                 NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                            File Name: 16a0388n.06

                                         No. 15-6067

                         UNITED STATES COURT OF APPEALS
                              FOR THE SIXTH CIRCUIT

JOHN W. BEAUCHAMP and JESSICA L. )
KLINGENBERG,                     )                                          FILED
                                 )                                      Jul 11, 2016
     Plaintiffs-Appellants,      )                                 DEBORAH S. HUNT, Clerk
                                 )
v.                               )
                                 )
FEDERAL HOME LOAN MORTGAGE )
                                                        ON APPEAL FROM THE
CORPORATION,                     )
                                                        UNITED STATES DISTRICT
                                 )
                                                        COURT FOR THE EASTERN
     Defendant-Appellee,         )
                                                        DISTRICT OF KENTUCKY
                                 )
REGIONAL REALTY, LLC AND EIBECK )
REALTY GROUP, LLC,               )
                                 )
     Defendants.                 )



       Before: COOK and KETHLEDGE, Circuit Judges; SARGUS, District Judge.*

       KETHLEDGE, Circuit Judge. Freddie Mac hired Terry Eibeck to prepare a foreclosed

condominium and detached garage for resale. But Eibeck cleaned out the wrong garage, and

thus disposed of personal property that belonged to John Beauchamp and Jessica Klingenberg,

who have since married. The Beauchamps sued Freddie Mac and Eibeck, alleging that Freddie

Mac was vicariously liable for Eibeck’s negligence and directly liable for its own negligent

supervision of Eibeck.   The district court granted summary judgment to Freddie Mac and

dismissed the Beauchamps’ claims against Eibeck for lack of jurisdiction. We reverse in part.



*
 The Honorable Edmund A. Sargus, Jr., Chief Judge of the United States District Court for the
Southern District of Ohio, sitting by designation.
No. 15-6067, Beauchamp v. Federal Home Loan Mortgage Corporation


                                                 I.

       In January 2012, Freddie Mac hired Terry Eibeck to manage and list various foreclosed

properties in Northern Kentucky. On occasion, that job required Eibeck to dispose of any

personal possessions left behind. As part of its contract with Eibeck, Freddie Mac prescribed

detailed procedures for how Eibeck should conduct these so-called trash-outs. Those procedures

required Eibeck to photograph the abandoned possessions, create an inventory of the

possessions, and estimate their approximate value. If the possessions were worth more than

$300 or included items of inherent personal value, like photo albums or diplomas, Eibeck must

halt the trash-out and call a supervisor at Freddie Mac.

       In August 2012, Freddie Mac asked Eibeck to manage and list a condominium in

Highland Heights, Kentucky. When Eibeck found personal possessions inside the detached

garage, he took a few pictures, compiled a two-page inventory, and estimated the value of

everything in the garage as $175.00. He then had the possessions removed and destroyed.

       Three months later, when Jessica Beauchamp opened her garage door, she expected to

find a truckload of personal possessions—financial records, yearbooks, loose pictures, photo

albums, a collage of pictures from her high school graduation, and two green sea bags and a mail

crate from John Beauchamp’s time in the U.S. Marine Corps. The sea bags had contained John’s

desert and garrison uniforms, the combat boots he wore in Iraq, various other pieces of military

gear and clothing, and all of John’s original medals, ribbons, and shooting badges. The mail

crate contained an irreplaceable picture of John’s platoon on the day he graduated from boot

camp aboard Marine Corps Recruit Depot Paris Island, and a graduation certificate from the

Army’s Military Police School at Fort Leonard Wood, Missouri. What Jessica found, however,

was an empty garage.



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No. 15-6067, Beauchamp v. Federal Home Loan Mortgage Corporation


       Jessica filed a police report and then called the leasing office for the condominium

complex where she and John lived in Unit 9 of Building 19. The employee explained that Unit 9

of the next building over—Building 20—had been foreclosed on a few weeks earlier and that

Terry Eibeck had handled the foreclosure. By that time, however, the Beauchamps’ property had

long since been destroyed.

       The Beauchamps sued Freddie Mac and Eibeck in federal district court, which has

original jurisdiction over all civil actions filed against Freddie Mac. See 12 U.S.C. §1452(f).

The parties consented to transfer the case to a magistrate judge for disposition pursuant to

28 U.S.C. § 636(c), and in October 2014, Freddie Mac filed a motion to dismiss.                The

Beauchamps—who were then law students and are now attorneys—represented themselves pro

se until they retained counsel in March 2015, shortly after the district court denied Freddie Mac’s

motion to dismiss.

