the hearing officer. Exhaustion requires more than pleading a claim, however; it requires “findings and decision” by the administrative body. See 20 U.S.C. § 1415(g). The district court was correct in holding that E.M. failed to exhaust his Rehabilitation Act claims by only pleading those claims, because he did not address them in his prehearing request for relief or otherwise obtain any decision on them from the hearing officer.

For the first time on appeal, E.M. contends that exhaustion of his Rehabilitation Act claims would have been futile. That is because, he alleges, they are derived from events outside of the limitations period for his IDEA claims and would not have been considered by the hearing officer. It is true that administrative exhaustion generally is not required if bringing those claims would be futile. Honig v. Doe, 484 U.S. 305, 327, 108 S.Ct. 592, 98 L.Ed.2d 686 (1988); Gardner v. Sch. Bd. Caddo Par., 958 F.2d 108, 111-12 (5th Cir. 1992). But even if exhausting the Rehabilitation Act claims would have been futile because of the limitations issue, E.M. did not make this argument in the district court. We do not consider issues brought for the first time on appeal. Yohey v. Collins, 985 F.2d 222, 225 (5th Cir. 1993).

E.M. also argues for the first time in his reply brief that administrative exhaustion is not required for at least some of his Rehabilitation Act claims because they do not mirror his IDEA claims. In the district court, E.M. did not dispute that his claims under both statutes had to be exhausted. E.M. also did not make this argument in his initial brief before this court. For both of these reasons, the issue has been forfeited. United States v. Prince, 868 F.2d 1379, 1386 (5th Cir. 1989).

In any event, E.M.’s Rehabilitation Act claims overlap with his IDEA claims. Both challenge the way the District supervised E.M. and reacted to his violent outbreaks, and both claims assert that the District’s practices “hinder[ed] honest consideration of [E.M.’s] unique and individualized needs.” The Supreme Court recently addressed how to determine whether claims under other statutes like the Rehabilitation Act that provide protection to those with disabilities overlap with, and are thus covered by, the IDEA’S exhaustion requirement. See Fry v. Napoleon Cmty. Sch., No. 15-497, 580 U.S. -, 137 S.Ct. 743, 197 L.Ed.2d 46, 2017 WL 685533 (Feb. 22, 2017). We ask two questions. First, could the plaintiff have brought the same claim if the alleged conduct had occurred at a public facility that was not a school? Second, could a non-student at the school have brought the same claim? Id. at -, 137 S.Ct. 743, 197 L.Ed.2d 46, 2017 WL 685533 at *12. If the answers to both questions are no, the Rehabilitation Act claims overlap with the IDEA claims and must be administratively exhausted. That is the case here, as all of E.M.’s claims are directly related to the education he received while attending the District’s school.

The judgment is AFFIRMED.

      . E.M. also references Texas Estates Code section 22.016, which defines "incapacitated person” under the Estates Code. Despite E.M.’s assertion to the contrary, that section does not "toll all statute of limitations for an incapacitated person,” or mention statute of limitations at all. Even if section 22.016 did toll all statute of limitations for an incapacitated person under the Estates Code, we still could not borrow another statute’s limitation period when Texas has set up a different limitations scheme for IDEA claims.

      . The history of the IDEA’S limitation provision reinforces this view. Before the limitations provision of section 1415(b)(6)(B) was added, the IDEA was silent as to limitations so courts borrowed from the most analogous state claim. See, e.g., Verginia McC ex rel. Mr. & Mrs. McC v. Corrigan-Camden Indep. Sch. Dist., 909 F.Supp. 1023, 1033 (E.D. Tex. 1995). By amending the statute to add a limitations period of two years unless the state "explicit[ly]” provides otherwise, the statute incorporates state law in a limited manner. 20 U.S.C. § 1415(b)(6)(B).


source: Caselaw Access Project

author: EDITH H. JONES, Circuit Judge:

license: Public Domain

text:
    BAYLOR COUNTY HOSPITAL DISTRICT, doing business as Seymour Hospital, Plaintiff-Appellant v. Thomas PRICE, Secretary, U.S. Department of Health and Human Services, Defendant-Appellee
    No. 16-10310
    United States Court of Appeals, Fifth Circuit.
    FILED March 7, 2017

      Britton Dale McClung, Joshua L. Hed-rick, Hedrick Kring, P.L.L.C., Dallas, TX, for Plaintiff-Appellant.
    Brian Walters Stoltz, Dallas, TX, Ann Elizabeth Cruce-Haag, Assistant U.S. Attorney, Lubbock, TX, U.S. Attorney’s Office, Northern District of Texas, for Defendants-Appellees.
    Before JONES, BARKSDALE, and COSTA, Circuit Judges.
   EDITH H. JONES, Circuit Judge:

In 1997, Congress created a favorable Medicare reimbursement schedule for rural facilities designated as “critical access hospitals.” 42 U.S.C. §§ 1395i-4, 1395f. A critical access hospital is defined in part by the type of roads that connect the facility to the next nearest hospital. Congress used the term “secondary roads” in the definition, but it neither defined that term nor contrasted it with “primary roads.” To fill that gap, an agency within the Department of Health and Human Services (DHHS) issued a manual that defines “primary roads” as, inter alia, numbered federal highways and defines “secondary roads” as non-primary roads. Appellant Baylor County Hospital District d/b/a Seymour Hospital (Seymour), located in Seymour, Texas, challenges DHHS’s decision, founded on the manual, that it is not a critical access hospital. The district court, in a thorough and thoughtful opinion, granted DHHS’s motion for summary judgment. We accord Skidmore deference, find nothing arbitrary or capricious in the agency’s decisionmaking, and AFFIRM.

I.BACKGROUND

For 20 years, the Medicare Rural Hospital Flexibility Program has provided a special reimbursement scheme for certain rural facilities that serve Medicare beneficiaries. See generally 42 U.S.C. §§ 1395i-4, 1395f. These “critical access hospitals,” id. § 1395f(Z )(1), must meet several criteria, including geographical, staffing, and services requirements. See id. § 1395i-4(c)(2)(B). At issue in this case is the geographical requirement measured by a facility’s distance from another hospital and the types of roads available to travel that distance:

A State may designate a facility as a critical access hospital if the facility ... is a hospital that ... is located more than a 35-mile drive (or ... in areas with only secondary roads available, a 15-mile drive) from a hospital, or another facility described in this subsection!.]

Id. § 1395i-4(c)(2)(B)(i)(I). Within that criterion, Congress created two standards — a 15-mile standard if “only secondary roads [are] available” between facilities, and a 35-mile default standard if roads other than secondary roads are available. Despite the reference to “secondary roads,” Congress defined neither that term nor its comparator, “primary roads.” The implementing regulations are similarly blank. See 42 C.F.R. § 485.610(c).

To remedy the lack of formally binding definitions, the Centers for Medicare and Medicaid Services (CMS), the agency within DHHS charged with administering Medicare, issued “guidance” in a State Operations Manual (the Manual). The Manual explains that a facility falls within the “secondary roads” provision when “there are more than 15 miles between the [facility] and any hospital or other [critical access hospital] where there are no primary roads.” The Manual then articulates three types of “primary roads:”

1. A numbered federal highway, including interstates, intrastates, expressways or any other numbered federal highway;
2. A numbered state highway with 2 or more lanes each way; and
3. A road shown on a map prepared in accordance with the U.S. Geological Survey’s Federal Geographic Data Committee (FGDC) Digital Cartographic Standard for Geologic Map Symbolization as a “primary highway, divided by median strip.”

CMS, State Operations Manual, ch. 2, § 2256A. The end result is that to qualify under the “secondary roads” provision, a facility must be separated from the nearest hospital by more than 15 miles in which there is no primary road — a numbered federal highway, a numbered state highway with two or more lanes each way, or a road shown on a particular map as a “primary highway, divided by median strip.”

In 2013, Seymour applied to CMS for designation as a critical access hospital. The nearest hospital is located 31.8 miles away in Throckmorton, Texas. Approximately 28.4 miles of the road directly connecting the small towns of Seymour and Throckmorton are designated as U.S. Highway 183/283, rendering that 28.4-mile stretch a “primary road” under the “numbered federal highway” provision in the Manual. U.S. Highway 183/283 is designated a “Primary Highway,” “Principal Highway,” and “Major Road” by official sources such as the U.S. Geological Survey and the Texas Department of Transportation. Seymour does not satisfy the alternate 35-mile standard because Seymour lies less than 35 miles away from Throckmorton. But Seymour also fails to qualify under the “secondary roads” provision because for only approximately three miles (31.8 miles minus 28.4 miles) of the distance between Seymour and the Throckmorton hospital are “only secondary roads [ ] available”— well short of the 15-mile “secondary road” threshold. CMS rejected Seymour’s application based on the plain language of the “guidance.”

