A Proposal For Circuit Splitting Precedents

Background: What Is A Circuit Split?

The status quo rule in the federal courts is that a published decision of a panel of the U.S. Court of Appeals (the intermediate level appellate courts in the federal court system) on a question of federal law is binding precedent on the courts whose decisions are appealed to the federal appeals court circuit of the panel making the decision and are persuasive authority in other federal appeals court circuits.

For example, if three judges in the 11th Circuit by a 2-1 margin, decide in a published appellate court opinion that cryptocurrency profits aren't income under the Internal Revenue Code, all U.S. district court judges and bankruptcy court judges in the 11th Circuit have to follow that decision. But this decision is only persuasive authority for a judge in the U.S. District Court for the District of Colorado which is in the 10th Circuit.

Once a precedent is in place in a circuit, district courts generally can't deviate from that precedent unless the U.S. Supreme Court rules otherwise, or the relevant statute in a case of statutory interpretation, is amended.

Sometimes, judges on one circuit decide a question of federal law one way, a judges in another circuit decide a question of law another way. 

For example, even if a panel in the 11th Circuit decides in a published appellate court opinion that cryptocurrency profits aren't income under the Internal Revenue Code, a panel in the U.S. Court of Appeals for the 10th Circuit might decide in a published appellate court opinion that cryptocurrency profits are income under the Internal Revenue Code.

When this happens, it is called a circuit split. The U.S. Supreme Court tries to resolve circuit splits granting certiorari to do so in many cases, but it doesn't handle enough cases to resolve all of them. So, when there is a circuit split, the meaning of federal law is different in different parts of the United States.

The Problem

The problem with this rule is that a decision as feeble as one made by just two judges on a three judge panel on a question of first impression that isn't subjected to review en banc or successfully appealed to the U.S. Supreme Court, remains good law in a very large area of the country and is very hard to change, even if it is badly decided or creates inconsistencies in the overall framework of the federal law in question.

This particular post was initially inspires by the case of Mirage Editions, Inc. v. Albuquerque A.R.T. Company, 856 F.2d 1341 (9th Cir. 1988), which found, contrary to the copyright law first-sale doctrine, that the defendant could not buy a book, remove illustrated pages, add stuff to them and sell them, even though the defendant only used physical media and never made any copy of copyrighted material. They found that this infringed copyright not by copying but by making a derivative work.

There's a circuit split on the issue with the opposite position taken in Lee v. A.R.T. Co., 125 F.3d 580 (7th Cir. 1997) and in Peter Letterese And Associates, Inc. v. World Institute Of Scientology Enterprises, 533 F.3d 1287 (11th Cir. 2008). The decision in Lee also noted that “Scholarly disapproval of Mirage Editions has been widespread.”

This concern is also driven by the increasing partisanship of the federal judiciary which makes outlier decisions of two or three judges in a given federal circuit more likely to arise.

A Proposed New Rule

One way to mitigate the harm caused by circuit splits, albeit at the cost of certainty in any particular circuit, would be to downgrade the effect of a precedent, even in the circuit in which it was decided, from binding precedent to persuasive authority, on any point of law with regard to which there is a live circuit split that has not been resolved by U.S. Supreme Court ruling, statutory change in the law, or an en banc decision in the same case that the panel decided.

This would bring more judges into the process of considering the issue decided by the initial panel on the policy and precedent merits as a case of first impression, rather than pursuant to a precedent which has been seriously questioned.

If the panel decision downgraded to persuasive authority is well argued, it will still be followed. But, if it was poorly reasoned, other judges considering the issue will decline to follow it. 

This rule would also put more pressure on the U.S. Supreme Court and Congress to resolve legal issues upon which circuit splits arise. This pressure should be present because many firms and organizations and even individuals need to take an action which will ultimately be subject to legal review in more than one circuit and a circuit split cements the inability of these people to predict the legal outcome of that issue since they don't know where it will arise.