       Discovery revealed that Eibeck had complied with some of Freddie Mac’s procedures

better than others. Nowhere in the inventory, for example, did Eibeck list John’s sea bags or any

other military items—even though John’s boots are clearly visible in Eibeck’s picture. Nor had

Eibeck’s $175.00 estimate come close to the property’s actual value. (A pair of Marine Corps-

approved boots alone can exceed the $300 threshold for halting a trash-out.           And Marine

uniforms cost hundreds more.) Eibeck had correctly noted the presence of Jessica’s pictures and

graduation collage—items that carry inherent personal value. But Eibeck had not halted the

trash-out and consulted with Freddie Mac, as the procedures required.

       Freddie Mac and the Beauchamps filed cross motions for summary judgment. The

district court denied the Beauchamps’ motion and granted summary judgment in favor of Freddie




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No. 15-6067, Beauchamp v. Federal Home Loan Mortgage Corporation


Mac instead. The district court then concluded that it no longer had supplemental jurisdiction

over the Beauchamps’ claims against Eibeck. This appeal followed.

                                                 II.

                                                 A.

       “We review a district court’s grant of summary judgment de novo.” Mendel v. City of

Gibraltar, 727 F.3d 565, 568 (6th Cir. 2013). The movant is entitled to summary judgment if he

shows that “there is no genuine dispute as to any material fact and the movant is entitled to

judgment as a matter of law.” Fed. R. Civ. P. 56(a). In making this determination “[w]e view

the evidence, all facts, and any inferences that may be drawn from the facts in the light most

favorable to the nonmoving party.” Mendel, 727 F.3d at 568.

                                                 1.

       The Beauchamps first challenge the district court’s conclusion that Freddie Mac is not

vicariously liable for Eibeck’s destruction of the Beauchamps’ property. The parties agree that

Kentucky law governs this issue. A company “may be held vicariously liable for the negligent

acts of [its] agent, but generally is not held liable for the conduct of an independent contractor.”

Nazar v. Branham, 291 S.W.3d 599, 606 (Ky. 2009). The Beauchamps argue that the district

court erred when it determined that Eibeck was not Freddie Mac’s agent and that Freddie Mac

was therefore not vicariously liable for the trash-out.

       An agency relationship “results from the manifestation of consent by one person to

another that the other shall act on his behalf and subject to his control[.]” Phelps v. Louisville

Water Co., 103 S.W.3d 46, 50 (Ky. 2003). Here, the contract itself provides that, “[w]ith respect

to each Listing, [Eibeck] shall act as agent, but not as attorney-in-fact, for [Freddie Mac].”

R. 99-6 at 3. The district court found that use of “agent” ambiguous because the “term is



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No. 15-6067, Beauchamp v. Federal Home Loan Mortgage Corporation


common parlance in the real estate business[.]” Op. at 13. But the sentence designating Eibeck

as Freddie Mac’s agent immediately follows the heading, “AGENCY RELATIONSHIP.”

R. 99-6 at 3. For his part, Eibeck understood the contract to mean that he was “acting as an

agent of Freddie Mac” when he emptied the garage. R. 99-9 at 1.

       How the parties characterize the relationship, however, does not determine whether

Eibeck was an agent under Kentucky law. For example, even where a contract expressly

designates a person as an independent contractor, a court might find an agency relationship. CSX

Transp. Inc. v. First Nat’l Bank of Grayson, 14 S.W.3d 563, 566-67 (Ky. Ct. App. 1999); see

also Kentucky Unemployment Ins. Comm’n v. Landmark Cmty. Newspapers of Kentucky, Inc.,

91 S.W.3d 575 (Ky. 2002). “The right to control is considered the most critical element in

determining whether an agency relationship exists.” Nazar, 291 S.W.3d at 609. Specifically, a

person is an agent when “the principal has the power or responsibility to control the method,

manner, and details of the agent’s work.” Id. at 606-07. But a person is an independent

contractor if she “is free to determine how work is done and the principal cares only about the

end result[.]” Id. at 607.

       Here, the record—read most favorably to the Beauchamps—shows that Freddie Mac

directed the “method, manner, and details” of Eibeck’s work in numerous ways. The contract

itself imposed on Eibeck specific requirements ranging from the type of office space Eibeck had

to maintain to the timelines for actions like preparing properties for winter. R. 99-6 at 2, 7. The

contract required Eibeck to check regularly the email address provided by Freddie Mac so he

could respond to further instructions.