Seymour then requested a hearing from an administrative law judge (ALJ), “disputing] the validity of CMS’ determination and the rationale for it.” Seymour asserted that U.S. Highway 183/283 is a secondary roád because it “is a two lane rural road,” has “no shoulders,” and its “dimension and condition” are those “of a poor quality farm road.” Seymour acknowledged that its characterization of U.S. Highway 183/283 as a secondary road conflicted with the “numbered federal highway” provision in the Manual, but Seymour dismissed the Manual as “only guidance,” “not controlling,” and “not law.” Seymour additionally challenged the “numbered federal highway” provision as “unreasonable, arbitrary and capricious.”

Applying the Manual, the ALJ rejected Seymour’s position. The ALJ found that the Manual was entitled to “considerable deference” and “justified in this case by practical considerations,” such as CMS’s “lack [of] resources -and capacity for making case-by-case judgments about the driving characteristics of every stretch of highway in the United States.” Further, the ALJ stated that “making a policy determination that a numbered United States Highway is a ‘primary road’ not only makes sense, but it may be the only reasonably objective way, along with the other criteria listed in the [Manual], of determining what is ‘primary’ and what is ‘secondary.’ ”

The DHHS Department of Appeals Board affirmed, holding

CMS’s interpretation provides a bright-line for what constitutes a primary road, based on objective criteria. CMS could reasonably assume that federal highways are likely to be bigger, better-maintained, and more well-traveled than state highways, and that state highways are more likely to have those characteristics than undesignated roads. Given those general expectations, CMS could reasonably require that state highways and undesignated roads be treated as equivalent to federal highways only when they demonstrated specific characteristics typical of most federal highways. Thus, CMS’s decision to categorize as primary roads all federal highways, but only state highways with two or more lanes in each direction, and only “primary highways” divided by a median strip, is reasonable.

The Board emphasized that “CMS was not required to conduct case-by-case surveys of all the characteristics and traffic patterns of each stretch of road connecting two rural hospitals.” According, to the Board, “[a]dministrative efficiency justified developing a bright-line rule that would balance the goals [of the Program] without individual inquiry into each case.”

Seymour sought judicial review of the Board’s decision, and the district court, in turn, granted summary judgment for DHHS, “finding] that the Skidmore [v. Swift & Co., 323 U.S. 134, 65 S.Ct. 161, 89 L.Ed. 124 (1944) ] factors counsel the Court to grant deference to the Secretary’s final decision, as it is supported by substantial evidence and lacks any clear error of law.” Seymour appeals, arguing that Skidmore deference is unwarranted and DHHS’s final decision is arbitrary and capricious. (Seymour concedes that the decision is factually consistent with the Manual’s definition of “primary roads.”)

II. ANALYSIS

A. Standard of Review

This court reviews a grant of summary judgment de novo, applying the same standard to review the agency’s decision that the district court used. E.g., Hayward v. U.S. Dep’t of Labor, 536 F.3d 376, 379 (5th Cir. 2008). But the parties dispute the nature of that standard of review. Seymour advocates arbitrary and capricious review under the Administrative Procedure Act (APA). See 5 U.S.C. § 706(2)(A) (requiring a reviewing court to hold unlawful and set aside agency action, findings, and conclusions found to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law”). Seymour also urges us to deny Skidmore deference to the Manual’s “numbered federal highway” provision.

For its part, DHHS relies on section 405(g) of the Social Security Act, which authorized judicial review in this case. See 42 U.S.C. § 1395cc(h) (citing 42 U.S.C. § 405(g)). Section 405(g) states in relevant part that “[t]he findings of [DHHS] as to any fact, if supported by substantial evidence, shall be eonclusive[.]” Id. § 405(g). Quoting Estate of Morris v. Shalala, 207 F.3d 744, 745 (5th Cir. 2000), which ruled on the appeal of an individual Medicare claimant, DHHS contends that our review under section 405(g) “is limited to two issues: (1) whether [DHHS] applied the proper legal standards; and (2) whether [DHHS’s] decision is supported by substantial evidence on the record as a whole.” But DHHS also contends that it would prevail even under the arbitrary and capricious standard of review that Seymour prefers. Although it probably makes no difference, we assume only for the sake of argument that the APA’s arbitrary and capricious standard applies.

Beyond that baseline, this court accords Skidmore deference to “agency interpretations of statutes they administer that do not carry the force of law[.]” Luminant Gen. Co., L.L.C. v. EPA, 675 F.3d 917, 928 (5th Cir. 2012) (citing Skidmore, 323 U.S. 134, 65 S.Ct. 161, and United States v. Mead Corp., 533 U.S. 218, 234-35, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001)). The degree of deference depends on “the thoroughness evident in [the agency’s] consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.” Skidmore, 323 U.S. at 140, 65 S.Ct. 161. Framed in Skidmore terms, the issues before us are how persuasively CMS interpreted the statute in contrasting primary and secondary roads and whether the DHHS decision against Seymour properly reflects the dichotomy.

We must also note the “distinct but potentially overlapping” relationship between the arbitrary and capricious standard of review and Skidmore deference. Compare Fox v. Clinton, 684 F.3d 67, 74-75, 80 (D.C. Cir. 2012) (referring to the standards as “distinct but potentially overlapping,” then finding an agency’s interpretation arbitrary and capricious because of “[t]he same flaws” that made Skidmore deference inappropriate), with Luminant, 675 F.3d at 928-30 (affording “minimal” Skid-more deference to the Environmental Protection Agency’s interpretation of the Clean Air Act, but holding the interpretation arbitrary and capricious). According some measure of Skidmore deference to an agency’s informal action does not assure the action will survive arbitrary and capricious review. Following this court’s decision in Luminant, we analyze the appeal under both standards.

B. Discussion

Whether a facility can be a critical access hospital turns in part on its location “in areas with only secondary roads available.” 42 U.S.C. § 1395i-4(c)(2)(B)(i)(I). The term “secondary roads” is ambiguous. Congress did not define it or contrast “primary roads,” and the implementing regulations likewise offer no guidance. Dictionary definitions offer little help. For example, one definition of “secondary” is “of less than first value or importance.” Webster’s Third New International Dictionary 2050 (1961). And a definition of “secondary road” is “a road not of primary importance whose classification and maintenance vary according to township, county, and state regulations.” Id. at 2051. Thus, the “secondary roads” provision broadly refers to roads having less value or importance than other roads. But what does “lesser value or importance” mean and how does one distinguish between the two types of roads?

The CMS Manual attempted to answer those questions by defining a secondary road as a road that is not (1) a numbered federal highway, (2) a numbered state highway with two or more lanes each way, or (3) a road shown on a U.S.G.S.' map as a “primary highway, divided by median strip.”

1. Skidmore Deference

Seymour focuses on the Manual’s statement that no “numbered federal highway” can be a “secondary road” and contends that DHHS’s decision based on the Manual should not earn Skidmore deference “due to a lack of validity, consistency, and expertise.” We consider separately each of these specific complaints'.

First, according to Seymour, the “numbered federal highway” provision is invalid because it is “arbitrary and based on irrelevant criteria,” and DHHS “has not articulated a sufficient reason for categorizing identical roads differently.”

Instead of relying on the arbitrary and irrelevant criteria of U.S. Highway designations, Seymour contends that DHHS should have considered “factors directly impacting a patient’s ability to safely and efficiently travel on the roads leading to a hospital.” DHHS’s decision, however, is not as blinkered as Seymour suggests. To begin, CMS was interpreting the term used in the statutory text (“secondary roads”), whereas Seymour’s “factors” approach, while relevant, imprecisely correlates with the statute. Further, DHHS opted for a bright-line rule after considering its lack of agency resources to make case-by-case judgments about the conditions of every stretch of rural highway in the United States. DHHS factored in the statutory goal of “increasing] [patients’] access to care” and sought to categorize roads to better serve “patients seeking medical care in rural areas.” In sum, the statutory text had to be articulated properly and in an administratively efficient way. As DHHS put it, the Manual’s “numbered federal highway” provision reasonably struck that balance because “federal highways are likely to be bigger, better-maintained, and more well-traveled than state highways[.]” Moreover, it was reasonable to “require that state highways and undesignated roads be treated as equivalent to federal highways only when they demonstrated specific characteristics typical of most federal highways.” Therefore, DHHS concluded that it was reasonable to “categorize as primary roads all federal highways, but only state highways with two or more lanes in each direction, and only ‘primary highways’ divided by a median strip[.]”

Far from being arbitrary and irrelevant, DHHS considered more than a road’s “alphanumeric designation,” as it worked on the premise, supported by several official mapping sources, that numbered federal highways are generally likely to be more suitable for travel than state highways. DHHS’s premise was that ordinarily, federal highways “are likely to be bigger, better-maintained, and more well-traveled than state highways.” Seymour acknowledges that “[t]he intent of Congress was to ensure that areas where travel is generally harder and less efficient ... are judged by the more appropriate [secondary-road] 15-mile requirement.” DHHS’s approach was neither arbitrary nor unreasoned nor did it rely on irrelevant considerations in attempting to fulfill Congressional intent.