       The contract also required Eibeck to comply with procedures listed in three additional

documents incorporated by reference into the contract—the Supplier Code of Conduct, R. 99-7



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No. 15-6067, Beauchamp v. Federal Home Loan Mortgage Corporation


at 12-21, the QuickSteps for Brokers Guide, R. 95-5, and the Broker/Vender Training Guide,

R. 95-4. See R. 99-6 at 1, 6 (contract). And Freddie Mac required Eibeck to complete quarterly

training programs to review these procedures and to learn any new procedures. Both the Brokers

Guide and the Training Guide—in addition to the contract itself—address, for example, how

brokers should conduct trash-outs. Those documents—totaling more than 150 pages—and the

requirement to complete training four times a year or face mandatory probation, further

demonstrate Freddie Mac’s “power . . . to control the method, manner, and details of [Eibeck’s]

work[.]” Nazar, 291 S.W.3d at 606-07.

       Freddie Mac responds that, for a number of reasons, it lacked sufficient control over

Eibeck. First, Freddie Mac asserts that its “only control” over Eibeck was to evaluate his end

“results” rather than the manner in which he achieved them.           Freddie Mac Br. at 19.

Specifically, Freddie Mac insists that it “provided no instructions to Eibeck . . . on how to

perform the trash-out.” Freddie Mac Br. at 16-17. But Freddie Mac gave Eibeck clear, specific

instructions on how to perform trash-outs, ranging from the steps to document and inventory the

abandoned possessions to the type of possessions that should trigger a halt. See R. 99-6 at 6; R.

95-4 at 6-7; R. 95-5 at 3-4.

       Freddie Mac next asserts that it “does not require any pre-approval process before its

brokers decide whether to trash-out a property or seek a court order to remove the property.”

Freddie Mac Br. at 5. But Freddie Mac actually requires a pre-approval process in two distinct

circumstances. When, as here, the “[p]ersonal property has intrinsic value[,]” that “property may

not be removed” until the broker (here, Eibeck) “notifies [the] eviction coordinator” (presumably

a Freddie Mac employee) that the property includes “items with intrinsic value.” R. 95-4 at 6.

Once the eviction proceedings are complete, the broker may resume the trash-out. Id. at 6-7.



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No. 15-6067, Beauchamp v. Federal Home Loan Mortgage Corporation


And when a broker is “uncertain” as to whether the value of personal property exceeds $300, the

broker must “contact the eviction coordinator for further instructions before proceeding with the

trash out.” R. 95-5 at 3.

        Freddie Mac also asserts that it “never condoned Eibeck’s behavior in trashing out the

wrong garage.” Freddie Mac Br. at 7. But Freddie Mac’s investigator concluded that Eibeck

“Followed HomeSteps guid[e.]” R. 95-3 at 1.

        Next, Freddie Mac contends that “the desire to promote standards[] and measure

compliance with those standards” does not constitute actual day-to-day control of how Eibeck

performed his work. Freddie Mac Br. at 16. The district court agreed, explaining that an

independent contractor does not become an agent “merely because the contract stipulates that the

work must adhere to certain policies, standards, or instructions from the employer.” Op. at 16

(quoting 41 Am. Jur. 2d Independent Contractors § 11 (2015)). But “the retention of the right

not only to insure conformity with specifications, but also . . . to direct the manner in or means

by which the work shall be performed, will destroy the independent status of [a] contractor.”

41 Am. Jur. 2d Independent Contractors § 10 (2015).          “The factor that largely determines

whether there is the relationship of master and servant or of independent contractor is the right to

control.” Decker v. Glasscock Trucking Serv., Inc., 397 S.W.2d 773, 775 (Ky. 1965). Thus, “[i]t

is immaterial . . . whether the master did in fact control. The question is [whether] the master

[had] a right to control[.]” Id.

        Here, Freddie Mac’s contract, in more than a dozen places, requires Eibeck to follow

future instructions from Freddie Mac as they pertain to numerous aspects of Eibeck’s day-to-day

responsibilities.   In one particularly relevant example, the contract requires Eibeck, if he




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No. 15-6067, Beauchamp v. Federal Home Loan Mortgage Corporation


becomes “uncertain as to the value of property, [to] contact the Eviction Coordinator for further

instructions before proceeding with [a] trash out.” R. 99-6 at 6.

       Finally, Freddie Mac contends that the 110-page Broker/Vender Training Guide merely

“document[ed] its expectations[,]” but that “it was up to Eibeck to determine how . . . and if to

implement those procedures.” Freddie Mac Br. at 18-19. Thus, because “Eibeck still had the

independent authority to choose whether” and “how” “to follow those guidelines[,]” Freddie

Mac Br. at 19, Eibeck was able “to maintain a level of professional independence that negates a

master/servant relationship[,]” Freddie Mac Br. at 18. But Freddie Mac admits elsewhere in its

brief that the contract “required Eibeck to perform certain duties” and “follow [certain]

standards[.]” Freddie Mac Br. at 16. Moreover, the contract itself required Eibeck to “perform[]

the Brokerage and management duties in accordance with the Supplier Code of Conduct and the

Broker/Vender Training guide[,]” and to “adher[e] to . . . the QuickSteps for Broker[s] Guide.”