Seymour’s second invalidity argument is that DHHS “has not articulated a sufficient reason for categorizing identical roads differently.” Seymour notes that U.S. Highway 183/283 would be considered a secondary road pursuant to the Manual if it were a state highway, because its characteristics — no median strip, no double lanes in each direction — do not fall within the Manual’s description of 'non-federal-highway primary roads. This is a fact-specific quarrel with a general rule. DHHS’s decision reflected the general conclusion that federal highways offer superior conditions than state highways. To be sure, as with all bright-line rales, there are undoubtedly cases where the Manual’s definitions will treat similarly constructed state and federal highways differently. DHHS’s adoption of the Manual’s criteria, however, reasonably concluded that differentiating between federal and state highways is valid in the vast majority of cases.

Seymour next argues that DHHS’s application of the' “numbered federal highway” provision lacks consistency. This assertion is puzzling in light of the two ALJ decisions from within DHHS that Seymour says illustrate arbitrary outcomes under the provision. Both decisions applied the “numbered federal highway” provision in precisely the same way DHHS applied the provision in this case. In addition, there is no evidence that the Manual’s “numbered federal highway” provision has ever changed or that DHHS has deviated in its application. This evidence of consistency, and Seymour’s lack of evidence showing inconsistency, weigh in favor of according Skidmore deference.

Finally, Seymour argues that DHHS “was not acting within its area of expertise when attempting to classify roads.” Seymour contends that “expertise at identifying and classifying roadways is far afield from the agency’s core expertise of administering a health care program.” DHHS, however, aptly responds that DHHS bears the burden of implementing Medicare’s complex programs and regulatory scheme. See, e.g., Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994). Within this framework, the activity of “classifying roadways” is intricately intertwined with broader Medicare policies. Congress commissioned DHHS to facilitate rural health care and designated rural facilities’ locations (based in part on the use of “seeond-ary roads”) as the touchstone for that duty. See 42 U.S.C. § 1395i-4(c), (e). We decline to conclude, as Seymour implies, that DHHS’s core expertise, as defined by Congress, is administering a rural health care program — except for the “rural” part. DHHS’s duty to consider roads connecting facilities in rural areas lies within DHHS’s expertise in administering rural health care.

For these reasons, DHHS’s interpretation of the “secondary roads” provision is persuasive and entitled to Skidmore deference.

2. Arbitrary and Capricious Review

Seymour repeats the same arguments in challenging DHHS’s decision as arbitrary and capricious, and we reject them for essentially the same reasons. Established law holds that an agency’s decision is arbitrary and capricious

if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.

Tex. Oil & Gas Ass’n v. EPA, 161 F.3d 923, 933 (5th Cir. 1998) (quoting Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983)). So long as “the agency’s reasons and policy choices conform to minimal standards of rationality, then its actions are reasonable and must be upheld.” Id. at 934.

Seymour argues that DHHS’s final decision is arbitrary and capricious because DHHS relied on irrelevant factors, ignored relevant factors, and did not adequately explain its decision. The arguments have been addressed and rejected above; the same result obtains here. DHHS could have solved the problem created by Congress’s silence in any number of ways, and its choice “conform[s] to minimal standards of rationality.” Id. at 934. Significantly, DHHS’s interpretation of the statute more closely aligns with the text than the intent-based or purposive reading proffered by Seymour. Antonin Scalia <& Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 56 (2012) (“First, the purpose must be derived from the text, not from extrinsic sources such as legislative history or an assumption about the legal drafter’s desires.”). DHHS’s decision was not arbitrary and capricious.

For these reasons, we AFFIRM the district court’s judgment.

      . Reflecting widespread uncertainty over the standards of review for informal rulemaking activities of administrative agencies, DHHS, argued in the trial court that both Skidmore deference and Chevron deference should apply to the Manual’s informal but intended-to-be-decisive "guidance” interpreting "secondary” and "primary” roads. See Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). The trial court rejected DHHS’s Chevron argument but accorded deference anyway according to the Skidmore sliding scale. In essence, DHHS has taken three positions, including those noted in text above, concerning the applicable standard.

      . Ironically, both the ALJ and the Department Appeals Board expressly viewed the Manual’s guidance as non-binding but persuasive, yet the consequence of our according Skidmore deference is that this court’s decision will be binding on federal courts in the Fifth Circuit.

      . A similar point may be made about cases such as Missouri Baptist Hospital — Sullivan v. CMS, DAB No. CR2384, 2011 WL 2567291 (June 17, 2011), where state legislatures re-designate roads as something other than state highways to render those roads "secondary roads.” That legislatures can find a way to perform an end run around DHHS’s policy determination of what constitutes primary and secondary roads, however, does not make that policy determination irrational.

      . See Mo. Baptist Hosp. — Sullivan v. CMS, DAB No. CR1987, 2009 WL 3353357.(Aug. 11, 2009); Mo. Baptist Hosp. — Sullivan v. CMS, 2011 WL 2567291. Those are not the only ALJ decisions applying the “numbered federal highway” provision consistently. See Shelby Mem’l Hosp. v. CMS, DAB No. CR3647, 2015 WL 2452189 (Feb. 11, 2015).


author: JULIA SMITH GIBBONS, Circuit Judge.

text:
    202 NORTH MONROE, LLC, Plaintiff, City of Rockford, Plaintiff-Appellant, v. Caleb SOWER; Kristine Sower; Larry Vis; Elsie Wayman; Jim Jennelle; Susie Jennelle; Dale Goossen; Linda Goossen; Jack McClennen; Amy Hadley; Neighbors for Neighborhood, Inc., Defendants-Appellees, Fred Haack; Angie Haack; Kenneth E. Phillips; Troy Winters; Michelle Winters, Third Parties-Appellees.
    No. 16-1982
    United States Court of Appeals, Sixth Circuit.
    Argued: February 2, 2017
    Decided and Filed: March 1, 2017

      ARGUED: Mary Massaron, PLUNK-ETT COONEY, Bloomfield Hills, Michigan, for Appellant. Michael D. Homier, FOSTER, SWIFT, COLLINS & SMITH, P.C., Grand Rapids, Michigan, for Appel-lees. ON BRIEF: Mary Massaron, PLUNKETT COONEY, Bloomfield Hills, Michigan, for Appellant. Michael D. Homier, FOSTER, SWIFT, COLLINS & SMITH, P.C., Grand Rapids, Michigan, for Appellees.
    Before: GIBBONS, COOK, and KETHLEDGE, Circuit Judges.
   OPINION

JULIA SMITH GIBBONS, Circuit Judge.

After the City of Rockford (the City) failed to approve a zoning petition for property owned by 202 North Monroe, LLC (202 North Monroe), the developer sued, challenging the constitutionality of the zoning-approval process. After a number of individuals living in the vicinity of the proposed development attempted and were denied the opportunity to intervene in the litigation, the City and 202 North Monroe settled their dispute and a federal district court entered a consent judgment under which the City agreed to rezone the property and 202 North Monroe agreed to address several environmental issues.

Disappointed with this result, the proposed intervenors, other residents, and a local neighborhood association (collectively the Neighbors) sued 202 North Monroe and the City in state court, seeking a declaration that the City failed to comply with Michigan law when it approved the settlement agreement. 202 North Monroe and the City (now collectively plaintiffs) responded by filing this action in federal district court to enjoin the state proceeding as an improper attack on the prior consent judgment. The district court dismissed the case for lack of jurisdiction and the City now appeals. Although the district court could have exercised ancillary jurisdiction over the latter federal suit, we affirm the dismissal of plaintiffs’ complaint because the Anti-Injunction Act bars a federal court from enjoining the Neighbors’ state-court action.

I.

202 North Monroe owns property in the City of Rockford that it intends to develop into residential condominiums. In order to do so, it sought to have the City rezone the property from “R-2 Single Family Residential” to “Planned Unit Development.” A group of residents challenged the proposal by filing a protest petition with the City. This triggered a special approval procedure under Section 403 of the Michigan Zoning Enabling Act (MZEA), MCL 125.3101 et seq., which requires a super majority (at least two-thirds) of city council members to vote in favor of the zoning proposal. The proposal subsequently failed when only three of the council’s five members voted to rezone the property.

In July 2015, 202 North Monroe sued the City in state court, alleging that the City violated its substantive-due-process rights and that the City’s actions constituted an unconstitutional regulatory taking of its property. The City timely removed the case to the United States District Court for the Western District of Michigan.

In federal district court, Caleb Sower, Kristine Sower, and Neighbors for Neighborhood, Inc., sought to intervene as defendants and cross-plaintiffs. They sought intervention as a matter of right, arguing that the resolution of the case would impede their ability to oppose rezoning and suggesting that, by settling the case, the City would be able to rezone the property without satisfying the super-majority approval requirement still in place as a result of their protest petition. They also sought permissive intervention, arguing that their proposed cross-claim shared a common question of law or fact with 202 North Monroe’s claims against the City.

The district court denied the motion to intervene in October 2015. The court held that the intervenors’ proposed interest of “defeating the rezoning application” was moot because the City had denied 202 North Monroe’s application and that any concern that the City’s denial could be overturned was “too generalized to support a claim of intervention of right.” No. 1:15-cv-785, DE 26, Page ID 437. The district court also denied permissive intervention.

In December 2015, the City and 202 North Monroe entered into mediation and eventually reached a settlement. The city council approved the settlement by a simple majority in January 2016 after discussing the pending litigation in a closed session. On February 1, 2016, the district court approved the settlement by entering a consent judgment that “ordered, adjudged, and decreed” that:

1. The Subject Property is hereby rezoned from R-2 to PUD.
2. The Clerk of the City of Rockford shall cause the Zoning Ordinance Map to be amended to identify the zoning classification of the Subject Property as PUD.
3. The Planned Unit Development Agreement (the “PUD Agreement”) attached hereto as Exhibit B is hereby approved.
4. Within thirty (30) days after the date of this Judgment, the Clerk of ■ the City of Rockford shall cause the PUD Agreement to be recorded with the Kent County Register of Deeds.
14. All of Plaintiffs claims as articulated in the Complaint are dismissed with prejudice.

No. 1:15-cv-785, DE 32, Page ID 510-12. It also placed certain obligations on 202 North Monroe with respect to environmental issues at the property.' The consent judgment was signed by the district judge and stated “[t]his Judgment resolves the last pending claim and closes the case.” Id. at 512.

On March 14, 2016, the Neighbors filed a two-count complaint in Kent County Circuit Court, claiming that the City had circumvented provisions of the MZEA and the City’s own zoning ordinances by “rezoning ... the Property through the Consent Judgment.” No. 1:16-cv-325, DE 1-1, Page ID 16. They sought both declaratory and injunctive relief on the grounds that the City was required to provide notice and to conduct a public hearing with respect to any settlement purporting to rezone property and was required to approve any such settlement by a two-thirds super majority when a protest petition had been filed. The Neighbors also filed a motion for a preliminary injunction.

On March 30, 2016, the City and 202 North Monroe filed a complaint and emergency motion for a preliminary injunction against the Neighbors in the Western District of Michigan, asking the district court to enjoin the Kent County Circuit Court from granting the Neighbors’ pending motion for a preliminary injunction and to enjoin the Neighbors from otherwise seeking to invalidate the prior federal consent judgment under the All Writs Act, 28 U.S.C. § 1651, and the Anti-Injunction Act, 28 U.S.C. § 2283. The Neighbors filed a counterclaim, seeking a declaration that rezoning property through a consent judgment was not authorized by Michigan law or the City’s zoning ordinance. All parties then filed answers to the claims against them. Among other things, the Neighbors argued that plaintiffs’ complaint was barred by a lack of jurisdiction.

After hearing oral argument on the jurisdictional question, the district court ruled that it lacked jurisdiction to enjoin the state-court proceeding. The court noted the broad prohibition on such action under the Anti-Injunction Act and concluded that the “relitigation exception” to the Act did not apply because the issue now being litigated in state court was never argued, raised, or decided in the prior federal proceeding and because the Neighbors lacked the requisite connection to the prior federal litigation so as to be bound by the consent judgment. The district court also noted that “principles of equity, comity, and federalism” favored “great restraint” in deciding whether to enjoin the state court. A subsequent order dismissed the complaint for lack of jurisdiction and denied the motion for a preliminary injunction as moot. The City filed a timely notice of appeal.

II.

The district court dismissed this case after finding that it lacked subject-matter jurisdiction under the Anti-Injunction Act. We review de novo the decision to dismiss for lack of subject-matter jurisdiction. Howard v. Whitbeck, 382 F.3d 633, 636 (6th Cir. 2004). We also review de novo the legal determination of “whether an injunction may issue under the Anti-Injunction Act.” Lorillard Tobacco Co. v. Chester, Willcox & Saxbe, 589 F.3d 835, 843 (6th Cir. 2009) (quoting Great Earth Cos., Inc. v. Simons, 288 F.3d 878, 893 (6th Cir. 2002) (emphasis added)). In doing so, we first consider whether there was an affirmative basis on which the district court could have exercised its subject-matter jurisdiction. We then evaluate the effect of the Anti-Injunction Act on the district court’s ability to grant plaintiffs’ requested relief.

A.

The City asserts that the district court could have exercised ancillary jurisdiction over the present action because “the district court had federal question jurisdiction over the original action and [the present] action was filed to preserve the federal court’s judgment in the original action.” CA6 R. 20, at 1. Ancillary jurisdiction allows a federal court of otherwise limited jurisdiction to consider “some matters (otherwise beyond their competence) that are incidental to the other matters properly before them.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 378, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). Ancillary jurisdiction exists, in part, “to enable a court to function successfully, that is, to manage its proceedings, vindicate its authority, and effectuate its decrees.” Id. at 380, 114 S.Ct. 1673; see also Caudill v. N. Am. Media Corp., 200 F.3d 914, 916 (6th Cir. 2000).

In the context of settlement agreements, a federal court can exercise ancillary jurisdiction over a subsequent action involving the settlement only if the settlement terms are “made part of the order of dismissal — either by separate provision (such as a provision ‘retaining jurisdiction’ over the settlement agreement) or by incorporating the terms of the settlement agreement in the order.” Kokkonen, 511 U.S. at 381, 114 S.Ct. 1673. In such cases, any challenge to the agreement is a challenge to the court’s order and the court can exercise ancillary jurisdiction to effectuate its decree. Id. This, however, is a narrow basis for subject-matter jurisdiction. See McAlpin v. Lexington 76 Auto Truck Stop, Inc., 229 F.3d 491, 502 (6th Cir. 2000).

In Kokkonen, the parties settled a prior federal case on terms that they “recited, on the record, before the District Judge in chambers.” Kokkonen, 511 U.S. at 376, 114 S.Ct. 1673. They then executed a “Stipulation and Order of Dismissal with Prejudice” pursuant to Federal Rule of Civil Procedure 41(a)(1)(ii). Id. at 376-77, 114 S.Ct. 1673. This document, however, did not refer to the settlement agreement or its terms and did not explicitly empower the district court to enforce the settlement. Id. at 377, 114 S.Ct. 1673. On these facts, a unanimous Court refused to find ancillary jurisdiction to enforce the settlement. Id. at 381-82, 114 S.Ct. 1673. Similarly, in McAlpin, we concluded that a district court order referencing a single term of a twenty-page settlement agreement was insufficient to establish ancillary jurisdiction. McAlpin, 229 F.3d at 502; see also Caudill, 200 F.3d at 916 (finding that the phrase “pursuant to the terms of the Settlement” failed to incorporate the agreement’s terms).

Here, the parties do not dispute the district court’s federal-question jurisdiction over the dispute that led to the consent judgment. And unlike the factual scenarios in Kokkonen, McAlpin, and Caudill, this consent judgment falls squarely within the Kokkonen Court’s test for ancillary jurisdiction. By listing the fourteen terms of the settlement agreement in its consent judgment, the district court explicitly incorporated the parties’ entire agreement. It does not matter that the district court did not explicitly state that it intended to retain jurisdiction over the agreement; incorporating the terms of the settlement was sufficient. See Kokkonen, 511 U.S. at 381, 114 S.Ct. 1673. Thus, the district court could have exercised ancillary jurisdiction over plaintiffs’ present complaint seeking to effectuate the terms of the prior consent judgment.

B.

The All Writs Act empowers a federal court to issue “all writs necessary or appropriate in aid of [its] respective jurisdietion[ ] and agreeable to the usages and principles of law.” 28 U.S.C. § 1651. This authority, however, is not unfettered. “[A]ny injunction against state court proceedings otherwise proper under general equitable principles must be based on one of the specific statutory exceptions to [the Anti-Injunction Act] if it is to be upheld.” Atl. Coast Line R.R. Co. v. Bhd. of Locomotive Eng’rs, 398 U.S. 281, 287, 90 S.Ct. 1739, 26 L.Ed.2d 234 (1970). Absent an exception, there is an “absolute prohibition [against] enjoining state court proceedings.” Id. at 286, 90 S.Ct. 1739; see also Martingale LLC v. City of Louisville, 361 F.3d 297, 302 (6th Cir. 2004). The Anti-Injunction Act provides three exceptions:

A court of the United States may not grant an injunction to stay proceedings in a State court except as [1] expressly authorized by Act of Congress, or [2] where necessary in aid of its jurisdiction, or [3] to protect or effectuate its judgments.

28 U.S.C. § 2283. These exceptions are narrow and “should not be enlarged by loose statutory construction” because “the statutory prohibition against such injunctions in part rests on the fundamental constitutional independence of the States and their courts.” Atl. Coast Line R.R. Co., 398 U.S. at 287, 90 S.Ct. 1739; see also Smith v. Bayer Corp., 564 U.S. 299, 306, 131 S.Ct. 2368, 180 L.Ed.2d 341 (2011). Although the City argues on appeal that all three exceptions to the Anti-Injunction Act apply, the City waived its ability to argue the first two exceptions when it failed to make such an argument before the district court. See Hayward v. Cleveland Clinic Found., 759 F.3d 601, 614-15 (6th Cir. 2014). Thus, we consider only the relitigation exception here.