R. 99-6 at 1, 6. And the QuickSteps for Brokers Guide warned that “[f]ailure to adhere to this

standard will be considered a performance issue.” R. 95-5 at 4.

       These are not the hallmarks of an employer who “cares only about the end result[.]”

Nazar, 291 S.W.3d at 607. Rather, a reasonable jury could conclude on this record that Freddie

Mac had the “power . . . to control the method, manner, and details of [Eibeck’s] work[.]” Id.

The district court was mistaken in holding otherwise.

                                                2.

       The Beauchamps next challenge the district court’s grant of summary judgment on their

claim that Freddie Mac negligently supervised Eibeck. Specifically, the Beauchamps claim that

Freddie Mac negligently supervised Eibeck by failing to train him and by giving him inadequate

directions to the correct garage. But Freddie Mac did train Eibeck and gave him the correct



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No. 15-6067, Beauchamp v. Federal Home Loan Mortgage Corporation


address to the foreclosed property. Eibeck’s failure to perform—not Freddie Mac’s failure to

instruct—caused the harm here. Thus, although Freddie Mac is vicariously liable for Eibeck’s

mistakes, it is not directly liable for the harm he caused.

                                                  B.

       There remains one issue we raise on our own motion. Many of the documents at the nub

of this dispute—including the contract itself and the documents it incorporates by reference—

were filed in the court record under seal and are thus unavailable to the public. We review the

sealing of court records for an abuse of discretion—“although, in light of the important rights

involved, the district court’s decision is not accorded the deference that standard normally

brings.” Shane Grp., Inc. v. Blue Cross Blue Shield of Michigan, Nos. 15-1544, 1551, 1552,

2016 WL 3163073, at *4 (6th Cir. June 7, 2016) (internal quotation marks omitted).

       During discovery, courts often issue blanket protective orders that empower the parties

themselves to designate which documents contain confidential information. Once the parties

place a document in the record, however, “very different considerations apply.” Id. at *3. The

proponent of sealing must provide compelling reasons to seal the documents and demonstrate

that the sealing is narrowly tailored to those reasons—specifically, by “analyz[ing] in detail,

document by document, the propriety of secrecy, providing reasons and legal citations.” Id.

Even where, as here, neither party objects to the propriety of sealing a court record, the district

court has an independent duty to “set forth specific findings and conclusions which justify

nondisclosure to the public.” Id. at *4 (internal quotation marks omitted). A court’s failure to

set forth those findings and conclusions “is itself grounds to vacate an order to seal.” Id.

       Here, the district court made no findings at all. Early in the discovery process, the parties

proposed a stipulated protective order allowing them to designate which documents contained



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No. 15-6067, Beauchamp v. Federal Home Loan Mortgage Corporation


confidential information under Federal Rule of Civil Procedure 26(c). R. 72. The proposed

order further provided that any confidential document they later filed in the court record must be

filed under seal:

               If confidential materials are to be used at trial or other judicial
               proceeding, the materials shall be treated as confidential. Unless
               counsel for all parties agree otherwise, or until an Order of this
               Court otherwise directs, all CONFIDENTIAL material . . . which
               are presented to the Court shall be sealed, and marked with the
               legend     “CONFIDENTIAL-SUBJECT             TO     PROTECTIVE
               ORDER; NOT TO BE OPENED EXCEPT BY COURT
               AUTHORITY OR BY AGREEMENT OF ALL COUNSEL,” and
               filed with the Clerk of the Court. The parties may agree to an
               alternative procedure for handling confidential materials at trial or
               other judicial proceeding.

R. 72 at 5-6. When the parties filed their motions for summary judgment, they filed them under

seal, along with hundreds of sealed exhibit pages. R. 97; R. 99. The parties offered no

compelling reasons to seal these court records, nor did they assert that the seal would be

narrowly tailored. The parties filed no motion requesting a seal nor did the district court enter an

order approving the seal—much less setting forth specific findings and conclusions that justify

withholding the documents from the public. Instead, there appears in the record a note from the

Clerk: “Call from counsel requesting that motion be filed under seal. Motion sealed per

Protective Order 72.” The record before us therefore does not justify a seal.

                                           *     *     *

       The district court’s judgment is reversed in part, the orders to seal documents are vacated,

and the case remanded for further proceedings consistent with this opinion.




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