The relitigation exception is intended to implement “well-recognized concepts of res judicata and collateral estop-pel.” Chick Kam Choo v. Exxon Corp., 486 U.S. 140, 147, 108 S.Ct. 1684, 100 L.Ed.2d 127 (1988). This exception, however, “applies only as necessary to protect or effectuate a federal court judgment, and thus is not the equivalent of [those concepts].” Hatcher v. Avis Rent-A-Car Sys., Inc., 152 F.3d 540, 543 (6th Cir. 1998). For the exception to apply, the claim or issue raised in state court must have been previously presented to and actually decided by a federal court. Chick Kam Choo, 486 U.S. at 147, 108 S.Ct. 1684; see also Smith, 564 U.S. at 306, 131 S.Ct. 2368. Additionally, the parties in the state proceeding must be bound by the prior federal judgment. Smith, 546 U.S. at 312, 126 S.Ct. 941.

1.

In order to show that the claim or issue that the federal injunction is intended to insulate from state-court litigation has actually been decided by a federal court, the complaining party must make a “strong and unequivocal showing” that the same issue is being relitigated “in order to overcome the federal courts’ proper disinclination to intermeddle in state court proceedings.” Huguley v. Gen. Motors Corp., 999 F.2d 142, 146 (6th Cir. 1993) (quoting Am. Town Ctr. v. Hall 88 Assocs., 912 F.2d 104, 111 (6th Cir. 1990)). This is a “strict and narrow” prerequisite that is assessed on the “precise state of the record and [on] what the earlier federal order actually said,” and not on a “post hoc judgment” by the district court “as to what the order was intended to say.” Chick Kam Choo, 486 U.S. at 148, 108 S.Ct. 1684. When faced with this issue in past cases, we have examined the record in both the state and federal proceedings to determine what issues and claims were raised and decided in the prior federal proceeding, the scope of the district court’s judgment in the prior federal case, and the issues and claims being raised in the pending state-court action. See Hatcher, 152 F.3d at 543; Huguley, 999 F.2d at 147.

Often, the similarity in issues is clear. In Great Earth Companies, for example, the prior federal action established that a contract’s arbitration clause was valid under the Federal Arbitration Act. 288 F.3d at 894. Because the federal plaintiffs subsequently sued the same defendant in state court challenging the validity and applicability of the same clause, we found that the relitigation exception empowered the district court to enjoin the state proceeding. Id.

Similarly, in Hatcher, the plaintiffs had previously sued Avis in federal court for terminating their agency agreement. 152 F.3d at 542. After entering into a federal consent judgment, the plaintiffs sued Avis and seven of its employees in state court making “the same factual assertions and allegations.” Id. We concluded that the relitigation exception allowed a federal court to enjoin the claims against Avis but not against the individual employees because “no claim against them was actually decided by the federal court.” Id. at 544.

Finally, in Huguley, we invoked the re-litigation exception to enjoin a state court from considering a case alleging that General Motors had engaged in racial discrimination. Huguley, 999 F.2d at 145. We relied on a prior federal class-action consent decree that, by its explicit language, was intended to “insulate GM from [racial discrimination] claims such as the ones alleged ... in the instant case,” by members of a class of plaintiffs that included the complaining party. Id. at 147-48.

In a pair of cases, however, the Supreme Court refused to enjoin a state court considering a state-law question when a prior federal proceeding had noticonsidered that question. First, in Chick Kam Choo, the Court refused to enjoin a state court from considering a liability question under Singapore law even though a federal court had previously dismissed the case under the doctrine of forum non conveniens. Chick Kam Choo, 486 U.S. at 148-49, 108 S.Ct. 1684. The Court noted that the federal action had not resolved the merits of the Singapore-law claim and that the federal and state courts applied different forum- non-conveniens principles. Id. at 148, 108 S.Ct. 1684. The Court concluded that the relitigation exception did not apply because “whether the Texas state courts are an appropriate forum for petitioner’s Singapore law claims has not yet been litigated.” Id. at 149, 108 S.Ct. 1684.

Next, in Smith v. Bayer Corp., the Court refused to enjoin a state court from deciding whether to certify a class under state law even though a federal court had previously refused to certify the proposed class under the federal rules. Smith, 564 U.S. at 310, 131 S.Ct. 2368. The Court noted that the legal standards for class certification differed under state and federal procedural rules and thus “the federal court resolved an issue not before the state court.” Id. at 309, 131 S.Ct. 2368. This was despite the fact that the underlying state claims “mirrored” those raised in the federal litigation. Id.

Looking to the facts before us, the City defines the issue originally presented to the federal court as “whether the City’s refusal to rezone the property at issue constituted a violation of 202 North Monroe’s federal constitutional rights under 42 U.S.C. § 1983.” CA6 R. 20, at 20-21. This tracks the language in 202 North Monroe’s initial complaint as well as the language in the federal consent judgment. If this is all that was decided, it would certainly not preclude a state court from considering the question of what Michigan law requires for a city to validly approve a proposed settlement. The Neighbors’ state-court claim involves only the City’s actions under state and local law. It does not address, in any way, the vindication of 202 North Monroe’s federal constitutional rights.

Unfortunately, this case is not that simple. The consent judgment also establishes that “[t]he Subject Property is hereby rezoned from R-2 to PUD.” No. 1:15-cv-785, DE 32, Page ID 510. In their state-court complaint, the Neighbors challenge the City’s ability and authority, under state law, to rezone the property through a consent judgment without complying with the requirements of the MZEA — specifically, the super-majority approval threshold and the notice and public-hearing requirements. As relief, the Neighbors request that the state court declare the rezoning to be in violation of the MZEA, declare that the property be zoned R-2 (and not PUD), and enjoin the City or 202 North Monroe from taking any action in reliance on the rezoning. The City argues that this is an attempt to have the consent judgment declared void, that allowing the Neighbors to proceed could thwart the effectuation of a federal judgment, and that the state-court action conflicts with its intent to “resolve the issues regarding the appropriate zoning and land use for the property” through the consent judgment. CA6 R. 20, at 21-24.

Despite the City’s arguments, we note a number of factors that support a narrow interpretation of the consent judgment as well as a finding that the state-law issues were not actually decided. First, we are instructed to narrowly construe both the relitigation exception and the “actually decided” prong. See Chick Kam Choo, 486 U.S. at 148, 108 S.Ct. 1684. Second, this case differs from those where we have applied the relitigation exception — those where the state-court plaintiffs were seeking to litigate an identical claim. See, e.g., Hatcher, 152 F.3d at 542; Huguley, 999 F.2d at 145. Third, allowing the state court to proceed does not alleviate its obligation to consider the preclusive effect of the prior federal consent judgment. See Smith, 564 U.S. at 318, 131 S.Ct. 2368. Fourth, the Supreme Court’s decisions in Smith and Chick Kam Choo suggest that this prong of the relitigation exception is not applicable when the state court is deciding a parallel question under state law and that question of state law, as is the case here, was not directly addressed in the earlier federal action.

There is no debate that, should the state court be allowed to proceed, it might reach a result that calls into question the validity of the consent judgment’s explicit language rezoning the property. The question before us, however, is not about the result but rather the scope of what was decided in reaching that result. After evaluating the record before us, we conclude that the City has failed to make the required “strong and unequivocal showing” that the issue in state court — whether the City’s approval of the settlement complied with state and local law — was previously raised, argued, and decided. See Huguley, 999 F.2d at 146. Accordingly, we cannot apply the relitigation exception and the state-court litigation must be allowed to proceed.

2.

Even if we were to find that the state-court issue had been previously raised and decided, we could not apply the relitigation exception unless we also concluded that the Neighbors were bound by the prior federal judgment. To do so, we would have to find that they were a party to the original federal action or that they qualified for one of the “discrete and limited exceptions” to the general rule against nonparty preclusion. See Smith, 564 U.S. at 312, 131 S.Ct. 2368 (citing 18A Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 4449 (2d ed. 2002) and Taylor v. Sturgell, 553 U.S. 880, 898, 128 S.Ct. 2161, 171 L.Ed.2d 155 (2008)).

It is clear that the Neighbors were not a party to the prior federal action. As the district court correctly recognized, they were “not named,” were “expressly denied the right to intervene,” were “not parties,” were “not represented,” and their interests “were not at all involved.” No. 1:16-cv-325, DE 25, Page ID 552. The City does not dispute this point.

Instead, the City argues that the Neighbors satisfy one of the nonparty preclusion exceptions because they were “adequately represented” by the City and its elected officials. The Supreme Court has explained this exception as follows:

[I]n certain limited circumstances, a nonparty may be bound by a judgment because she was adequately represented by someone with the same interests who was a party to the suit. Representative suits with preclusive effect on nonparties include properly conducted class actions and suits brought by trustees, guardians, and other fiduciaries.

Taylor, 553 U.S. at 894, 128 S.Ct. 2161 (internal citations and quotation marks omitted). This exception is established only if (1) the interests of the nonparty and its representative are aligned; (2) the representative understood itself to be acting in a representative capacity or the interests of the nonparty were otherwise protected; and, sometimes, (3) the nonparty had notice of the original suit. Id. at 900, 128 S.Ct. 2161; see also Amos v. PPG Indus., Inc., 699 F.3d 448, 452-53 (6th Cir. 2012).

Here, the interests of the City and the Neighbors were not aligned as indicated by the City’s agreement, through the consent judgment, to rezone the property in 202 North Monroe’s favor. A subset of the Neighbors had filed a protest petition challenging the zoning decision. They also attempted to intervene in the initial federal suit both to protect their interest in opposing rezoning and to ensure that the City did not settle the case in order to circumvent the super-majority approval requirement that their protest petition had imposed. The difference in interests is further evinced by the fact that the City’s settlement is the basis for the Neighbor’s current state-court action. Because the City could not have adequately represented the Neighbor’s interests on these facts, we find that the exception to the rule against nonparty preclusion does not apply, that the Neighbors are not bound by the consent judgment, and that the reliti-gation exception to the Anti-Injunction Act is thus inapplicable in this case.

In closing, we note that denial of the motion to intervene, followed by settlement on the terms of the consent judgment, meant that a challenge to the rezoning through further litigation was likely. The City thus invited its current dilemma, and the district court apparently failed to foresee the implications of the denial of the motion to intervene as well.

III.

For the foregoing reasons, we affirm the decision of the district court.

      .The Neighbors argue that even if the district court had ancillary jurisdiction, it had the discretion not to exercise such jurisdiction. Although they are correct that ancillary jurisdiction is discretionary, see Coleman v. Casey Cty. Bd. of Educ., 686 F.2d 428, 430 (6th Cir. 1982) (citing United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966)), the record does not indicate that the district court made any evaluation or decision with respect to its ancillary jurisdiction. And because we conclude that the Anti-Injunction Act bars the district court from acting here, we need not give the district court an opportunity to exercise its discretion with respect to ancillary jurisdiction.

      . We refer to the third exception by its more-common name, the relitigation exception. See Chick Kam Choo v. Exxon Corp., 486 U.S. 140, 147, 108 S.Ct. 1684, 100 L.Ed.2d 127 (1988).

      . For example, res judicata generally precludes an issue that “should have been litigated,” Hatcher, 152 F.3d at 543, whereas the relitigation exception applies only to those claims or issues that “actually have been decided,” id. (quoting Chick Kam Choo, 486 U.S. at 148, 108 S.Ct. 1684).

      . The City relies on Huguley, 999 F.2d at 147-48, to argue that intent is relevant in determining the scope of what the district court decided. Huguley, however, concluded that a claim was actually decided based on the "plain language” and "express terms” of a consent decree, not the subjective intent of the parties. 999 F.2d at 147.

      . We note, however, that Smith and Chick Kam Choo, could be distinguished as allowing the litigation of procedural questions under state law after the federal procedural question had been answered, in part, because the federal court refused to reach the merits of the underlying claims.

      . Instead of relying on this binding precedent, the City grounds its argument in Beyer v. Verizon North Inc., 270 Mich.App. 424, 715 N.W.2d 328, 330 (2006) (per curiam), which considered the preclusive effect of a federal consent judgment. Beyer carries little persuasive value for three reasons. First, it is a decision of an intermediate .state appellate court interpreting federal law. Second, it predates Taylor’s clarification of nonparty preclusion exceptions. Third, it is distinguishable on its facts because the interests of the state officials and the residents were much more closely aligned than those of the City and the Neighbors in this case.


author: BOGGS, Circuit Judge.

text:
    Richard L. KINZEL, Individually and as Trustee of the Richard L. Kinzel Revocable Trust; Judith A. Kinzel, Individually and as Trustee of the Judith A. Kinzel Revocable Trust, Plaintiffs-Appellants, v. BANK OF AMERICA, et al., Defendants, Merrill Lynch Bank U.S.A.; Merrill Lynch, Pierce, Fenner and Smith, Inc.; Merrill Lynch Bank & Trust Company; Bank of America Corporation, Defendants-Appellees.
    No. 16-3355
    United States Court of Appeals, Sixth Circuit.
    Argued: January 25, 2017
    Decided and Filed: March 2, 2017

      ARGUED: W. Patrick Murray, MURRAY & MURRAY, CO., L.P.A., Sandusky, Ohio, for Appellants. Matthew A. Fitzgerald, MCGUIREWOODS LLP, Richmond, Virginia, for Appellees. ON BRIEF: W. Patrick Murray, Dennis E. Murray, Jr., William H. Bartle, MURRAY & MURRAY, CO., L.P.A., Sandusky, Ohio, for Appellants. Matthew A. Fitzgerald, Lena L. Busscher, MCGUIREWOODS LLP, Richmond, Virginia, for Appellees.
    Before: BOGGS, GILMAN, and DONALD, Circuit Judges.
   OPINION

BOGGS, Circuit Judge.

The ticker symbol for Cedar Fair Entertainment Company — operator of Cedar Point and other amusement parks — is, fittingly, “FUN,” and it thus reveals littlé about, the nature of the collateral-liquidation dispute presently before us.

In April 2008, Richard Kinzel, then CEO of Cedar Fair, borrowed nearly $8,000,000 from Merrill Lynch to finance his exercise of FUN stock options and to pay the estimated income and payroll taxes that would be due immediately upon exercise. To secure the loan, Kinzel pledged as collateral various assets, including the shares of FUN that he would be acquiring, and Kinzel entered into a Loan Management Account (LMA) agreement that allowed Merrill Lynch, “in its sole discretion and without prior notice,” to “liquidate” the collateral upon any of twelve events, including “if the value of the ... collateral is in the sole judgment of [Merrill Lynch] insufficient.”

The stock market then crashed. Along the way, the market value of FUN tumbled from the exercise price of $23.19 per share in April 2008 to $6.99 per share on March 2, 2009. Having set a $7.00-per-share “trigger” to liquidate shares of FUN, the Merrill Lynch account managers responsible for Kinzel’s account began selling off shares on March 3, 2009, without advance notice to Kinzel and without first making demand upon Kinzel for repayment of the loan.

Upset that his long-time bank would sell his shares of FUN even though he was “doing everything right,” Kinzel (and his wife, both individually and as trustees of trusts in their names) sued Merrill Lynch (and Bank of America, which acquired Merrill Lynch in 2009) on various theories, including breach of contract and breach of the covenant of good faith and fair dealing. The Kinzels now appeal two district-court decisions: the court’s denial of leave to file a third amended complaint to reassert a breach-of-contract claim that did not survive a previous motion to dismiss, and the court’s final judgment in favor of Merrill Lynch on the breach-of-good-faith claim, which the court entered following a bench trial on that claim only. For the reasons that follow, we affirm.

I

Kinzel’s Loan Management Account

When Kinzel exercised his stock options on' April 15, 2008, he purchased 640,000 shares of FUN at the option price of $6.03 per share and 10,000 shares at the option price of $20.60 per share, for a total of 650,000 shares at a purchase price of $4,065,200. Because the market value of FUN at the time of exercise was $23.19 per share, Kinzel’s purchase was worth $15,073,500 — meaning that Kinzel immediately realized a gain of • $11,008,300. Because the difference between option price and market value is treated as income rather than capital gains and is thus taxable immediately upon exercise, Kinzel also had to pay the estimated income and payroll taxes on his $11,008,300 gain, which amounted to $4,893,189.35. Kinzel thus had to pony up $8,958,389.35 (the stock-option purchase price plus the tax liability) in order to exercise his options. And for that, Kinzel needed a loan.

Rather than exercising his stock options on margin, Kinzel opened an $8,000,000 line of credit with Merrill Lynch and executed the LMA agreement. (Kinzel borrowed $7,681,482.84 against the line of credit and paid the remainder of the purchase price out of other funds.) The LMA is a flexible lending product that allows the borrower to draw against a line of credit with no payment schedule or due dates and at low interest rates — Kinzel’s rate hovered around 2.6% per annum, for example — but allows the bank to require repayment in full at any time, on the bank’s demand. For reasons not germane to this appeal, Kinzel arranged for two trusts to be the borrowers (one trust bearing his name and the other bearing his wife’s name, of which Kinzel and his wife were trustees, respectively), but for Kinzel and his wife in their individual capacities to be “pledgors” of the collateral.

The LMA agreement required Kinzel to pledge collateral by depositing it into a “Securities Account,” and the agreement granted Merrill Lynch “a continuing, first priority lien and security interest” in that account as well as “ultimate control over all instructions made with respect to” that account. The agreement further required Kinzel to maintain financial assets in the Securities Account of a value at least equal .to a “maintenance requirement” set by Merrill Lynch “in its sole discretion.” Because of the volatility of stock prices and the potential illiquidity of the pledged collateral, the maintenance requirement was substantially greater than the outstanding balance on the loan: from April to December 2008, for example, Merrill Lynch varied the maintenance requirement so that the outstanding loan balance always fell between fifty-five and fifty-eight percent of the requirement, meaning that Kinzel had to pledge collateral worth nearly double his loan balance — but Kinzel did so, all the while paying off nearly $2,000,000 of the loan balance by the end of 2008. At any time, Kinzel could deposit cash into the LMA to pay down the loan balance or to act as collateral, and Kinzel could pledge additional collateral, although Merrill Lynch imposed a cap of 540,000 on the number of shares of. FUN that would count towards the maintenance requirement because of the difficulty of selling such a large volume of shares at market value if liquidation were to become necessary. (Internal Merrill Lynch correspondence indicates that in early 2009, there were approximately 55,000,000 shares of FUN outstanding, with a weekly trading volume of approximately 172,000 shares.)

As mentioned above, the LMA agreement is effectively a demand instrument: even if Kinzel did nothing at all to breach or default, the agreement’s demand clause (Clause 5) gave Merrill Lynch the right at all times to “require the immediate payment of all or any portion of the balance of the LMA ... upon demand.” Wholly separate from the demand clause, the agreement also includes a remedy-events clause (Clause 7), which sets forth twelve conditions, the occurrence of any of which was independently sufficient to permit Merrill Lynch, “in its sole discretion and without prior notice,” to “liquidate the Securities Accouiit and/or other collateral ... and apply the proceeds to the LMA.” These remedy events include, among others not applicable here, (1) the insufficiency, “in the sole judgment” of Merrill Lynch, of the value of the financial assets in the Securities Account; (2) Merrill Lynch’s “belie[f] in good faith that the value of the collateral or the Bank’s security interest therein is impaired”; and (3) Merrill Lynch’s determination “that there is a material adverse change in any Loan Party’s financial condition or prospects or collateral” (emphasis added).

Nothing in the LMA agreement states or implies that Kinzel’s satisfaction of the maintenance requirement was sufficient to avoid liquidation following a remedy event. Nothing in the demand clause or elsewhere states or implies that Merrill Lynch was required to make a demand for repayment prior to exercising its contractual right to liquidate Kinzel’s collateral upon the occurrence of a remedy event. And nothing in the remedy-events clause prevented Merrill Lynch from deeming the value of the assets in the Securities Account “insufficient” or deeming Merrill Lynch’s security interest “impaired” at any time, even if the assets’ value exceeded the maintenance requirement.

The Great Recession of 2008-09

When the market price of FUN began to fall precipitously- — -dropping to $12.53 per share by the end of 2008 — Merrill Lynch warned Kinzel (once in November 2008 and twice in February 2009) that, because of the falling stock value, his loan balance risked exceeding seventy percent of the value of the pledged collateral (crossing the so-called 70% “LTV” or “loan-to-value” threshold). This was one event — though by no means the only event — that Merrill Lynch had, by internal guideline, set as a trigger to prompt Merrill Lynch either to demand repayment or to liquidate collateral. Appellees’ Br. 6-7. Notably, the 70% LTV threshold was not in the LMA agreement (as a remedy event or otherwise), and nothing in the LMA agreement stated or implied that Kinzel would avoid liquidation of his collateral if he maintained his loan balance below a given LTV threshold. Kinzel responded to these warnings (referred to as “collateral calls,” which were neither formal demands for payment nor notices of intent to liquidate collateral, but only notices that the loan was approaching 70% LTV) by liquidating non-FUN assets and paying down the loan balance.

By the end of February 2009, however, the price of FUN was falling so fast that even though Kinzel had paid the loan balance down to below $4,000,000, the decrease in collateral value prevented the LTV ratio from dropping significantly, and Merrill Lynch responded to the falling price of FUN — $7.91 per share on February 25, 2009 — by increasing the maintenance requirement (to $13,899,705.50 when the loan balance was $4,006,730.69, for a 28.8% LTV ratio) and by setting a $7 trigger price for FUN, such that if the price of FUN fell below $7 per share, Merrill Lynch would begin liquidating shares to pay down the loan balance.

Liquidation of Kinzel’s Shares

Although Merrill Lynch never formally demanded repayment from Kinzel, Kinzel’s son Brett — who both worked for Merrill Lynch and was Kinzel’s financial advisor, though not part of Merrill Lynch’s account-management team — was in daily email contact with the Merrill Lynch account managers who would eventually call for liquidation of Kinzel’s shares. (In one email, for example, Merrill Lynch VP Doug Rosen wrote to Brett regarding the Kinzel LMA, “As I’m sure you know, FUN is close to $7/share. Should it go below $7, our credit committee will look for immediate repayment of the entire loan. I’ll keep a close eye on the stock.”) And on March 2, 2009, with the Dow Jones Industrial Average at 6763.29 — its lowest level since 1997 — FUN closed at $6.99 per share, prompting Merrill Lynch to authorize liquidation of Kinzel’s collateral, beginning the next day. (On the morning of March 3, Rosen, emailing a Merrill Lynch global risk manager, wrote, “Mike B. and I, along with others, discussed this at length last night and this morning. The decision to begin liquidating was made, and Hoy is working on it now.”)

By 11:00 a.m. on March 3, 2009 — even as Brett moved money into the LMA and as Kinzel arranged for a home-equity line of credit and for other payments to be made in the coming days and weeks in an effort to forestall liquidation of FUN shares— Merrill Lynch had sold 19,180 shares at an average price of $6.89, and by the end of the day, Merrill Lynch had sold a total of 167,900 shares at an average price of $6.3806, generating proceeds of approximately $1,071,302, which were used to pay down the loan balance.

On March 4, 2009, the global risk manager (who made the ultimate call to liquidate) advised Rosen to “continue liquidations to reduce [the] loan to $0.” Rosen, however — noting that Kinzel “was bringing in as much liquidity as possible,” and that the combination of the liquidated FUN shares and Kinzel’s other incoming transfers had reduced the loan balance to less than $1,200,000 — sought and received the risk manager’s assent to “a temporary $5.50 trigger” on March 5, and Kinzel ultimately paid the loan balance in full by March 26, avoiding any further liquidation of his FUN stock. As of January 25, 2017, when we heard oral argument in this case, the market value of FUN was $64.50 per share. Kinzel asserts that he would still own the 167,900 liquidated shares if they had not been sold in 2009. Appellants’ Br. 17.

Proceedings Below

On September 27, 2010, when FUN was trading at $12.63 per share, Kinzel and his wife sued Merrill Lynch in the United States District Court for the Northern District of Ohio, initially asserting claims of breach of the covenant of good faith and fair dealing, fraud, outrageous conduct, conversion, and unjust enrichment. The Kinzels filed an amended complaint to add a breach-of-contract claim in December 2010. On March 14, 2011, the Kinzels filed a second amended complaint, which would remain the operative complaint, and which asserted the same claims as the first amended complaint.

On November 1, 2011, Judge Carr dismissed all of the Kinzels’ claims except their good-faith claim. On September 11, 2012, Judge Carr recused himself on account of his relationship with Bank of America, and Judge Helmick was assigned to the case. The Kinzels filed a motion for leave to file a third amended complaint, spelling out a breach-of-contract claim (for Merrill Lynch’s liquidation of FUN shares without first making a demand for repayment) distinct from the breach-of-good-faith claim (for Merrill Lynch’s liquidation of FUN shares when Merrill Lynch knew that Kinzel wanted to avoid liquidation and had both the ability and the intent to repay the loan in full). Judge Helmick denied leave to amend, holding that “[t]o the extent the breach of contract allegations in the proposed third amended corn-plaint differ from any contained in the second amended complaint, Plaintiffs fail to produce a claim that could survive a motion to dismiss.”

Judge Helmick presided over a bench trial on the good-faith claim in December 2014, and entered judgment for Merrill Lynch on March 14, 2016. This appeal followed, raising two questions:

1. Whether the district court erred in holding that the Kinzels had not sufficiently stated a breach-of-contract claim and thus could riot show cause to file a third amended complaint?
2. “Whether the district court erred in granting judgment in favor of Merrill Lynch on the breach-of-good-faith claim?

II

We generally review a district court’s decision to deny leave to file a second or subsequent amended complaint for abuse of discretion. United States ex rel. Bledsoe v. Cmty. Health Sys., 342 F.3d 634, 644 (6th Cir. 2003). When a district court bases its denial of a motion to amend “on the legal conclusion that the proposed amendment would not survive a'motion to dismiss,” however, we review the district court’s decision de novo. Greenberg v. Life Ins. Co. of Va., 177 F.3d 507, 522 (6th Cir. 1999). We review the district court’s judg-merit for Merrill Lynch on the good-faith claim de novo, with deference to the court’s factual findings. See Blue Cross & Blue Shield Mut. v. Blue Cross & Blue Shield Ass’n, 110 F.3d 318, 333 (6th Cir. 1997). Under the choice-of-law provision in the LMA agreement, Utah law governs both the Kinzels’ good-faith claim and the breach-of-contract claim that they would have pleaded in their third amended complaint.

Ill

Issue One: Breach of Contract

Under the law of Utah, as elsewhere, a fundamental element of any breach-of-contract claim is that the defendant must actually have breached the contract. Bair v. Axiom Design, L.L.C., 20 P.3d 388, 392 (Utah 2001) (citing Nuttall v. Berntson, 83 Utah 535, 30 P.2d 738, 741 (1934)).

In the context of secured transactions, Utah Code § 70A-9a-611 (incorporating UCC § 9-611) requires “a secured party that disposes of collateral” after default to send a “reasonable authenticated notice of disposition” to the debtor and other parties. The Kinzels argue that § 70A-9a-611 operates to invalidate the provision in the remedy-events clause (Clause 7) that allows Merrill Lynch to liquidate collateral upon the occurrence of a remedy event without first making a demand for repayment. If it does so, then only Clause 5 would have allowed Merrill Lynch to liquidate the shares of FUN, and — because Clause 5 requires Merrill Lynch to make a demand for payment before liquidating— Merrill Lynch arguably breached the LMA agreement by liquidating without first making such a demand.

Section 70A-9a-611 does not help the Kinzels, however, for two reasons: first, it applies only after “default.” Utah Code §§ 70A-9a-611(2), -610. Here there was no default: no one has argued that the Kinzels had in any way breached their loan obligations or defaulted on a loan payment. Rather, in liquidating the shares of FUN on March 3, 2009, Merrill Lynch was exercising control over the collateral as the contract directed that Merrill Lynch could do even when there was no breach or default by the borrower. Second, § 70A-9a-611 does not apply “if the collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market.” Utah Code § 70A-9a-611(4). It is undisputed that FUN shares are “of a type customarily sold on” the New York Stock Exchange.

. Finally, apart from the Kinzels’ argument that Merrill Lynch did not act in good faith; which we analyze separately in the following section, the Kinzels do not dispute that a remedy event occurred, nor do they argue that any other provision in the LMA agreement would have operated to prevent Merrill Lynch from liquidating when the price of FUN fell below $7 per share — or, indeed, at any time. Accordingly, even if all the facts in the Kinzels’ pleadings are true, the Kinzels cannot show that Merrill Lynch actually breached any term of the LMA agreement when it liquidated the Kinzels’ shares: the Kinzels had given “ultimate control” and “sole discretion” to Merrill Lynch to liquidate the collateral in the Securities Account when the stock market crashed, and Merrill Lynch acted accordingly.

That the Kinzels fulfilled their obligations under the LMA agreement does not, under any rule of contract law that we can find, somehow suspend Merrill Lynch’s power to exercise its own express contractual rights. While it is bedrock contract law that one contracting party’s material failure to perform its contractual obligations may discharge another’s duty to perform, the Kinzels’ compliance with the contract cannot vitiate Merrill Lynch’s independent rights and duties under the contract, even when Merrill Lynch’s exercise of such rights is at odds with what the Kinzels would prefer Merrill Lynch to do instead. Cf. Kingston v. Preston (1773) 99 Eng. Rep. 437, 438; 2 Doug. 689, 691 (K.B.) (noting that the interaction of contractual covenants is “to be collected from the evident sense and meaning of the parties”). Here, the evident sense and meaning of the parties’ agreement is that Merrill Lynch was to enjoy unfettered discretion in its decision to liquidate the Kinzels’ collateral; that the Kinzels would have preferred Merrill Lynch to wait a while longer before liquidating cannot overcome the clear language in the contract that the Kinzels and Merrill Lynch — all sophisticated parties — chose to execute. The district court was therefore correct to hold that allowing leave to amend would be futile because any breach-of-contract claim the Kinzels brought, to the extent that it differed from their breach-of-good-faith claim, would fail to survive a motion to dismiss.

Issue Two: Breach of the Covenant of Good Faith and Fair Dealing

Under the law of Utah, the implied covenant of good faith and fair dealing imposes “as a term of every contract a duty to perform in the good faith 'manner that the parties surely would have agreed to if they had foreseen and addressed the circumstance giving rise to their dispute.” Young Living Essential Oils v. Marin, 266 P.3d 814, 816 (Utah 2011). A contract that sets forth general rights and duties may, if insufficiently specific to direct the parties’ performance, be found to be “ ‘instinct with an obligation’ imperfectly expressed” that requires the parties to take reasonable steps to carry out implied contractual obligations. Haws v. Jensen, 116 Utah 212, 209 P.2d 229, 232 (1949) (quoting Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 118 N.E. 214, 214 (1917) (holding that where a fashion designer granted her agent the exclusive right, for at least a year, to use the designer’s “indorsements” on third parties’ garments in exchange for one-half of the profits from the agent’s efforts, “a promise [was] fairly to be implied” by the agent to “use reasonable efforts” to bring at least some profits into existence)).

Although implied promises may be found in some contracts as in Wood, and although the implied covenant of good faith and fair dealing may in those cases require the parties to carry out their implied promises in good faith, the implied covenant of good faith and fair dealing does not itself “establish new, independent rights or duties not agreed upon by the parties.” Malibu Inv. Co. v. Sparks, 996 P.2d 1043, 1048 (Utah 2000) (internal quotation marks omitted). In other words, the covenant of good faith and fair dealing may require parties to exercise their existing contractual rights and duties fairly and in good faith, but it does not impose any new contractual duties upon the parties apart from the obligation to perform existing duties fairly and in good faith.

Moreover, where a contract grants one party sole discretion in making a decision “but does not provide any express standard for exercising that discretion, the covenant imposes an objective standard of reasonableness.” Markham v. Bradley, 173 P.3d 865, 872 (Utah Ct. App. 2007) (citing Olympus Hills Shopping Ctr., Ltd. v. Smith’s Food & Drug Ctrs., Inc., 889 P.2d 445 (Utah Ct. App. 1994); Leigh Furniture & Carpet Co. v. Isom, 657 P.2d 293, 311 (Utah 1982)). Although a party exercising contractually apportioned discretion may not exercise that discretion “for a reason outside the contemplated range — a reason beyond the risks assumed by the party claiming the breach,” Markham, 173 P.3d at 875, a party does not breach the implied covenant simply because it “may not have followed the golden rule.” Oakwood Vill. L.L.C. v. Albertsons, Inc., 104 P.3d 1226, 1240 (Utah 2004).

The Kinzels advance several arguments in support of their conclusion that Merrill Lynch did not act in good faith when it liquidated the shares of FUN. First, the Kinzels argue that at the time of liqui-dátion on March 3, 2009, the loan’s LTV ratio was under 70% and thus Merrill Lynch should not have liquidated. Even if the LTV ratio was under 70%, however, the collateral remaining in the Securities Account on March 3, 2009, consisted entirely of FUN stock, the price of which was falling precipitously along with national markets. And more importantly, nothing about the 70% LTV threshold was actually a part of the contract — and no language in the contract supports the Kinzels’ apparent contention that Merrill Lynch had an implied obligation to refrain from liquidating their collateral when the loan was below 70% LTV. Thus, to hold Merrill Lynch as acting in bad faith because it liquidated when the loan was below 70% LTV would be to impose a “new, independent” duty not contemplated by the contract language, and Utah law does not do that.

Second, the Kinzels argue that Merrill Lynch acted in bad faith by liquidating when the price of FUN had closed only one cent lower than the $7.00 trigger price on March 2, 2009, and when FUN opened at a few cents above $7.00 on March 3, 2009, before falling again below $7.00. But as with the 70% LTV threshold, nothing about a $7.00 trigger — let alone a duty not to liquidate when the stock price falls only a little under the trigger — appears anywhere in the contract, so Merrill Lynch cannot be said to have acted in bad faith for breaching such a duty.

Third, the Kinzels argue that Richard Kinzel was “doing everything right” and taking great strides to pay down the loan balance when Merrill Lynch liquidated. True, the evidence of record reveals that Merrill Lynch was well aware of Kinzel’s attempts to secure a home-equity line of credit and move other assets into the Securities Account in order to increase collateral or pay off the loan. At the' same time, the evidence of record indicates that Merrill Lynch sought to avoid liquidating and did so only when (1) the only collateral remaining in the Securities Account was FUN stock, and (2) the Dow Jones Industrial Average was at a twelve-year low, with FUN at its lowest price since 1991. And despite the falling stock prices, Merrill Lynch agreed to halt its liquidation after only one day, and to impose a new $5.50 trigger value before further liquidation would occur in the future. Accordingly, the district court properly held that Merrill Lynch exercised its discretion within the “contemplated range” of “judgment based upon sincerity, honesty, fair dealing and good faith.” Kinzel v. Bank of America, Case No. 3:10cv2169, 2016 WL 951531, at *6 (N.D. Ohio Mar. 14, 2016) (first quoting Markham, 173 P.3d at 875; then quoting Resource Mgmt. Co. v. Weston Ranch & Livestock Co., 706 P.2d 1028, 1037-38 (Utah 1985)).

rv

In sum, the district court properly held that allowing leave to file a third amended complaint would be futile, because the Kin-zels could not state a claim for breach of contract, and the district court properly granted judgment on the breach-of-good-faith claim in favor of Merrill Lynch. Accordingly, we AFFIRM.

      . Initially, Brett Kinzel was also a plaintiff (seeking payment of a commission from the liquidation of the FUN shares), and several other Merrill Lynch employees were defendants. The defendants included both Merrill Lynch and its successor, Bank of America. In the interest of simplicity, we refer to the plaintiffs simply as the Kinzels, and to the defendant as Merrill Lynch, as the district court did.